IMPORTANT

IMPORTANT: If you are in any doubt about any of the contents of this Prospectus, you should obtain independent professional advice.

株式会社ニラク ▪ ジー ▪ シー ▪ ホールディングス
NIRAKU GC HOLDINGS, INC. *(Incorporated in Japan with limited liability)
GLOBAL OFFERING
Number of Offer Shares:

Number of Hong Kong Offer Shares
Number of International Offer Shares::

Maximum Offer Price:

Nominal value
Stock code::

300,000,000 Shares (subject to theOver-allotment Option)
30,000,000 Shares (subject to adjustment)
270,000,000 Shares (subject to adjustment
and the Over-allotment Option)
HK$1.28 per Offer Share (payable in full on
application in Hong Kong dollars, subject torefund and plus brokerage of 1%, SFC
transaction levy of 0.0027% and Stock
Exchange trading fee of 0.005%)
Nil
1245

Sole Sponsor

Shenyin Wanguo Capital (H.K.) Limited
Sole Global Coordinator, Sole Bookrunner and Sole Lead Manager

Shenyin Wanguo Capital (H.K.) Limited
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of thisProspectus (the “Prospectus”), make no representation as to the accuracy or completeness of this Prospectus and expressly disclaim any liability whatsoever for any loss howsoever arising fromor in reliance upon the whole or any part of the contents of this Prospectus.
A copy of this Prospectus, having attached thereto the documents specified in “Appendix VII — Documents Delivered to the Registrar of Companies and Available for Inspection”, has beenregistered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of HongKong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility for the contents of this Prospectus or any other document referred to above.
Prior to making an investment decision, potential investors should carefully consider all of the information set out in this Prospectus, including the risk factors set out in ‘‘Risk
Factors’’ in this Prospectus.
The Offer Price is expected to be fixed by agreement between the Sole Global Coordinator (for itself and on behalf of the Underwriters) and our Company on the Price Determination Date, whichis expected to be on or around Friday, 27 March 2015 and, in any event, not later than Wednesday, 1 April 2015. The Offer Price will not be more than HK$1.28 and is currently expected to
not be less than HK$1.10. Applicants for Hong Kong Offer Shares are required to pay, on application, the maximum Offer Price (HK$1.28) for each Share together with a brokerage of 1%, SFC
transaction levy of 0.0027%, and Stock Exchange trading fee of 0.005%, subject to refund if the Offer Price as finally determined is lower than the maximum Offer Price (HK$1.28).
The Sole Global Coordinator (on behalf of the Underwriters) may, where considered appropriate, based on the level of market interest expressed by prospective institutionaland other investors during the book-building process, and with the consent of our Company, reduce the number of Offer Shares in the Global Offering and/or the indicative Offer
Price range below that stated in this Prospectus (which is HK$1.10 to HK$1.28 per Share) at any time on or prior to the morning of the last day for lodging applications underthe Hong Kong Public Offering. In such a case, notices of the reduction in the number of Offer Shares in the Global Offering and/or the indicative Offer Price range will be
published in the South China Morning Post (in English) and the Hong Kong Economic Journal (in Chinese), and on our website (www.ngch.co.jp) and the Stock Exchange’s
website (www.hkexnews.hk), as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the day which is the last day
for lodging applications under the Hong Kong Public Offering. If, for any reason, the Offer Price is not agreed between the Sole Global Coordinator (for itself and on behalf of
the Underwriters) and our Company by Wednesday, 1 April 2015, the Global Offering (including the Hong Kong Public Offering) will not proceed and will lapse. Further details
are set out in ‘‘Structure of the Global Offering’’ and ‘‘How to Apply for Hong Kong Offer Shares” in this Prospectus.
The obligations of the Hong Kong Underwriter under the Hong Kong Underwriting Agreement to subscribe or procure subscribers to subscribe for the Hong Kong Offer Shares, are subject totermination with immediate effect by notice (orally or in writing) from the Sole Global Coordinator (on behalf of the Hong Kong Underwriter) if certain grounds arise prior to 8:00 a.m. on the Listing
Date. Such grounds are set out in ‘‘Underwriting — Underwriting Arrangement and Expenses — Hong Kong Public Offering — Grounds for termination’’ in this Prospectus. It is important thatyou refer to that section for further details.
The Offer Shares have not been and will not be registered under the U.S. Securities Act and may not be offered or sold, pledged or transferred within the United States, except
in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The Offer Shares are being offered and sold outside the United States
in offshore transactions in reliance on Regulation S under the U.S. Securities Act.
*For identification purpose only

24 March 2015

EXPECTED TIMETABLE
We will issue an announcement in Hong Kong to be published in the South China Morning
Post (in English) and the Hong Kong Economic Journal (in Chinese) and on our website(www.ngch.co.jp) and the Stock Exchange’s website (www.hkexnews.hk) if there is any
change in the following expected timetable of the Hong Kong Public Offering:2015 (1)Latest time to complete electronic applications under theWhite Form eIPO service through the designatedwebsite (www.eipo.com.hk) (2) . . . . . . . . . . . . . . . . . . . . . . . 11:30 a.m. on Friday, 27 March
Application lists open (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:45 a.m. on Friday, 27 March
Latest time to: (1) lodge WHITE and YELLOW Application
Forms; (2) complete payment of White Form eIPO
applications by effecting internet banking transfer(s) or
PPS payment transfer(s); and (3) give electronic
application instructions to HKSCC (4) . . . . . . . . . . . . . . . . 12:00 noon on Friday, 27 March
Application lists close (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Friday, 27 March
Expected Price Determination Date (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 27 March
Announcement of the final Offer Price, the level ofindication of interest in the International Offering, thelevel of applications in the Hong Kong Public Offeringand the basis of allocation of the Hong Kong Offer
Shares to be published in the South China Morning Post(in English) and the Hong Kong Economic Journal (inChinese) and on our website (www.ngch.co.jp) and theStock Exchange’s website (www.hkexnews.hk) on or
before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 2 April
Announcement of results of allocations under the Hong
Kong Public Offering (with successful applicants’
identification document numbers, where appropriate) to
be available through a variety of channels including our
website (www.ngch.co.jp) and the Stock Exchange’s
website (www.hkex.com.hk) (for further details, see“How to Apply for Hong Kong Offer Shares — 11.
Publication of Results” in this Prospectus) from . . . . . . . . . . . . . . . . . . . . . . Thursday, 2 April
Results of allocations under the Hong Kong Public Offering
will be available at www.iporesults.com.hk with a“search by ID” function on a 24-hour basis from . . . . . . . . . . 8:00 a.m. on Thursday, 2 Aprili

EXPECTED TIMETABLE
Despatch/Collection of White Form e-Refund payment
instructions/refund cheques in respect of wholly or
partially successful applications if the final Offer Price isless than the price payable on application (if applicable)
and wholly or partially unsuccessful applications pursuant
to the Hong Kong Public Offering on or before (6, 7) . . . . . . . . . . . . . . . . . . . Thursday, 2 April
Despatch of Share certificates on or before (6) . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 2 April
Dealings in the Shares on the Stock Exchange
expected to commence at . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on Wednesday, 8 April

Notes:(1)

All times and dates refer to Hong Kong local time.

(2)

You will not be permitted to submit your application through the designated website at www.eipo.com.hk after
11:30 a.m. on the last day for submitting applications. If you have already submitted your application and obtained
an application reference number from the designated website prior to 11:30 a.m., you will be permitted to continue
the application process (by completing payment of application monies) until 12:00 noon on the last day forsubmitting applications, when the application lists close.

(3)

If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kongat any time between 9:00 a.m. and 12:00 noon on Friday, 27 March 2015, the application lists will not open on thatday. For details, see “How to Apply for Hong Kong Offer Shares — 10. Effect of Bad Weather on the Opening of
the Application Lists” in this Prospectus.

(4)

Applicants who apply for Hong Kong Offer Shares by giving electronic application instructions to HKSCC
should see “How to Apply for Hong Kong Offer Shares — 6. Applying by Giving Electronic Application Instructions
to HKSCC via CCASS” in this Prospectus.

(5)

The Price Determination Date is expected to be on or around Friday, 27 March 2015. If, for any reason, the Offer
Price is not agreed by 12:00 noon on Wednesday, 1 April 2015 between our Company and the Sole Global
Coordinator (for itself and on behalf of the Underwriters), the Global Offering (including the Hong Kong Public
Offering) will not proceed and will lapse.

(6)

Share certificates for the Offer Shares are expected to be issued on or before Thursday, 2 April 2015 but
will only become valid certificates of title at 8:00 a.m. on Wednesday, 8 April 2015 provided that (a) the
Global Offering has become unconditional in all respects; and (b) none of the Underwriting Agreements
has been terminated in accordance with its terms.

(7)

Refund cheques/e-Refund payment instructions will be despatched in respect of wholly or partiallyunsuccessful applications and in respect of successful applications if the final Offer Price is less thanthe maximum Offer Price of HK$1.28 per Offer Share.

For details of the structure of the Global Offering (including its conditions) and theprocedures for applications for Hong Kong Offer Shares, see “Structure of the Global Offering”
and “How to Apply for Hong Kong Offer Shares” in this Prospectus, respectively.
Under Japan law, our Shares are “bearer shares” in nature. Ownership of our Shares can betransferred simply by the delivery of share certificates, with or without the transferor and thetransferee having signed any document evidencing such transfer. This creates inherent risks for
Shareholders and potential investors who choose to hold our Shares by physical possession of
our share certificates. To avoid these risks, which are very significant in the opinion of ourii

EXPECTED TIMETABLE
Directors, potential investors are strongly recommended to hold your investments in our
Company through CCASS by: (i) completing the YELLOW Application Forms; or (ii) giving
electronic application instructions to HKSCC. See “Key Japan Legal and Regulatory Matters— A. Bearer Shares” for details.
Due to certain Japan legal and regulatory provisions, CCASS Beneficial Owners are
subject to certain disadvantages as set out in detail in “Key Japan Legal and Regulatory
Matters — A. Bearer Shares — Recommended measures for our Shareholders and potential
investors”. For example, CCASS Beneficial Owners are subject to a higher withholding tax rate,
and they may not inspect our Share Register unless allowed to do so under the Personal
Information Protection Act. Despite these disadvantages, given the risks associated with our“bearer” Shares (which are very significant in the opinion of our Directors), it is our Board’s
strong recommendation that potential investors should hold your investments in our
Company through CCASS.

iii

CONTENTS

IMPORTANT NOTICE TO INVESTORSThis Prospectus is issued by our Company solely in connection with the Hong
Kong Public Offering and the Hong Kong Offer Shares and does not constitute anoffer to sell or a solicitation of an offer to buy any security other than the Hong Kong
Offer Shares offered by this Prospectus pursuant to the Hong Kong Public Offering.
This Prospectus may not be used for the purpose of, and does not constitute, an offer
or invitation in any other jurisdiction or in any other circumstances. No action has
been taken to permit a public offering of the Offer Shares in any jurisdiction otherthan Hong Kong and no action has been taken to permit the distribution of thisProspectus in any jurisdiction other than Hong Kong. The distribution of thisProspectus and the offering and sale of the Offer Shares in other jurisdictions are
subject to restrictions, and may not be made except as permitted under theapplicable securities laws of such jurisdictions pursuant to registration with or
authorisation by the relevant securities regulatory authorities or an exemption
therefrom.
You should rely only on the information contained in this Prospectus and the Application
Forms to make your investment decision. We have not authorised anyone to provide you withinformation that is different from what is contained in this Prospectus. Any information or
representation not made in this Prospectus must not be relied on by you as having beenauthorised by the Company, the Sole Global Coordinator, the Sole Sponsor, the Sole
Bookrunner, the Sole Lead Manager, the Underwriters, any of their respective directors or any
other person or party involved in the Global Offering.
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35

Key Japan Legal and Regulatory Matters63...................................

Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Information about this Prospectus and the Global Offering . . . . . . . . . . . . . . . . . . . . 115
Directors and Parties Involved in the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . 118
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Applicable Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
History and Corporate Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Internal Controls and Anti-Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

iv

CONTENTS
Page
Relationship with our Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385
Directors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407
Structure of the Global Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

How to Apply for Hong Kong Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Appendix I— Accountant’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-1

Appendix II— Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . .

II-1

Appendix III — Valuation Report on Selected Property Interests . . . . . . . . . . . .

III-1

Appendix IV — Summary of the Review of Anti-Money Laundering
Procedures, Systems and Controls . . . . . . . . . . . . . . . . . . . . . . . .

IV-1— Summary of our Articles of Incorporation andJapan Corporation Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

V-1

Appendix VI — Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . .

VI-1

Appendix VII — Documents Delivered to the Registrar of Companies andAvailable for Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VII-1

Appendix Vv

SUMMARYThis summary aims to give you an overview of the information contained in thisProspectus. As this is a summary, it does not contain all the information that may be important
to you and is qualified in its entirety by, and should be read in conjunction with, the full textof this Prospectus, which should be read in its entirety before you decide to invest in the Offer
Shares. There are risks associated with any investment, including those set out in “Risk
Factors” starting on page 35. You should read that section carefully before you decide toinvest in the Offer Shares.
OVERVIEW
We operate pachinko halls in Japan where customers can play pachinko and pachislot,
which are recreational arcade games characterised by an element of chance. We were the fourthlargest pachinko hall operator in Japan in 2013 (based on gross pay-ins), according to EBI. The
pachinko industry is highly fragmented, with over 3,800 operators running 11,893 halls as at 31
December 2013. In 2013, our market share based on gross pay-ins was 1.3%, while our market
share based on the number of halls in Japan was 0.5%. Ever since we opened our first pachinko
hall in 1950, all our operations have been focused in Northeast Honshu (本州島東北), Japan,
covering ten prefectures that have a total population of approximately 47.4 million (representing
approximately 37.7% of the total population in Japan), as at 31 December 2013, according to
EBI.
Fukushima Prefecture (福島県) is our most important strategic location, in which ourheadquarters are located and we have the most number of our halls (namely, 20 halls as at theLatest Practicable Date), machines and also revenue generation, accounting for over 40% of our
total revenue during the Track Record Period. We will continue to leverage our strengths andexpand our operations in Northeast Honshu (本州島東北) (especially Fukushima Prefecture(福島県) and its neighbouring and conjoining prefectures) in a cost-efficient and strategic manner.
In particular, we expect to open a new hall in Fukushima Prefecture (福島県) by December 2015
with over 1,000 machines, which will become our largest hall and is expected to become one of
the largest halls in Fukushima Prefecture (福島県).
Our corporate slogan is “Happy Time Creation” and we place our primary focus on customer
experience and goodwill. We have strived to adapt to changing industry trends and customer
preferences throughout our operating history and have developed into an operator of 55
pachinko halls, as at the Latest Practicable Date.
Our Japan Legal Adviser has confirmed that our pachinko and pachislot hall operations do
not constitute “gambling” under, and do not violate, relevant Japan law.

1

SUMMARYOUR PACHINKO AND PACHISLOT BUSINESSPachinko and Pachislot Games
Pachinko is one of the most popular forms of entertainment for adults in Japan and has along history, dating back to the early twentieth century. Pachinko is similar in appearance to apinball machine and involves firing pachinko balls in rapid succession into a playing field, with theaim of firing them into pockets that release bonus pachinko balls. Playing costs range from ¥0.5
to ¥4 per ball (before consumption tax). Pachislot is similar in appearance to a traditional slot
machine and involves inserting pachislot tokens to spin its image reels, with the aim of stopping
the reels at a winning matching combination, which will release bonus pachislot tokens. Playing
costs range from ¥2 to ¥20 per token (before consumption tax). During the Track Record Period,
pachinko and pachislot accounted for approximately 70% and 30% of the total machines in ourhalls, respectively. Generally, players aim to collect the most number of balls and tokens, which
can either be exchanged for prizes or saved for subsequent visits.
PrizesAt our halls, customers can exchange two types of prizes, namely: (1) general prizes(including our private brand products), which include cigarettes, food and snacks, household
goods and drinks; and (2) G-prizes, which are decorative cards or coin-shaped pendants thatcan be subsequently sold by customers to independent G-prize buyers for cash.
Pachinko Halls
Our halls can be categorised into suburban halls and urban halls. We had 46 suburban halls
and 9 urban halls, as at the Latest Practicable Date. Suburban halls are our primary businessfocus, representing over 90% of our revenue for our pachinko and pachislot business throughout
the Track Record Period. They are typically located in suburban areas and require car access.
These halls generally have around 400 to 700 machines. Gross pay-ins from peak operation
hours (which are typically from 12:00 noon to 5:00 p.m.) on average accounted for approximately
45% of the daily gross pay-ins of our suburban halls during the Track Record Period. Urban halls
are typically located in urban areas (such as Tokyo (東京都)) and within walking distance of a train
station. These halls are generally smaller with around 200 to 300 machines. Gross pay-ins frompeak operation hours (which are typically from 5:00 p.m. to 10:00 p.m.) on average accounted
for approximately 41% of the daily gross pay-ins of our urban halls during the Track Record
Period.
Customers and Suppliers
As a pachinko hall operator, players at our halls are our main customers. Customers of our
suburban halls are generally the self-employed (such as farmers and fisherman), factory workers
and retirees, while those of our urban halls are generally full-time employees. Our pachinko andpachislot hall operations also receive income from vending machine operators that maintainvarious vending machines at our halls. Also, we operate a hotel and a restaurant franchise. See“Business — Other Businesses” on page 263.

2

SUMMARY
Our major suppliers consist of: (1) machine suppliers; (2) G-prize wholesalers; and (3)general prize suppliers. See “Business — Suppliers” on page 238.
Pachinko Industry
The pachinko industry has a dominant presence in the gaming sector in Japan (which, as
defined by our industry consultant, EBI, consists of pachinko, bicycle-racing, auto-racing,horse-racing and lottery), having comprised 78.0% or ¥18.8 trillion (in terms of gross pay-ins) of
the gaming sector in Japan in 2013. However, the pachinko industry has been shrinking, mainly
due to competition from other entertainment industries, such as video games, the internet andother mobile entertainment services. From 2009 to 2013, the industry’s gross pay-ins decreased
at a compound rate of 2.8%, while from 2014 to 2018, it is expected to decrease at a compound
rate of 1.8%, with gross pay-ins dropping to ¥16.1 trillion in 2018. Nevertheless, the industry still
remains relatively favourable to large hall operators (such as ourselves) due to industry
consolidation. According to EBI, small hall operators have been dropping out of the industry andare expected to continue to do so, while large hall operators have been benefiting by absorbing
the freed up market share. The opportunities for us are compounded by the high industry
fragmentation and the fact that there are very few hall operators, whose size of operation is as
big as ours. As at 31 December 2013, there were over 3,800 operators, of which 95.8% were
small hall operators with less than 10 halls and we were one of only eight hall operators with over
50 halls. In addition, there have been discussions about the introduction of a pachinko tax, which
may further hinder the overall financial performance of the pachinko industry, although nolegislative process has taken place yet. See “Industry Overview” on page 123.
Regulatory Framework of the Pachinko Industry
The pachinko industry is highly regulated under Japan laws and regulations. In particular, wemust not be involved in the exchange of prizes for cash or securities. Therefore, we operate ourpachinko and pachislot business (regarding the sale and purchase of G-prizes exchanged by acustomer at our halls) in accordance with an established industry practice known as the “Three
Party System”. The parties under the Three Party System consist of: (1) pachinko halloperators (such as ourselves), who operate halls where customers can obtain G-prizes; (2)G-prize buyers, who are typically companies or sole proprietorships and purchase G-prizes
from customers for cash and also sell G-prizes to G-prize wholesalers; and (3) G-prize
wholesalers, who are typically companies and purchase G-prizes from G-prize buyers and also
sell G-prizes to pachinko hall operators (such as ourselves). Our five largest G-prize wholesalers(out of our total of 12 G-prize wholesalers) have, on average, been established in Japan for over
40 years (whose primary business includes the supply of G-prizes to pachinko hall operators, andfor some, further includes the supply of beverages, food and household goods to various
companies) and accounted for around 90% of our total purchases of G-prizes during the Track
Record Period. Our single largest G-prize wholesaler accounted for 72.8%, 72.1%, 70.4% and70.2% of our total purchases of G-prizes for the years ended 31 March 2012, 2013 and 2014 andthe six months ended 30 September 2014, respectively. Under the Three Party System, pachinko
hall operators must be independent of each of the: (1) G-prize wholesalers engaged by them; and(2) G-prize buyers engaged by such G-prize wholesalers. We are also regulated under Japan laws
and regulations with respect to various other matters, including our halls and game machines3

SUMMARY(such as payout ratios, value of pachinko balls or pachislot tokens that may be put into play per
minute, total number of balls or tokens that may be won and maintenance and adjustments of ourgame machines), operating licences and general corporate matters, such as corporate
governance, taxation and labour. See “Applicable Laws and Regulations” on page 139.
Our Internal Control and Anti-Money Laundering Procedures, Systems and Controls
We have implemented internal controls and procedures to: (1) ensure that our pachinko andpachislot hall operations are in full compliance with applicable laws and regulations; and (2)detect and remediate irregularities and unusual activities or trends in our halls. We believe thatmoney laundering risks associated with our pachinko and pachislot hall operations are inherently
low due to stringent laws and regulations and machine limitations. Though there are currently no
obligations imposed on us under Japan anti-money laundering laws, we have voluntarily
established anti-money laundering policies and procedures. See “Internal Controls andAnti-Money Laundering” on page 267 and “Appendix IV — Summary of the Review of Anti-Money
Laundering Procedures, Systems and Controls” on page IV-1 for our AML Consultant’s report.
The Great East Japan Earthquake
In March 2011, the Great East Japan Earthquake struck Japan and caused (among others)
the nuclear power plant incident in Fukushima Prefecture (福島県). As a result, we recorded
earthquake losses (namely, property damage) of ¥653 million for the year ended 31 March 2011and had to temporarily suspend the operation of a majority of our halls. We also had topermanently close one hall (as it was our only hall located within the exclusion zone implemented
by the Japanese government), for which we obtained compensation from the operator of theaffected nuclear plants of ¥590 million. Our Directors are considering the most appropriate
method to obtain further compensation for loss of profits. Further, our Directors have confirmedthat we have not experienced any casualties or injuries as a result of the Great East Japan
Earthquake.
After the Great East Japan Earthquake, there has actually been an overall increase in theworking population of Fukushima Prefecture (福島県), which has subsequently improved our
player traffic, and revenue has also increased at a CAGR of 6.0% over the three years ended 31
March 2014. In fact, the portion of our total revenue from pachinko and pachislot business taken
up by our halls located in Fukushima Prefecture (福島県) increased gradually over the Track
Record Period, having represented 40.1%, 40.7%, 40.5% and 42.7% of our total revenue fromthe pachinko and pachislot business of all our halls for the years ended 31 March 2012, 2013 and2014 and the six months ended 30 September 2014, respectively. Further, operating profit
attributable to our halls located in Fukushima Prefecture (福島県) also increased over the Track
Record Period, having represented 51.1%, 54.6%, 55.9% and 59.7% of our total operating profit
for the years ended 31 March 2012, 2013 and 2014 and the six months ended 30 September
2014, respectively. Ultimately, as a result of the Great East Japan Earthquake, our revenue was
not negatively impacted (and actually improved compared to the financial year preceding theearthquake), while our operating profit was negatively impacted only for the year ended 31 March

4

SUMMARY2011 (being the year of the earthquake), after which it had already rebounded to levels exceedingthat of the financial year preceding the earthquake. See “Business — Pachinko and Pachislot Hall
Operations — Fukushima Prefecture (福島県) and the Great East Japan Earthquake” on page209.
OUR STRENGTHSWe believe that we have the following key strengths:•

Strong market position (especially in Fukushima Prefecture (福島県)), largely due toeconomies of scale and brand recognition gained from our strategic geographicalfocus in Northeast Honshu (本州島東北) and our centralised management strategy•

Efficient management structure supported by sophisticated information technology
systems that enable us to anticipate and respond quickly to changes and trends incustomer preferences•

Effective internal controls and procedures to ensure our compliance with applicablelaws and regulations and to detect and prevent fraud, cheating and money laundering
activities•

Experienced and well-qualified management team with a strong track record inoperating pachinko halls

OUR STRATEGIES
We aim to strengthen our market position by pursuing the following strategies:•

Continue to leverage our strengths and expand our suburban halls network in
Northeast Honshu (本州島東北) (by opening seven new suburban halls over the next
three years) and to extend our leading market position•

Improve the performance of our urban halls•

Launch an online general prize redemption system•

Achieve greater cost savings through our centralised management strategy•

Continue to invest in our information technology system

5

SUMMARY
SHAREHOLDERS’ PROTECTION
We are subject to the Japan Companies Act and other applicable Japan laws andregulations. The Hong Kong legal and regulatory regime differs in certain material aspects fromthat in Japan. Some key differences include:(1)

Bearer Shares - Under Japan law, our Shares are “bearer shares” in nature. A bearer,or a physical holder, of a share certificate issued by us is generally recognised as theowner of the Shares represented by it. Ownership of our Shares can be transferredsimply by the delivery of our share certificates, regardless of whether the transferor andthe transferee has signed any document evidencing such transfer. This creates inherent
risks for our Shareholders and potential investors who choose to hold our Shares byphysical possession of our share certificates. To avoid these risks, which are verysignificant in our Directors’ opinion, you (as potential investors) are strongly
recommended to hold your investments in our Company through CCASS.

(2)CCASS - Due to certain Japan legal and regulatory provisions, CCASS Beneficial
Owners are subject to certain disadvantages as set out in detail in “Key Japan
Legal and Regulatory Matters — A. Bearer Shares — Recommended measures for our
Shareholders and potential investors” on page 65. For example, CCASS Beneficial
Owners do not have the option to elect the currency of their dividend payments, andthey may not inspect our Share Register unless allowed to do so under the Personal
Information Protection Act. Despite these disadvantages, given the risks associatedwith our “bearer” Shares (which are very significant in our Directors’ opinion), it is ourBoard’s strong recommendation that you (as potential investors) should hold yourinvestments in our Company through CCASS.

(3)

Taxation - We are required under Japan law to withhold up to 20.420% of taxes on
dividend payments. Withholding tax rates may vary according to the circumstances ofan investor, and Hong Kong Shareholders (except for CCASS Beneficial Owners) areentitled to a lower tax rate under the Hong Kong-Japan Tax Treaty. If you choose toinvest through CCASS, you will be subject to a higher withholding tax rate.

(4)

Waivers - Due to certain Japan law provisions, we are unable to strictly comply withcertain requirements under the Listing Rules, such as: (i) requiring our Controlling
Shareholders or other Shareholders having an interest in a transaction to abstain fromvoting in a general meeting; and (ii) issuing a supplemental circular for persons
nominated as Directors. We have applied for, and the Stock Exchange has granted us,
waivers from strict compliance with these Listing Rules requirements.

Certain Japan legal and regulatory provisions may significantly affect your rights andobligations as a Shareholder. See “Key Japan Legal and Regulatory Matters” on page 63,“Waivers” on page 106, “Risk Factors — Risks Relating to Key Japan Legal and Regulatory
Matters” on page 36 and “Appendix V — Summary of our Articles of Incorporation and Japan
Corporation Law” on page V-1.

6

SUMMARYRISK FACTORS
Our business is subject to a number of risks, including risks relating to our business, thepachinko industry, Japan and the Global Offering. You should read the entire “Risk Factors”
section starting on page 35 carefully. These risks include:•

Our business depends significantly on the services provided by our G-prize
wholesalers and their G-prize buyers•

We may be adversely affected by any breach of the independence requirements under
the Three Party System•

We experienced decreased gross pay-ins for the six months ended 30 September
2014 compared to the corresponding period of the previous year, and we cannot
guarantee that our results will improve•

Our financial results for the year ending 31 March 2015 are expected to be affected bycertain one-off expenses•

Our business may be adversely affected by natural disasters, such as earthquakes likethe Great East Japan Earthquake, or disease outbreaks•

We face the risk of fraud or cheating•

We rely heavily on our information technology systems, which could be subject to
unexpected interruption or security breaches•

Our business may be affected by downturns in the economy (such as the recent
recession of the Japanese economy), economic uncertainty and other factors affecting
discretionary consumer spending•

Our pachinko halls may not perform as expected and our strategy of expanding our
suburban hall network may not be successful•

If we fail to maintain an effective system of internal controls, we may be unable toaccurately report our financial results or detect and prevent fraud•

We face intense competition in Japan from other pachinko hall operators (due to highindustry fragmentation) and also other entertainment businesses•

There are legal uncertainties with respect to the operation of our business under theThree Party System•

Appraised values of our selected properties in Japan may be different from their actual
realisable values and are subject to variation

7

SUMMARYKEY OPERATING AND FINANCIAL METRICS
The table below shows the key financial metrics of our business during the Track Record
Period:Six months ended
Year ended 31 March
2012

2013

30 September
2014

2013

2014

(¥, in millions, unless otherwise specified)
Revenue from pachinko andpachislot business
Gross pay-ins (1) . . . . . . . . . . . . . .

224,968

242,217

236,449

120,674

90,989Less: gross payouts (2) . . . . . . . . . .

(195,340)(210,298)(203,455)(104,682)(75,798)

29,62831,91932,994

15,992

15,191

Vending machine income . . . . . . . . . .

724

748

704

362

301

Revenue from pachinko andpachislot hall operations . . . . . . .

30,352

32,667

33,69816,354

15,492

Hotel operations. . . . . . . . . . . . . . . .

—

84

149

75

80

Total revenue . . . . . . . . . . . . . . . .

30,35232,751

33,847

16,42915,572

Revenue margin (%) (3) . . . . . . . . . . .

13.2

13.2

14.0

13.3

16.7

Nil

Nil

Nil

Nil

4-20

Overall for pachinko . . . . . . . . . . . .

37.3

34.9

32.2

34.5

27.5

Overall for pachislot . . . . . . . . . . . .

31.0

29.3

28.4

29.2

22.8

High playing cost . . . . . . . . . . .

359

361

373

353

358

Low playing cost

. . . . . . . . . . .

160

168

161

181

181

Total . . . . . . . . . . . . . . . . . . .

519

529

534

534

539

High playing cost . . . . . . . . . . .

176

170

165

165

165

Low playing cost

. . . . . . . . . . .

84

94

99

99

99

Total . . . . . . . . . . . . . . . . . . .

260

264

264

264

264

(4)

G-prize mark-up (%) . . . . . . . . . . .
Machine utilisation (%) (5)Average number of machines per hall
Suburban

Urban

(1)

Represents the amount received from customers for rented pachinko balls and pachislot tokens.

(2)

Represents the aggregate cost of G-prizes and general prizes exchanged by customers.

(3)

Represents gross pay-ins less gross payouts, divided by gross pay-ins. It is an indicator of the portion of our gross
pay-ins that we receive as revenue, namely through customers playing our machines and our mark-ups on prize
redemption.

(4)

Represents the difference between the value of the number of balls or tokens required to collect a G-prize and thecost of the G-prize.

8

SUMMARY(5)

Represents the average number of balls or tokens played per day, divided by the maximum number of balls or
tokens allowed to be played under the machine settings per day. The maximum number of balls or tokens allowed
to be played under the machine settings per day is defined as the maximum number of balls or tokens allowed to
be played under the machine settings per hour (i.e. 6,000 balls or 2,634 tokens) multiplied by the number ofoperating hours per day (i.e. 13.5 hours).

For the three years ended 31 March 2014, our key operating and financial metrics weregenerally stable.
For the six months ended 30 September 2014, consumption tax in Japan was increased
from 5% to 8% with effect from 1 April 2014. Significantly, this would have reduced our revenue
margin by 3% and also our revenue as we had to bear such tax increase on our gross pay-ins.
To counter this, we imposed G-prize mark-ups for all of our halls ranging from 4% to 20% (withan average of around 10%) effective from the same date, (which in our Directors’ view based onmarket observations, for our halls in Fukushima Prefecture (福島県), were generally similar to that
imposed by our major competitors). Ultimately, our revenue margin increased and our revenue
merely dropped by 5.2% against a 24.6% decrease in our gross pay-ins (compared to thecorresponding period of the previous year). Such drop in gross pay-ins was mainly caused by areduction in household disposable income (due to the tax increase) as well as player sensitivity
to G-prize mark-ups. In December 2014, we cancelled the G-prize mark-ups for 17 of our halls(all located in the Kantō Region (関東地方)) as some competing halls nearby did not adopt suchmark-ups. The gross pay-ins and revenue attributable to these 17 halls accounted for around
35% of our total gross pay-ins and our revenue from pachinko and pachislot business, during theTrack Record Period, respectively. We expect such cancellation will improve the player traffic (andconsequently gross pay-ins) of such halls by attracting players who are relatively sensitive toG-prize mark-ups. Going forward, we will continue to monitor and adjust our G-prize mark-ups(with an objective of maximising our revenue), taking into account all relevant factors, such as
player sensitivity to mark-ups and competitors’ behaviour. See “Financial Information — Resultsof Operations of Our Group — Description of Components of Results of Operations — Grosspayouts” on page 299.

9

SUMMARYKEY HISTORICAL FINANCIAL INFORMATIONKey Consolidated Statements of Comprehensive Income
Six months ended
30 September

Year ended 31 March
2012

2013

2014

2013

2014

(¥, in millions)(unaudited)
Revenue from pachinko andpachislot business
Gross pay-ins . . . . . . . . . . . . . . . .

224,968

242,217

236,449

120,674

90,989Less: gross payouts. . . . . . . . . . . .

(195,340)(210,298)(203,455)(104,682)(75,798)

29,62831,91932,994

15,992

15,191

Vending machine income . . . . . . . . . .

724

748

704

362

301

Revenue from pachinko andpachislot hall operations . . . . . . .

30,352

32,667

33,69816,354

15,492

Hotel operations. . . . . . . . . . . . . . . .

—

84

149

75

80

Total revenue . . . . . . . . . . . . . . . .

30,35232,751

33,847

16,42915,572

Hall operating expenses (Note) . . . . . .

(20,609)(21,909)(22,798)(11,494)(11,644)

Administrative and other operating
expenses . . . . . . . . . . . . . . . . . .

(3,319)(4,126)(4,636)(2,013)(2,808)Operating profit . . . . . . . . . . . . . . .

7,035

7,142

6,694

3,023

1,896

Profit for the year/period
attributable to shareholdersof the Company . . . . . . . . . . . . .

3,329

3,765

3,698

1,623

937

Note:

The majority of our hall operating expenses are pachinko and pachislot machine purchases and also staff costs(including salary, bonus and other provisions), accounting for over 56% of the total hall operating expenses during
the Track Record Period. We recognise pachinko and pachislot machines as inventory upon acquisition and
expense them in our consolidated statements of comprehensive income upon installation. See “Financial
Information — Results of Operations of Our Group — Description of components of Results of Operations — Hall
operating expenses” on page 306.

Our profit attributable to shareholders of the Company increased by ¥369 million, or a CAGR
of 5.4%, from ¥3,329 million for the year ended 31 March 2012 to ¥3,698 million for the year
ended 31 March 2014. This was mainly due to the expansion of our pachinko hall network from50 halls as at 31 March 2012 to 53 halls as at 31 March 2014. Our profit attributable toshareholders of the Company decreased by ¥686 million, or 42.3%, from ¥1,623 million for thesix months ended 30 September 2013 to ¥937 million for the six months ended 30 September
2014. This was largely due to two one-off expenses, namely: (1) listing expenses of ¥226 million;and (2) a retirement payment of ¥600 million made to Mr. Tatsuo TANIGUCHI (谷口龍雄) as special
benefit for his retirement as a Director of our Company in June 2014 and a director of Niraku
Corporation in September 2014. The rules of our Remuneration Committee provide that ourGroup shall not make any retirement payments to our Directors after Listing. Without taking into
account such one-off expenses, our profit attributable to shareholders of the Company for the six
months ended 30 September 2014 would have been stable (compared to the corresponding
period of the previous year).

10

SUMMARYKey Consolidated Statements of Financial Position
As at 30
As at 31 March

September

2012

2013

2014

2014

. . . . . . . . . . . . . . . . . . .

30,33532,33434,93635,496. . . . . . . . . . . . . . . . . . . . . .

14,848

9,860

11,96913,590Non-current liabilities . . . . . . . . . . . . . . . . . .

10,523

13,605

16,154

15,582Current liabilities . . . . . . . . . . . . . . . . . . . . .

16,012

10,737

8,951

12,625

Net current (liabilities) assets . . . . . . . . . . . . .

(1,164)

(877)

3,018

965

Total equity

18,64817,85221,80020,879(¥, in millions)Non-current assets
Current assets. . . . . . . . . . . . . . . . . . . . . . . .

Key Consolidated Statements of Cash FlowsSix months ended
Year ended 31 March
2012

2013

30 September
2014

2013

2014

(¥, in millions)(unaudited)
Net cash generated from operating
activities . . . . . . . . . . . . . . . . . . .

11,464

7,684

6,280

1,924

3,164

Net cash used in investing activities . . .

(695)(2,902)(1,390)

(962)

(734)

Net cash (used in)/generated fromfinancing activities . . . . . . . . . . . . .

(3,815)(10,458)(3,390)80(837)

Net increase/(decrease) in cash andcash equivalents . . . . . . . . . . . . .

6,954(5,676)

1,500

1,042

1,593

Cash and cash equivalents at the
beginning of the year/period . . . .

5,631

12,585

6,909

6,909

8,409

Cash and cash equivalents at theend of the year/period,
represented by bank balances andcash . . . . . . . . . . . . . . . . . . . . .

12,585

6,909

8,409

7,951

10,002

Net cash generated from operating activities declined during the Track Record Period,
mainly because cashflow derived from changes in working capital usage decreased in the latteryears. Net cash used in investing activities increased substantially during the year ended 31
March 2013 due to our acquisition of Jin Corporation for ¥820 million and our purchases offinancial assets of ¥633 million. Net cash (used in)/generated from financing activities increased
significantly in the year ended 31 March 2013, mainly due to the ¥4,563 million in cash being
distributed to our then shareholders through the repurchase of Niraku Corporation’s shares byitself and our purchase of shares in Niraku Corporation. See “Financial Information — Liquidity
and Capital Resources — Cash flows” on page 325.

11

SUMMARY
Key Financial Ratios
As at 31 March2012
Current ratio . . . . . . . . . . . .

2013

0.93

0.92

As at 30 September
2014
1.34

2014
1.08

Quick ratio . . . . . . . . . . . . .

0.90

0.91

1.33

1.07

Gearing ratio (%) . . . . . . . . .

101.4

98.7

91.7

100.4

Debt to equity ratio (%) . . . . .

33.9

60.0

53.2

52.5

Return on total assets (%) . . .

7.4

8.9

7.9

3.8*

Return on equity (%) . . . . . . .

17.9

21.1

17.0

9.0*

Interest coverage . . . . . . . . .

9.7

10.9

9.8

7.0

*

Profit attributable to shareholders used for the calculation of the return on total assets and return on equity has
been annualised based on the actual results for the six months ended 30 September 2014 so as to be comparablewith annual data.

See “Financial Information — Selected Key Financial Ratios” on page 359 for detailed
calculations and fluctuation analyses.
LISTING EXPENSES
The estimated total listing expenses (assuming an Offer Price of HK$1.19 per Offer Share,
being the mid-point of our indicative Offer Price range and that the Over-allotment Option is not
exercised) in relation to the Global Offering are approximately ¥1,149 million (approximately
HK$76 million), of which approximately: (1) ¥340 million (approximately HK$22 million) is directly
attributable to the issue of new Shares in the Global Offering and to be accounted for as adeduction from equity; and (2) ¥809 million (approximately HK$54 million) is to be charged asadministrative expenses to our profit and loss accounts for the year ending 31 March 2015. Outof this amount, approximately ¥226 million (approximately HK$15 million) had been charged toour profit and loss account for the six months ended 30 September 2014, and a further amountof approximately ¥583 million (approximately HK$39 million) is expected to be charged to our
profit and loss account as administrative and other operating expenses for the six months ending
31 March 2015.
PROPERTY VALUATIONDTZ Debenham Tie Leung Limited, our independent Property Valuer, has valued selected
properties in Japan (in which our Group has interests) as at 31 January 2015 and is of the opinion
that the value was (in aggregate) ¥1,452.2 million, with the entire value attributable to us. The key
assumptions adopted by our Property Valuer in valuing such properties include (among others):(1) transferable land use rights of the properties for their respective terms at nominal annual land
use fees have been granted and that any premium payable has already been fully paid; (2)information and advice given by our Group regarding the title to each of the properties and theinterests of our Group in the properties; and (3) our Group has an enforceable title to each of theproperties and has free and uninterrupted rights to use, occupy or assign the properties for the

12

SUMMARY
whole of the respective unexpired land use term as granted. For its valuation, our Property Valuer
used the investment approach. You (as a potential investor) are advised that the appraised valueof these selected properties should not be taken as their actual realisable value or a forecast of
their actual realisable value. See “Appendix III — Valuation Report on Selected Property Interests”
on page III-1.
RECENT DEVELOPMENTS
The material developments on our operations and financial position since 30 September
2014 (being the end of the Track Record Period) are: (1) we opened two new suburban halls,
namely one in Saitama Prefecture (埼玉県) (with 480 pachinko and 336 pachislot machines) inNovember 2014 and one in Gunma Prefecture (群馬県) (with 350 pachinko and 176 pachislot
machines) in December 2014 (the “Recently Opened Halls”), bringing our total number ofoperating halls to 55 as at the Latest Practicable Date; (2) for the three months ended 31
December 2014, the utilisation rate of our pachinko and pachislot machines (excluding themachines at the Recently Opened Halls) dropped to approximately 25.7% and 21.5% (compared
to 27.5% and 22.8% for the six months ended 30 September 2014), respectively. However, after
we cancelled the G-prize mark-ups for 17 of our halls in December 2014, the utilisation rate ofour pachinko and pachislot machines (excluding the machines at the Recently Opened Halls)
improved to approximately 26.2% and 22.8% in January 2015 due to increased player traffic atsuch halls, respectively. Further, our revenue margin for the four months ended 31 January 2015
increased to approximately 20.7% (compared to 16.7% for the six months ended 30 September2014) due to a decrease in our payout ratio. The above is based on information derived from ouroperation for the ten months ended 31 January 2015; and (3) in October 2014, we opened our
first and flagship “LIZARRAN” restaurant (with a seating capacity of 82) in Tokyo (東京都).
We intend to close down three of our urban halls in Tokyo (東京都) by the end of 2015. To
close two of these halls (which are loss-making), we expect to incur costs of ¥327 million (subject
to negotiation), consisting of rent for the remaining term of the lease and restoration fees.
Nevertheless, we expect the Group’s financial performance to improve in the long run as these
two halls show insufficient potential in generating positive financial results in the future. For thethird hall, it is profit-making and being closed purely due to city planning by the government ofTokyo (東京都) and we do not expect such closure to cause any negative financial impact as we
expect to receive full compensation (including loss of income) from such government. See“Business — Strategies — Improve the performance of our urban halls” on page 202 and“Business — New Hall Development” on page 235.
Further, in 2014, the Diet was examining a bill legalising the operations of casinos in Japan
in 2014. However, as advised by our Japan Legal Adviser, this bill has since been discarded andthere is no longer any formal legislative procedure to consider the legalisation of casino
operations in Japan. In any case, if casino operations are eventually legalised, this means we may
also face competition from casinos and other gaming venues.

13

SUMMARY
Also, we currently expect that our financial results for the year ending 31 March 2015 will
be negatively impacted by two one-off expenses, namely the estimated listing expenses(including those already incurred for the six months ended 30 September 2014) and theretirement payment as described above on pages 10 and 12.
Save as disclosed above, our Directors confirm that there has been no material adversechange in our financial or trading position, indebtedness, mortgage, contingent liabilities,
guarantees or prospects of our Group since 30 September 2014 (the date of the latest audited
consolidated financial information of our Group) and up to the date of this Prospectus. Also, as
far as our Directors are aware, there has also been no material change in the general economicor market conditions in Japan that would have a material and adverse impact on our business
operation or financial condition since 30 September 2014 to the date of this Prospectus.
USE OF PROCEEDS
Assuming an Offer Price of HK$1.19, we estimate that we will receive net proceeds ofapproximately HK$281 million (equivalent to approximately ¥4,259 million) from the Global
Offering (after deducting underwriting fees and other estimated expenses payable by us in
relation to the Global Offering and assuming the Over-allotment Option is not exercised). See“Future Plans and Use of Proceeds” on page 405. Our intended uses are set out below:% of Total Net
Proceeds

Net Proceeds

Intended Use(HK$ million)(¥ million)

(%)

253

3,833

90

Open five new suburban halls in Northeast Honshu(本州島東北) over the next two years

22

341

8

Invest in our information technology system

6

85

2

Working capital and other general corporate purposes of
our Group

OFFER STATISTICS
The statistics in the table below are calculated based on the following assumptions: (1) theOver-allotment Option will not be exercised; and (2) there are 1,195,850,460 Shares in issue
immediately after completion of the Global Offering.
Based on an Offer Price of
HK$1.10

Based on an Offer Price of
HK$1.28

¥

HK$

¥

HK$

Market capitalisation of the Shares . . . . . . . . . . . .

19,929 million

1,315 million

23,190 million

1,531 million

Unaudited pro forma adjusted net tangible assets per
Share (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20.7

1.37

21.4

1.41

(1)

The unaudited pro forma adjusted net tangible assets value per Share has been arrived at after the adjustments
referred to in “Appendix II — Unaudited Pro Forma Financial Information” on page II-1.

14

SUMMARY
SHAREHOLDER INFORMATION
Immediately upon completion of the Global Offering (assuming the Over-allotment Option is
not exercised), the Taniguchi Consortium will together control an aggregate of approximately
69.5% of our total number of issued Shares and are our Controlling Shareholders. Each memberof the Taniguchi Consortium is an associate of (under the Listing Rules), and a person acting inconcert with (under the Takeovers Code), each other. Our other Shareholders will be an Executive
Officer, a former member of our senior management, the ESOA as well as participants of the
Global Offering. See “History and Corporate Development — Shareholding Structure” on page173. We operate independently of our Controlling Shareholders. See “Relationship with ourControlling Shareholders — Independence from our Controlling Shareholders” on page 371.
DIVIDEND POLICY
During the Track Record Period we declared and paid dividends in the amount of ¥110
million, ¥110 million, ¥183 million and ¥183 million for the years ended 31 March 2012, 2013 and2014 and for the six months ended 30 September 2014, respectively. Our distribution ofdividends will be subject to the availability of Distributable Amount and compliance withapplicable laws and regulations in Japan and Hong Kong. We may declare and pay dividends by
way of cash or by other means that we consider appropriate in the future. Distribution ofdividends will be generally formulated by our Board at their discretion. A decision to declare or
to pay any dividends in the future, and the amount of any dividends, will depend on, among otherthings, our results of operations, cash flows and financial condition, operating and capital
expenditure requirements, the size of our Distributable Amount (calculated according to therelevant provisions under the Japan Companies Act), our Articles, the Japan Companies Act andany other applicable Japan law and regulations (as discussed below) and other factors that our
Directors may consider relevant. We currently intend to recommend dividends totalling
approximately 30% of our consolidated net profit after tax attributable to our shareholders(calculated in accordance with IFRS) from the year ending 31 March 2016 onwards, to be
distributed on an interim and year-end basis. The amount of dividends actually distributed to our
Shareholders will depend upon our earnings and financial condition, operating requirements,
capital requirements, availability of Distributable Amount and any other conditions that our
Directors may deem relevant. There is no assurance that dividends of any amount will be declaredor distributed in any year. You should note that historical dividend distributions are not indicativeof our future dividend policy. See “Financial Information — Dividend Policy” on page 366 fordetails on our dividend policy.
Going forward, Shareholders that are entitled to receive cash dividends (if any) from ourCompany will have the option of receiving their entitlements in either Japanese Yen or Hong Kong
Dollars, except for CCASS Beneficial Owners, who will receive dividend payments in Hong Kong
Dollars. Shareholders who are either residents in Hong Kong or corporations incorporated in
Hong Kong without any permanent establishment in Japan are entitled to a reduced withholding
tax rate under the Hong Kong-Japan Tax Treaty. See “Key Japan Legal and Regulatory Matters— E. Taxation — 1. Withholding Tax on Dividend Payment” on page 89 for details on our
obligation under Japan law to withhold tax prior to payment of dividends and also for theapplication procedures for such reduced withholding tax rate.

15

DEFINITIONSIn this Prospectus, the following terms have the following meanings set out below unlessthe context otherwise requires.
“AGM(s)”the annual general meeting(s)* (定時株主総会) of ourCompany“AML”

anti-money laundering“AML Consultant”

PricewaterhouseCoopers
Limited,our
independent
consultant regarding anti-money laundering“Amusement Business Law”

the Act on Control and Improvement of Amusement
Business etc.* (風俗営業等の規制及び業務の適正化等に関する法律) of Japan (Act No. 122 of 1948)“Application Form(s)”WHITE, YELLOW and GREEN applications form(s), or
where the context so requires, any of them

“Articles” or “Articles ofIncorporation”

the articles of incorporation* (定款) of our Company thatwere adopted on 16 March 2015 and will take effect on the
Listing Date, a summary of which is included in “Appendix
V — Summary of our Articles of Incorporation and Japan
Corporation Law”

“Audit Committee”

the audit committee* (監査委員会) of our Company
established on 25 June 2014 pursuant to the Japan
Companies Act, the written rules of which were amended
and adopted on 16 March 2015 in compliance with the
Listing Rules“associate(s)”has the meaning ascribed to it under the Listing Rules“Board” or “Board of Directors”

our board of Directors“business day”

any day (other than a Saturday, Sunday or public holiday)
on which banks in Hong Kong are generally open for
normal banking business“CAGR”

compound annual growth rate

“CCASS”

the Central Clearing and Settlement System establishedand operated by HKSCC“CCASS Beneficial Owner(s)”beneficial owners of our Shares who hold pecuniary
interests and voting rights in our Company attached to the
Shares deposited into CCASS and held in the name of
HKSCC Nominees

16

DEFINITIONS“CCASS Clearing Participant”

a person admitted to participate in CCASS as a direct
clearing participant or general clearing participant“CCASS Custodian Participant”

a person admitted to participate in CCASS as a custodian
participant“CCASS Investor Participant”

a person admitted to participate in CCASS as an investor
participant who may be an individual or joint individuals ora corporation“CCASS Participant”

a CCASS Clearing Participant or a CCASS CustodianParticipant or a CCASS Investor Participant“Chairman” or “Mr. Taniguchi”

Mr. Hisanori TANIGUCHI (谷口久徳) # (also known as Mr.
JEONG Seonggi), a Controlling Shareholder, an Executive
Director, our Chief Executive Officer and our Chairman of
the Board“Chief Executive Officer”

the chief executive officer* (代表執行役) of our Company,
the functions of whom are set out in “Directors and Senior
Management — Senior Management — Executive
Officers”. Our current Chief Executive Officer is ourChairman“Civil Code”

the Civil Code* (民法) of Japan (Act No. 89 of 1896)“close associate(s)”has the meaning ascribed to it under the Listing Rules“Companies Act” or “Japan
Companies Act”

the Companies Act* (会社法) of Japan (Act No. 86 of 2005)“Companies Ordinance”

the Companies Ordinance (Chapter 622 of the Laws ofHong Kong)“Companies (Winding Up andMiscellaneous Provisions)
Ordinance”

the Companies (Winding Up and Miscellaneous Provisions)
Ordinance (Chapter 32 of the Laws of Hong Kong)“Company”

NIRAKU GC HOLDINGS, INC.* (株式会社ニラク▪ジー▪シー▪
ホールディングス) (formerly known as Niraku Global
Community Holdings Inc.* (株式会社ニラク▪グローバル▪コ
ミュニティ▪ホールディングス) from 10 January 2013 to 20
October 2014), the holding company of our Group and the
proposed listing vehicle for the Listing, which is a stockcompany* (株式会社) incorporated in Japan with limited
liability on 10 January 2013 (registration number
3800-01-022352)“connected person(s)”has the meaning ascribed to it under the Listing Rules

17

DEFINITIONS“Controlling Shareholder(s)”has the meaning ascribed to it under the Listing Rules and,for the purpose of this Prospectus, refers to the membersof the Taniguchi Consortium“core connected person(s)”has the meaning ascribed to it under the Listing Rules“Corporate Governance Code”

the Corporate Governance Code and Corporate
Governance Report as set out in Appendix 14 to the
Listing Rules“Country Guide”

the Country Guide — Japan published by the Stock
Exchange on 20 December 2013 and updated in April
2014“Deed of Indemnity”

the deed of indemnity dated 16 March 2015 executed by
our Controlling Shareholders (as indemnifiers) in favour of
our Company (for itself and as trustee for each of our
subsidiaries), particulars of which are set out in “Appendix
VI — Statutory and General Information — F. Other
Information — 10. Taxation of holders of our Shares”“Deed of Non-Competition”

the deed of non-competition dated 16 March 2015
executed by our Controlling Shareholders (as covenantors)
and our Company, particulars of which are set out in“Relationship with our Controlling Shareholders — Deed of
Non-Competition”“Director(s)”director*(s) (取締役) of our Company, who are designatedas a Director* (取締役) or an external Director* (社外取締役)
in accordance with the requirements under the Japan
Companies Act, or an Executive Director or an
Independent Non-executive Director in accordance withthe criteria under the Listing Rules“Distributable Amount”

the retained earning* (剰余金) recorded in our financial
statements prepared in accordance with JGAAP, withcertain adjustments (including the deduction of the bookvalue of any treasury stock* (自己株式) of our Company) as
explained further in “Appendix V — Summary of our
Articles of Incorporation and Japan Corporation Law — 6.
Dividends and Distributions”“EBI”

Entertainment Business Institute* (株式会社エンタテイン
メントビジネス総合研究所), a private research andconsulting firm specialising in the gaming industry inJapan, and an independent industry consultant
commissioned by us to prepare an industry report

18

DEFINITIONS“electronic application
instruction(s)”Instruction(s) given by a CCASS Participant electronically
via CCASS to HKSCC, being one of the methods to apply
for the Hong Kong Offer Shares“Enforcement Ordinance”

the Ordinance for Enforcement of the Amusement
Business Law* (風俗営業等の規制及び業務の適正化等に関する法律施行規則) of Japan (National Public Safety
Commission Regulation No. 1 on 11 January 1985)“ESOA”

Niraku Employee Stock Ownership Association* (ニラク従
業員持株会), a partnership* (組合) established under Civil
Code on 16 January 2001 in Japan. The ESOA grants
entitlement rights attached to our Shares to the current
employees of our Group. ESOA is a Shareholder of ourCompany“Excluded Group”

NI and NUSA, which are engaged in business activities thatare unrelated to and clearly delineated from our corebusiness of pachinko and pachislot hall operations andwere excluded from our Group as a result of ourReorganisation“Executive Director(s)”the executive Director(s) of our Company“Executive Officer(s)”the executive officer(s)* (執行役) of our Company, thefunctions of whom are set out in “Directors and Senior
Management — Senior Management — Executive Officers”“GDP”

gross domestic product“Global Offering”

the Hong Kong Public Offering and the International
Offering“GREEN Application Form(s)”the application form(s) to be completed by the White FormeIPO Service Provider, Computershare Hong Kong
Investor Services Limited“Group”, “we” or “us”

our Company and its subsidiaries or, where the context so
requires, in respect of the period before our Company
became the holding company of our present subsidiaries,
such subsidiaries as if they were subsidiaries of ourCompany at the relevant time“HK$”

Hong Kong dollars and cents, the lawful currency of Hong
Kong

“HKSCC”

Hong Kong Securities Clearing Company Limited

19

DEFINITIONS“HKSCC Nominees”

HKSCC Nominees Limited, a wholly-owned subsidiary of
HKSCC“Hong Kong”

the Hong Kong Special Administrative Region of the PRC“Hong Kong-Japan Tax Treaty”

the Agreement between the Government of the Hong Kong
Special Administrative Region of the People’s Republic ofChina and the Government of Japan for the Avoidance ofDouble Taxation and the Prevention of Fiscal Evasion withrespect to Taxes on Income dated 9 November 2010

“Hong Kong Offer Shares”

the 30,000,000 Shares initially being offered by ourCompany for subscription at the Offer Price under the
Hong Kong Public Offering (subject to adjustment as
described in “Structure of the Global Offering”)“Hong Kong Public Offering”

the offer by our Company of the Hong Kong Offer Sharesfor subscription by the public in Hong Kong at the Offer
Price (subject to the terms and conditions described in thisProspectus and the Application Forms)“Hong Kong Share Registrar”

Computershare Hong Kong Investor Services Limited“Hong Kong Underwriter”

the underwriter of the Hong Kong Public Offering named in“Underwriting — Hong Kong Underwriter”“Hong Kong Underwriting
Agreement”

the conditional Hong Kong Underwriting Agreement dated
23 March 2015 relating to the Hong Kong Public Offering
entered into by our Company, our Controlling
Shareholders, our Executive Director, the Sole Global
Coordinator and the Hong Kong Underwriter, as describedin “Underwriting”“IFRS”

International Financial Reporting Standards which include
standards and interpretations promulgated by theInternational Accounting Standards Board (IASB)“Independent Non-executive
Director(s)”the independent non-executive Director(s) of our Company“independent third party(ies)”

entity(ies) or person(s) that are not a core connected
person of our Company or any of their respective close
associate(s)“International Offer Shares”

the 270,000,000 Shares initially being offered by ourCompany for subscription at the Offer Price under theInternational Offering (subject to adjustment as describedin “Structure of the Global Offering”), and where relevant,
together with any Shares issued pursuant to any exerciseof the Over-allotment Option

20

DEFINITIONS“International Offering”

the conditional placing of the International Offer Shares at
the Offer Price outside the United States in offshoretransactions in reliance on Regulation S, subject to theterms and conditions described in this Prospectus and theInternational Underwriting Agreement“International Underwriter”

the underwriter of the International Offering named in“Underwriting — International Underwriter”“International Underwriting
Agreement”

the conditional underwriting agreement expected to beentered into on or around the Price Determination Date by
our Company, our Controlling Shareholders, our Executive
Director, the Sole Global Coordinator and the International
Underwriter“Issuing Mandate”

the general unconditional mandate given to our Board by
our Shareholders relating to the issue, allotment anddealings of our Shares, as further described in “Share
Capital”“Japan Legal Adviser”

Soga Law Office, our legal adviser as to Japan law“Japanese Yen”, “¥” or “Yen”

Japanese Yen, the lawful currency of Japan“JCA Amendments”

Certain amendments made to the Japan Companies Act inJune 2014 which will take effect on 1 May 2015

“JGAAP”

Japanese Generally Accepted Accounting Principles“Joint Policy Statement”

the Joint Policy Statement Regarding the Listing ofOverseas Companies jointly issued by the Stock Exchange
and the SFC on 27 September 2013

“Las Vegas Property”

a piece land and the premise of hotel and casino locatedin downtown Las Vegas, Nevada, the U.S. owned by acompany incorporated in the State of Delaware, the U.S.
NUSA acquired a 10% interest in the Las Vegas Property in
February 2015 as further described in “Relationship with
our Controlling Shareholders — Independence from ourControlling Shareholders — 1. No competition and clear
delineation of business — Las Vegas Property”. We do not
have, and are not expected to have, any interest in the Las
Vegas Property“Latest Practicable Date”

15 March 2015, being the latest practicable date prior to
the printing of this Prospectus for the purpose ofascertaining certain information contained in thisProspectus

21

DEFINITIONS“Leases Act”

the Act on Land and Building Leases* (借地借家法) of
Japan (Act No. 90 of 1991)“Listing”

the listing of the Shares on the Main Board of the Stock
Exchange“Listing Committee”

the listing sub-committee of the board of directors of theStock Exchange“Listing Date”

the date, expected to be on or around 8 April 2015, on
which the Shares become listed on the Stock Exchange
and from which dealings in the Shares are permitted tocommence on the Stock Exchange“Listing Rules”

the Rules Governing the Listing of Securities on the Stock
Exchange“Merrist”

Niraku Merrist Corporation* (株式会社ニラク▪メリスト), a
stock company* (株式会社) incorporated in Japan withlimited liability on 24 February 2010 (registration number
3800-01-019392). Merrist is an indirectly wholly-owned
subsidiary of our Company“MT Family Trust”

a family trust established pursuant to a trust agreement
dated 21 October 2014 for which SMBC Trust Bank Ltd.*(株式会社SMBC信託銀行) acts as the assignee* (受託者)
and the assignors and beneficiaries* (委託者兼受益者) are
Mr. Tatsunari TANIGUCHI (谷口辰成) # (also known as Mr.
CHONG Jinsong), Mr. Takanari TANIGUCHI (谷口喆成) #(also known as Mr. JEONG Cheolseong) and Mr. Toshinari
TANIGUCHI (谷口才成) # (also known as Mr. CHUNG
Jaeseong), each being a child of Mr. Masataka TANIGUCHI(谷口晶貴), a Controlling Shareholder, and a nephew of ourChairman. As at the date of this Prospectus, the MT Family
Trust is the registered Shareholder of approximately 15.0%
of our total number of issued Shares. Mr. Masataka
TANIGUCHI (谷口晶貴) is entitled to exercise the voting
rights in respect of the Shares held by the MT Family Trust.
See “History and Corporate Development — Shareholding
Structure — Taniguchi Consortium — Family Trust
Arrangements”“National Police Agency”

the National Police Agency* (警察庁) of Japan, an agency
administered by the National Public Safety Commission of
the Cabinet Office* (内閣府) in the Cabinet of Japan* (内閣),and is the central coordinating agency of the Japanesepolice system

22

DEFINITIONS“National Public Safety
Commission”

the National Public Safety Commission* (国家公安委員会)
of Japan, an administrative commission belonging to the
Cabinet Office* (内閣府) in the Cabinet of Japan* (内閣)
that, among others, oversees the National Police Agency“National Tax Agency” or “NTA”

National Tax Agency* (国税庁) of Japan, the official tax
collecting agency of Japan“Nexia”

NEXIA Inc.* (株式会社ネクシア), a stock company*(株式会社) incorporated in Japan with limited liability on 19
June 2009 (registration number 0100-01-126618). Nexia is
an indirectly wholly-owned subsidiary of our Company“Niraku Corporation”

Niraku Corporation* (株式会社ニラク) (formerly known as
二楽商事株式会社 from 27 August 1969 to 9 August 1998),
a stock company* (株式会社) incorporated in Japan withlimited liability on 27 August 1969 (registration number
3800-01-006170). Niraku Corporation is a directly
wholly-owned subsidiary of our Company“NI”

Niraku Investment Inc.* (ニラクインベストメント株式会社), a stock company* (株式会社) incorporated in Japan
with limited liability on 17 September 2014 (registration
number 3800-01-024662). As at the date of thisProspectus, NI is collectively directly owned as toapproximately 93.2% and controlled by members of the
Taniguchi Consortium. NI is not a member of our Group“Nomination Committee”

the nomination committee* (指名委員会) of our Company
established on 25 June 2014 pursuant to the Japan
Companies Act, the written rules of which were amended
and adopted on 16 March 2015 in compliance with the
Listing Rules“Northeast Honshu(本州島東北)”the north-eastern area of Honshu (本州島), Japan, which is
the largest and most populous island of Japan and inwhich all of our halls are located“NUSA”NIRAKU USA Inc., a close corporation incorporated in thestate of Nevada, the U.S. with limited liability on 29 July
2014 which is directly wholly-owned by NI. NUSA is not amember of our Group23

DEFINITIONS“Offer Price”

the final price per Offer Share (exclusive of brokerage of
1%, SFC transaction levy of 0.0027% and Stock Exchange
trading fee of 0.005%) of not more than HK$1.28 per Offer
Share and is expected to be not less than HK$1.10, which
will be determined by agreement between the Sole Global
Coordinator (for itself and on behalf of the Underwriters)
and our Company on or around the Price Determination
Date“Offer Share(s)”the Hong Kong Offer Shares and the International Offer
Shares including, where relevant, any additional Sharesissued pursuant to any exercise of the Over-allotment
Option“Over-allotment Option”

the option expected to be granted by our Company to theSole Global Coordinator under the International
Underwriting Agreement, exercisable by the Sole Global
Coordinator (on behalf of the International Underwriter),pursuant to which our Company may be required to allot
and issue up to 45,000,000 additional Shares,
representing 15% of the Offer Shares initially available
under the Global Offering, at the Offer Price to cover any
over-allocations in the International Offering“Over-allotment Shares”

up to 45,000,000 Shares which our Company may berequired to issue at the Offer Price pursuant to theOver-allotment Option“Patent Act”

the Patent Act* (特許法) of Japan (Act No. 121 of 1959)“PDPO”

the Personal Data (Privacy) Ordinance (Chapter 486 of theLaws of Hong Kong)“Penal Code”

the Penal Code* (刑法) of Japan (Act No. 45 of 1907)“Personal Information Protection
Act”

the Personal Information Protection Act* (個人情報の保護に関する法律) of Japan (Act No.57 of 2003)“PRC”

the People’s Republic of China“Prefectural Public Safety
Commission”

the various Prefectural Public Safety Commissions*(都道府県公安委員会) of Japan, an administrative
commission under the jurisdiction of each prefectural
governor and that, among others, oversees the prefectural
police agencies of Japan

24

DEFINITIONS“Price Determination
Agreement”

the agreement to be entered into between our Company
and the Sole Global Coordinator (for itself and on behalf of
the Underwriters) on or around the Price Determination
Date to fix the Offer Price“Price Determination Date”

the date on which the Offer Price will be determined under
the Price Determination Agreement, which is expected to
be on or about Friday, 27 March 2015 and in any event nolater than Wednesday, 1 April 2015

“Property Valuer”

DTZ Debenham Tie Leung Limited, our independent
property valuer“Regulation S”

Regulation S under the U.S. Securities Act“Remuneration Committee”

the remuneration committee* (報酬委員会) of our Company
established on 25 June 2014 pursuant to the Japan
Companies Act, the written rules of which were amended
and adopted on 16 March 2015 in compliance with the
Listing Rules“Repurchase Mandate”

the general unconditional mandate given to our Board by
our Shareholders relating to the repurchase of Shares, as
further described in “Share Capital”“Reorganisation”

the restructuring of our Group in preparation for the
Listing, details of which are set out in “History andCorporate Development — Corporate Structure andDevelopment — Reorganisation”“Reporting Accountant”

PricewaterhouseCoopers,
accountant“Risk Management Committee”

the risk management committee of our Company
established on 19 December 2014 as a sub-committee
under our Audit Committee“SFC”

the Securities and Futures Commission of Hong Kong

“SFO”

the Securities and Futures Ordinance of Hong Kong
(Chapter 571 of the Laws of Hong Kong)“Share(s)”common share(s)* (普通株式) in the share capital of ourCompany“Shareholder(s)”holder(s) of Share(s) and, for the purpose of thisProspectus, includes our CCASS Beneficial Owners

25

our

auditorandreportingDEFINITIONS“Share Acquisition Right(s)” or“SAR(s)”share acquisition right(s)* (新株予約権), which entitle theholder(s) to acquire share(s) in a company by exercisingsuch rights against such company under the Japan
Companies Act“Share Register”

the share register* (株主名簿) of our Company which, upon
Listing, will be maintained by our Hong Kong Share
Registrar in Hong Kong

“Sole Bookrunner”, “Sole Global
Coordinator”, “Sole Lead
Manager” or “Sole Sponsor”

Shenyin Wanguo Capital (H.K.) Limited“Stabilising Manager”

Shenyin Wanguo Capital (H.K.) Limited“Stamp Duty Ordinance”

the Stamp Duty Ordinance (Chapter 117 of the Laws ofHong Kong)“Standards for the Interpretation
and Operation of theAmusement Business Law”

guidelines titled “The Standard for Interpreting andPracticing the Act on Control and Improvement of
Amusement Business etc. of Japan etc.* (風俗営業等の規制及び業務の適正化等に関する法律等の解釈運用基準について) dated 17 October 2014 and published by the Chief of
the Community Safety Bureau of the National Police
Agency“Stock Borrowing Agreement”

the stock borrowing agreement expected to be enteredinto between the Stabilising Manager and Mr. Taniguchi onor around the Price Determination Date, pursuant to which
the Stabilising Manager may borrow up to 45,000,000
Shares to cover any over-allocations in the International
Offering“Stock Exchange”

The Stock Exchange of Hong Kong Limited“South Korea”

The Republic of Korea“subsidiary(ies)”

has the meaning ascribed to it under the Listing Rules“substantial Shareholder(s)”has the meaning ascribed to it under the Listing Rules“Supreme Court (最高裁判所)”

the Supreme Court of Japan* (最高裁判所), being thehighest court in Japan

26

DEFINITIONS“Taniguchi Consortium”

our Chairman and a group of (1) natural persons, namely
Mr. Tatsuo TANIGUCHI (谷口龍雄), Mr. Masataka
TANIGUCHI (谷口晶貴), Mr. Yoshihiro TEI (鄭義弘) # (alsoknown as Mr. JEONG Jungwung), Mr. Mitsuhiro TEI(鄭允碩), Mr. Motohiro TEI (鄭元碩), Ms. Eijun TEI (鄭盈順),
Ms. Rika TEI (鄭理香) and Ms. Noriko KANESHIRO (金城徳子), each being a family member of our Chairman; and(2) corporate entities, namely Jukki Limited* (有限会社十起), Densho Limited* (有限会社伝承), Echo Limited*(有限会社エコー), Daiki Limited* (有限会社大喜), Hokuyo
Kanko Limited* (有限会社北陽観光) and KAWASHIMA Co.,
Ltd.* (株式会社 KAWASHIMA), each being an entity
controlled by the family members of our Chairman. Eachmember of the Taniguchi Consortium is an associate (asdefined under the Listing Rules) of, and a person acting inconcert (as defined under the Takeovers Code) with, ourChairman and is a Controlling Shareholder. See “History
and Corporate Development — Shareholding Structure —Taniguchi Consortium” for details of, and the relationshipamong, the members of the Taniguchi Consortium“Takeovers Code”

the Codes
Buy-backs“Tax Adviser”

Zeirishi-Hojin PricewaterhouseCoopers* (税理士法人プライスウォーターハウスクーパース), our Japan tax adviser“The Bank of Japan”

The Bank of Japan* (日本銀行), the central bank of Japan“Tokyo (東京都)”

Tokyo Metropolis (東京都), a prefecture and the capital ofJapan“Track Record Period”

the three years ended 31 March 2014 and the six months
ended 30 September 201427

on

Takeovers

andMergers

and

Share

DEFINITIONS“TT Family Trust”

a family trust established pursuant to a trust agreement
dated 23 October 2014 for which SMBC Trust Bank Ltd.*(株式会社SMBC信託銀行) acts as the assignee* (受託者)
and the assignors and beneficiaries* (委託者兼受益者) are
Ms. Yoshika TEI (鄭淑佳) # (also known as Ms. JEONG
Sukka), Mr. Kousei TEI (鄭光誠) # (also known as Mr.
CHONG Gangsong) and Mr. Kiyokazu TANIGUCHI(谷口清和), each being a child of Mr. Tatsuo TANIGUCHI(谷口龍雄), a Controlling Shareholder, and a nephew orniece of the Chairman. As at the date of this Prospectus,
the TT Family Trust is the registered Shareholder ofapproximately 4.6% of our total number of issued Shares.
Mr. Tatsuo TANIGUCHI (谷口龍雄) is entitled to exercise thevoting rights in respect of the Shares held by the TT Family
Trust. See “History and Corporate Development —Shareholding Structure — Taniguchi Consortium — Family
Trusts Arrangements” for details“Underwriters”

the Hong Kong
Underwriter“Underwriting Agreements”

the Hong Kong Underwriting Agreement
International Underwriting Agreement“United States” or “U.S.”

the United States of America, including its territories andpossessions and all areas subject to its jurisdiction“US$”

United States dollars, the lawful currency of the UnitedStates“U.S. Securities Act”

the United States Securities Act of 1933, and the rules andregulations promulgated thereunder“WHITE Application Form(s)”the application form(s) for use by the public who require(s)such Hong Kong Offer Shares to be issued in theapplicant’s/ applicants’ own name

“White Form eIPO”

the application for Hong Kong Offer Shares to be issued in
the applicant’s own name by submitting applications online
through the designated website of the White Form eIPO
Service Provider at www.eipo.com.hk“White Form eIPO Service
Provider”

Computershare Hong Kong Investor Services Limited“YELLOW Application Form(s)”the application form(s) for use by the public who require(s)such Hong Kong Offer Shares to be deposited directly into
CCASS

28

Underwriter

and

the

International

and

the

DEFINITIONS“YT Family Trust”

a family trust established pursuant to a trust agreement
dated 22 October 2014 for which SMBC Trust Bank Ltd.*(株式会社SMBC信託銀行) acts as the assignee* (受託者)
and the assignors and beneficiaries* (委託者兼受益者) are
Mr. Akinori TEI (鄭敬憲) # (also known as JEONG
Kyeongheon) and Mr. Masahide TEI (鄭將英) # (also knownas JEONG Jangyeong), each being a child of Mr. Yoshihiro
TEI (鄭義弘) # (also known as JEONG Jungwung), a
Controlling Shareholder, and a nephew of our Chairman.
As at the date of this Prospectus, the YT Family Trust is theregistered Shareholder of approximately 6.0% of our total
number of issued Shares. Mr. Yoshihiro TEI (鄭義弘) # (alsoknown as JEONG Jungwung) is entitled to exercise thevoting rights in respect of the Shares held by the YT Family
Trust. See “History and Corporate Development —Shareholding Structure — Taniguchi Consortium — Family
Trust Arrangements” for details“2014 Tax Reform”

The Act on Partial Revision of the Income Tax Act, etc.*(所得税法等の一部を改正する法律) of Japan (Act No.10 of
2014)

“%”

per cent*

The English titles marked with “*” are unofficial English translations of the Japanese titles of natural persons, legal
persons, governmental authorities, institutions, laws, rules, regulations and other entities for which no official
English translation exists. These titles are for identification purpose only.

#

The Japanese names marked with “ # ” are Japanese aliases* ( 通称名 ) adopted by non-Japanese residents in Japanas a second legal name which, upon registration under the Order for Enforcement of the Residential Basic Book
Act* ( 住民基本台帳法施行規則 ) (Ministry of Home Affairs Regulation No. 35 of 1999) of Japan, may be used with
legal

force

and

recorded

in

their

resident

certificate*( 住民票 )

andresidential

basics

book

card*

( 住民基本台帳カード ). Unless otherwise marked with “ # ”, names of natural persons shown in this Prospectus arelegal names recorded in their passports or travel documents.

In this Prospectus, unless expressly stated or the context requires otherwise:•

all data in this Prospectus is as at the date of this Prospectus;•

any reference to shareholdings in our Company upon or after the completion of the
Global Offering assumes that the Over-allotment Option has not been exercised; and•certain amounts and percentage figures have been subject to rounding adjustments,
thus, figures shown as totals in certain tables may not be an arithmetic aggregation of
the figures preceding them.

29GLOSSARY OF TECHNICAL TERMS

This glossary contains definitions of certain technical terms used in this Prospectus as
they relate to us. Some of these definitions may not correspond to the standard industry
meaning.
“anti-social force(s)”organisation(s) or individual(s) who pursues economic
benefit through violence, threat or fraudulent methods as
defined in the Guidelines for Enterprises to Prevent
Damage caused by Antisocial Organisations* (企業が反社会的勢力による被害を防止するための指針) published on
19 June 2007

“attacker”

a larger pocket in a pachinko machine’s playing field which
opens for limited periods of time during jackpot mode

“G-prize”

a prize offered by a pachinko hall, namely a decorative
plastic card with a small embedded piece of metal (such asgold) or a small coin-shaped pendant of metal (such asgold), which can be sold by customers to a G-prize buyer
for cash“G-prize buyer”

an independent party in the business of operating G-prize
buying centre(s) which purchase G-prizes for cash frompachinko players outside of pachinko halls, andsubsequently sell G-prizes to G-prize wholesaler(s), and aparty to the Three Party System“G-prize mark-up”

difference between the value of the number of balls or
tokens required to collect a G-prize and the cost of theG-prize“G-prize wholesaler”

an independent party in the business of purchasing
G-prizes from G-prize buyer(s), and subsequently selling
G-prizes to pachinko hall operator(s), and a party to theThree Party System“gaming”

in the context of an industry sector, as defined by EBI, theindustry sector consisting of pachinko, bicycle-racing,auto-racing, horse-racing and lottery“general prize”

any prize offered by a pachinko hall that is not a G-prize“gross pay-ins”

amount received from customers for rented pachinko balls
and pachislot tokens“gross payouts”

aggregate cost of G-prizes and general prizes exchanged
by customers

30

GLOSSARY OF TECHNICAL TERMS“high playing cost machine(s)”pachinko machine(s) with a playing cost of ¥4 perpachinko ball, and pachislot machines with a playing costof ¥20 per pachislot token, each of which is the maximum
playing cost (exclusive of consumption tax) possible
stipulated under the Enforcement Ordinance“IC card”

a card used to store the balance of cash and pachinkoballs or pachislot tokens remaining in the machine after theplayer finishes playing“island”

a long row of (in our case, around 10-24) pachinko or
pachislot machines in a pachinko hall“jackpot mode”

a mode of a pachinko game triggered by certain winningcombinations of images on the screen in the centre of the
field of play, during which the attacker opens and releases
a relatively large number of balls or tokens when the
jackpot is hit“jackpot probability”

probability of triggering the jackpot mode, during which a
relatively large number of balls and tokens may be won“jackpot size”

number of balls or tokens that won during the jackpot
mode“jet counter”

a device that automatically counts pachinko balls or
pachislot tokens collected and issues a printed ticket
displaying the number of balls or tokens collected“low playing cost machine(s)”pachinko machine(s) with playing costs of ¥0.5, ¥1, ¥1.25
and ¥2 per pachinko ball (before consumption tax) andpachislot machines with playing costs of ¥2, ¥5 and ¥10
per pachislot token (before consumption tax)

“pachinko”

in the context of a game machine, a game played on a
device similar to a pinball machine which is played forentertainment and prizes; in other contexts (such as ourbusiness or the industry), includes both pachinko andpachislot“pachinko ball(s)” or “ball(s)”small metal ball(s) used to play pachinko games“pachinko hall(s)” or “hall(s)”a facility providing pachinko and/or pachislot games“pachinko hall operator(s)” or“hall operator(s)”an entity that operates pachinko hall(s), such as ourselves,
and a party to the Three Party System“pachislot”

a game played on a device similar to a slot machine whichis played for entertainment and prizes

31

GLOSSARY OF TECHNICAL TERMS“pachislot token(s)” or “token(s)”small metal token(s) used to play pachislot games“payout ratio”

total number of balls or tokens won divided by the total
number of balls or tokens played, representing the average
probability of winning balls or tokens when playing themachines“pins”

small, cylindrical pegs affixed on the pachinko machine’s
playing field“POS system”

point of sale system used in our pachinko halls for theexchange of pachinko balls and pachislot tokens for prizes“revenue”

in the context of our total revenue, revenue from pachinko
and pachislot hall operations, together with revenue fromhotel operationsin the context of our pachinko and pachislot halloperations, revenue from pachinko and pachislot
business, together with vending machine incomein the context of our pachinko and pachislot business,gross pay-ins less gross payouts“revenue margin”

gross pay-ins less gross payouts, divided by gross
pay-ins, representing the portion of gross pay-ins that thehall operator receives as revenue, namely throughcustomers playing the machines and mark-ups on prize
redemption“sq.m.”

square metre“Three Party System”

the industry practice under which pachinko hall operators,
G-prize buyers and G-prize wholesalers participate in thesale and purchase of G-prizes obtained by a customer ofa pachinko hall operator by playing pachinko and pachislot
machines in Japan, as described in more detail in“Business — Pachinko and Pachislot Hall Operations —Three Party System” and “Applicable Laws andRegulations”“trap”a pocket at the bottom of a pachinko machine’s playing
through which pachinko balls are lost32

FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements that are, by their nature, subject tosignificant risks and uncertainties. The forward-looking statements are contained principally in‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Industry Overview’’, ‘‘Business’’, ‘‘Financial Information’’ and“Future Plans and Use of Proceeds’’. These forward-looking statements include, without
limitation, statements relating to: our business strategies and plan of operation, our capital
expenditure plans, financing sources, the amount and nature of, and potential for, future
development of our business, our operations and business prospects, our dividend policy, newhalls under construction or planning, the regulatory environment of our industry in general, future
development in our industry, and general economic and political trends in Japan.
The words “aim”, “anticipate”, “believe”, “can”, “estimate”, “expect”, “seek”, “plan”,“intend”, “project”, “may”, “ought to”, “will”, “would” and “could”, or similar expressions or thenegative thereof, are intended to identify a number of these forward-looking statements. These
forward-looking statements reflecting our current views with respect to future events are not aguarantee of future performance and are subject to certain risks, uncertainties and assumptions,
including the risk factors described in this Prospectus. One or more of these risks or uncertainties
may materialise, or underlying assumptions may prove incorrect. Actual results may differ
materially from information contained in the forward-looking statements as a result of a numberof factors, including:•

general economic, market and business conditions and levels of leisure and consumer
spending;•

the commercial performance of our pachinko and pachislot hall operations;•the effects of competition in the pachinko industry;•

various business opportunities that we may pursue;•

pending or future legal or regulatory proceedings;•

changes in tax laws or rates;•changes in regulatory policies, the regulatory framework and laws and regulations inrelation to the pachinko industry in Japan; and•changes in general political, economic, legal and social conditions in Japan.

Subject to the requirements of applicable laws, rules and regulations, we do not have any
obligation to update or otherwise revise the forward-looking statements in this Prospectus,
whether as a result of new information, future events or otherwise. As a result of these and otherrisks, uncertainties and assumptions, the forward-looking events and circumstances discussed
in this Prospectus might not occur in the way we expect, or at all. Accordingly, you should not

33

FORWARD-LOOKING STATEMENTS
place undue reliance on any forward-looking information. All forward-looking statements
contained in this Prospectus are qualified by reference to the cautionary statements set forth in
this section as well as the risks and uncertainties discussed in ‘‘Risk Factors’’.
In this Prospectus, statements of or references to our intentions or that of any of our
Directors are made as at the date of this Prospectus. Any such intentions may change in light of
future developments.

34

RISK FACTORSYou should carefully consider all of the information in this Prospectus, including the risks
and uncertainties described below, prior to investing in our Shares. You should pay particularattention to the fact that we conduct our operations in Japan and are governed by a legal andregulatory environment which in some respects may differ from that which prevails in othercountries. Any of the below risks, as well as other risks and uncertainties that have not yet
been identified or that we currently think are immaterial, may materially and adversely affectour business, financial condition or results of operations, or otherwise cause the trading priceof our Shares to decrease and cause you to lose all or part of your investment.
RISKS RELATING TO G-PRIZE WHOLESALERS AND G-PRIZE BUYERS
Our business depends significantly on the services provided by our G-prize wholesalers
and their G-prize buyers
We rely upon the continued services of our G-prize wholesalers (from whom we source
G-prizes) and their G-prize buyers (from whom they in turn source G-prizes), who are
independent of us. G-prizes make up the vast majority of prizes redeemed by our customers. For
the years ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2014,
the value of G-prizes exchanged by our customers at our halls constituted approximately 99.0%,
99.1%, 99.1% and 98.3% of all prizes (namely, all G-prizes and general prizes), respectively.
We enter into various agreements with our G-prize wholesalers, such as purchaseagreements for G-prizes (or even general prizes) and lease agreements for a parcel of land on
which the relevant pachinko hall is located. To the best of our Directors’ knowledge and belief,
our G-prize wholesalers will enter into similar agreements with their G-prize buyers. We currently
have non-exclusive relationships with 12 G-prize wholesalers, who in turn have arrangementswith various G-prize buyers. The termination of any of our arrangements with our G-prize
wholesalers, or of the arrangements between any of our G-prize wholesalers and their G-prize
buyers, would cause a disruption in our business. We would have to engage other G-prize
wholesalers, who would then need to engage their own G-prize buyers. The arrangements anddealings between the G-prize wholesalers and the prize buyers are beyond our control. We orthey may not be able to establish new arrangements on terms acceptable to us or them or at all,which would have a material adverse effect on our business, financial condition, results ofoperations or prospects. In any case, we have no ownership or managerial control over any of
our G-prize wholesalers or their G-prize buyers. We cannot assure you that they will at all times
strictly adhere to the terms of the relevant agreements.
We may be adversely affected by any breach of the independence requirements under
the Three Party System.
Gambling is a criminal offence under the Penal Code. Further, the Amusement Business Law
and its ancillary prefectural local regulations prohibit pachinko hall operators from being involvedin the exchange of prizes by customers, whether directly or indirectly, for cash or securities. In
order to ensure compliance with such laws and regulations, the pachinko industry has developed
the “Three Party System”, which is an industry practice for the sale and purchase of G-prizes
exchanged by a customer playing at a hall. The parties under the Three Party System include: (1)35

RISK FACTORS
pachinko hall operators (such as ourselves); (2) G-prize buyers; and (3) G-prize wholesalers. See“Applicable Laws and Regulations — C. Legality of Pachinko Businesses and the Three Party
System” for details. Under the Three Party System, pachinko hall operators (such as ourselves)must be independent of each of: (1) the G-prize wholesalers engaged by them; and (2) G-prize
buyers engaged by their G-prize wholesalers. This ensures that, from the pachinko hall operators’
perspective, G-prize wholesalers and G-prize buyers are unrelated third parties.
If there is a breach of either of the independence requirements, this may expose us to apotential breach of the Penal Code, the Amusement Business Law and other local regulations.
Such breaches could disrupt our business operations at the affected business halls, as we willneed to immediately rectify the situation by ceasing transactions with the G-prize wholesaler, or
if relevant, requesting the G-prize wholesaler to cease transactions with the G-prize buyer. In
particular, if we had to cease transactions with a G-prize wholesaler, all of its G-prize buyers will
also need to be replaced and we will need to enter into new agreements with anotherindependent G-prize wholesaler.
RISKS RELATING TO KEY JAPAN LEGAL AND REGULATORY MATTERS
Rights of shareholders under Japan law may be different from rights of shareholders inother jurisdictions, including Hong Kong
We are primarily governed by Japan law, including the Japan Companies Act. Our Articles
and the Japan Companies Act govern our corporate affairs. Legal principles relating to matterssuch as the validity of corporate procedures, directors’ fiduciary duties and liabilities andshareholders’ rights under Japan law may be different from those that would apply to a company
incorporated in any other jurisdictions that you (as potential investors) may be more familiar with,including Hong Kong. You may have more difficulty in asserting your rights as a Shareholder than
you would as a shareholder of a corporation organised in other jurisdictions. Key differences
between the shareholders protection regimes in Japan and Hong Kong are set out in “Key Japan
Legal and Regulatory Matters — G. Shareholders Protection”.
In addition, we have applied for, and have been granted, waivers from the Stock Exchange
from strict compliance with certain requirements under the Listing Rules. These waivers include(i) requiring our Controlling Shareholders or other Shareholders having an interest in a transaction
to abstain from voting in a general meeting; and (ii) issuing a supplemental circular for persons
nominated as Directors, amongst others. Shareholders will not have the benefit of those Listing
Rules for which we have applied, and have been granted waivers from the Stock Exchange.
Additionally, if any of these waivers were to be revoked for any reason, including our compliancewith the applicable undertakings, additional legal and compliance obligations might be costly andtime consuming, and might result in issues of inter-jurisdictional compliance, which could
adversely affect us and our Shareholders.
The SFC does not have extra-territorial jurisdiction on any of its powers of investigation andenforcement of any corporate governance breaches committed by us in Japan. Investors should
be aware that it could be difficult to enforce any judgment against us or any of our subsidiaries.

36

RISK FACTORSOur Shares are “bearer shares” in nature and there are significant risks associated withphysical possession of share certificates
Under Japan law, our Shares are “bearer shares” in nature. A bearer, or a physical holder,of a share certificate issued by our Company is recognised as the owner of the Shares
represented by it. Ownership of our Shares can be transferred simply by the delivery of our sharecertificates, with or without the transferor and the transferee having signed any document
evidencing such transfer. This creates inherent risks for Shareholders and potential investors whochoose to hold our Shares by physical possession of our share certificates. For example,
Shareholders and potential investors might lose the ownership and value of our Shares
represented by a share certificate if it is lost or destroyed. In addition, an unauthorised third party
might come into possession of a lost share certificate and seek to be recognised as a
Shareholder.
We have procedures in place for Shareholders and other eligible persons to report a lost or
destroyed share certificate. See “Key Japan Legal and Regulatory Matters — A. Bearer Shares— Lost / destroyed Share Certificates” for details. Investors should note that we are required bylaw to impose a one-year waiting period before a replacement share certificate can be re-issued.
During the mandatory one-year waiting period, you may not register a transfer of the Shares
represented by the lost or destroyed share certificate or otherwise deposit such Shares into
CCASS for trading on the Stock Exchange. You may also lose some of your rights as a
Shareholder, such as voting rights, under certain limited circumstances.
Notwithstanding the “bearer” nature of our Shares, it is provided under our Articles and theJapan Companies Act that title to our Shares shall not be perfected against our Company until
and unless a person’s name and address are recorded in our Share Register. Under article 130of the Japan Companies Act, a company is not obliged to treat anyone as a shareholder unlessand until he/she is registered as a shareholder on its share register. As an enhanced measure of
Shareholder’s protection, our Articles provide that our Company shall not associate any
Shareholders’ right (such as voting rights and rights to receive dividends) with any person unless
his/her name appears on our Share Register in reliance on the above provision under the Japan
Companies Act. As such, failure to register interests in our Shares in our Share Register could
result in the misappropriation or loss of a Shareholder’s rights. In addition, under Japan law, ourCompany does not have the right to take action against a Shareholder’s failure to disclose his/herinterests to our Company. Hence, potential investors are strongly cautioned to register yourinterests in our Shares in our Share Register after you have properly acquired title in our Shares,
following the procedures set out in “Key Japan Legal and Regulatory Matters — A. Bearer Shares— Transfer of Shares”.
CCASS Beneficial Owners who do not physically possess our share certificates are notsubject to the risks associated with the “bearer” nature of our Shares and are not required
register their interests in our Share Register. Despite certain disadvantages associated withCCASS Beneficial Owners, details of which are set out in “Key Japan Legal and Regulatory
Matters — A. Bearer Shares — Recommended measures for our Shareholders and potential
investors”, it is our Board’s strong recommendation that potential investors should hold yourinvestments in our Company through CCASS.

37RISK FACTORSCCASS Beneficial Owners are subject to certain disadvantages under Japan law andregulations
Due to certain Japan legal and regulatory provisions, CCASS Beneficial Owners are subject
to certain disadvantages as set out in detail in “Key Japan Legal and Regulatory Matters — A.
Bearer Shares — Recommended measures for our Shareholders and potential investors”. For
example, CCASS Beneficial Owners are subject to a higher withholding tax rate, and they may
not inspect our Share Register unless allowed to do so under the Personal Information Protection
Act.
Despite these disadvantages, given the risks associated with our “bearer” Shares (which arevery significant in the opinion of our Directors), it is our Board’s strong recommendation that
potential investors should hold your investments in our Company through CCASS.
Our Articles provisions on the registration of share transfers are not judiciallyprecedented in Japan and may be challenged in court
To minimise our Shareholders’ exposure to the risks associated with the “bearer” nature of
our Shares, we have put in place a number of voluntary measures in relation to the registrationof ownership and transfers of our Shares in our Share Register. For example, our Articles requirethat any person seeking to have his name and address recorded as a Shareholder in our Share
Register must present an acceptable transfer document that conforms to the requirements under
the Stamp Duty Ordinance and duly stamped and executed by the transferee and the record
Shareholder as the transferor.
There is no clear Japan case law that supports our Articles provisions in relation to theregistration of share transfers. It is possible for a bearer of our share certificates to initiate legal
proceedings against us in this regard. If we fail to defend ourselves in these legal proceedings,
we may need to implement additional compliance procedures which might be costly, such as theappointment of an additional Japan share registrar to handle registration of share transfer freefrom any documentary requirements, and significantly inflate our Shareholders’ exposure to risks
associated with physical possession of our share certificates.
Surrendered share certificates can only be re-issued after a waiting period of up to six
business days, which could result in settlement failures
Shareholders and potential investors who choose to invest outside CCASS are encouraged
to surrender their share certificates to us, in which case the relevant share certificates will becancelled and the risks associated with our “bearer shares” will no longer apply. However, you
should note that our Hong Kong Share Registrar may take up to six business days to re-issue a
new share certificate in lieu of a surrendered share certificate. During the waiting period of up to
six business days, the relevant Shares may not be transferred or otherwise deposited into CCASS
for trading on the Stock Exchange. This will ‘in particular’ affect Shareholders and potential

38

RISK FACTORS
investors who seek to trade the Shares on a “T+2” basis, whereby dealings in Shares on the
Stock Exchange customarily take place two business days prior to settlement. The waiting periodof up to six business days may lead to settlement failure and investors are strongly advised toformulate your investment schedule in accordance with this waiting period.
Investors that are non-resident individuals of Japan or non-Japanese corporations
without a permanent establishment in Japan are subject to Japan withholding tax on
dividend distribution
Our Tax Adviser has advised us that Shareholders interested in less than 3% of our total
number of issued Shares that are non-residents individuals of Japan or non-Japanese
corporations without a permanent establishment in Japan are subject to Japan withholding tax
of 15.315% for any dividend distributions due and paid on or before 31 December 2037.
Shareholders holding 3% or more of our total number of issued Shares are subject to awithholding tax in Japan of 20.420% for any dividend distributions due and paid on or before 31
December 2037. Shareholders that are either residents in Hong Kong or corporations establishedin Hong Kong without any permanent establishment in Japan are entitled to a reduced
withholding tax rate not exceeding 10% (or not exceeding 5% for corporate Shareholders who areinterested in 10% or more of our total number of issued Shares for the six consecutive months
ending on the record date for dividend distribution) under the Hong Kong-Japan Tax Treaty. See“Key Japan Legal and Regulatory Matters — E. Taxation — 1. Withholding Tax on Dividend
Payment” for details.
Potential investors should note that, due to the inherent characteristics of CCASS, ourCompany is unable to ascertain the identity, and consequently the tax residence, of the CCASS
Beneficial Owners. As such, we will initially withhold 20.420%, which is the highest possible
withholding tax rate in Japan, on all dividend payments to CCASS Beneficial Owners. CCASS
Beneficial Owners are not entitled to tax relief under the Hong Kong-Japan Tax Treaty. Investors
who choose to invest through CCASS are subject to a higher withholding tax rate.
Minority Shareholders may incur significant time and costs in initiating court proceduresin Japan against the acquisition price in a compulsory acquisition
Under the Japan Companies Act and other relevant Japan laws and regulations, an offerorof a successful takeover may, having acquired 90% of the voting rights in our Company, buy out
the remaining Shares of the minority Shareholders by initiating a number of transactions with orwithout Shareholders’ approval.
Unlike the compulsory acquisition regime under the Companies Ordinance, there is norestriction under the relevant Japan laws and our Articles on the acquisition price of thesetransactions. Minority Shareholders may need to resort to a number of court procedures in Japanto (i) request the court to cease the relevant transactions; or (ii) determine a fair acquisition price.
There may be significant delays and costs involved in the initiation of the aforementioned court
procedures. See “Appendix V — Summary of our Articles of Incorporation and Japan Corporation
Law — 8. Compulsory Acquisitions” for details of the said transactions and court procedures.

39

RISK FACTORS
You may experience difficulties in effecting service of legal process and enforcing
judgments against us and our management
Our Company was incorporated under the laws of Japan. All our current operations andadministrative and corporate functions are conducted in Japan, and substantially all of our assets
and our subsidiaries are located in Japan. In addition, all of our Directors and Executive Officers
reside within Japan, and most of the assets of our Directors and Executive Officers are locatedwithin Japan. As a result, it may not be possible to effect service of process outside Japan upon
any of these persons or our Company, or to enforce any judgments obtained in courts outside ofJapan against them or us. Further, judgments of a court in a foreign jurisdiction related to any
matter may not be recognised or enforced in Japan. In addition, it is uncertain whether courts inJapan would have the legal authority to hear the original actions brought against us or such
persons predicated upon the laws of other jurisdictions.
Investors may under certain circumstances be required to file a foreign exchange reportor notification to The Bank of Japan, failure of which could lead to monetary fines and/or
imprisonment
The Foreign Exchange and Foreign Trade Act of Japan* (外国為替及び外国貿易法) of Japan(Act No. 228 of 1949) and the cabinet orders and ministerial ordinances thereunder govern
certain matters relating to the issue of equity-related securities by us and the acquisition, holding
and disposal of Shares by foreign investors of our Company. Under certain prescribedcircumstances, Shareholders and CCASS Beneficial Owners may be required to file a foreignexchange report or notification to The Bank of Japan.
The filing obligations are generally exempted if: (i) a Shareholder or CCASS Beneficial Owner
is a resident of, or a corporation organised under the laws of, certain exempted jurisdictions(which include Hong Kong, the U.S., the United Kingdom, Canada, Australia, the PRC, among
others); and (ii) their shareholding interests in our Company is less than 10%.
Failure to notify The Bank of Japan when required may result in imprisonment of up to three
years and/or a fine of up to ¥1 million. See “Appendix V — Summary of our Articles ofIncorporation and Japan Corporation Law — 10. Foreign Exchange Control” for the list of
exempted jurisdictions and the details of the relevant filing requirements.
RISKS RELATING TO OUR BUSINESSWe experienced decreased gross pay-ins for the six months ended 30 September 2014
compared to the corresponding period of the previous year, and we cannot guaranteethat our results will improve
Our gross pay-ins decreased by ¥29,685 million, or 24.6%, from ¥120,674 million for the six
months ended 30 September 2013 to ¥90,989 million for the six months ended 30 September
2014. The decrease in gross pay-ins in our halls was mainly due to decreases in player traffic,
as a result of our new policy of imposing mark-ups ranging from 4% to 20% (with an average ofaround 10%) on G-prize redemption, effective from 1 April 2014. Such initiative was imposed with40

RISK FACTORS
a view to enhance the performance of our halls and to cover the increase in consumption tax from
5% to 8%. Subsequently, a portion of players who focus on the payout aspect of the game werediscouraged from playing at our halls. A significant decrease in the utilisation rate of ourmachines was also recorded during this period. See “Financial Information — Period to Period
Comparison of Results of Operations — Gross Pay-ins” for details.
Our business, financial condition and results of operations are affected by many factors as
discussed in this Prospectus, many of which are beyond our control. We cannot guarantee that
our results of operations will improve in the future. If our results of operations deteriorate, theprice of our Shares may drop. See “Business — Strategies” and “Future Plans and Use ofProceeds” for details on how we intend to improve our business.
Our financial results for the year ending 31 March 2015 are expected to be affected bycertain one-off expenses
We currently expect certain one-off expenses to have a negative impact on our financial
results for the year ending 31 March 2015. These include listing expenses in relation to the Global
Offering and a retirement payment to a retired Director.
Regarding listing expenses, the total expenses in relation to the Global Offering (comprisingprincipally professional fees and underwriting commission) are estimated to be approximately¥1,149 million (approximately HK$76 million) (assuming an Offer Price of HK$1.19 per Share(being the mid-point of the proposed Offer Price range)) of which approximately ¥340 million(approximately HK$22 million) is directly attributable to the issue of new shares to the public andto be accounted for as a deduction from equity, and approximately ¥809 million (approximately
HK$54 million) is to be recognised as expenses in our consolidated statements of comprehensive
income for the year ending 31 March 2015. During the six months ended 30 September 2014,
we already incurred ¥226 million (approximately HK$15 million) which were accounted for as ouradministrative and other operating expenses. Therefore, by the completion of the Global Offering,
we expect to incur an additional approximately ¥583 million, to be accounted for as ouradministrative and other operating expenses for the six months ending 31 March 2015. The
amount of additional listing expenses expected to be incurred for the completion of the Global
Offering is an estimate only and the final amount to be recognised as expenses in ourconsolidated statement of comprehensive income for the year ending 31 March 2015 is subject
to adjustments based on audit and changes in circumstances.
Regarding the retirement payment, we paid ¥600 million to Mr. Tatsuo TANIGUCHI(谷口龍雄) during the six months ended 30 September 2014 as special benefit for his retirement
as a Director of our Company in June 2014 and a director of Niraku Corporation in September
2014.

41

RISK FACTORS
Our business may be adversely affected by natural disasters, such as earthquakes likethe Great East Japan Earthquake, or disease outbreaks
Fukushima Prefecture (福島県) is our most important strategic location, in which ourheadquarters, hotel and 20 of our halls (as at the Latest Practicable Date) are located. In
particular, it is the prefecture with the most number of our halls and machines. Our halls inFukushima Prefecture (福島県) accounted for 40.1%, 40.7%, 40.5% and 42.7% of our total
revenue for the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, respectively.
In March 2011, the Great East Japan Earthquake struck the To៮ hoku Region (東北地方),
northeast of Japan. This earthquake triggered tsunami waves that struck the north-eastern coastof Japan, and caused (among others) the nuclear power plant incident in Fukushima Prefecture(福島県), causing the lingering public concern over radiation levels.
As a result of the Great East Japan Earthquake, we recorded earthquake losses (namely,
property damage) of ¥653 million for the year ended 31 March 2011. It caused us to temporarilyclose a majority of our halls, namely 32 halls, of which 11 halls were reopened within two weeks,
17 halls were reopened within four weeks, one hall was reopened within six weeks, two halls werereopened within eight weeks and one hall was reopened within 13 weeks. We also had topermanently close one hall (that was located within the exclusion zone in Fukushima Prefecture(福島県) implemented by the Japanese government). For this one permanently closed hall, we
entered into alternative dispute resolution (namely, mediation of settlement before the Nuclear
Damage Compensation Dispute Resolution Center* (原子力損害賠償紛争解決センター), an
administrative alternative dispute resolution institution established by the Japanese government
specifically to deal with nuclear damage compensation claims arising from this nuclear power
plant incident) with the operator of the affected nuclear plants, Tokyo Electric Power Company,
Incorporated* (東京電力株式会社), which compensated us ¥590 million (recorded as otherincome for the six months ended 30 September 2014), mainly for our loss of profits incurred
during the one-year period after the Great East Japan Earthquake and also related property
damages (including loss of all movables such as machines and islands). Our Directors are
considering the most appropriate method to obtain compensation for loss of profits for
subsequent years which we may not get. Aside from this permanently closed hall, none of ourhalls is within the exclusion zones implemented by the Japanese government. See “Business —Pachinko and Pachislot Hall Operations — Fukushima Prefecture (福島県) and the Great East
Japan Earthquake” for details, including information regarding the exclusions zones and theearthquake’s positive effect on the working population and financial results of our halls inFukushima Prefecture (福島県).
Japan is one of the most seismically active countries in the world and it also regularly
experiences typhoons and other natural disasters. Any large earthquake, other natural disasteror outbreak of an epidemic can adversely impact our employees or our ability to continue
operating our pachinko facilities, our suppliers’ ability to continue their manufacturing or otheroperational activities, or our customers (thus, causing a decrease in discretionary spending anddemand in our offerings). Ultimately, these events can cause significant disruption to our business
operation.

42

RISK FACTORS
We do not maintain any earthquake insurance or business interruption insurance. Damage
to any of our offices or pachinko halls due to fire, earthquake, typhoon, flood, terrorism,
outbreaks such as the H1N1 pandemic, avian flu or other man-made or natural disasters orcasualty events may materially and adversely affect our business, financial condition and resultsof operations.
We face the risk of fraud or cheating
Players at our halls may attempt to commit fraud or otherwise cheat in order to increase thenumber of pachinko balls and pachislot tokens they collect. Acts of fraud or cheating could
involve, among others, the use of altered or counterfeit pachinko balls or pachislot tokens,
tampering with our machines and systems, or other tactics, possibly in collusion with our
employees. For example, customers may attempt to use magnets or sheer physical force toinfluence the movement of pachinko balls. Instances of illegal or fraudulent activity of a minor orinsignificant nature by customers in our pachinko halls are detected approximately once per hall
per month.
To prevent fraud or cheating, we have anti-cheating and anti-counterfeiting surveillancesystems. We cannot assure you that our efforts to prevent cheating will be effective, and any
failure to discover such acts or schemes in a timely manner could result in losses in our pachinko
operations. In addition, negative publicity related to such acts or schemes could have an adverse
effect on our reputation, thereby materially and adversely affecting our business, results ofoperations, financial condition and prospects. Further, an allegation or a finding of improper
conduct on our part, or on the part of our current or future employees, or an actual or alleged
system security defect or failure attributable to us, could be deemed to be a regulatory breachfor which we could be subject to revocation or suspension of our operating licence for the
relevant pachinko hall.
Anti-social forces might have an influence in the pachinko industry
Historically, the pachinko industry was associated to anti-social forces. We cannot assure
you that we will be able to prevent anti-social forces from interfering in our operations. In addition,
anti-social forces may engage in criminal activities, such as theft of cash or fraud, throughinvolvement with G-prize buyers or other third parties that we do not have control over. Any
involvement by anti-social forces in our operations or the pachinko industry in general, including
the ensuing negative publicity, could materially and adversely affect our reputation, business,
results of operations and financial condition, and also the reputation and perception of ourindustry as a whole.

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RISK FACTORSWe rely heavily on our information technology systems, which could be subject to
unexpected interruption or security breaches
We rely heavily on our information technology systems, which store, retrieve, process andmanage substantial amounts of real-time data and information, including personal information of
our members (and the number of balls or tokens carried over) that is stored in our membership
database servers. These systems help facilitate our business decision-making process andformulate strategies for machine replacement and procurement, marketing, prize procurement
and inventory management.
Such systems are inherently susceptible to the risks of hardware, software or network
failure, which would materially impact our ability to conduct our business. Our growing operations
will place increasing pressure on our server and network capabilities as we seek to increase ournumber of halls and customer base. In addition, we rely on third-party service providers forcertain key aspects of our network infrastructure and technology systems.
In addition, our systems are susceptible to security breaches caused by hackings, which
involve efforts to gain unauthorised access to our information or systems, or to cause intentional
malfunctions, loss or corruption of data, software, hardware or other computer equipment, theintentional or inadvertent transmission of computer viruses and similar events or third-party
actions. These could have a material and adverse effect on our reputation, business, financial
condition and results of operations. It may be difficult for us to respond to security breaches ina timely manner or at all. If unauthorised persons are able to penetrate our network security, they
could misappropriate personal information regarding our members, or cause interruptions in ourservices. See “— We may be subject to liability for failure to maintain compliance with Japan’s
privacy laws in connection with our membership system and database” for details. In addition,
hacking and computer viruses could expose us to a material risk of loss or litigation and possible
liability under Japan’s privacy laws. See “Applicable Laws and Regulations — G. Personal
Information Protection” for details.
If we lose the services of our third-party information technology systems contractor, ouroperations may be seriously disrupted
Our information technology network was developed in conjunction with, and is maintainedby, a third party contractor. We rely on our third party contractor to maintain the network andinfrastructure underlying our information technology systems, to provide technical assistance tous on an ongoing basis, and to upgrade our systems when and as necessary. Any failure by ourthird party contractor to maintain the satisfactory performance, reliability, security and availabilityof our network infrastructure may adversely affect our ability to operate our business in an
efficient and effective manner.
The termination of our arrangements with our third party contractor for any reason could
cause disruption in our business operations. In the event of such a termination, we would haveto seek other means of maintaining our information technology systems, which may include theacquisition of equipment, the licensing of software and the development, either internally or
through independent consultants or third party contractors, of new software. If we are unable to44

RISK FACTORS
design, develop, implement and/or maintain, in a cost-effective manner, information systems thatprovide the capabilities necessary for us to compete effectively, or if we suffer any interruption orloss of our information processing capabilities for any reason, our operations could be materiallydisrupted.
Prices for construction and engineering services have increased rapidly
Demand for construction and engineering services has increased dramatically in Japan inrecent years, due to reconstruction efforts following the Great East Japan Earthquake, and also
for the infrastructure development and construction in preparation for the 2020 Olympic Games
to be held in Tokyo (東京都). This has in turn caused prices for such services, including labourcosts and the relevant raw materials such as steel, to increase dramatically. This has caused ourhall construction costs to increase and may continue to do so in the near future.
Our pachinko halls may not necessarily be constructed on time either, as work completioncan be delayed due to shortages of manpower in light of the increased demand for constructionand engineering services.
Our business may be affected by downturns in the economy (such as the recent
recession of the Japanese economy), economic uncertainty and other factors affecting
discretionary consumer spending
An extended economic downturn or continued uncertainty in global and regional economies
could negatively affect demand for the type of gaming and entertainment services we offer.
Changes in discretionary consumer spending or consumer preferences could be driven by factors
such as perceived or actual general economic conditions, a weakening job market, or an actualor perceived decrease in disposable consumer income and wealth. These and other factors havein the past reduced consumer demand for the gaming and entertainment services we offer andhave adversely affected our gaming business, results of operations and financial condition, andif we are not successful in responding to future changes in consumer spending trends, could
further affect our future prospects.
For example, the economy of Japan recently entered into a recession in late 2014. We
cannot assure that the economy of Japan will improve or that government responses to these
conditions will successfully address weaknesses in the economy of Japan, restore consumer
confidence or increase market liquidity. Continued weakness in the economy of Japan, where we
conduct all of our business operations and where the vast majority of our customers reside
and/or generate their income, may result in a reduction of the number of customers, a reductionin the frequency of visits by these customers, or a reduction in the amount of money spent by
these customers in our pachinko halls. Any reduction in consumer demand for the services weoffer would materially and adversely affect our revenue and, as a result, our business, financial
condition and results of operations.

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RISK FACTORS
We may be subject to liability for failure to maintain compliance with Japan’s privacy
laws in connection with our membership system and database
We are subject to Japan’s Personal Information Protection Act, which regulates thecollection, use, handling, and transfer of personal information. See “Applicable Laws andRegulations — G. Personal Information Protection”. We maintain an extensive membership
database that collects, stores and analyses information on our 238,939 registered members (asat 30 September 2014), including personal information such as each member’s name, address,
age, gender and date of birth. The mishandling of any of our members’ personal information,such as through internal leaks, misappropriation by an unauthorised third party, or otherunauthorised use by us or a third party, may be required by the relevant authorities to be reported
to them and is encouraged to be disclosed to the public, and could subject us to civil and/or
criminal liability and significantly damage our reputation.
We may require additional financing to expand our business, which may not be available
on satisfactory terms or at all
We have in the past funded our business and operational expansion primarily through cash
generated from our operations and external bank borrowings. We may require additional funding
in the future to further expand our business, which we may raise through external financing. Ourability to obtain any financing on acceptable terms depends on a variety of factors that are
beyond our control, including market conditions, investors’ and lenders’ perceptions of, anddemand for, debt and equity securities of pachinko companies, credit availability, and interest
rates; the availability of, and likely terms for, debt financing may be adversely affected by recent
developments in the global economy. As a result, we cannot assure you that we will be able toobtain sufficient funding from external sources as required on terms satisfactory to us, or at all,to finance future expansion. If we raise additional capital through the sale of equity, or securities
convertible into equity, further dilution to our then-existing shareholders will result. If we raise
additional capital through the incurrence of debt, our business may be affected by the amountof leverage we incur. For instance, such borrowings could subject us to covenants restricting ourbusiness activities, servicing interest would divert funds that would otherwise be available tosupport our operations or development activities, and holders of debt instruments would haverights and privileges senior to those of our equity investors. If we are unable to obtain adequate
funding on a timely basis, we may not be able to execute parts of our growth strategy or tomaintain our growth and competitiveness, which could materially and adversely affect ourbusiness, results of operations, financial condition and prospects.
The failure to fulfil conditions imposed under our loan facilities may limit our ability to
conduct our operations or obtain additional financing
As at 31 January 2015, we had outstanding indebtedness of ¥21,673 million (equivalent toapproximately HK$1,431 million as calculated using the rate of ¥15.15 to HK$1.00, which was
the exchange rate prevailing on 30 January 2015, being the last business day before the date of
our indebtedness statement). See “Financial Information — Indebtedness”. Our loan facilities andcredit agreements impose certain conditions, including financial covenants, that restrict our

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ability to engage in certain transactions. In particular, our credit facilities require, among otherthings, our Group companies to maintain specified financial ratios and net assets, and contain
restrictions on ordinary losses, which may limit our ability to conduct our operations or obtain
additional financing.
Although we have not breached any of these covenants during the Track Record Period, ourability to comply with these covenants in the future may be affected by events beyond our control,
including prevailing economic, financial and industry conditions. As a result, we may not be able
to comply with these covenants, including with respect to making our required payments due toinsufficient cash flow. Our failure to comply with any of these covenants or to meet our payment
obligations could result in an event of default which, if not cured or waived in time, could resultin the acceleration of those and other outstanding debt obligations and the enforcement of
security and guarantees given in respect of them. We may not have sufficient working capital or
liquidity to satisfy our debt obligations in the event of an acceleration of all or a portion of ouroutstanding obligations.
Our pachinko halls may not perform as expected and our strategy of expanding our
suburban hall network may not be successful
Our growth strategy includes the continued opening of new pachinko halls, namely seven
new suburban halls in the next three years. See “Business — Strategies — Continue to leverage
our strengths and expand our suburban halls network in Northeast Honshu (本州島東北) toextend our leading market position”. We have incurred and will continue to incur significant
capital expenditures associated with the construction of new pachinko halls. If we are unable toexpand according to our plan, or our assessment of location for opening halls fails to provide us
with accurate information to choose suitable site for hall openings, our expansion may not goahead as planned and our results of operations may be adversely affected. We cannot assure youthat we will be able to maintain or improve on our overall profitability. In addition, we may not beable to obtain the necessary financing for our expansion and improvement plans on favourable
terms, or at all. We also cannot assure you that an increase in the number of our pachinko halls
will lead to a corresponding increase in our revenue, or that we will be able to maintain or growour market share in the future or otherwise compete effectively. Any failure on our part tosuccessfully implement our current plans for the improvement of pachinko halls, or to effectively
manage our growth, would adversely affect our business, financial condition and results ofoperations.
Our success and business operations are largely dependent on certain key personnel
and our ability to attract and retain talented personnel
Our future success depends heavily on the continued services of our Executive Director,
senior management and other key employees. In particular, we rely on the expertise, experienceand leadership of our Executive Director and our senior management team (including our
Executive Officers), who play a vital role in our operations. Our Executive Officers have an average

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RISK FACTORS
of over 15 years experience in the pachinko industry. If one or more of our Executive Director,
senior management or other key employees are unable or unwilling to continue in their present
positions, we may not be able to replace them promptly, or at all, which may severely disrupt ourbusiness and affect our results of operations and future prospects.
Moreover, we may not be able to attract or retain skilled employees or key personnel. The
competition for qualified personnel in Japan may also drive up our labour costs, which would inturn increase our costs of operations and affect our profitability. In such circumstances, ourbusiness, financial condition and results of operations may be materially and adversely affected.
If we fail to maintain an effective system of internal controls, we may be unable toaccurately report our financial results or detect and prevent fraud
Upon completion of the Global Offering, we will become a public company subject to thereporting obligations of the Stock Exchange. These obligations include, among others, preparing
annual and interim reports of our business and results of operations, including financial
statements in accordance with IFRS. Our reporting obligations as a public company andimplementing necessary internal controls and risk management and policies will place substantial
demands on our management and our operational and financial resources. Prior to the Global
Offering, as a private company, we only have a limited number of accounting personnel and otherresources allocated for addressing our internal controls over financial reporting. In this regard,
effective internal controls over financial reporting is necessary for us to produce reliable financial
reports and is important to help prevent fraud. We are in the process of training, managing andappropriately expanding our human resources and other components of our business andimplementing and maintaining adequate management and financial controls to improve ourinternal controls in preparation of being a public company, which will likely require us to incur
significant costs and devote substantial management time and efforts and other resources. Ourfailure to achieve and maintain effective internal control over financial reporting could result in theloss of investor confidence in the reliability of our financial statements.
We must continue to improve and maintain our internal controls and risk management tomanage our anticipated future growth, regulatory requirements applicable to our business andthe growing demands of our business operations. In this regard, any system of controls, however
well designed and operated, can only provide reasonable, and not absolute, assurance that theobjectives of the system are met. As such, we may be subject to risks arising in relation to ourinternal controls and risk management, which could have a material adverse effect on ourbusiness, results of operations and financial condition and cash flows. We review our internal
control policies and procedures on an ongoing basis. In particular, we have engaged an
independent third party consultant (the “Internal Control Consultant”) to assist us in reviewing
the design and effectiveness of certain internal controls in relation to financial reporting of ourGroup. Their review covered the internal controls in relation to various processes, such as
revenue and receivables, purchases and payables, cash and treasury management, humanresources, financial reporting, property, plant and equipment, taxation, hall management, prize
exchange centre management and IT general controls. Some of the more significant deficiencies
identified by the Internal Control Consultant during their initial reviews conducted in September
and October 2014 were in areas including: (i) formalisation of documents related to the Board’s

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and Board committees’ operations; (ii) formalisation of policies and procedures to monitor andreport related party transactions and price sensitive information; and (iii) strengthening of certain
information system related controls. We have developed a set of remedial action items to rectify
and/or improve the identified deficiencies. All significant findings will be remediated before
Listing. In December 2014, the Internal Control Consultant carried out the planned follow-up
reviews on the implementation of the remedial actions for the more significant deficiencies andno further recommendation was raised.
However, we cannot assure you that we will be able to successfully address all internal
control issues all the time. Further, our existing internal controls may not be sufficient for our
future operations as technology and regulatory and compliance environment evolve over time,
and we cannot assure you that there will not be new deficiencies in our internal control policies
and procedures. Any such deficiency could adversely affect our management’s ability to monitor,
evaluate and manage our business and operations or risk of inaccurate financial reporting, which
in turn could have a material adverse effect on our business, results of operations and financial
condition.
Our AML policies may not be sufficient in preventing the occurrence of money
laundering activities at our pachinko halls
There is currently no obligation imposed on pachinko hall operators under the AML laws ofJapan. Nevertheless, we have voluntarily implemented AML policies, which have been designed,
implemented and operating with reference to the guidance letter titled “International Standards
on Combating Money Laundering and the Financing of Terrorism and Proliferation” issued by the
Financial Action Task Force in 2012, as well as the Amusement Business Law. However, wecannot assure you that these policies will be effective to prevent our pachinko operations frombeing exploited for money laundering purposes. Any incidents of money laundering, accusationsof money laundering or regulatory investigations into possible money laundering activities
involving us, our employees, or our customers could have a material adverse impact on our
reputation and our relationship with regulators, and could consequently materially adversely
affect our business, financial condition, results of operations and prospects. Any serious incident
of money laundering or regulatory investigation into money laundering activities would likely resultin a revocation or suspension of our operating license. For more information regarding ourcontrols, see “Internal Controls and Anti-Money Laundering” and “Appendix IV — Summary of the
Review of Anti-Money Laundering Procedures, Systems and Controls”.
We may not be able to renew leases or other contractual arrangements for the use ofexisting pachinko halls, or to obtain desirable sites for the expansion of our operations,on satisfactory terms or at all
We lease properties to operate some of our pachinko halls. As at the Latest PracticableDate, 49 of our pachinko halls were operated on land and/or premised leased by our Group.
Accordingly, rental fees account for a significant portion of our operating expenses. For the years
ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2014, theoperating lease rental expenses of our Group amounted to approximately ¥2,295 million, ¥2,362
million, ¥2,483 million and ¥1,399 million, respectively, representing approximately 7.6%, 7.2%,

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RISK FACTORS
7.3% and 9.0% of our total revenue for the same periods. Our Directors believe that rental costs
that are suitable for operating our pachinko halls will likely increase in the future. Our operatinglease obligations expose us to potentially significant risks, including increasing our vulnerability
to adverse economic conditions, limiting our ability to obtain additional financing and reducing
our cash available for other purposes. The term of our lease agreements typically ranges from 3
to 20 years, and generally provides that we will return the land in its original condition upon
expiration or termination of the lease.
In respect of 21 of our pachinko halls, the landowners from whom we lease land hold title
to the land and we only hold title to the premises we construct on the land. We are therefore
required to demolish any properties that we construct on the land and return it to the lessor asa vacant site. If we are unable to renew or otherwise do not renew these agreements in a timely
manner and on commercially reasonable terms or at all, we would have to demolish the pachinkohalls at those locations and surrender the land upon expiration of the lease term. Our Directors
currently estimate that the maximum potential demolition costs for each pachinko hall premiseshall be approximately ¥127.7 million excluding other costs.
We compete with other businesses for prime locations in a highly competitive market forretail premises. There is no assurance that we will be able to enter into new lease agreements for
attractive locations or renew existing lease agreements on commercially reasonable terms, if at
all. Therefore, any inability to obtain leases for desirable pachinko hall locations on commerciallyterms could have a material adverse effect on our business and results of operations.
After identifying a potential site for establishing a new pachinko hall, we must make therelevant applications and obtain construction permits pursuant to the City Planning Act* (都市計画法) (Act No. 100 of 1968) and the Building Standard Act* (建築基準法) (Act No. 201 of 1950).
We must also obtain prefectural approval for a license to operate a pachinko business at that site.
If we are unable to locate desirable sites and enter into lease agreements for sites on which we
intend to construct new pachinko halls, or obtain the requisite licences and/or approvals from therelevant local authorities, we may not be able to expand our business and operations as planned.
Even with the requisite permits and approvals, we cannot assure you that the halls we establish
on the properties we identify will be successful or attract customers.
Our current pachinko hall locations may become unattractive, and we may not be able
to identify and obtain attractive new locations at reasonable terms, if at all
The success of any pachinko hall depends in substantial part on its location. There can be
no assurance that our current pachinko hall locations will continue to be attractive. The economic
conditions or demographic patterns of the neighbourhood where our pachinko halls are locatedcould decline in the future, thus potentially resulting in reduced sales and customer flow in theselocations.

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RISK FACTORS
We may not be able to procure machines that continue to attract and retain customers
as player preferences and market trends evolve over time, or at desirable costs asmachine costs have increased steadily during the Track Record Period
As a pachinko hall operator, our revenue from pachinko and pachislot business is dependent
on the amount of money that customers spend playing on our machines. Therefore, to remaincompetitive and maintain customer interest, we must constantly acquire and provide new andvaried pachinko and pachislot machines. Machine costs comprise a significant portion of ouroperating expenses. Although we have been able to realise cost efficiencies due to our operating
scale and our machine procurement strategies, machine costs remain largely out of our control,
and average unit prices of pachinko machines have increased steadily during the Track Record
Period. While we collect information from our membership system and IT system on the utilisationand performance of our machines in order to aid our machine procurement strategy, we cannot
assure you that the machines we procure and install at our pachinko halls will be well-received
by our customers. We also cannot assure you that the manufacturers from whom we source our
new machines will receive the requisite regulatory approvals for private brand machines wedevelop and purchase. In addition, we cannot assure you that we will be able to accurately
anticipate changes in player preferences, industry trends or general changes in customer
behaviour or preferences, such as a redirection of leisure spending to other types of leisure andentertainment activities. These factors individually or collectively could result in the reduced
utilisation of, and a corresponding decrease in revenue generated from, our machines. If ourmachine procurement strategy fails to attract and retain customers, our business, results ofoperations and financial condition may be adversely affected.
The inherent element of chance may affect payout ratios in spite of our adherence topachinko industry regulations and practice
Although the Amusement Business Law sets certain limits on the payout ratios of pachinko
and pachislot machines, pachinko and pachislot games are characterised by an inherent elementof chance that is beyond our control. Further, results of play are also affected by other factors,
including players’ skill and experience, the mix of games played, the financial resources ofplayers and the amount of time players spend on playing pachinko and pachislot games. These
factors, alone or in combination, have the potential to adversely impact our payout ratios, which
may materially and adversely affect our business, results of operations and financial condition.
The appraised values of our selected properties in Japan may be different from theiractual realisable values and are subject to variation, and if the actual realisable valuesof such properties are substantially lower than their appraised value, there may be amaterial adverse effect on our business, results of operations and financial condition
Our Property Valuer, has valued selected properties in Japan in which our Group has
interests as at 31 January 2015. See “Appendix III — Valuation Report on Selected Property
Interests” for the full text of their letter, summary of valuation and valuation certificates withregard to such property interests.

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RISK FACTORSThe appraised values of such selected properties are based on various assumptions. The
key assumptions include (among others): (1) transferable land use rights of the properties for theirrespective terms at nominal annual land use fees have been granted and that any premium
payable has already been fully paid; (2) information and advice given by the Group regarding thetitle to each of the properties and the interests of the Group in the properties; and (3) the Group
has an enforceable title to each of the properties and has free and uninterrupted rights to use,
occupy or assign the properties for the whole of the respective unexpired land use term as
granted.
If any of such assumptions prove to be inaccurate, the appraised values of these properties
may be materially affected. Accordingly, these appraised values may differ materially from theprice we could receive in an actual sale of the property in the market, and should not be taken
as their actual realisable value or a forecast of their realisable value. Unforeseeable changes toregional economic conditions, may also affect the value of our properties. If the actual realisablevalue of our property is substantially lower than its appraised value, it may have a material
adverse effect on our business, results of operations and financial condition.
We recorded net current liabilities at times during the Track Record Period
We recorded net current liabilities of ¥1,164 million and ¥877 million as at 31 March 2012
and 2013, respectively. Such net current liabilities primarily reflected: (i) payables for the current
portion of our obligations under finance leases from long terms leases of properties for our
pachinko and pachislot hall operations; and (ii) our short-term borrowings and the current portionof our long-term borrowings, primarily to fund our construction and acquisition of pachinko halls,
and to a lesser extent our working capital. As at 30 September 2014, we had net current assetsof ¥2,416 million.
Our insurance coverage may not be adequate to cover all possible losses. In addition,
our insurance costs may increase and we may not be able to obtain the same level of
insurance coverage in the future
We maintain fire insurance for our pachinko halls and operating properties from fire damage.
We also maintain movable property insurance, which insures our movable property (such as
general prizes and G-prizes) from theft and burglary, and public liability insurance for third party
physical injuries and property damage, and labour and health insurance for our full-time
employees. Each policy contains certain customary exclusions. In addition, certain events suchas nuclear events, labour strikes, acts of war or terrorism, and epidemic outbreaks are excluded
from coverage by these insurance policies. We do not carry business interruption insurance
resulting from natural disasters such as droughts, floods, earthquakes or severe weather
conditions, any suspension or cessation in the supply of utilities and other calamities. Therefore,
certain acts and events could expose us to substantial uninsured losses. We may suffer businessdisruption as a result of these events or be subject to claims by third parties who were injured
or harmed. Our insurance may not continue to be available on commercially reasonable terms

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and, in any event, may not be adequate to cover all losses. If we incur losses or damages foramounts exceeding the limits of our insurance coverage, or for claims outside the scope of our
insurance coverage, our business, financial condition and results of operations could bematerially and adversely affected.
Moreover, we may be unable to renew or replace our existing insurance policies when they
expire on commercially reasonable terms, or at all, which could result in substantially higher
insurance costs, a reduction of our policy limits, certain exclusions from our coverage, anincrease of our deductibles, and/or a significant increase of our risk of loss or damage due touninsured events. In addition, any failure to renew or replace an insurance policy that may berequired under our various credit and other material agreements may affect our ability to operate.
Failure to satisfy these requirements could result in an event of default under these credit or othermaterial agreements and have a material adverse effect on our business, financial condition,
results of operations and prospects.
Our use of derivatives to manage and reduce financing risks may adversely affect our
financial condition and results of operations
We utilise derivative instruments to reduce the risk in interest payable in financing bychanging floating rates to fixed rates for our long-term loans payable. However, we may not beable to successfully manage our risk through the use of derivatives. For example, we haveentered into interest rate swap contracts to manage these risks with various counterparties, but,due to reasons out of our control, our counterparties may fail to honour the terms of theirderivatives contracts with us, and we may be exposed to additional risks. Alternatively, our ability
to enter into derivative transactions may be adversely affected if our credit ratings aredowngraded. Ineffective management of our derivatives contracts or an inability to enter into
new, and maintain existing, derivatives contracts to reduce our financing risks may adversely
affect our financial condition and results of operations.
Our Controlling Shareholders have the ability to exercise substantial influence or control
over us, which allows them to influence or control our business in ways that might not
be in the interests of other Shareholders
Upon completion of the Global Offering, the Taniguchi Consortium will own a total of
approximately 69.5% of our total number of issued Shares. Members of the Taniguchi Consortium
are associates of each other under the Listing Rules, and persons acting in concert with eachother within the meanings under the Takeovers Code. As a result, for the foreseeable future,through their voting control, the Taniguchi Consortium will be able to exercise substantial
influence over our operations and business strategy, such as matters related to the compositionof our Board of Directors, selection of our senior management, our overall strategic andinvestment decisions, issue of securities and adjustment to our capital structure, amendments to
our Articles, and other corporate actions requiring approval of our Shareholders, including amerger, consolidation or sale of our assets, or any other change of control event that may benefit
our other Shareholders generally. Many of these actions are permitted to be taken without theapproval of our Independent Non-executive Directors or other Shareholders. Such voting control
may discourage certain types of transactions, including those involving an actual or potential

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RISK FACTORSchange of control. To the extent permitted under the Listing Rules and all applicable laws andregulations the Taniguchi Consortium may exercise control over us in ways that conflict with theinterests of our other Shareholders, and you as a minority Shareholder could be disadvantaged.
From time to time, we may be involved in legal disputes or proceedings
We may at times be involved in potential legal disputes or proceedings during the ordinary
course of business operations relating to, among other things, employees’ claim, labour disputes
or contract disputes, that could have a material and adverse effect on our reputation, operationand financial condition. Regardless of the outcome, these disputes may lead to legal or otherproceedings and may result in substantial costs and the diversion of resources andmanagement’s attention. We may also have disagreements with regulatory bodies in the courseof our operations, which may subject us to administrative proceedings and unfavourable
decisions that result in penalties being imposed on us. In such cases, our business, results ofoperations and financial condition could be materially and adversely affected.
RISKS RELATING TO THE PACHINKO INDUSTRY
We face intense competition in Japan
The pachinko industry in Japan is highly competitive. As at 31 December 2013, there wereover 3,800 pachinko hall operators throughout Japan, according to EBI, and we owned 54
pachinko halls out of a total of approximately 11,893 halls in Japan. In 2013, due to thefragmented nature of the pachinko industry, our market share based on total gross pay-ins was
1.3%, while our market share based on the total number of halls in Japan was 0.5%. Some of ourcompetitors may have been in business longer than we have and may have substantially greater
financial, research and development, marketing and other resources, or even greater experienceor brand recognition.
Our major competitors are large pachinko operators, who have extensive experience and an
established presence in the pachinko business as well as the capital resources to implement
expansion plans. They may have greater access to financial, marketing or management resources
than we do, have greater brand recognition or provide a different array of pachinko and othergames. We cannot assure you that our development strategies for our pachinko halls will enable
us to successfully compete with those of our competitors. It is also possible that there will beconsolidation in the pachinko industry among our competitors, or alliances may develop among
competitors that may rapidly acquire significant market share.
We also face competition from other types of entertainment and gaming activities (especiallyin urban areas), such as web-based gaming, and potentially interactive gaming channels. For
example, social networking websites in Japan such as Mixi, and mobile phone gaming
applications such as Mobage, have introduced alternative gaming platforms which may competewith our pachinko gaming business. In particular, the Diet was previously examining a billlegalising the operations of casinos in Japan in 2014, though, as advised by our Japan Legal
Adviser, this bill has since been discarded and there is no longer any formal legislative procedure
to consider the legalisation of casino operations in Japan. In any case, if casino operations are

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eventually legalised, this means we may also face competition from casinos and other gaming
venues. If our current or target customers choose to participate in these activities rather than our
pachinko games, our operations and revenue from pachinko and pachislot hall operations would
be negatively impacted.
If we cannot effectively compete with our current or potential competitors, our business,
results of operations, financial condition and prospects may be materially and adversely affected.
There could be a change in regulatory or governmental policies (or their interpretations)that affect the pachinko industry
The pachinko industry is subject to multiple Japan laws, regulations and prefecturalordinances. For example, under the Amusement Business Law, pachinko hall operators must,prior to establishing each pachinko hall, obtain an operating licence from the Public Safety
Commission of the relevant prefecture. The Public Safety Commission has the authority to
impose conditions on the license, or even cancel the license or suspend operations, for example
if the pachinko hall operator violates the Amusement Business Law or other applicable laws andregulations. The Amusement Business Law and its enforcement regulations also regulate manyother aspects of pachinko hall operations, such as the maximum value of balls or tokens that may
be put into play per minute, payout ratios of machines and advertising.
There is limited precedent interpreting and applying the Amusement Business Law and its
enforcement regulations for pachinko operations. An administrative body may issue new or
modified regulations, or a court or administrative or regulatory body may render a newinterpretation of current laws and regulations, which may require us to significantly change theways in which we operate or impose additional obligations on us as a pachinko hall operator. For
example, a regulation was adopted in 2004 with the aim of de-emphasising the gambling natureof pachislot games, setting a cap on the potential payout value of bonus rounds that could beaccumulated during the course of play. This regulation resulted in a sharp drop in the popularityof pachislot, which adversely impacted the operating results of pachinko operators across theindustry, including us. See “Financial Information — Significant Factors Affecting Our Results ofOperations and Financial Conditions — Factors Affecting Results of Operations — Policies andRegulations Relating to the Pachinko Industry”. In addition, according to EBI, there have been
discussions about the introduction of a pachinko tax, although no legislative process has takenplaces yet. If such additional tax is indeed imposed, the pachinko industry as a whole may be
negatively impacted. Further, our business, result of operations, financial condition andprospects may be adversely affected.
Any future regulatory changes could be difficult to comply with, limit our ability to expand
our business, or increase the time, cost and other resources required to maintain compliance,
any of which could materially and adversely affect our business, result of operations, financial
condition and prospects.

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RISK FACTORS
There are legal uncertainties with respect to the operation of our business under theThree Party System
Gambling is a criminal offence under the Penal Code. Further, the Amusement Business Law
and other local regulations prohibit pachinko hall operators from being involved in the exchangeof prizes by customers, whether directly or indirectly, for cash or securities. In order to ensurecompliance with such laws and regulations, the pachinko industry has developed the “Three
Party System”, which is an industry practice for the sale and purchase of G-prizes exchanged bya customer playing at a hall. The parties under the Three Party System include: (1) pachinko halloperators (such as ourselves); (2) G-prize buyers; and (3) G-prize wholesalers. See “Business —Pachinko and Pachislot Hall Operations — Three Party System” and “Applicable Laws andRegulations” for more details.
Various courts of Japan (including the Supreme Court (最高裁判所)) and the National Police
Agency have made rulings or interpretations in relation to the legality of the Three Party System.
Our Japan Legal Adviser has also advised us in this regard. See “Applicable Laws andRegulations — C. Legality of Pachinko Businesses and the Three Party System” for details. Thatbeing said, there is still currently no law that explicitly or directly confirms the legality of the Three
Party System. We cannot assure you that the Three Party System will not, in the future, bedeemed to violate the Amusement Business Law or that pachinko and pachislot games will not
be deemed to constitute a “gambling” offence under the Penal Code. Any such determination
would materially and adversely affect our business, results of operations, financial condition andprospects.
The pachinko industry has been experiencing a downward trend in market size and,compounded by an ageing customer base, may have an adverse effect on our businessand results of operations
According to EBI, the pachinko industry has been experiencing a downward trend in market
size. This was since the early 2000’s, due in part to the introduction of legislation de-emphasising
the gaming nature of pachislot machines by reducing the size of jackpots and in part to thecompetition from other forms of entertainment such as video games and the internet which arereadily available on their mobile phones. Players that are attracted to the chance element of thegame (to win a larger amount of prizes) may seek other forms of gaming while players that are
more attracted to the entertainment aspect of the game remain. As a result, the pachinko industry
is expected to continue to experience a downward trend from 2014 to 2018 with total gross
pay-ins declining from approximately ¥17.3 trillion in 2014 to approximately ¥16.1 trillion in 2018.
The downward trend in market size is also compounded by the ageing population in Japan.
The age demographic in Japan is such that the younger spectrum of the population is gradually
decreasing while the older spectrum of the population is gradually increasing. According to EBI,
it is not likely for players to begin playing pachinko and pachislot in their 30’s or above andapproximately 90% of players begin playing pachinko and pachislot in their 20’s. If the pachinko

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RISK FACTORS
industry is unable to attract players in their 20’s, the customer base of the pachinko industry may
be reduced over time and the industry may lose competitiveness to other entertainment
industries. In 2013, the majority of players were from the age group of 30’s and above 60’s,
representing 22.5% and 29.6% of the entire pachinko and pachislot player population,
respectively. The ageing population in Japan may hinder the growth of our business in the longrun, as a slower growth in the population of the ten prefectures where we operate our pachinkohalls means that there will be less potential customers. As such, failure to attract the younger
generation to play pachinko and pachislot together with an ageing customer base may result ina decline in the demand of pachinko and pachislot. See “Industry Overview — The Pachinko
Industry in Japan — Key Trends of the Pachinko Industry in Japan” for details. An overall
reduction in the size of the pachinko industry and the ageing population in Japan may have an
adverse effect on our business, results of operations and financial condition.
RISKS RELATING TO THE GLOBAL OFFERING
If we fail to comply with the applicable laws of Japan or the Gambling Ordinance(Chapter 148 of the Laws of Hong Kong), the Stock Exchange may suspend the dealingsin our Shares or cancel our Listing
The Stock Exchange issued a Guidance Letter HKEx-GL71-14 titled “Gambling Activities
Undertaken by Listing Applicants and/or Listed Issuers” in January 2014, which applies to theoperation of gambling activities by listed companies. Our Japan Legal Adviser has confirmed thatour pachinko operations do not constitute “gambling” under, and do not violate, the Penal Code.
See “Applicable Laws and Regulations”. Nevertheless, if the Stock Exchange still deems ouroperations to be gambling activities, pursuant to Guidance Letter HKEx-GL71-14, if our pachinko
operations (i) fail to comply with the applicable laws in the areas where such activities operate(namely, Japan), and/or (ii) contravene the Gambling Ordinance (Chapter 148 of the Laws of HongKong), we or our business may be considered unsuitable for listing under Rule 8.04 of the Listing
Rules. Depending on the circumstances of the case, the Stock Exchange may require us to takeremedial actions, and/or may suspend the dealings in, or may cancel the listing of, our Sharespursuant to Rule 6.01 of the Listing Rules.
There has been no prior public market for our Shares and an active trading market for
our Shares may not develop or be sustained
Prior to the Global Offering, there was no public market for our Shares. Following thecompletion of the Global Offering, the Stock Exchange will be the only market on which the
Shares are publicly traded. While we have applied to list and deal in our Shares on the Stock
Exchange, we cannot predict the extent to which investor interest in our Company will lead to thedevelopment of a trading market on the Stock Exchange or otherwise or how active and liquidthat market may become. If an active and liquid trading market does not materialise, you may
have difficulty selling any of our Shares that you purchase. The Offer Price of the Offer Shares was
the result of negotiations between us and the Sole Global Coordinator (on behalf of the57

RISK FACTORS
Underwriters), and it may not necessarily be indicative of the market price of our Shares after the
Global Offering is complete. An investor who purchases Shares in the Global Offering may not beable to resell such Shares at or above the Offer Price and, as a result, may lose all or part of theinvestment in such Shares.
The market price and trading volume for our Shares may be volatile
The price and trading volume of our Shares may be highly volatile. Factors such as global
and local economic conditions, the foreign currency exchange rate between the Japanese Yen
and the Hong Kong dollar, variations in our operating results, earnings and cash flows andannouncements of new investments, strategic alliances and/or acquisitions, could cause themarket price of our Shares to change substantially. Any such developments may result in large
and sudden changes in the volume and price at which our Shares will trade. We cannot assure
you that these developments will not occur in the future. In addition, shares of other companies
listed on the Stock Exchange have experienced substantial price volatility in the past, and it ispossible that our Shares will be subject to changes in price that may not be directly related to ourfinancial or business performance. As a result, investors in our Shares may experience volatility
in the market price of our Shares and a decrease in the value of our Shares regardless of ouroperating performance or prospects.
Since there will be a gap of several days between pricing and trading of our Offer
Shares, holders of our Offer Shares are subject to the risk that the price of our Offer
Shares could fall when the trading of our Offer Shares begins
The Offer Price of our Shares is expected to be determined on the Price Determination Date.
However, our Shares will not commence trading on the Stock Exchange until they are delivered,
which is expected to be about five business days after the Price Determination Date. As a result,investors may not be able to sell or otherwise deal in our Shares during that period. Accordingly,
holders of our Shares are subject to the risk that the price or value of our Shares could fall when
trading begins as a result of adverse market conditions or other adverse developments that could
occur between the time of sale and the time trading begins.
Your interest may be diluted as a result of additional equity fund-raising
We may need to raise additional funds in the future to finance further expansion of, or new
developments relating to, our existing operations. If additional funds are raised through the issueof new equity or equity-linked securities of our Company other than on a pro-rata basis to existing
Shareholders, the percentage ownership of such Shareholders in our Company may be reduced,
thereby resulting in dilution. Furthermore, such newly issued securities may confer rights,
preferences or privileges superior to those of the existing Shares.

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RISK FACTORS
Substantial future sales or speculated sales of our Shares in the public market could
cause the price of our Shares to decline
Sales of our Shares in the public market after the Global Offering, or speculation that thesesales could occur, could cause the market price of our Shares to decline. Upon completion of thisGlobal Offering, we will have 1,195,850,460 Shares outstanding, or 1,240,850,460 Shares
outstanding if the Underwriters exercise their Over-allotment Option. Certain holders of our
Shares will be able to sell their Shares upon the expiration of certain lock-up periods. See“Underwriting” for details. We cannot predict what effect, if any, market sales of securities heldby our significant Shareholders or any other Shareholders or the availability of these securities for
future sale will have on the market price of our Shares.
The final Offer Price of our Shares may be higher than our net tangible asset value per
Share, and if so purchasers of our Shares in the Global Offering will experience
immediate dilution
If you purchase our Shares in the Global Offering, depending on the final Offer Price, you
may pay more for your Shares than our net asset value on a per Share basis. As a result, investorsof our Shares in the Global Offering may experience an immediate dilution in the net tangible
asset value and our existing Shareholders may receive an increase in the pro forma adjusted
combined net tangible asset value per Share of their Shares. In addition, holders of our Shares
may experience a further dilution of their interest if we issued additional Shares in the future,including pursuant to an exercise of the Over-allotment Option.
We may need to raise additional funds in the future to finance further expansion or new
developments relating to our existing operations. If additional funds are raised through theissuance of new equity or equity-linked securities of our Company other than on a pro-rata basis
to existing Shareholders, the percentage ownership of such Shareholders in our Company may
be reduced and such new securities may confer rights and privileges that take priority over those
conferred by the Shares.
Dividends paid in the past should not be treated as indicative of future dividend
payments or our future dividend policy
During the Track Record Period we declared and paid dividends in the amount of ¥110
million, ¥110 million, ¥183 million and ¥183 million for the years ended 31 March 2012, 2013 and2014 and for the six months ended 30 September 2014, respectively. Purchasers of the Offer
Shares in the Global Offering will not be entitled to these dividends. These dividends were
financed by our internal resources. Future dividends on our Shares will be declared by, and are
subject to the sole and absolute discretion of, our Board of Directors in accordance with our
Articles of Incorporation (subject to financial covenants and other restrictions that may exist withrespect to financing arrangements or other agreements we may enter into). The payment and theamount of any dividends will depend on our earnings, financial condition, results of operations,cash flows, statutory and regulatory restrictions on the payment of dividends by us, future

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RISK FACTORS
prospects and other factors that our Directors may consider relevant. We cannot assure you that
future dividends will be declared or paid in an amount equivalent to or exceeding historical
dividends. Therefore, you should be aware that historical dividends are not indicative of theamount or frequency of future dividends or our future dividend policy.
For a discussion of our dividend policy, see “Financial Information — Dividend Policy”.
We are a holding company and our ability to pay dividends is dependent upon theearnings of, and distributions by, our subsidiaries
We are a holding company incorporated under the laws of Japan. All of our business
operations are conducted through our subsidiaries, and we are dependent upon our subsidiaries
for all of our cash flow. Our ability to pay dividends is dependent upon the earnings of our
subsidiaries and their distributions of funds to us, primarily in the form of dividends. The abilityof our subsidiaries to make distributions to us depends upon, among other things, theirdistributable earnings and their ability to service their debt obligations. Under Japan law and ourArticles, payment of dividends is permitted by our Board’s resolution within the Distributable
Amount calculated under the Japan Companies Act. Subject to any applicable tax treaties,
dividends payable to our Shareholders are subject to a withholding tax of up to 20.420%.
Dividends paid by our subsidiaries are subject to a withholding tax in Japan of 20.420%, which
can be offset against the corporate tax payable by our Company. In case the amount of corporate
tax payable by our Company is lower than such withholding tax, the shortfall will be refundable.
We have been advised that as at the Latest Practicable Date, there was no withholding tax for
dividends in Hong Kong. Other factors such as cash flow conditions, restrictions on distributions
contained in our subsidiaries’ articles of incorporation, restrictions contained in their debt
instruments, withholding tax and other arrangements will also affect our subsidiaries’ ability tomake distributions to us. These restrictions could reduce the amount of distributions that we
receive from our subsidiaries, which in turn would restrict our ability to fund our operations andpay dividends on the Offer Shares.
Fluctuations in exchange rates could affect the actual amounts of dividends paid to our
Shareholders
All Shareholders other than CCASS Beneficial Owners have the option of receiving dividends
in either Japanese Yen or Hong Kong dollars. Because we currently generate all our revenue inJapan, the cash dividends on our Shares, if any, will be declared in Japanese Yen, but may be
paid in Hong Kong dollars to our CCASS Beneficial Owners and our Shareholders who elect toreceive dividends in Hong Kong dollars. Our CCASS Beneficial Owners may only receive
dividends in Hong Kong dollars. Any significant devaluation of the Japanese Yen may materiallyand adversely affect the value of, and any dividends payable on, our Shares in Hong Kong dollars.
For example, a depreciation of the Japanese Yen against the Hong Kong dollar may reduce theHong Kong dollar equivalent of our dividends.

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RISK FACTORS
Certain statistics, projected industry data and other information relating to the economy
and the pachinko industry in Japan contained in this Prospectus are derived from third
party market research reports or news sources and may not be reliable
Statistics, projected industry data and other information relating to the economy and theindustry contained in this Prospectus have been derived from various publications withinformation provided by a Japanese third party market research company. We cannot assure you,or make any representation, as to the accuracy, completeness, quality or reliability of suchinformation. Neither we nor any of our respective affiliates or advisors, nor the Sole Global
Coordinator, the Sole Sponsor, the Sole Bookrunner, the Sole Lead Manager or any of theirrespective affiliates or advisors, have prepared or independently verified the accuracy orcompleteness of such information directly or indirectly derived from the third party market
research report. Due to possible flawed collection methods, discrepancies between publishedinformation, different market practices or other problems, the statistics, projected industry dataand other information relating to the economy and the industry derived from the third party
market research report may be inaccurate or may not be comparable to or consistent withinformation available from other sources and should not be unduly relied upon. In all cases, you
should give careful consideration as to how much weight or importance you should attach orplace on such statistics, projected industry data and other information relating to the economy
and the industry.
Forward-looking statements contained in this Prospectus are subject to risks anduncertainties
This prospectus contains certain statements that are ‘‘forward-looking’’ and uses forward
looking terminology such as ‘‘anticipate’’, ‘‘estimate’’, ‘‘believe’’, ‘‘expect’’, ‘‘may’’, ‘‘plan’’,‘‘consider’’, ‘‘ought to’’, “should’’, ‘‘would’’, and ‘‘will’’. Those statements include, among otherthings, the discussion of our growth strategy and the expectations of our future operation,liquidity and capital resources.
Purchasers of our Offer Shares are cautioned that reliance on any forward-looking statement
involves risks and uncertainties and that, any or all of those assumptions could prove to beinaccurate and as a result, the forward-looking statements based on those assumptions could beincorrect. The uncertainties in this regard include those identified in the risk factors discussed
above. In light of these and other uncertainties, the inclusion of forward-looking statements in thisProspectus should not be regarded as representations or warranties by us that our plans andobjectives will be achieved and these forward-looking statements should be considered in lightof various important factors, including those set forth in this section. We do not intend to updatethese forward-looking statements in addition to our on-going disclosure obligations pursuant to
the Listing Rules or other requirements of the Stock Exchange. Investors should not place undue
reliance on such forward-looking information. See ‘‘Forward-looking Statements’’.

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RISK FACTORSYou should read the entire Prospectus carefully and we strongly caution you not to place
any reliance on any information contained in press articles or other media, including, inparticular, any financial projections, valuations or other forward looking information
There has been media coverage in certain news publications regarding us and the Global
Offering which includes certain projections, valuations and other forward looking information thatare not directly attributable to statements made by us. We wish to emphasise to potential
investors that we do not accept any responsibility for the accuracy or completeness of any press
articles or other media and that such press articles or other media were not prepared or approvedby us. We make no representation as to the appropriateness, accuracy, completeness orreliability of any of the projections, valuations or other forward looking information, or of any
assumptions underlying such projections, valuations or other forward looking information,
included in or referred to by the media. To the extent that any such statements are inconsistent,
or conflict, with the information contained in this Prospectus, we disclaim them. Accordingly,
prospective investors should not rely on any such information contained in press articles or othermedia. Potential investors making a decision as to whether to apply for Shares should rely solely
on the information contained in this Prospectus and the Application Forms and not place any
reliance on any other information.

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KEY JAPAN LEGAL AND REGULATORY MATTERS

Our Company is a stock company* ( 株式会社 ) incorporated under the Japan Companies
Act and our entire business operation is conducted in Japan. We are therefore subject to theJapan Companies Act and other applicable laws and regulations in Japan. The legal andregulatory regime in Hong Kong differs in certain material aspects from that in Japan. Set out
below is a summary of certain provisions under our Articles, the Japan Companies Act andother relevant legislations, regulations, rules and policies in Japan that we consider may bematerial to our Shareholders and potential investors. As the information contained below is insummary form, it does not contain all of the information that may be important to you as
potential investors. If you are in any doubt about any content of this section or
information contained in this Prospectus in general, you should obtain independent
professional advice.
A.

BEARER SHARES

Under Japan law, our Shares are “bearer shares” in nature. A bearer, or a physical holder,of a share certificate issued by our Company is recognised as the owner of the Shares
represented by it. Ownership of our Shares can be transferred simply by the delivery of our sharecertificates, with or without the transferor and the transferee having signed any document
evidencing such transfer. This creates inherent risks for Shareholders and potential investors whochoose to hold our Shares by physical possession of share certificates.
Set out below is a summary of certain aspects of Japan law provisions relevant to theownership and transfer of our “bearer shares”, the risks associated with these provisions and ourrecommended measures for our Shareholders and potential investors to mitigate these risks.
Ownership and title
Under the Japan Companies Act, if a company states in its articles of incorporation* (定款)that physical share certificates must be issued for its shares, its shares are “bearer shares”. Our
Articles provide that our Company must issue physical share certificates for our Shares, and ourShares are as such “bearer shares” in nature. Japan law provisions regarding the ownership of,and the title to, our bearer Shares are significantly different from those under the laws of Hong
Kong and other common law jurisdictions.
General provisions under Japan law
With respect to a company with “bearer shares”, Japan law generally recognises a bearer,or a physical holder, of a share certificate as the owner of the shares represented by such sharecertificate, regardless of whether the name of that bearer appears on such share certificate. It is
generally recognised under Japan law for the ownership of the shares of a Japan company to betransferred simply by the delivery of share certificates, with or without the transferor and thetransferee having signed any document evidencing such transfer. Bearers, or physical holders ofshare certificates are presumed under Japan law to have legal rights over the shares represented
by such certificates.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Notwithstanding these Japan law provisions, it is provided under our Articles and the Japan
Companies Act that title to our Shares shall not be perfected against our Company until andunless a person’s name and address are recorded in our Share Register. Under article 130 of theJapan Companies Act, a company is not obliged to treat anyone as a shareholder unless and until
he/she is registered as a shareholder on its share register. As an enhanced measure of
Shareholders’ protection, our Articles provide that our Company shall not associate any
Shareholder’s right (such as voting rights and rights to receive dividends) with any person unless
his/her name appears on our Share Register in reliance on the above provision under the Japan
Companies Act. Our Japan Legal Adviser has confirmed that the aforementioned Articles
provisions are in compliance with all relevant Japan law.
Our Company is required under Japan law to register bearers, or physical holders of ourshare certificates as a Shareholder in our Share Register without any onerous condition unless
we have reasonable grounds not to do so.
Failure to register interests in our Shares in our Share Register could result in themisappropriation or loss of a Shareholder’s rights. In particular, under Japan law, our Company
does not have the right to take action on a Shareholder’s failure to disclose his/her interests to
our Company. Hence, potential investors are strongly cautioned to register your interests in our
Shares in our Share Register after you have properly acquired title in our Shares, following theprocedures set out in “— Transfer of Shares” in this section below.
Risks associated with bearer shares
Our “bearer shares” create inherent risks for our Shareholders and potential investors whochoose to hold our Shares by physical possession of our share certificates. These risks include:(i)lost or destroyed share certificates - Shareholders and potential investors might lose
the ownership and value of our Shares represented by a share certificate if it is lost or
destroyed;(ii)

unauthorised third party acquiring the Shares - an unauthorised third party coming intopossession of a lost share certificate might seek to be recognised as a Shareholder,
thereby acquiring the ownership and value of the Shares represented by the lost sharecertificate and the rights attached to those Shares; and(iii)

non-transferability - Shareholders and potential investors who have reported a lost or
destroyed share certificate to our Company will not be able to register a transfer of the
Shares represented by the lost or destroyed share certificate or otherwise deposit such
Shares into CCASS for trading on the Stock Exchange during a mandatory one-year
waiting period prescribed under Japan law.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
See “— A. Bearer Shares — Lost / destroyed share certificates” in this section below for
details of the consequences for our Shareholders and potential investors if their share certificatesare lost or destroyed. Potential investors may also refer to “Understanding the Risks of Investingin Overseas Issuers” in the Stock Exchange’s website, “Investor Relations — Key Japan Legaland Regulatory Matters” in our Company’s website, or the circulars despatched by HKSCC to the
CCASS Participants from time to time.
To mitigate the risks associated with our “bearer shares”, we recommend a number ofmeasures for our Shareholders and potential investors and have adopted certain voluntarymeasures, both of which are set out below.
Recommended measures for our Shareholders and potential investors
1.

Holding your investments through CCASS - CCASS Beneficial Owners, who are investors of
our Company holding their underlying interests in our Shares through CCASS, are notexposed to the risks associated with our “bearer shares” as they do not physically possess
our share certificates. Interests of CCASS Beneficial Owners are essentially held and tradedin scripless, or paperless, form within CCASS. To become a CCASS Beneficial Owners,
apply for the Hong Kong Offer Shares by completing the YELLOW Application Forms orgiving electronic instructions to HKSCC. See “How to Apply for Hong Kong Offer Shares” fordetails.
Due to certain Japan legal and regulatory provisions, CCASS Beneficial Owners are subject
to the following disadvantages:(i)Withholding tax: CCASS Beneficial Owners are subject to an initial withholding tax
rate of 20.420% on dividend payments as our Company is unable to ascertain theidentity, and consequently the tax residence, of the CCASS Beneficial Owners. This tax
rate is, in general, higher than that applicable to Shareholders who hold theirinvestments in our Company by physical possession of share certificates. CCASS
Beneficial Owners may apply for a refund of taxes withheld in excess to the National
Tax Agency in Japan but there may be delays in obtaining the refund payments. See“— E. Taxation” in this section below for details.

(ii)

Currency of dividend payment: unlike Shareholders who hold their investments in
our Company by physical possession of share certificates, CCASS Beneficial Owners
do not have the option to elect the currency of their dividend payments. All dividends
payable to the CCASS Beneficial Owners will be in Hong Kong Dollars. See “— C.
Shareholders’ Rights — Dividends — Currency of Dividend Payments” in this section
below for details.

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KEY JAPAN LEGAL AND REGULATORY MATTERS(iii)

Shareholders’ rights: CCASS Beneficial Owners are not recognised as a Shareholder
under Japan law and are not presumed to be entitled to Shareholders’ rights. They relyon HKSCC Nominess to exercise the rights on their behalf in the same way it does forshareholders of other companies listed on the Stock Exchange the shares of which aredeposited into CCASS.

(iv)

Inspection of Share Register: CCASS Beneficial Owners are not recognised as a
Shareholder under Japan law and they may not inspect our Share Register unlessallowed to do so under the Personal Information Protection Act. See “— C.
Shareholders’ Rights — Inspection of our Share Register” for details.

(v)

Voting on last-minute amendments: under Japan law, after the convocation noticeof a general meeting has been despatched, a Shareholder is permitted to propose
last-minute amendment(s) to the matters included in an existing meeting agenda of ageneral meeting without any prior notice, if a matter of similar nature is included in theoriginal meeting agenda. CCASS Beneficial Owners, who customarily do not attend
general meetings in person, may lose the chance to vote on a last-minute amendment
at their own will. See “— B. Shareholders’ Meetings — Request for last-minuteamendment to a meeting agenda” for details.

Despite these disadvantages, given the risks associated with our “bearer” Shares (which arevery significant in the opinion of our Directors), it is our Board’s strong recommendationthat potential investors should hold your investments in our Company through
CCASS.
2.

Surrendering your share certificates - Shareholders and potential investors who choose toinvest outside CCASS and physically possess our share certificates are recommended tosurrender their share certificates to our Company. Surrendered share certificates will becancelled and the risks associated with our “bearer shares” will no longer apply. However,before a Shareholder may transfer or trade the Shares represented by a surrendered sharecertificate or otherwise deposit the Shares into CCASS, they must wait for a period of up
to six business days for a new share certificate to be re-issued. See “— A. Bearer Shares— Share certificate surrender” in this section below for details. Successful applicants orpartially successful applicants of the Hong Kong Offer Shares wishing to surrender theirshare certificates should apply through our Hong Kong Share Registrar immediately uponreceipt of their share certificates.

Share certificates will be sent to successful or partially successful applicants by registered
post. If you do not elect to adopt the recommended measures above, you run the risks
associated with our “bearer shares” and are highly cautioned to, above all, safe-keep yourphysical share certificates at all times.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Voluntary measures adopted by our Company
We have put in place the following voluntary measures to minimise your exposure to therisks associated with our “bearer shares” for our Shareholders other than CCASS Beneficial
Owners:1.

Registration of share transfers

Upon Listing, our Company will be subject to certain requirements in Hong Kong to registertransfers of our Shares and other documents relating to or affecting the title to our Shares. These
include paragraph 1(1) of Appendix 3 to the Listing Rules and the Stamp Duty Ordinance. To
comply with these requirements, we have amended our Articles to adopt the following internal
procedures for share certificates and share transfers:(i)our Company will issue share certificates in registered form with the names andaddresses of our Shareholders imprinted thereon;(ii)

any person seeking to have his/her name and address recorded as a Shareholder in our
Share Register must present an instrument of transfer and/or a contract note duly
stamped pursuant to the Stamp Duty Ordinance and executed by such person (astransferee) and the original holder of the relevant Shares (as transferor) whose name(s)appear on the relevant share certificate and our Share Register (the “record
Shareholder”);(iii)

our Company will regard a standard transfer form customarily adopted by listedcompanies on the Stock Exchange or a transfer form printed at the back of the sharecertificates as an acceptable instrument of transfer and/or a contract note referred toin paragraph (ii) above;(iv)

where the transferor or transferee is a clearing house, execution by hand or
machine-imprinted signature will be accepted for the purpose of paragraphs (ii) and (iii)
above; and(v)

our Share Register maintained in Hong Kong will be our sole and principal shareregister.

See “— A. Bearer Shares — Transfer of Shares” in this section below for detailed proceduraland documentary requirements. Our Directors have undertaken to the Stock Exchange not to put
forward any proposal to our Shareholders which would otherwise revoke these Articles provisions
so long as our Shares are listed on the Stock Exchange, unless and until our Company ceases
to issue share certificates upon implementation of a scripless, or paperless securities market on
the Stock Exchange.
Our Japan Legal Adviser is of the view that the Articles provisions set out above should bepermissible under the applicable Japan laws and regulations that are currently in force as at thedate of this Prospectus. This is on the basis that (i) we are allowed under Japan law to impose

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KEY JAPAN LEGAL AND REGULATORY MATTERS
documentary and procedural requirements to register a person as a Shareholder in our Share
Register if we have reasonable grounds to do so; and (ii) our obligations to, as a company listedon the Stock Exchange, comply with paragraph 1(1) to Appendix 3 to the Listing Rules and theStamp Duty Ordinance would likely be regarded as a reasonable ground; and (iii) the Articles
provisions set out above are disclosed to our Shareholders and potential investors in thisProspectus.
Notwithstanding the views of our Japan Legal Adviser above, you should note that the
Articles provisions set out above have not been tested in a Japan court. It is possible for a bearer,or physical holder, of our share certificate to initiate legal proceedings against these Articles
provisions and require a Japan court to recognise him/her as a Shareholder of our Company. We
consider that the likelihood of these legal proceedings is remote, as substantially all potential
investors are expected to hold their investments in our Company through CCASS as in the caseof most companies listed on the Stock Exchange. Nevertheless, we have been advised by ourJapan Legal Adviser that our Articles provisions are highly likely to be upheld by a Japan court.
See “Risk Factors — Risks Relating to Key Japan Legal and Regulatory Matters — Our
Shares are “bearer shares” in nature and there are significant risks associated with physicalpossession of Share certificates and “Risk Factors — Risks Relating to Key Japan Legal andRegulatory Matters — Our Articles provisions on the registration of share transfers are notjudicially precedented in Japan and may be challenged in court” for the residual risks associatedwith our “bearer shares” despite the internal rules we put in place.
CCASS Beneficial Owners are not subject to the Articles provisions above and may trade,transfer and deal in our Shares electronically under the customary procedures in Hong Kong andarrangements made with their respective securities brokers.
2.

Single Share Register maintained in Hong Kong

To minimise the risks exposed to our Shareholders and potential investors in respect of our“bearer” Shares, our Articles provide that our Hong Kong Share Registrar will maintain our Share
Register, which will be our sole and principal share register, in Hong Kong upon Listing. All issued
Shares of our Company will be registered in our Share Register and subject to the Articles
provisions set out in “— A. Bearer Shares — Voluntary Measures adopted by our Company — 1.
Registration of Share Transfers” in this section above. This includes any application forregistration of share transfer lodged with our headquarters in Japan. See “— A. Bearer Shares— Transfer of Shares” in this section below for details.
Our Japan Legal Adviser has confirmed that there is no provision under Japan law underwhich our Company is required to appoint a share registrar or transfer agent based in Japan or
maintain a share register within the Japanese territory. Our Hong Kong Share Registrar will be
responsible for the customary share registrar duties as required under the Listing Rules.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
3.

Adoption of scripless securities model

As a permanent solution to the risks associated with our “bearer shares”, our Company has
undertaken to use all reasonable endeavours to, subject to Shareholders’ approval, adopt the
scripless, or paperless securities model as soon as all relevant legislations, rules and regulations
have been enacted and in place for the implementation of a scripless securities market on the
Stock Exchange. Under the scripless securities model currently proposed by the Stock Exchange
and the SFC, our Company will cease to issue share certificates and all risks associated with our“bearer shares” will no longer apply.
The relevant legislative changes to implement a scripless securities market on the Stock
Exchange have been gazetted and tabled at the Legislative Council of Hong Kong in June 2014.
Transfer of Shares
Our Articles provide that transfers of our Shares are free from restrictions or limitation anddo not require approval from our Board of Directors or Shareholders. Set out below are theprocedures and documentary requirements for registering a share transfer in our Share Register.
Shareholders outside CCASS (WHITE Application Form / White Form eIPO applicantsunder the Hong Kong Public Offering)
Shareholders who choose to invest outside CCASS may lodge an application for registeringa transfer in our Share Register either with our Hong Kong Share Registrar or our Company’s
headquarters in Japan, subject to the same documentary requirements:
Hong Kong Share Registrar

Headquarters in Japan

Address . . . . . . . . . . . Shops 1712-1716,
17/F Hopewell Centre,
183 Queen’s Road East,
Wan Chai,Hong Kong
Office hours . . . . . . . 9:00 a.m. to 4:30 p.m.
(Hong Kong time)

1-39 Hohaccho 1-chome,
Koriyama-shi,
Fukushima,
Japan

Processing time . . . . up to ten business days

ten business days

9:00 a.m. to 5:00 p.m.
(Japan time)

Documentary
Applicants for registration of share transfers are required to produce
requirements . . . . . the following documents, or the relevant application will not beprocessed:•
share certificates representing the Shares to be transferred; and•an acceptable transfer document which must conform to therequirements under the Stamp Duty Ordinance and be an
instrument of transfer and/or contract note duly executed by thetransferee and the transferor, whose name and address isrecorded as the record Shareholder in our Share Register. An
acceptable transfer document can be a standard transfer form
customarily adopted by companies listed on the Stock Exchange
or a transfer form printed at the back of the share certificates.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Our Share Registrar will also record the applicant’s signature on the relevant transfer
document as specimen signature for future verification purpose. Applications made with ourheadquarters in Japan must be made in person.
It is the responsibility of the applicant to contact the record Shareholder to sign as thetransferor on the transfer document before making an application to us. If an applicant cannot
locate the record Shareholder to sign on the relevant transfer document, or if the record
Shareholder refuses to sign on the same, the relevant application will not be processed. For
simultaneous multiple transfers, a separate transfer document is required for each such transfer.
CCASS Beneficial Owners (YELLOW Application Form / electronic applicants via HKSCC
under the Hong Kong Public Offering)
CCASS Beneficial Owners are not subject to the procedures and requirements above andmay trade, transfer and deal in our Shares electronically under the customary procedures in Hong
Kong and arrangements made with their respective securities brokers.
Lost / Destroyed share certificates
Procedures for replacement of lost or destroyed share certificates adopted by our Company
differ from those under the Companies Ordinance in Hong Kong and those adopted by mostcompanies listed on the Stock Exchange.
Consequences of lost / destroyed share certificates
A Shareholder is exposed to significant risks if he/she loses its share certificate or has it
destroyed. He/she may lose the value of our Shares represented by the lost or destroyed sharecertificate (together with the rights attached to those Shares) and run the risk of an unauthorised
third party coming into contact of a lost share certificate and requiring a Japan court to recognise
him/her as a Shareholder.
Shareholders are required to report a lost or destroyed share certificate to our Company
through our Hong Kong Share Registrar. We are not allowed under Japan law to re-issue areplacement share certificate in lieu of a lost or destroyed share certificate until the expiry of amandatory one-year waiting period prescribed under Japan law. There is no circumstance underJapan law under which we are able to shorten the one-year waiting period.
During the one-year waiting period, we are required to handle the relevant Shareholders’rights in accordance with the Japan Companies Act as follows:(i)the person whose name and address are recorded in our Share Register as the holderof the relevant Shares (i.e. the record Shareholder) will continue to be treated as our
Shareholder;(ii)

dividends, if declared, will be paid to the record Shareholder;70

KEY JAPAN LEGAL AND REGULATORY MATTERS(iii)

no person may effect a valid registration of a transfer of the relevant Shares orotherwise deposit the Shares into CCASS for trading on the Stock Exchange, subject
to the circumstances set out in “— Cancellation of a lost/destroyed share certificate
report” below;(iv)

no other person will be registered as a holder of the relevant Shares in our Share
Register;(v)

a record Shareholder who reports a lost or destroyed share certificate will continue tobe entitled to exercise all voting rights attached to the relevant Shares.

Under Japan law, there are limited circumstances whereby a person other than the record
Shareholder may report a lost or destroyed share certificate. These include an unregisteredowner of our Shares who has lost his/her share certificates prior to registering a valid transfer in
our Share Register. In order to report a lost or destroyed share certificate, such unregisteredowner must present an acceptable transfer document, which must conform to the requirements
under the Stamp Duty Ordinance and be an instrument of transfer and/or contract note duly
executed by the transferee and the record Shareholder as the transferor. In that case, no one
shall be entitled to exercise the voting rights attached to the relevant Shares during the one-year
waiting period. If an unregistered owner fails to present an acceptable transfer document, noreport of lost or destroyed share certificate will be accepted and no replacement share certificate
will be issued. In that case, an unregistered owner may seek to assert his/her title with acompetent court in Japan.
CCASS Beneficial Owners are not subject to the risks associated with the loss ordestruction of share certificates, including the one-year waiting period, as they do not physicallypossess share certificates. You are strongly recommended to hold your investments in our
Company through CCASS. Due to certain Japan legal and regulatory provisions, CCASS
Beneficial Owners are subject to certain disadvantages. See “— A. Bearer Shares —Ownership and Title — Recommended measures for our Shareholders and potential investors” inthis section above for details.
Reporting a lost / destroyed share certificate
We accept reports of lost or destroyed share certificates through our Hong Kong Share
Registrar. We do not handle lost or destroyed share certificates at our headquarters in Japan.
Cancellation of a lost / destroyed share certificate report
If a lost share certificate is recovered, the person who filed the original lost share certificate
report shall inform our Hong Kong Share Registrar to release himself/herself from the one-year
waiting period.
There are limited circumstances whereby an unauthorised third party might come intopossession of a share certificate reported as lost and seek to be recognised as a Shareholder.
In that case, we are required under Japan law to terminate the one-year waiting period and a71

KEY JAPAN LEGAL AND REGULATORY MATTERS
replacement share certificate will not be issued to the person who filed the original lost sharecertificate report. We consider that these circumstances are very rare in practice as substantiallyall of our potential investors are expected to hold their investments in our Company through
CCASS, as in the case of most companies listed on the Stock Exchange.
It is a provision under our Articles that no one shall be registered as a Shareholder in our
Share Register unless an acceptable transfer document (which must conform to the requirements
under the Stamp Duty Ordinance and be an instrument of transfer and/or contract note duly
executed by the transferee and the record Shareholder as the transferor) is presented to us. As
such, an unauthorised bearer of a share certificate reported as lost will not be recognised as a
Shareholder in our Share Register unless he/she is able to present an acceptable transfer
document. In that case, an unauthorised bearer may seek to assert his/her title with a competentcourt in Japan if he/she believes that he/she has genuine and valid title to the relevant Shares.
Once we become aware that an unauthorised bearer of a share certificate reported as lostis seeking to be recognised as a Shareholder, we will notify the record Shareholders through ourHong Kong Share Registrar by writing to his/her registered address recorded in our Share
Register. Record Shareholders may assert his/her title with a competent court in Japan. It istherefore important to update your contact details with our Hong Kong Share Registrar from time
to time.
Share certificate surrender
Shareholders and potential investors who choose to invest outside CCASS are encouraged
to surrender their share certificates to us. Surrendered share certificates will be cancelled and therisks associated with our “bearer shares” will no longer apply.
Implications of share certificate surrender
Surrendered share certificates will be cancelled, void and destroyed and our Share Register
will indicate that no share certificate exists in respect of the Shares represented by them. As
such, the risks associated with our “bearer shares”, including the risks associated with a lost or
destroyed share certificate, will no longer apply.
However, you should note that our Hong Kong Share Registrar may take up to six businessdays to re-issue a new share certificate in lieu of a surrendered share certificate. During thewaiting period of up to six business days, the relevant Shares may not be transferred or otherwise
deposited into CCASS for trading on the Stock Exchange. This will in particular affect
Shareholders and potential investors who seek to trade the Shares on a “T+2” basis, whereby
dealings in Shares on the Stock Exchange customarily take place two business days prior tosettlement. The waiting period of up to six business days may lead to settlement failure. It is the
responsibility of individual Shareholder to carefully formulate their investment schedule, taking
into account the waiting period of up to six business days to avoid settlement failure.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
See “Risk Factors — Risks Relating to Key Japan Legal and Regulatory Matters —Surrendered Share certificates can only be re-issued after a waiting period of up to six businessdays, which could result in settlement failures” for details.
Our Directors have been advised that the waiting period of up to six business days does notcontravene the provisions under Rules 13.59 and 13.60(1) of the Listing Rules.
Surrendering your share certificates
We accept applications for surrendering a share certificate through our Hong Kong Share
Registrar. We do not handle share certificate surrenders at our headquarters in Japan.
Any record Shareholder whose name and address appears on our Share Register is entitledto surrender their share certificates to us. To apply, he/she must bring along (i) the sharecertificates he/she is seeking to surrender; (ii) identity proof; (iii) a completed and duly signed
share certificate surrender form; (iv) specimen signature of such Shareholder (in case of individual
Shareholders) or authorised corporate representative (in case of corporate Shareholders) to ourHong Kong Share Registrar. Surrendered share certificates will be acknowledged by a written
receipt. Shareholders wishing to check or verify the record of their shareholdings in respect of
their surrendered share certificates may request to inspect and/or print a copy of our Share
Register in accordance with the requirements and procedures set out in “— C. Shareholders’
Rights — Inspection of our Share Register” in this section below.
Successful applicants or partially successful applicants of the Hong Kong Offer Shareswishing to surrender their share certificates should apply though our Hong Kong Share Registrar
immediately upon receipt of their share certificates. Share certificates will be despatched byregistered post, at the applicants’ own risks.
Re-issuing a new share certificate in lieu of a surrendered share certificate
A new share certificate can be re-issued in lieu of a surrendered share certificates byapplying to our Hong Kong Share Registrar. To apply, a Shareholder must bring along (i) identity
proof; and (ii) a completed and duly signed share certificate re-issuance form, the signature(s) on
which must match the ones on the share certificate surrender form, to our Hong Kong Share
Registrar.
B.

SHAREHOLDERS’ MEETINGS

Set out below are the Japan law provisions with respect to matters relating to the
convocation of and voting in our general meetings which in our opinion are relevant to our
Shareholders and potential investors and materially differ from the conventional requirements
applicable to other companies listed on the Stock Exchange.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Record date
Our AGM is usually held in June every year. Our Articles provide that our Board of Directors
may from time to time designate a record date for our AGMs and extraordinary general meetings.
A record date is the date for determining the list of eligible Shareholders entitled to vote in our
AGMs and extraordinary general meetings. We may also set the same or a different record dateto determine the eligibility of our Shareholders to receive dividends and/or other distributions.
AGMs
Under the Japan Companies Act, an AGM must be held within three months from the record
date. Upon Listing, we plan to set our (i) record date for attendance and voting at our AGM shortly
before the despatch date of our AGM convocation notice; and (ii) record date for final dividend
entitlement shortly after the announcement of any final dividend declared. To comply with therequirements under the Japan Companies Act and Rule 13.66(1) of the Listing Rules, a record
date in relation to our AGMs and final dividend, if any, will be announced by public notice inJapan, which will be replicated on the Stock Exchange’s website and our Company’s website inEnglish and Chinese, at least 14 days prior to the proposed record date.
Our Directors have been advised that Rule 13.66(2) of the Listing Rules does not apply to
us as our dividend payments (annual, interim or other) are not subject to Shareholders’ approval
under our Articles.
Extraordinary general meetings
Our Board of Directors may under the Japan Companies Act set a record date of an
extraordinary general meeting. To comply with the requirements under the Japan Companies Act,a record date in relation to our extraordinary general meetings will be announced by public noticein Japan, which will be replicated on the Stock Exchange’s website and our Company’s website
in English and Chinese, at least 14 days prior to the proposed record date.
Interim and other dividend payments
Upon Listing, we plan to set our record date for interim or other dividend entitlement shortly
after the announcement of any interim or other dividend declared. To comply with therequirements under the Japan Companies Act and Rule 13.66(1) of the Listing Rules, a record
date in relation to our interim or other dividend, if any, will be announced by public notice inJapan, which will be replicated on the Stock Exchange’s website and our Company’s website inEnglish and Chinese, at least 14 days prior to the proposed record date.
Shareholders who acquire our Shares after the record date will not be entitled to vote in our
general meetings and/or receive dividend payment, if any.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Notice and distribution of annual report and accounts
Under Japan law and our Articles, we are required to convene our AGM within three months
after the day following 31 March, which is the last day of each financial year. Under our Articles
and the Listing Rules, we are required to despatch the convocation notice of our AGM at least
21 days prior to the date thereof. Upon Listing, we will, as required under the Listing Rules andthe Japan Companies Act, prepare and despatch the following documents together with our
AGM convocation notice:(a)a business report* (事業報告), which would include overview of our key businessstatus, such as, the progress and results of the business, capital expenditures andfund-raising, trends in assets and profit/loss in the most recent three financial years,
corporate reorganisations, status of major subsidiaries, shares outstanding and major
shareholders, SARs, operation systems, and a status update of other important
aspects of our business. Our business report* (事業報告) will be prepared in Japanese,
English and Chinese upon Listing;(b)

an audited financial report, which would include material annual financial informationsuch as the auditor’s report and opinion, the consolidated statement of income,consolidated balance sheet, consolidated statement of changes in net assets, andnotes to the consolidated financial statements, and the same for the statements of ourCompany and of our Group on a consolidated basis, respectively. Our audited financial
report will be prepared in accordance with the JGAAP as required under the Japan
Companies Act in Japanese, English and Chinese; and(c)either (i) an annual report including our Group’s annual accounts, which will be incompliance with the contents requirements under Appendix 16 to the Listing Rules; or(ii) a summary financial report, which will be in compliance with the contents
requirements under Rule 13.46(2)(a) of the Listing Rules. Our annual report or summary
financial report, as the case may be, will be prepared in accordance with the IFRS.

All documents above will be approved and authorised by our Board of Directors before they
are despatched to our Shareholders.
Proxies and corporate representatives
Our Articles provide that any Shareholder who is entitled to attend and vote in a general
meeting of our Company may appoint another person as his/her proxy to attend and vote on
his/her behalf. Corporate Shareholders may appoint corporate representatives to attend or voteon its behalf. A Shareholder (including nominee companies such as HKSCC Nominees) who is theholder of two or more Shares may appoint multiple proxies or corporate representatives torepresent him/her and vote on his/her behalf in a general meeting of our Company. A proxy or
corporate representative needs not be a Shareholder of our Company and there is no limitation75

KEY JAPAN LEGAL AND REGULATORY MATTERS
or restriction on the qualification and identity of the proxies and/or corporate representatives tobe appointed by our Shareholders. A proxy or corporative representative is entitled to exercise
the same powers as if he/she was the Shareholder himself/herself provided that he/she canpresent a duly signed authorisation document proving his/her authority.
Upon Listing, we expect to require Shareholders and their proxies or corporate
representatives to submit their authorisation documents, the form and substance of which willcommensurate with the forms of proxy adopted by other companies listed on the Stock
Exchange. Detailed requirements will be set out in the convocation notice of each general
meeting (including AGM).
Request for a general meeting
A Shareholder who has no less than 3% of the voting rights in our Company may request
our Directors to convene a general meeting. If our Directors do not send out a convocation noticefor such general meeting to be held and such general meeting is not convened by our Directors
within eight weeks from the date of such request, the relevant Shareholder who made the request
may convene a general meeting with court permission.
Request for additional matters in a meeting agenda
Any Shareholder who has either (i) no less than 1% of the voting rights in our Company; or(ii) no less than 300 Shares may request our Directors to include certain additional matter(s) or
amend certain existing matter(s) in the meeting agenda of a general meeting. Such request must
be made to our Directors no less than eight weeks prior to the general meeting of our Company.
If the request is made to our Directors less than eight weeks prior to the general meeting, therequested additional matter(s) or amendment(s) may be included or made in the next general
meeting of our Company.
Our Articles provide that we must announce (as a voluntary announcement on the Stock
Exchange’s website and our Company’s website) the date of a general meeting no less than 10
weeks prior to the date of that meeting so that our Shareholders, if eligible, will have a two-weekperiod to exercise the right set out above.
Request for last-minute amendments to a meeting agenda
After the convocation notice of a general meeting has been despatched, a Shareholder ispermitted to propose a last-minute amendment to the matters included in an existing meeting
agenda of a general meeting of our Company without any prior notice if a matter of similar nature
is included in the original meeting agenda. For example, a Shareholder may propose last-minuteamendments to an existing meeting agenda and nominate a person for election as a Director any
time before the relevant general meeting or even at the meeting, if the original meeting agenda
includes a proposal of the appointment of a new Director, or Directors, to our Board of Directors.
These last-minute amendments are a theoretical mechanism which, according to our Directors’knowledge, is exceptional and rarely put into actual practice in Japan.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
If any agenda in a general meeting is rejected without receiving 10% of the votes cast at thatgeneral meeting, last-minute amendments of substantially the same nature will not be treated as
an official agenda by our Company in the forthcoming general meetings within the following three
years. For example, Shareholders may not be able to propose a person for election as a Director
as a last-minute amendment in the following three years if a last-minute nomination of the same
person as a proposed Director fails to receive 10% favourable votes in a general meeting in thepast three years (so long as the backgrounds or conditions of both proposals are similar).
Due to these Japan law provisions, we are unable to comply with Rule 13.70 of the Listing
Rules and paragraph 4(4) of Appendix 3 to the Listing Rules, which provide that (i) an issuer shall
publish an announcement or issue a supplementary circular upon receipt of a notice from ashareholder to propose a person for election as a director at the general meeting where such
notice is received by the issuer after publication of the notice of meeting; and (ii) the minimum
length of the period for notice to propose a person for election as a director and that person to
notify the issuer of his willingness to be elected, must be at least seven days. We have appliedfor, and the Stock Exchange has granted us, a waiver from strict compliance with theserequirements on the basis of the voluntary measures we put in place, the details of which are set
out in “Waivers — B. Additional Waivers — Announcement of Nomination of Director(s)” and“Waivers — B. Additional Waivers — Articles of Incorporation — Nomination of Director(s)”.
Shareholders and potential investors (in particular, CCASS Beneficial Owners, who
customarily do not attend general meetings in person) should note that you may lose the chance
to vote on a last-minute amendment if you do not attend a general meeting in person, or if you
have not appointed a proxy to attend and vote on your behalf. Under our Articles, where a
Shareholder (including CCASS Beneficial Owners, who cast their votes by giving instructions to
HKSCC Nominees) has casted a written vote on the original matter (regardless of whether such
vote was for, against or abstention from the relevant matter), his/her vote will be counted asabstention from any last-minute amendment thereof. If a Shareholder has not casted a written
vote on the original matter, they will lose the right to vote on any last-minute amendment thereof
unless they attend the relevant general meeting in person or through their proxies. CCASS
Beneficial Owners who are unable to give instructions to HKSCC Nominees on the original matter
prior to the specified deadline will lose their right to vote on any last-minute amendment thereof.
In both circumstances, the voting rights of the relevant Shareholder / CCASS Beneficial Owner
will not form the quorum of the original matter and any last-minute amendment thereof.
Casting your votes in different ways
Under the Japan Companies Act, a Shareholder (including a nominee such as HKSCC
Nominees) is permitted to divide his/her Shares and cast his/her votes corresponding to these
Shares in different ways, casting his/her votes partly for and partly against a resolution. A
Shareholder who wishes to cast his/her votes in different ways is required to notify our Companyof his/her intention and the reasons therefor at least three days prior to the date of the relevant
general meeting. Our Company may object to a Shareholder casting his/her votes in different
ways if the Shareholder holds our Shares on his/her own behalf rather than as a nominee on
behalf of others. Upon Listing, we will enclose a notification form with the convocation notice ofeach general meeting. Shareholders who wish to cast their votes in different ways should notify

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KEY JAPAN LEGAL AND REGULATORY MATTERS
our Company by completing and returning the prescribed notification form to our Hong Kong
Share Registrar. Shareholders (including nominee companies such as HKSCC Nominees) may
also make a permanent election to cast their votes in different ways at all forthcoming general
meetings, which may be withdrawn by writing to our Hong Kong Share Registrar.
Material Interests in a transaction
The Listing Rules require that, where a transaction or arrangement of an issuer is subject toshareholders’ approval under the provisions of the Listing Rules, any shareholder that has amaterial interest in the transaction or arrangement shall abstain from voting on the resolution(s)approving the transaction or arrangement in a general meeting. In addition, controllingshareholders must abstain from voting in favour of certain matters under the Listing Rules. There
are also certain matters where independent shareholders approvals are required under the
Takeovers Code.
Under Japan law, a company shall not amend its constitutional document to restrain or
restrict its shareholders, including controlling shareholders, from voting on any particularresolution. Each Shareholder is, in general, entitled to a single vote for each Share he/she holds
in our Company and we may not restrict this right in the circumstances provided under the Listing
Rules and the Takeovers Code.
To afford our Shareholders protections comparable to those available under the Listing
Rules and the Takeovers Code, our Shareholders have resolved to adopt the following alternative
provisions in our Articles:“Where a transaction or arrangement or contract or other matter is required to be approvedby our Shareholders under the Listing Rules and/or the Takeovers Code:(a)a general meeting shall be convened to seek our Shareholders’ approval of suchmatter;(b)

our Hong Kong Share Registrar shall count the votes casted at the said general
meeting in accordance with the criteria and requirements under the Japan Companies
Act;

(c)

we shall appoint our compliance adviser or another independent financial or legal
adviser to review the votes counted by our Hong Kong Share Registrar and confirm thatthe resolution would have been successfully passed if the votes cast had excluded thevotes of our Shareholders that would otherwise be required to be abstained orotherwise uncounted under the Listing Rules and/or the Takeovers Code; and(d)the Shareholders’ approval referred to in item (a) above and the confirmation referred
to in item (c) above shall be made conditions precedent in the relevant transaction
agreement and we shall implement such matter only if both conditions have beensatisfied.”78

KEY JAPAN LEGAL AND REGULATORY MATTERS
Our Japan Legal Adviser is of the view that the alternative provisions in our Articles set out
above should be permissible under the applicable Japan laws and regulations that are currently
in force as of the date of this Prospectus on the basis that (i) while there are no definitive
provisions in the Japan Companies Act, it is generally accepted that reasonable closing
conditions, such as approval by regulatory authorities, may be included in a contract for atransaction that requires shareholders’ approval under the Japan Companies Act; (ii) ourvoluntary measures in place would likely be regarded as a reasonable closing condition because
our Company, as a company listed on the Stock Exchange, is required to comply with Rule 2.15of the Listing Rules and the other relevant provisions under the Listing Rules and/or the
Takeovers Code; and (iii) the closing condition would be disclosed to all Shareholders prior to therelevant general meeting, and therefore, our Shareholders who vote on the transaction should beaware of, and vote on the basis of, the transaction as a package including that condition.
We consider that the alternative provisions in our Articles set out above will allow us tocomply with (i) the abstention requirements under Rule 2.15 of the Listing Rules and otherrelevant requirements under the Listing Rules which specifically apply these abstention
requirements; and (ii) the abstention requirements under the Takeovers Code with respect totransactions that require independent shareholders’ approval.
We have applied for, and the Stock Exchange has granted us, a waiver from strict
compliance with the requirement under paragraph 14 of Appendix 3 to the Listing Rules to amend
our Articles in accordance with the abstention requirements under the Listing Rules. See“Waivers — B. Additional Waivers — Articles of Incorporation — Material Interests in a
Transaction” for details.
C.

SHAREHOLDERS’ RIGHTS

Entitlement of certain Shareholders’ rights under Japan law may differ from those available
under Hong Kong law and/or the Listing Rules.
CCASS Beneficial Owners
A CCASS Beneficial Owner is not recognised as a Shareholder under Japan law until he/she
withdraws the relevant Shares from CCASS and re-registers himself/herself as the registered
Shareholder in our Share Register.
HKSCC Nominees will exercise the rights on behalf of CCASS Beneficial Owners in the sameway it does for shareholders of other companies listed on the Stock Exchange the shares ofwhich are deposited into CCASS.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Inspection of our Share Register
Shareholders and creditors
We generally allow a Shareholder or a creditor to inspect our Share Register from time totime as required under the Japan Companies Act. We however are entitled under the Japan
Companies Act to refuse a request from such persons to inspect our Share Register under thefollowing limited circumstances:(i)

where a request is made for a purpose other than in relation to securing or exercisingrights as a Shareholder or creditor;(ii)

where a request is made for the purpose to interfere with our business operation or todamage the interests of our Shareholders as a whole;(iii)

where a request is made to inform, in exchange for payment, a third party of any factthat could not have been obtained other than from an inspection (including copying);(iv)

where a person making a request has informed, in exchange for payment, a third partyof any fact that could not have been obtained other than from an inspection (including
copying) during the last two years; and(v)

where the person making a request is carrying on, or engaged in, a businesssubstantially in competition with our business (this requirement has been removed in
the JCA Amendments).

A Shareholder or creditor wishing to inspect our Share Register shall attend our Hong Kong
Share Registrar’s office during normal business hours in Hong Kong. Our Hong Kong Share
Registrar will require the person to complete a prescribed form setting out his/her details and the
purposes of inspection. Our Hong Kong Share Registrar will then contact our Company and notify
the relevant Shareholder or creditor of our Company’s decision within two business days and, if
approved, our Hong Kong Share Registrar will notify the Shareholder or creditor the date ofinspection. A printed copy of our Share Register may also be requested. Other than applicable
printing costs, no fee will be charged for the inspection.
Non-shareholder and non-creditor
Any person who is not a Shareholder or creditor of our Company (including national andprefectural government agencies) may also, to the extent allowed under the Personal Information
Protection Act, inspect and obtain a copy of our Share Register. As advised by our Japan Legal
Adviser, our Share Register is, under the Personal Information Protection Act, open for inspection
for persons other than our Shareholders and creditors if:(i)

the inspection of our Share Register is based on laws and regulations;80

KEY JAPAN LEGAL AND REGULATORY MATTERS(ii)

the inspection of our Share Register is necessary for the protection of the life, body, or
property of an individual and if it is difficult to obtain the consent of the person who isthe subject of the inquiry;(iii)

the inspection of our Share Register is necessary for improving public health orpromoting the sound growth of children and if it is difficult to obtain the consent of theperson who is the subject of the inquiry; or(iv)

the inspection of our Share Register is necessary for cooperating with a state organ,
a local government, or an individual or a business operator entrusted by one in
executing the affairs prescribed by laws and regulations and if obtaining the consent
of the person who is the subject of the inquiry is likely to impede the execution of suchaffairs.

CCASS Beneficial Owners are not recognised as a Shareholder under Japan law and they
may not inspect our Share Register unless they are allowed to do so under the Personal
Information Protection Act.
Shareholders who have surrendered their Share certificates to our Company may inspect
our Share Register to check and verify their shareholdings in our Company.
Dividends
Record date for distributing dividends
Our AGM is usually held in June every year. Our Articles provide that our Board of Directors
may from time to time designate a record date for our AGMs and extraordinary general meetings.
A record date is the date for determining the list of eligible Shareholders entitled to vote in our
AGMs and extraordinary general meetings. We may also set the same or a different record dateto determine the eligibility of our Shareholders to receive dividends and/or other distributions.
Final dividend
Upon Listing, we plan to set our record date for final dividend entitlement shortly after theannouncement of any final dividend declared. To comply with the requirements under the Japan
Companies Act and Rule 13.66(1) of the Listing Rules, a record date in relation to final dividend,
if any, will be announced by public notice in Japan, which will be replicated on the Stock
Exchange’s website and our Company’s website in English and Chinese, at least 14 days prior
to the proposed record date.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Interim and other dividend payments
Upon Listing, we plan to set our record date for interim or other dividend entitlement shortly
after the announcement of any interim or other dividend declared. To comply with therequirements under the Japan Companies Act and Rule 13.66(1) of the Listing Rules, a record
date in relation to our interim or other dividend, if any, will be announced by public notice inJapan, which will be replicated on the Stock Exchange’s website and our Company’s website inEnglish and Chinese, at least 14 days prior to the proposed record date.
Shareholders who acquire our Shares after the record date will not be entitled to receive
dividend payment, if any.
Restrictions on dividend distributions
Our Company may declare and pay, in accordance with the Japan Companies Act and ourArticles, (i) interim cash dividends (declared at the end of the second quarter of a financial year)with the approval of our Board of Directors and (ii) other dividends (including year-end dividends)
with the approval of our Board of Directors (unless such dividend is proposed to be paid in kind(other than scrip dividends in the form of Shares, bonds (including convertible bonds) and SARs
issued by our Company, which the Japan Companies Act prohibits) without giving Shareholders
the right to demand distribution in cash, in which case a special resolution in a general meeting
would be required). Scrip dividends in the form of Shares, bonds (including convertible bonds) or
SARs issued by our Company are prohibited under the Japan Companies Act. The amount orvalue of any dividends declared may not exceed the available Distributable Amount.
The Japan Companies Act provides that a company’s Distributable Amount is calculatedusing the retained earnings* (剰余金) recorded in a company’s financial statements prepared inaccordance with JGAAP (rather than IFRS) with certain adjustments (including deduction of thebook value of any treasury stock* (自己株式) held by a company) available under the Japan
Companies Act and the relevant ordinance of the Japanese Ministry of Justice. The Japan
Companies Act also requires an amount equivalent to 10% of any dividend resulting in a decrease
in retained earnings* (剰余金) to be allocated to reserves* (準備金) until the aggregate amount of
the reserve* (準備金) equals 25% of the amount of share capital. See “Appendix V — Summaryof our Articles of Incorporation and Japan Corporation Law — 6. Dividends and Distributions” fora detailed description on how Distributable Amount is calculated under the Japan Companies
Act.
Given that our consolidated financial information set out as Appendix I to this Prospectus
have been prepared in accordance with IFRS, the amounts of the consolidated retained earnings
determined under IFRS differ from the retained earnings* (剰余金) recorded in our Company’s
entity level financial statements under JGAAP. The differences are caused by items which include,for example, the adjustment related to goodwill and intangible asset amortisation, share-based
payments and derivative financial liabilities.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Our Company will procure our accounting auditor to prepare reconciliation between our
financial statements under JGAAP and IFRS for each financial year following the Listing anddespatch of such reconciliation documents to our Shareholders together with our annual report(or summary financial report). For indicative purposes, our Company’s annual report
incorporating financial statements (or a summary financial report) prepared in accordance withIFRS will include the Distributable Amount as at the end of the financial year.
Currency of dividend payments
Shareholders entitled to receive cash dividends from our Company (other than CCASS
Beneficial Owners) will have the option of receiving their entitlements in either Japanese Yen or
Hong Kong Dollars (to be converted by our Company at the then prevailing foreign exchange
rates available to our Company), provided that, in order to elect Japanese Yen, Shareholders
must supply bank account details in Japan (such bank must be a member of The Japanese
Bankers Currency Exchange Institution) to our Company through our Hong Kong Share Registrar.
No partial election will be allowed, and Shareholders, including nominee companies which holdShares on behalf of our Shareholders, cannot elect to receive part of the cash dividends inJapanese Yen and part of the cash dividends in Hong Kong Dollars. If no election is made by a
Shareholder, such Shareholder will receive dividend payments in Hong Kong Dollars.
Shareholders who have previously elected to receive dividend payments in Japanese Yen andsupplied bank account details in Japan to our Company will continue to receive dividend
payments in Japanese Yen. Each such Shareholder can exercise their option by informing ourHong Kong Share Registrar of its election. Upon declaration of dividend payment, our Hong Kong
Share Registrar will notify our Company of the aggregate amount in Japanese Yen and Hong
Kong Dollars to be paid to our Shareholders. Dividend payments in Hong Kong Dollars will be
paid by our Hong Kong Share Registrar to the relevant Shareholders upon receipt of the requisite
funds from our Company, whereas dividend payments in Japanese Yen will be directly paid by ourCompany.
All CCASS Beneficial Owners will receive dividend payments in Hong Kong Dollars. Any
CCASS Beneficial Owner who wishes to elect to receive his/her dividend payments in Japanese
Yen must withdraw the relevant Shares from CCASS and supply bank account details in Japan(such bank must be a member of The Japanese Bankers Currency Exchange Institution) to ourCompany through our Hong Kong Share Registrar.
Compulsory Acquisitions
Under the Companies Ordinance, the minority shareholders of a Hong Kong-incorporated
company may be compulsorily brought out or may require an offeror to buy out their interests if
the offeror acquires 90% of the issued shares in a successful takeover without shareholders’approval. Under the relevant Japan laws and regulations, compulsory acquisitions can beachieved without shareholders’ approval by the following transactions:(i)

An offeror (which must be a Japan-incorporated company) having acquired 90% ormore of the voting rights in a stock company* (株式会社) (which our Company is one)may (aa) acquire the remaining interests of the minority shareholders by way of a share83

KEY JAPAN LEGAL AND REGULATORY MATTERS
exchange* (株式交換) arrangement; or (bb) cash out the remaining interests of theminority shareholders by way of a merger* (合併) arrangement (the “JCA Compulsory
Acquisitions”) only with the approval of the board of directors of the said company.
In case of a share exchange* (株式交換) arrangement, the offeror must be a stockcompany* (株式会社) or a limited liability company* (合同会社).
(ii)

Under the JCA Amendments, which will come into effect on 1 May 2015 , an offeror
having acquired 90% or more of the voting rights in a stock company* (株式会社) (which
our Company is one) may compulsorily acquire the interests of all remaining
shareholders only with the approval of the board of directors of the said company (the“JCA Amendment Compulsory Acquisition”).

Other than the transactions above, there is currently no provision under Japan laws andregulations similar to the compulsory acquisition regime under the Companies Ordinance thatwould otherwise allow an offeror in a successful takeover to buy out the minority shareholders
without shareholders’ approval, regardless of the shareholding percentage acquired by suchofferor.
Apart from the JCA Compulsory Acquisitions and the JCA Amendment Compulsory
Acquisition, under Japan laws, an offeror of a successful takeover or the minority shareholders
of a Japan-incorporated company may also achieve a similar outcome of compulsory acquisitions
by proposing a number of alternative transactions (the “Share Transactions”) to the subject
company, all of which are subject to shareholders’ approval.
To initiate the Share Transactions, an offeror in a successful takeover or minority
shareholders may either (i) request for the convocation of a general meeting; or (ii) request for
additional matter(s) to be included in the agenda of a general meeting. See “- B. Shareholders’Meetings” in this section above for the detailed procedures.
Under the Japan Companies Act, the approval threshold of the Share Transactions is
two-third of the votes of shareholders present at a general meeting, which is significantly lower
than the 90% threshold of the compulsory acquisition regime under the Companies Ordinance.
As an enhanced measure of shareholders’ protections, our Articles provide that at least 90% of
the votes of Shareholders present at a general meeting are required to effect the Share
Transactions.
Our Directors are of the view that, in relation to compulsory acquisitions, the level ofprotections under our Articles and the relevant Japan laws and regulations taken as a whole islargely commensurate to the shareholders’ protections provided under the Companies Ordinance(given the Articles provisions put in place by us).

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KEY JAPAN LEGAL AND REGULATORY MATTERS
In addition, investors should note that, unlike the Companies Ordinance, there is norestriction under the relevant Japan laws and our Articles on the acquisition price of thetransactions set out above. Minority shareholders may resort to a number of court procedures to(i) request the court to cease the relevant transactions; or (ii) determine a fair acquisition price.
There may be significant delays and costs involved in the initiation of the aforementioned court
procedures.
See “Appendix V — Summary of our Articles of Incorporation and Japan Corporation Law— 8. Compulsory Acquisitions” for the details of the compulsory acquisition provisions underJapan law and our Articles.
D.

CAPITAL STRUCTURE

Set out below are the key provisions under Japan law regarding allotment and issue of
Shares to a third party and share repurchases on the Stock Exchange, which differ from theregulatory regime in Hong Kong.
Issuing Mandate
There is no concept of pre-emptive rights (as defined in the Listing Rules) under Japan law.
Under the Japan Companies Act, when a Japanese company issues new shares and SARs
(including convertible bonds), certain subscription requirements (the “Subscription
Requirements”) shall be determined. The Subscription Requirements include the number ofshares or SARs (including convertible bonds) to be issued, price, payment due date and othermatters prescribed under the Japan Companies Act.
Under our Articles, the Subscription Requirements of any new issue of Shares or SARs
(including convertible bonds) must be determined by an ordinary resolution in a general meeting,provided however that the Subscription Requirements of the issue and allotment of Shares or
SARs (including convertible bonds) at a price or term especially favourable to the allottees must
be determined by a special resolution in a general meeting. Our Board may issue and allot the
Shares or SARs once the Subscription Requirements have been determined and approved by an
ordinary or special resolution (as the case may be) in a general meeting.
Our Articles further provide that (a) the total number of Shares authorised by our
Shareholders to be issued is 2,000,000,000 Shares; and (b) our Shareholders may entrust thepower to determine the Subscription Requirements of any new issue of Shares or SARs (including
convertible bonds) to our Board by way of a general mandate. The authority of the said generalmandate must be approved with an ordinary (or a special resolution, if such mandate specificallyprovides for an allotment at a price or term especially favourable to the allottee) resolution in a
general meeting, which resolution shall prescribe, among others, the maximum number of Shares
and SARs to be issued and allotted under the general mandate and the minimum price to be paidby the allottees. Under our Articles, the general mandate shall not be effective for more than one
year from the date of the resolution approving the same. As advised by our Japan Legal Adviser,
our Issuing Mandate was duly approved by our Shareholders at our extraordinary general meeting
held on 16 March 2015.

85

KEY JAPAN LEGAL AND REGULATORY MATTERS
The Articles and Japan Companies Act provisions described above apply equally to thedisposal of our treasury stock* (自己株式), if any.
On 16 March 2015, our Board has been granted with the Issuing Mandate to issue, allot anddeal in our Shares, the details of which are set out in “Appendix VI — Statutory and General
Information — A. Further Information about our Company — 5. Extraordinary General Meeting
held on 16 March 2015”. Under our Articles and the Japan Companies Act, the Issuing Mandateis only enforceable when:(i)

our total number of issued Shares will not exceed 2,000,000,000 Shares, which are thetotal number of Shares authorised to be issued by our Company, as a result of the issue
and allotment made under the Issuing Mandate; and(ii)

the allotments under the Issuing Mandate are not made at a price or term especiallyfavourable to the allottees, in which case a special resolution in a general meeting isrequired.

For the avoidance of doubt, the Issuing Mandate grants power to our Board to issue, allot
and deal with Shares only and does not grant authority to issue SARs and dispose of treasury
stock* (自己株式). Our Japan Legal Adviser has confirmed that the Shareholders’ resolution in our
extraordinary general meeting held on 16 March 2015 approving the Issuing Mandate contained
all the required information prescribed under our Articles. Our Directors have undertaken to the
Stock Exchange that they will not exercise the Issuing Mandate if any of conditions (i) to (ii) set
out above has not been fulfilled, in which case they will seek specific approval from ourShareholders in order to issue and allot new Shares.
As to the term “especially favourable” referred to in (ii) above, our Japan Legal Adviser has
confirmed that there is no clear definition under Japan law as to the circumstances where theterms of an allotment may be deemed as especially favourable to the proposed allottees. Under
the internal rules of The Japan Securities Dealers Association, an allotment may be taken as
especially favourable to the proposed allottees when less than 90% of the market value of the
Shares so allotted is set as consideration from the proposed allottees. Our Board may from time
to time appoint an independent expert to determine whether an allotment is especiallyfavourable.
Our Directors have been advised that the Issuing Mandate is in compliance with Rule 13.36
of the Listing Rules. The aggregate number of Shares under the Issuing Mandate is subject to thelimit under Rule 13.36(2)(b) of the Listing Rules and is no more than the sum of:(a)

20% of the total number of Shares issued by our Company immediately uponcompletion of the Global Offering; and(b)the aggregate number of Shares repurchased by our Company, if any, under the
Repurchase Mandate referred to below.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Share repurchases
Under the Japan Companies Act, a company may in general repurchase its shares throughthe following ways:(i)a company may repurchase its own shares upon agreement with one or more particularshareholder(s) with a special resolution in a general meeting approving (a) the number
and class of the shares to be repurchased; (b) the contents and the aggregate amountof consideration to be paid in exchange for the repurchased shares; (c) the period
during which the company may repurchase its shares (which shall not be more than
one year); and (d) the name of such particular shareholder(s). Once approved, thecompany may repurchase the shares within the scope of the special resolution
following certain prescribed procedures under the Japan Companies Act, provided
however that, where the repurchase price exceeds the market price of the shares, thecompany shall give a notice to other shareholders to provide them with theopportunities to participate in the share repurchase prior to the general meeting
approving the share repurchase;(ii)

a company may repurchase its own shares through an offer to all shareholder with an
ordinary resolution in a general meeting approving items (a) to (c) set out in (i) above.
Once approved, the company may repurchase the shares within the scope of theordinary resolution following certain prescribed procedures under the Japan
Companies Act; and(iii)

a company may repurchase its own shares through a market transaction etc.*(市場取引等) as defined under the Japan Companies Act with an ordinary resolution ina general meeting or, where allowed under its articles, a resolution of its board of
directors, approving items (a) to (c) set out in (i) above. Once approved, the company
may repurchase the shares within the scope of the said resolution.

Upon Listing, we will effect repurchases of our Shares outside the Stock Exchange inaccordance (i) and (ii) above, subject to compliance with all applicable Listing Rules and/or the
Takeovers Code. Repurchases on the Stock Exchange will be effected under the Repurchase
Mandate granted to our Board by our Shareholders on 16 March 2015 in compliance with Rule
10.06 of the Listing Rules and in accordance with (iii) above as market transactions etc.*(市場取引等). Our Articles provide that repurchases of our own Shares can be effected througha market transaction etc.* (市場取引等) as defined under the Japan Companies Act with aresolution of our Board (so long as such repurchases comply with the applicable requirements
under the Listing Rules), allowing our Directors to effect repurchases under the Repurchase
Mandate without Shareholders’ specific approval.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Based on the foregoing Articles and Japan law provisions, repurchases under the
Repurchase Mandate must be market transactions etc.* (市場取引等) as defined under the Japan
Companies Act. There is no judicial precedent or interpretation confirming that a repurchasethrough the Stock Exchange, which is not a securities exchange in Japan, is a market transaction
etc.* (市場取引等). Given the lack of judicial precedent, our Directors have undertaken to the
Stock Exchange that they will not exercise the Repurchase Mandate to repurchase our Shares on
the Stock Exchange unless there is clear judicial authority allowing us to make repurchases on
the Stock Exchange thereunder.
For details of the Japan law and Listing Rules provisions on the repurchases of our Shares,
see “Appendix VI — Statutory and General Information — B. Repurchase of our Shares”.
E.

TAXATION
Set out below are the key tax obligations that might arise from dealing in our Shares. It does

not purport to be a complete analysis of all possible tax situations that may be relevant to adecision to purchase the Shares or with regard to the taxation of our Company. Potential
investors should consult your own tax advisers as to the possible tax consequences of thepurchase and ownership of the Shares based on their particular circumstances. No conclusion
should be drawn with respect to issues not specifically addressed by this summary. The following
description of Japan law is based upon the Japan law and regulations in effect and as interpretedby the National Tax Agency of Japan as at the date of this Prospectus and is subject to any
amendments to the relevant laws (or their interpretation) later introduced, whether or not on aretroactive basis. It is not intended to be, nor should it be construed to be, legal or tax advice.
It is emphasised that none of our Company, our Directors, or other parties involved in the
Global Offering can accept responsibility for any impact on the tax liabilities of, Shareholders/potential investors resulting from their subscription for, purchase, holding or disposal of orotherwise dealing in our Shares or exercising any rights attaching to them.

88

KEY JAPAN LEGAL AND REGULATORY MATTERS
1.

Withholding Tax on Dividend Payment

Japanese Shareholders
Shareholders who choose to invest outside CCASS who are either a resident in Japan or a
corporation incorporated in Japan are subject to the following withholding tax rate on dividend
distribution:
Individual
Shareholder that
Individual

Dividends paid and due

is interested in

Shareholder that

3% or more ofis interested in

the entire issued

less than 3% of

Shares of ourour total number

total number ofCorporateof issued Sharesissued Shares

Shareholder

20.315%20%

20.420%20%

15.315%15%

On or before 31 December 2037 . . . . . . . . . . .
On or after 1 January 2038 . . . . . . . . . . . . . . .

Non-Japanese Shareholders
Shareholders who choose to invest outside CCASS who are not residents in Japan or
corporations incorporated in Japan without a permanent establishment in Japan are subject tothe following withholding tax rate on dividend distribution:
Individual

Dividends paid and due

Individual

Shareholder that is

Shareholder that isinterested in 3% orinterested in lessmore of the entire

than 3% of our total

issued Shares of ournumber of issued

total number of

Sharesissued Shares

Corporate Shareholder

On or before 31 December
15.315% or 10% (1) 20.420% or 10% (1) 15.315% or 5%/10% (1)2037 . . . . . . . . . . . . . . . . . .
On or after 1 January 2038 . .
15% or 10% (1)20% or 10% (1)15% or 5%/10% (1)

Note:
(1)

Individual and corporate Shareholders who are residents or entities incorporated in Hong Kong having nopermanent establishment in Japan will be subject to a withholding tax in Japan not exceeding 10% (or notexceeding 5% for corporate Shareholders who are interested in 10% or more of our total number of issued Sharesfor the six consecutive months ending on the record date for dividend distribution) for dividend payments under the
Hong Kong-Japan Tax Treaty. See “— Hong Kong-Japan Tax Treaty’’ in this section below for details.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
CCASS Beneficial Owners
Notwithstanding that CCASS Beneficial Owners are not recognised under the Japan
Companies Act as Shareholders, our Tax Adviser has confirmed that Japanese tax laws would
recognise CCASS Beneficial Owners who hold their investments through CCASS, being theultimate payees of any dividend, as taxpayers. As such, the withholding tax rate applicable to thedividend paid to CCASS Beneficial Owners should, in principle, be the tax rate applicable to each
CCASS Beneficial Owner on an individual basis in accordance with their identity, shareholding
percentage and tax residence.
However, due to the inherent characteristics of CCASS, our Company is not able toascertain the identity, and consequently the tax residence, of the CCASS Beneficial Owners. Our
Company is therefore unable to apply a rate of withholding tax on an individual basis to CCASS
Beneficial Owners. In addition, CCASS does not have the capacity to attribute to each CCASSParticipant (and, accordingly, to each CCASS Beneficial Owner) its respective share of distributed
profits with the purpose of enabling our Company to apply the proper withholding tax (if any).
As such, our Company will withhold tax on the dividends payable to CCASS Beneficial
Owners at the highest possible withholding tax rates under Japan law, which is 20.420% fordividends paid and due on or before 31 December 2037.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Withholding tax held in excess
CCASS Beneficial Owners are subject to an initial withholding tax rate of 20.420%, whichis the highest possible withholding tax rate under Japan law. Eligible CCASS Beneficial Owners
may apply for a refund of taxes withheld in excess of the applicable rates that would have applied
to them if they choose to invest outside CCASS from the National Tax Agency. Set out below are
the rates of refunds that our CCASS Beneficial Owners may be entitled to depending on theirresidence or jurisdictions of incorporation:(a)Hong Kong CCASS Beneficial Owners

CCASS Beneficial Owners who are either residents in Hong Kong or corporations
incorporated in Hong Kong without any permanent establishment in Japan may be entitled toclaim a refund of taxes withheld in excess from the National Tax Agency at a rate set out below:
Individual
Shareholder that
Individual

is interested in

Shareholder that

3% or more ofis interested in

the entire issued

less than 3% of

Shares of ourour total number

total number ofCorporateof issued Sharesissued Shares

Shareholder

20.420%20.420%20.420%15.315%20.420%15.315%5.105%

0%5.105%

Withholding tax rate initially withheld by ourCompany . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable tax rate that would have applied
to them if they choose to invest outside
CCASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Possible rate of refunds from the National Tax
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91

KEY JAPAN LEGAL AND REGULATORY MATTERS(b)

Japanese CCASS Beneficial Owners

CCASS Beneficial Owners who are either residents in Japan or corporations incorporated inJapan may be entitled to claim a refund of taxes withheld in excess from the National Tax Agency
at a rate set out below:
Individual
Shareholder that
Individual

is interested in

Shareholder that

3% or more ofis interested in

the entire issued

less than 3% of

Shares of ourour total number

total number ofCorporateof issued Sharesissued Shares

Shareholder

20.420%20.420%20.420%20.315%20.420%15.315%0.105%

0%5.105%

Withholding tax rate initially withheld by ourCompany . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable tax rate that would have applied
to them if they choose to invest outside
CCASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Possible rate of refunds from the National Tax
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Japanese CCASS Beneficial Owners should note that, if they elect to invest in our Company
through a recognised financial instruments business operator * (金融商品取引業者等), theobligation to pay the relevant withholding tax rests with those operators. As such, they areentitled to claim a full refund of the withholding tax withheld by our Company from Japan’s
National Tax Agency (i.e. 20.420% of the dividends paid).

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KEY JAPAN LEGAL AND REGULATORY MATTERS(c)

Other CCASS Beneficial Owners

Other CCASS Beneficial Owners who are neither residents in Japan or Hong Kong or
corporations incorporated in Japan or Hong Kong without any permanent establishment in Japan
may be entitled to claim a refund of taxes withheld in excess from the National Tax Agency at a
rate set out below:
Individual
Shareholder that
Individual

is interested in

Shareholder that

3% or more ofis interested in

the entire issued

less than 3% of

Shares of ourour total number

total number ofCorporateof issued Sharesissued Shares

Shareholder

20.420%20.420%20.420%15.315%20.420%15.315%5.105%

0%5.105%

Withholding tax rate initially withheld by ourCompany . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable tax rate that would have applied
to them if they choose to invest outside
CCASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Possible rate of refunds from the National Tax
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CCASS Beneficial Owners may be able to claim a refund from Japan’s National Tax Agencyof withholding tax withheld in excess of by completing and returning a designated application
form prepared by us in the form and substance acceptable to the National Tax Agency. Electronic
copies of such application forms will be available on our Company’s website upon Listing. In
addition, physical application forms for tax refund in Japanese, English and Chinese will be madeavailable to our Shareholders at our Company’s principal place of business in Hong Kong and ourHong Kong Share Registrar. Our Company will announce to our Shareholders on each occasion
these application forms become available. Potential investors should note that there may bedelays in obtaining this refund. Detailed documentary requirements for the refund processapplicable to our CCASS Beneficial Owners will be specified in our dividend payment
announcements.
Hong Kong-Japan Tax Treaty
Following the conclusion of the Hong Kong-Japan Tax Treaty, effective in Japan since 14
August 2011, dividends paid by our Company to our Shareholders who (i) are Hong Kong
residents or companies incorporated in Hong Kong; and (ii) have no permanent establishment inJapan, will be subject to a withholding tax in Japan not exceeding 10% (or not exceeding 5% forcorporate Shareholders who are interested in 10% or more of our total number of issued Sharesfor the six consecutive months ending on the record date for dividend distribution) for dividends
payable after 1 January 2012.

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Corporate and other individual Shareholders who hold the Shares in their own names andbelieve that they are entitled to reduced withholding tax rates on dividend payments made by ourCompany under the Hong Kong-Japan Tax Treaty will need to make an application to Japan’s
National Tax Agency through our Hong Kong Share Registrar to establish their eligibility to thesatisfaction of Japan’s National Tax Agency.
Applications for reduced withholding tax rates under the Hong Kong-Japan Tax Treaty
applicable to dividend payments by our Company can be made before the record date on which
Shareholders are determined to be eligible for such dividends. Applications must be made using
the Application Form for Income Tax Convention (Relief from Japanese Income Tax on Dividends).
Such application form is available in Japanese and English on the website of Japan’s National Tax
Agency at www.nta.go.jp/tetsuzuki/shinsei/annai/joyaku/annai/pdf2/250.pdf. Application
forms in Japanese and English, together with an unofficial Chinese translation of the instructions
for completing the application form, will be made available to our Shareholders at our Company’s
principal place of business in Hong Kong and our Hong Kong Share Registrar prior to the record
date on which Shareholders are determined to be eligible for dividend payments. Our Company
will announce to our Shareholders on each occasion these application forms become available.
Detailed documentary requirements for the application process under the Hong Kong-Japan Tax
Treaty will be specified in our dividend payment announcements.
Alternatively, Shareholders may be able to claim a refund from Japan’s National Tax Agencyof withholding tax withheld in excess of the rate payable under the Hong Kong-Japan Tax Treaty.
Applications must be made using the Application Form for Refund of the Overpaid Withholding
Tax Other Than Redemption of Securities and Remuneration Derived from Rendering Personal
Services Exercised by an Entertainer or a Sportsman in Accordance with the Income Tax
Convention which is available in Japanese and English on the website of Japan’s National Tax
Agency at www.nta.go.jp/tetsuzuki/shinsei/annai/joyaku/annai/pdf2/260.pdf. Physicalapplication forms for tax refund in Japanese and English, including an unofficial Chinesetranslation of the instructions for completing the application form, will be made available to our
Shareholders at our Company’s principal place of business in Hong Kong and our Hong Kong
Share Registrar. Our Company will announce to our Shareholders on each occasion theseapplication forms become available. Potential investors should note that there may be delays in
obtaining this refund. Detailed documentary requirements for the refund process under the Hong
Kong- Japan Tax Treaty will be specified in our dividend payment announcements.
Potential investors are strongly advised to consult their professional advisers if you are inany doubt as to the implications of the Hong Kong-Japan Tax Treaty or the application process
for any reduced rates on dividend payments made by our Company. We do not assume any
responsibility to ensure withholding is made at the reduced treaty rate or to ensure no withholding
is made for Shareholders who would be so eligible under any applicable income tax treaty.

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Our Tax Adviser is of the view that at this moment, CCASS Beneficial Owners cannot makea claim under a tax treaty, because the name, address and other information of a CCASS
Beneficial Owner cannot be identified due to the inherent characteristics of CCASS. We will, on
an on-going basis, discuss with the National Tax Agency regarding the applicability of any tax
treaty between Japan and any other country to CCASS Beneficial Owners residing in such othercountry. In the event that the National Tax Agency has approved the application of tax treaty tosuch CCASS Beneficial Owners, we will publish a separate announcement on the Stock
Exchange’s website and our Company’s website describing the procedures to make a claim
under tax treaty.
2.

Stamp duty

Japan stamp duty
Share transfers do not attract stamp duty in Japan. However, issue of a new Share
Certificate in Japan would be subject to Japanese stamp duty (印紙税) ranging from ¥200 to¥20,000. Upon Listing, all Share certificates of our Company will be issued by our Hong Kong
Share Registrar. Accordingly, no Japanese stamp duty is, in principle, payable for our new Sharecertificates.
Hong Kong stamp duty
Our Shares are considered as ‘‘Hong Kong stock’’ for the purpose of the Stamp Duty
Ordinance. Dealings in the Shares in our Company, which are required to be registered in ourshare register through the Hong Kong Share Registrar in Hong Kong, are subject to Hong Kong
stamp duty. The current ad valorem rate of Hong Kong stamp duty is 0.1% on the higher of theconsideration for or the market value of the Shares and it is charged on the purchaser on every
purchase and on the seller on every sale of the Shares. In other words, a total stamp duty of 0.2%
is currently payable on a typical sale and purchase transaction.
3.

Capital gain tax

Japan capital gains tax
As a general rule, gains derived from the sale outside Japan of our Shares by non-resident
Shareholders or corporate Shareholders established outside Japan who have neither apermanent establishment in Japan nor a permanent representative in Japan to which the Sharesare attributable are generally not liable to any Japanese income or corporate taxes, except for (i)any Shareholder who is interested in 25% or more in our Company’s entire issued Shares at any
time during the taxable year of sale or during two preceding years; and (ii) any Shareholder whotransfers 5% or more of our total number of issued Shares in the taxable year of sale.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
The above taxation is subject to the application of relevant double tax treaties and, basedon the provisions of the Hong Kong-Japan Tax Treaty, capital gains realised by a Shareholder,
who is a resident or corporation in Hong Kong, will not be taxable under Japanese capital gains
tax (even if such Shareholder is interested in 25% or more in our Company’s total number ofissued Shares at any time during the taxable year of sale or during two preceding years, andtransfers 5% or more of our total number of issued Shares in the taxable year of sale). The
absence of capital gains taxation in Japan is not subject to any specific formalities and ourShareholders who are residents or corporations in Hong Kong are therefore not required to takeany action in order to enjoy this exemption.
Our Tax Adviser has confirmed that in respect of Shares deposited into CCASS, only capitalgains realised by the CCASS Beneficial Owners are taxable under Japan law. Neither HKSCC
Nominees nor the CCASS Participants are subject to any Japanese capital gains tax reporting or
payment obligation directly arising from dealing in our Shares on behalf of the CCASS Beneficial
Owners (even if a CCASS Beneficial Owner is interested 25% or more in our Company’s total
number of issued Shares at any time during the taxable year of sale or during two preceding
years, and transfers 5% or more of our total number of issued Shares in the taxable year of sale).
Individual Shareholders
Individual Shareholders who are residents in Japan who effect their dealings in our Sharesthrough a recognised financial instruments business operator (金融商品取引業者等) are subject tocapital gains tax in Japan at 20.315% for the year ending before 31 December 2037 or 20% for
the year ending on or after 31 December 2038.
Corporate Shareholders
Corporate Shareholders established in Japan are subject to capital gains tax in Japan at
approximately 36%.
Hong Kong capital gains tax
No tax is imposed in Hong Kong in respect of capital gains from the sale of the Shares.
Trading gains from the sale of the Shares by a person carrying on a trade, profession or businessin Hong Kong, where such gains are derived from or arise in Hong Kong from such trade,
profession or business, will be subject to Hong Kong profits tax.
4.

Inheritance tax and gift tax

Japanese inheritance tax and gift tax at progressive rates may be payable by an individual
who has acquired common Shares* (普通株式) of our Company as a legatee, heir or donee eventhough neither the acquiring individual nor the deceased nor donor is a Japanese resident.

96KEY JAPAN LEGAL AND REGULATORY MATTERS
5.

GeneralZeirishi-Hojin PricewaterhouseCoopers* (税理士法人プライスウォーターハウスクーパース),
our Tax Adviser, has advised our Company in writing as to (1) our potential investor’s exposure
to (i) Japanese withholding tax on dividend payments from our Company; (ii) Japanese capitalgains tax from dealing in the Shares of our Company; (iii) Japanese stamp duty on issue of sharecertificates; (iv) Japanese inheritance tax and gift tax from the acquisition of the Shares of ourCompany as legatee, donee and heir; (2) our Company’s exposure to Japanese withholding tax
on dividend payments from our subsidiaries; and (3) the Japanese corporate income tax rates
applicable to our Group during the Track Record Period. The letter of advice is available forinspection in accordance with “Appendix VII — Documents Delivered to the Registrar ofCompanies and Available for Inspection”.
F.

FOREIGN EXCHANGE CONTROLThe Foreign Exchange and Foreign Trade Act of Japan* (外国為替及び外国貿易法) (Act No.
228 of 1949) and the cabinet orders and ministerial ordinances (collectively, the ‘‘Foreign
Exchange Regulations’’) thereunder govern certain matters relating to the issue of equity-related
securities by us and the acquisition, holding and disposal of Shares by foreign investors of ourCompany. Under certain prescribed circumstances, Shareholders and CCASS Beneficial Owners
may be required to file a foreign exchange report or notification to The Bank of Japan.
The filing obligations are generally exempted if: (i) a Shareholder or CCASS Beneficial Owner
is a resident of, or a corporation organised under the laws of, certain exempted jurisdictions(which include Hong Kong, the U.S., the United Kingdom, Canada, Australia, the PRC, among
others); and (ii) if their shareholding interests in our Company do not exceed 10%.
See “Appendix V — Summary of our Articles of Incorporation and Japan Corporation Law— 10. Foreign Exchange Control” for a list of the exempted jurisdictions and details of the filing
requirements under the Foreign Exchange Regulations.
G.

SHAREHOLDERS PROTECTION

Set out below is a comparison of the applicable laws and regulations in Hong Kong andJapan on certain key shareholder protection standards that we consider material to our
Shareholders and investors.
Amendment to constitutional documents
Under Hong Kong law, any alteration to the articles of association of a company (except foralternation to the maximum number of shares that the company may issue) must generally bemade by a 75% majority vote in a general meeting. Under Japan law, in order to amend thearticles of incorporation, the resolution of the shareholders’ meeting shall in general be approvedby at least two-thirds of the voting rights of the shareholders present at a meeting where theshareholders holding at least one-third of the voting rights who are entitled to exercise theirvoting rights are present. The standard of shareholders’ protection under Japan law is similar toor comparable with that under Hong Kong law.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Variation of rights
Under Hong Kong law, rights attached to shares in a class of shares in a company may bevaried only with either (a) a written consent of holders representing at least 75% of the total voting
rights of holders of shares in the class; or (b) a 75% majority vote passed at a separate general
meeting of holders of shares in the class sanctioning the variation, unless otherwise provided
under the articles of association. Under Japan law, in order to vary the rights attached to anyclass of shares, the resolution of the general meeting shall be approved by at least two-thirds ofthe voting rights of the shareholders present at a meeting where the shareholders holding at leasta majority (which is lowered to one-third under our Articles) of the voting rights who are entitled
to exercise their voting rights are present. Moreover, if a proposed amendment would be
detrimental to shareholders of such class of shares, the resolution of the class shareholders’meeting must be approved by at least two-third of the voting rights of the class shareholders
present at a meeting where the class shareholders holding at least a majority of the voting rights
who are entitled to exercise their voting rights are present. The standard of shareholders’protection under Japan law is not materially different to that under Hong Kong law.
Under our Articles, our Company is not allowed to issue any other class of Shares other thanour common Shares* (普通株式). The requirements in relation to class meetings set out above are
therefore not applicable to us.
Liability to the company
Under Hong Kong law, a person who is a member of a company is not bound by any
alteration of the articles of association of the company that takes effect after the date on which
the person became a member if the alteration increases the person’s liability to the company
unless the person agrees in writing before, on or after the alternation taking effect to be boundby such alteration. Under Japan law, existing shareholders are not subject to any liability to thecompany except to the extent of the amount payable in respect of the shares such existing
shareholders subscribed or purchased when they acquired such shares from our Company. The
standard of shareholders’ protection under Japan law is not materially different to that underHong Kong law.
Winding Up
Under Hong Kong law, the voluntary winding up of a company must be approved byshareholders with a 75% majority vote in a general meeting. Under Japan law, in order tovoluntarily wind up a company, the resolution of a shareholders’ meeting must be approved byat least two-thirds of the voting rights of the shareholders present at a meeting where theshareholders holding at least a majority (which is lowered to one-third in our Articles) of the voting
rights who are entitled to exercise their voting rights are present. The standard of shareholders’protection under Japan law is not materially different to that under Hong Kong law.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Auditors
Under Hong Kong law, the appointment, removal and remuneration of auditors must be
approved by a majority vote in a general meeting. Under Japan law and our Articles, in order toappoint an accounting auditor of our Company, the resolution of our general meeting must be
approved by a majority vote of our Shareholders present at the meeting where the Shareholders
holding at least one-third of the voting rights who are entitled to exercise their voting rights arepresent. The removal of accounting auditor requires a resolution of a general meeting to beapproved by at least a majority of the voting rights of the Shareholders present at a meeting
where the Shareholders holding at least a majority of the voting rights who are entitled to exercise
their voting rights are present. The remuneration of accounting auditor, on the other hand, isdetermined by our Audit Committee which is entirely made up of Independent Non-executive
Directors. The standard of shareholders’ protection under Japan law is similar to or comparablewith that under Hong Kong law.
Register of members
Under Hong Kong law, a member of a company is entitled, on request made in the mannerprescribed under law and without charge, to inspect the register of members of the company. In
the case of our Company, our Hong Kong Share Registrar will maintain our Share Register inHong Kong and make available a copy for inspection by our Shareholders and creditors.
However, there are certain limited circumstances under the Japan Companies Act under which
our Company may reject a request for inspection from our Shareholders and creditors. In
addition, the Personal Data Information Act provides that we may not allow a person other thanour Shareholders and creditors to inspect our Share Register except under certain
circumstances. For details of the rejection criteria under the Japan Companies Act and therelevant provisions under the Personal Information Protection Act, see “— C. Shareholders’
Rights — Inspection of our Share Register” in this section above.
Compulsory Acquisition
Under the Companies Ordinance, the minority shareholders of a Hong Kong-incorporated
company may be compulsorily brought out or may require an offeror to buy out their interests if
the offeror acquires 90% of the issued shares in a successful takeover without shareholders’approval. Under the relevant Japan laws and regulations, compulsory acquisitions can beachieved without shareholders’ approval by the following transactions:(i)

An offeror (which must be a Japan-incorporated company) having acquired 90% ormore of the voting rights in a stock company* (株式会社) (which our Company is one)may (aa) acquire the remaining interests of the minority shareholders by way of a shareexchange* (株式交換) arrangement; or (bb) cash out the remaining interests of theminority shareholders by way of a merger* (合併) arrangement (the “JCA Compulsory
Acquisitions”) only with the approval of the board of directors of the said company. In
case of a share exchange* (株式交換) arrangement, the offeror must be a stockcompany* (株式会社) or a limited liability company* (合同会社).

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KEY JAPAN LEGAL AND REGULATORY MATTERS(ii)

Under the JCA Amendments, an offeror having acquired 90% or more of the voting
rights in a stock company* (株式会社) (which our Company is one) may compulsorily
acquire the interests of all remaining shareholders only with the approval of the boardof directors of the said company (the “JCA Amendment Compulsory Acquisition”).

Other than the transactions above, there is currently no provision under Japan laws andregulations similar to the compulsory acquisition regime under the Companies Ordinance thatwould otherwise allow an offeror in a successful takeover to buy out the minority shareholders
without shareholders’ approval, regardless of the shareholding percentage acquired by suchofferor.
Apart from the JCA Compulsory Acquisitions and the JCA Amendment Compulsory
Acquisition, under Japan laws, an offeor of a successful takeover or the minority shareholders ofa Japan-incorporated company may also achieve a similar outcome of compulsory acquisitions
by proposing a number of alternative transactions (the “Share Transactions”) to the subject
company, all of which are subject to shareholders’ approval.
To initiate the Share Transactions, an offeror in a successful takeover or minority
shareholders may either (i) request for the convocation of a general meeting; or (ii) request for
additional matter(s) to be included in the agenda of a general meeting. See “— B. Shareholders’Meetings” in this section above for the detailed procedures.
Under the Japan Companies Act, the approval threshold of the Share Transactions is
two-third of the votes of shareholders present at a general meeting, which is significantly lower
than the 90% threshold of the compulsory acquisition regime under the Companies Ordinance.
As an enhanced measure of shareholders’ protections, our Articles provide that at least 90% of
the votes of Shareholders present at a general meeting are required to effect the Share
Transactions.
Our Directors are of the view that, in relation to compulsory acquisitions, the level ofprotections under our Articles and the relevant Japan laws and regulations taken as a whole islargely commensurate to the shareholders’ protections provided under the Companies Ordinance(given the Articles provisions put in place by us).
Meetings
Under Hong Kong law, except for a private company or a company limited by guarantee, acompany must, in respect of each financial year, hold a general meeting as its annual general
meeting within six months after the end of its accounting reference period. Japan law provides
that a Japan company must hold an annual general meeting within three months from the end ofits financial year. The standard of shareholders’ protection under Japan law is similar to orcomparable with that under Hong Kong law.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Right to convene meetings
Under Hong Kong law, the directors are required to call a general meeting if the company
has received requests to do so from members of the company representing at least 5% of thetotal voting rights of all the members having a right to vote at general meetings. In addition, acompany must circulate a resolution proposed as a written resolution if it has received requests
to do so from the members of the company representing not less than 5% (or a lower percentage
prescribed in the company’s articles of association) of the total voting rights of all the members
entitled to vote on the resolution. Japan law provides that a shareholder who has held no lessthan 3% of the voting rights in a company for the last six consecutive months may request its
directors to convene a general meeting. If the directors do not send out a convocation notice forsuch general meeting to be held and such shareholders’ meeting is not convened by the directors
within eight weeks from the date of such request, the relevant Shareholder who made the request
may convene a general meeting with court permission.
The standard of shareholders’ protection under Japan law is not materially different to that
under Hong Kong law.
Notice of meetings
Under Hong Kong law, the notice period for all general meetings is 14 days (regardless ofwhether an ordinary or special resolution is proposed for consideration), except the notice period
for an annual general meeting is 21 days. Our Articles provide that convocation notice of our
AGMs and extraordinary general meeting must be despatched 21 days prior to the date thereof.
In addition, after the convocation notice of a general meeting has been despatched, aShareholder is permitted to propose a last-minute amendment to the matters included in anexisting meeting agenda of a general meeting of our Company without any prior notice if a matterof similar nature is included in the original meeting agenda. For example, a Shareholder may
propose last-minute amendments to an existing meeting agenda and nominates a person forelection as a director at any time before the relevant general meeting or even at the meeting, if
the meeting original agenda includes a proposal of the appointment of a new Director, orDirectors, to our Board of Directors. These last-minute amendments are a theoretical mechanism
which, according to our Directors’ knowledge, is exceptionally rarely put into actual practice inJapan.
Distribution of notices
Under Hong Kong law, notice of a general meeting must be (i) given in hard copy form orin electronic form; or (ii) by making the notice available on a website; or (iii) a combination of theaforementioned manners. Japanese companies have similar procedures for the distributions ofnotices and voting. Upon Listing, notice of our general meetings will be despatched in hardcopies and published on a Japanese newspaper as well as our Company’s website and thewebsite of the Stock Exchange.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Voting
The Listing Rules require that, where a transaction or arrangement of an issuer is subject toshareholders’ approval under the provisions of the Listing Rules, any shareholder that has amaterial interest in the transaction or arrangement shall abstain from voting on the resolution(s)approving the transaction or arrangement in a general meeting. In addition, controllingshareholders must abstain from voting in favour of certain matters under the Listing Rules. There
are also certain matters where independent shareholders approvals are required under the
Takeovers Code. See “— B. Shareholders’ Meetings — Material Interests in a Transaction” in thissection above for the voluntary measures we have put in place to afford our Shareholders
protections comparable to those available under the Listing Rules and the Takeovers Code.
Proxies
Under Hong Kong law, a member of a company is entitled to appoint another person(whether a member or not) as a proxy to exercise all of the member’s rights to attend and to
speak and vote at a general meeting. A company must also ensure that in a notice calling ageneral meeting of the company, there must appear, with reasonable prominence, a statement
informing the members of their rights to appoint a proxy. In addition, a body corporate which isa member of a company may authorise any person it thinks fit to act as its corporate
representative at any meeting of the Company, exercising the same powers on behalf of the body
corporate as the body corporate could exercise if it were an individual member of the company.
In the case of our Company, we do not impose any restriction or limitation on the identity or
qualification of proxies or corporate representatives appointed by our Shareholders. See “— B.
Shareholders Meetings — Proxies and Corporate Representatives” in this section above forpowers entitled to be exercised by proxies or corporate representatives appointed by our
Shareholders, which are not materially different by those offered under Hong Kong law.
Voting by poll
Under Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must
be taken by poll except where the chairman, in good faith, decides to allow a resolution which
relates purely to a procedural or administrative matter to be voted on by a show of hands. Voting
in our general meetings is conducted by poll in practice. Each Share held by our Shareholders,in general, entitles them one vote in our general meeting. Under our Articles, we must count ourvotes in accordance with the number of Shares owned by each Shareholder. Voting by show ofhand is not possible under the Japan Companies Act and our Articles.
Appointment of directors
Under Hong Kong law, the appointment of each director is required to be voted on
individually. A unanimous approval of the shareholders is required to pass a resolution permitting
appointment of two or more directors by a single resolution. Japan law generally does not require102

KEY JAPAN LEGAL AND REGULATORY MATTERS
the appointment of each director to be voted on individually. The standard of shareholders’protection under Japan law is not materially different to that under Hong Kong law as this ispurely an administrative matter. In case of our Company, cumulative voting on the appointment
of Directors is prohibited under our Articles.
Declaration of interest
Under Hong Kong law, if a director of a company is in any way, directly or indirecly,interested in a transaction, arrangement or contract, or a proposed transaction, arrangement orcontract, with the company that is significant in relation to the company’s business and the
director’s interests is material, the director must declare the nature and extent of the director’sinterest to the other directors. A declaration of interest in a transaction, arrangement or contractthat has been entered into must be made as soon as reasonably practicable, and a declarationof interest in a proposed transaction, arrangement or contract must be made before the company
enters into the said transaction, arrangement or contract. Under the Japan Companies Act, a
director must report all the material facts, including his/her interest, with respect to a transaction
at the meeting of the board of directors to approve the relevant transaction prior to voting on it.
Any such director with an interest in the transaction is not entitled to be counted in the quorum
for voting on the transaction. Directors are in general not required to declare any material interest
in any transaction with the company as soon as practicable after he/she is aware of such interest,
but as the interest must be declared prior to approval of the transaction and the relevant director
is not entitled to have his or her vote counted towards a quorum, this is not materially detrimental
to shareholders. The standard of shareholders’ protection under Japan law is similar to orcomparable with that under Hong Kong law.
In addition, our Articles provide that a Director shall not vote on any Board resolution
approving any contract or arrangement or any other proposal in which he or any of his close
associates (as defined under the Listing Rules) has a material interest (as explained under the
Listing Rules) nor shall he be counted in the quorum in the relevant meeting.
Loans to directors
Under Hong Kong law, a company may only make loans to a director in certain limited
circumstances. The Japan Companies Act does not contain specific provisions on loans to, or
credit transactions with, directors, but such transactions will be governed by article 356 andarticle 365 of the Japan Companies Act which restrict transactions that result in a conflict ofinterest. Although companies are not prohibited from entering into transactions with theirdirectors, such transactions must be approved by a vote of the board of directors which excludes
the interested director from voting and being counted for the quorum. The relevant director mustalso report all material facts relating to such transaction at the meeting of the board of directors
and after such transaction takes place without delay. The standard of shareholders’ protection
under Japan law is similar to or comparable with that under Hong Kong law.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
In addition, our Articles provide that our Company shall not directly or indirectly make a loan,
enter into a guarantee or provide security to a Director except as permitted under both the Japan
Companies Act and the Companies Ordinance (as if our Company was a public company
incorporated in Hong Kong).
Payments to directors
Under Hong Kong law, any payment to a director or former director of a company ascompensation for loss of office or retirement from office is required to be approved by a majority
vote in a general meeting. Under Japan law, for companies with three committees*(委員会設置会社) (which our Company is one), any remuneration, compensation or other payment(including compensation for loss of office or retirement from office) is made to directors or past
directors must be determined and approved by their remuneration committees. Given that the
majority of our Remuneration Committee comprises Independent Non-executive Directors, weconsider that the standard of protection under Japan law is not materially different from that
under Hong Kong law.
Alteration of share capital
Under Hong Kong law, any alteration of share capital in the company must be approved bya majority vote in a general meeting. Japan law provides that an increase in the number of sharesauthorised to be issued can only be made by an alteration of a company’s articles ofincorporation* (定款), which requires the resolution of the shareholders’ meeting to be approvedby at least two-thirds of the voting rights of the shareholders present at a meeting where theshareholders holding at least a majority (which is lowered to one-third under our Articles) of thevoting rights who are entitled to exercise their voting rights are present. The standard of
shareholders’ protections under Japan law is similar to or comparable with that under Hong Kong
law.
Reduction of share capital
Under Hong Kong law, reduction of share capital in a company is generally subject toconfirmation by the court or supported by a solvency statement given by all directors of thecompany and be approved by shareholders with a 75% majority vote in a general meeting.
Alternatively, a company may reduce its capital by seeking approval of disinterested members by
a 75% majority vote together with the satisfaction of a solvency test and publication of notices
in the government’s gazette and newspaper. Japan law generally permits a company to reduce
its share capital without a court confirmation and instead by way of a resolution of theshareholders’ meeting to be approved by at least two-thirds of the voting rights of theshareholders present at a meeting where the shareholders holding at least a majority (which islowered to one-third under our Articles) of the voting rights who are entitled to exercise theirvoting rights are present. The standard of shareholders’ protections under Japan law are notmaterially different to that under Hong Kong law.

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KEY JAPAN LEGAL AND REGULATORY MATTERS
Redemption of shares
Under Hong Kong law, a company may make a payment in respect of a redemption of its
own shares out of the company’s distributable profits, out of the proceeds of a fresh issue ofshares made for the purpose of redemption or out of its capital. Under Japan law, any shares tobe purchased by a company must be acquired from distributable profits and a company may
issue callable shares so long as such shares are issued as a separate class. Our Company
however issues one class of shares only, being common Share(s)* (普通株式). Our Articles providethat our Company shall not issue any class of shares other than common Shares. The standardof shareholders’ protection in respect of share redemption under Hong Kong law is therefore notapplicable to us.
Financial assistance
Under Hong Kong law, a company is prohibited from giving financial assistance for theacquisition of its shares or shares in its holding company in certain circumstances. Although there
are no specific provisions in the Japan Companies Act that are intended to prevent financial
assistance, giving direct or indirect financial assistance for the acquisition of its shares or sharesin its holding company that results in a reduction of the net assets of a company would amountto a violation of fiduciary duty of directors and other officers, unless there is a reasonable groundto do so. The standard of shareholders’ protections under Japan law is not materially different tothat under Hong Kong law.
In addition, our Articles provide that our Company may not give financial assistance for the
purpose of or in connection with a purchase made or to be made by any person of any Share
except as permitted under both the Japan Companies Act and the Companies Ordinance (as if
our Company was a listed company in Hong Kong).
H.

ONGOING INVESTOR EDUCATION

Information contained in this section will be available at our Company’s website upon Listingfor the benefits of potential investors who may invest in our Company in secondary markets. If
we become aware of any legal or regulatory development which may affect the information
contained in this section, we will update the relevant contents on our Company’s website andissue a voluntary announcement.
We will also caution our investors the risks associated with our “bearer shares” in our sharecertificates, annual/interim reports and the front page of the “Investor Relations” section of ourCompany’s website.

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WAIVERSIn preparation for the Listing, we have applied for, and have been granted by the Stock
Exchange, a number of waivers from strict compliance with certain provisions under the Listing
Rules. A summary of these waivers are set out in this section below. These waivers have been
granted to us, in part, on the basis of the protections available to our Shareholders under theapplicable Japan laws and regulations. Further information in relation to the provisions of laws
and regulations applicable to us is set out in “Key Japan Legal and Regulatory Matters” and“Appendix V — Summary of our Articles of Incorporation and Japan Corporation Law”.
Some of the waivers applied by us were granted by the Stock Exchange on the basis of
circumstances which are specific to us. In the event of any changes to these circumstances(including changes in Japan laws and regulations which form the basis of these waivers), we
will notify the Stock Exchange as soon as practicable.

A.

COMMON WAIVER

Set out below is the common waiver of general effects that was granted to us by the Stock
Exchange under Rule 2.04 of the Listing Rules with the prior consent of the SFC:
Relevant Rule(s) waived

Subject matter

Rule 8.12 . . . . . . . . . . Sufficient management presence in Hong Kong

Page No.

106

MANAGEMENT PRESENCE IN HONG KONG
Under Rule 8.12 of the Listing Rules, we must have sufficient management presence inHong Kong. This normally means that at least two of our Executive Directors must be ordinarily
residents in Hong Kong.
Our Group is principally engaged in the business of owning and operating pachinko halls inJapan. The headquarters of our Company are located in Koriyama City (郡山市), Fukushima
Prefecture (福島県), Japan, and our operations are managed from our headquarters withpachinko halls located across ten prefectures in Japan. We do not carry out or manage any
business activity in Hong Kong.
Our Chairman is the sole Executive Director of our Company. He currently does not, and forthe foreseeable future, will not, reside in Hong Kong. Since the main operations of our Group are
in Japan, we consider it practically difficult and commercially unviable and unnecessary for our
Company to either relocate our Chairman to Hong Kong, or appoint two additional Executive
Directors who will ordinarily reside in Hong Kong. We further consider that it is in the best interestof our Company and our Shareholders for our Chairman to attend to his functions and duties inJapan and remain close to our core operations.

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WAIVERS
Accordingly, our Company does not have, and does not contemplate in the foreseeable
future to have, sufficient management presence in Hong Kong for the purpose of satisfying therequirements under Rule 8.12 of the Listing Rules.
In light of the aforesaid, we have applied for, and the Stock Exchanged has granted us, awaiver from strict compliance with Rule 8.12 of the Listing Rules on the following conditions:(a)pursuant to Rules 2.11, 3.05 and 19.36(6) of the Listing Rules, we have appointed two
authorised representatives who will act as our principal channel of communication with
the Stock Exchange. The two authorised representatives are Mr. Hiroaki KUMAMOTO(熊本浩明) (an Independent Non-executive Director) and Ms. YIU Wai Man Karen(姚慧敏) (one of the joint company secretaries). The authorised representatives will beavailable to meet with the Stock Exchange on reasonable notice as and when required
and will be readily available by telephone, email and facsimile to promptly address theenquiries of the Stock Exchange and their contact details (including mobile phone
numbers, residential and office phone numbers and facsimile numbers) have been
provided to the Stock Exchange. We will inform the Stock Exchange promptly inrespect of any change in the authorised representatives and their alternate(s);(b)

each of the authorised representatives is duly authorised to communicate on behalf of
our Company with the Stock Exchange. The authorised representatives will be able tocontact our Directors promptly at all times as and when the Stock Exchange wishes tocontact our Directors on any matter. Each of our Directors is authorised tocommunicate on our Company’s behalf with the Stock Exchange;(c)

all Directors have provided their mobile phone numbers, office phone numbers,
facsimile numbers and email addresses to the Stock Exchange. Each of our Directors
is authorised to communicate on our Company’s behalf with the Stock Exchange;(d)each of our Directors (including Independent Non-executive Directors) hold valid travel
documents such that he will be available to travel to Hong Kong to meet with the Stock
Exchange within a reasonable timeframe upon request of the Stock Exchange;(e)

our Company will retain professional advisers (including legal advisers andaccountants) to advise on our on-going compliance obligations and other issues
arising under the Listing Rules and other applicable laws and regulations in Hong Kongafter the Listing;(f)pursuant to Rule 3A.19 of the Listing Rules, we have appointed Shenyin Wanguo
Capital (H.K.) Limited as our compliance adviser who will have access at all times tothe authorised representatives, our Directors and the other senior management of ourCompany. The compliance adviser will be appointed for a period commencing on the
Listing Date and ending on the date of despatch of our annual report in respect of our
financial results for the first full financial year commencing after the Listing; and107

WAIVERS(g)meetings between the Stock Exchange and our Directors could be arranged throughthe authorised representatives or the compliance adviser, or directly with our Directors,
within a reasonable time frame.

Our Directors and the Sole Sponsor have confirmed that the conditions set out under the
appendix to the Joint Policy Statement and the Stock Exchange’s Guidance Letter HKEx-GL9-09
in relation to this waiver have been fulfilled.
B.

ADDITIONAL WAIVERS

Set out below are the additional waivers that were granted to us by the Stock Exchange
based on the circumstances that are specific to us:
Relevant Rule(s) waived

Subject matter

Page No.

Rule 13.70 . . . . . . . . . Announcement of Nomination of Director(s)108Paragraphs 2(2), 3(1), Requirements with respect to our Articles
4(2), 4(4), 4(5), 12
and 14 of Appendix
3 to the Listing
Rules . . . . . . . . . . . .

109

ANNOUNCEMENT OF NOMINATION OF DIRECTOR(S)
Rule 13.70 of the Listing Rules requires that an issuer publish an announcement or issue a
supplementary circular upon receipt of a notice from a shareholder to propose a person forelection as a director at the general meeting where such notice is received by the issuer after
publication of the notice of meeting. The Note to Rule 13.70 of the Listing Rules further provides
that the issuer must assess whether or not it is necessary to adjourn the meeting of the election
to give shareholders at least ten business days to consider the relevant information disclosed in
the announcement or supplementary circular.
Under article 304 of the Japan Companies Act, a Shareholder is permitted to propose a lastminute amendment to the matters included in an existing meeting agenda of a general meetingof our Company without any prior notice if a matter of similar nature is included in the original
meeting agenda. Shareholders may propose last-minute amendments to an existing meeting
agenda and nominates a person for election as a Director at any time before the relevant general
meeting or even at the meeting, if the original meeting agenda includes a proposal of theappointment of a new Director, or Directors, to our Board of Directors. These last-minuteamendments are a theoretical mechanism which, according to our Directors’ knowledge, is
exceptionally rarely put into actual practice in Japan.

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WAIVERS
In light of these Japan law provisions, the requirements under Rule 13.70 of the Listing
Rules are inconsistent with, and unenforceable under, Japan law if any of our Shareholders
proposes last-minute amendments to an existing meeting agenda of our general meetings andnominates a person for election as a Director. On such basis, we have applied for, and the Stock
Exchange has granted us, a partial waiver from strict compliance with Rule 13.70 of the Listing
Rules on the conditions that:(a)

we will use all means and resources reasonably available to us to make anannouncement to inform our Shareholders as soon as reasonably practicable uponreceipt of last-minute amendments to an existing meeting agenda on the election
and/or re-election of Director(s), so long as it is made before the date of the relevant
general meeting; and(b)

we will publish the above announcement on the Stock Exchange’s website and thewebsite of our Company in English and Chinese.

The partial waiver referred to above only applies to circumstances where a Shareholder,pursuant to the Japan Companies Act, proposes last-minute amendments to an existing meeting
agenda of our Company’s general meetings and nominates a person for election as a Director.
On all other occasions, we will comply with the requirements under Rule 13.70 of the Listing
Rules.
Our Directors and the Sole Sponsor have confirmed that the Stock Exchange’s approach set
out in the Country Guide with respect to Rule 13.70 of the Listing Rules is adopted. Our Company
considers that the protections afforded to our Shareholders, considering the voluntary measures
set out above in place, will be comparable to the relevant requirements under the Listing Rules.
ARTICLES OF INCORPORATION
Appendix 3 to the Listing Rules provides that the articles of association or equivalent
document of an issuer must conform with the provisions set out in that appendix and, where
necessary, a certified copy of a resolution of the board of directors or other governing bodyundertaking to comply with the appropriate provisions must be lodged with the Stock Exchange.
Our Articles do not contain equivalent provisions in compliance with certain requirements
under Appendix 3 to the Listing Rules on the basis that the protections afforded to our
Shareholders are comparable to those available under the Listing Rules pursuant to thoserequirements. Set out below are the comparable shareholders protections offered under theJapan regime of each of the relevant requirements under Appendix 3 to the Listing Rules and any
difference between the Japan legal and regulatory requirements and the requirements under the
Listing Rules.

109

WAIVERS
Definitive certificates
Paragraph 2(2) of Appendix 3 to the Listing Rules provides that where the power is taken
to issue share warrants to bearer, no new share warrant shall be issued to replace one that has
been lost, unless the issuer is satisfied beyond reasonable doubt that the original has been
destroyed.
Our Articles contain no equivalent provision. The concept of share warrants was abolishedwith the introduction of the Japan Companies Act in 2006. Our Company may issue SARs in lieu
of share warrants and we may issue certificates representing SARs. Under Japan law, any holdersof SARs who have lost certificates may not request the re-issue of their certificate unless they
have obtained a decision for invalidation by a court of justice in Japan as provided under article
106(1) of the Non-contentious Cases Procedures Act* (非訟事件手続法) of Japan (Act No. 51 of
2011), in accordance with article 291 of the Japan Companies Act.
We consider that the protections afforded to our Shareholders under the Japan law
provisions above are comparable to those available under paragraph 2(2) of Appendix 3 to the
Listing Rules.
Dividends
Paragraph 3(1) of Appendix 3 to the Listing Rules provides that any amount paid up in
advance of calls on any share may carry interest, but shall not entitle the holder of the share toparticipate in respect thereof in a dividend subsequently declared.
Our Articles contain no equivalent provision. Under Japan law, there is no concept ofamounts paid up in advance of calls on shares. Articles 208 and 209 of the Japan Companies Act
provide that all consideration due for shares issued by a Japanese company must be paid in fullon their issue, at which point the party subscribing for such shares will become entitled todividends declared by that company on record dates on or after such issue.
We consider that, under Japan law, there are no circumstances under which paragraph 3(1)of Appendix 3 to the Listing Rules would apply to us since amounts may not be paid in advanceof calls on our Shares.
Casual vacancy
Paragraph 4(2) of Appendix 3 to the Listing Rules provides that any person appointed by the
directors to fill a casual vacancy on the board must hold office only until the following annual
general meeting and will then be eligible for re-election.
Our Articles contain no equivalent provision. Under article 329 of the Japan Companies Act,a vacant directorship may only be filled following a vote of shareholders in a general meeting. If
the vacancy causes the number of appointed directors to fall below the number of directors

110

WAIVERS
required either under the articles of incorporation* (定款) or the Japan Companies Act, theremaining director(s) must without delay convene a general meeting to appoint additional
director(s). Failure to do so will subject the remaining director(s) to a maximum fine of ¥1 million.
Under the Japan Companies Act, a minimum of three Directors are required to be appointed.
Under our Articles, the number and composition of our Board must at all times comply with therelevant requirements under the Listing Rules (such as the requirement to appoint at least three
Independent Non-executive Directors under Rule 3.10(1) of the Listing Rules). Upon Listing,when the number and composition of our Board fall short of the requirements under the Listing
Rules, the remaining Directors will without undue delay convene a general meeting to appoint
additional Director(s) in accordance with our Articles and the Japan Companies Act.
In addition, under limited circumstances, the court may appoint a person to fill up a vacantdirectorship on a temporary basis under the Japan Companies Act. Our Articles provide that any
Director so appointed by the court shall hold office only until the following AGM.
We consider that, under Japan law, there are no circumstances under which paragraph 4(2)of Appendix 3 to the Listing Rules would apply to us as no person shall be appointed by our
Directors to fill a casual vacancy under the Japan Companies Act.
Nomination of Director(s)Paragraph 4(4) of Appendix 3 to the Listing Rules provides that the minimum length of theperiod for notice to propose a person for election as a director and that person to notify the issuerof his willingness to be elected, must be at least seven days. Paragraph 4(5) of Appendix 3 to the
Listing Rules provides that period for lodgement of the notices referred to in paragraph 4(4) shallcommence no earlier than the day after the despatch of the notice of the meeting appointed forsuch election and end no later than seven days prior to the date of such meeting.
Our Articles contain no equivalent provision. Under the Japan Companies Act, aShareholder is permitted to propose a last-minute amendment to the matters included in anexisting meeting agenda of a general meeting of our Company without any prior notice if a matterof similar nature is included in the original meeting agenda. Shareholders may propose
last-minute amendments to an existing meeting agenda and nominates a person for election asa director at any time before the relevant general meeting or even at the meeting, if the original
meeting agenda includes a proposal of the appointment of a new Director, or Directors, to our
Board of Directors. These last-minute amendments are a theoretical mechanism which,according to our Directors’ knowledge, is exceptionally rarely put into actual practice in Japan.
In light of these Japan law provisions, the requirements under paragraphs 4(4) and 4(5) of
Appendix 3 of the Listing Rules are inconsistent with, and unenforceable under, Japan law if anyof our Shareholders proposes last-minute amendments to an existing meeting agenda of thegeneral meetings of our Company and nominates a person for election as a Director.

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WAIVERS
We have adopted the following voluntary measures to afford our Shareholders protections
comparable to those available under paragraphs 4(4) and 4(5) of Appendix 3 to the Listing Rules:(a)

we will use all means and resources reasonably available to us to make anannouncement to inform our Shareholders as soon as reasonably practicable uponreceipt of a proposal to make last-minute amendment to an existing meeting agenda
on the election and/or re-election of Director(s), so long as it is made before the dateof the relevant general meeting; and(b)

we will publish the above announcement on the Stock Exchange’s website and thewebsite of our Company in English and Chinese.

Our Directors and the Sole Sponsor have confirmed that the Stock Exchange’s approach as
set out in the Country Guide with respect to paragraphs 4(4) and 4(5) of Appendix 3 to the Listing
Rules is adopted. Our Company considers that the protections afforded to our Shareholders,considering the voluntary measures in place, will be comparable to the relevant requirements
under the Listing Rules.
Disclosure of Interests
Paragraph 12 of Appendix 3 to the Listing Rules provides that no power shall be taken to
freeze or otherwise impair any of the rights attaching to any share by reason only that the person
or persons who are interested directly or indirectly therein have failed to disclose their interests
to the company.
Our Articles contain no equivalent provision. Under Japan law, there are no circumstanceswhere a company would be empowered to take action on a shareholder’s failure to disclose theirinterests to the company. As such, any amendment made to our Articles pursuant to thisrequirement will be redundant and unnecessary under Japan law.
Untraceable members
Paragraph 13(1) of Appendix 3 to the Listing Rules provides that an issuer must not stop
sending dividend warrants by post until these warrants are left uncashed on two consecutive
occasions. However, an issuer may stop sending dividend warrants after the first occasion onwhich one is returned undelivered.
Under article 196(1) of the Japan Companies Act, in cases where notices (including dividend
warrants) have not reached a Shareholder for five consecutive years, our Company is no longer
required to give notices to the relevant Shareholder. Instead, the Shareholder shall collect thenotices (including dividend warrants) from our Company at our registered office.
We consider that the protections afforded to our Shareholders under the Japan law
provisions above are comparable to those available under paragraph 13(1) of Appendix 3 to the
Listing Rules.

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WAIVERS
Material interests in a transaction
Paragraph 14 of Appendix 3 to the Listing Rules provides that, where any shareholder is,under the Listing Rules, required to abstain from voting on any particular resolution or restricted
to voting only for or against any particular resolution, any votes cast by or on behalf of suchshareholder in contravention of such requirement or resolution shall not be counted.
Our Articles contain no equivalent provision. Under Japan law, a company shall not amend
its constitutional document to restrain or restrict its shareholders, including controllingshareholders, from voting on any particular resolution. Each Shareholder is, in general, entitledto a single vote for each Share he holds in our Company and we may not restrict this right in thecircumstances provided under the Listing Rules and the Takeovers Code.
To afford our Shareholders protections comparable to those available under paragraph 14
of Appendix 3 to the Listing Rules, our Shareholders have resolved to adopt the following
alternative provisions in our Articles:“Where a transaction or arrangement or contract or other matter is required to be approvedby our Shareholders under the Listing Rules and/or the Takeovers Code:(a)a general meeting shall be convened to seek our Shareholders’ approval of suchmatter;(b)

our Hong Kong Share Registrar shall count the votes casted at the said general
meeting in accordance with the criteria and requirements under the Japan Companies
Act;

(c)

we shall appoint our compliance adviser or another independent financial or legal
adviser to review the votes counted by our Hong Kong Share Registrar and confirm thatthe resolution would have been successfully passed if the votes cast had excluded thevotes of our Shareholders that would otherwise be required to be abstained orotherwise uncounted under the Listing Rules and/or the Takeovers Code; and(d)the Shareholders’ approval referred to in item (a) above and the confirmation referred
to in item (c) above shall be made conditions precedent in the relevant transaction
agreement and we shall implement such matter only if both conditions have beensatisfied.”

We consider that the alternative provisions in our Articles set out above will allow us tocomply with (i) the abstention requirements under Rule 2.15 of the Listing Rules and otherrelevant requirements under the Listing Rules which specifically apply these abstention
requirements; and (ii) the abstention requirements under the Takeovers Code with respect totransactions that require independent Shareholders’ approval.

113

WAIVERS
Further details on our voluntary abstention process with regard to voting in a general
meeting are set out in “Key Japan Legal and Regulatory matters — B. Shareholders’ Meetings —Material Interests in a Transaction”. Our Directors and the Sole Sponsor have confirmed that the
Stock Exchange’s approach as set out in paragraphs 6.2 to 6.5 of the Country Guide is adopted.
Our Company considers that the protections afforded to our Shareholders, considering thealternative provisions in our Articles in place, will be comparable to the relevant requirements
under the Listing Rules.
WaiverWe have applied for, and the Stock Exchange has granted us, a waiver from strict
compliance with paragraphs 2(2), 3(1), 4(2), 4(4), 4(5), 12 and 14 of Appendix 3 to the Listing
Rules on the basis that the protections available to our Shareholders under, as the case may be,
the Japan law provisions, our Articles and/or the voluntary measures adopted by us arecomparable to those available under the relevant requirements under the Listing Rules on theconditions that our Directors and the Sole Sponsor have confirmed that they are of the view that:(a)the substantive differences between our Articles and paragraphs 2(2), 3(1), 4(2), 4(4),4(5), 12 and 14 of Appendix 3 to the Listing Rules (given, as the case may be, theJapan law provisions, alternative provisions adopted in our Articles, and the voluntarymeasures put in place by us) are not material; and(b)the level of protections under our Articles, the Japan Companies Act and all otherapplicable legislations, regulations, regulatory guidance and practices in Japan taken
as a whole is largely commensurate to the shareholders’ protections provided underparagraphs 2(2), 3(1), 4(2), 4(4), 4(5), 12 and 14 of Appendix 3 to the Listing Rules(given, where applicable, the voluntary measures put in place by us), and any residual
difference between our Articles and Appendix 3 to the Listing Rules are prominently
disclosed in this Prospectus.

114

INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This Prospectus, for which our Directors collectively and individually accept full
responsibility, includes particulars given in compliance with the Companies Ordinance, theCompanies (Winding Up and Miscellaneous Provisions) Ordinance, the Securities and Future(Stock Market Listing) Rules and the Listing Rules for the purpose of giving information to the
public with regard to our Group. Our Directors, having made all reasonable enquiries, confirm thatto the best of their knowledge and belief, the information contained in this Prospectus is accurate
and complete in all material respects and not misleading or deceptive, and there are no othermatters, the omission of which would make any statement herein or this Prospectus misleading.
INFORMATION ON THE GLOBAL OFFERINGThe Offer Shares are offered solely on the basis of the information contained andrepresentations made in this Prospectus and the Application Forms and on the terms andconditions set out herein and therein. No person has been authorised to give any information or
make any representations other than those contained in this Prospectus and the Application
Forms and, if given or made, such information or representations must not be relied on as having
been authorised by our Company, the Sole Global Coordinator, the Sole Sponsor, the Sole
Bookrunner, the Sole Lead Manager, the Underwriters, any of their respective directors, agents,
employees or advisors or any other party involved in the Global Offering. Neither the delivery ofthis Prospectus nor any offering, sale or delivery made in connection with our Shares shall, under
any circumstances, constitute a representation that there has been no change or development
reasonably likely to involve a change in our affairs since the date of this Prospectus or imply thatthe information in this Prospectus is correct as of any subsequent time.
Details of the structure of the Global Offering, including its conditions, are set out in“Structure of the Global Offering’’, and the procedures for applying for the Hong Kong Offer
Shares are set out in ‘‘How to Apply for Hong Kong Offer Shares’’ and on the relevant Application
Forms.
UNDERWRITINGThis Prospectus is published solely in connection with the Hong Kong Public Offering whichforms part of the Global Offering. For applicants under the Hong Kong Public Offering, thisProspectus and the Application Forms set out the terms and conditions of the Hong Kong Public
Offering.
The Listing is sponsored by the Sole Sponsor. The Hong Kong Public Offering is fully
underwritten by the Hong Kong Underwriter under the terms of the Hong Kong Underwriting
Agreement. The International Underwriting Agreement relating to the International Offering is
expected to be entered into on or around the Price Determination Date, subject to agreement on
pricing of the Offer Shares between the Sole Global Coordinator (for itself and on behalf of theUnderwriters) and us. The Global Offering is managed by the Sole Global Coordinator.

115

INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
If, for any reason, the Offer Price is not agreed between our Company and the Sole Global
Coordinator (on behalf of the Underwriters) on or around the Price Determination Date, the Global
Offering will not proceed and will lapse. For further information about the Underwriters and theunderwriting arrangements, see “Underwriting”.
RESTRICTIONS ON SALE OF OFFER SHARES
Each person acquiring the Hong Kong Offer Shares under the Hong Kong Public Offering will
be required to, or be deemed by his acquisition of Offer Shares to, confirm that he is aware of
the restrictions on offers of the Offer Shares described in this Prospectus and the Application
Forms, and that he is not acquiring, and has not been offered, any Offer Shares in circumstancesthat contravene any such restrictions.
No action has been taken to permit an offering of the Hong Kong Offer Shares or the
distribution of this Prospectus and the Application Forms in any jurisdiction other than HongKong. Accordingly, this Prospectus and the Application Forms may not be used for the purposeof, and does not constitute, an offer or invitation in any jurisdiction or in any circumstances inwhich such an offer or invitation is not authorised or to any person to whom it is unlawful to makesuch an offer or invitation. The distribution of this Prospectus, the Application Forms and theoffering of the Offer Shares in other jurisdictions are subject to restrictions and may not be madeexcept as permitted under the applicable securities laws of such jurisdictions pursuant toregistration with or authorisation by the relevant regulatory authorities or an exemption therefrom.
ELIGIBILITY FOR ADMISSION INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, our Shares on the
Stock Exchange and our Company complies with the stock admission requirements of HKSCC,
the Shares will be accepted as eligible securities by HKSCC for deposit, clearance andsettlement in CCASS with effect from the Listing Date or any other date as determined by
HKSCC.
Settlement of transactions between participants of the Stock Exchange is required to takeplace in CCASS on the second Business Day after any trading day. You should seek the adviceof your stockbroker or other professional adviser for details of those settlement arrangements assuch arrangements will affect your rights and interests.
All necessary arrangements have been made to enable our Shares to be admitted into
CCASS.
All activities under CCASS are subject to the General Rules of CCASS and CCASSOperational Procedures in effect from time to time.

116

INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERINGAPPLICATION FOR LISTING ON THE STOCK EXCHANGE
Our Company has applied to the Listing Committee of the Stock Exchange for the grantingof the listing of, and the permission to deal in, our Shares (i) in issue as at the date of thisProspectus; (ii) to be issued pursuant to the Global Offering; and (iii) to be issued upon exerciseof the Over-allotment Option.
No part of the share or loan capital of our Company is listed on or dealt in on any other stock
exchange and no such listing or permission to list on any other stock exchange is being or
proposed to be sought in the near future.
SHARE REGISTRAR AND STAMP DUTY
All Shares issued pursuant to applications made in the Global Offering will be registered on
our Company’s Share Register to be maintained in Hong Kong by our Hong Kong Share Registrar,
Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, HopewellCentre, 183 Queen’s Road East, Wanchai, Hong Kong.
Our Shares are considered as “Hong Kong stock” for the purpose of the Stamp Duty
Ordinance. Dealings in our Shares registered on our Share Register will be subject to stamp dutyin Hong Kong.
PROFESSIONAL TAX ADVICE RECOMMENDED
Potential investors in the Global Offering are recommended to consult their professional
advisers if they are in any doubt as to the taxation implications of subscribing for, purchasing or
holding of and dealing in the Offer Shares. None of our Company, the Sole Global Coordinator,
the Sole Sponsor, the Sole Bookrunner, the Sole Lead Manager, the Underwriters, any of theirrespective directors or any other person or party involved in the Global Offering accepts
responsibility for any tax effects on, or liabilities of, any person resulting from the subscription for,purchase or holding of, or dealing in the Offer Shares.
LANGUAGE
If there is any inconsistency between this Prospectus and the Chinese translation of thisProspectus, this Prospectus shall prevail. If there is any inconsistency between the Japanesenames of any of the entities mentioned in this Prospectus and their English and/or Chinesetranslations, the Japanese names shall prevail.
EXCHANGE RATE CONVERSION
For the purpose of illustration only, certain amounts in this Prospectus denominated inJapanese Yen have been translated into Hong Kong dollars. No representation is made that theJapanese Yen amounts could have been, or could be, converted into Hong Kong dollars, or viceversa, at the indicated rates or at all. Unless indicated otherwise, Japanese Yen amounts havebeen translated into Hong Kong dollars at the rate of ¥15.15 to HK$1.00, which was theexchange rate prevailing on 30 January 2015 (i.e. the last business day before the date of ourindebtedness statement).

117

DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
DIRECTORSNameResidential Address

Nationality

1-14-9 Kuwano
Koriyama-shi
Fukushima, Japan

South Korean

Executive Director
Hisanori TANIGUCHI(谷口久徳) #(also known as Mr. JEONG
Seonggi)

Independent Non-executive Directors
Hiroaki MORITA(森田弘昭)

1-45-1 Oyumino
Midori-ku, Chiba-shi
Chiba, Japan

Japanese

Norio NAKAYAMA(中山宣男)

3369-482 Takakuotsu
Nasumachi, Nasu-gun
Tochigi, Japan

Japanese

Masaharu TOGO
(東郷正春)

2-4-9-104 MiyamaedairaMiyamae-ku, Kawasaki-shi
Kanagawa, Japan

Japanese

Hiroaki KUMAMOTO(熊本浩明)

Lions Mansion 501
3-6-8 Hakusan
Bunkyo-ku
Tokyo, Japan

Japanese

See “Directors and Senior Management” for further details of our Directors.

118

DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERINGPARTIES INVOLVED IN THE GLOBAL OFFERING
Sole Sponsor and Sole Global
Coordinator

Shenyin Wanguo Capital (H.K.) Limited
Level 19
28 Hennessy Road
Hong Kong

Sole Bookrunner and Sole Lead
Manager

Shenyin Wanguo Capital (H.K.) Limited
Level 19
28 Hennessy Road
Hong Kong

Legal Adviser to our Company

As to Hong Kong law:
Deacons
5/F Alexandra House
18 Chater Road
CentralHong Kong
As to Japan law:
Soga Law Office
2/F Yotsuya Y’s Bldg
7-6 Honshiocho
Shinjuku-ku, Tokyo 160-0003
Japan

Legal Adviser to the Sole Sponsor
and the Underwriters

As to Hong Kong law:
Paul Hastings
21/F - 22/F Bank of China Tower
1 Garden Road
CentralHong Kong
As to Japan law:
Kanagawa International Law Office
4th floor, Daisan Toranomon Denki Building
1-2-20 Toranomon, Minato-ku
Tokyo 105-0001
Japan

Auditor and Reporting Accountant

PricewaterhouseCoopers
Certified Public Accountants
22/F, Prince’s Building
CentralHong Kong

119

DIRECTORS AND PARTIES INVOLVED IN THE GLOBAL OFFERINGAML Consultant

PricewaterhouseCoopers Limited
22/F, Prince’s Building
CentralHong Kong

Tax Adviser

Zeirishi-Hojin PricewaterhouseCoopers*
税理士法人プライスウォーターハウスク—パース
Kasumigaseki Bldg. 15/F
2-5 Kasumigaseki 3-chome
Chiyoda-ku
Tokyo, Japan

Independent Property Valuer

DTZ Debenham Tie Leung Limited
16th Floor, Jardine House
1 Connaught PlaceCentralHong Kong

Compliance adviser

Shenyin Wanguo Capital (H.K.) Limited
Level 19
28 Hennessy Road
Hong Kong

Receiving Bank

Standard Chartered Bank (Hong Kong) Limited
15/F Standard Chartered Tower
388 Kwun Tong Road
KowloonHong Kong

120

CORPORATE INFORMATION
Headquarters in Japan andregistered office

1-1-39, Hohaccho
Koriyama-shi
Fukushima, Japan 963-8811

Principal place of businessin Hong Kong under Part 16 of
the Companies OrdinanceRoom 505, 5th Floor
Hutchison House
10 Harcourt Road
Hong Kong

Company website

www.ngch.co.jp(information on this website does not form part of thisProspectus)

Joint company secretaries

Ms. YIU Wai Man Karen (姚慧敏) (CPA)
Room 505, 5th Floor
Hutchison House
10 Harcourt Road
Hong Kong
Ms. NG Sau Mei (伍秀薇) (ACIS, ACS)
36/F, Tower Two Times Square
1 Matheson Street
Causeway Bay, Hong Kong

Authorised representatives

Mr. Hiroaki KUMAMOTO (熊本浩明)
Lions Mansion 501
3-6-8 Hakusan
Bunkyo — ku
Tokyo, Japan
Ms. YIU Wai Man Karen (姚慧敏) (CPA)
Room 505, 5th Floor
Hutchison House
10 Harcourt Road
Hong Kong

Audit Committee

Mr. Hiroaki KUMAMOTO (熊本浩明) (Chairman)
Mr. Hiroaki MORITA (森田弘昭)
Mr. Norio NAKAYAMA (中山宣男)

Remuneration Committee

Mr. Norio NAKAYAMA (中山宣男) (Chairman)
Mr. Hiroaki MORITA (森田弘昭)
Mr. Hisanori TANIGUCHI (谷口久徳)# (also known as
Mr. JEONG Seonggi)

121

CORPORATE INFORMATION
Nomination Committee

Mr. Hiroaki MORITA (森田弘昭) (Chairman)
Mr. Masaharu TOGO (東郷正春)
Mr. Hisanori TANIGUCHI (谷口久徳)# (also known as
Mr. JEONG Seonggi)

Hong Kong Share Registrar

Computershare Hong Kong Investor Services Limited
Shops 1712-1716,
17th Floor, Hopewell Centre
183 Queen’s Road East
Wanchai, Hong Kong

Principal bankers

Mizuho Bank, Ltd.* (株式会社みずほ銀行)
Otemachi Tower, 1-5-5OtemachiChiyoda-ku
Tokyo 100-8176
Japan
Sumitomo Mitsui Banking Corporation*(株式会社三井住友銀行)
1-1-2, Marunouchi
Chiyoda-ku
Tokyo
Japan
The Toho Bank, Ltd.* (東邦銀行)
3-25, Ohmachi
Fukushima 960-8041
Japan

122

INDUSTRY OVERVIEWThis section and other sections of this Prospectus contain information and statistics
relating to the Japan economy and the pachinko industry, which have been extracted andderived from various publications, including government agencies, and a commissioned report
prepared by EBI. We believe the sources of the information and statistics are appropriate forsuch information and statistics and have taken reasonable care in extracting and reproducing
them. We have no reason to believe that such information and statistics are false or
misleading. No independent verification has been carried out on such information andstatistics by us, the Sole Sponsor, the Sole Global Coordinator, the Sole Bookrunner, the Sole
Lead Manager, the Underwriter(s), or any of their affiliates or advisers, or any other party
involved in the Global Offering, other than EBI with respect to the information contained in thereport prepared by EBI. No representation is given as to the accuracy or completeness of suchinformation and statistics. See “Risk Factors — Risk relating to Global Offering — Certain
statistics, projected industry data and other information relating to the economy and thepachinko industry in Japan contained in this Prospectus are derived from third party market
research reports or news sources and may not be reliable”.
OVERVIEW OF THE JAPANESE ECONOMY
Third Largest Economy in the WorldThe Japanese economy is the third largest in the world. Although Japan’s real GDP dropped
by 0.5% in 2011 due to the Great East Japan Earthquake in March 2011, the Japanese economy
rebounded in 2012 and real GDP grew by 1.5%. From 2014 to 2018, real GDP is expected to
grow at a slower pace at 0.8% to 0.9% due to the consumption tax hike from 5% to 8% in April
2014 and the recent recession of the Japanese economy. The table below shows certain
economic data with respect to Japan for the indicated dates and years:
CAGR

2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

2009 2013

2014E 2018E

Total population ofJapan as at 31
December(thousands) . . . .

125,820

126,382

126,180

125,957

125,704

125,450

125,220

125,000

124,770

124,550

0.0%

-0.2%

Total real GDP ofJapan (¥ billion) . .

489,588

512,364

510,045

517,514525,366

530,047

534,425

538,934

543,843548,852

1.8%

0.9%

4.7%

-0.5%

1.5%

1.5%

0.9%

0.8%

0.8%

0.9%

0.9%

Growth rate of the total
real GDP ofJapan (%) . . . . .

Source: International Monetary Fund, Japan Statistics Bureau and EBI123

INDUSTRY OVERVIEW
Disposable Income and Consumption Expenditure
From 2009 to 2013, monthly disposable income and consumption expenditure perhousehold remained relatively stable and culture and recreation activities (such as pachinko)
accounted for 9.7% of monthly consumption expenditure per household in 2013. As a recreation
activity, pachinko players rely on household disposable income levels, which in turn, are affectedby employment rates, taxes and the general state of the economy. When household disposable
income level rises, people are then capable of spending more on discretionary services, driving
up pachinko gross pay-ins. Conversely, consumers may defer or reduce visits to pachinko halls
when they have lower disposable income. The table below shows the monthly disposable income
and the consumption expenditure per household for the indicated years:

Monthly disposable income perhousehold (¥) . . . . . . . . . . . . .

2009

2010

2011

2012

2013

CAGR
2009 - 2013

427,900

430,000

420,500

425,000

426,100

-0.1%

0.5%

-2.2%

1.1%

0.3%

N/A

318,300

308,800

313,900

319,170

0.0%

-0.35

-3.0%

1.7%

1.7%

N/A

Growth rate of monthly disposable income
per household (%) . . . . . . . . . . . .
Monthly consumption expenditure perhousehold (¥) . . . . . . . . . . . . .

319,100

Growth rate of monthly consumption
expenditure per household (%) . . . . . .

Source: Japan Statistics Bureau

Northeast Honshu (本州島東北)
As at the Latest Practicable Date, our Group operated pachinko halls in ten prefectures ofNortheast Honshu (本州島東北), Japan, namely: (1) in the Tōhoku Region (東北地方): Fukushima
Prefecture (福島県), Miyagi Prefecture (宮城県) and Yamagata Prefecture (山形県); (2) in the Kantō
Region (関東地方): Tokyo (東京都), Ibaraki Prefecture (茨城県), Gunma Prefecture (群馬県),
Kanagawa Prefecture (神奈川県), Tochigi Prefecture (栃木県) and Saitama Prefecture (埼玉県);
and (3) in the Chūbu Region (中部地方): Niigata Prefecture (新潟県). These ten prefectures had atotal population of 47.4 million as at 31 December 2013 and real GDP of ¥202.9 trillion in 2013,
representing 37.7% and 38.6% of the country’s population as at 31 December 2013 and real GDP

124

INDUSTRY OVERVIEW
in 2013, respectively. The table below shows certain economic data with respect to the ten
prefectures for the indicated dates and periods:
CAGR

2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

2009 2013

2014E 2018E

Total population of theten prefectures as
at 31 December(thousands) . . . .

46,90647,39547,36747,35847,38047,38447,38947,37647,36047,3520.3%

0.0%

Percentage of total
population of the ten
prefectures out ofthat of Japan (%) . .

37.3

37.5

37.5

37.6

37.7

37.8

37.8

37.9

38.0

38.0

N/A

N/A

Total real GDP of theten prefectures(¥ billion) . . . . . .

194,571

195,846

196,528

199,395

202,918

203,836

206,042

208,810212,231

216,697

1.1%

1.5%

0.7

0.3

1.5

1.8

0.5

1.1

1.3

1.6

2.1

N/A

N/A

Growth rate of the total
real GDP of the ten
prefectures (%) . . .

Source: Japan Statistics Bureau and EBI

THE PACHINKO INDUSTRY IN JAPANHistory and Development of the Pachinko Industry
Pachinko is one of the most popular forms of entertainment for adults in Japan. Pachinko
machines first appeared in Japan in the early twentieth century. Pachinko halls were closed down
during World War II and did not reemerge in the entertainment industry until the late 1940s. In thatera, pachinko machines were mechanical devices with simple designs consisting of bells andflashlights, which remained largely unchanged through the 1970s. It was not until the 1980s thatvideo and sound features were integrated into the design of pachinko machines. The first slot
machine in history was invented in late nineteenth century in the United States. A few decades
later, adapted and further developed by a game console maker, pachislot machines wereintroduced in Okinawa, Japan, and were named “Olympia machine” as its debut coincided with
the Tokyo Olympics in 1964. While the configuration and method of play remains simple—matching pictures on spinning reels in the playing field by pressing the stop buttons, machines
are now controlled by computer chips.
Nowadays, pachinko and pachislot machines are equipped with computer chips, stereo
sound systems and advanced liquid crystal display video screens that display enriched content,such as popular animation, drama characters and various celebrities, and enhance the playing
experience for the customer.

125

INDUSTRY OVERVIEW
The playing cost for pachinko and pachislot was ¥4 and ¥20 per ball or token (before
consumption tax), until ¥1 pachinko and ¥5 pachislot (before consumption tax) were introduced
in 2006 and 2008, respectively. The playing cost was further reduced to ¥0.5 pachinko and ¥2
pachislot (before consumption tax) in the subsequent years. Low playing cost pachinko andpachislot reduce the gaming features and enhance the entertainment value of pachinko andpachislot as they enable a lower participation cost and allow players to play longer at the sameplaying cost. Low playing cost pachinko and pachislot were introduced to address the demandof pachinko players for entertainment.
The pachinko industry is under the close supervision of the Japanese government, and rules
and regulations have been introduced to control its gaming features. There are strict rules underthe Amusement Business Law and its subordinate regulations and also the Enforcement
Ordinance governing (among others) the licensing of hall operators, payout ratios and technicalspecifications of machines. For a further description of these laws and regulations, see“Applicable Laws and Regulations”. In addition, pachinko operators have voluntarily formed
self-governing associations to invite comments and feedback from the general public, to support
efforts to prevent addiction to gaming, and to generally promote the pachinko industry.
According to EBI, the introduction of legislation reducing the size of jackpots contributed tothe decline of gross pay-ins since the early 2000’s. For example, current laws and regulations
restrict the number of pachinko balls that the machine may pay out to between 0.5 to 2.0 times
the number of balls put into play over a continuous 10-hour period and they restrict the numberof pachislot tokens that the machine may pay out to between 0.55 to 1.2 times the number oftokens played during the course of 17,500 consecutive plays. Players that are more attracted tothe chance element of the game (to win a larger amount of prizes) may seek other forms ofgaming while players that are more attracted to the entertainment aspect of the game remain.
There are various key factors that potentially affect the profitability of a hall operator, including thescale of operations, payout ratio, mix of machines and G-prize mark-ups. In response to this shift
in customer demand, hall operators’ business strategies have been to maximise their revenue
from pachinko and pachislot hall operation revenue by (i) building larger halls to create an inviting
hall environment for the entertainment element rather than the chance element; (ii) promoting low
playing cost games; (iii) maintaining gross payouts at commercially viable levels; and (iv) constant
update on new machine models. Nevertheless, the pachinko industry remains hugely popular inJapan as the game offer players to win prizes for cash with an element of chance, skill andentertainment.

126

INDUSTRY OVERVIEW
Largest Contributor to Japan’s Gaming Market
The pachinko industry has dominated the gaming sector in Japan, which consists ofpachinko, bicycle-racing, boat-racing, auto-racing, horse-racing and lottery. According to EBI,
the pachinko industry, in terms of gross revenue, represented 78.0% or ¥18.8 trillion of thegeneral gaming market in Japan in 2013 and was the largest gaming segment. According to EBI,
pachinko and pachislot players that are attracted to the chance element of the game (to win alarger amount of prizes), overlap with the participants of public racing, namely, horse-racing,bicycle-racing, boat-racing and auto-racing. Potential pachinko and pachislot players in
prefectures with less public racing options are more likely to choose pachinko and pachislot as
their form of entertainment. Tokyo (東京都) and prefectures around Tokyo (東京都) have more
options of entertainment (including public racing) and as a result hall operators in these
prefectures face more competition. On the other hand, Fukushima Prefecture (福島県) and nearby
prefectures have less options of entertainment (including public racing) and as a result halloperators in these prefectures face less competition. The diagram below shows Japan’s gaming
market in terms of gross revenue (meaning gross pay-ins for pachinko industry) by industry:(¥ billions)

Growth rate of Japan’s gaming market-7.7

30,000

-2.8

1.1

-0.7

-7.1

-1.9

-2.7

-2.2

-1.7

2.0%

26,80025,00020,0001,783

24,744

2,964
988

1,668
2,776
920

24,056 24,317
1,611
1,537

24,144

2,726
914

2,759
945

2,619
1,004

1,622

1.0%
22,420 21,990
1,600
1,500
2,500
2,600
920
910

21,405
1,450
2,400
905

20,930
1,400
2,350
900

20,580
1,300
2,300
900

15,000Bicycle racing, boat racing,auto racing

-2.3%

-5.1%

-1.0%

Horse racing

-1.8%

-3.0%

-2.0%

Lottery

-1.1%

-0.5%

Pachinko

-2.8%

-1.8%

-2.6%

-2.1%

-3.0%
21,065

19,38018,896

19,066

18,818 17,300

17,080 16,650

16,28016,080CAGR(14E-18E)

0.0%

-4.0%
10,000

CAGR(09-13)

Total gaming market

-5.0%
-6.0%

5,000

-7.0%
-8.0%

0
2009

Source:

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

Leisure White Paper 2014 by the Japan Productivity Centre and EBIKey Trends of the Pachinko Industry in Japan
Declining gross pay-ins
According to EBI, gross pay-ins of the pachinko industry has been declining since early
2000s, due in part to the introduction of legislation reducing the size of jackpots and in part tothe competition from other forms of entertainment such as video games, the internet and othermobile entertainment services. Players that are attracted to the chance element of the game (towin a larger amount of prizes) may seek other forms of gaming while players that are more
attracted to the entertainment aspect of the game remain. As a result, according to EBI, the127INDUSTRY OVERVIEW
pachinko industry is expected to continue to decline from 2014 to 2018 with total gross pay-ins
declining from approximately ¥17.3 trillion in 2014 to approximately ¥16.1 trillion in 2018.
(¥ billions)
Growth rate of gross pay-ins

22,000

2.0%
-8.0

-2.5

0.9

-1.3

-8.1

-2.5

-1.3

-1.2

-2.2

0.0%

19,000Gross pay-ins

CAGR(09-13)

CAGR(14E-18E)

-2.8%

-1.8%

-2.0%
16,00021,065 19,380 18,896 19,066 18,818 17,300 17,080 16,650 16,280 16,080-4.0%

13,000-6.0%

10,000-8.0%
2009

Source:

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

Leisure White Paper 2014 by the Japan Productivity Centre and EBI

Growing dominance of large operators
According to EBI, the declining gross pay-ins of the pachinko industry drives hall operators
to enhance their efficiency in order to remain profitable under the same cost structure. Thissituation is particularly favourable to larger hall operators (that operate at least ten halls) as their
fixed overhead costs can be shared over a larger amount of operations. Smaller hall operators(that operate less than ten halls) have been gradually pushed out of the market. Therefore,
according to EBI, the number of halls across the pachinko industry is expected to shrink.
However, due to the growing dominance of larger hall operators, the average number of halls
operated by each hall operator is expected to increase.
Number of operators as at 31 December
2009

2010

%

2011

%

2012

%

2013

%

2014E

2015E

2016E

2017E

2018E

%

%

%

%

%

%

Small operators
1-2 halls . . . . . 3,204

74.5% 3,031

3-4 halls . . . . .

579

13.5%

576

73.8% 2,949
14.0%

568

73.4% 2,919
14.1%

557

73.4% 2,771
14.0%

562

72.6% 2,680
14.7%

555

72.1% 2,622
14.9%

547

72.2% 2,572
15.1%

538

72.0% 2,487
15.1%

528

71.6% 2,400

71.0%

15.2%

520

5-9 halls . . . . .

363

8.4%

350

8.5%

343

8.5%

337

8.5%

323

8.5%

318

8.6%

295

8.1%

285

8.0%

15.4%

280

8.1%

275

8.1%

10-14 halls . . . .

74

1.7%

69

1.7%

71

1.8%

73

1.8%

73

1.9%

74

2.0%

75

2.1%

77

15-19 halls . . . .

41

1.0%

37

0.9%

35

0.9%

41

1.0%

40

1.0%

41

1.1%

42

1.2%

44

2.2%

78

2.2%

78

2.3%

1.2%

46

1.3%

48

Over 20 halls . . .

42

0.9%

46

1.1%

51

1.3%

48

1.3%

49

1.3%

51

1.3%

53

1.3%

55

1.4%

1.5%

56

1.6%

58

1.8%

Large operators

Total . . . . . . . 4,303 100.0% 4,109 100.0% 4,017 100.0% 3,975 100.0% 3,818 100.0% 3,719 100.0% 3,634 100.0% 3,571 100.0% 3,475 100.0% 3,379 100.0%
Average number ofhalls operated
by a halloperator . . . .

2.9

3.0

3.1

3.1

3.1

Source: National Police Agency, Daikoku Denki Co., Ltd. and EBI

128

3.1

3.1

3.1

3.1

3.2

INDUSTRY OVERVIEWSize of pachinko halls
According to EBI, as well as the increase in average number of halls operated by each halloperator, the average number of machines per hall has been increasing in recent years, fromapproximately 356 machines per hall in 2009 to approximately 388 in 2013. Larger pachinko halls
allow hall operators to reduce hall overheads per machine and pachinko players are more
attracted to larger halls due to their (1) grand outlook; (2) increased choice of machines; and (3)spacious halls are perceived to be more welcoming for pachinko players which create customer
stickiness to the particular hall. This trend is expected to continue in the next few years and theaverage number of machines per hall in 2018 will be approximately 420.
(units)
440

4.0%

420
2.5

400

1.9

1.6

2.6

2.1

1.3

2.0

1.2

1.4

380

3.0%

Growth rate of number of machines per hall

Number of machines
per hall

CAGR(09-13)

CAGR(14E-18E)

2.2%

1.7%

2.0%

360
1.0%
340

356

365

372

378

388

393

401

409

414

420

2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

320

0.0%

Source: National Police Agency, Daikoku Denki Co., Ltd. and EBIIntroduction of low playing cost pachinko and pachislot machines
According to EBI, due to the shift in customer’s demand to focus more on the entertainment
aspect of pachinko and pachislot, low playing cost games have been introduced since 2006. Low
playing cost pachinko and pachislot enhances the entertainment value of pachinko and pachislot
as they enable lower participation cost and allow players to play longer for the same playing cost.
As the factor of winning large amounts of prizes become less significant for these players, halloperators have the flexibility to maintain their machines at lower payout ratio without losing theplayers. According to EBI, hall operators manage gross payouts by maintaining the (i) pins andsettings of machines with full compliance under the Amusement Business Law and the
Enforcement Ordinance; (ii) proportion of machines according to playing cost and jackpot
probability; and (iii) G-prize and general prize mark-ups. As a result, revenue margin of pachinkohalls has been increasing to enable hall operators to maximise their revenue.

129

INDUSTRY OVERVIEW
Since the introduction of low playing cost pachinko machines in 2006, the number ofpachinko halls equipped with these low playing cost machines has increased steadily. According
to EBI, the number of pachinko halls with low playing cost machines increased from 6,199 in2009 to 10,383 in 2013, representing a CAGR of approximately 13.8%. It is expected that the
number of halls equipped with low playing cost machines and that the proportion of low playing
cost machines will also increase. The below two diagrams show the percentage of pachinko hallswith low playing cost machines and the percentage of low playing machines in the market as at
31 December for the indicated years:
Percentage of halls withlow playing cost machines
in Japan
100.0%
87.3

91.2

92.0

92.7

93.4

Mix of low and high playing costmachines in Japan

100.0%

94.0

13.8
22.0

82.1
75.0

75.0%

50.0%

49.0

50.0%

25.0%

0%

24.6

29.6

75.0%

68.5

32.1

34.1

67.9

65.9

35.4

36.9

37.8

38.6

64.6

63.1

62.2

61.4

86.2
78.0

75.4

70.4

25.0%

2009

2010

2011

2012

0

2013 2014E 2015E 2016E 2017E 2018E2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

High playing cost

Source: EBI

Source:Low playing cost

National Police Agency, Daikoku
Denki Co., Ltd. and EBI

Pachinko and Pachislot Players
According to EBI, the number of pachinko players is expected to continue decreasing toapproximately 10.1 million in 2018. As a result of the increase in consumption tax from 5% to 8%
from April 2014 onwards, the player population is expected to experience a more severe drop of
10.1% for the whole year of 2014. The projected stability in pachinko players is anticipated to belargely supported by pachinko players focused on the entertainment aspects of the game who
remain playing under certain circumstances, such as favourable hall environment, lower playing

130

INDUSTRY OVERVIEW
costs or new machine titles. The chart below shows the number of pachinko players for theindicated years:(thousands)
17,0002%

15,0000%-1.9

13,000

-4.8

-2.4

-4.6

-10.1

-1.8

-2.5

-2.3

-2.2

-2%

Growth rate of number of pachinko and pachislot players

Number ofpachinko andpachislot players

CAGR(09-13)

CAGR(14E-18E)

-3.4%

-2.2%

11,000
-4%
9,000
-6%
7,000
-8%

5,000
3,000

-10%
14,180 13,912 13,249 12,929 12,337 11,085 10,885 10,616 10,372 10,147

1,000

-12%
2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

Source: National Police Agency and EBIProfile of pachinko and pachislot players
Our halls can be categorised into suburban halls and urban halls. Suburban halls are
typically located in the suburbs (areas with relatively low population density, such as the suburbsof Fukushima Prefecture (福島県)), require car access and provide parking spaces. Customers areusually the self-employed (such as farmers and fishermen), factory workers and pensioners, andpeak hours are typically from noon to 5 p.m.. Suburban halls generally have stable player traffic
on weekdays and weekends. Urban halls are typically located in urban areas (areas with relatively
high population density, such as Tokyo (東京都)) and within walking distance of a train station.
Customers are usually full-time employees and peak hours are typically from 5 p.m. to 10 p.m.
and day time for weekdays and weekends, respectively.

131

INDUSTRY OVERVIEW
According to EBI, in 2013 approximately 70% of pachinko and pachislot players are male.
The majority of pachinko and pachislot players were from the age group of above 60 and 30’s,
representing 29.6% and 22.5% of the entire pachinko player population, respectively. The
diagram below shows breakdowns of pachinko and pachislot players in 2013 by age groups.
<30’s
16.1%

>60’s
29.6%

30’s
22.5%

50’s
13.8%
40’s
18.0%

Source: Japan Statistics Bureau and EBI

According to EBI, the highest concentration of pachinko and pachislot players in terms ofoccupation were full-time employees and housewives who represented 48.2% and 12.7% of therelevant players, respectively. The diagram below shows breakdowns of pachinko and pachislot
players in 2013 by occupation:
50.0%

48.2%

40.0%
30.0%
20.0%
12.4%

10.5%

10.0%

12.7%

11.0%

2.8%

2.4%

0%
College students

Part-time workers

Full-time employees

Housewives

Pensioners

Others

Source: EBI

132

Self-employedINDUSTRY OVERVIEW
Industry Outlook for Suburban and Urban Pachinko Halls
According to EBI, there is no correlation between customers of suburban halls or urban halls
with: (i) the chance or the entertainment element of pachinko and pachislot; and (ii) the low
playing cost machines or high playing cost machines. However, players that prefer low playing
cost machines are generally more attracted to the entertainment element of pachinko andpachislot, which means they are less sensitive to movements in payout ratio and are more
prepared to accept a lower payout ratio. On the other hand, players that prefer high playing costmachines are generally more attracted to the chance element of pachinko and pachislot (to win
a larger amount of prizes), which means they are more sensitive to payout ratios and are more
prepared to accept a higher payout ratio.
Suburban pachinko halls
According to EBI, despite the declining gross pay-ins of the pachinko industry, industry
outlook for suburban pachinko halls is expected to be relatively more stable. Investments insuburban pachinko halls are expected to benefit from the following factors: (1) land costs(whether for acquisitions or leases) in suburban areas are relatively lower than urban areas,
allowing pachinko operators to open larger halls which are usually more attractive to customers;(2) there are significantly less gaming and entertainment options (such as cinemas, public racing
and nightlife entertainment) available in suburban areas than urban areas which means relatively
lower competition for suburban pachinko halls; (3) the customer base in suburban areas is
generally more stable as customers are typically self-employed (such as farmers and fishermen),factory workers and retirees, who usually reside in the surrounding areas, while customers inurban areas are typically full-time office employees, who have more choices in hall selection ashalls in urban areas are usually in close proximity to each other; and (4) companies in Japan are
increasingly looking to build industrial parks in less populated areas of Japan (such as suburban
areas), mainly because there is sufficient land to construct larger buildings with ample parking
space, which is expected to increase the working population in these suburban areas.
Urban pachinko halls
According to EBI, the industry outlook for urban pachinko halls is expected to not as
positive as that of suburban pachinko halls. Urban pachinko halls (especially halls in Tokyo(東京都) and nearby prefectures) face more competition from other options of entertainment (suchas cinemas, public racing and nightlife entertainment) than suburban pachinko halls. As a resultof close proximity to each other, urban pachinko halls competing fiercely for market share areforced to incur expenses to differentiate themselves from their competitors, for example: (1)frequent updates of machine models (depending upon the operator’s ability to secure the latest
machine model from suppliers); and (2) refurbishment of urban pachinko halls in order to projecta more pleasant gaming experience for customers. The result is a greater likelihood of higher
costs which may lead to declining profits. In addition, the initial investment cost for urban
pachinko halls (especially urban areas in Tokyo (東京都)) is usually larger due to high land costs(whether for acquisitions or leases). Therefore, investments in urban pachinko halls require agreater substantial capital outlay.

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INDUSTRY OVERVIEWCOMPETITIVE ANALYSIS OF THE PACHINKO INDUSTRY IN JAPAN
Competitive Landscape
The pachinko industry in Japan is highly fragmented with over 3,800 operators as at 31
December 2013. According to EBI, the aggregate gross pay-ins recorded in 2013 by the top fiveand top ten hall operators, accounted for about 20.5% and 25.8% of the entire market,
respectively, while the aggregate number of halls operated by these top five and top ten
operators merely represented approximately 7.9% and 9.7% of the total 11,893 halls,
respectively, as at 31 December 2013. As at 31 December 2013, there were only eight halloperators that operated over 50 halls.
Summary of the top ten pachinko operators in 2013
Approximate % of
Ranking by total
gross pay-ins

Hall operator

1

A

Approximate % of

Number of

total number of

total number ofApproximate % ofhalls as athalls in Japan asmachines in Japan

total gross pay-ins

31 December

at 31 December

as at 31 December

11.2%

299

2.5%

4.3%

2

B

4.9%

366

3.1%

3.6%

3

C

1.9%

180

1.5%

2.0%

4

Our Group

1.3%

54

0.5%

0.6%

5

D

1.2%

38

0.3%

0.5%

6

E

1.2%

67

0.6%

0.9%

7

F

1.2%

52

0.4%

0.7%

8

G

1.1%

42

0.4%

0.5%

9

H

1.0%

29

0.2%

0.6%

10

I

0.8%

28

0.2%

0.3%

25.8%

1,155

9.7%

14.0%

Total

Summary of the top five pachinko operators as at 31 December 2013 in the Fukushima Prefecture (福島県)
Ranking by number ofSource:Number ofhalls

Hall operator

halls in operation

Approximate % of total Approximate % of total
number of halls

number of machines

1

Our Group

20

9.3%

=2

J

11

5.1%

13.8%
6.4%

=2

K

11

5.1%

6.2%

4

L

10

4.6%

6.9%

5

M

5

2.3%

3.3%

57

26.4%

36.6%

EBI

According to EBI, as at 31 December 2013, over 95% of hall operators manage 10 halls or
less and only 4.2% of hall operators manage ten halls or more. The average number of halls
operated per hall operator remained at approximately three. The fragmented pachinko industry
continues to experience a trend where smaller operators being put out of business by large
competitors with greater financial, staff and other necessary resources and operational
experience.

134

INDUSTRY OVERVIEW
Entry Barriers to the Pachinko Industry•

Size of operation. According to EBI, due to the size of their operation, small hall operators(that operate less than ten halls) have been gradually pushed out of the market. Larger
operators, in particular national and regional players, generally have the (i) priority oversmaller hall operators for purchases of new machines where stock is limited; (ii) financial
strength to build larger pachinko halls with increased number of machines to provide a more
spacious and inviting hall environment to create customer stickiness; (iii) ability to source
general prize in bulk for a discount; and (iv) effective internal controls and procedures that
help ensure their compliance with applicable laws and regulations, as well as detect andprevent fraud, cheating and money laundering activities.

•

Pachinko hall business licence (“Operating Licence”). A pachinko hall business is
considered an “amusement business” under the Amusement Business Law and otherrelevant laws, regulations, and prefectural ordinances. Under the Amusement Business Law,a hall operator must, prior to establishing each pachinko hall, obtain an Operating Licencefrom the relevant Prefectural Public Safety Commission* (都道府県公安委員会). New
entrants are not allowed to carry out pachinko hall operations business without an Operating
Licence. See “Applicable Laws and Regulations”.

•

Business networks with suppliers. According to the EBI, business networks with
suppliers such as general prize suppliers, machine suppliers and pachinko ball andpachislot token suppliers are necessary for a pachinko hall operator to carry out its
operations. Due to the fragmented nature of the pachinko hall operating industry in Japan,
new entrants may not have access to these business networks at commercially viable costs
for effective operation.

Opportunities•

Industry consolidation. Despite the gross pay-ins of the pachinko industry has been on
a downward trend since early 2000’s, the industry still remains to be economicallyfavourable to the leading national and regional hall operators, according to EBI. As thepachinko industry develops, small hall operators (with less than ten halls in their network)
are expected to be eliminated. Leading national and regional hall operators (with at least ten
halls in their network) remaining in the market are expected to absorb the market share andto continue to grow their operations as a result, according to EBI.

•

Online general prize redemption system. By collaborating with major online shopping
vendors, an online general prize redemption system could be implemented to allow carriedover balls to be exchanged to general prizes via the internet. Hall operators are able to (i)expand the selection range of general prizes; and (ii) strategically communicate withpotential pachinko and pachislot players regarding new general prizes via the internet. We
believe that this new services will attract new players and also increase the return rate ofexisting customers to pachinko halls.

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INDUSTRY OVERVIEW•

Low playing cost games. As the low playing cost games are considered to be moreentertainment oriented, low playing cost games may attract broader customer base, suchas players of the retirement age group and players new to pachinko, which may offset thelower revenue generated by these low playing cost pachinko and pachislot games.
Furthermore, as players of the low playing cost games play for entertainment value insteadof for winnings, the pachinko operator can generally offer a slightly lower payout ratio on the
low playing cost games than for the traditional high playing cost games.

Threats•

Change in policies and regulations relating to the pachinko industry. Policies andregulations implemented by the Japanese government relating to the pachinko industry may
significantly affect customer demand and behaviour as well as the various operating metrics
that impact the results of pachinko hall operators. For example, the introduction oflegislation reducing the size of jackpots had contributed to the decline of gross pay-ins,
which adversely impacted the operating results of pachinko hall operators across theindustry.
The Diet was previously examining a bill legalising the operations of casinos in Japan in
2014, though, as advised by our Japan Legal Adviser, the bill has since been discarded. In
any case, if casino operations are eventually legalised, pachinko operators may also facecompetition from casinos, which may have a negative impact on the pachinko industry. In
addition, there have been discussions about the introduction of a pachinko tax, although nolegislative process has taken place yet. However, if such additional tax is indeed imposed,
the pachinko industry as a whole may be negatively impacted. However, such casino
legalisation and tax may catalyse the closure of smaller pachinko operators due to their
weaker financial strength, while larger pachinko operators are more likely to absorb the
freed up market share as a result.

•

Consumption tax hike. Consumption tax rate in Japan rose from 5% to 8% in April 2014.
According to EBI, the pachinko and pachislot players have comparatively low income, andare considered to be price sensitive. Therefore, further increase in consumption tax rate is
likely to bring negative impact to hall operators’ profit as a result of the decrease in spending
power of the pachinko and pachislot players.

•

Rising costs. According to EBI, the top three expenses of hall operations are pachinko andpachislot machine expenses, hall staff costs and advertising expenses. These costs, inparticular the pachinko and pachislot machine expenses, have been rising steadily overrecent years. High machine costs have become one of the major challenges to halloperators.

136

INDUSTRY OVERVIEWPRICE TREND OF PACHINKO AND PACHISLOT MACHINES
The diagram below shows the average unit price of pachinko machine and pachislot
machine for the years indicated:(¥)
480,000
455,000

460,000
439,000

440,000
420,000

439,000

455,000

460,000

414,000
408,000

399,000

400,000

460,000

460,000

445,000

399,000

399,000

399 ,000

403,000

403,000

404,000

400,000
380,000

375,000

385,000

360,000
0

2009

2010

2011

2012

2013

Average unit price(1) of pachinko machine

(1)

2014

2015E

2016E

2017E

2018E

Average unit price(1) of pachislot machine

The average unit price was calculated based on the amount of sales divided by the number of the top sellingmachines sold for the year indicated.

Source:EBI

According to EBI, generally, the amount spent on pachinko and pachislot machine accounts
for more than 25% of the operating expenses of the hall operator due to the significant costs forthe machine purchase as well as the necessity for the frequent replacement of machines.
According to EBI, prices of pachinko and pachislot machines are generally affected by thedemand and supply of the machine models coupled with the costs of the relevant machines. The
average unit price of the pachinko and pachislot machines are expected to increase fromapproximately ¥399,000 and ¥455,000 in 2014, respectively, to approximately ¥404,000 and¥460,000 in 2018, respectively, as a result of rising costs of machine components.
SOURCES OF INFORMATION
In connection with the Listing, we have commissioned a research report from EBI for use inpart in this Prospectus to provide prospective investors with necessary information on theeconomy of Japan, the industry and market segments in which we operate and our competitive
position, including forward-looking information. The total fee we paid for their report was¥3,500,000. EBI is a private market research company in Japan founded in 1992 that provides
market intelligence and consulting services specialising in the gaming industry. EBI performs
research and publishes annual reports as well as other learning materials on the pachinko
industry. In preparing their report, EBI collects and reviews publicly available data such as
government-derived information, annual reports and industry association statistics. EBI has
advised us that it has exercised due care in collecting and reviewing the information collected andbelieves that the basic assumptions contained therein are factual and correct, and that theinterpretations are reasonable. EBI has advised us that it has independently analysed theinformation collected, but that the accuracy of the conclusions of its review largely depends upon
the accuracy of the information collected. In compiling and preparing their report, EBI assumed
that (i) Japan’s social, economic and political environment is likely to remain stable and (ii) key
industry trends are likely to continue to affect the market over the forecast period from 2014 to137

INDUSTRY OVERVIEW
2018. For the projection of total market size and number of pachinko players, EBI plottedavailable historical data against macroeconomic data as well as data with respect to relatedindustry trends. The projections and data relating to the future periods in this section wereextracted from EBI’s report. The Directors and the Sole Sponsor believe such projections anddata to be reliable and not misleading on the basis that EBI is an independent professional
research agency with extensive experience in their profession.
NO MATERIAL ADVERSE CHANGE
As of the Latest Practicable Date, the Directors, after reasonable consideration, confirm thatthey were not aware of any adverse change to the market information since the date of the EBI
report which may qualify, contradict or have an impact on the information in this section.

138

APPLICABLE LAWS AND REGULATIONSThis section summarises the most significant aspects of the Japan laws and regulations thatare material to our business.
A.

GENERAL OVERVIEW OF THE JAPAN LEGAL SYSTEM

1.

Primary Features
The Japanese legal system has the following key features:

2.

•

Hybrid civil law system. The Japan legal system is a hybrid civil law system withcharacteristics of both: (1) civil law systems, such as the French and German civil legal
systems; and (2) common law systems, such as the Hong Kong and United States legal
systems.

•

Criminal prosecution. Any act, including our operations under the Three Party
System, shall not be subject to criminal prosecution unless such act is explicitly andclearly described as a crime under a strict contextual interpretation of the applicablestatutory provisions.

•

Court rulings. Although court rulings have a de facto binding effect on inferior courts,
they do not modify existing law nor do they create new law. Laws can only be adopted
or modified through the legislative process. Further, court rulings, similar to court
rulings in other civil and common law systems elsewhere, may be overturned by laws
and regulations and/or amendments to existing laws and regulations enacted or
adopted by legislative or executive authorities.

•

Supreme Court (最高裁判所). The highest court is the Supreme Court (最高裁判所).

Historical BackgroundThe early modernisation of the Japan legal system in the mid-19th century to the early-20th
century was primarily influenced by the German and French codes, which are civil law codes thatserved as models for the major Japanese codes such as the Civil Code.
After the Second World War, some laws in Japan such as the Constitution of Japan(日本国憲法), criminal procedure laws and labour laws were amended or replaced using principles
from United States law, which is based on the common law. Therefore, the Japan legal system
is a hybrid of the civil law system and the common law system, and has evolved substantially andindependently in accordance with the Japan legal culture.
The distinction between common law and civil law mainly lies in the precedential value ofcase law. In a common law legal system, judicial decisions of superior courts have precedential
value in later court decisions and form part of the common law, along with laws and regulations
enacted or adopted by the legislative and executive branches of government. As a result, judges
in a common law system have a substantial role in shaping the law.

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APPLICABLE LAWS AND REGULATIONS
In contrast, a civil law system tends to be a codified body of broad and general principles.
The judge’s role is to establish the facts of the case and to apply the provisions of the applicable
code. Judicial decisions are consequently less crucial in the development of the law.
3.

Constitution

Japan’s current legal system was established by the Constitution of Japan (日本国憲法),
promulgated on 3 November 1946 after the Second World War. The Constitution of Japan(日本国憲法) provides for the separation of the legislative, judicial and executive powers.
The Constitution of Japan (日本国憲法) establishes a parliamentary system of government,
where the legislative authority is vested in the Diet. The executive authority is exercised by thePrime Minister and the Cabinet of Japan* (内閣) who are answerable to the legislature; and the
judiciary is headed by the Supreme Court (最高裁判所).
4.

Source of Law and Legislative Process

The sources of Japan law include the Constitution of Japan (日本国憲法), treaties andinternational agreements, acts, cabinet orders, ministerial ordinances and ministerial
notifications.
Under Article 98 of the Constitution of Japan (日本国憲法), the Constitution of Japan(日本国憲法) is the supreme law of the nation and no law, ordinance, imperial rescript or other actof government, or part thereof, contrary to the provisions hereof, shall have legal force or validity.
Under Article 41 of the Constitution of Japan (日本国憲法), the Diet is the highest organ ofstate power and the sole law-making body. The Diet is made up of two houses, namely the Houseof Representatives (衆議院) and the House of Councillors (参議院). Under the Japanese legislative
process, most draft bills come from the bureaucrat and are then submitted to the Diet throughthe Cabinet of Japan* (内閣). To become law, a bill must pass both houses of the Diet. Japan law
comprises written laws that fit into a certain hierarchy, headed by the Constitution of Japan(日本国憲法). Statutes are often sorted by subject matter into substantive and procedural laws.
The Cabinet of Japan* (内閣) and each Ministry may make subordinate regulations such as
Cabinet Orders, Ministry Ordinances and Ministry Notifications based upon delegation from the
Diet.
5.

Judiciary

Under the Constitution of Japan (日本国憲法), the Supreme Court (最高裁判所) is the highest
court in the nation exercising appellate jurisdiction. The high courts are appellate courts primarily
hearing appeals from district courts or family courts. The district courts are primarily courts ofgeneral and first-instance jurisdiction handling all cases. The summary courts have original
jurisdiction over civil cases involving claims not exceeding ¥900,000 and minor criminal offences.

140

APPLICABLE LAWS AND REGULATIONSThe Supreme Court (最高裁判所) is only able to overturn its own interpretation of a law
through the full Supreme Court (最高裁判所). If a lower court’s judgment does not follow the
judgment rendered by the Supreme Court (最高裁判所), the decision may be appealed. Therefore,
although Japan does not strictly speaking adopt the common law system (as is the case in HongKong) the Supreme Court’s (最高裁判所) judgments have a de facto binding effect on any courtin subsequent cases.
6.

Choice of Law (Act on General Rules for Application of Law) (法の適用に関する通則法)
of Japan (Act No. 78 of 2006)

The rules for choice of law, which will be taken by Japanese courts as international private
law, is mainly governed by the Act on General Rules for Application of Laws.
(法の適用に関する通則法) of Japan (Act No. 78 of 2006)
The formation and effect of a juridical act, including without limitation contracts, shall begoverned by the law of the place chosen by the parties. In the absence of such choice, theformation and effect of a juridical act shall be governed by the law of the place with which theact is most closely connected at the time of the act. In such case, if only one of the parties toa contract is to provide performance involved in a juridical act, the law of the habitual residenceof the party providing such performance shall be presumed to be the law of the place with which
the act is most closely connected. In cases where the party has a place of business connectedwith the juridical act, this will be the law of the place of business. In cases where the party has
two or more such places of business which are connected with the juridical act and which aregoverned by different laws, this will be the law of the principal place of business. The parties maychange the governing law otherwise applicable to the formation and effect of a juridical act;
provided, however, that if such change prejudices the rights of a third party, it may not be
asserted against the third party.
7.

Penal Code and the Code of Criminal Procedures (刑事訴訟法) of Japan (Act No. 131
of 1948)

Crimes in Japan are mainly enumerated in the Penal Code, which provides the elements ofdifferent types of crimes and the penalties for different types of crimes. The Penal Code sets out
the minimum and maximum sentences for offences. Penalties range from fines and short-term
incarceration to compulsory labour and the death penalty.
Under Article 31 of the Constitution of Japan (日本国憲法), the requirements for constituting
a crime under the Penal Code and any other criminal laws shall be construed strictly inaccordance with the specific provisions contained in these laws. Any interpretations that rely
upon analogy to other laws, or that look to similar treatment for actions under other laws, areprohibited. Therefore, under Japan law, an act shall not be punishable unless such act is explicitly
and clearly described as a crime under a strict contextual interpretation of the corresponding
provisions.

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APPLICABLE LAWS AND REGULATIONS
A person shall not be subject to any criminal liability without procedural due process being
observed under the Code of Criminal Procedures (刑事訴訟法) of Japan (Act No. 131 of 1948).
Police have to secure warrants to search for or seize evidence. A warrant is also necessary for
an arrest, although if the crime is very serious or if the perpetrator is likely to flee, it can beobtained immediately after arrest. Within forty-eight hours after placing a suspect under
detention, the police have to present their case before a prosecutor, who is then required toapprise the accused of the charges and of the right to counsel. Prosecution will be denied if there
is insufficient evidence or on the prosecutor’s judgment. Most offences are tried first in district
courts before one or three judges, depending on the severity of the case. Defendants areprotected from self-incrimination, forced confession, and unrestricted admission of hearsay
evidence. In addition, defendants have the right to counsel, public trial, and cross-examination.
8.

Civil Codea.

Structure of Civil Code

The Civil Code was enacted in 1896. It was heavily influenced by the German Civil Code andthe French Civil Code. The code is divided into five parts, namely General Provisions, Property,
Claims, Family and Inheritance. The parts related to family and succession retain certain elementsof the old patriarchal family system that was part of Japanese tradition. The Civil Code hasremained substantially unchanged even after the American occupation in 1945, except for the
fourth and fifth parts.
b.

Contract Law

As is the case for many countries, contracts under Japan law are formed by the
manifestation of intention by way of offer and acceptance. The parties generally enjoy freedom
to agree on the terms and conditions of any contract which will supersede most provisions of the
Civil Code. However, some contracts may be subject to the mandatory requirements under theConsumer Contract Act (消費者契約法) of Japan (Act No. 61 of 2000) and other applicable laws
and regulations. The formation of contracts does not require documentation unless otherwise
required under special laws and regulations. Contrary to common law jurisdictions, consideration
is not necessary for a contract to be enforceable. Also, there are no rules directly equivalent to
the parol evidence rule in interpreting the terms and conditions of the contract.
c.

Torts

Under the Civil Code, a person who has intentionally or negligently infringed on any right ofanother, or a legally protected interest of another, shall be liable to compensate the other party
for consequential damages. An employer is liable for damages inflicted on a third party by theactions of his/her employees in the execution of the employer’s business. However, this shall not
apply if the employer exercised reasonable care in appointing the employee or in supervising theemployee’s activities, or if the damages could not have been avoided even if he/she had

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APPLICABLE LAWS AND REGULATIONS
exercised reasonable care. If more than one person has inflicted damages on another party or
parties by their joint tortious acts, each of them shall be jointly and severally liable to compensate
the other party or parties for those damages. The same shall apply if it cannot be ascertained
which of the joint tortfeasors inflicted the damages.
d.

Property
Property rights are based upon the concept of ownership (title) under Japan law. The ownerof the property generally enjoys an absolute right to possess, utilise and dispose of the property,
unless otherwise restricted under the mandatorily applicable laws or specifically agreed througha contract. Therefore, there is no concept of negative or affirmative covenants under Japan law
and the same purpose is achieved by mandatory laws in Japan (such as zoning or building or
environmental laws and regulations) or by specific contractual arrangements.
Under the Civil Code, no type of property can be established other than those prescribedby laws including the Civil Code. The creation and transfer of property rights shall take effectsolely by the manifestations of intention of the relevant parties. Any deed or written agreement
is generally not required for the transfer of property (including land ownership) to be valid andenforceable under Japan law and oral agreement is generally sufficient. However, the acquisition
or loss of or any change in property rights concerning immovable property may not be asserted
against a third party unless the same are registered pursuant to the applicable provisions of theReal Estate Registration Act* (不動産登記法) (Act No. 123 of 2004) and other applicable laws andregulations regarding land registration.
B.

REGULATORY FRAMEWORK FOR PACHINKO BUSINESSES

Our pachinko and pachislot hall operations are subject to various requirements andrestrictions under Japan law and oversight by Japanese regulatory authorities. Generally,pachinko regulations fall under the Amusement Business Law and the Cabinet of Japan* (内閣)and ministerial ordinances and regulations thereunder. In particular, the Penal Code states that“gambling” is an offence, while the Amusement Business Law (and its ancillary prefectural local
regulations) prohibits pachinko hall operators from being involved in the exchange of prizes forcash or securities by either providing cash or securities as prizes or repurchasing from customers
the prizes provided to them. In order to ensure compliance with the Penal Code and theAmusement Business Law, the pachinko industry operates under the “Three Party System” asdescribed in greater detail in “— C. Legality of Pachinko Businesses and the Three Party System”
and also in “Business — Pachinko and Pachislot Hall Operations — Three Party System”.
We are also subject to Japan laws and regulations that require pachinko hall operators to
obtain operating licenses and impose various operating requirements on pachinko halls andpachinko and pachislot machines, as well as other Japan law and regulations applicable to
Japanese companies generally, such as those relating to corporate governance, taxation andlabour.

143

APPLICABLE LAWS AND REGULATIONSPachinko is a well-established business and has been in place in Japan for more than eight
decades. The history of the pachinko industry has been characterised by government efforts toreform the industry to curb speculative excesses and perceived social problems relating to theindustry. Prior to the later part of the period from 1995 to 1999, questionable business practices
and crime and other anti-social forces gave the pachinko industry a negative public image.
However, over the last two decades, the growing magnitude and importance of pachinko to theJapanese economy spurred the Japanese government and industry associations to step in toestablish strict regulations, remove criminal and anti-social elements and improve the public
image of the pachinko industry. The regulation effort has been highly successful. Due to thesuccess of these reform efforts, the pachinko industry has evolved to become an integral part ofthe entertainment industry in Japan and an important component of the Japanese economy.
The table below sets out the major regulatory developments that have affected the pachinko
industry and the Three Party System over time:
Date

Events17 July 1880. . . . . . . . . . . . . The predecessor to the current Penal Code is first enacted,
including provisions equivalent to the present provisions related to“gambling” and “running a gambling place for the purpose of gain”(Articles 260 and 261), which provided that: (1) “gambling” is acriminal offence punishable by imprisonment for one to six months
and/or a fine of ¥5 to ¥50; and (2) “running a gambling place forthe purpose of gain” is a criminal offence punishable byimprisonment for 3 months to one year and/or a fine of ¥10 to¥100.
24 April 1907 . . . . . . . . . . . . The Penal Code is promulgated, replacing its predecessor. The
Penal Code includes provisions equivalent to the present
provisions related to “gambling”, “habitual gambling” and “runninga gambling place for the purpose of gain” (Articles 185 and 186),
which provided that: (1) “gambling” is a criminal offence
punishable by a maximum fine of ¥1,000; (2) “habitual gambling”
is a criminal offence punishable by up to three years’
imprisonment; and (3) “running a gambling place for the purposeof gain” is a criminal offence punishable by imprisonment of threemonths to five years.
1930 . . . . . . . . . . . . . . . . . . . The first pachinko hall in Japan is opened in Nagoya (名古屋市),
Aichi Prefecture (愛知県), Japan.
1942 to 1945 . . . . . . . . . . . . The pachinko hall business is temporarily banned during WorldWar II as an unnecessary business in times of emergency.

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APPLICABLE LAWS AND REGULATIONS
Date

Events10 July 1948. . . . . . . . . . . . . The “Act Regulating Amusement Business” (風俗営業取締法) is
enacted, under which pachinko hall operations became subject tolicensing by the Public Safety Commission. Under Article 3 of thisAct, each prefecture may set restrictions on amusement business
operators, necessary to prevent harm to good morals.
Therefore, most prefectures began promulgating local regulations
prohibiting pachinko halls from:1.

providing cash as prizes;

2.

repurchasing from customers the prizes provided to them by
thosepachinkohalls(the“Direct
Repurchase
Regulation”); and3.

causing a third party to repurchase the prizes (the “Indirect
Repurchase Regulation”).

10 November 1953. . . . . . . . The Supreme Court (最高裁判所) (the highest court of Japan)
stated in their judgment that, if an operator of a gaming licence
operates its gaming business in accordance with the conditions
and restrictions applicable to its operating licence duly granted by
the Public Safety Commission under the “Act Regulating
Amusement Business” (風俗営業取締法), such business activities
can be deemed as an “activity involving betting for a thing that isprovided for temporary amusement” under Article 185 of the Penal
Code, thus, shall not be constitute any “gambling” offence under
the Penal Code.
1961 . . . . . . . . . . . . . . . . . . . An early form of the Three Party System is adopted in the Osaka
Prefecture (大阪府). Since then, the Three Party System has
spread across Japan
17 June 1968 . . . . . . . . . . . . The Fukuoka High Court (福岡高等裁判所) holds that there is no
violation of the Direct Repurchase Regulation or Indirect
Repurchase Regulation in local regulations, if prizes arecommingled with prizes from other sources, because it will be
impossible to identify which of the prizes being purchased by thepachinko hall were originally from that same pachinko hall.

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Date

Events

14 August 1984 . . . . . . . . . . The “Act Regulating Amusement Business” (風俗営業取締法) is
renamed the “Act on Control and Improvement of Amusement
Business, Etc.” (風俗営業等の規制及び業務の適正化等に関する法律) (i.e. the Amusement Business Law), introducing the Direct
Repurchase Regulation (previously only in local regulations) into
national legislation, and is substantially amended to prohibit,
among others, under Article 23:
1.

providing customers with cash or securities as prizes; and2.

repurchasing from customers the prizes provided to them.

August 1984 . . . . . . . . . . . . . Most prefectural government has passed local regulations
ancillary to the Amusement Business Law, which included theIndirect Repurchase Regulation as well as the Direct Repurchase
Regulation.
11 January 1985 . . . . . . . . . The Enforcement Ordinance is enacted, setting the maximum limiton the value of a prize offered by an amusement business to¥3,000.
25 September 1990 . . . . . . . The Enforcement Ordinance is amended, raising the maximum
limit on the value of a prize offered by an amusement business to¥10,000 (after consumption tax) (approximately ¥9,524 before
consumption tax) (Article 35, Paragraph 3).
17 April 1991 . . . . . . . . . . . . The Penal Code is amended to raise the maximum penalty for thecriminal offence of “gambling” to a fine of ¥500,000 (Article 185).
25 June 2003 . . . . . . . . . . . . The National Police Agency answers questions raised by the“Group of Diet Members Considering Casino as an International
Tourism Industry” (国際観光産業としてのカジノを考える議員連盟)
and comments in support of the Three Party System in terms ofboth the Penal Code and the Amusement Business Law. The
comments state that (among others): (1) pachinko halls that
operate their business within the scope provided under the
Amusement Business Law shall not be considered to havecommitted any “gambling” offence under the Penal Code; and (2)since the Amusement Business Law only regulates pachinko halloperators (and not persons or entities unrelated to the pachinko
hall operator), third parties are not prohibited from purchasing
prizes from pachinko hall customers.
1 April 2014 . . . . . . . . . . . . . The Enforcement Ordinance is amended, raising the maximum
limit on the value of a prize offered by an amusement business to¥10,368 (after consumption tax) (¥9,600 before consumption tax).

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Principal Administrative and Regulatory Authorities
The following are the principal administrative and regulatory authorities that oversee
pachinko and pachislot hall operations in Japan:•

the National Public Safety Commission (including the National Police Agency);•

the Prefectural Public Safety Commission in the prefecture in which the relevant hall islocated;•police personnel;•

prefectural governments;•

the Security Communications Association* (保安通信協会);•

the Prefectural Entertainment Environment Cleanup Association* (都道府県風俗環境浄化協会); and•the Minors Orientation Committee* (青少年健全育成審議会).

National Public Safety Commission (including the National Police Agency)
The National Public Safety Commission is an administrative commission belonging to the
Cabinet Office* (内閣府) in the Cabinet of Japan* (内閣). It oversees national security in Japan andimplements regulations relating to the technical specifications of pachinko and pachislot
machines as well as the operations of pachinko halls. For example, the National Public Safety
Commission regulations in conjunction with the Amusement Business Law govern the playing
costs of pachinko games, machine designs, maximum payout ratios, maximum balls andpachislot tokens put into play and won, method of providing prizes, maximum value of prizes
offered and the minimum age for playing pachinko.
The National Public Safety Commission also oversees the National Police Agency, whichleads the prefectural police in their implementation of National Public Safety Commission
regulations and policies.
Prefectural Public Safety Commission
Each prefecture has its Prefectural Public Safety Commission, which is an administrative
commission that supervises prefectural police agencies in their implementation of the National
Public Safety Commission policies and regulations. Each Prefectural Public Safety Commission
has the power to grant or cancel pachinko hall licences, grant permission for changes in the
structure of pachinko halls, certify and approve pachinko and pachislot machines, approve thetechnical standards for pachinko and pachislot machines and monitor violations of laws and147

APPLICABLE LAWS AND REGULATIONS
regulations by pachinko hall operators. It has the authority, to the extent necessary for
enforcement of the Amusement Business Law, to require holders of a pachinko hall licence tosubmit documentation concerning business matters. It also conducts hearings related to
revocation, suspension or cancellation of pachinko hall licences or pachinko hall operations, andother related disciplinary actions against pachinko hall operators and pachinko hall managers.
Police personnel
Police personnel are overseen by the National Police Agency and are permitted to enter
pachinko halls to the extent necessary for enforcing the Amusement Business Law.
Prefectural governments
Prefectural governments set the standards for the hours of operation of pachinko halls, thelevel of noise and vibration around pachinko halls and collect fees which are necessary forcertification, approval and examination of pachinko halls and pachinko and pachislot machines.
Such standards must at least meet the minimum standards set out under the Amusement
Business Law.
Security Communications Association* ( 保安通信協会 )The Security Communications Association* (保安通信協会) is responsible for examining
machines to ensure that they comply with Amusement Business Law standards in their technicalspecifications and also to ensure that they do not promote a “passion for gambling”.
Prefectural Entertainment Environment Cleanup Association* ( 都道府県風俗環境浄化協会 )The Prefectural Entertainment Environment Cleanup Association* (都道府県風俗環境浄化協会) works under the Prefectural Public Safety Commission to organise personnel training andpromote compliance with the Amusement Business Law.
Minors Orientation Committee* ( 青少年健全育成審議会 )The Minors Orientation Committee* (青少年健全育成審議会) works under each Prefectural
Public Safety Commission to prevent minors from being involved in any “amusement business”.

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APPLICABLE LAWS AND REGULATIONSC.

LEGALITY OF PACHINKO BUSINESSES AND THE THREE PARTY SYSTEM

1.

Penal Code

Under the Penal Code, gambling is a criminal offence. There are three types of gambling
offences, namely: (1) “gambling”, punishable by a fine of up to ¥500,000 (Article 185); (2) if
gambling is habitual, “habitual gambling”, punishable by up to three years’ imprisonment (Article
186); and (3) if a place is run for gambling or organises a group of habitual gamblers, “runninga gambling place for the purpose of gain”, punishable by between three months’ and five years’
imprisonment.
The Penal Code provides for certain exemptions for this gambling offence, such as activities
that are expressly allowed under Japan laws and regulations (such as small-scale lotteries andpublic horse-racing). Significantly, Article 185 of the Penal Code exempts activities involving“betting for a thing that is provided for temporary amusement”. Therefore, as a pachinko halloperator, we must conduct our operations such that we only offers prizes that fall within thescope of “a thing that is provided for temporary amusement”.
The Supreme Court (最高裁判所) (the highest court in Japan) has stated in their judgment
that, if an operator of a gaming place operates its gaming business in accordance with theconditions and restrictions applicable to its operating licence duly granted by the Public Safety
Commission under the then-equivalent of the Amusement Business Law, such business activities
can be deemed as “an activity involving betting for a thing which is provided for temporary
amusement” under Article 185 of the Penal Code. Therefore, according to Article 185 of the Penal
Code, such business activities do not constitute any gambling offence under the Penal Code.
In addition, on 25 June 2003, the National Police Agency issued a statement in response toquestions raised by the “Group of Diet Members Considering Casino as an International Tourism
Industry” (国際観光産業としてのカジノを考える議員連盟). This statement essentially agreed with
the Supreme Court’s (最高裁判所) ruling and commented in support of the Three Party System interms of both the Penal Code and the Amusement Business Law. The comments state that(among others): (1) pachinko halls that operate their business within the scope provided underthe Amusement Business Law shall not be considered to have committed any gambling offence
under the Penal Code; and (2) since the Amusement Business Law only regulates pachinko halloperators (and not persons or entities unrelated to the pachinko hall operator), third parties are
not prohibited from purchasing prizes from pachinko hall customers.
Our Japan Legal Adviser, after conducting due diligence as described in “— C. Legality ofPachinko Businesses and the Three Party System — 3. The Three Party System — Independence— Due diligence conducted by our Japan Legal Adviser and the Sole Sponsor” below, hasconfirmed that we have duly obtained and maintained at all times a valid operating licence underthe Amusement Business Law for all of our halls, our pachinko and pachislot hall operations(including the prizes offered by each of our halls) is conducted in accordance with the conditions
and restrictions applicable to such operating licence, and we have not committed any material
breach of the Amusement Business Law, thus, our pachinko and pachislot hall operations do notconstitute any gambling offence under, and do not violate, the Penal Code.

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2.

Amusement Business Law and Local Regulations

The Amusement Business Law sets regulations for “amusement businesses”, such as
pachinko hall operators, that they must comply with in order to operate their business. See “—
D. Other Regulations on Pachinko Businesses” for more details about the requirements under the
Amusement Business Law.
Article 23 of the Amusement Business Law prohibits pachinko hall operators from being
involved in the exchange of prizes for cash or securities by either: (1) providing cash or securities
as prizes; or (2) directly repurchasing from customers the prizes provided to them for cash or
securities. A breach of Article 23 may cause the pachinko hall operator to be subject tosuspension of business for a period ranging from 20 days to 180 days as an administrative
sanction. In addition, a penalty of imprisonment up to six months, or a fine of ¥1 million may be
imposed as criminal sanctions. If the pachinko hall operator is a company, the hall operator itself
will only be subject to the fine, while person(s) who committed the breach as its representative,
attorney or employee will be subject to imprisonment and/or the fine.
In accordance with industry practice, we strictly do not provide cash or securities to ourcustomers, but only general prizes and G-prizes. Our Japan Legal Adviser, after conducting due
diligence searches as described in “— C. Legality of Pachinko Businesses and the Three Party
System — 3. The Three Party System — Independence — Due diligence conducted by our Japan
Legal Adviser and the Sole Sponsor” below, has confirmed we have fully complied with suchindustry practice and that we have never been, and are not currently, in breach of Article 23 of
the Amusement Business Law.
Significantly, there are no prohibitions against: (1) customers selling G-prizes (exchanged
with balls or tokens in a pachinko hall) to a third party who is not the pachinko hall operator; or(2) pachinko hall operators purchasing G-prizes from a third party who is not their customer.
However, it should be noted that most prefectural governments have passed local regulations
ancillary to the Amusement Business Law, which also prohibit pachinko hall operators from
causing a third party to repurchase G-prizes from their customers (the “Third Party Local
Regulations”) (who merely acts as the operator’s agent or an intermediary in the repurchaseprocess).
In fact, the National Police Agency has commented, including in its statement on 25 June
2003 in response to questions raised by the “Group of Diet Members Considering Casino as an
International Tourism Industry” (国際観光産業としてのカジノを考える議員連盟) that theAmusement Business Law and the Third Party Local Regulations only regulates “amusementbusinesses” (such as pachinko hall operators) and not persons or entities unrelated to them,thus, an unrelated third party is not prohibited from purchasing G-prizes from customers.
Accordingly, the National Police Agency’s prevailing interpretation in its administration of theAmusement Business Law and the Third Party Local Regulations is that it is legal for a pachinko
hall operator to purchase G-prizes from an unrelated third party, provided that such G-prizes arecommingled with G-prizes from other halls through the hands of such unrelated third party.

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3.

The Three Party System

In order to ensure compliance with the Amusement Business Law, the Third Party Local
Regulations and the National Police Agency’s prevailing interpretation in its administration of theabove, the pachinko industry has developed a practice, for the sale and purchase of G-prizes
exchanged by a customer by playing at a hall, through unrelated third parties. This industry
practice is commonly referred to as the “Three Party System”.
Parties
The parties under the “Three Party System” consist of:1.

Pachinko hall operators. These operate pachinko halls that provide pachinko andpachislot games, and also purchase G-prizes from G-prize wholesalers. Customers
can play these games and exchange their balls or tokens in these halls for prizes, suchas G-prizes;

2.

G-prize buyers. These are typically companies or sole proprietorships. Customers
can, but are not obliged to, sell their G-prizes (that they obtained from pachinko halls)
to them for cash. G-prize buyers will then further sell these G-prizes to G-prize
wholesalers; and3.

G-prize wholesalers. These are typically companies and they purchase G-prizes from
G-prize buyers, and then further sell them to pachinko hall operators.

The diagram below shows the general flow of G-prizes within the Three Party System andwith customers:

The Three Party System
G-prize buyer(2) Sale of G-prize toG-prize buyer(3) Sale of G-prize toG-prize wholesaler

CustomerG-prize wholesaler(4) Wholesale of G-prize
to pachinko hall operator(1) Provision of G-prize inexchange for balls/tokens
collected

Pachinko hall operator

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APPLICABLE LAWS AND REGULATIONS
While the purchase price for transactions marked (2), (3) and (4) in the above diagram isgenerally similar, G-prize wholesalers also typically receive a monthly fee from hall operators andG-prize buyers also typically receive a monthly fee from the relevant G-prize wholesaler, for theirrespective services rendered for such relevant transactions. According to industry practice, themonthly fee paid by hall operators to G-prize wholesalers is greater than that paid by G-prize
wholesalers to their G-prize buyers. As for transaction (1), depending on the location of the halland competition in that area, a mark-up on the G-prizes (set by the pachinko hall operator) may
be added over the purchase price of the G-prize paid by the pachinko hall operator to the G-prize
wholesaler, when the customer exchanges his balls or tokens for G-prizes. For instance,
assuming a 10% G-prize mark up, a customer will need 1,100 ¥1 balls to exchange a G-prize witha cost of ¥1,000 from the operator.
Further, G-prize wholesalers may purchase G-prizes from various G-prize buyers, and they
may also sell G-prizes to various pachinko hall operators if the G-prize is of the same type indesign and appearance. As such, all the G-prizes purchased by the wholesaler from multiple
G-prize buyers are commingled, meaning that the G-prizes that are sold to the pachinko hall by
the wholesaler are not necessarily the same G-prizes provided by the pachinko hall to its
customers.
Independence
Under the Three Party System, pachinko hall operators (such as ourselves), must be
independent of each of: (1) the G-prize wholesalers engaged by them; and (2) G-prize buyers
engaged by such G-prize wholesalers. This ensures that, from the pachinko hall operators’
perspective, G-prize wholesalers and G-prize buyers are unrelated third parties from thepachinko hall operator.
Independence between pachinko hall operators and G-prize wholesalers
A G-prize wholesaler is independent and an unrelated third party to the pachinko halloperator if:
1.

neither party may have the ability to exercise control, whether directly or indirectly, over
the other, through (i) any relationship or connection between the personnel of thepachinko hall operator and the G-prize wholesaler, (ii) any equity holding or any othercapital relationship or connection between the pachinko hall operator and the G-prize
wholesaler, or (iii) any contract or other agreement between the pachinko hall operator
and the G-prize wholesaler; and2.

G-prizes to be purchased are of market value, meaning that G-prizes must have
intrinsic value (which can be satisfied by the metal (such as gold) embedded in theG-prize).

Each of these factors is satisfied with respect to all of our pachinko halls.

152

APPLICABLE LAWS AND REGULATIONSOur Japan Legal Adviser, after conducting due diligence as described in “— C. Legality ofPachinko Businesses and the Three Party System — 3. The Three Party System — Independence— Due diligence conducted by our Japan Legal Adviser and the Sole Sponsor” in this section
below, has also determined that each of our pachinko halls is independent as evaluated under thefactors listed above from each of our G-prize wholesalers.
Independence between pachinko hall operators and G-prize buyers
A G-prize buyer is independent and an unrelated third party to the pachinko hall operatorif:
1.

neither party may have the ability to exercise control, whether directly or indirectly, over
the other, through (i) any relationship or connection between the personnel of theG-prize buyer and the pachinko hall operator, (ii) any equity holding or any other capital
relationship or connection between the G-prize buyer and the pachinko hall operator,or (iii) any contract or other agreement between the G-prize buyer and the pachinko
hall operator;

2.

G-prizes to be purchased are of market value, meaning that G-prizes must have
intrinsic value (which can be satisfied by the metal (such as gold) embedded in theG-prize); and3.

G-prizes are not directly returned from or sold by the G-prize buyer to the pachinko halloperator (but, for example, are instead sold by the G-prize buyer to a G-prize
wholesaler who in turn commingles the G-prizes that it has purchased from multiple
sources (including other G-prize buyers), thus, making it impossible to identify whichhall the G-prizes came from).

Each of these factors is satisfied with respect to all of our pachinko halls.
Our Japan Legal Adviser, after conducting due diligence as described in “— C. Legality ofPachinko Businesses and the Three Party System — 3. The Three Party System — Independence— Due diligence conducted by our Japan Legal Adviser and the Sole Sponsor” in this section
below, has confirmed that each of our pachinko halls is independent as evaluated under thefactors listed above from each of the G-prize wholesalers (engaged by us) G-prize buyers(engaged by such G-prize wholesalers).
Our internal control procedures to ensure our independence
We have obtained written confirmations issued to us and the Sole Sponsor from all ourcurrent G-prize wholesalers regarding their independence (based on criteria even stricter thanthat set out above) from: (1) us; and (2) any G-prize buyers engaged by them who have G-prize
buying shops near our halls. These confirmations also covered the following matters:•

a complete and accurate list of all G-prize buyers engaged by them who have G-prize
buying shops near our halls;

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APPLICABLE LAWS AND REGULATIONS•

to the best of their knowledge, the content of the confirmations issued by such G-prize
buyers (as described below) to us and the Sole Sponsor is true and accurate;•

written undertakings to conduct their own regular background checks against any
G-prize buyers engaged by them in order to monitor any independence issues between
such G-prize buyers and themselves, and if these G-prize wholesalers become awareof any such independence issues, they will inform us and resolve such issues
immediately in order to ensure compliance with the Three Party System;•

written undertakings to report to us in a timely manner any change in their shareholding
structure and composition of their board of directors, or if they become aware of any
change in the shareholding structure or composition of the board of directors of any
G-prize buyers engaged by them or any other matters that may affect their
independence or the independence of such G-prize buyers within the Three Party
System; and•to the best of their knowledge, they are not aware that any such G-prize buyers are
anti-social forces, or are or will be involved in any actions or activities using, or jointly
associate with, any anti-social force. Further, neither they nor any of theirrepresentatives, directors, statutory auditors, executive officers or shareholders are
anti-social forces, or are or will be involved in any actions or activities using, or jointly
associate with, any anti-social force.

We have obtained written confirmations issued to us and the Sole Sponsor from all such
G-prize buyers regarding their independence (based on criteria even stricter than that set out
above) from: (1) us; and (2) any G-prize wholesalers engaged by us. These confirmations also
covered the following matters:•neither they nor any of their representatives, directors, statutory auditors, executive
officers or shareholders are anti-social forces, or are or will be involved in any actions
or activities using, or jointly associate with, any anti-social force;•to the best of their knowledge, they are not aware that any such G-prize wholesalers
are anti-social forces, or are or will be involved in any actions or activities using, or
jointly associate with, any anti-social force; and•they have undertaken to the G-prize wholesaler that engages them that they shallreport to such G-prize wholesaler in a timely manner any change in their shareholding
structure or composition of board of directors or any other matters that may affect their
independence within the Three Party System.

We have also obtained through our current G-prize wholesalers a list of the shareholders of
the G-prize buyers engaged by them.
We will require our G-prize wholesalers to re-issue, and to request their G-prize buyers to
re-issue, these confirmations to us every year.

154

APPLICABLE LAWS AND REGULATIONSIn addition, we have also adopted the following internal control procedures to ensure theindependence of our pachinko halls from each of our G-prize wholesalers and G-prize buyers
engaged by them:•

we regularly obtain from each of our G-prize wholesalers a list of the shareholders (orultimate owners) and directors of both themselves and the G-prize buyers engaged by
them;

•

we will annually obtain commercial registers of all our G-prize wholesalers and theG-prize buyers engaged by them (provided that they are legal corporate entities) toreview the composition of their board of directors;•

we will engage independent third parties to perform annual searches on theshareholding structure and list of directors (if available) for all of our G-prize
wholesalers and G-prize buyers engaged by them;•

we require our Directors, senior management and Shareholders to confirm that they are
independent of our G-prize wholesalers and such G-prize buyers (based on the criteria
set out above), and to notify us immediately if they become aware of any potential
independence issues;•

we will provide training on the Three Party System to our employees on a regular basis
to ensure that they do not engage with G-prize wholesalers or G-prize buyers engaged
by them, and to prevent them from unknowingly establishing a relationship with them.
For example, all our Directors and senior management attended a training conductedby our Japan Legal Adviser in December 2014 on the legal, regulatory and practicerequirements under the Penal Code, the Amusement Business Law and the Third Party
Local Regulations, including the independence requirements within the Three Party
System;•we require that none of our management, Directors or staff are engaged in the G-prize
buying business; and•as our pachinko and pachislot hall operations are monitored by the Prefectural Public
Safety Commission in each relevant prefecture, in order to prevent any conflicts ofinterest that might otherwise arise and for improved corporate governance, none of our
Directors or senior management has been, or is, a police officer in Japan and we
require them to confirm so to us.

For our internal control procedures in relation to potential new G-prize wholesalers, see“Business — Pachinko and Pachislot Hall Operations — Three Party System — Risk
Management”.

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APPLICABLE LAWS AND REGULATIONS
Due diligence conducted by our Japan Legal Adviser and the Sole Sponsor
Our Japan Legal Adviser and Sole Sponsor has conducted the following due diligence
regarding our independence from each of our G-prize wholesalers and the G-prize buyers
engaged by them:•hosted a training session conducted by our Japan Legal Adviser in December 2014 forall our Directors and senior management on the legal, regulatory and practicerequirements under the Penal Code, the Amusement Business Law and the Third Party
Local Regulations, including the independence requirements within the Three Party
System;•obtained confirmations issued to us and the Sole Sponsor from our Directors andsenior management regarding (among others) their attendance and understanding of
the relevant legal, regulatory and practice requirements (including on independence)
explained at the above training session;•

obtained confirmations issued to the Sole Sponsor from our Company, Directors,
Shareholders and senior management regarding (among others) the Group’s and their
independence from each of our G-prize wholesalers and the G-prize buyers (engaged
by our G-prize wholesalers);•

interviewed all our Directors and senior management regarding (among others) theirunderstanding of the relevant legal, regulatory and practice requirements (including on
independence) explained at the above training session, their relationship(s) with our
G-prize wholesalers and also the G-prize buyers (engaged by our G-prize wholesalers),
and ultimately to confirm the Group’s and their independence from each such party;•

interviewed our G-prize wholesalers (through their legal representative, a director orother responsible management personnel), regarding (among others) theirrelationship(s) with our Group and also the G-prize buyers (engaged by them), andultimately to confirm their independence from each such party;•

interviewed the G-prize buyers (engaged by our G-prize wholesalers) (through theirlegal representative, a director or other responsible management personnel) regarding(among others) their relationship(s) with our Group and also our G-prize wholesalers,and ultimately to confirm their independence from each such party;•

reviewed all agreements between us and our G-prize wholesalers, namely purchaseagreements for G-prizes, lease agreements and purchase agreements for
miscellaneous goods and services. See “Business — Pachinko and Pachislot Hall
Operations — Three Party System — Agreements between us and G-prize
wholesalers” for details on such agreements, including our Japan Legal Adviser’s
confirmation that such agreements do not affect our independence;156

APPLICABLE LAWS AND REGULATIONS•

reviewed the written confirmations issued to us and the Sole Sponsor from all of ourG-prize wholesalers and the G-prize buyers (engaged by our G-prize wholesalers)(except for those engaged in relation to our one hall that has been permanently closed
due to the Great East Japan Earthquake) regarding (among others) their independence
within the Three Party System. See “— C. Legality of Pachinko Businesses and theThree Party System — 3. The Three Party System — Independence — Our internal
control procedures to ensure our independence” for details of these confirmations;•reviewed all commercial registers of our G-prize wholesalers and such G-prize buyers(engaged by our G-prize wholesalers) that are corporations in order to identify (among
others) to identify any overlap of directors; and•obtained a list of the Group’s representatives, directors, statutory auditors, executive
officers and shareholders through the Group’s commercial registers and shareregisters.

Legality of our pachinko and pachislot hall operations and the Three Party System
Our Japan Legal Adviser, having conducted due diligence described above and reviewed
the relevant court cases, governmental statements and practices, has advised us that:1.

the National Police Agency has never taken any action against the legality of thepachinko industry, as a whole, under the Penal Code, the Amusement Business Law,
the Third Party Local Regulations or otherwise;2.

as long as our pachinko and pachislot hall operations are conducted under the Three
Party System, in accordance with prevailing standard industry practices in thepachinko industry, and the independence factors described above are satisfied, ourpachinko and pachislot hall operations will not violate the Penal Code, the Amusement
Business Law or the Third Party Local Regulations;3.

our pachinko and pachislot hall operations (as carried out in the context of the Three
Party System) do not contravene the Penal Code, the Amusement Business Law, theThird Party Local Regulations or any of the operating licences of our halls; and4.

as at the Latest Practicable Date, we have not been found to be in any material breachof the Penal Code, the Amusement Business Law, the Third Party Local Regulations or
any of the operating licences of our halls.

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OTHER REGULATIONS ON PACHINKO BUSINESSES

1.

Pachinko Hall Business Licence (“Operating Licence”)

A pachinko hall business is considered an “amusement business” under the Amusement
Business Law and other relevant laws, regulations, and prefectural ordinances. Under the
Amusement Business Law, a pachinko hall operator must, prior to establishing each pachinko
hall, obtain an Operating Licence from the relevant Prefectural Public Safety Commission*(都道府県公安委員会). Once granted, the Operating Licence will remain effective unless and until
it is cancelled by the Prefectural Public Safety Commission pursuant to the Amusement Business
Law.
As at the Latest Practicable Date, we owned 56 halls and had obtained and directly hold alicence (through Niraku Corporation) for each of these halls, each of which is currently valid.
Application
When considering an application for an Operating Licence, the Prefectural Public Safety
Commission will consider the following factors under the Amusement Business Law:•

whether the business owner/operator is, with reference to past offences or otherinstances of regulatory non-compliance, a fit and proper person to hold an Operating
Licence (the “Fit and Proper Person Requirements”);•

the proposed place of business, including its structural integrity and other technicalbuilding specifications;•the location of the intended place of business, including town planning and area zoning
considerations and proximity to schools and hospitals; and•the compliance with legal specifications of the pachinko and pachislot machines
intended to be installed at the proposed hall.

Conditions
Operating Licences carry certain restrictions. For example, the Prefectural Public Safety
Commission must grant prior approval to any corporate restructuring or corporate succession
carried out by a holder of an Operating Licence (the “Licence Holder”) in the relevant prefecture.
Any Operating Licence transferee is subject to the same requirements as the original Licence
Holder. This prevents unauthorised transfer of an Operating Licence. Also, another condition isthat pachinko and pachislot machines installed in pachinko halls do not encourage a “passion forgambling”. See “— D. Other Regulations on Pachinko Businesses — 2. Pachinko and Pachislot
Machine Regulations” in this section below for details.

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Also, the Prefectural Public Safety Commission may, at its discretion and at any time,
impose additional conditions on the Operating License as it considers necessary to maintaincertain moral decency standards within the pachinko hall and broader food and beverageindustry, or otherwise for the protection of minors. For example, the Operating Licences for all ourhalls in Tokyo (東京都) have a standard condition (that applies to all halls for all pachinko halloperators), which states that players can only play one machine at a time, and players must not
use any equipment that will affect the handle of the playing machines. Also, the Operating
Licence for two of our halls (namely, in Fukushima Prefecture (福島県) and Kanagawa Prefecture(神奈川県)) also have another condition that restricts these halls from expanding to within 100
metres of a school. Save for the above, there are no other conditions in the Operation Licencesof our halls.
Directives, sanctions, cancellation or suspension
The Prefectural Public Safety Commission has broad authority to issue directives or impose
sanctions on a Licence Holder, including its business representatives and employees, incircumstances where there has been a breach of the Amusement Business Law or other civil andcriminal laws.
The Prefectural Public Safety Commission may cancel an Operating Licence, or issue a
directive to suspend operations carried on thereunder, where:•

it has been obtained through fraudulent or other illegal means;•the Licence Holder no longer satisfies the Fit and Proper Person Requirements;•

the pachinko business has not commenced within six months from the grant of an
Operating Licence or there has been any suspension of operations for more than six
months without justifiable grounds;•

the whereabouts of the Licence Holder is unknown for more than three months;•

the Licence Holder breaches any legislation pertaining to the business which is the
subject of the Operating Licence, and such violation is likely to either cause substantial
harm to a good and quiet moral environment, or to violate the rights of minors; or•the Licence Holder fails to comply with a directive of the Prefectural Public Safety
Commission or a license condition.

In the event that the pachinko operator has an objection to the cancellation or suspensionof an Operating Licence, it may, within six months from such decision, bring an action with therelevant court for the revocation of the administrative decision.

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2.

Pachinko and Pachislot Machine Regulations

The Amusement Business Law, the Enforcement Ordinance and the enforcement
regulations prescribed under the Amusement Business Law, also regulate pachinko and pachislot
machines installed in pachinko halls by the Licence Holder. One of the Operating Licenceconditions is that pachinko and pachislot machines installed in pachinko halls do not encouragea “passion for gambling”.
Pachinko and pachislot machines are subject to certain restrictions, such as those listed
below, in order to comply with this condition:•

limitations on the value of pachinko balls or pachislot tokens that may be put into play
per minute (namely, ¥400);•

limitations on the number of pachinko balls or pachislot tokens that may be won invarious modes of play;•

limitations on the total number of pachinko balls or pachislot tokens that may be won
over a continuous period of play;•

the size of the pockets which trigger jackpot mode, as compared to the size of thepachinko ball, may not be significantly larger or smaller than the customary size;•

pachinko balls may not be automatically fired into the field of play without the player
directly controlling the shooting strength; and•the machine may not be capable of easily being illegally modified or otherwisechanged.

The payouts of pachinko balls and pachislot tokens resulting from “jackpot” or “bonus”
modes as a percentage of total balls or tokens played is limited by law so as to discourageplaying with the sole purpose of winning or “gambling”.
For pachinko balls, the key required ranges on payout ratios are that the number of balls thatthe pachinko machine may pay out shall be: (1) less than or equal to 15 times the number of balls
put into play at any time; (2) less than or equal to 3 times the number of balls put into play overa continuous 1-hour period; and (3) between 0.5 to 2 times the number of balls put into play overa continuous 10-hour period.
For pachislot tokens, the key required ranges on payout ratios are that the number of tokens
that the pachislot machine may pay out shall be: (1) less than or equal to 15 times the numberof tokens put into play at any time; (2) less than or equal to 3 times the number of tokens playedover 400 consecutive plays; (3) less than or equal to 1.5 times the number of tokens played over
6,000 continuous plays; and (4) between 0.55 to 1.2 times the number of tokens played over
17,500 continuous plays.

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A person who intends to manufacture or import a pachinko or pachislot machine or to install
it may, but is not legally required to, apply for an inspection of the machine by the Security
Communications Association* (保安通信協会) for specifications of such imported or
manufactured pachinko or pachislot machine. A machine manufacturer typically submits its
machine prototypes to testing by the Security Communications Association* (保安通信協会).
Machine prototypes that pass such testing receive certificates. Each machine subsequently
manufactured according to that prototype will also have a certificate showing its compliance withsuch testing. Purchasing machines from manufacturers that have received this approval reduces
the risk of installing machines that do not comply with the legal requirements. A pachinko
operator that intends to increase or change its number of machines, including the transfer of amachine to a different pachinko hall, must obtain prior written permission from the Prefectural
Public Safety Commission. Also, before any machine is delivered, the prefectural police mustcertify the eligibility and compliance of the machine or replacement part, which is evidenced by
a “Notice of Inspection” issued to the manufacturer (for new machines) or dealer (forsecond-hand machines). A similar notice is issued when machine parts are replaced. In addition,prior to operation of a new or second-hand machine, the pachinko hall must submit anapplication to the local police authority to request an inspection, upon completion of which an
approval is granted and operation of the machine may begin. The police may inspect themachines at random after installation in the pachinko hall.
As we only purchase machines from manufacturers that submit their machine prototypes fortesting by the Security Communications Association* (保安通信協会), our pachinko and pachislot
machines each have a certificate demonstrating compliance with those tests and have passed allinspections conducted by the relevant Prefectural Public Safety Commission during the Track
Record Period.
3.

Machine Pin Angle Maintenance and Adjustments

Under Articles 9 and 20 of the Amusement Business Law, any “change” in a game machine
installed in a pachinko hall requires the prior permission of the Public Safety Commission, except
that, for minor changes, a notification after such minor change to the Public Safety Commission
is sufficient.
Pin angles impact the distance between the ends of each pin, which in turn directly
influences the likelihood that balls fall into the designated pockets that release bonus balls,
trigger jackpots, or conversely, fall into the trap and become lost. Therefore, pin angles have a
direct impact on payout ratios and ultimately gross payouts and revenue from pachinko andpachislot business. However, pin angles often shift during the normal course of play on apachinko machine as the pachinko balls cascade down, through and collide into the pins in
theplaying field, which consequentially changes payout ratios of pachinko machines. As
mentioned above, there are required ranges under law for payout ratios. Therefore, consistent
with industry practice, we generally perform regular maintenance and adjustments on the angleof the pins of our pachinko machines in order to ensure full and consistent compliance with suchrequired ranges on payout ratios.

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APPLICABLE LAWS AND REGULATIONSOur Japan Legal Adviser has advised us that such pin angle maintenance and adjustments
will not constitute a “change” in a game machine that requires prior approval of or subsequent
notice to the Public Safety Commission under Articles 9 and 20 of the Amusement Business Law,
if the following three criteria are satisfied:(1)

such pin angle maintenance and adjustments do not involve any bending or othermodification of the shape of the pins;(2)

the purpose of such pin angle maintenance and adjustments is to ensure compliancewith the relevant required ranges and to maintain an average payout ratio for eachpachinko machine that is in compliance with the relevant required ranges; and(3)

the payout ratio of the pachinko machine for which the Maintenance and Adjustment
of Pins has been completed remains within the required range.

Provided that the above three criteria are satisfied, pachinko hall operators may conduct
such pin angle maintenance and adjustments anytime. Our Japan Legal Adviser, after conducting
due diligence investigations, has confirmed that our Group has strictly complied with theabove-mentioned three criteria in respect of our pin angle maintenance and adjustments and that
they: (1) do not constitute a “change” in a game machine (whether major or minor) that requires
prior approval of or subsequent notice to the Public Safety Commission under Articles 9 and 20of the Amusement Business Law; and (2) are in full compliance with the Amusement Business
Law and the Enforcement Ordinance.
4.

Adjustments of Payout Settings on Pachislot Machines

A player wins bonus pachislot tokens if the images on the reels form a winning combination.
The amount of payouts for a particular winning combination may differ from machine to machine,
as each pachislot machine has adjustable payout settings. These settings are designed andpre-set solely by the machine manufacturer, come in-built into the machine and can only be
adjusted by the operator. There are a range of payout settings made by the machine
manufacturer, all of which must fall within the range required under the Enforcement Ordinance.
For example, the number of tokens that a pachislot machine may pay out must be between 0.55
to 1.2 times the number of tokens put into play over 17,500 continuous plays. The machine
manufacturer must ensure such payout settings are in full compliance with these required ranges
in order for the machine to pass the examination on specifications etc. as required under the
Amusement Business Law.
Consistent with industry practice, the Group regularly adjusts these payout settings of theirpachislot machines in order to improve the business performance of their halls. Such adjustmentsof payout settings for our pachislot machines are in full compliance with the Amusement Business
Law and the Enforcement Ordinance.

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5.

Playing Costs, Prize Offerings and Prize Value

The Amusement Business Law and the Enforcement Ordinance regulate pachinko andpachislot playing costs, prize offerings and the upper limit of the value of prizes.
The Enforcement Ordinance prescribes the following maximum playing costs: (1) for
pachinko machines, ¥4 per ball; and (2) for pachislot machines, ¥20 per token.
The maximum value of prizes offered is ¥9,600 (before consumption tax), and the types ofprizes are generally limited to everyday general consumer goods, such as snacks, beverages,
cigarettes and sundry household items. Our Japan Legal Adviser has confirmed that G-prizes,
which include decorative cards with a small embedded piece of metal (such as gold) and coinshaped pendants of metal (such as gold), comply with this regulation. The value of balls or tokens
required to collect a prize, as listed at the hall operator’s prize exchange counter (which, at thehall operator’s discretion, may reflect a mark-up over the cost of the prizes) must be equivalent
to the value of the balls or tokens actually presented by the customer to exchange such prizes.
In addition, in order for the prizes to meet the diverse range of expectations of customers, thehall must offer a wide range of items suitable for everyday use.
The Amusement Business Law prohibits Licence Holders from:(i)offering cash or securities as prizes;(ii)

directly repurchasing from customers the prizes provided to them for cash or
securities; and(iii)

allowing customers to take pachinko balls, pachislot tokens or any other similar objects
provided for playing pachinko or pachislot outside the hall.

Breaching any of these prohibitions under the Amusement Business Law may subject thepachinko operator to: (1) an administration sanction, namely business suspension for 20 to 180
days for (i) or (ii) above, and 5 to 40 days for (iii) above; and (2) a criminal sanction, namely
imprisonment up to six months, as well as a fine of ¥1 million for breaches of (i) or (ii) above, anda fine of ¥500,000 for breaches of (iii) above. If the pachinko hall operator is a company, the halloperator itself will only be subject to the fine, while person(s) who committed the breach as its
representative, attorney or employee will be subject to imprisonment and/or the fine.
6.

Membership Systems

The Amusement Business Law prohibits Licence Holders from issuing any written
documentation indicating that pachinko balls or pachislot tokens are being held for a customer.
However, Article 16-9(2) of the Standards for the Interpretation and Operation of the Amusement
Business Law issued by the National Police Agency provides that a membership card does notconstitute written documentation of the hall holding balls or tokens for a customer if the numberof such balls or tokens is not recorded on the card itself and is stored only on computers in thehalls.

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APPLICABLE LAWS AND REGULATIONSOur Japan Legal Adviser has verbally consulted with the National Police Agency regarding
the relevant provisions of the Amusement Business Law and Article 16-9(2) of the Standards for
the Interpretation and Operation of the Amusement Business Law and has confirmed that ourmembership system complies with such laws and regulations, as it does not constitute written
documentation of balls or tokens being held for customers since the number of balls or tokens
held by a particular member is recorded only on our IT systems, and strictly not on themembership cards themselves.
7.

Operating Hours

The Amusement Business Law restricts pachinko hall opening hours to the period fromsunrise to 12:00 a.m. However, each prefecture is permitted to impose more stringent limits on
operating hours and such additional restrictions are common. For example, halls in Tokyo areprohibited from operating between 11:00 p.m. and 10:00 a.m. the following day. There are nosuch additional restrictions in Fukushima Prefecture (福島県).
8.

Environmental Regulations

Pursuant to Amusement Business Law and local ordinances, a Licence Holder must
conduct business in such a way as not to cause noise or vibrations (limited to voices of people
and other noises and vibrations that are part of operating a business) in the area surrounding theplace of business that exceed the limits specified by prefectural ordinances.
The Amusement Business Law prescribes the following noise limits:
Numerical Value
Region

(1)

(2)

(3)

In areas specified by a particularprefecture in a prefecturalordinance as necessary to be
especially quiet due to condensed
housing or other similar areas . . . . .
In areas specified by a particularprefecture in a prefecturalordinance as necessary not to haveextreme noise due to condensed
stores and other similar areas . . . . .
Areas other than the areas in(1) and (2) above . . . . . . . . . . . . . . .

(1)“Daytime” means sunrise until sunset(2)“Evening” means sunset until 12:00 a.m.

(3)

“Late Night” means 12:00 a.m. until sunrise

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Daytime (1)Evening (2)Late Night (3)55 decibels

50 decibels

45 decibels

65 decibels

60 decibels

55 decibels

60 decibels

55 decibels

50 decibels

APPLICABLE LAWS AND REGULATIONS
Also, under the Amusement Business Law, each pachinko hall must have the necessary
equipment necessary to maintain illumination in each hall at more than 10 lux.
9.

Advertising and Promotion Regulations

The Amusement Business Law requires a Licence Holder to advertise or promote theirbusiness in such a way that it will not likely interfere with the peace and quiet surrounding theplace of business. Under the Standards for the Interpretation and Operation of the Amusement
Business Law published by the National Police Agency, the following methods of advertisement
are likely to constitute an “interference with peaceful and quiet surroundings”:•

displaying sexually explicit or other adult material;•

advertising or promoting the illegal maintenance and adjustments of pins, illegal
alterations of payout probabilities or otherwise encouraging customers’ “passion forgambling”; or•noise levels beyond prescribed limits in public areas.

Failure to comply with such restrictions may result in various penalties, the most severe
being a cancellation of the Operating Licence.
10. Prohibition on Minors
Customers of pachinko halls must be at least 18 years of age. The Amusement Business
Law provides that the Licence Holder must post a sign at the entrance to the place of businessprohibiting entry by those under the age of 18. The sign must be posted so as to be easily seenby the public.
11. Building and Construction Regulations
If a Licence Holder adds to the structure, makes structural changes or undertakes any otherconstruction or changes to the facilities of the place of business, it must obtain prior permission
from the Prefectural Public Safety Commission, with the exception of some specified minorchanges.
Examples of structural or equipment modifications that require permission include extensive
repairs to the place of business, changes to the location of guest rooms or floor space, andchanges to the facilities such as adding walls or Japanese-style sliding doors to partition theinterior of the place of business.

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APPLICABLE LAWS AND REGULATIONS
We must comply with the Building Standard Act* (建築基準法) of Janpan (Act No. 201 of1950), which requires any entity that constructs, substantially repairs or remodels, whether byitself or through a third-party contractor, any building that is larger than a certain scale or that is
located in certain designated areas to obtain a certificate of prior confirmation for the planned
construction, repair or remodelling as well as a certificate of completion thereof from an inspector
appointed by the local authorities.
We must also comply with the City Planning Act* (都市計画法) of Janpan (Act No. 100 of
1968), which designates areas where certain usage is not allowed. No Operating Licence will be
granted unless the pachinko hall is located in an area where it is permitted under the City
Planning Act* (都市計画法) (Act No. 100 of 1968).
E.

AML
The AML laws in Japan do not impose any specific obligations on pachinko hall operators.

Unlike casino gaming, where customers purchase casino chips that have little or no intrinsic value
but have high face values and have the potential to win or lose substantial sums in a short periodof time, pachinko presents the opportunity over a relatively long period of time to win G-prizes
that have a limited intrinsic value. The inherent mechanical limitations on pachinko ball andpachislot token dispensers render it extremely difficult for a pachinko player to obtain the numberof pachinko balls or pachislot tokens necessary to redeem G-prizes of significant value in a shortperiod of time. Thus, a customer seeking to launder even an insignificant amount of cash would
need to spend at least several hours exchanging the cash into balls or tokens in addition to aconsiderably longer period of time putting such balls or tokens into play in a machine.
Furthermore, we do not allow customers to exchange balls or tokens into prizes without first
putting them into play in the machines and we have put in place internal policies and internal
control measures to prevent customers from violating this requirement. Our hall staff closely
monitors the number of balls rented and the number of balls played in each of the machines. Any
irregularities in such numbers are closely followed up by hall staff. Surveillance cameras are also
installed in the pachinko hall, and hall staff patrol the pachinko hall during its operating hours inorder to detect any suspicious activity. Thus, it would be inefficient and highly impractical toengage in money laundering activities through pachinko or pachislot. For more information on our
AML procedures, see “Internal Controls and Anti-Money Laundering — Internal Controls on
Money Laundering”.
F.

LABOURAct on Employment Promotion etc. of Persons with Disabilities* (障害者の雇用の促進等に関する法律) of Janpan (Act No. 123 of 1960) requires that at least 2% of the employees of any
employers with more than 50 employees must be handicapped persons. Handicapped persons
hired by a subsidiary will count towards this requirement for its holding companies.

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APPLICABLE LAWS AND REGULATIONS
Also, the Industrial Safety and Health Act* (労働安全衛生法) of Janpan (Act No. 57 of 1972)
also provides standards for employers regarding the health and safety of employees including theemployer’s responsibilities and plans for accident prevention in the workplace. An employer withmore than 50 employees must take reasonable measures to prevent workplace accidents, andmust also make efforts to protect employees from the risk of passive smoking.
G.

PERSONAL INFORMATION PROTECTION

The Personal Information Protection Act requires that a Japanese business operator
handling personal information must limit the use of personal information to the stated purpose
and to properly manage the personal information in their possession, and forbids it from providing
personal information to third parties without the consent of the individual.
H.

INTELLECTUAL PROPERTYIn Japan, patents are protected by the Patent Act and the Utility Model Act* (実用新案法) of
Janpan (Act No.123 of 1959). Designs are protected by the Design Act* (意匠法) of Janpan (ActNo. 125 of 1959), and trademarks by the Trademark Act* (商標法) of Janpan (Act No. 127 of
1959). We must comply with these, in addition to various international treaties Japan has enteredinto, to maintain our intellectual property rights.
I.

REGISTRATION AND TAX REPORTING

A Japanese company must, upon incorporation, register with the legal affairs bureau andcontinue to update its details from time to time. It must also register with the local tax agency andmust annually report on corporate tax, value added tax or other taxes.

167

HISTORY AND CORPORATE DEVELOPMENTHISTORY AND BUSINESS DEVELOPMENT
Origin and founder
We have been operating pachinko halls for over 60 years in Northeast Honshu (本州島東北),Japan, stretching in cities, townships and suburban areas in Tokyo (東京都), the nation’s capital,
and the Northeast prefecture of Fukushima Prefecture (福島県) and their neighbouring andconjoining prefectures. We can trace our origin back to 1950, when Mr. Tetsuyoshi TANIGUCHI(谷口哲義) # (also known as Mr. JEONG Bokyung (鄭福鎔)), our founder and the late father of ourChairman (the “Founder”), established our first pachinko hall in Mito City (水戸市), Ibaraki
Prefecture (茨城県) in East Japan, captivating the booming popularity of pachinko and theprosperity of the Japan economy in the post-war era. Our Founder, who was a businessman of
Korean heritage with no prior industry experience in pachinko hall operations when he founded
our Group in 1950 with his and his siblings’ personal savings, had since, together withgenerations of the Taniguchi family and the former and current members of our senior
management, developed our Group into the fourth largest pachinko hall operator in Japan in2013 (based on gross pay-ins 1 ), according to EBI.
Since opening our door of our first pachinko hall to our customers in 1950, we have stoodby our corporate slogan of “Happy Time Creation”, placing primary focus on customer experienceand goodwill. This has allowed us to adapt to changing industry trends and customer preferences
throughout our operating history and continually develop into an operator of 55 pachinko hallsthat we are today. The table below shows our key achievements and business milestones in our
60 years of heritage:
Business milestones
1950s - 1960s

Beginning and early development
Our Founder gradually expanded his small-scale operations by adding fivepachinko halls in Tochigi Prefecture (栃木県) and Ibaraki Prefecture (茨城県),
before settling into our current base of Fukushima Prefecture (福島県). In
1954, our first hall in Koriyama City (郡山市), Fukushima Prefecture (福島県)
opened, utilising our pivotal brand of “NIRAKU”. At that time, our “NIRAKU”
brand was used alongside its Japanese kanji characters “二楽”, whichtranslates into “double happiness” and highlights the importance we placeon customer satisfaction.

1

Represents the amount received from customers for rented pachinko balls and pachislot tokens.

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HISTORY AND CORPORATE DEVELOPMENT
Our Koriyama (郡山) hall was located within close proximity of the Koriyama
train station, taking advantage of the high pedestrian and commuter flow andestablished commercial infrastructure in that area.
Incorporation of Niraku Corporation
In August 1969, to consolidate his ownership in and strengthen thecorporate structure and management of our pachinko hall operations, ourFounder incorporated our first corporate entity, Niraku Corporation (known
as Niraku Shoji Corporation* (二楽商事株式会社) at that time). Apart from ourFounder, the other shareholders of Niraku Corporation, which remains as ourprimary operating subsidiary, were his siblings who had contributed funds toour foundation in 1950.
1970s - 1980s

Redevelopment of the Koriyama ( 郡山 ) hall
The year of 1979 saw the reconstruction and refurbishment of ourstation-front pachinko hall in Koriyama City (郡山市), Fukushima Prefecture(福島県), which was our flagship hall at that time. In July, the newstation-front hall, re-named “Daiwa (大輪)”, reopened as an amusement
complex where we operated the Koriyama City Hotel* (郡山シティホテル)and a cafe in the same building. Based on our Directors’ industry knowledge,
this multi-purpose business model of our station-front pachinko hall was thefirst of its kind in Japan.
Further expansion in Fukushima Prefecture ( 福島県 )In the 1980s, we solidified our home base in Fukushima Prefecture (福島県)
by opening four pachinko halls, three of which were located in Koriyama City(郡山市), throughout the prefecture. In particular, our Zukei (図景) hall,
opened in October 1984, was our first venture into suburban areas.

1990 - 1998

Tokyo ( 東京都 ) venture and metropolitan strategy
The revision of the Amusement Business Law in 1985 which standardised
the licensing regime and regulatory framework of pachinko and pachislot halloperations in Japan provided a favourable environment for our developmentin 1990s. Between 1990 to 1997, we opened ten new pachinko halls, mostof which were located within cities precincts and densely populated areas.
Capitalising on the continual urbanisation and economic development of theTokyo (東京都) metropolitan area, we expanded into the capital by opening
pachinko halls in Umeyashiki (梅屋敷) (November 1994), Nakano Shimbashi(中野新橋) (August 1992), Nagahara (長原) (September 1992) andHigashiyamato (東大和) (June 1996).
In August 1992, we opened our tenth hall in Nakano Shimbashi (中野新橋),
Tokyo.

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HISTORY AND CORPORATE DEVELOPMENT
Establishment of Koriyama ( 郡山 ) corporate complex
In December 1991, we established a corporate complex dubbed “Nikku
Club” in Koriyama City (郡山市). Our corporate complex was owned by ourFounder and used as staff dormitory, meeting and corporate facilities.
Having been transferred to Niraku Corporation in July 2000, we now utilise
it as staff training facilities to ensure service and product consistency across
our pachinko hall network.
Succession
In August 1998, our Founder retired and succeeded his chairmanship to Mr.
Masataka TANIGUCHI (谷口晶貴), who remain as a member of the Taniguchi
Consortium. At the same time, Niraku Corporation also adopted its current
name of 株式会社ニラク.
1999 - 2005

Suburban strategy
Under the leadership of Mr. Masataka TANIGUCHI (谷口晶貴), our hall
opening strategy gradually shifted towards the suburban areas in Northeast
Honshu (本州島東北), capitalising on the growing population of these areas,
construction of highways linking Tokyo (東京都) and the Northeast
prefectures of Japan and advancement of motorisation. Our suburban halls
are typically larger in size and stocked with a greater variety of general
prizes.
We embarked on our suburban strategy in August 2001 when our Sendai(仙台) hall in Miyagi Prefecture (宮城県) opened. This was followed by theaddition of five pachinko halls in suburban areas in the year of 2001.
Introduction of our “NIRAKU” brand
The year of 2002 was important to our operations because our pivotal brand,“NIRAKU”, was re-introduced as we opened our Yoshihara (吉原) hall in
Yamagata Prefecture (山形県). In the same year, we began to phase out the“Daiwa (大輪)” brand and other hall brands across our operations in favourof our “NIRAKU” brand. By the end of 2005, all but one hall of our Grouputilised our “NIRAKU” brand and bear, in general, standardised interior andexterior decorations.

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HISTORY AND CORPORATE DEVELOPMENT
Centralised management strategy
We began to adopt a centralised management strategy in 1999, whichleverages on the economies of scale and the considerable number ofpachinko halls under our operations to centralise and standardise processes
throughout our hall operations, including overall management, new halldevelopment, machine procurement, prize procurement, IT systems,
marketing, recruitment and training of full-time employees, internal audit anddaily operations. Our centralised management strategy allowed us to simplify
and expedite our new hall development process, as evidenced by theaddition of 15 pachinko halls to our operations between 2002 and 2005.
In February 2003, we opened our 20th pachinko hall in Soma (相馬),Fukushima Prefecture (福島県).
2006 - 2010

Acceleration of expansion
Following on the general industry trend of market consolidation across thepachinko industry and captivating the economic benefits of our centralised
management strategy, we further expanded by opening 16 new pachinkohalls in Tokyo (東京都), Fukushima Prefecture (福島県) and their neighbouring
and conjoining prefectures. In particular, with the opening of Fukushima
Sasakino (福島笹木野) hall, our 20th pachinko hall in Fukushima Prefecture(福島県) in November 2010, we fortified our market-leading position in thearea. As at the Latest Practicable Date, we operated 20 pachinko halls inFukushima Prefecture (福島県), more than any other pachinko operator inJapan, according to EBI.
In April 2010, our Chairman was elected as the representative director andpresident* (代表取締役社長) of Niraku Corporation and became primarily incharge of the operation and management of our Group as a whole.
Offering of low-cost pachinko
In response to the changing popularity of pachinko, in 2007, we began togradually offer a number of low-cost pachinko and pachislot machines, inaddition to our traditional high playing cost games, across our operations inaccordance with local demand and market conditions in each pachinko halls.
We believe that it has enabled us to attract a broader range of customers,such as women, younger players and non-traditional pachinko players,adapt to the dynamic industry trend and further increase our market share.

171

HISTORY AND CORPORATE DEVELOPMENT
Corporate social responsibility
In February 2010, we incorporated Merrist, a special subsidiary*(特例子会社) of our Group to employ persons with disabilities in our hallcleaning, gardening and general administrative functions. Our initiatives inhiring disabled persons were recognised and awarded by the Ministry of
Health, Labour and Welfare* (厚労省).
2011 - 2013

Continual development
Between 2011 and 2013, despite the short-term set-backs due to theaftermaths of the Great East Japan Earthquake in March 2011, we continued
to grow steadily with the opening of four pachinko halls in Northeast Honshu(本州島東北).
In May 2011, we achieved a significant milestone as we opened our 50th
pachinko hall in Koriyama Arai (郡山荒井), Fukushima Prefecture (福島県).
Property activities
In 2011, Nexia, our wholly-owned subsidiary, acquired two properties inJapan for leasing and renting to third party customers as office premises andresidential apartment units. Income from our property activities provide us
with an additional steady source of income.
Incorporation of our Company
In January 2013, our Company was incorporated and, having undergone aseries of restructuring in April 2013, became the holding company of Niraku
Corporation, allowing the Taniguchi Consortium to consolidate their control
and ownership in our Group and streamline our corporate structure.

2014

Launch of Spanish restaurant franchise
In October 2014, we opened our first Spanish restaurant in Tokyo under thebrand “LIZARRAN”, which operated under a franchise agreement with a foodand beverage company in Spain, the details of which are set out in “Business- Other Businesses”. Our ancillary business of Spanish restaurant allowed us
to diversify our source of income and, by sending pachinko hall staff toattend periodic training at the restaurant, thereby enhancing our customer
service standards.

We added two, two, one and nil pachinko halls, respectively, in each of the financial years
ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2014. In
addition, we added two pachinko halls to our network after the Track Record Period. Under theleadership of our Chairman and his predecessors, we have evolved from one pachinko hall in
Koriyama City (郡山市) into a chain operation of 55 pachinko halls across Northeast Honshu(本州島東北) as at the Latest Practicable Date, providing entertainment to a variety of customers
with different preferences, all managed and operated under one single corporate slogan - “Happy
Time Creation”.

172

HISTORY AND CORPORATE DEVELOPMENTSHAREHOLDING STRUCTURE
Our Company was incorporated on 10 January 2013 in Japan as the holding company of ourGroup. Over the course of our business history, our shareholding structure has remained stable.
As the Taniguchi Consortium has maintained dominant control over our Company and our
subsidiaries throughout the Track Record Period, we do not consider any of the shareholding
changes in our Group during the Track Record Period was significant to us.
Immediately upon completion of the Global Offering, the members of the Taniguchi
Consortium, who are associates of each other under the Listing Rules and persons acting inconcert with each other within the meanings of the Takeovers Code, will together control
approximately 69.5% of the voting rights in our Company and hence are our Controlling
Shareholders. Our other Shareholders will be an Executive Officer, a former member of our senior
management, the ESOA, as well as the participants of the Global Offering.
Taniguchi Consortium
The Taniguchi Consortium comprises our Chairman and a group of: (1) natural persons, who
are family members of our Chairman; and (2) corporate entities, which are controlled by the family
members of our Chairman. Certain Shares held by the Taniguchi Consortium are subject to trust
arrangements. See “— Shareholding Structure — Taniguchi Consortium — Family trust
arrangements” in this section below for details. The table below shows the identities of themembers of the Taniguchi Consortium and their respective shareholding interests in our Company
immediately prior to the completion of the Global Offering:
Immediately prior tothe completion of the
Global Offering

Name

No. ofShares (1)Approximate
shareholding
percentage (6)Relationship (for individuals)/
Shareholders and voting rights(for corporate entities)

Taniguchi Consortium
Our Chairman . . . . . . . . . . . . 212,980,460

23.8%

N/A

203,090,000
Tatsuo TANIGUCHI(谷口龍雄) (2) . . . . . . . . . . . .

22.6%

Brother of our Chairman

145,820,000
Masataka TANIGUCHI(谷口晶貴) (3) . . . . . . . . . . . .

16.3%

Brother of our Chairman

Yoshihiro TEI (鄭義弘) # (alsoknown as JEONG
Jungwung) (4) . . . . . . . . . . . .

86,940,000

9.7%Brother of our Chairman

Mitsuhiro TEI (鄭允碩) (5) . . . . .

27,485,000

3.1%

Nephew of our Chairman

Motohiro TEI (鄭元碩) (5) . . . . .

27,485,000

3.1%

Nephew of our Chairman

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HISTORY AND CORPORATE DEVELOPMENT
Immediately prior tothe completion of the
Global Offering

Name

No. ofShares (1)Approximate
shareholding
percentage (6)Eijun TEI (鄭盈順) (5) . . . . . . . . .

27,485,000

3.1%

Niece of our Chairman

Rika TEI (鄭理香) (5) . . . . . . . .

27,485,000

3.1%

Niece of our Chairman

Noriko KANESHIRO(金城徳子) . . . . . . . . . . . . . .

11,500,000

1.3%

Sister of our Chairman

Jukki Limited* (有限会社十起) .

19,320,000

2.1%

33.3% by Ms. Yoshika TEI (鄭淑佳) #(also known as Ms. JEONG Sukka)
33.3% by Mr. Kousei TEI (鄭光誠) #(also known as Mr. CHONG
Gangsong)
33.3% by Mr. Kiyokazu TANIGUCHI(谷口清和), each being a child of Mr.
Tatsuo TANIGUCHI (谷口龍雄), who
is entitled to exercise the voting
rights as the sole director

Densho Limited*(有限会社伝承) . . . . . . . . . .

11,500,000

1.3%

25% by Ms. Reika TANIGUCHI(谷口玲華)
25% by Mr. Hidenori TANIGUCHI(谷口秀憲)
25% by Ms. Yuryon TANIGUCHI(谷口有鈴)
25% by Mr. Hirohide TANIGUCHI(谷口博秀), each being a child of ourChairman, who is entitled toexercise the voting rights as thesole director.

Echo Limited*(有限会社エコー) . . . . . . . . .

11,500,000

1.3%

25% by Mr. Mitsuhiro TEI (鄭允碩)
25% by Mr. Motohiro TEI (鄭元碩)
25% by Ms. Eijun TEI (鄭盈順)
25% by Ms. Rika TEI (鄭理香), eachbeing a nephew or niece of ourChairman. Mr. Mitsuhiro TEI (鄭允碩)
is entitled to exercise the voting
rights as the sole director.

174

Relationship (for individuals)/
Shareholders and voting rights(for corporate entities)

HISTORY AND CORPORATE DEVELOPMENT
Immediately prior tothe completion of the
Global Offering

Name

No. ofShares (1)Approximate
shareholding
percentage (6)Relationship (for individuals)/
Shareholders and voting rights(for corporate entities)

Daiki Limited* (有限会社大喜) .

11,500,000

1.3%

50% by Mr. Akinori TEI (鄭敬憲) #(also known as JEONG Kyeongheon)
50% by Mr. Masahide TEI (鄭將英) #(also known as JEONG Jangyeong),
each being a child of Mr. Yoshihiro
TEI (鄭義弘) # (also known as JEONG
Jungwung), who is entitled toexercise the voting rights as thesole director.

Hokuyo Kanko Limited*(有限会社北陽観光) . . . . . . .

5,750,000

0.7%

25% by Mr. Tatsunari TANIGUCHI(谷口辰成) #(also known as CHONG Jinsong)
25% by Mr. Takanari TANIGUCHI(谷口喆成) #(also known as JEONG Cheolseong)
25% by Mr. Toshinari TANIGUCHI(谷口才成)(also known as CHUNG Jaeseong)
25% by Ms. Rika TANIGUCHI(谷口理華),
each being a child of Mr. Masataka
TANIGUCHI (谷口晶貴), who isentitled to exercise the voting rights
as the sole director.

KAWASHIMA Co., Ltd. *(株式会社KAWASHIMA) . . . .

1,380,000

0.1%

33.3% by our Chairman
33.3% by Mr. Masataka TANIGUCHI(谷口晶貴)
33.3% by Mr. Tatsuo TANIGUCHI(谷口龍雄), who is entitled toexercise the voting rights as thesole director

Total:. . . . . . . . . . . . . . . . . . . 831,220,460

92.9%

Notes:(1)

The numbers of Shares shown above have taken into account the sub-division of Shares approved by our Board
on 16 March 2015, pursuant to which each issued Share of nil par value will be sub-divided into 230 Shares of nil
par value with effect from 31 March 2015. See “— Corporate Structure and Development — Reorganisation” in thissection below for details.

175

HISTORY AND CORPORATE DEVELOPMENT(2)

The 203,090,000 Shares which Mr. Tatsuo TANIGUCHI (谷口龍雄) will be interested in include: (i) 161,690,000
Shares (representing approximately 18.0% of the total number of Shares issued by our Company immediately prior
to the completion of the Global Offering) held in his own name and for his own benefit; and (ii) 41,400,000 Shares(representing approximately 4.6% of the total number of Shares issued by our Company immediately prior to thecompletion of the Global Offering) held by the TT Family Trust for the benefit of his children. Mr. Tatsuo TANIGUCHI(谷口龍雄) is entitled to exercise the voting rights attached to the Shares held by the TT Family Trust. See “—Shareholding Structure — Taniguchi Consortium — Family trust arrangements” in this section below for details.

(3)

The 145,820,000 Shares which Mr. Masataka TANIGUCHI (谷口晶貴) will be interested in include: (i) 11,442,500
Shares (representing approximately 1.3% of the total number of Shares issued by our Company immediately prior
to the completion of the Global Offering) held in his own name and for his own benefit; and (ii) 134,377,500 Shares(representing approximately 15% of the total number of Shares issued by our Company immediately prior to thecompletion of the Global Offering) held by the MT Family Trust for the benefit of his children. Mr. Masataka
TANIGUCHI (谷口晶貴) is entitled to exercise the voting rights attached to the Shares held by the MT Family Trust.
See “— Shareholding Structure — Taniguchi Consortium — Family trust arrangements” in this section below for
details.

(4)

The 86,940,000 Shares which Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) will be interested ininclude: (i) 33,580,000 Shares (representing approximately 3.7% of the total number of Shares issued by ourCompany immediately prior to the completion of the Global Offering) held in his own name and for his own benefit;and (ii) 53,360,000 Shares (representing approximately 6.0% of the total number of Shares issued by our Company
immediately prior to the completion of the Global Offering) held by the YT Family Trust for the benefit of his children.
Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) is entitled to exercise the voting rights attached to
the Shares held by the YT Family Trust. See “— Shareholding Structure — Taniguchi Consortium — Family trust
arrangements” in this section below for details.

(5)

Mr. Mitsuhiro TEI (鄭允碩), Mr. Motohiro TEI (鄭元碩), Ms. Eijun TEI (鄭盈順) and Ms. Rika TEI (鄭理香) inherited theirinterests in our Company from the estate of the late Mr. Tateo TANIGUCHI (谷口建雄), their father and a brother of
our Chairman in October 2014.

(6)

Shareholding percentages are approximate and subject to rounding.

176

HISTORY AND CORPORATE DEVELOPMENT
The table below shows an illustrative chart of the relationship among the members of the
Taniguchi Consortium and their respective shareholding interests in our Company immediately
prior to the completion of the Global Offering:

Chairman

TatsuoTaniguchi

Mitsuhiro
Tei

23.8%

18.0%(1)DenshoLimited* (4)

3.1%

3.1%

Eijun Tei

3.1%

2.1%

Yoshihiro
Tei #1.3%(2)

3.7%(3)

4.6%(1)KAWASHIMA
Co., Ltd.* (4)0.1%NorikoKaneshiro

Rika Tei

3.1%

Hokuyo Kanko
Limited* (4)JukkiLimited* (4)TT Family
Trust

1.3%

Motohiro
Tei

Masataka
Taniguchi

Echo
Limited* (4)Daiki
Limited* (4)MT Family
Trust

1.3%

0.7%

1.3%

15.0%(2)YT Family
Trust

1.3%

6.0%(3)

Other
Shareholders
92.9%

Company

7.1%

Registered
Shareholding
Exercise of
voting rights

Notes:(1)

The shareholding percentage of Mr. Tatsuo TANIGUCHI (谷口龍雄) shown above includes the Shares held in his own
name and for his own benefit but excludes the Shares held by the TT Family Trust for the benefit of his children.

(2)

The shareholding percentage of Mr. Masataka TANIGUCHI (谷口晶貴) shown above includes the Shares held in his
own name and for his own benefit but excludes the Shares held by the MT Family Trust for the benefit of hischildren.

(3)

The shareholding percentage of Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) shown above
includes the Shares held in his own name and for his own benefit but excludes the Shares held by the YT Family
Trust for the benefit of his children.

(4)

Each of Jukki Limited* (有限会社十起), Densho Limited* (有限会社伝承), Echo Limited* (有限会社エコー), Daiki
Limited* (有限会社大喜), Hokuyo Kanko Limited* (有限会社北陽観光), and KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA) is owned by the members of, and/or the family of the members of, the Taniguchi Consortium. See“— Shareholding Structure — Taniguchi Consortium” in this section above for the detailed shareholding structureof these corporate entities.

(5)

Shareholding percentages are approximate and subject to rounding.

177

HISTORY AND CORPORATE DEVELOPMENT
The shareholding percentage of each member of the Taniguchi Consortium will be diluted by
the 300,000,000 newly issued Offer Shares offered under the Global Offering, representing
approximately 25.1% of our total number of issued Shares immediately upon completion of the
Global Offering (assuming the Over-allotment Option is not exercised). See “— Corporate
Structure” in this section below for the shareholding and corporate structure of our Group
immediately upon completion of the Global Offering.
Controlling Shareholders acting in concert
By virtue of their intricate family and shareholding relationship, each member of the
Taniguchi Consortium is an associate of each other under the Listing Rules. In addition, on 9
December 2014, each member of the Taniguchi Consortium has confirmed that they have been
acting in concert, and intend to continue to act in concert, in exercising their control over andvoting rights in our Group. As such, each member of the Taniguchi Consortium is also a person
acting in concert with each other within the meanings of the Takeovers Code. See “Relationshipwith our Controlling Shareholders — Controlling Shareholders acting in concert” for details.
Family trust arrangements
As part of their efforts to succeed their legacy in our Group, Mr. Tatsuo TANIGUCHI(谷口龍雄), Mr. Masataka TANIGUCHI (谷口晶貴) and Mr. Yoshihiro TEI (鄭義弘) # (also known as
Mr. JEONG Jungwung) created the following trust arrangements for the benefit of their respective
children:(a)the TT Family Trust - in October 2014, Mr. Tatsuo TANIGUCHI (谷口龍雄) transferred
180,000 Shares registered in his own name to three of his children, namely Ms. Yoshika
TEI (鄭淑佳) # (also known as Ms. JEONG Sukka), Mr. Kousei TEI (鄭光誠) # (also known
as Mr. CHONG Gangsong) and Mr. Kiyokazu TANIGUCHI (谷口清和) with the intention
to create the TT Family Trust at a later date. On 23 October 2014, the TT Family Trustwas established pursuant to a trust agreement entered into between SMBC Trust Bank
Ltd.* (株式会社SMBC信託銀行) (as the trustee and assignee* (受託者)) and each of thebeneficiaries (as the assignors and beneficiaries* (委託者兼受益者)), who have enteredinto a separate agreement with Mr. Tatsuo TANIGUCHI (谷口龍雄) to appoint him as theprotector and person having the right to exercise voting rights* (議決権行使指図権者)
of the TT Family Trust;(b)

the MT Family Trust - in September 2014, Mr. Masataka TANIGUCHI (谷口晶貴)transferred 584,250 Shares registered in his own name to three of his children, namely
Mr. Tatsunari TANIGUCHI (谷口辰成) # (also known as Mr. CHONG Jinsong), Mr.
Takanari TANIGUCHI (谷口喆成) # (also known as Mr. JEONG Cheolseong) and Mr.
Toshinari TANIGUCHI (谷口才成) # (also known as Mr. CHUNG Jaeseong) with theintention to create the MT Family Trust at a later date. On 21 October 2014, the MT
Family Trust was established pursuant to a trust agreement entered into between
SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行) (as the trustee and assignee*

178

HISTORY AND CORPORATE DEVELOPMENT(受託者)) and each of the beneficiaries (as the assignors and beneficiaries*(委託者兼受益者)), who have entered into a separate agreement with Mr. Masataka
TANIGUCHI (谷口晶貴) to appoint him as the protector and person having the right toexercise voting rights* (議決権行使指図権者) of the MT Family Trust; and(c)the YT Family Trust - in October 2014, Mr. Yoshihiro TEI (鄭義弘) # (also known as
JEONG Jungwung) transferred 232,000 Shares registered in his own name to two of
his children, namely Mr. Akinori TEI (鄭敬憲) # (also known as JEONG Kyeongheon) andMr. Masahide TEI (鄭將英) # (also known as JEONG Jangyeong), with the intention tocreate the YT Family Trust at a later date. On 22 October 2014, the YT Family Trust wasestablished pursuant to a trust agreement entered into between SMBC Trust Bank
Ltd.* (株式会社SMBC信託銀行) (as the trustee and assignee* (受託者)) and each of thebeneficiaries (as the assignors and beneficiaries* (委託者兼受益者)), who have enteredinto a separate agreement with Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG
Jungwung) to appoint him as the protector and person having the right to exercise
voting rights* (議決権行使指図権者) of the YT Family Trust;

The Shares under the TT Family Trust, MT Family Trust and the YT Family Trust weretransferred to and are registered under the name of SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行), a licensed trust bank* (信託銀行) in Japan, and held for the benefit of the beneficiaries. The
trust Shares may not be transferred, or disposed of, by the trustee and/or the beneficiaries
without the prior written consents of Mr. Tatsuo TANIGUCHI (谷口龍雄), Mr. Masataka TANIGUCHI(谷口晶貴) and Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) (as the case maybe) if such transfer or disposal would contravene the Listing Rules.
Each of the TT Family Trust, MT Family Trust and the YT Family Trust can only be terminatedwith the prior consent of the trustee and the beneficiaries. The proper law of the TT Family Trust,
MT Family Trust and the YT Family Trust is the law of Japan and the provisions thereof are
therefore subject to, and enforceable under, the laws of Japan. The terms of the trust
agreements, including termination, addition, removal or exclusion of beneficiaries, variation oftrust powers and appointment or removal or trustee, may only be amended with the prior consent
of the trustee and the beneficiaries.
In addition, so long as the person having the right to exercise voting rights* (議決権行使指図権者) is in office, the trustee and the beneficiaries shall not interfere with the management of
the business of our Group and the voting rights attached to the trust Shares.
Our Japan Legal Adviser has confirmed that the arrangements under the TT Family Trust, MT
Family Trust and the YT Family Trust are in compliance with the relevant laws and regulations inJapan.

179

HISTORY AND CORPORATE DEVELOPMENT
Other Shareholders
Apart from the Taniguchi Consortium, our Company is also held by an Executive Officer, aformer member of our senior management and the ESOA. The table below shows the identitiesof these Shareholders and their respective shareholding interests in our Company immediately
prior to the completion of the Global Offering:
Immediately prior tothe completion of the
Global Offering
Approximate
No. ofshareholding

Relationship (for individuals) / Shareholders

Name

Shares (1)percentage (3)and voting rights (for corporate entities)

Other Shareholders
Hidenori MOROTA(諸田英模) . . . . . . . . . . .

1,380,000

Tadamitsu YAMASHITA(山下忠光) . . . . . . . . . . .

1,380,000

ESOA . . . . . . . . . . . . . . . .

61,870,000

0.1% Former Director of our Company; an
Executive Officer of our Company;
current director of Niraku Corporation
0.1% Former member of our senior
management; not a connected personof our Company
6.9% No shareholder (2) ; Mr. Takashi ENDO(遠藤孝), the president* (理事長) of the
ESOA, who is not a connected personof our Company, is entitled to exercise
the voting rights

Notes:(1)

The numbers of Shares shown above have taken into account the sub-division of Shares approved by our Board
on 16 March 2015, pursuant to which each issued Share of nil par value will be sub-divided into 230 Shares of nil
par value with effect from 31 March 2015. See “— Corporate Structure and Development — Reorganisation” in thissection below for further details.

(2)

As a partnership* (組合) established under the Civil Code, the concept of shareholding does not apply to the ESOA.
Under the rules of the ESOA, the president* (理事長) of the ESOA is entitled to exercise the voting rights attachedto the Shares held by the ESOA, notwithstanding that the members of the ESOA may, from time to time, give
specific instructions to the said president* (理事長) on voting.

(3)

Shareholding percentages are approximate and subject to rounding.

Save for Mr. Hidenori MOROTA (諸田英模), each of the Shareholders listed above is not aconnected person of our Company. Mr. Hidenori MOROTA (諸田英模) was a Director prior to 25
June 2014 and remains as an Executive Officer of our Company and a current director of our
subsidiary, Niraku Corporation, and is therefore a connected person of our Company by virtue ofRule 14A.07(2) of the Listing Rules and a core connected person of our Company under Rule1.01 of the Listing Rules. As such, the interests held by Mr. Hidenori MOROTA (諸田英模) will not
be counted towards the public float of our Company upon Listing for the purpose of Rule8.08(1)(a) of the Listing Rules.

180

HISTORY AND CORPORATE DEVELOPMENT
Employee Stock Ownership Association
The ESOA, established on 16 January 2001 as an employee benefit scheme for our Group’s
employees, is administered by a board of administrators* (理事) and chaired by a president*(理事長), who is in turn nominated and elected by the members of the ESOA. Daiwa Securities
Capital Market Co., Ltd.* (大和證券株式会社) is the transfer agent of the ESOA and administers
its register of members. The ESOA has the following salient features:(a)Membership and contribution: Membership of the ESOA is only open for application by
all current employees of our Group. All members of the ESOA are required to make amonthly contribution of a fixed amount ranging from ¥1,000 to ¥50,000, depending on
their ranking within our human resources structure. Monthly contributions are
deducted directly from the members’ monthly payroll. Members may also elect to makespecial contribution out of their employment bonus monies paid by our Group. As an
employment benefit, our Group makes certain special contributions per month to eachmember of the ESOA. Save and except for the said special contributions, our Groupand our Controlling Shareholders do not owe any obligation to the ESOA and its
members.

(b)

Entitlement rights: Pro-rata to the aggregate amounts of each member’s contribution
and our Group’s special contribution, the board of administrators* (理事) of the ESOA
calculates and grants a certain amount of entitlement rights to the members of the
ESOA. The entitlement rights confer solely a claim to payment in cash, not a right toclaim or purchase Shares in our Company. None of the entitlement rights granted by
the ESOA is convertible into Shares or any other form of securities in our Company.

(c)

Subscription of new Shares: The ESOA makes use of the monies contributed by ourGroup and its members to subscribe for Shares either by: (i) acquiring Shares fromexisting Shareholders, subject to mutual commercial agreement; (ii) trading on the
Stock Exchange upon Listing, subject to all relevant requirements under the Listing
Rules; or (iii) issue and allotment of new Shares, subject to all applicable laws andregulations in Hong Kong and Japan.

(d)Dividends: Dividends associated with the Shares held by the ESOA are assigned to themembers pro-rata to the number of entitlement rights under their names and returnedto the members upon cancellation of their membership.

(e)

Exercise of entitlement rights: Entitlement rights under the ESOA can be exercised by:(i) voluntary cancellation of membership on the part of a member; or (ii) automatic
cancellation of membership when a member ceases to be qualified as a current
employee of our Group for whatever reason. Upon exercise of the entitlement rights,
a member may claim a payment which is the aggregate of the exercise values of theentitlement rights and the aggregate monetary amount of contribution attributable to181

HISTORY AND CORPORATE DEVELOPMENT
him/her. There is no fixed exercise value of the entitlement rights. The exercise value
is determined by the board of administrators* (理事) of the ESOA from time to time.
Entitlement rights held by a cancelled membership will be distributed to the remaining
members pro-rata to their existing number of entitlement rights.
(f)Voting rights and ranking: The president* (理事長) of the ESOA has the discretion to
exercise the voting rights attached to the Shares held by the ESOA, notwithstandingthat the members may from time to time give specific instructions to him on voting. The
Shares held by the ESOA rank pari passu in all respects with the existing Shares inissue. Hence, there are no specific rights in favour of the ESOA attached to the Shares
held by the ESOA.

As at the Latest Practicable Date, there were 269,000 Shares registered under the name of
the ESOA, corresponding to 269,000 entitlement rights granted to the current employees of ourGroup. No member of the Taniguchi Consortium, Director, Chief Executive Officer, Executive
Officer or core connected person of our Company is allowed to participate in the ESOA. Given
that none of Mr. Takashi ENDO (遠藤孝), the current president* (理事長) of the ESOA, and themembers of the ESOA is a core connected person of our Company, the Shares held by the ESOA
will be counted towards the public float of our Company upon Listing for the purpose of Rule8.08(1)(a) of the Listing Rules.
The ESOA confers entitlement to payment in cash only but not Shares or other form of
securities in our Company. The exercise of the entitlement rights will not dilute the issued sharecapital of our Company. As such, Chapter 17 of the Listing Rules does not apply to the ESOA
which, in substance, is a scheme of deferred compensation to our employees.
Apart from its interests in our Company, ESOA was also interested in approximately 6.5%of the total number of issued shares in NI, which were distributed to ESOA as a result of ourReorganisation. These interests had been repurchased by NI from the ESOA and as at the Latest
Practicable Date, the ESOA had no interest in NI or the Excluded Group as a whole.
CORPORATE STRUCTURE AND DEVELOPMENT
Group companies
As at the Latest Practicable Date, our Group comprised our Company, one directly
wholly-owned subsidiary and two indirectly wholly-owned subsidiaries, all of which wereincorporated in Japan. Our Company was incorporated as the holding company of our Group,with Niraku Corporation conducting our primary business of pachinko hall operations and Nexia
and Merrist carrying out our ancillary business functions. There was no significant shareholding
change in the companies comprising our Group during the Track Record Period with theTaniguchi Consortium maintaining dominant control over our Group. Set out below is thecorporate history of our Group:

182

HISTORY AND CORPORATE DEVELOPMENT
Our Company
Our Company was incorporated on 10 January 2013 in Japan with a core capital* (資本金)of ¥6,600. Upon incorporation, the number of Shares authorised to be issued by our Company
was 20,000,000 Shares, of which one class-A share and one common Share* (普通株式) were
issued and allotted to our Chairman. Under our current articles of incorporation* (定款) (which willcease to be effective and be replaced by our Articles on the Listing Date), transfers of our Sharesmust be approved by our Board of Directors. Transfers of our Shares will become free ofrestriction or limitation and shall not require Board or Shareholders approval upon Listing.
Our Company is an investment holding company incorporated with an aim to: (i) create aholding corporate structure for our Group; and (ii) consolidate the Taniguchi Consortium’s
ownership of and control over our Group. On 1 April 2013, our Board of Directors approved ashare swap* (株式交換) (the “Niraku Share Swap”) with Niraku Corporation, pursuant to which
our Company acquired 3,153,000 shares, 478,000 shares, 6,000 shares, 6,000 shares, 6,000
shares and 246,000 shares in Niraku Corporation, respectively, from the Taniguchi Consortium,
Mr. Tateo TANIGUCHI (谷口建雄) (the late brother of our Chairman), Mr. Hidenori MOROTA(諸田英模), Mr. Hisaharu KASHIHARA (樫原久治), Mr. Tadamitsu YAMASHITA (山下忠光) and the
ESOA, each being a shareholder of Niraku Corporation at that time, in consideration for which ourCompany issued and allotted the same number of Shares in our Company to these shareholders
on a pro-rata basis.
As a result of the Niraku Share Swap: (i) Niraku Corporation became a wholly-owned
subsidiary of our Company; (ii) the Taniguchi Consortium, Mr. Tateo TANIGUCHI (谷口建雄), Mr.
Hidenori MOROTA (諸田英模), Mr. Hisaharu KASHIHARA (樫原久治), Mr. Tadamitsu YAMASHITA(山下忠光) and the ESOA became our Shareholders; (iii) our core capital* (資本金) was increasedto ¥10 million; and (iv) our total number of issued Shares was increased to one class-A share and3,895,001 common Shares* (普通株式).
The one class-A share held by our Chairman entitled him to certain special rights, such asveto power to the appointment and removal of Directors. On 9 December 2014, our Board
resolved to cancel the one class-A share and convert it into one newly issued common Share*(普通株式), which was allotted to our Chairman on the same day. As a result, our total number
of issued Shares became 3,895,002 common Shares * (普通株式). As at the Latest PracticableDate, there was no class-A share in our issued share capital and, pursuant to our Articles, ourCompany is not allowed to issue any other class of shares other than our common Shares*(普通株式) after the Listing.
On 1 October 2014, our Board of Directors approved ESOA’s acquisitions of 6,000 Sharesand 17,000 Shares (representing approximately 0.1% and 0.3% of our total number of issued
Shares at that time) from Mr. Hisaharu KASHIHARA (樫原久治) and Mr. Tatsuo TANIGUCHI(谷口龍雄), respectively. The respective consideration of these acquisitions were ¥19.8 millionand ¥42.5 million, calculated based on arm’s length negotiation between the parties.

183

HISTORY AND CORPORATE DEVELOPMENT
On 22 October 2014, our Board of Directors approved the inheritance of 119,500 Shareseach by Mr. Mitsuhiro TEI (鄭允碩), Mr. Motohiro TEI (鄭元碩), Ms. Eijun TEI (鄭盈順) and Ms. Rika
TEI (鄭理香) from the estate of the late Mr. Tateo TANIGUCHI (谷口建雄) at nil consideration.
The composition of our Shareholders and their respective shareholding number andpercentage have not changed since 22 October 2014, except for: (i) the sub-division of eachissued Share of nil par value into 230 Shares of nil par value which will take effect on 31 March
2015; (ii) the increase of the number of Shares authorised to be issued by our Company to
2,000,000,000 Shares which take effect on 31 March 2015; (iii) the transfers of the trust Shares
under the TT Family Trust, MT Family Trust and YT Family Trust as described in “— Shareholding
structure — Taniguchi Consortium — Family trust arrangements” in this section above; and (iv)the cancellation and conversion of class-A share mentioned above.
Mr. Hiroshi BANNAI (坂内弘) was an external Director* (社外取締役) of our Company prior to
his retirement in October 2014.
Niraku Corporation
Niraku Corporation is our principal operating subsidiary primarily engaged in the operationand management of pachinko halls. Niraku Corporation also operates a Spanish restaurant inTokyo (東京都) under the brand “LIZARRAN” and a hotel above one of our pachinko hall in
Koriyama City (郡山市), Fukushima Prefecture (福島県), both of which are our ancillary businesses
and are insignificant when compared to our business and financial position as a whole. Under thearticles of incorporation* (定款) of Niraku Corporation, transfer of the shares in Niraku
Corporation must be approved by its board of directors.
Incorporated on 27 August 1969 by our Founder, Niraku Corporation was the operating andholding company of our Group until the incorporation of our Company. As at 1 April 2011 (being
the commencement date of the Track Record Period), Niraku Corporation had a core capital*(資本金) of ¥257 million. The number of Shares authorised to be issued by Niraku Corporation
was 20,000,000 shares and the total number of issued shares was 5,346,000 shares at that time.
Niraku Corporation commenced its business upon incorporation in August 1969.
As at 1 April 2011 (being the commencement date of the Track Record Period), Niraku
Corporation was owned as to approximately 76.6%, 13.3%, 0.4%, 0.1%, 0.1%, 0.1% and 4.6%,
respectively, by the Taniguchi Consortium, Mr. Tateo TANIGUCHI (谷口建雄), Mrs. Kyoko
TANIGUCHI (谷口京子) (the mother of our Chairman), Mr. Hidenori MOROTA (諸田英模), Mr.
Hisaharu KASHIHARA (樫原久治), Mr. Tadamitsu YAMASHITA (山下忠光) and the ESOA. Apartfrom these shareholders, Niraku Corporation was also owned as to approximately 4.8% by 13
institution shareholders, which are banks, financing institutions and machine suppliers in Japan
with which our Group has a long and established business relationship. None of these
institutional shareholders was a core connected person of our Company, our Controlling
Shareholders or each other throughout the period during which they were interested in Niraku
Corporation’s shares.

184

HISTORY AND CORPORATE DEVELOPMENT
On 10 August 2012, the board of directors of Niraku Corporation resolved to repurchase
250,000 shares in Niraku Corporation, representing the entire interests held by the
aforementioned 13 institutional shareholders at a consideration of ¥2,400 per share, calculated
based on arm’s length negotiation among the parties. The 250,000 repurchased shares became
treasury stock* (自己株式) of Niraku Corporation, which had been cancelled by 31 March 2013.
The primary objective of this share repurchase was to consolidate the ownership of Niraku
Corporation as a family business.
On 1 February 2013, the board of directors of Niraku Corporation approved the acquisitionof 1,040,000 Shares in aggregate from Mr. Tatsuo TANIGUCHI (谷口龍雄), Mr. Masataka
TANIGUCHI (谷口晶貴) and Mr. Yoshihiro TEI (鄭義弘) # (also known as Mr. JEONG Jungwung),
each being a member of the Taniguchi Consortium, as well as Mr. Tateo TANIGUCHI (谷口建雄)
and Mrs. Kyoko TANIGUCHI (谷口京子) by our Company, at a consideration of ¥3,300 per share,calculated by an independent accountant appointed by the parties based on the valuation of
Niraku Corporation. On 20 February 2013, as a further effort to streamline the ownership
structure of our Group, the board of directors of Niraku Corporation resolved to repurchase anaggregate of 161,000 shares from Densho Limited* (有限会社伝承), Echo Limited*(有限会社エコー), Daiki Limited* (有限会社大喜) and Hokuyo Kanko Limited* (有限会社北陽観光),
each being a member of the Taniguchi Consortium, at a consideration of ¥3,300 per share,calculated by an independent accountant appointed by the parties based on the valuation of
Niraku Corporation. All repurchased shares became treasury stock* (自己株式) of Niraku
Corporation, which had been cancelled by 31 March 2013. Upon completion, Niraku Corporation
was owned as to approximately 63.9%, 9.7%, 21.1%, 0.1%, 0.1%, 0.1% and 5.0%, respectively,by the Taniguchi Consortium, Mr. Tateo TANIGUCHI (谷口建雄), our Company, Mr. Hidenori
MOROTA (諸田英模), Mr. Hisaharu KASHIHARA (樫原久治), Mr. Tadamitsu YAMASHITA (山下忠光)
and the ESOA. These changes in the shareholding of Niraku Corporation were effected in
preparation for the Niraku Share Swap.
On 1 April 2013, the board of directors of Niraku Corporation approved the Niraku Share
Swap and the acquisition 3,895,000 of shares in Niraku Corporation from its then existing
shareholders. Taking into the account the 1,040,000 shares our Company was already interested
in immediately prior to the implementation of the Niraku Share Swap, Niraku Corporation became
a wholly-owned subsidiary of our Company. As a result of these restructuring steps, the total
number of shares issued by Niraku Corporation was reduced to 4,935,000 shares, all of whichwere wholly-owned by our Company.
Niraku Corporation has remained as our wholly-owned subsidiary since 1 April 2013. Mr.
Masataka TANIGUCHI (谷口晶貴) was a director of Niraku Corporation until his retirement in
September 2012. Mr. Tatsuo TANIGUCHI (谷口龍雄) was also a director of Niraku Corporation
until his retirement in September 2014. The current directors of Niraku Corporation are ourChairman, Mr. Hidenori MOROTA (諸田英模) (our Executive Officer) and Mr. Akinori OHISHI(大石明徳) (our Executive Officer).

185

HISTORY AND CORPORATE DEVELOPMENT
Nexia
Nexia is a property holding and investment company. Its property portfolio includes land andpremises on which our Group operates pachinko halls, an office building for lease to third party
tenants and a residential apartment building for lease to third party tenants. Under the articles ofincorporation* (定款) of Nexia, transfer of the shares in Nexia must be approved by its
shareholders.
Nexia was incorporated on 19 June 2009 in Japan with a core capital* (資本金) of¥30 million. On incorporation, the number of shares authorised to be issued by Nexia was
20,000 shares. As at 1 April 2011, the commencement date of the Track Record Period, a totalof 3,000 shares were issued by Nexia, which were held as to approximately 25.0%, 25.0%,
25.0%, 3.0%, 2.0%, 10.0% and 10.0%, respectively, by Hokuyo Kanko Limited* (有限会社北陽観光), Jukki Limited* (有限会社十起), Densho Limited* (有限会社伝承), KAWASHIMA Co., Ltd.*(株式会社KAWASHIMA), Mr. Tatsuo TANIGUCHI (谷口龍雄) (each being a member of the Taniguchi
Consortium), Mr. Yoshie SAKAMOTO (坂本純衛) (an independent third party), Mr. Minoru NISHINO(西野実) (an independent third party) and Nino Kensetsu Co., Ltd.* 株式会社ニイノ建設 (anindependent third party). Nexia commenced business upon incorporation in 2009.
On 24 May 2012, the shareholders of Nexia have resolved to repurchase 300 shares in
Nexia, representing approximately 10% of the total number of Shares issued by Nexia at thattime, from Nino Kensetsu Co., Ltd.* (株式会社ニイノ建設), an independent third party, at an
aggregate consideration of ¥12 million, calculated based on the valuation of Nexia conducted byan independent valuer. The 300 acquired shares became treasury stock* (自己株式) of Nexia,
which had been cancelled by 31 March 2013. The primary objective of this share repurchase wasto consolidate the ownership of Nexia by the Taniguchi Consortium.
On 24 May 2012, the shareholders of Nexia approved the acquisition of 300 shares,
representing approximately 10% of the total number of shares issued by Nexia at that time, by
KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA) from Mr. Minoru NISHINO (西野実), an
independent third party. The consideration was ¥12 million in aggregate, calculated based on thevaluation of Nexia conducted by an independent valuer.
On 13 June 2014, the shareholders of Nexia approved the acquisition of 60 shares in Nexia,
representing approximately 2.2% of the total number of shares issued by Nexia at that time, by
Mr. Tatsuo TANIGUCHI (谷口龍雄) from Mr. Yoshie SAKAMOTO (坂本純衛) (an independent third
party). The consideration was ¥3 million in aggregate, calculated based on arm’s length
negotiation of the parties. Upon completion, Nexia became collectively wholly-owned by themembers of the Taniguchi Consortium.
As part of our Reorganisation, our Company acquired all issued shares in Nexia because (i)the activities of Nexia are directly related to our core business of pachinko and pachislot halloperations; and (ii) Nexia was commonly controlled by the members of the Taniguchi Consortium.

186

HISTORY AND CORPORATE DEVELOPMENT
On 9 December 2014, each member of the Taniguchi Consortium has confirmed that they havebeen acting in concert, and intend to continue to act in concert, in exercising their control overand voting rights in Nexia. See “Relationship with our Controlling Shareholders — Controlling
Shareholders acting in concert” for details.
Mr. Tatsuo TANIGUCHI (谷口龍雄) has remained as a director of Nexia throughout the Track
Record Period and thereafter.
MerristMerrist is primarily engaged in the employment of disabled people to provide gardening,cleaning and general management services in our pachinko halls. Under the Act on Employment
Promotion etc. of Persons with Disabilities* (障害者の雇用の促進等に関する法律) of Japan (ActNo. 123 of 1960), a minimum of 2% of a private enterprise in Japan with 50 or more employees
is required to be persons with disabilities. Under the articles of incorporation* (定款) of Merrist,
transfer of the shares in Merrist must be approved by its shareholders.
Merrist was incorporated on 24 February 2010 with a core capital* (資本金) of ¥5 million. The
number of shares authorised to be issued by Merrist was 2,500 shares, of which 500 shares were
issued and allotted to Niraku Corporation. Merrist has remained as a wholly-owned subsidiary of
Nexia since its incorporation. Merrist commenced business upon incorporation in 2010.
Mr. Hideyuki SUETSUGU (末次秀行), a former member of our senior management who is nota connected person of our Company, was a director of Merrist from 24 February 2010 to 3
September 2012. Our Chairman is now the sole director of Merrist.
Dissolved entity
Jin Corporation* (株式会社仁) (“Jin Corporation”) was a stock company* (株式会社)incorporated in Japan with limited liability on 15 June 2012. The primary business activity was theoperation of a pachinko hall in Hanyu City (羽生市), Saitama Prefecture (埼玉県). Jin Corporation
was incorporated as a wholly-owned subsidiary of Asuka Corporation* (株式会社アスカ), an
independent third party as a result of a company split* (分割) to effect the acquisition of the said
pachinko hall by our Group. On 15 June 2012, Niraku acquired the entire number of issued
shares in Jin Corporation from Asuka Corporation* (株式会社アスカ) at a consideration of ¥820
million, calculated based on arm’s length negotiation of the parties.
To consolidate the pachinko and pachislot hall operations functions of our Group into Niraku
Corporation, we effected an absorption-type merger* (吸收合併) under the Japan Companies Act
between Niraku Corporation (as the surviving entity) and Jin Corporation (as the absorbed entity)
on 1 October 2013. As at the Latest Practicable Date, Jin Corporation had been dissolved andits registration had been cancelled. Our Japan Legal Adviser has confirmed that, as provided
under the Japan Companies Act, all assets, liabilities, contractual rights and obligations had beentransferred to Niraku Corporation. Customers of Jin Corporation are now served by our Group.

187

HISTORY AND CORPORATE DEVELOPMENT
Our Directors have confirmed that there is no matter with respect to the dissolution of Jin
Corporation that would otherwise need to be brought to the attention of the Stock Exchange andour potential investors.
Reorganisation
The companies comprising our Group underwent the Reorganisation to rationalise ourGroup’s structure in preparation for the Listing. The chart below shows the simplified
shareholding and corporate structure of our Group immediately prior to the implementation of ourReorganisation:

100%

Hisaharu
Kashihara (2)HidenoriMorotaTaniguchi Consortium

93.2%(3)0.1%

Tadamitsu
Yamashita

0.1%

0.1%

ESOA

6.5%(3)Company

100%
NirakuCorporation
100%
Nexia (1)
NUSA

MerristNotes:(1)

Nexia was owned as to approximately 27.8%, 27.8%, 27.8%, 11.1% and 5.5%, respectively, by Jukki
Limited*有限会社十起, Densho Limited*(有限会社伝承), Hokuyo Kanko Limited*(有限会社北陽観光), KAWASHIMA
Co., Ltd.*(株式会社KAWASHIMA) and Mr. Tatsuo TANIGUCHI (谷口龍雄), each being a member of the Taniguchi
Consortium.

(2)

Mr. Hisaharu KASHIHARA (樫原久治) is a former member of our senior management who is not a connected personof our Company. He is no longer a Shareholder of our Company. Our Board of Directors approved the transfer of
his entire shareholding interests in our Company to the ESOA on 1 October 2014.

(3)

Our Board of Directors approved the transfer of 17,000 Shares (representing approximately 0.3% of our total
number of issued Shares at that time) from Mr. Tatsuo TANIGUCHI (谷口龍雄) to the ESOA on 1 October 2014.

(4)

Shareholding percentages are approximate and subject to rounding.

188

HISTORY AND CORPORATE DEVELOPMENT
Our Reorganisation involved the following steps:
Company split
On 17 September 2014, our Company effected an incorporation-type company split*(新設分割) (the “Company Split”) pursuant to the Japan Companies Act. The primary aim of theCompany Split was to: (i) consolidate the business and assets of, and incidental to, our Group’s
pachinko and pachislot hall operations under our Company; and (ii) establish the Excluded Groupas the holding entities of the prospective private business ventures of our Controlling
Shareholders.
The Company Split was effected as follows:(i)incorporation of NI: NI was incorporated in Japan on 17 September 2014 to serve as
the holding entity of the Excluded Group and the prospective private business venturesof the Taniguchi Consortium that are unrelated to our core business of pachinko andpachislot hall operations.

(ii)

transfer of tangible assets to NI: as part of the Company Split, we on 17 September
2014 transferred certain tangible assets totalling ¥1,110 million, which, among others,
included the entire issued stock of NUSA. No fixed asset, liability, contractual
obligation and employee was transferred to NI as part of the Company Split.

(iii)

Distribution of the shares in NI to our Shareholders: as part of the Company Split,
our Company on 17 September 2014 declared and distributed a distribution in specie*(配当) out of our surplus* (剰余金) by way of distributing 3,895,002 shares in NI,
representing our entire number of issued shares, to our Shareholders whose names
appear on our Share Register on 11 September 2014.
Each holder of the common Shares* (普通株式) of our Company received shares in NI
in an amount equivalent to the number of common Shares* (普通株式) they held as at
11 September 2014. Given that there was only one class of shares in the share capitalof NI, our Chairman, who held one class-A share in our Company as at 11 September
2014, received one share in NI. As a result, all existing Shareholders as at 11
September 2014 became the shareholders of NI in proportion to the number of Shares
they held in our Company as at 11 September 2014.

189

HISTORY AND CORPORATE DEVELOPMENT
The Company Split was filed with the Legal Affairs Bureau* (法務局) of Japan on 17
September 2014 and completed and became effective on the same day. The table below shows
the simplified shareholding and corporate structure of our Group immediately upon completionof the Company Split:

HidenoriMorotaTaniguchi Consortium

100%

93.2%(3)Hisaharu
Kashihara (2)0.1%

Tadamitsu
Yamashita

0.1%

0.1%

ESOA

6.5%(3)

NI

Company

100%

100%
NUSA

NirakuCorporation
100%
Nexia (1)MerristNotes:(1)

Nexia was owned as to approximately 27.8%, 27.8%, 27.8%, 11.1% and 5.5%, respectively, by Jukki Limited*(有限会社十起), Densho Limited* (有限会社伝承), Hokuyo Kanko Limited* (有限会社北陽観光), KAWASHIMA Co.,
Ltd.*(株式会社KAWASHIMA) and Mr. Tatsuo TANIGUCHI (谷口龍雄), each being a member of the Taniguchi
Consortium.

(2)

Mr. Hisaharu KASHIHARA (樫原久治) is a former member of our senior management who is not a connected personof our Company. He is no longer a Shareholder of our Company. Our Board of Directors approved the transfer of
his entire shareholding interests in our Company to the ESOA on 1 October 2014.

(3)

Our Board of Directors approved the transfer of 17,000 Shares (representing approximately 0.3% of our total
number of issued Shares at that time) from Mr. Tatsuo TANIGUCHI (谷口龍雄) to the ESOA on 1 October 2014.

(4)

Shareholding percentages are approximate and subject to rounding.

Acquisition of the Nakano Property
Immediately prior to the implementation of our Reorganisation, our Chairman, Mr. Tatsuo
TANIGUCHI (谷口龍雄) and Mr. Masataka TANIGUCHI (谷口晶貴) were the joint owners of a pieceof land and the premises thereon (together, the “Nakano Property”) located in Nakano-ku(中野区), Tokyo (東京都), on which we operate one of our pachinko halls.

190

HISTORY AND CORPORATE DEVELOPMENT
On 9 September 2014, Niraku Corporation acquired the Nakano Property from ourChairman, Mr. Tatsuo TANIGUCHI (谷口龍雄) and Mr. Masataka TANIGUCHI (谷口晶貴) in
consideration for ¥382 million in cash. The consideration was based on the valuation of the
Nakano Property conducted by an independent valuer.
Acquisition of Nexia
Immediately prior to the implementation of our Reorganisation, Nexia was owned as toapproximately 27.8%, 27.8%, 27.8%, 11.1% and 5.5%, respectively, by Jukki Limited*(有限会社十起), Densho Limited* (有限会社伝承), Hokuyo Kanko Limited* (有限会社北陽観光),
KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA) and Mr. Tatsuo TANIGUCHI (谷口龍雄), eachbeing a member of the Taniguchi Consortium.
On 29 September 2014, Nexia acquired an aggregate of 2,550 shares in Nexia from Jukki
Limited* (有限会社十起), Densho Limited* (有限会社伝承), Hokuyo Kanko Limited* (有限会社北陽観光) and KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA) in consideration for ¥497,344,350 inaggregate. The consideration was calculated based on the valuation of Nexia conducted by anindependent property valuer. The 2,550 shares became treasury stock* (自己株式) in the capitalof Nexia.
On 29 September 2014, Niraku Corporation acquired 150 shares in Nexia from Mr. Tatsuo
TANIGUCHI (谷口龍雄) in consideration for ¥29,255,550. The consideration was calculated
based on the valuation of Nexia conducted by an independent valuer. On 30 September 2014,
Nexia cancelled the 2,550 treasury stock* (自己株式) in its capital, as a result of which Nexia
became an indirectly wholly-owned subsidiary of our Company.
Except for our Reorganisation, we have not conducted any acquisition, disposal and/or
merger that is considered material by us in terms of the amount of consideration paid/received
on the assets, revenue and profit contribution of the target throughout our operating history.

191

HISTORY AND CORPORATE DEVELOPMENT
Our Reorganisation was completed on 30 September 2014. Our Japan Legal Adviser has
confirmed that: (i) all steps of our Reorganisation have been properly and legally completed andsettled in compliance with the relevant laws and regulations in Japan; and (ii) any required
approvals from and registrations with the relevant Japan authorities have been duly obtained andcompleted. The chart below shows the simplified shareholding and corporate structure of ourGroup and the Excluded Group immediately upon completion of our Reorganisation:

HidenoriMorotaTaniguchi Consortium

93.2%(2)0.1%

Hisaharu
Kashihara (1)Tadamitsu
Yamashita

0.1%

0.1%

ESOA

6.5%(2)

NI

Company

100%

100%

NirakuCorporation

NUSA

100%

Nexia

MerristNotes:(1)

Mr. Hisaharu KASHIHARA (樫原久治) is a former member of our senior management who is not a connected personof our Company. He is no longer a Shareholder of our Company. Our Board of Directors approved the transfer of
his entire shareholding interests in our Company to the ESOA on 1 October 2014.

(2)

Our Board of Directors approved the transfer of 17,000 Shares (representing approximately 0.3% of our total
number of issued Shares at that time) from Mr. Tatsuo TANIGUCHI (谷口龍雄) to the ESOA on 1 October 2014.

(3)

Shareholding percentages are approximate and subject to rounding.

Companies excluded from our Reorganisation
NI and NUSA, the current and prospective principal business of which is clearly delineatedfrom our pachinko and pachislot hall operations, were excluded from our Group as a result of ourReorganisation. See “Relationship with our Controlling Shareholders — Independence from ourControlling Shareholders — No competition and clear delineation of business” for details of thecurrent and prospective business activities of NI and NUSA and the reasons for excluding thesecompanies from our Group.

192

HISTORY AND CORPORATE DEVELOPMENT
Further changes to our capital structure
On 16 March 2015, our Board has resolved that: (i) each issued Share of nil par value be
sub-divided into 230 Shares of nil par value with effect from 31 March 2015 so that our total
number of issued Shares will increase from 3,895,002 Shares to 895,850,460 Shares; and (ii) forthe purpose of such sub-division, the number of Shares authorised to be issued by our Company
be increased from 20,000,000 Shares to 2,000,000,000 Shares with effect from 31 March 2015.
No Pre-IPO investment
There was no pre-IPO investor to our Group before and after our Reorganisation within themeanings of the Listing Rules.
CORPORATE STRUCTURE
The chart below shows the shareholding and corporate structure of our Group immediately
upon completion of the Global Offering:

Taniguchi Consortium

Chairman

TatsuoTaniguchi (1)Mitsuhiro
Tei

17.8%

Yoshihiro
Tei # (3)NorikoKaneshiro

12.2%

7.3%

1.0%

Masataka
Taniguchi (2)16.9%MotohiroTei

2.3%

Eijun Tei

Rika Tei

2.3%

2.3%

Jukki
Limited* (4)DenshoLimited* (5)EchoLimited* (6)Daiki
Limited* (7)Hokuyo Kanko
Limited* (8 )KAWASHIMA
Co., Ltd.* (9)

1.5%

1.0%

1.0%

1.0%

0.5%

0.1%

HidenoriMorotaTadamitsu
Yamashita

2.3%

ESOA

Participants of the
Global Offering
Public float (10)

0.1%

0.1%

5.2%

Company
100%
NirakuCorporation

100%

100%

Nexia

Merrist

193

25.1%

HISTORY AND CORPORATE DEVELOPMENT

Notes:(1)

The shareholding percentage of Mr. Tatsuo TANIGUCHI (谷口龍雄) shown above includes 13.5% held in his own
name and for his own benefit, and 3.4% held by the TT Family Trust, to which he is entitled to exercise the voting
rights attached.

(2)

The shareholding percentage of Mr. Masataka TANIGUCHI (谷口晶貴) shown above includes 1.0% held in his own
name and for his own benefit, and 11.2% held by the MT Family Trust, to which he is entitled to exercise the voting
rights attached.

(3)

The shareholding percentage of Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) shown above
includes 2.8% held in his own name and for his own benefit, and 4.5% held by the YT Family Trust, to which heis entitled to exercise the voting rights attached.

(4)

Jukki Limited*(有限会社十起) is collectively wholly-owned by the children of Mr. Tatsuo TANIGUCHI (谷口龍雄), who
is entitled to exercise the voting rights as its sole director.

(5)

Densho Limited*(有限会社伝承) is collectively wholly-owned by the children of our Chairman, who is entitled toexercise the voting rights as its sole director.

(6)

Echo Limited*(有限会社エコー) is collectively wholly-owned by the nephews of our Chairman. Mr. Mitsuhiro TEI(鄭允碩) is entitled to exercise the voting rights as its sole director.

(7)

Daiki Limited* (有限会社大喜) is collectively wholly-owned by the children of Mr. Yoshihiro TEI (鄭義弘) # (also known
as Mr. JEONG Jungwung), who is entitled to exercise the voting rights as its sole director.

(8)

Hokuyo Kanko Limited* (有限会社北陽観光) is collectively wholly-owned by the children of Mr. Masataka
TANIGUCHI (谷口晶貴), who is entitled to exercise the voting rights as its sole director.

(9)

KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA) is held as to approximately 33.3%, 33.3% and 33.3%, respectively,by our Chairman, Mr. Masataka TANIGUCHI (谷口晶貴) and Tatsuo TANIGUCHI (谷口龍雄), who is entitled toexercise the voting rights as its sole director.

(10)

Mr. Tadamitsu YAMASHITA (山下忠光), Mr. Takashi ENDO (遠藤孝) (the current president* (理事長) of the ESOA whois entitled to exercise the voting rights attached to the Shares held by the ESOA) and each member of the ESOA
is not a core connected person of our Company under the Listing Rules. Hence, the Shares held by Mr. Tadamitsu
YAMASHITA (山下忠光) and the ESOA are counted towards the public float of our Company for the purpose of Rule8.08(1)(a) of the Listing Rules.

(11)

Shareholding percentages are approximate and subject to rounding.

194

BUSINESSOVERVIEW
We operate pachinko halls in Japan where customers can play pachinko and pachislot,
which are recreational arcade games characterised by an element of chance. We were the fourthlargest pachinko hall operator in Japan in 2013 (based on gross pay-ins 1 ), according to EBI. The
pachinko industry is highly fragmented, with over 3,800 operators running 11,893 halls as at 31
December 2013. In 2013, our market share based on gross pay-ins was 1.3%, while our market
share based on the number of halls in Japan was 0.5%. Ever since we opened our first pachinko
hall in 1950, all our operations have been focused in Northeast Honshu (本州島東北), Japan,
covering ten prefectures that have a total population of approximately 47.4 million (representing
37.7% of the total population in Japan), as at 31 December 2013, according to EBI.
Pachinko is one of the most popular forms of entertainment for adults in Japan and has along history, dating back to the early twentieth century. Pachinko is similar in appearance to apinball machine and is played by firing pachinko balls in rapid succession into a playing field, withthe aim of firing them into designated pockets that release bonus pachinko balls. Playing costs
range from ¥0.5 to ¥4 per ball (before consumption tax). Pachislot is similar in appearance toa traditional slot machine and is played by inserting pachislot tokens to spin its image reels, withthe aim of stopping the reels at a winning matching combination, which will release bonus
pachislot tokens. Playing costs range from ¥2 to ¥20 per token (before consumption tax).
Generally, players aim to collect the most number of balls and tokens, which can either besaved for subsequent visits, or more notably, exchanged for prizes. At our halls, customers can
exchange two types of prizes, namely: (1) general prizes (including our private brand products),
which are generally the types of goods sold in convenience stores, including cigarettes, food andsnacks, household goods and drinks; and (2) G-prizes, which are decorative cards with a small
embedded piece of metal (such as gold) or coin-shaped pendants of metal (such as gold), thatcan be subsequently sold by customers to independent G-prize buyers for cash. Our Japan Legal
Adviser has confirmed that our pachinko and pachislot hall operations do not constitute“gambling” under, and do not violate, the Penal Code.
Our halls can be categorised into suburban halls and urban halls.
1.

1

Suburban halls are our primary business focus, representing 91.5%, 91.9%, 92.3%
and 91.9% of our revenue from pachinko and pachislot business for the years ended
31 March 2012, 2013 and 2014 and the six months ended 30 September 2014. They
are typically located in suburban areas (such as the suburbs of Fukushima Prefecture(福島県)), require car access and provide parking spaces (including for the disabled).
Generally, customers are the self-employed (such as farmers and fishermen), factory
workers and retirees, and these halls are generally larger with around 400 to 700
machines. Gross pay-ins from peak operation hours (which are typically from 12:00
noon to 5:00 p.m.) on average accounted for approximately 45% of the daily gross
pay-ins of our suburban halls during the Track Record Period.

Represents the amount received from cutsomers for rented pachinko balls and pachislot tokens.

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BUSINESS
2.

Urban halls are typically located in urban areas (such as Tokyo (東京都)) and withinwalking distance of train stations. Generally, customers are full-time employees ofurban areas and these halls are generally smaller with around 200 to 300 machines.
Gross pay-ins from peak operation hours (which are typically from 5:00 p.m. to 10:00
p.m.) on average accounted for approximately 41% of the daily gross pay-ins of oururban halls during the Track Record Period.

We first opened our door to pachinko players in 1950. Our corporate slogan is “Happy TimeCreation” and we place our primary focus on customer experience and goodwill. We have strived
to adapt to changing industry trends and customer preferences throughout our operating history
and have developed into an operator of 55 pachinko halls, consisting of 46 suburban halls and9 urban halls, as at the Latest Practicable Date.
Fukushima Prefecture (福島県) is our most important strategic location, in which ourheadquarters are located and we have the most number of halls (namely, 20 halls as at the Latest
Practicable Date), machines and also revenue generation, accounting for over 40% of our total
revenue during the Track Record Period. We will continue to leverage our strengths and expand
our operations in Northeast Honshu (本州島東北) (especially Fukushima Prefecture (福島県) andits neighbouring and conjoining prefectures) in a cost-efficient and strategic manner. In particular,
we expect to open a new hall in Fukushima Prefecture (福島県) by December 2015 with over
1,000 machines, which will become our largest hall and is expected to become one of the largest
halls in Fukushima Prefecture (福島県).
The pachinko industry has a dominant presence in the gaming sector in Japan (which, as
defined by our independent industry consultant, EBI, consists of pachinko, bicycle-racing, autoracing, horse-racing and lottery), having comprised 78.0% or ¥18.8 trillion (in terms of grossrevenue) of the gaming sector in Japan in 2013. Even though the industry has been shrinking
since the early 2000’s, it still remains relatively favourable to large hall operators (such as
ourselves) due to the resulting consolidation. According to EBI, small hall operators (that operateless than ten halls) have been dropping out of the industry and are expected to continue to doso, while large hall operators (that operate at least ten halls) have greater financial and otherresources and are able to benefit from economies of scale, including operational cost efficiencies,
and have been benefiting by absorbing the freed up market share. The opportunities for us fromthis consolidation are compounded by the high industry fragmentation and the fact that there arevery few hall operators that are of our size. As at 31 December 2013, there were over 3,800
operators, of which 95.8% were small hall operators with less than 10 halls and we were one ofthe only eight hall operators with over 50 halls in Japan.

196

BUSINESSSTRENGTHS
We believe that we have a number of key strengths that differentiate our business from thatof our competitors, including the following:
Strong market position (especially in Fukushima Prefecture (福島県)), largely due toeconomies of scale and brand recognition gained from our strategic geographical focus
in Northeast Honshu (本州島東北) and our centralised management strategy
We were the fourth largest pachinko hall operator in Japan (based on gross pay-ins) in 2013
and the largest pachinko hall operator in Fukushima Prefecture (福島県) (based on the total
number of halls) as at 31 December 2013, according to EBI. The pachinko industry is highly
fragmented and there are very few pachinko hall operators that are of our size. As at 31
December 2013, there were over 3,800 operators, of which 95.8% were small hall operators withless than 10 halls and we were one of the only eight hall operators with over 50 halls. As at theLatest Practicable Date, we operated 55 pachinko halls, all of which are strategically located in
Northeast Honshu (本州島東北). Since we opened our first hall in 1950, our strategy has always
been to focus hall openings exclusively in Northeast Honshu (本州島東北), specifically Fukushima
Prefecture (福島県), Tokyo (東京都) and their neighbouring and conjoining prefectures.
Through our centralised management strategy, we centralise and standardise processes
throughout our hall operations, including overall management, new hall development, machine
procurement, prize procurement, IT systems, marketing, recruitment and training of full-time
employees, internal audit and daily operations. Our centralised management strategy, together
with our strategic geographical focus, has allowed us to benefit from economies of scale via
significant operational efficiencies and cost savings, especially as our fixed overhead is shared
among our 55 operating halls, resulting in a substantially lower fixed overhead per hall comparedto our smaller competitors. Ultimately, these have greatly contributed to our strong market
position.
For example, we are able to source general prizes in large volumes and variety at relatively
lower costs. As a market leader, we are also able to gain priority from machine suppliers oversmaller hall operators for purchases of new machines. This allows us to remain highly competitive
by consistently being able to be among the first to acquire the newest machine models, whichis essential to maintaining high player traffic as new machine models typically generate the most
player interest. Further, our geographical focus has allowed our 55 halls to be managed
efficiently, as we are readily able to: (1) conduct regular physical internal meetings among
managers based in different business locations; (2) rotate our area managers and hall managers
to other areas and halls in order to boost their management skills; and (3) transfer our machines
between our halls and warehouses in a cost and time efficient manner and in response tochanging consumer preferences.
In addition, our centralised management strategy and tactical geographic focus have helped
us establish strong brand recognition, thus, further improving our player traffic and customer
loyalty. For example, we are able to ensure the consistency of the key features of all of our halls(thus, reinforcing our brand image), while our operational efficiencies and cost savings allow us

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BUSINESS
to operate relatively large halls, which are generally more attractive to players. Also, we believe
we are able to consistently provide a professional level of hospitality and better gaming
experience for customers, as we centralise training for our full-time employees through the useof our training facilities located near our headquarters in Fukushima Prefecture (福島県) andstructured training and rotation programs.
Also, as mentioned above, despite the pachinko industry having been shrinking since theearly 2000’s, the industry remains economically favourable to large hall operators (such as
ourselves). Small hall operators have been dropping out of the industry and are expected tocontinue to do so. Large hall operators (such as ourselves) have greater financial and otherresources and are able to benefit from economies of scale, including operational cost efficiencies,
and have been benefiting by absorbing the freed up market share. The opportunities for us fromthis consolidation are compounded by the high industry fragmentation and the fact that there arevery few hall operators whose operations are as big as ours. We believe we will particularly
benefit from this trend in Fukushima Prefecture (福島県) and its neighbouring prefectures, where
our leading position has also served as an increasingly effective barrier of entry.
Efficient management structure supported by sophisticated information technology
systems that enable us to anticipate and respond quickly to changes and trends incustomer preferences
We have implemented a multi-layered hierarchical management structure for our halloperations, consisting of our 55 hall managers (each responsible for overseeing the daily
operations of one particular hall), our 13 area managers (each responsible for overseeing the daily
operations of three to six halls), our division manager (based in our headquarters and generally
oversees the operations of all our halls) and our Directors. Generally, each manager reports
directly to the relevant manager in the next higher rank.
Since customer preferences and trends vary among different areas, our area and hallmanagers’ on-site presence in each area and hall allows us to collect localised market
information, such as approximate payout ratios achieved by competing operators, and player
acceptance towards new machines, enabling us to make timely business decisions which areresponsive to changing conditions in each geographical market. We also utilise sophisticatedinformation technology systems to provide us with real-time data regarding useful businessmetrics such as machine utilisation for each type of machine as well as the business performanceof each machine in our halls. They have allowed us to closely monitor our hall performances andalso to perform timely analyses on our operational efficiency. For example, by utilising our
information technology systems, we are able to assess the popularity of each machine and toadjust our procurement strategy accordingly. We also monitor the daily business performance ofmachines and use this information to determine the pin angle maintenance and adjustment
required for our pachinko machines and also the ideal adjustments of payout settings for our
pachislot machines, in order to ensure full compliance with the required ranges on payout ratios
under law. See “— Pachinko and Pachislot Hall Operations — Pachinko halls — Machine
maintenance and the business performance of our halls” in this section below for details.

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Effective internal controls and procedures to ensure our compliance with applicablelaws and regulations and to detect and prevent fraud, cheating and money laundering
activities
We have implemented internal controls and procedures to ensure that our pachinko andpachislot hall operations are conducted professionally and in full compliance with applicable laws
and regulations, especially the Amusement Business Law and its ancillary prefectural local
regulations. Our internal control measures enable us to detect irregularities and unusual activities
or trends in the transactions that take place in our pachinko halls which, if detected, are reported
to our Directors and senior management for investigation, remediation and, if necessary,
reporting to the relevant authorities in Japan.
We believe that money laundering risks associated with our pachinko and pachislot halloperations are inherently low, due to the stringent laws and regulations and machine limitations
pertaining to the number of pachinko balls or pachislot tokens that can be played as well as won
at our pachinko and pachislot machines. Even though there are currently no specific obligations
imposed on pachinko hall operators under the AML laws of Japan, we have voluntarily
established various policies and procedures designed to identify and mitigate money launderingin our pachinko and pachislot hall operations. Such policies and procedures have been designed,
implemented and operating with reference to the guidance letter titled “International Standards
on Combating Money Laundering and the Financing of Terrorism and Proliferation” issued by the
Financial Action Task Force in 2012, and also the Amusement Business Law. See “Internal
Controls and Anti-Money Laundering” and “Appendix IV — Summary of the Review of Anti-Money
Laundering Procedures, Systems and Controls” for details.
In particular, the Japanese government has been continuously regulating the pachinko
industry for compliance with the Amusement Business law or its ancillary prefectural local
regulations, through direct enforcement. Every year, the Japanese government (through the
National Police Agency) announces a list of administrative dispositions imposed on pachinkohalls (including suspensions or even revocations of operating licences) due to discovered
breaches of the Amusement Business Law or its ancillary prefectural local regulations. For
example, in 2010, 2011 and 2012, there were a total of 705, 696 and 817 administrative
dispositions imposed on pachinko halls, of which five, four and six were for suspensions ofoperating licences, and seven, five and seven were for revocations of operating licences,respectively. Most of the administrative dispositions (especially the suspensions and revocationsof operating licences) were imposed against halls owned by small hall operators who generally
have fewer resources to establish effective internal controls and procedures. This creates
opportunities for larger hall operators (such as ourselves) that have implemented proper internal
controls, as: (1) our smaller competitors are being pushed out, thus, freeing up additional market
share for us and our expansion; and (2) an overall improved compliance by hall operators withapplicable laws and regulations will ultimately improve the overall reputation of the pachinko
industry as a whole, thus, potentially attracting new customers.
We believe our internal controls and procedures are effective, as: (1) our Japan Legal
Adviser has confirmed that we have been in compliance in all material respects with all applicable
Japan laws, rules and regulations during the Track Record Period and up to the Latest

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Practicable Date. See “— Legal Proceedings and Compliance” for details on our compliance withapplicable laws and regulations, as confirmed by our Japan Legal Adviser; and (2) our AML
Consultant has confirmed that nothing has come to their attention that causes them to believethat the AML controls put in place by us were not designed, implemented and operating in allmaterial respects to achieve the internal control objectives for the period as stated in their reportas set out in “Appendix IV — Summary of the Review of Anti-Money Laundering Procedures,
Systems and Controls”.
Experienced and well-qualified management team with a strong track record inoperating pachinko halls
Our Executive Director and senior management team (including our Executive Officers) haveextensive experience in operating pachinko halls in Japan. Mr. Taniguchi, our Chairman, Chief
Executive Officer and Executive Director, is a son of our Founder, Mr. Tetsuyoshi TANIGUCHI(谷口哲義) # (also known as Mr. JEONG Bokyung (鄭福鎔)) and has been with our Group for over
27 years, having previously headed a number of departments across our operations, such as
human resources, hall development and sales. Mr. Taniguchi is also a director of the
Pachinko-Trusty Board* (一般社団法人パチンコ•トラスティ•ボード) and also the vice president,
and the head of the Tohoku branch, of Nihon Yugi-kanren Jigyo Kyokai (Japan Amusement
Business Association)* (一般社団法人 日本遊技関連事業協会). Mr. Taniguchi has acquired
extensive knowledge in a wide array of aspects in pachinko and pachislot hall operations.
Our business execution and day-to-day management are undertaken by our four
experienced Executive Officers (which includes Mr. Taniguchi), who collectively possess expertise
across the sales, corporate affairs, legal matters, financial control and general management
functions in pachinko and pachislot hall operations. Our Executive Officers have an average ofover 15 years of experience in pachinko and pachislot hall operations and have considerable
experience and knowledge in their respective areas of responsibilities.
We have also appointed four Independent Non-executive Directors with extensive
knowledge in finance and accounting, compliance and corporate governance. They will be
invaluable to our future development as a listed company on the Stock Exchange.
See “Directors and Senior Management” for more details.
STRATEGIESWe are one of the leaders in the pachinko industry and we aim to continue to strengthen ourmarket position and further grow our business by pursuing the following strategies:
Continue to leverage our strengths and expand our suburban halls network in Northeast
Honshu (本州島東北) and to extend our leading market position
Our suburban halls have always been our primary business focus and we currently expect
them to continue to be so, primarily because we have a proven track record, as shown by ourleading market position, in successfully operating and expanding our suburban hall operations in

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BUSINESS
Northeast Honshu (本州島東北) (especially Fukushima Prefecture (福島県) and its neighbouring
prefectures) in a cost-efficient and strategic manner in line with our centralised management
strategy. For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, our suburban halls generated revenue of ¥27,113 million, ¥29,342 million,¥30,452 million and ¥13,968 million from pachinko and pachislot business, representing 91.5%,
91.9%, 92.3% and 91.9% of our revenue from pachinko and pachislot business, respectively.
Also, according to EBI: (1) land costs (whether for acquisitions or leases) in suburban areas arelower than urban areas (which has allowed us to open relatively large halls which are usually more
attractive to customers); (2) there are significantly more entertainment options in urban areas,such as cinemas, horse-racing and nightlife entertainment, which increases competition for
urban pachinko halls; (3) the customer base in suburban areas is generally more stable ascustomers are typically self-employed (such as farmers and fishermen), factory workers andretirees, whose free time is more evenly dispersed throughout the day, while customers in urban
areas are typically full-time employees, who have more choices in hall selection as halls in urban
areas and usually in close proximity to each other; and (4) companies in Japan are increasingly
looking to build industrial parks in less populated areas of Japan (such as suburban areas), mainly
because there is sufficient land to construct larger buildings with ample parking space, which isultimately expected to increase the working population (one of our target demographics for
suburban halls) in these suburban areas. Therefore, we intend to exploit our competitive
strengths to continue to improve the performance of, and to expand, our suburban hall network
in Northeast Honshu (本州島東北) and ultimately to add to our leading market position.
In particular, we plan to open a total of seven suburban halls over the next three years. We
believe that many opportunities for pachinko hall expansion continue to exist in Northeast
Honshu (本州島東北), particularly in suburban areas. We believe this is so, despite the shrinking
pachinko industry, because the resulting consolidation has pushed out smaller pachinko halloperators (thus, freeing up market share for us) due to competition from larger hall operators,
such as ourselves, that have greater financial and other resources and are able to benefit from
economies of scale, including operational cost efficiencies. This has especially been the case in
Fukushima Prefecture (福島県) and its neighbouring prefectures, where our leadership position
has also served as an increasingly effective barrier of entry. Our operational efficiencies and costsavings also allow us to successfully operate relatively large halls, which are generally more
attractive to players and has helped capture the market share of smaller hall operators. See “—
New Hall Development” in this section below for details.
These seven new suburban halls will share the same key features as our existing
profit-making suburban halls, but will be even larger, typically featuring around 560 to 800
machines per hall. In particular, we expect to open a new hall in Fukushima Prefecture (福島県)
by December 2015 with over 1,000 machines, which will become our largest hall and is expected
to become one of the largest halls in Fukushima Prefecture (福島県). These new halls will be larger
than the industry average and our Directors believe such large-scale halls will significantly help
attract new player traffic, especially from our competitors’ halls, due to such halls being spaciouswith an opulent atmosphere and increased choice of machines. Such halls will also allow us toreduce our overhead per machine. We will be able to utilise our economies of scale to operatesuch large halls in a cost-efficient manner.

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Breakeven period and investment payback period are useful indicators of the performanceof a new hall. Breakeven period refers to the time required for the hall’s monthly revenue (frompachinko and pachislot hall operations) to equal its monthly direct expense, while investment
payback period refers to the time required for the hall’s accumulated net profit to cover its
opening costs and operating expenses incurred so far. Based on our past experience with
opening new halls, the breakeven period is typically around four to ten months and investment
payback period is around seven years. We expect the breakeven period and investment payback
period for these seven new suburban halls to be similar. We plan to open these seven new
suburban halls ourselves (as opposed to acquiring our competitors’ halls), and we will lease theproperties for these seven new suburban halls on terms similar to our existing leases, which last
for around 10 to 20 years (being longer than the expected investment payback period of sevenyears).
Improve the performance of our urban halls
As at the Latest Practicable Date, we operated nine urban halls. During the three years
ended 31 March 2014, our revenue from pachinko and pachislot business per urban halldecreased at a CAGR of 5.2% while our revenue from pachinko and pachislot business per
suburban hall increased at a CAGR of 3.5%. Also, during the year ended 31 March 2014, ourrevenue per machine for our suburban halls was 20.9% higher than that of our urban halls. The
decrease of our revenue per urban hall was mainly due to the following reasons: (1) property
space is limited and land acquisition and rental costs are much higher in urban areas, which haverestricted us to opening relatively small urban halls (with only around 200 to 300 machines perhall, compared with our much larger suburban halls that currently have around 400 to 700
machines per hall) and are generally less welcoming to pachinko and pachislot players due to lesschoices of machines; (2) the entertainment industry in urban areas (especially Tokyo (東京都)) ismuch more competitive, with a higher concentration of not only our competitors’ halls but also
alternative forms of entertainment (such as cinemas, horse-racing and nightlife entertainment);and (3) the customer base is relatively unstable as customers are typically full-time employees,
thus, their free time to play at our halls is generally limited to after office hours and may retreat
to suburban areas during weekends and holidays.
Going forward, we intend to improve the performance of our urban hall network. First, we
intend to close down two of our urban halls in Tokyo (東京都) by the end of 2015. These two halls
have been loss-making, primarily due to low player traffic caused by their below-average hall size
and the intense competition in the urban areas of Tokyo (東京都). To close these two halls, we
expect to incur costs of ¥327 million (subject to negotiation), consisting of: (1) rent for theremaining term of the lease (being ¥289 million); and (2) restoration fees (being ¥38 million).
Nevertheless, we expect the Group’s financial performance to improve in the long run as these
two halls show insufficient potential in generating positive financial results in the future. We willconsider using the existing staff and machines for these halls (that are expected to be closed
down) for either our existing halls or our new suburban halls to be opened in the next three years.
Second, for our remaining urban halls (which all have a positive cash flow), we believe there
is strategic and financial value in continuing their operations, and we intend to improve theirfinancial results through more effective marketing strategies, fine-tuning of the machine mixes

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and also minor hall renovations, in order to ultimately revitalise player interest and provide better
playing experiences. We also intend to reduce these halls’ operational costs by purchasing
second-hand machines, which are significantly cheaper than new machines. Ultimately, ourDirectors expect to see improved results after the abovementioned steps are taken to enhance
the performance of our urban halls.
Launch an online general prize redemption system
We are currently considering launching an online system (through a potential joint venture),
where customers can exchange balls or tokens obtained at our halls for general prizes. We
believe that this online general prize redemption system will significantly help us in attracting
more pachinko customers and also the pachinko industry as a whole. Primarily, we expect it togreatly improve the redemption rate of general prizes, which has historically been very low (ascompared to G-prizes). For the years ended 31 March 2012, 2013 and 2014 and the six months
ended 30 September 2014, the amount of redeemed general prizes was 1.0%, 0.9%, 0.9% and1.3% of the total amount of redeemed prizes, respectively. We believe this low redemption rateof general prizes is due to the fact that G-prizes are much more flexible, as they can be sold bycustomers to independent G-prize buyers for cash. General prizes, on the other hand, are very
limited in variety as their offerings are restricted by the actual physical space of our halls. For
example, our halls currently only offer around 280 to 1,400 types (depending on the size of thehall) of daily convenience store goods.
Through an online system, our range of general prizes will no longer be limited to thephysical space of our halls. This means we will be able to offer a significantly wider range in termsof both quantity and variety of goods (and significantly, not just the traditionally offered daily
convenience store goods). The online system may also offer a delivery service for exchanged
general prizes, providing high level of convenience for our customers. The selling price of suchprizes will be within the maximum value stipulated under the Enforcement Ordinance (being¥9,600 before consumption tax). Our Japan Legal Adviser has confirmed that this online general
prize redemption system (as conceptualised so far) and our involvement with it are in compliancewith applicable Japan laws and regulations.
Achieve greater cost savings through our centralised management strategy
With our centralised operational and management structure, we will continue to strive forgreater operational efficiencies and cost savings by standardising our pachinko halls in terms ofbranding, construction and procurement. Together with our strategy to expand within Northeast
Honshu (本州島東北), we expect to benefit further from economies of scale in respect of costsavings through bulk purchases and efficient allocation of human resources. We believe that thisstrategy would help enhance our strong market position and eventually lead us to an even more
dominant position in Northeast Honshu (本州島東北).

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Continue to invest in our information technology system
We plan on consolidating certain software systems into an advanced integrated softwaresystem, with improved data-analysis functions and increased efficiency in information sharing
and communication among our various departments. For example, an advanced integrated
system will more efficiently circulate operational data collected in each hall to our purchasing
department for making procurement decisions, and also simultaneously to our sales strategy
department for analysis and budgeting. Further, we intend to upgrade our current HallManagement System in order to enhance our internal control by adding a new function that
detects instances when a machine suddenly pays out an exceptionally high amount for our
immediate attention. We will also consider adding a face-recognition function to our hall
surveillance systems to detect previously caught or suspected cheaters.
PACHINKO AND PACHISLOT HALL OPERATIONS
Our primary business has always been our pachinko and pachislot hall operations 2 . As at
the Latest Practicable Date, we operated 55 pachinko halls in ten prefectures of Japan, all within
Northeast Honshu (本州島東北), especially Fukushima Prefecture (福島県), Tokyo (東京都) andtheir neighbouring and conjoining prefectures. We have achieved growth in the number of ourpachinko halls during the Track Record Period and up to the Latest Practicable Date. The tablebelow shows the number of our operating halls as at the indicated dates:
As at theAs at
As at 31 March
2012

2013

Latest30 September
2014

2014

Practicable
Date

Suburban . . . . . . . . . . . . . . . . .
Urban . . . . . . . . . . . . . . . . . . . .

42
8

43
9

44
9

44
9

46
9

Total . . . . . . . . . . . . . . . . . . . . .

50

52

53

53

55

2

Our revenue from our pachinko and pachislot business constituted almost all of our total revenue, namely 97.6%,
97.5%, 97.5% and 97.6% of our total revenue during the years ended 31 March 2012, 2013 and 2014 and the six
months ended 30 September 2014. Other than our core business of pachinko and pachislot hall operations(including vending machine income), we also have two other businesses, namely our hotel operations and also our“LIZARRAN” restaurant. See “— Other Businesses” in this section below for details of these other businesses.

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Our revenue from our pachinko and pachislot hall operations consists of: (1) revenue fromour pachinko and pachislot business, which in turn represents gross pay-ins less gross payouts;and (2) vending machine income. The table below shows our revenue from our pachinko andpachislot hall operations during the Track Record Period:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

(unaudited)
Revenue from pachinko
97.6

31,91997.7

32,99497.9

15,992

97.8

15,191

98.1

724

2.4

748

2.3

704

2.1

362

2.2

301

1.9

and pachislot halloperations . . . . . . . . . 30,352

100.0

32,667100.0

33,698100.0

16,354100.0

15,492100.0

and pachislot business . 29,628
Vending machine income . .
Revenue from pachinko

The table below shows our revenue from pachinko and pachislot business during the Track
Record Period:
Six months ended
Year ended 31 March

30 September
2013

2012

2013

2014

(unaudited)2014(¥, in millions)(1)

Gross pay-ins.............
Less: Gross payouts (2) . . . . . . . .

224,968(195,340)

242,217(210,298)

236,449(203,455)

120,674(104,682)

90,989(75,798)

Revenue from pachinko andpachislot business (3) . . . . .

29,62831,91932,994

15,992

15,191(1)

Represents the amount received from customers for rented pachinko balls and pachislot tokens.

(2)

Represents the aggregate cost of G-prizes and general prizes exchanged by customers.

(3)

Represents gross pay-ins less gross payouts.

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Geographical Focus in Northeast Honshu (本州島東北)All of our halls are located in Northeast Honshu (本州島東北). Our halls are spread across ten
prefectures, namely:1.

in the Tōhoku Region (東北地方): Fukushima Prefecture (福島県), Miyagi Prefecture(宮城県) and Yamagata Prefecture (山形県);

2.

in the Kantō Region (関東地方): Tokyo (東京都), Ibaraki Prefecture (茨城県), Gunma
Prefecture (群馬県), Kanagawa Prefecture (神奈川県), Tochigi Prefecture (栃木県) and
Saitama Prefecture (埼玉県); and3.

in the Chūbu Region (中部地方): Niigata Prefecture (新潟県).

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The below map shows the number of our pachinko halls as at the Latest Practicable Date:

Note:

Hall number 17 in Fukushima Prefecture (福島県) has been permanently closed since the Great East Japan
Earthquake as it is located within the exclusion zones implemented by the Japanese government in March 2011.
See “— Pachinko and Pachislot Hall Operations — Fukushima Prefecture (福島県) and the Great East Japan
Earthquake” in this section below for details.

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The table below shows a breakdown of our halls by type in each of these ten prefectures
as at the Latest Practicable Date:
Number of operating halls
Prefecture

Suburban

Urban

Total

To៮ hoku Region (東北地方)
Fukushima Prefecture (福島県) . . . . . . . . . . .
Miyagi Prefecture (宮城県) . . . . . . . . . . . . . . .
Yamagata Prefecture (山形県) . . . . . . . . . . . .

19
1
2

1
—
—

20
1
2

Kantō Region (関東地方)
Tokyo (東京都) . . . . . . . . . . . . . . . . . . . . . . . .
Gunma Prefecture (群馬県) . . . . . . . . . . . . . .
Ibaraki Prefecture (茨城県) . . . . . . . . . . . . . .
Kanagawa Prefecture (神奈川県) . . . . . . . . . .
Saitama Prefecture (埼玉県) . . . . . . . . . . . . .
Tochigi Prefecture (栃木県) . . . . . . . . . . . . . .

4
4
4
2
5
2

8
—
—
—
—
—

12
4
4
2
5
2

Chūbu Region (中部地方)
Niigata Prefecture (新潟県) . . . . . . . . . . . . . .

3

—

3

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

46

9

55

These ten prefectures had a total population of 47.4 million as at 31 December 2013 anda real GDP of ¥202.9 trillion in 2013, representing 37.7% and 38.6% of the total population as
at 31 December 2013 and real GDP of Japan in 2013, respectively. The table below shows certain
economic data with respect to the ten prefectures for the indicated dates and periods:
CAGR
2009 -

2014E -

2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

2013

2018E

46,90647,39547,36747,35847,38047,38447,38947,37647,36047,352

0.3%

0.0%

37.3

37.5

37.5

37.6

37.7

37.8

37.8

37.9

38.0

38.0

N/A

N/A

(¥ billion) . . . . . 194,571

195,846

196,528

199,395

202,918

203,836

206,042

208,810212,231

216,697

1.1%

1.5%

0.7

0.3

1.5

1.8

0.5

1.1

1.3

1.6

2.1

N/A

N/A

Total population of
the tenprefectures as at
31 December(thousands) . . . .
Percentage of total
population of theten prefecture outof that of Japan(%) . . . . . . . . .
Total real GDP of theten prefectures
Growth rate of thetotal real GDP of
the ten prefectures(%) . . . . . . . . .

Source: Japan Statistics Bureau and EBI

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BUSINESSAs shown above, the total population of these ten prefectures has increased slightly. Further
the total population of these ten prefectures has been taking up an increasingly larger proportionof the total population of Japan.
Fukushima Prefecture (福島県) and the Great East Japan Earthquake
Fukushima Prefecture (福島県) is our most important strategic location, in which ourheadquarters, hotel and 20 of our halls (as at the Latest Practicable Date) are located. In
particular, it is the prefecture with the most number of our halls and machines. Our halls inFukushima Prefecture (福島県) accounted for 40.1%, 40.7%, 40.5% and 42.7% of our total
revenue for the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, respectively.
In March 2011, the Great East Japan Earthquake struck the To៮ hoku Region (東北地方),
northeast of Japan. This earthquake triggered tsunami waves that struck the northeastern coastof Japan, and caused (among others) the nuclear power plant incident in Fukushima Prefecture(福島県), causing the lingering public concern over radiation levels.
As a result of the Great East Japan Earthquake, we recorded earthquake losses (namely,
property damage) of ¥653 million for the year ended 31 March 2011. It caused us to temporarilysuspend the operations of a majority of our halls, namely 32 halls, of which 11 halls werereopened within two weeks, 17 halls were reopened within four weeks, one hall was reopened
within six weeks, two halls were reopened within eight weeks and one hall was reopened within
13 weeks. We also had to permanently close one hall (that was located within the exclusion zone
in Fukushima Prefecture (福島県) implemented by the Japanese government). For this one
permanently closed hall, we entered into alternative dispute resolution (namely, mediation of
settlement before the Nuclear Damage Compensation Dispute Resolution Center*(原子力損害賠償紛争解決センター), an administrative alternative dispute resolution institution
established by the Japanese government specifically to deal with nuclear damage compensation
claims arising from this nuclear power plant incident) with the operator of the affected nuclear
plants, Tokyo Electric Power Company, Incorporated* (東京電力株式会社), which compensatedus ¥590 million (recorded as other income for the six months ended 30 September 2014), mainlyfor our loss of profits incurred during the one-year period after the Great East Japan Earthquake
and also related property damages (including loss of all movables such as machines and islands).
Our Directors are considering the most appropriate method to obtain compensation for loss of
profits for subsequent years. Aside from this permanently closed hall, none of our halls is within
the exclusion zones implemented by the Japanese government.
Further, our Directors have confirmed that we have not experienced any casualties or
injuries as a result of the Great East Japan Earthquake.
On 22 December 2014, the Tokyo Electric Power Company, Incorporated* (東京電力株式会社) announced the on-schedule completion of the first major advancement towards thedecommissioning of the relevant nuclear power plant. All fuel assemblies had been removed fromone of the four damaged reactor buildings, resulting in a significantly safer environment forworkers and surrounding communities, according to the operator’s president and chief executive

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officer. Fuel removal operations have shifted towards the remaining three damaged reactor
buildings. Further, a reputable scientific journal published a report in early 2014 on the radiationin certain areas neighbouring the exclusion zones. The average radiation dose rate in 2012 andthe projected average radiation dose rate in 2022 are both similar to the average backgroundradiation exposure in Japan. Further, a detectable increase in cancer risk from 2012 onwards is
unlikely.
Exclusion zones stipulated by the Ministry of Economy, Trade and Industry of Japan( 経済産業省 )In response to the Great East Japan Earthquake, the Ministry of Economy, Trade andIndustry of Japan (経済産業省) stipulated exclusion zones on 22 April 2011 with three degrees ofseverity, namely areas where (from most severe to least severe): (1) it is expected that residents
will have difficulties in returning for a long time; (2) the residents are not permitted to live; and (3)evacuation orders are ready to be lifted. Since the implementation of such exclusion zones, theMinistry of Economy, Trade and Industry of Japan* (経済産業省) has gradually reduced the sizeof such zones twice, namely on 1 April 2014 and 1 October 2014.
We only own one hall that is located within these exclusion zones, which, as mentioned
above, has been permanently closed since the Great East Japan Earthquake. Our next closest
hall (to these exclusion zones) is already located at least five kilometres outside of the least
severe exclusion zone (areas where evacuation orders are ready to be lifted).
The below map shows the coverage of these three exclusion zones as at the Latest
Practicable Date, including the location of our halls in Fukushima Prefecture (福島県):

Legend18

Nuclear power station
Area1: Areas to which evacuation orders areready to be lifted
Area2: Areas in which the residents are notpermitted to live

19

Area3: Areas where it is expected that theresidents have difficulties in returning
for a long time
Our suburban halls

17

20
10Km

210

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Effect of the Great East Japan Earthquake on the working population and financial
results of our halls in Fukushima Prefecture ( 福島県 )According to statistics published by the Fukushima Prefectural Government (福島県庁), theworking population (including part-time employees) in Fukushima Prefecture (福島県) as at 31
December 2011 recorded a decrease of 6.6% to 598,006 as compared to 31 December 2010.
This was mainly due to a decrease in women with part-time jobs as many chose to leave theprefecture in order to avoid the aftermath of the earthquake. However, by 31 December 2012, theworking population had already sharply rebounded, increasing by almost 10% to 652,725 ascompared to the same time last year. In fact, by 31 December 2012, the working population had
already exceeded the level preceding the Great East Japan Earthquake by 2.0%, and by 31
December 2013, the working population had increased to 655,479. The increase inworkingpopulation was mainly due to a surge in male workers (primarily in the manufacturing,
construction and logistics industries) and also female workers (primarily in welfare and catering
service) as part of the post-earthquake recovery efforts.
Before theGreat EastJapan
Earthquake

Working population of Fukushima Prefecture(trailing 12-month average) . . . . . . . . . .

After the Great East Japan Earthquake

31 December
2010

31 December
2011

31 December
2012

31 December
2013

640,221598,006

652,725

655,479

N/A

-6.6

2.0

2.4

Percentage change of working population of
Fukushima Prefecture since 31 December
2010 (%) . . . . . . . . . . . . . . . . . . . . .

Source: Fukushima Prefectural Government ( 福島県庁 )Ultimately, the increases in working population have improved the business performance of
our halls located in Fukushima Prefecture (福島県) by increasing our player traffic. For the three
years ended 31 March 2012, 2013 and 2014, the revenue from pachinko and pachislot businessof these halls amounted to ¥11.9 billion, ¥13.0 billion and ¥13.4 billion, respectively, andrepresented a CAGR of 6.0%. In fact, our halls located in Fukushima Prefecture (福島県) havebecome increasingly important to our financial results since the earthquake, having represented
40.1%, 40.7%, 40.5% and 42.7% of the total revenue from pachinko and pachislot business of
all our halls for the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, respectively. Further, operating profit attributable to our halls located in
Fukushima Prefecture (福島県) also increased over the Track Record Period, having represented
51.1%, 54.6%, 55.9% and 59.7% of our total operating profit for the years ended 31 March 2012,2013 and 2014 and the six months ended 30 September 2014, respectively. Ultimately, as aresult of the Great East Japan Earthquake, our revenue was not negatively impacted (and actually
improved compared to the financial year preceding the earthquake), while our profit was211

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negatively impacted only for the year ended 31 March 2011 (being the year of the earthquake),
after which it had already rebounded to levels exceeding that of the financial year preceding theearthquake.
Gaming Experience
Our pachinko halls provide a venue for customers to play two types of recreational arcade
games, namely pachinko and pachislot. These games are played as follows:1.

Obtaining pachinko balls or pachislot tokens

Pachinko balls are used to play pachinko games, while pachislot tokens are used to playpachislot games.
Our pachinko and pachislot games may be played for different ball or token rental rates. We
have pachinko machines with playing costs of ¥0.5, ¥1, ¥1.25, ¥2 and ¥4 and pachislot machineswith playing costs of ¥2, ¥5, ¥10 and ¥20 in our halls 3 . For example, for ¥1,000, a customer may
obtain 250 ¥4 pachinko balls to play or 50 ¥20 pachislot tokens to play.
To obtain pachinko balls or pachislot tokens, a player initially inserts cash into the gamemachine. The player can then purchase pachinko balls in ¥500 blocks or pachislot tokens in¥1,000 blocks out of such cash balance and put the balls or tokens into play.
When the player finishes playing that particular machine, any unutilised cash, balls or tokens
can be stored either in: (1) an IC card, which will be ejected from the machine; or (2) amembership card inserted by the player at the beginning of play. See “— Marketing and Market
Research — Membership system” in this section below for details on our membership cards.
These IC and membership cards can then be: (1) re-inserted into machines in the same hallto utilise any stored cash, balls or tokens; (2) inserted into the cash changer to redeem any
remaining cash balance before such card’s expiry; or (3) handed over to our staff in the same hall
to exchange the remaining balance of balls or tokens into prizes.
For IC cards, any stored balls or tokens can only be used on the same day the card isissued, while any cash balance will be forfeited 21 days after the card is issued (in line withmarket practice). Unutilised cash stored in IC cards are accounted for as other payables and isrecognised as gross pay-ins when the player uses it to purchase balls or tokens. Any forfeited3

Some of our halls may require the customer to absorb the consumption tax. For these halls, playing costs forpachinko machines are ¥0.54, ¥1.08, ¥2.16 and ¥4.32, while playing costs for pachislot machines are ¥5.4, ¥10.8
and ¥21.6. Our Japan Legal Adviser has confirmed that such arrangements are in compliance with the Amusement
Business Law and the Enforcement Ordinance.

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cash balance is recognised as other income, which accounted for less than 0.02% of our gross
pay-ins during the Track Record Period. See “Financial Information — Results of Operations of
our Group — Description of Components of Results of Operations — Gross pay-ins” for details
on unused amounts on IC cards.
The number of our pachinko halls has grown during the Track Record Period, which alsomeant a corresponding increase in the number of our pachinko and pachislot machines. The
table below shows the number of our pachinko and pachislot machines as at the indicated dates:
As at 31 March
2012

2013

As at 30 September
2014

2014

(number of machines, except for percentages)%

Pachinko . . . . .
Pachislot . . . . .

16,551
7,321

69.3

Total . . . . . . . .

23,872

2.

%
68.3

30.7

17,160
7,981

100.0

25,141

%

%

67.9

31.7

17,575
8,313

67.3

32.1

17,562
8,542

100.0

25,888100.0

26,104100.0

Playing pachinko or pachislot

Pachinko
digital screen
payment slot

pins

pockets
pinwheeltrigger pocket
handleattackertrapball tray

jet counter for balls

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A pachinko machine resembles a vertical pinball machine (but without pinball flippers andwith a large number of playing balls). The objective is to collect as many pachinko balls as
possible, in order to exchange them for prizes in our halls. Upon inserting cash, an IC card or themembership card into the payment slot adjacent to the machine, a number of small metal
pachinko balls is dispensed into the ball tray located near the bottom of the machine. The player
fires the balls into the playing field in rapid succession, while controlling the velocity of thepachinko balls by turning a handle located next to the tray. The key is to find the proper shooting
strength, as turning the handle too far sends the pachinko balls straight into the exit chute andthe balls will be forfeited, while not turning the handle far enough will not cause the balls to launch
into the playing field.
Once shot into play, the pachinko balls cascade down through the dense array of pins in theplaying field. Pachinko balls will either fall into: (1) the single trap at the bottom of the playing fieldand such pachinko balls will be lost; or (2) the pockets located along the bottom of the playing
field, which in turn trigger the release of more pachinko balls into the ball tray, that can be placedback into play or exchanged for prizes.
There is typically one pocket near the bottom of the playing field, a “trigger” pocket, whichcauses images arranged in multiple columns on the digital screen in the centre of the playing field
to spin, similar to the reels in a slot machine. Each spin pays out a small number of balls. If thespins produce a winning combination of images on-screen, the “jackpot” mode commences that
opens a larger pocket in the playing field (the “attacker”) for a limited time. Each ball that landsin the “attacker” during this “jackpot” mode pays out a large predetermined number of pachinkoballs.
Pachislot

start buttonreelspayment slot

token slot

reel stop buttons

token tray

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A pachislot machine is similar to a traditional slot machine, with three reels of different
images in playing field. The objective of pachislot is to collect more tokens by stopping thespinning reels such that the images on each reel match up to form a winning combination. To
play, as with pachinko machines, a player inserts cash, an IC card or a membership card into thepayment slot adjacent to the machine, and a number of tokens to be used in the game will bedispensed into the tray near the bottom of the machine. The player inserts tokens into themachine presses the start button, which causes the three reels to begin to spin. While the reels
are spinning, the player presses the stop button under each reel to stop the corresponding reel.
If, after the three reels have been stopped, two or more of the pictures match up, the player wins
more tokens that are dispensed into the token tray. If none of the pictures on the three reels
matches up, the tokens played are lost.
3.

Redeeming Prizes

Both games end when the player either runs out of pachinko balls or pachislot tokens, or
simply stops playing. Each machine may have its own theme or enhancing features such as adisplay screen that shows short video clips during play for added entertainment, in order toprovide the player with a more entertaining gaming experience.
Once a customer has finished playing, the pachinko balls or pachislot tokens collected bythem must be returned to the pachinko hall and cannot be used in other halls. The pachinko hall
will count such balls or tokens and issue a receipt to the player showing the number collected.
The player may then take this receipt to claim prizes at the prize exchange counter within thepachinko hall (and operated by the hall operator), similar to exchanging tickets won at a carnival
for prizes. The number of balls or tokens required to exchange for prizes vary by location and themarket value of such prizes. Generally, prizes must be claimed on the same day the receipt isissued as the receipt is only valid on its issue date. See “— Marketing and Market Research —Membership system” in this section below for information on carrying over unused balls for
subsequent visits.
Prizes provided by our pachinko halls consist of:a.

General prizes. These are typically the types of daily goods sold in convenience
stores, including cigarettes, food and snacks, household goods and drinks. Our halls
offer a selection of around 280 to 1,400 types of general prizes, with the number andvariety varying based on the size of the hall. Our suburban halls are larger (and offer
more types of general prizes) than our urban halls. The dominant category of ourgeneral prizes on offer is food and snacks, which includes an array (namely, 22 items)of our private brand products manufactured by our private label manufacturers.
The value of pachinko balls or pachislot tokens required to redeem general prizes isdetermined with reference to suggested retail prices from the prize supplier.
Regulations set the upper limit of the value of all prizes at ¥9,600 (before consumptiontax). For more information, see “Applicable Laws and Regulations D. Other Regulations
on Pachinko Businesses — 5. Playing Costs, Prize Offerings and Prize Value”. We
realise a margin on general prizes where the monetary value of the number of balls or

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tokens required to collect a general prize exceeds that of our purchase price for suchgeneral prize. During the Track Record Period, our general prize (excluding our private
brand products) mark-up ranged from 18% to 25%, while our private brand productmark-up was higher, ranging from 43% to 46%. Our Directors have confirmed that
there was no material change in our general prize mark-ups (including our private
brand products) during the Track Record Period and up to the Latest Practicable Date.
Our Japan Legal Adviser has confirmed that such mark-ups on our general prizes arelegal and valid under applicable Japan laws and regulations.
b.

G-prizes. These are decorative cards with a small embedded piece of metal (such asgold) or coin-shaped pendants of metal (such as gold), and can be subsequently soldby players to independent G-price buyers for cash.
The value of pachinko balls or pachislot tokens required to redeem G-prizes varies
depending on location as well as the playing cost of the machine played, generally
corresponding to a mark-up over the price (paid by us to our G-prize wholesalers for
the G-prizes). Therefore, similar to general prizes, we sometimes realise a margin on
G-prizes due to the G-prize mark-up, where the monetary value of the number of balls
or tokens required to exchange a G-prize exceeds that the cost we paid for such
G-prize. During the three years ended 31 March 2014, our G-prize mark-up was nil,while during the six months ended 30 September 2014 (specifically, since 1 April2014), our G-prize mark-up ranged from 4% to 20% (with an average of 10%). See“Financial Information — Results of Operations of Our Group — Description ofComponents of Results of Operations — Gross payouts” for details on the materialchanges in our G-prize mark-ups during the Track Record Period and up to the Latest
Practicable Date, and also the expected impact on our operational and financial
results.
G-prizes make up virtually all of the value of prizes exchanged by customers. The tablebelow shows the value of G-prizes and general prizes exchanged by customers during
the indicated periods:
Year ended 31 March2012¥
G-prizes . . . . . . . 193,351
General prizes . . . .
1,950
Others (Note) . . . . . .
39
Total . . . . . . . . . 195,340

2013
%

0.0

¥
208,288
1,989
21

100.0

210,298

99.0
1.0

Six months ended 30 September
2014

2013

(in millions, except for percentages)
%
¥
%
¥
99.1
201,708
99.1
103,706
0.9
1,852
0.9
961
0.0
(105)
0.0
15
100.0

203,455

100.0

104,682

2014
%

0.0

¥
74,508
994
296

100.0

75,798

99.1
0.9

%
98.3
1.3
0.4
100.0

Note:
Others mainly represent the movements of balances of unutilised balls and tokens during the year/period. See “Financial
Information — Financial Metrics of our Business”.

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BUSINESS
Our Japan Legal Adviser has confirmed that such exchange of G-prizes and such
G-prize mark-ups are legal and valid under applicable Japan laws and regulations.
In accordance with the Amusement Business Law and its ancillary prefectural local
regulations, we strictly do not exchange any pachinko balls or pachislot tokens forcash or securities in any of our halls. However, customers are free to further sell theirG-prizes to an independent G-prize buyer (not located in our halls) for cash.
Further, as advised by our Japan Legal Adviser, Japan laws or regulations do not
restrict customers from purchasing balls or tokens and then directly exchanging themfor prizes without playing. However, such acts are prohibited under our internal AML
policies and procedures. Our hall staff perform regular monitoring of customers during
operation hours to identify (among others) customers exchanging prizes without
playing. Further, at the end of each day, our hall managers compare the ratio of thenumber of balls played to the number of balls rented at the pachinko hall with historicalfigures. If abnormal values are detected, our hall manager will instruct hall staff toreview surveillance camera footage of the day to identify any customers thatexchanged prizes without playing. Hall staff will also pay special attention to customers
on the next day to identify such suspicious activity. If a customer is identified to beexchanging prizes without playing and does not cease to do so after being asked, suchact will immediately be reported to the police. We may also request such customer toimmediately leave the premises and refuse the exchange of balls or tokens earned
without playing. No such incident was discovered during the Track Record Period and
up to the Latest Practicable Date. In any event, customers should have no (or less)incentive to exchange balls or tokens for prizes without playing, as they will suffer
immediate monetary losses due to the various prize mark-ups imposed by us.
Three Party System
Under the Amusement Business Law (and its ancillary prefectural local regulations),
pachinko hall operators must not be involved in the exchange of prizes for cash or securities byeither: (1) providing cash or securities as prizes; or (2) repurchasing from customers the prizes
provided to them for cash or securities. In order to ensure compliance with (among others) theserestrictions, we operate our pachinko and pachislot hall operations (regarding the sale andpurchase of G-prizes exchanged by a customer by playing at our halls) in accordance with anestablished industry practice commonly referred to as the “Three Party System”. For a detailed
description of the laws and regulations relating to pachinko and pachislot hall operations, see“Applicable Laws and Regulations”.
Parties
The parties under the “Three Party System” consist of:1.

Pachinko hall operators. These operate pachinko halls that provide pachinko andpachislot games, and also purchase G-prizes from G-prize wholesalers. Customers
can play these games and exchange their balls or tokens in these halls for prizes, suchas G-prizes;

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2.

G-prize buyers. These are typically companies or sole proprietorships. Customers
can, but are not obliged to, sell their G-prizes (that they obtained from pachinko halls)
to them for cash. G-prize buyers will then further sell these G-prizes to G-prize
wholesalers; and3.

G-prize wholesalers. These are typically companies and they purchase G-prizes from
G-prize buyers, and then further sell them to pachinko hall operators.

The diagram below shows the general flow of G-prizes within the Three Party System andwith customers:

The Three Party System
G-prize buyer(2) Sale of G-prize toG-prize buyer(3) Sale of G-prize toG-prize wholesaler

CustomerG-prize wholesaler(4) Wholesale of G-prize
to pachinko hall operator(1) Provision of G-prize inexchange for balls/tokens
collected

Pachinko hall operator

While the purchase price for transactions marked (2), (3) and (4) in the above diagram are
generally similar, our G-prize wholesalers also typically receive a monthly fee from us and G-prize
buyers also typically receive a monthly fee from the relevant G-prize wholesaler, for theirrespective services rendered for such relevant transactions. Consistent with industry practice,the monthly fee paid by us to G-prize wholesalers is greater than that paid by G-prize wholesalers
to their G-prize buyers. See “— Pachinko and Pachislot Hall Operations — Three Party System— Agreements between us and G-prize wholesalers” and “— Pachinko and Pachislot Hall
Operations — Three Party System — Agreements between G-prize wholesalers and G-prize
buyers” in this section below. As for transaction (1), depending on the location of the hall andcompetition in that area, a mark-up on the G-prizes (set by the pachinko hall operator) may be
added over the purchase price of the G-prize paid by the pachinko hall operator to the G-prize
wholesaler, when the customer exchanges his balls or tokens for G-prizes. For instance,
assuming a 10% G-prize mark up, a customer will need 1,100 ¥1 balls to exchange a G-prize witha cost of ¥1,000 from the operator.

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Further, G-prize wholesalers may purchase G-prizes from various G-prize buyers, and they
may also sell G-prizes to various pachinko hall operators if the G-prize is of the same type indesign and appearance. As such, all the G-prizes purchased by the wholesaler from multiple
G-prize buyers are commingled, meaning that the G-prizes that are sold to the pachinko hall by
the wholesaler are not necessarily the same G-prizes provided by the pachinko hall to its
customers.
Independence
Under the Three Party System, pachinko hall operators (such as ourselves), must be
independent of each of the: (1) G-prize wholesalers engaged by them; and (2) G-prize buyers
engaged by their G-prize wholesalers. This ensures that, from the pachinko hall operators’
perspective, G-prize wholesalers and G-prize buyers are unrelated third parties from thepachinko hall operator.
Independence between pachinko hall operators and G-prize wholesalers
A G-prize wholesaler is independent and an unrelated third party to the pachinko halloperator if:
1.

neither party may have the ability to exercise control, whether directly or indirectly, over
the other, through (i) any relationship or connection between the personnel of thepachinko hall operator and the G-prize wholesaler, (ii) any equity holding or any othercapital relationship or connection between the pachinko hall operator and the G-prize
wholesaler, or (iii) any contract or other agreement between the pachinko hall operator
and the G-prize wholesaler; and2.

G-prizes to be purchased are of market value, meaning that G-prizes must have
intrinsic value (which can be satisfied by the metal (such as gold) embedded in theG-prize).

Each of these factors is satisfied with respect to all of our pachinko halls.
Our Japan Legal Adviser, after conducting due diligence as described in “— Pachinko andPachislot Hall Operations — Three Party System — Independence — Due diligence conductedby our Japan Legal Adviser and the Sole Sponsor” in this section below, has also determined thateach of our pachinko halls is independent as evaluated under the factors listed above from eachof our G-prize wholesalers.
Independence between pachinko hall operators and G-prize buyers
A G-prize buyer is independent and an unrelated third party to the pachinko hall operatorif:
1.

neither party may have the ability to exercise control, whether directly or indirectly, over
the other, through (i) any relationship or connection between the personnel of the219

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G-prize buyer and the pachinko hall operator, (ii) any equity holding or any other capital
relationship or connection between the G-prize buyer and the pachinko hall operator,or (iii) any contract or other agreement between the G-prize buyer and the pachinko
hall operator;
2.

G-prizes to be purchased are of market value, meaning that G-prizes must have
intrinsic value (which can be satisfied by the metal (such as gold) embedded in theG-prize); and3.

G-prizes are not directly returned from or sold by the G-prize buyer to the pachinko halloperator (but, for example, are instead sold by the G-prize buyer to a G-prize
wholesaler who in turn commingles the G-prizes that it has purchased from multiple
sources (including other G-prize buyers), thus, making it impossible to identify whichhall the G-prizes came from).

Each of these factors is satisfied with respect to all of our pachinko halls.
Our Japan Legal Adviser, after conducting due diligence as described in “— Pachinko andPachislot Hall Operations — Three Party System — Independence — Due diligence conductedby our Japan Legal Adviser and the Sole Sponsor” in this section below, has confirmed that eachof our pachinko halls is independent as evaluated under the factors listed above from each of theG-prize wholesalers (engaged by us) G-prize buyers (engaged by such G-prize wholesalers).
Our internal control procedures to ensure our independence
We have obtained written confirmations issued to us and the Sole Sponsor from all ourcurrent G-prize wholesalers regarding their independence (based on criteria even stricter thanthat set out above) from: (1) us; and (2) any G-prize buyers engaged by them who have G-prize
buying shops near our halls. These confirmations also covered the following matters:•

a complete and accurate list of all G-prize buyers engaged by them who have G-prize
buying shops near our halls;•

to the best of their knowledge, the content of the confirmations issued by such G-prize
buyers (as described below) to us and the Sole Sponsor is true and accurate;•

written undertakings to conduct their own regular background checks against any
G-prize buyers engaged by them in order to monitor any independence issues between
such G-prize buyers and themselves, and if these G-prize wholesalers become awareof any such independence issues, they will inform us and resolve such issues
immediately in order to ensure compliance with the Three Party System;

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written undertakings to report to us in a timely manner any change in their shareholding
structure and composition of their board of directors, or if they become aware of any
change in the shareholding structure or composition of the board of directors of any
G-prize buyers engaged by them or any other matters that may affect their
independence or the independence of such G-prize buyers within the Three Party
System; and•to the best of their knowledge, they are not aware that any such G-prize buyers are
anti-social forces, or are or will be involved in any actions or activities using, or jointly
associate with, any anti-social force. Further, neither they nor any of theirrepresentatives, directors, statutory auditors, executive officers or shareholders are
anti-social forces, or are or will be involved in any actions or activities using, or jointly
associate with, any anti-social force.

We have obtained written confirmations issued to us and the Sole Sponsor from all such
G-prize buyers regarding their independence (based on criteria even stricter than that set out
above) from: (1) us; and (2) any G-prize wholesalers engaged by us. These confirmations also
covered the following matters:•neither they nor any of their representatives, directors, statutory auditors, executive
officers or shareholders are anti-social forces, or are or will be involved in any actions
or activities using, or jointly associate with, any anti-social force;•to the best of their knowledge, they are not aware that any such G-prize wholesalers
are anti-social forces, or are or will be involved in any actions or activities using, or
jointly associate with, any anti-social force; and•they have undertaken to the G-prize wholesaler that engages them that they shallreport to such G-prize wholesaler in a timely manner any change in their shareholding
structure or composition of board of directors or any other matters that may affect their
independence within the Three Party System.

We have also obtained through our current G-prize wholesalers a list of the shareholders of
the G-prize buyers engaged by them.
We will require our G-prize wholesalers to re-issue, and to request their G-prize buyers to
re-issue, these confirmations to us every year.
In addition, we have also adopted the following internal control procedures to ensure theindependence of our pachinko halls from each of our G-prize wholesalers and G-prize buyers
engaged by them:•

we regularly obtain from each of our G-prize wholesalers a list of the shareholders (orultimate owners) and directors of both themselves and the G-prize buyers engaged by
them;

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we will annually obtain commercial registers of all our G-prize wholesalers and theG-prize buyers engaged by them (provided that they are legal corporate entities) toreview the composition of their board of directors;•

we will engage independent third parties to perform annual searches on theshareholding structure and list of directors (if available) for all of our G-prize
wholesalers and G-prize buyers engaged by them;•

we require our Directors, senior management and Shareholders to confirm that they are
independent of our G-prize wholesalers and such G-prize buyers (based on the criteria
set out above), and to notify us immediately if they become aware of any potential
independence issues;•

we will provide training on the Three Party System to our employees on a regular basis
to ensure that they do not engage with G-prize wholesalers or G-prize buyers engaged
by them, and to prevent them from unknowingly establishing a relationship with them.
For example, all our Directors and senior management attended a training conductedby our Japan Legal Adviser in December 2014 on the legal, regulatory and practicerequirements under the Penal Code, the Amusement Business Law and the Third Party
Local Regulation, including the independence requirements within the Three Party
System;•we require that none of our management, Directors or staff are engaged in the G-prize
buying business; and•as our pachinko and pachislot hall operations are monitored by the Prefectural Public
Safety Commission* (都道府県公安委員会) in each relevant prefecture, in order toprevent any conflicts of interest that might otherwise arise and for improved corporate
governance, none of our Directors or senior management has been, or is, a police
officer in Japan and we require them to confirm so to us.

For our internal control procedures in relation to potential new G-prize wholesalers, see “—Pachinko and Pachislot Hall Operations — Three Party System — Risk management” in thissection below.
Due diligence conducted by our Japan Legal Adviser and the Sole Sponsor
Our Japan Legal Adviser and Sole Sponsor has conducted the following due diligence
regarding our independence from each of our G-prize wholesalers and the G-prize buyers
engaged by them:•hosted a training session conducted by our Japan Legal Adviser in December 2014 forall our Directors and senior management on the legal, regulatory and practicerequirements under the Penal Code, the Amusement Business Law and the Third Party
Local Regulations, including the independence requirements within the Three Party
System;222

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obtained confirmations issued to us and the Sole Sponsor from our Directors andsenior management regarding (among others) their attendance and understanding of
the relevant legal, regulatory and practice requirements (including on independence)
explained at the above training session;•

obtained confirmations issued to the Sole Sponsor from our Company, Directors,
Shareholders and senior management regarding (among others) the Group’s and their
independence from each of our G-prize wholesalers and the G-prize buyers (engaged
by our G-prize wholesalers);•

interviewed all our Directors and senior management regarding (among others) theirunderstanding of the relevant legal, regulatory and practice requirements (including on
independence) explained at the above training session, their relationship(s) with our
G-prize wholesalers and also the G-prize buyers (engaged by our G-prize wholesalers),
and ultimately to confirm the Group’s and their independence from each such party;•

interviewed our G-prize wholesalers (through their legal representative, a director orother responsible management personnel), regarding (among others) theirrelationship(s) with our Group and also the G-prize buyers (engaged by them), andultimately to confirm their independence from each such party;•

interviewed the G-prize buyers (engaged by our G-prize wholesalers) (through theirlegal representative, a director or other responsible management personnel) regarding(among others) their relationship(s) with our Group and also our G-prize wholesalers,and ultimately to confirm their independence from each such party;•

reviewed all agreements between us and our G-prize wholesalers, namely purchaseagreements for G-prizes, lease agreements and purchase agreements for
miscellaneous goods and services. See “— Agreements between us and G-prize
wholesalers” above for details on such agreements, including our Japan Legal
Adviser’s confirmation that such agreements do not affect our independence;•

reviewed the confirmations issued to us and the Sole Sponsor from all of our G-prize
wholesalers and the G-prize buyers (engaged by our G-prize wholesalers) (except for
those engaged in relation to our one hall that has been permanently closed due to theGreat East Japan Earthquake) regarding (among others) their independence within theThree Party System. See “— Pachinko and Pachislot Hall Operations — Three Party
System — Our internal control procedures to ensure our independence” for details ofthese confirmations;•reviewed all commercial registers of our G-prize wholesalers and such G-prize buyers(engaged by our G-prize wholesalers) that are corporations in order to identify (among
others) to identify any overlap of directors; and•obtained a list of the Group’s representatives, directors, statutory auditors, executive
officers and shareholders through the Group’s commercial registers and shareregisters.

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Legality of our pachinko and pachislot hall operations and the Three Party System
Our Japan Legal Adviser, having conducted due diligence described above and reviewed
the relevant court cases, governmental statements and practices, has advised us that:1.

the National Police Agency has never taken any action against the legality of thepachinko industry, as a whole, under the Penal Code, the Amusement Business Law,
the Third Party Local Regulations or otherwise;2.

as long as our pachinko and pachislot hall operations are conducted under the Three
Party System, in accordance with prevailing standard industry practices in thepachinko industry, and the independence factors described above are satisfied, ourpachinko and pachislot hall operations will not violate the Penal Code, the Amusement
Business Law or the Third Party Local Regulations;3.

our pachinko and pachislot hall operations (as carried out in the context of the Three
Party System) do not contravene the Penal Code, the Amusement Business Law, theThird Party Local Regulations or any of the operating licences of our halls; and4.

as at the Latest Practicable Date, we have not been found to be in any material breachof the Penal Code, the Amusement Business Law, the Third Party Local Regulations or
any of the operating licences of our halls.

Agreements between us and G-prize wholesalers
Our business with the G-prize wholesalers is generally based on: (1) a purchase agreement
for G-prizes; and (2) for around half of our suburban halls, a lease agreement for certain premiseson the parcel of land where the relevant pachinko hall is located. For a few G-prize wholesalers,
we may also enter into other purchase agreements for miscellaneous matters such as general
prizes and vending machines.
Purchase agreements for G-prizes. We enter into one master continuous purchase andsupply agreement with each G-prize wholesaler, and also generally memorandum(s) as ancillaryagreement(s) to such master agreement which will include separate commercial terms (such as
the cost of G-prizes) for each hall. These agreements are generally valid for one year andautomatically renewed on an annual basis. Under these agreements, we generally purchaseG-prizes daily from the G-prize wholesaler for cash (typically settled upon delivery). In addition,
we typically pay them a fixed monthly fee and/or a variable monthly fee calculated at around 1%of the total cost of the G-prizes purchased that month.
Lease agreements. We enter into lease agreements for around half of our suburban halls.
Under these, the G-prize wholesaler is restricted to use of the premises as office space and may
not, without our prior approval, change the existing buildings or construct new buildings. We

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lease multiple premises under separate lease agreements with the same G-prize wholesaler.
These leases generally last for a term of one year, with automatic annual renewals unless we or
the G-prize wholesaler objects. We may also terminate the agreement at our option upon any
breach by the G-prize wholesaler of any provisions of the agreement.
Purchase agreements for miscellaneous goods/services. For a few of our G-prize
wholesalers, we also enter into purchase agreements for general prizes, such as foods, and also
vending machines.
According to our Japan Legal Adviser, the various agreements that we have entered intowith our G-prize wholesalers do not contravene the Amusement Business Law or the various
relevant local regulations established by prefectural governments that prohibit pachinko halloperators from causing third parties to repurchase G-prizes from customers, as thesearrangements do not affect our independence (i.e. do not allow us and the G-prize wholesalerseither direct or indirect control over each other).
Agreements between G-prize wholesalers and G-prize buyers
To the best of our Directors’ knowledge and belief, G-prize wholesalers and G-prize buyers
also typically agree between themselves two similar agreements: (1) a purchase agreement for
G-prizes; and (2) a lease agreement for a portion of the same parcel of land leased by us (foraround half of our suburban halls) to the G-prize wholesaler.
Purchase agreements for G-prizes. Each G-prize wholesaler and G-prize buyer also
enters into an arrangement under which the G-prize wholesaler purchases G-prizes from theG-prize buyer for cash on a daily basis, at a price equivalent to that paid for G-prizes by theG-prize buyer to playing customers, and also by the hall operator (such as ourselves) to theG-prize wholesaler. In addition, the G-prize wholesalers also pay a fixed monthly fee to theG-prize buyers for their prize buying services, which allows the G-prize buyers to sustain theiroperations and to earn a profit.
Lease agreements. These allow the G-prize buyer to establish a presence on the property
leased from us (for around half of our suburban halls) by the G-prize wholesaler, where customers
may sell their G-prizes for cash. These arrangements between the G-prize wholesaler andG-prize buyer are common in the pachinko industry. To the best of our Directors’ knowledge andbelief, for some of our halls, G-prize buyers enter into lease agreements directly with the relevant
landlord.
We have no arrangements, relationships or agreements with G-prize buyers, and no ability
to exercise control, whether directly or indirectly, over them, nor they over us, through (i) any
equity holding or capital relationship or connection, (ii) any relationship or connection between
personnel, or (iii) any contract or other agreement. Nor do the arrangements between G-prize
wholesalers and G-prize buyers create any relationship between us and the G-prize buyer.

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Risk management
We have a detailed internal policy and procedures in place for the selection of our G-prize
wholesalers. Our purchasing department handles and oversees this selection and backgroundcheck process. Our G-prize wholesalers are selected based on the transparency of theiroperations, distribution network, logistics and inventory control capabilities and availability ofsupplies, by inspecting (among others) their commercial registers, financial statements, sealcertificate and corporate brochure(s). There has been no change in our G-prize wholesalers
during the Track Record Period and up to the Latest Practicable Date, and our Directors currently
expect to continue using the same G-prize wholesalers in the foreseeable future.
Before engaging a G-prize wholesaler, we will conduct background checks, with a focus on:(1) independence; and (2) anti-social forces.
We will conduct anti-social forces checks on potential counterparties through a private
investigation company, an independent third party, that has access to a database of informationcollected from newspapers and other publicly available sources. We will also, to the extent
possible, inspect the commercial registers of our G-prize wholesalers to cross-check theirdirectors to review their independence from us. If it is found that any potential G-prize wholesaler
belongs to or is related to the Japanese mafia or other anti-social force, or is not independentof us, we will not engage with that G-prize wholesaler.
If we really do engage a new G-prize wholesaler, we will require them to deliver written
declarations stating (among others) that they are independent of us and the G-prize buyers withwhom they contract, and that they (including their shareholders, directors and prize buyers they
contract with) do not have any connections to the Japanese mafia or other anti-social forces. We
will also request our G-prize wholesalers to conduct regular background checks against any
G-prize buyers engaged by them to review any anti-social force or independence issues between
themselves. Ultimately, we will also subject them to the same ongoing independence controlsthat apply to our existing G-prize wholesalers. See “Applicable Laws and Regulations — C.
Legality of Pachinko Businesses and the Three Party System — 3. Three Party System — Ourinternal control procedures to ensure our independence”. The same will apply to any new G-prize
buyer.
Pachinko Halls
We operate all of our halls under our NIRAKU brand and our halls can be identified by our
NIRAKU logos as depicted below:

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Our halls can be categorised into suburban halls and urban halls.
1.

Suburban halls are our primary business focus, representing 91.5%, 91.9%, 92.3%
and 91.9% of our total revenue for our pachinko and pachislot business for the years
ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2014.
They are typically located in the suburbs (areas with relatively low population density,
such as the suburbs of Fukushima Prefecture (福島県)), require car access and provide
parking spaces (including for the disabled). Generally, customers are the self-employed(such as farmers and fishermen), factory workers and retirees, and these halls are
generally larger with around 400 to 700 machines. Gross pay-ins from peak operation
hours (which are typically from 12:00 noon to 5:00 p.m.) on average accounted forapproximately 45% of the daily gross pay-ins of our suburban halls during the Track
Record Period.

2.

Urban halls are typically located in urban areas (areas with relatively high population
density, such as Tokyo (東京都)) and within walking distance of a train station.
Generally, customers are full-time employees of urban areas and these halls are
generally smaller with around 200 to 300 machines. Gross pay-ins from peak operation
hours (which are typically from 5:00 p.m. to 10:00 p.m.) on average accounted forapproximately 41% of the daily gross pay-ins of our urban halls during the Track
Record Period.

Some additional typical characteristics of our halls are:•feature a mix of pachinko and pachislot machines and a mix of low and high playing
cost machines (within which there can be a mix of high and low jackpot probability);•

feature a general prize display section where customers can select general prizes, andalso a prize exchange counter where customers exchange balls or tokens for suchgeneral prizes or G-prizes;•

offer both G-prizes and general prizes (with a broad selection of approximately 280 to
1,400 types of general prizes, including our private brand products, depending on thesize of our halls);•

smoking on the premises is permitted;•

provide snack and beverage vending machines (which are installed and maintained byindependent vending machine operators); and•many of our suburban halls feature a noodle shop or cafe (whose operations areoutsourced to independent third parties).

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Also, for our suburban halls, we are dedicated to ensuring that their external architecture isin harmony with their surroundings, through the use of minimalistic designs (featuring basic
geometry) and softer earth-tone colours. As for the interior design of our suburban and urban
halls, it is bright and neat with a standardised layout. All in all, we believe the external and internal
design of our halls create a welcoming and relaxing gaming experience for our customers.
A typical layout for our pachinko halls is shown below:
token resupplying machinehall computer

depository
bathrooms

IC card redemption machine
entrance

prize exchange counter
POS systemgeneral prize display

lounge for customers

depositoryisland of pachislot machines
entrance
entranceisland of pachinko machines
lounge for customers

ball resupplying system

The exact number and proportion of pachinko and pachislot machines in each hall are
determined by population and mix of machines provided by competitors in the area and also
customer preferences. All of our halls have a standardised layout featuring many ‘‘islands’’, orrows of around 10-24 machines each, separated by aisles. Each island features machine of thesame playing cost (e.g. only ¥1 pachinko machines or only ¥20 pachislot machines). The vast
majority (around 90% of our halls) of our machines have an automatic calculation function tocount the number of balls or tokens collected. For those machines that do not have suchfunction, there are jet counters at the end of the islands that can perform the same function.
There are also IC card machines in our halls.

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We utilise a centralised management strategy, which leverages the economies of scale ofour significant presence and strategic geographical focus in Northeast Honshu (本州島東北), tocentralise and standardise processes throughout our business, from branding and construction
to management, new hall development, machine procurement, prize procurement recruitment
and training of full-time employees, internal audit and daily operations. This strategy has resulted
in significant cost savings and operational efficiencies. Therefore, in accordance with ourcentralised management strategy, the general features of our halls remain constant regardless of
their location, which in turn helps us establish strong brand recognition, thus, further improving
our player traffic and customer loyalty.
The number of our halls has increased (with no closures) during the Track Record Period and
up to the Latest Practicable Date as a result of our ongoing strategy to continually expand(especially our suburban hall network) in Northeast Honshu (本州島東北). The table below shows
the movement of each type of our operating halls during the indicated periods:
From
Six months
ended2014 to the

30
Year ended 31 March
2012

2013

LatestSeptember
2014

1 October2014

Practicable
Date

Halls at the beginning of theperiodSuburban halls . . . . . . . . . . . .
Urban halls . . . . . . . . . . . . . . .

40
8

42
8

43
9

44
9

44
9

Total . . . . . . . . . . . . . . . . . . . .

48

50

52

53

53

Halls newly opened during
the period
Suburban halls . . . . . . . . . . . .
Urban halls . . . . . . . . . . . . . . .

2
—

1
1

1
—

—
—

2
—

Total . . . . . . . . . . . . . . . . . . . .

2

2

1

—

2

Halls at the end of the period
Suburban halls . . . . . . . . . . . .
Urban halls . . . . . . . . . . . . . . .

42
8

43
9

44
9

44
9

46
9

Total . . . . . . . . . . . . . . . . . . . .

50

52

53

53

55

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The table below shows a breakdown of the average number of pachinko and pachislot
machines for each type of hall during the Track Record Period:
As at
As at 31 March
2012

30 September

2013

2014

2014

Suburban halls
Pachinko . . . . . . . . . . . . . . . . . . . . . . .
Pachislot . . . . . . . . . . . . . . . . . . . . . . .

357
162

360
170

361
174

361
178

Total . . . . . . . . . . . . . . . . . . . . . . . . . .

519

529

534

539

Urban halls
Pachinko . . . . . . . . . . . . . . . . . . . . . . .
Pachislot . . . . . . . . . . . . . . . . . . . . . . .

196
64

188
75

188
75

185
79

Total . . . . . . . . . . . . . . . . . . . . . . . . . .

260

264

264

264

The table below shows a breakdown of the percentage of low and high playing costmachines at each type of hall as at 30 September 2014:
Suburban halls

Urban halls

All halls

%

%

%

(1)

PachinkoHigh playing cost (2) . . . . . . . . . . . . . . . . . . . .
Low playing cost (3) . . . . . . . . . . . . . . . . . . . .

57.9
42.1

50.9
49.1

57.2
42.8

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0

100.0

100.0

Pachislot (1)High playing cost (4) . . . . . . . . . . . . . . . . . . . .
Low playing cost (5) . . . . . . . . . . . . . . . . . . . .

83.5
16.5

89.5
10.5

84.0
16.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0

100.0

100.0

(1)

The playing costs of our pachinko machines are ¥0.5, ¥1, ¥1.25, ¥2 and ¥4, while the playing costs of our pachislot
machines are ¥2, ¥5, ¥10 and ¥20. Some of our halls may require the customer to absorb the consumption tax.
For these halls, playing costs for pachinko machines are ¥0.54, ¥1.08, ¥2.16 and ¥4.32, while playing costs forpachislot machines are ¥5.4, ¥10.8 and ¥21.6. Our Japan Legal Adviser has confirmed that such playing costs arein compliance with the Amusement Business Law and the Enforcement Ordinance.

(2)

Comprises pachinko machines with playing costs of ¥4 per ball or above.

(3)

Comprises pachinko machines with playing costs below ¥4 per ball.

(4)

Comprises pachislot machines with playing costs of ¥20 per token or above.

(5)

Comprises pachislot machines with playing costs below ¥20 per token.

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The table below shows the gross pay-ins and revenue for our pachinko and pachislot
business by type of hall for the indicated periods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

(unaudited)
Gross pay-ins (1)Suburban halls. . . . 206,437

91.8

224,493

92.7

219,455

92.8

111,650

92.5

84,17592.5

18,531

8.2

17,724

7.3

16,994

7.2

9,024

7.5

6,814

7.5

Total . . . . . . . . . . . 224,968

100.0

242,217100.0

236,449

100.0

120,674

100.0

90,989100.0

Urban halls . . . . . . .

Revenue frompachinko andpachislot
business (2)Suburban halls . . . . .

27,113

91.5

29,34291.9

30,452

92.3

14,72792.1

13,968

91.9

Urban halls . . . . . . .

2,515

8.5

2,577

8.1

2,542

7.7

1,265

7.9

1,223

8.1

Total . . . . . . . . . . .

29,628100.0

31,919100.0

32,994100.0

15,992100.0

15,191100.0(1)Represents the amount received from customers for rented pachinko balls and pachislot tokens.

(2)

Represents gross pay-ins less gross payouts.

The table below shows the revenue margin (namely, our revenue from pachinko andpachislot business divided by gross pay-ins) for our pachinko and pachislot business by type ofhall, type of machine and by playing cost for the indicated periods:
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

%

%

%

%

%

Suburban halls
Pachinko machines . . . . . . . . .
High playing cost . . . . . . . . .
Low playing cost . . . . . . . . .

12.3
10.5
24.3

12.4
10.7
23.2

13.4
11.8
22.7

12.6
10.9
22.0

15.4
13.4
26.3

Pachislot machines . . . . . . . . .
High playing cost . . . . . . . . .
Low playing cost . . . . . . . . .

15.1
14.7
27.5

14.4
14.1
23.2

14.8
14.5
20.6

14.5
14.2
20.6

18.9
18.6
27.2

Overall for suburban halls . . . .

13.1

13.1

13.9

13.2

16.6

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BUSINESS
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

%

%

%

%

%

13.0
11.5
24.5

14.3
12.5
23.1

14.8
12.5
23.5

13.9
11.5
23.0

17.8
15.0
28.0

Pachislot machines
High playing cost . . . . . . . . .
Low playing cost . . . . . . . . .

15.6
15.6
N/A (Note)

15.3
15.4
2.7

15.5
15.3
20.8

14.5
14.3
19.3

18.4
18.3
21.9

Overall for urban halls . . . . . . .

13.6

14.5

15.0

14.0

17.9

Overall revenue margin for
our Group. . . . . . . . . . . . . . . .

13.2

13.2

14.0

13.3

16.7

Urban halls
Pachinko machines . . . . . . . . .
High playing cost . . . . . . . . .
Low playing cost . . . . . . . . .

Note:

Low playing cost pachislot machines were only introduced to urban halls in March 2013. The revenue margin was
low compared to other periods as the payout ratio of such machines were set at a higher level for promotion
purpose.

For the three years ended 31 March 2014, the revenue margin for high playing costmachines was generally stable, while the revenue margin for low playing cost machines generally
decreased, especially for our suburban halls. There was a decrease in the utilisation rate for allof our machines, meaning that players were spending less time playing our machines. For
example, the utilisation rate decreased from 34.4% to 27.9% for high playing cost pachinko
machines and from 39.6% to 35.8% for low playing cost pachinko machines. For our high playing
cost machines, the payout ratio slightly decreased during these three years, which helped offset
the negative effect on revenue of the fall in utilisation rate and ultimately led to a stable revenue
margin. However, for our low playing cost machines, since they only accounted for less than 20%
of our revenue, we maintained a similar payout ratio, which, coupled with the slight reduction in
utilisation rate, ultimately resulted in a decrease in the revenue margin.
For the six months ended 30 September 2014, we imposed G prize mark-ups (effective from
1 April 2014), ranging from 4% to 20% (with an average of around 10%). This helped to raise therevenue margin for both high playing cost and low playing cost machines, despite the drop in ouroverall pachinko machine utilisation rate from 34.5% to 27.5% compared to the corresponding
period of the previous year.
For further details of utilisation rate, see “Financial Information — Results of Operations of
Our Group — Description of Components of Results of Operations — Gross pay-ins”.

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Regarding revenue contribution, for the years ended 2012, 2013 and 2014, our top five halls(all being suburban halls) contributed 18.0%, 17.6% and 17.2%, while our top ten halls (all being
suburban halls) contributed 33.0%, 32.0% and 31.5%, of the revenue from our pachinko andpachislot business, respectively.
Machine maintenance and the business performance of our halls
We conduct regular maintenance for our pachinko and pachislot machines, which in turncan affect the business performance of our halls.
As stated above, our revenue from pachinko and pachislot business represents gross
pay-ins (amount received from balls and tokens rented to customers) less gross payouts(aggregate cost of prizes exchanged by customers).
Gross pay-ins is primarily affected by the level of customer spending in our halls, which isin turn largely affected by: (1) G-prize mark-ups; (2) payout ratios; (3) number, types and mixesof machines; (4) number and types of halls; (5) number and playing time of customers; (6)competitors’ behavior and the general trend of the pachinko industry; and (7) macroeconomic
factors (such as tax and inflation). On the other hand, gross payouts is to a large extent affectedby G-prize markups and payout ratios of our machines. Payout ratios is affected by the mix ofmachines with various specifications, which include matters such as playing costs (as usually low
playing cost machines are preset with a lower payout ratio), jackpot probability (including the
jackpot size, i.e. the number of balls or tokens won from hitting a jackpot during the jackpot
mode, which is randomly fixed by the machine’s in-built computer chip) and, significantly, pinangles (for pachinko machines only) and the machine’s payout setting (for pachislot machinesonly).
Among the financial and operational metrics mentioned above, payout ratios is one of thefactors that hall operators can most readily influence, namely through maintenance andadjustments of pin angles (for pachinko machines) and adjusting the payout setting (for pachislot
machines), both while ensuring full and consistent compliance with the legally required ranges on
payout ratios. See “Financial Information” for details on each of the financial metrics mentioned
above.
Pachinko machines — pin angle maintenance and adjustments
Pin angles impact the distance between the ends of each pin, which in turn directly
influences the likelihood that balls fall into the designated pockets that release bonus balls,
trigger jackpots, or conversely, fall into the trap and become lost. Therefore, pin angles have a
direct impact on payout ratios and ultimately gross payouts and revenue. However, pin angles
often shift during the normal course of play on a pachinko machine as the pachinko balls cascadedown, through and collide into the pins in the playing field, which consequentially changes payout
ratios of pachinko machines. There are required ranges under law for payout ratios.

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Therefore, consistent with industry practice, we generally perform regular maintenance andadjustments on the angle of the pins of our pachinko machines in order to ensure full andconsistent compliance with such required ranges on payout ratios. For example, the number ofballs that a pachinko machine may pay out must be between 0.5 to 2.0 times the number of balls
put into play over a continuous 10-hour period. Our Japan Legal Adviser has advised us of thethree criteria that must be satisfied in respect of such pin angle maintenance and adjustments,
namely: (1) such pin angle maintenance and adjustments do not involve any bending or othermodification of the shape of the pins; (2) the purpose of such pin angle maintenance andadjustments is to ensure compliance with the relevant required ranges and to maintain an
average payout ratio for each pachinko machine that is in compliance with the relevant required
ranges; and (3) the payout ratio of the pachinko machine for which the Maintenance andAdjustment of Pins has been completed remains within the required range. Our Japan Legal
Adviser has also advised us that: (1) provided that the above three criteria are satisfied, we may
conduct such pin angle maintenance and adjustments anytime; (2) we have strictly complied withsuch criteria; and (3) ultimately, the pin angle maintenance and adjustments conducted by ourGroup are in full compliance with the Amusement Business Law and the Enforcement Ordinance.
See “Applicable Laws and Regulations” for details on the required ranges for payout ratios ofpachinko machines.
Pachislot machines — adjustments of payout settings
A player wins bonus pachislot tokens if the images on the reels form a winning combination.
The amount of payouts for a particular winning combination may differ from machine to machine,
as each pachislot machine has adjustable payout settings. These settings are designed andpreset solely by the machine manufacturer, come in-built into the machine and can only be
adjusted by our hall operations staff. There are a range of payout settings, all of which must fallwithin the range required under the Enforcement Ordinance. For example, the number of tokens
that a pachislot machine may pay out must be between 0.55 to 1.2 times the number of tokens
put into play over 17,500 continuous plays. The machine manufacturer must ensure such payout
settings are in full compliance with these required ranges in order for the machine to pass theexamination on specifications etc. as required under the Amusement Business Law. See“Applicable Laws and Regulations” for details on the required ranges for payout ratios ofpachislot machines.
Consistent with industry practice, we regularly adjust these payout settings of our pachislot
machines in order to improve the business performance of our halls. Our Japan Legal Adviser has
advised us that our adjustments of payout settings for our pachislot machines are in fullcompliance with the Amusement Business Law and the Enforcement Ordinance.
Commercial aim
While ensuring such full and consistent compliance with the required ranges on payout
ratios under law, we also determine our target payout ratio from a commercial standpoint mainly
based on: (1) our understanding of local customer preferences; (2) the cost structure of our halls;
and (3) the competitive landscape in the vicinity of each of our halls (including market intelligenceon the payout ratios of our competitors). Ultimately, our commercial aim is to adjust the payout

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BUSINESS
setting (for pachislot machines) or maintain the pins (for pachinko machines) in strict compliancewith applicable laws (for pachinko machines) in such a way that maximises our revenue frompachinko and pachislot business by striking the optimal balance between gross pay-ins andrevenue margin. For example, we believe players that prefer low playing cost machines are
generally more attracted to the entertainment element of pachinko and pachislot, which means
they are less sensitive to movements in payout ratio and are more prepared to accept a lower
payout ratio. On the other hand, we believe players that prefer high playing cost machines are
generally more attracted to the chance element of pachinko and pachislot (to win a larger amountof prizes), which means they are more sensitive to payout ratios and are more prepared to accept
a higher payout ratio.
Centralised hall management strategy
We utilise a centralised management strategy, which leverages the economies of scale ofour significant presence and strategic geographical focus in Northeast Honshu (本州島東北), tocentralise and standardise processes throughout our business, from branding and construction
to management, new hall development, machine procurement, prize procurement recruitment
and training of full-time employees, internal audit and daily operations. This strategy has resulted
in significant cost savings and operational efficiencies. Therefore, in accordance with ourcentralised management strategy, the general features of our halls remain constant regardless of
their location, which in turn helps us establish strong brand recognition, thus, further improving
our player traffic and customer loyalty.
NEW HALL DEVELOPMENT
In conjunction with our expansion strategy, we continually strive to identify potential
locations for new suburban halls. When selecting a location for opening a new suburban hall, we
consider the following characteristics of the targeted region: (1) its proximity to Fukushima
Prefecture (福島県) and Tokyo (東京都) (and most preferably being located in Northeast Honshu(本州島東北)); (2) its proximity to our own halls; (3) the population density and demographic, (4)the number of competing halls, (5) the number of machines in the competing halls; and (6) the
average number of players per machine. As a general rule, for our suburban halls, there must becommercial areas within a 15 minute drive radius, and such radius must cover at least 50,000
people and have at least 18 people (above 18 years old) per machine (owned by all operators).
The investment payback period should be no more than seven years.
Our process for hall openings is also centralised and based on the following steps: (1) ourhall development department selects a potential location; (2) our hall development department
conducts a primary property survey to judge the suitability of the target property, taking into
account its location, accessibility, economic conditions, customer flow and competitiveenvironment; (3) if results of the primary property survey are satisfactory, our sales department,
corporate planning department and sales strategy department will then conduct a secondary
location survey to provide a second opinion on the location; (4) both survey results will bepresented to our Directors for approval; (5) our hall development department will prepare an

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investment plan; and (6) such investment plan will be approved by a management committee
consisting of our Directors, and our Board will make the final decision. This process typicallytakes about two months. Subsequent construction and design of an acquired property will takeabout six months.
Currently, we plan on opening new suburban halls (by leasing the relevant properties) in thefollowing regions and closing three urban halls in Tokyo (東京都) during the three years ending 31
March 2018 as set out in the table below:
Number of

Expected

operatingnumber ofhalls as atthe Latest
Practicable
Prefecture

operatingExpected net hall openings

2016

Date

halls byduring the year ending 31 March
2017

31 March2018 1

2018

Tohoku region (東北地方)
Fukushima Prefecture (福島県) . . . . .
Miyagi Prefecture (宮城県) . . . . . . . . .
Yamagata Prefecture (山形県) . . . . . .

20
1
2

1
—
—

1
—
—

1
—
—

23
1
2

Kantō region (関東地方)
Tokyo (東京都) . . . . . . . . . . . . . . . . . .
Gunma Prefecture (群馬県) . . . . . . . .
Ibaraki Prefecture (茨城県) . . . . . . . .
Kanagawa Prefecture (神奈川県) . . . .
Saitama Prefecture (埼玉県) . . . . . . .
Tochigi Prefecture (栃木県) . . . . . . . .

12
4
4
2
5
2

-3*
1
1
—
—
—

—
—
1
—
—
—

—
—
—
—
—
1

9
5
6
2
5
3

Chūbu region (中部地方)
Niigata Prefecture (新潟県) . . . . . . . .

3

—

—

—

3

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

55

0

+2

+2

59

*

We intend to close down three of our urban halls in Tokyo (東京都) by the end of 2015. Two of these are loss-making
and will be closed down by us as part of our strategy to improve the performance of our urban hall network. See“Business — Strategies — Improve the performance of our urban halls”. As for the third hall, it has been
profit-making but will also be closed down by the end of 2015 purely due to city planning by the government ofTokyo (東京都) and we do not expect such closure to cause any negative financial impact as we expect to receive
full compensation (including loss of income) from such government. We will consider using the existing staff andmachines for these three halls (that are expected to be closed down) for either our existing halls or our new
suburban halls to be opened in the next three years.

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Our plans for expansion are based on various assumptions, including: (1) industry trends
continuing to develop as we anticipate, including the favourable market opportunities arising fromthe industry consolidation (as a result of the shrinking industry) and high industry fragmentation,
as well as growing hall size; (2) our ability to respond to changes in the competitive landscape,both with respect to other pachinko hall operators as well as other types of entertainment; (3) our
ability to respond to changes in the regulatory environment for pachinko in Japan if any; (4)favourable economic, political and other conditions in Japan and elsewhere in Asia; and (5) our
future financial condition, results of operations and cash flows. Further, the estimated cost ofsetting up a new suburban hall (with around 640 machines) is on average around ¥1,200 million,
including initial machine costs and land costs.
CUSTOMERS
Our revenue from pachinko and pachislot hall operations consists of: (1) revenue frompachinko and pachislot business, which in turn represents gross pay-ins less gross payouts; and(2) vending machine income.
The vast majority of our customers consist of customers of our pachinko and pachislot
business, being members of the general population who play at our pachinko halls. We believethat our customers cover a relatively broad range of players in terms of age demographic andincome group. Customers for our suburban halls are usually the self-employed (such as farmers
and fishermen), factory workers and retirees, while customers for our urban halls are usually
full-time employees.
As a pachinko hall operator, we have a large and diversified customer base across Japan.
We did not rely on any single customer.
Regarding our vending machine business, we enter into service agreements with various
vending machine operators, which are major manufacturers of drinks or food. They will install andmaintain various vending machines at our halls, while we in turn receive from such vending
machine operators a concession for each machine: (1) ranging from approximately ¥2 million to¥10 million, payable upon the commencement of the installation period; and (2) ranging fromapproximately ¥0.3 million to ¥7 million, payable upon the renewal of each installation period. The
installation period is usually three years. Also, we share approximately 30% to 50% of the grossproceeds from these vending machines. These vending machine operators are responsible forstocking, repairing and maintaining their machines.
All of our vending machine operators are independent third parties.

237

BUSINESSSUPPLIERS
Our major suppliers consist of: (1) machine suppliers; (2) G-prize wholesalers; and (3)general prize suppliers.
All of our suppliers are independent third parties. None of our Directors, their associates orany person who, to the knowledge of our Directors, owns more than 5% of our issued sharecapital or of any of our subsidiaries, had any interest in any of our five largest suppliers during
the Track Record Period.
1.

Machines

In conjunction with sourcing, transferring and disposal of the pachinko and pachislot
machines in our halls, we operate a centralised system to: (1) gather information on machineutilisation in our halls and necessary market information for planning purposes; (2) confirm with
manufacturers and dealers the availability of machines; (3) procure new machines; (4) procure
second-hand machines; and (5) manage, schedule and coordinate the allocation, disposal or
replacement of machines.
New and second-hand machines
Machine procurement is very important to our business as it is critical to boosting player
traffic. We do not manufacture any of our playing machines. Instead, we purchase pachinko andpachislot machines regularly for installation in our new halls, or to replace older machines in our
existing halls, in order to boost player traffic and to keep up with changing customer preferences
and modern trends (by acquiring the latest machine models which we believe appeal tocustomers). The number of machines we purchase each year is typically similar to the number of
all machines in our halls, which means that almost all machines are replaced once a year.
In order to purchase machines, we either purchase: (1) new machines from machine
manufacturers; or (2) second-hand machines from dealers.
Most of our machine purchases are for new machines from machine manufacturers. The
main reason is to boost player traffic by acquiring the latest machine models, which are typicallymore popular than older models. This is especially so for high playing cost machines, whichconstitute the majority of our machines. Selection of new machines is also highly dependent on
the machine manufacturers, who generally conduct their own market research to design newmachines and marketing. As such, player interest in specific new models is largely influenced bymachine manufacturers.
We sometimes also purchase second-hand machines from dealers. This is because there isa portion of machines (already introduced into the market) that remain popular for a relatively longtime and continue to generate sufficient revenue. However, machine manufacturers typically only
sell a particular model for a limited time and with a limited supply, after which new production will
be discontinued. As such, for these older yet still popular models, we need to rely on dealers.

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Also, when we purchase new machines to replace existing machines, such replaced machines
are often transferred to one of our warehouses for storage or even potential further use. We may
later transfer such replaced machines to another hall for further use based on customer
preferences in that area, which will result in cost savings.
The table below shows a breakdown of the total cost and number of pachinko and pachislot
machines purchased from machine suppliers or second-hand dealers during the Track Record
Period:Six months ended
Year ended 31 March
2012

30 September

2013

2014

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

Cost of machine
7,072

98.8

7,858

98.9

8,124

98.9

4,452

99.3

. . . . . . . . .

54

0.7

51

0.6

54

0.7

17

0.4

Storage charges . . . . . . . .

35

0.5

39

0.5

38

0.5

13

0.3

Total . . . . . . . . . . . . . . .

7,161

100.0

7,948

100.0

8,216

100.0

4,482

100.0

New . . . . . . . . . . . . . . . .
Second hand%

(number of machines, except for percentages)%%%

Number of machinespurchased
New . . . . . . . . . . . . . . . .
Second hand . . . . . . . . .

19,784
1,021

95.1

21,550
1,544

93.3

8.6

11,900
427

96.5

6.7

21,549
2,030

91.4

4.9

Total . . . . . . . . . . . . . . .

20,805100.0

23,094100.0

23,579100.0

12,327100.0

3.5

Our area managers reviews and makes decisions for each pachinko hall regarding its mix ofmachines on a weekly basis. Our area managers will place any requests to the manager of oursales department for new or second-hand pachinko and pachislot machines using our Machine
Management System. We negotiate the relevant sales agreements with manufacturers or dealers,
specifying the number and type of machines, price, payment method and the hall(s) in which themachines are to be installed. The manager of our sales department decides how many and whichmachines to purchase, arranges the purchase, places the order with the manufacturer or dealer,obtains confirmation from the manufacturer or dealer and arranges for delivery of the machines
directly to the appropriate hall. Our sales department also determines the annual budget formachine purchases for each hall based on a percentage of each hall’s revenue, subject to a
maximum amount.
Machine suppliers
Our sales support department maintains a list of approved machine suppliers. We generally
settle our payments in full with our machine suppliers in the month following the date of purchaseof the machines.

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BUSINESS
For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, our five largest machine suppliers accounted for 56.5%, 48.4%, 54.4% and53.8%, of our total purchases of pachinko machines and pachislot machines, while our single
largest machine supplier accounted for 20.2%, 15.3%, 17.5% and 12.5%, of our total purchasesof machines, respectively.
Removal and disposal of machines
We arrange for removal and disposal of old machines from the pachinko halls. Old machines
may be: (1) transferred to one of our warehouses for storage and potential future use; (2) tradedin to a machine supplier for a discount on a new machine; or (3) sold to second-hand dealersthrough an auction process to the highest bidder. Sometimes we might only sell certain parts ofan old machine. If a machine is traded in for a new machine to the original manufacturer, themanufacturer purchases the entire machine in order to reuse certain components.
Compliance
Our machine purchase agreements require us and our counterparty to comply with theAmusement Business Law. In addition, we generally undertake and warrant in the agreementsthat we are not in violation of the laws regarding adjustment or remodelling of machines and that
we will permit the Organisation for Sound Development of Pachinko & Pachislot Industry* (遊技産業健全化推進機構), a third party self-regulatory organisation in Japan, to inspect our machines.
There are several regulations governing pachinko and pachislot machines. See “Applicable
Laws and Regulations — D. Other Regulations on Pachinko Businesses” for details.
According to the Amusement Business Law and National Public Safety Commission
regulation, pachinko and pachislot machines must meet certain technical standards. The
Amusement Business Law also requires each pachinko hall to obtain prior permission from thePrefectural Public Safety Commission* (都道府県公安委員会) before increasing or changing its
number of machines (including the transfer for a machine to a different hall). Before a new or
second-hand machine is shipped to us, the prefectural police must certify the eligibility andcompliance of the machine or replacement part, which is evidenced by a “notice of inspection”
issued to the manufacturer (for new machines) or dealer (for second-hand machines) who thenprovide the Notice of Inspection to us. In addition, the machines are inspected at the pachinko
hall where they are to be installed. The manufacturer (for new machines) or the dealer (forsecond-hand machines) also provides us with certificates of guarantee certifying that themachines they provide to us, which are individually identified by a unique serial number, havebeen inspected by the local police authorities. A similar notice and certificate are issued whenmachine parts are replaced. In addition, prior to operation of a new or second-hand machine, thepachinko hall must submit an application to the local police authority to request an inspection,
upon completion of which an approval is granted and operation of the machine may begin. The
police may inspect the machines at random after installation in the pachinko hall.

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A person who intends to manufacture or import a pachinko or pachislot machine or to install
it may, but is not legally required to, apply for an inspection of the machine by the Security
Communications Association* (保安通信協会) for specifications of such imported or
manufactured pachinko or pachislot machine. A machine manufacturer typically submits its
machine prototypes to testing by the Security Communications Association* (保安通信協会).
Machine prototypes that pass such testing receive certificates. Each machine subsequently
manufactured according to that prototype will also have a certificate showing its compliance withsuch testing. Purchasing machines from manufacturers that have received this approval reduces
the risk of installing machines that do not comply with the legal requirements. A pachinko
operator that intends to increase or change its number of machines, including the transfer of amachine to a different pachinko hall, must obtain prior written permission from the Prefectural
Public Safety Commission* (都道府県公安委員会).
As we only purchase machines from manufacturers that submit their machine prototypes fortesting by the Security Communications Association* (保安通信協会), our pachinko and pachislot
machines each have a certificate demonstrating compliance with those tests and have passed allinspections conducted by the relevant Prefectural Public Safety Commission* (都道府県公安委員会) during the Track Record Period.
The license, approval or permit requirements under Japan law and regulations for dealing inpachinko and pachislot machines are limited to a permit for dealing in second-hand goods under
the Used Goods Dealer Act. This permit is issued by the Prefectural Public Safety Commission*(都道府県公安委員会).
The pachinko and pachislot machines we purchase are pre-programmed by the
manufacturer to comply with legal and technical specifications, such as payouts and probabilitiesof triggering certain modes of play (e.g. “jackpot” mode for pachinko or “bonus rounds” forpachislot).
The payouts of pachinko balls and pachislot tokens resulting from “jackpot” or “bonus”
modes as a percentage of total balls or tokens played is limited by law so as to discourageplaying with the sole purpose of winning or “gambling”. These required ranges include: (1) the
number of pachinko balls that the machine may pay out to between 0.5 to 2.0 times the numberof balls put into play over a continuous 10-hour period; and (2) the number of pachislot tokens
that the machine may pay out to between 0.55 to 1.2 times the number of tokens played during
the course of 17,500 consecutive plays. These restrictions are contained in the Amusement
Business Law, or its subordinate regulations, and are fully available to the public. For further
information, see “Applicable Laws and Regulations — D. Other Regulations on Pachinko andPachislot Businesses”. See “— Pachinko and Pachislot Hall Operations — Pachinko Halls —Machine maintenance and the business performance of our halls” for details on our regular
maintenance on our pachinko and pachislot machines and its effect on payout ratios andultimately the business performance of our halls.

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By collecting data from our machines through our numerical analysis system on every 15
minutes, we are able to monitor the performance of our machines and determine whether theyremain in compliance with applicable regulations. In the event that we detectsignificantfluctuations in this data, we are able to use this data to locate the machines that are
not performing properly and instruct our hall managers to make the appropriate daily
maintenance to ensure compliance. See “— Information Technology” in this section below for
more on the types of data collected from our machines.
2.

General Prizes

We currently purchase our general prizes from 26 general prize suppliers. Our purchasing
department is responsible for general prize procurement (typically twice a week), which isfacilitated by the daily inventory checks conducted via our Prize Management System. See “—Information Technology” in this section below for further details about our Prize Management
System. Each hall manager is also responsible for conducting daily inventory checks of general
prizes at their hall. Generally, the same types of general prizes are offered at each of our halls
though larger halls (such as suburban halls) will offer more types.
To select our general prize suppliers, our purchasing department submits a written request
for approval with our corporate planning section (which oversees compliance matters), ourfinance department and our Executive Director. Our general prize suppliers are selected basedon the transparency of their operations, distribution network, logistics and inventory control
capabilities and availability of supplies. In particular, we conduct anti-social forces checks
through a private investigation company, an independent third party, that has access to a
database of information collected from newspapers and other publicly available sources. If it isfound that any of a potential general prize supplier’s representatives, officers, executive officers
or main shareholders (if they are listed companies) belongs to or is related to any anti-social
force, we do not engage with that entity.
We enter into continuous purchase agreements with some of our general prize suppliers,
pursuant to which we place orders based on our inventory needs. These purchase agreements
are typically valid for a year, and are automatically renewed on a yearly basis. We have long-term
relationships with almost all of our general prize suppliers. Payments to our suppliers are typicallymade within 60 days or on a monthly basis in the month following the month during which thegoods are received. For our most popular general prizes, we utilise our POS system, throughwhich our hall managers will place orders when the inventory of a certain prize in our PrizeManagement System falls below a predetermined level.
We engage several private label manufacturers (namely, local manufacturers and suppliersof foods and drinks) to produce our private brand products, which consist of foods and drinks.
We believe our private brand products help attract more customers by providing a unique andadditional range of general prizes.

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For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, our five largest general prize suppliers accounted for 88.9%, 89.9%, 90.8%
and 91.3%, of our total purchases of general prizes, while our single largest general prize supplieraccounted for 39.8%, 42.0%, 44.4% and 43.9%, of our total purchases of general prizes,
respectively.
3.

G-prizes

We currently purchase our G-prizes from 12 G-prize wholesalers. Our headquarters
appoints our G-prize wholesalers and enters into a standardised master agreement with eachG-prize wholesaler who satisfies our background check criteria. Our headquarters assign one
approved G-prize wholesaler for each of our halls. Day-to-day G-prize procurement is handled byhall staff and overseen by the hall manager at each individual hall. These duties include:•

deciding the quantity of G-prizes to be purchased each day subject to the limits set by
our headquarters;•

placing purchase orders;•checking the G-prizes delivered against the relevant purchase order;•

handling cash payments for G-prizes;•

maintaining the inventory of G-prizes; and•counting and reconciling the number of G-prizes on a daily basis.

For information on internal control measures relating to G-prize procurement, see “Internal
Controls and Anti-Money Laundering — Internal Controls Relating to Cash and G-prizes”.
For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, our five largest G-prize wholesalers (which have, on average, been establishedin Japan for over 40 years and whose primary business includes the supply of G-prizes topachinko hall operators) accounted for 92.8%, 91.2%, 89.7% and 89.5%, of our total purchasesof G-prizes, while our single largest G-prize wholesaler accounted for 72.8%, 72.1%, 70.4% and70.2%, of our total purchases of G-prizes, respectively.
MARKETING AND MARKET RESEARCH
Our sales and marketing department engages in a variety of marketing activities to promote
our pachinko and pachislot business. For the years ended 31 March 2012, 2013 and 2014 andthe six months ended 30 September 2014, we spent ¥939 million, ¥1,231 million, ¥1,362 millionand ¥680 million on advertising, representing 3.9%, 4.7%, 5.0% and 4.7% of our total expenses(the total of hall operating expenses and administration and other expenses), respectively.

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Membership system
We have implemented a voluntary membership system, which is open to all our customers.
Our membership system is designed to enhance customer loyalty, by providing them theconvenience of carrying over any unused pachinko balls or pachislot tokens for their subsequent
visits. This also increases customers’ spending and our cash flow, as customers are more likely
to purchase a larger amount of balls or tokens with each purchase.
The key terms of our membership system are: (1) if a member has any unused balls or
tokens, these will be stored on our IT systems and can be carried over for use or prize exchange
at their subsequent visits; (2) such carried-over balls or tokens can only be used in the hall wheresuch membership was registered; (3) there are no expiry for such carried-over balls or tokens; (4)customers may carry over a maximum of 999,999 balls and 199,999 tokens; and (5) customers
may also store up to ¥10,000 in cash on the membership card, which will be forfeited if themembership card is unused for 90 consecutive days.
Each of our halls maintains its own register of members and each customer can only apply
for one membership card per hall. To register as a member and to receive such membership card,a customer must provide age proof and their identification card. Members need to enter apassword or present their identification card whenever they wish to use their membership card,
thus, helping to ensure the non-transferability of any carried-over balls or tokens.
The Amusement Business Law prohibits the issuance of valuable papers to customers. Any
carried-over balls or tokens are strictly not stored on our membership cards themselves, but only
on our IT systems. Such membership cards only store personal information of our members.
Therefore, our Japan Legal Adviser has confirmed that our membership cards shall not be
construed to be “valuable papers” and that our membership system is in compliance withapplicable Japan laws and regulations. See “Applicable Laws and Regulations — D. Other
Regulations on Pachinko and Pachislot Businesses — 6. Membership Systems” for details.
Our membership system also allows us to collect statistical information regarding ourcustomers’ identities, age, frequency of visits, locations of halls visited, amounts of purchases(including breakdown of tokens and balls), number of balls or tokens exchanged for prizes andpreferences for various types of machines. Our sales and marketing team regularly analyses suchinformation and uses it to design appropriate marketing strategies and activities, as well as tohelp our hall managers better plan the overall mix of machines at each of our halls, to better
encourage recurring visits from such customers.
As at 30 September 2014, we had 226,848 members.
Advertising
We conduct advertising, sales promotion activities to support our pachinko and pachislot
hall operations. Our sales and marketing team designs and conducts our advertising media andsales promotion activities.

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Most of our advertising activities are designed to raise awareness for our pachinko andpachislot games (especially new machines and new halls) and attract them to visit our halls. We
have multiple advertising streams, including television, radio, flyers, direct mail, newspaper andalso signboards inside and outside our halls. In particular, when customers join our membershipsystem, they are asked whether they wish to receive specific advertisements. If they choose so,
we will send such members direct mail containing information of new machines or seasons’greetings.
Also, we are the official sponsor for a local professional basketball team in fukushima
Prefecture (福島県), whose uniforms display our “NIRAKU” logo, as a means to further improve
our brand awareness.
In Japan, the Amusement Business Law requires a pachinko hall operating licence holder toadvertise or promote their business in such a way that it will not likely interfere with the peaceand quiet surrounding the place of business. Under the Standards for the Interpretation andOperation of the Amusement Business Law published by the National Police Agency, thefollowing methods of advertisement are likely to constitute an “interference with peaceful andquiet surroundings”:•

displaying sexually explicit or other adult material;•

advertising or promoting the illegal maintenance and adjustments of pin angles, illegal
alterations of payout probabilities or otherwise encouraging customers’ “passion forgambling”; or•noise levels beyond prescribed limits in public areas.

Failure to comply with such restrictions may result in various penalties, the most severe
being a cancellation of the Operating Licence. In order to ensure our compliance with theseregulations on advertising and promotional activities, our sales support department has adopted
an internal guideline that strictly controls the choice of words allowed to be used in our
advertising activities. Our sales support department monitors these activities, and sometimes
may even consult the relevant police office to ensure compliance. For information on regulationof the pachinko industry and related advertising, see “Applicable Laws and Regulations — D.
Other Regulations on Pachinko Businesses — 9. Advertising and Promotion Regulations”. Our
Japan Legal Adviser has confirmed that, as at the Latest Practicable Date, our Group hadcomplied with the applicable laws and regulations concerning such advertising-related activities.
Corporate Social Responsibility
We also believe it is important for us to fulfil our corporate social responsibility bycontinuously contributing to the society. We engage in charity activities from time to time. Whilecharity is the primary goal, such charity activities still provide valuable exposure of our brand andenhances the public image of our brand as a socially responsible enterprise. During the years

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ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2014, ourexpenses on corporate social responsibility related activities (which consisted of donations tocharities for supporting the Japan earthquake reconstruction and regional events) 4 was ¥19.1
million, ¥10.8 million, ¥32.5 million and ¥29.9 million, respectively.
For example, after the Great East Japan Earthquake, we sponsored music festivals to raise
funds for relief efforts. Also, we offered a free daily shuttle bus service for over a year, which was
open to anyone wishing to travel to and from Tokyo (東京都) and Fukushima Prefecture (福島県).
In addition, in 2010, we established a wholly-owned special subsidiary* (特定子会社),
Merrist, for the purpose of hiring employees that are handicapped persons. Under the Act on
Employment Promotion etc. of Persons with Disabilities* (障害者の雇用の促進等に関する法律)(Act No. 123 of 1960), at least 2% of the employees of a Japanese company, that has at least
50 employees, must be handicapped persons. The number of handicapped persons employed by
Merrist can be counted for the purpose of its ultimate holding company, our Company. As at 30
September 2014, we have hired 61 employees that are handicapped persons, which is more thandouble the legal requirement. Such employees are mostly stationed in our halls and responsible
for relatively basic tasks such as gardening and cleaning of our halls and training facilities. In
recognition of our efforts to employ handicapped persons, we have received multiple awards. See“— Awards and Accreditations” in this section below for details.
Market Research
Every year, we purchase a market research report prepared by an independent market
researcher regarding the pachinko industry. We also pay close attention to potential new
machines (by both monitoring the industry trend and maintaining close contact with our machine
suppliers) and customer feedback, which allows us to make better decisions for machine
allocation.
Another useful market research tool is our membership system, which allows us to collectstatistical information regarding our customers’ identities, age, frequency of visits, locations ofhalls visited, amounts of purchases (including breakdown of tokens and balls), number of balls
or tokens exchanged for prizes and preferences for various types of machines. Our sales andmarketing team regularly analyses such information and uses it to design appropriate marketingstrategies and activities, as well as to help our hall managers better plan the overall mix ofmachines at each of our halls, to better encourage recurring visits from such customers.
Further, for new hall openings, we follow a detailed layered process involving various
surveys conducted by our hall development department, sales department, corporate planningdepartment and sales strategy department, to determine (among others) the suitability of the4

Such expenses formed part of the advertising expenses as included in administrative and other operating
expenses.

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target property, taking into account its location, accessibility, economic conditions, customer
flow and competitive environment. Such survey results will be reviewed by the head of our sales
department, our hall development department and ultimately our Executive Director. See “— New
Hall Development” in this section above for details.
INFORMATION TECHNOLOGYOur corporate management office oversees our IT system, which plays a crucial role in our
Company’s business operations and streamlines the collection and preparation of financial andoperational information.
Our IT system consists of a network of software systems, of which, centralised systems
such as the accounting, human resources and payroll, and budget management systems are
installed throughout our Company. Hall level information and data in relation to hall management,machine management, and prize management are generated and collected at each individual
hall, and then transferred to the centralised systems for further analysis on a company level.
Centralised Systems
1.

Accounting System

Cash revenue data calculated based on the number of pachinko balls played are collected
on a daily basis by the responsible officer of each individual hall after the close of business, otherinformation on cash inflows and outflows, and goods purchase are generated and saved in thedaily business report system. Each hall manager reviews and compares data collected in the daily
business report system against the cash revenue data collected based on the pay-ins for the day
in order to verify and ensure correspondence and accuracy of the information collected. Upon
confirmation from each hall manager, such verified data is transmitted to the Accounting Systemat our headquarters.
Our accounting system is used to extract accounting information such as purchase andpayment data, which are processed using the liabilities management function of the accounting
system. Monthly depreciation and amortisation is calculated based on the information collectedby the noncurrent assets management system, which stores acquisition, disposal and sales of
noncurrent assets data. Such data allows the accounting system to formulate ledger sheets suchas the tentative calculation sheet, balance sheet and income statement.
2.

Human Resource and Payroll System

Our Human Resource and Payroll System administers and manages personnel informationof employees of our Group according to the allocation of authority in each system. Employment
information, including the authority allotted to each employee in each system, is determinedbased on the organisation and position; therefore it is subject to change due to personnel
transfers. The system manages log-in accounts on company-owned computers which employees
use for executing their daily duties. Our human resources and payroll system also administers
and manages salary calculation and clock-in/clock-out, as well as work hours.

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3.

Budget Management System

The budget management system sets out the scope of responsibility related to each aspectof our business to clearly identify the specific measures to be adopted for each fiscal year. Basedon the scope of responsibility set by our budget management system, a budget for the following
fiscal year is formulated. Relevant personnel who are responsible for carrying out the scopes of
responsibilities and execution of expenses are required to apply for a managerial decision
through the budget management system by stating the reasons to justify such execution of
expenses. After the application, those approved are executed as expenses and orders areplaced. The relevant personnel are also required to analyse the budgeted expenses and theactual expenses tallied in the budget management system at the end of the month after the
expenses are settled, in order to evaluate the executions of their scope of responsibilities andidentify any issues arising from such executions.
4.

Purchase Administration System

Where order placements were requested through the budget management system and aresubsequently approved, such order placement data will then be transmitted to the purchaseadministration system. Our purchase administration system administers the order placement
status. Through the order confirmation process at the time of delivery of goods, details of theorder confirmation is linked to the liabilities management in our accounting system as payment
request data.
Based on the data transmitted through our purchase administration system from each hall,
hall managers are able to formulate the pay-in rate and the projection of the number of customers
who will play on each machine model. The projection of the number of customers for eachmachine model is tallied as monthly sales plans for each hall and area, as well as for all halls of
our Company. Authorised personnel are allowed to access such sales plans, namely “52-week
Sales Plans,” depending on the authority allotted to each position.
5.

Security System
Our security system records and maintains highly confidential information and data ofcompany-wide accounting transactions, thus access is only limited to selective authorised staff
who are provided with an encrypted password. Our security system is overseen by the system
support division manager and security settings of the system may not be altered without theapproval of the system support division manager. Our networks are protected by firewalls andanti-virus software. Access to our networks by our employees is also limited by those withpassword authorisation. For more information on control over these systems, see “Internal
Controls and Anti-Money Laundering — Internal Controls Relating to Information Technology andComputer Systems”.

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Hall Level Systems
1.

Hall Management System

We have installed a computerised data processing system, generally known as “hallcomputer” developed by third-party manufacturers, in our pachinko halls. The system collects
real-time information on the number of pachinko balls or pachislot tokens rented, played and paidout at each pachinko and pachislot machine and transmit data to our data analysis system every
hour via a decrypted line so that hall managers can effectively monitor the performance ofmachines. If any unusual activity is detected by the system, the system would record it and alert
management for a status check.
Each hall manager is granted access to view this data within their respective hall for the
purpose of monitoring hall operations. The system also allows managers to quickly detect
irregular activities in our pachinko halls. However, only our headquarters management team is
granted access to the data collected from all of our pachinko halls for monitoring the overall
performance and machine utilisation of our hall operations.
2.

Machine Management System

As a part of the operation administration system, our machine management systemdetermines the types and numbers of pachinko and pachislot machines to be purchased at eachhall. Our area managers are responsible for assessing the types and quantities of machines to bepurchased, and our headquarters staff are responsible for execution of order placement. We also
have in place the layout administration system, which records machine installation status,
machine layout in each hall and the history of repositioning such machines. Further, the layout
administration system manages other information based on the master ID of each pachinko andpachislot machine purchased. Through utilising the information maintained by the system, theapplication documents necessary for the administrative procedures for replacing pachinko andpachislot machines can be easily retrieved, and thus substantially reduces time and expenses.
3.

Prize Management System

Through our POS system installed in each hall, we centrally manage the procurement of ourgeneral prizes and G-prizes, including ordering, acceptance, delivery and inventory control. This
information is transmitted to our prize administration system which allows us to maintain
up-to-date and accurate inventories of our various prizes, consolidate orders of general prizes,
and when appropriate, arrange for periodic, automatic purchases of products with a highturnover rate. This system also provides a reference point for estimating the volume of future
prize redemptions based on cumulative historic data.

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BUSINESSAWARDS AND ACCREDITATIONS
Our achievements over the years have been recognised by numerous awards andaccreditations, including the following:Award / Accreditation

Year of Grant

Won top award in pachinko hall
section for activity of contribution
to societyAwarded as an excellent office for
employment of persons withdisabilities

2014 All Japan Organisation of Social
Contribution (全日本社会貢献団体機構)2012 Chairman of Japan Organisation for
Employment of the Elderly, Persons
with Disabilities and Job Seekers (独立行政法人高齢•障害•求職者雇用支援機構理事長)
2010 and 2012 Ministry of Health, Labour andWelfare of Japan (厚労省)

Certified as a company actively
supporting child care under the
Act on Advancement of Measures
to Support Raising
Next-Generation Children
Merrist is acknowledged as a special
subsidiary* (特定子会社) for the
purpose of hiring handicapped
persons under the Act on
Employment Promotion etc. of
Persons with Disabilities

Issuer of Award

2010 Ministry of Health, Labour andWelfare of Japan (厚労省)

COMPETITION
According to EBI, the pachinko industry in Japan is highly fragmented with over 3,800
operators as at 31 December 2013. Our major competitors are pachinko hall operators locatednearby our halls. See “Industry Overview” for further information on this industry.
We also compete with other types of entertainment and gaming activities, including
web-based gaming, potentially interactive gaming channels, and other public racing in Japan. We
may also face competition from other gaming venues, particularly casinos if legislation is
eventually passed to legalise the operation of casinos in Japan. See “Risk Factors — Risks
Relating to the Pachinko Industry — We face intense competition in Japan”. We compete on thebasis of variety and type of pachinko and pachislot games offered, types of prizes offered at ourhalls and players’ other personal preferences.

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BUSINESSEMPLOYEESAs at 30 September 2014, we had a total of 1,409 employees, all of whom were based inJapan, of which 1,223 were stationed in our pachinko halls. The table below shows a breakdownof the number of our employees by function as at 30 September 2014:
As at
Function

30 September 2014

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Area sales management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hall management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hall attendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance and accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14
2
16
24
13
53
1,177
4
11
7
88

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,409

We have implemented a multi-layered management structure for our hall operations,consisting of (from highest rank): our Directors, our division manager (based in our headquarters),
our 13 area managers (each responsible for overseeing the daily operations of three to six
pachinko halls) and our 55 hall managers (each responsible for overseeing the daily operationsof one specific pachinko hall). Generally, each manager reports directly to the relevant manager
in the next higher rank. For example, hall managers regularly report to area managers, area
managers report weekly to our division manager, and the entire management team meets monthly
at our headquarters. Managers in the Kanto៮ Region (関東地方) also meet weekly, as do managers
in the To៮ hoku Region (東北地方).
A typical pachinko hall employs 22 employees, with around 8 employees present at any time
per shift. These include 1 hall manager, 4 assistant managers and the rest being full-time orpart-time operational staff.
Our full-time employees may be relocated to other pachinko halls of ours, while part-time
employees are typically fixed to one particular hall.
Full-time employees receive performance evaluations on an annual basis. We enter into
formal written employment contracts with all our full-time staff. Consistent with common practicein Japan, such employees are subject to working regulations which we establish and keep on filewith the labour standards inspection office. These working regulations covers various matters,
including but not limited to hiring, compensation, insurance, annual vacation policy, duties of theemployee and disciplinary measures. We provide our staff with a copy of these working

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regulations and an employee booklet upon commencement of employment. In the event ofdisputes regarding terms of the employment, dismissal or other related matters, we will first try
resolving such disputes by way of mediation, and if it fails, the working regulations, as well asother applicable laws and regulations, will determine the respective duties and rights of us andour staff.
We also enter into employment contracts with our part-time staff. As stipulated in theircontracts, the part-time or temporary staffs are subject to a 14-day probation period, salaryraises but are not entitled to bonuses or retirement allowances. The employment contacts with
our part-time or temporary staff also set out terms and matters such as position, term of contact,status of contract renewal, work location, work hours, annual leave and whether social insuranceor employment insurance are included subject to the number of work hours per week.
Our staff costs include all salaries and benefits payable to all our employees and staff,
including our Directors. Our staff costs remained relatively stable during the Track Record Period
and amounted to 20.3%, 19.8%, 17.6% and 24.1% of our total revenue in the years ended 31
March 2012, 2013 and 2014 and the six months ended 30 September 2014, respectively.
Labour union
In 2005, we established a labour union, of which all of our employees (including hallmanagers), other than management and certain employees with access to management-level
information (such as our area managers and finance, accounting and IT staff), are members. Ourlabour union collectively bargains on behalf of our employees for remuneration andwelfare-related issues, participates in labour-management consultations and handles otherconsultations and investigations as necessary for the welfare of our employee members. Ourlabour union is also a member of UA Zensen (The Japanese Federation of Textile, Chemical,
Food, Commercial, Service and General Workers’ Unions)* (全国繊維化学食品流通サービス一般
労働組合同盟), which is the largest industrial union in Japan and provides guidance to our labour
union on related issues, such as the proper method in communicating and bargaining with theirpachinko hall operator. We have not experienced any strikes or other labour disturbances whichhave interfered with our operations in any material respect or any other material labour disputes
with our employees. Our directors meet members of this labour union once every month todiscuss any labour-related issues.
We believe that we have established good relationships and loyalty with our employees. For
example, our hall managers stay with us on average for 13 years, while area managers and oursenior management stay with us on average for 15 years. Also, we have also voluntarily adopted
an internal policy which adheres to a guideline issued by the Ministry of Health, Labour andWelfare (厚労省), which allows all employees with children to take parental holidays. This is avoluntary higher standard than that stipulated by relevant labour laws, and the Ministry of Health,Labour and Welfare (厚労省) has issued a certificate to us in recognition of such internal policy.

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Our Japan Legal Adviser has confirmed that, as at the Latest Practicable Date, our Groupwas in compliance with all applicable labour and employment regulations. We currently have inplace internal control systems and risk management procedures to monitor compliance withlabour, employment and other applicable regulations. Going forward, our Company, through ourcompliance department, will continue to monitor all labour issues to ensure compliance with allapplicable labour and employment regulations.
Recruitment
Our success, to a considerable extent, depends upon our ability to attract, motivate andretain a sufficient number of qualified employees, including area managers, hall managers, sales
managers and staff. We believe high-quality customer service and effective management is a key
attribute of our success. Our headquarters is responsible for hiring our full-time employees, while
part-time employee recruitment is typically handled by our hall managers depending on theoperational needs of specific halls.
Primarily, we recruit, place and train our full-time employees with a focus on fresh graduates
through our annual recruitment program. We believe this allows us to hire high-quality employees
in the market by offering competitive wages and benefits, focused training and internal promotion
opportunities. The majority of our staff (excluding operational staff) are university graduates. We
have adopted a variety of initiatives to facilitate recruitment of our staff, such as recruitment fairs,
online recruitment, flyers and posters. We believe our continuous efforts will help us attract
suitable personnel.
In addition, in 2010, we established a wholly-owned special subsidiary* (特定子会社),
Merrist, for the purpose of hiring employees that are handicapped persons. Under the Act on
Employment Promotion etc. of Persons with Disabilities* (障害者の雇用の促進等に関する法律)(Act No. 123 of 1960), at least 2% of the employees of a Japanese company, that has at least
50 employees must be handicapped persons. The number of handicapped persons employed by
Merrist can be counted for the purpose of its ultimate holding company, our Company. As at 30
September 2014, we have hired 61 employees that are handicapped persons, which is more thandouble the legal requirement. Such employees are mostly stationed at our halls and responsible
for relatively basic tasks such as gardening and maintenance of our halls and training facilities(including sanitisation). In recognition of our efforts to employ handicapped persons, we havereceived multiple awards. See “— Awards and Accreditations” in this section above for details.
Training
During the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, we spent approximately ¥16 million, ¥60 million, ¥46 million and ¥35 million to
train our staff, respectively. We own training facilities in Fukushima Prefecture (福島県) where ourpersonnel development department conducts training sessions for both new and existing
employees.

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For fresh graduate employees, they must attend our one-week orientation training, whichmainly focuses on the pachinko industry history and also our history, centralised management
strategy and management philosophy. Subsequent training will be on-the-job, typically consistingof operational training at a range of our halls (where they will receive field training from our hallmanagement team) and managerial, sales management and compliance training in the relevant
departments at our headquarters, coupled with periodic promotion as experience isaccumulated.
For our existing employees, we provide trainings and career guidance (tailored depending
on such employee’s ranking and job position), including training on the Three Party System toensure that our employees do not engage with G-prize wholesalers or G-prize buyers engaged
by them, and to prevent them from unknowingly establishing a relationship with them. For
example, all our Directors and senior management attended a training conducted by our Japan
Legal Adviser in December 2014 on the legal, regulatory and practice requirements under the
Penal Code, the Amusement Business Law and the Third Party Local Regulation, including theindependence requirements within the Three Party System.
Employees that are selected for potential promotion must pass a test, after which they will
be given specific training to prepare them for their promoted job position.
We also require our hall managers and area managers to rotate approximately every two
years. This ensures they gain a fuller understanding of their managerial roles by having to manage
multiple areas or halls.
We believe our training programmes also help to promote internal upward mobility (byhelping us identify promising promotion candidates), which not only increases employee retention
rates, but also produces the type and quality of management personnel needed for our
expanding hall network. Another objective of our training programmes is to provide a sufficientnumber of well-trained employees for newly opened pachinko halls. We also send our employees
to lectures hosted by the Prefectural Prefectural Public Safety Commission* (東京都公安委員会), which are designed to promote compliance with the Amusement Business Law.
HEALTH, WORK SAFETY, SOCIAL AND ENVIRONMENTAL MATTERS
Our business is subject to relevant Japan national and prefectural laws, ordinance andregulations regarding health, work safety, social and environmental matters.
Regarding environmental matters, the Amusement Business Law and the prefecturalordinances sets out restrictions on noise and vibration levels in the areas surrounding our
pachinko halls. These specify the acceptable noise levels for certain areas and times of the day.
See “Applicable Laws and Regulations — D. Other Regulations on Pachinko Businesses — 8.
Environmental Regulations” for further information on laws regulating noise and vibration. Eachpachinko hall shall also have equipments necessary to keep illumination in the hall more than 10
lux.

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BUSINESSTo ensure compliance with such laws and regulations, we have appointed a manager tosupervise and monitor our compliance and also our internal standards regarding such matters,
and we keep a record of any relevant incidents. Our Directors are of the view that the annual costof compliance with applicable health, work safety, social and environmental laws, regulations andpolicies was not material during the Track Record Period and is also not expected to be material
going forward.
During the Track Record Period and as at the Latest Practicable Date: (1) there had been
no violation of the health, work safety, social and environmental laws, rules and regulations
applicable to our operations; (2) all the required permits and environmental approvals forconstruction had been obtained; and (3) there had been no claim or penalty imposed upon ourGroup as a result of violation of health, work safety, social and environmental laws, rules andregulations. Our Japan Legal Adviser is of the opinion that our Group has complied with allapplicable Japan health, work safety, social and environmental laws, rules and regulations during
the Track Record Period and up to the Latest Practicable Date.
PROPERTIES AND FACILITIESOverview of property interests
Our self-owned and leased property interests comprise a gross floor area of approximately
823,258 sq.m. in aggregate. Among these property interests, approximately 88,100 sq.m. ofwhich are considered directly relevant to our operations as they are buildings housing ouroperational pachinko halls, supporting facilities and premises used for property activities (within
the meanings of the Listing Rules) (the “Operational Premises”). The remaining approximately
735,158 sq.m. are non-operational and include land on which our Operational Premises arelocated and parking lots adjacent to our pachinko halls.
Pachinko halls
Approximately 88.1% of our Operational Premises are used as pachinko halls. As at theLatest Practicable Date, we operated 55 pachinko halls, all of which were located in Northeast
Honshu (本州島東北), Japan. We also have on-site offices and ancillary facilities located within
the premises of our pachinko halls to ensure efficient and smooth operations.
Supporting facilities
We also own the properties housing our headquarters and training facilities, both located in
Koriyama City (郡山市) of Fukushima Prefecture (福島県). Our offices in Tokyo (東京都) and Hong
Kong, as well as the premises housing our “LIZARRAN” restaurant are leased properties.

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Property activities
Our property activities (within the meanings of the Listing Rules) include a hotel and an officebuilding for lease to third party tenants, both located in Koriyama City (郡山市) of Fukushima
Prefecture (福島県), as well as a three-storey building of residential apartments for lease to third
party tenants located in Tokyo (東京都). All of them are operated on self-owned properties. See“Appendix III — Valuation Report on Selected Property Interests” for the full-text valuation report
prepared by our Property Valuer on these properties.
Our Directors have confirmed that as at 30 September 2014, being the last day of the Track
Record Period, no single property interest of ours that forms part of our non-property activities
had a carrying amount of 15% or more of our total assets.
Further, our Directors have confirmed that as at the Latest Practicable Date, no single
property interest of ours was material to our Group’s total assets as a whole, and none of ourproperty interests was individually material to us in terms of turnover contribution or rental
expenses.
Self-owned properties
As at the Latest Practicable Date, approximately 55.4% of our Operational Premises wereself-owned properties. The table below sets forth a summary of our self-owned Operational
Premises:
Approximate Gross
Floor Area 1 and 2

Pachinko halls
Hall Numbers 4

1
2
3
6
8
9
10
12
13
15
16
20

Location

Usage

Sasakino, Fukushima-shi . . . . . . . . . . . Pachinko hallToyano, Fukushima-shi . . . . . . . . . . . . Pachinko hall
Senouemachi, Fukushima-shi . . . . . . . Pachinko hall
Asakamachi, Koriyama-shi . . . . . . . . . . Pachinko hall
Mukaigawaramachi, Koniyama-shi . . . . Pachinko hall
Ekimae, Koniyama-shi 3 . . . . . . . . . . . . . Pachinko hallNamiki, Koriyama-shi . . . . . . . . . . . . . . Pachinko hall
Otsukimachi, Koriyama-shi . . . . . . . . . . Pachinko hall
Zukei, Koriyama-shi . . . . . . . . . . . . . . . Pachinko hall
Asakamachi, Koriyama-shi . . . . . . . . . . Pachinko hall
Emochi, Sukagawa-shi . . . . . . . . . . . . . Pachinko hallTaira, Iwaki-shi . . . . . . . . . . . . . . . . . . . Pachinko hall

256

Total (sq.m.)

1,629
1,664
1,641
1,579
1,929
3,273
1,774
602
1,450
1,301
1,531
1,493

BUSINESS
Approximate Gross
Floor Area 1 and 2

Pachinko halls
Hall Numbers 4

21
23
24
26
27
30
31
32
33
35
36
40
42
45
53
Total: 27

Location

Usage

Tairashio, Iwaki-shi . . . . . . . . . . . . . . . . Pachinko hall
Banseicho, Yonezawa-shi . . . . . . . . . . . Pachinko hall
Wakamiya, Yamagata-shi . . . . . . . . . . . Pachinko hall
Minami-ku, Niigata-shi . . . . . . . . . . . . . Pachinko hall
Kita-ku, Niigata-shi . . . . . . . . . . . . . . . . Pachinko hallOdabayashi, Yuki-shi . . . . . . . . . . . . . . Pachinko hall
Higashikanesanacho, Hitachi-shi . . . . . Pachinko hall
Ikkucho, Nasushiobara-shi . . . . . . . . . . Pachinko hall
Fukuicho, Ashikga-shi . . . . . . . . . . . . . Pachinko hall
Itahana, Annaka-shi . . . . . . . . . . . . . . . Pachinko hall
Oizumimachi, Oura-gun . . . . . . . . . . . . Pachinko hall
Kamikawasaki, Hanyu-shi . . . . . . . . . . . Pachinko hallNakano-ku, Tokyo . . . . . . . . . . . . . . . . Pachinko hall
Ota-ku, Tokyo . . . . . . . . . . . . . . . . . . . Pachinko hall
Kurobeoka, Hiratsuka-shi . . . . . . . . . . Pachinko hall

Total (sq.m.)

1,934
835
1,381
1,391
1,391
957
1,794
1,454
1,625
1,657
1,768
2,810
887
479
1,675

Supporting facilities
Hohaccho, Koriyama-shi . . . . . . . . . . . Training facilities
1,460
Hohaccho, Koriyama-shi . . . . . . . . . . . Headquarters
2,457
Property activities (within the meanings of the Listing Rules)
3,273
Ekimae, Koriyama-shi . . . . . . . . . . . . . . Hotel and Ekimae
3hall
Ekimae, Koriyama-shi . . . . . . . . . . . . . Offices for lease
2,699
Oomorinishi, Tokyo . . . . . . . . . . . . . . . Apartment units for
264
lease

Note:
1.

Includes Operational Premises only.

2.

The attributable interests of our Group in the properties listed above are 100%.

3.

We operate a hotel above our Ekimae hall in Koriyama City (郡山市) of Fukushima Prefecture (福島県). The said hotel
and pachinko hall are located in the same building.

4.

The hall numbering follows the map of our pachinko halls set out in “— Pachinko and Pachislot Hall Operations —Geographical Focus in Northeast Honshu (本州島東北)” in this section above.

For details of the securities being secured to our self-owned Operational Premises, see“Financial Information — Indebtedness”.

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Leased properties
As at the Latest Practicable Date, approximately 44.6% of our Operational Premises wereleased properties, which have a lease term generally ranging from 3 to 20 years. The table below
sets forth a summary of our leased Operational Premises:
Approximate Gross
Floor Area 1 and 2
Hall Numbers 3457

Location

Usage

Total (sq.m.)

37
38
39
41

Jotake,Nihonmatsu-shi. . . . Pachinko hallMotomiya, Motomiya-shi . . Pachinko hall
Hiwadamachi,
Pachinko hall
Koriyama-shi. . . . . . . . . . . .
Shima, Korijama-shi . . . . . . Pachinko hall
Minami, Koriyama-shi . . . . . Pachinko hall
Babano, Soma-shi . . . . . . . Pachinko hallHaramachi-ku,
Pachinko hall
Minamisoma-shi . . . . . . . . .
Taihaku-ku, Sendai-shi . . . . Pachinko hall
Higashi-ku, Niigata-shi . . . . Pachinko hall
Tomado,Chikusei-shi . . . . . Pachinko hall
Edakawa, Hitachinaka-shi . Pachinko hall
Amagawaoshimamachi,
Pachinko hall
Maebashi-shi . . . . . . . . . . .
Atago, Kazo-shi . . . . . . . . . Pachinko hall
Fukai, Kitamoto-shi . . . . . . Pachinko hall
Nakai, Konosu-shi . . . . . . . Pachinko hallNakano-ku, Tokyo . . . . . . . Pachinko hall

43

Nakano-ku, Tokyo . . . . . . . Pachinko hall

385

44
46
47
48
49

Nakano-ku, Tokyo . . . . . . . Pachinko hall
Ota-ku, Tokyo . . . . . . . . . . . Pachinko hall
Ota-ku, Tokyo . . . . . . . . . . . Pachinko hallTateno, Higashiyamato-shi . Pachinko hall
Kamikitadai,
Pachinko hall
Higashiyamato-shi . . . . . . .
Mizuhomachi,
Pachinko hall
Nishitama-gun, Tokyo. . . . .
Inadaira,
Pachinko hallMusashimurayama-shi,
Tokyo . . . . . . . . . . . . . . . . .

11
14
18
19
22
25
28
29
34

50
51

258

Expiry Date

1,523
1,301
1,422

February 2022
June 2030
March 2017

959
1,172
1,389
1,513

March 2019
October 2021
February 2023
December 2029

2,161
1,393
1,398
1,464
1,932

August 2021
April 2023
June 2022
October 2021
November 2027

1,839
1,606
2,055
852

628
434
362
1,951
1,470

July 2026
February 2025
March 2027
Automatic renewal ata three-year interval
Automatic renewal ata three-year interval
June 2018
May 2015
July 2015
April 2016
April 2019

1,262

February 2020

1,465

January 2024

BUSINESS
Approximate Gross
Floor Area 1 and 2
Hall Numbers 3

52
54
55
56
Total 1 : 28

Location

Usage

Total (sq.m.)

Ota-ku, Tokyo . . . . . . . . . . . Pachinko hall
Hongo, Ebina-shi . . . . . . . . Pachinko hall
Shinkou, Iruma-shi . . . . . . . Pachinko hall
Arima Shibukawa-shi . . . . . Pachinko hall

884
2,103
2,467
1,309

OthersMinato-ku, Tokyo . . . . . . . Restaurant
Minato-ku, Tokyo . . . . . . . . Office

308
243

Central, Hong Kong . . . . . . Office

67

Expiry Date

April 2022
August 2033
November 2034
December 2034

July 2017
Automatic renewal at
a two-year interval
December 2017

Note:
1.

Includes Operational Premises only and excludes a pachinko hall grossing 1,619 sq.m. which has beenpermanently closed since the Great East Japan Earthquake as it is located within the exclusion zones implemented
by the Japanese government in March 2011. Both the land and building of that pachinko hall are leased properties
expiring in 2027. See “— Pachinko and Pachislot Hall Operations — Fukushima Prefecture (福島県) and the Great
East Japan Earthquake” in this section above for details.

2.
3.

The attributable interest of our Group in the above listed properties is 100%.
The hall numbering follows the map of our pachinko halls set out in “— Pachinko and Pachislot Hall Operations —Geographical Focus in Northeast Honshu (本州島東北)” in this section above.

The two leased Operational Premises that will expire by 2015 5 accounted for, in aggregate,approximately, 1.8%, 1.7%, 1.5% and 1.6%, respectively, of our revenue for the years ended 31
March 2012, 2013 and 2014 and the six months ended 30 September 2014.
We own and/or rent the land on which our pachinko halls are located, and lease and/or haveconstructed the buildings that house our pachinko and pachislot hall operations. Under the Civil
Code and the Leases Act and in accordance with the terms of our lease agreements, while thelessor owns the title of the land we lease, we own the title of the premises we constructed onsuch land. Our Japan Legal Adviser has confirmed that these arrangements of title ownership arein compliance with the Civil Code, the Leases Act and all applicable laws and regulations inJapan.

5

These are for the halls numbered 46 and 47 as indicated in the map in “Business — Pachinko and Pachislot Hall
Operations — Geographical Focus in Northeast Honshu (本州島東北)”.

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We are generally required pursuant to the terms of our lease agreements to return the land
to the lessor in its original condition as a vacant site upon expiry or termination of lease. Thus,
if we do not renew all of our leases, we will be required to demolish the pachinko halls that wehave constructed on the parcels of land we have leased as and when each such lease expires.
Our Directors currently estimate that the maximum potential demolition costs for each pachinko
hall premise shall be approximately ¥127.7 million excluding other costs. During the Track Record
Period, we did not have any significant difficulty in securing location for our new pachinko halls,
nor did we fail to renew any of our lease agreements for pachinko hall sites. See “Risk Factors— Risks Relating to our Business — We may not be able to renew leases or other contractual
arrangements for the use of existing pachinko halls, or to obtain desirable sites for the expansionof our operations, on satisfactory terms or at all” for details.
The table below indicates how the properties housing our operational pachinko halls areheld as at the Latest Practicable Date:
Number of Pachinko Halls 1
Leased Operational
Self-owned Operational Premises

Pachinko halls. . . . . . . . . . . . . . .

Premises

Owned

Leasedbuilding andbuilding andpartially

partially

Owned

owned (and

Owned

Leasedowned (andbuilding andpartiallybuilding andbuilding andpartially

owned landleased) landleased landleased landleased) land

6

13

8

27

1

Note:
1.

Includes our operational halls only and excludes a hall which has been permanently closed since the Great East
Japan Earthquake as it is located within the exclusion zones implemented by the Japanese government in March
2011. Both the land and building of that pachinko hall are leased properties expiring in 2027. See “— Pachinko andPachislot Hall Operations — Fukushima Prefecture (福島県) and the Great East Japan Earthquake” in this section
above for details.

The lease contacts for our pachinko halls operated on leased land consist of two types,
namely (1) fixed term lease contract and (2) standard lease contract.
In a fixed term lease contract, the lessee must return the land as a vacant lot upon expiry
or termination of the relevant lease contract. The lessee under a standard lease contract enjoys
security of tenure because the contract may be automatically renewed unless the lessor has
justifiable reasons for re-entry upon expiry of the lease contract. Our Directors currently intend
to use our best endeavours to negotiate for the renewal of our fixed term contracts oncommercially viable terms and conditions that are in the interests of our Company andShareholders as a whole. We are in negotiation with the relevant landlords of the three pachinkohalls with lease land components expiring by 2015 and our Directors believe that, based on thecurrent negotiation status, it is highly likely that we will be able to continue occupying the
Operational Premises and land components housing these three pachinko halls.

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The earliest expiration date of the lease contracts for 49 of our pachinko halls with leased
land components is in 2015. The table below summarises the type of lease contracts for the 49
pachinko halls as at the Latest Practicable Date:
Number of pachinko halls 1
Fixed term

Year of expiry of land lease contract

Fixed termlease (landleases (landand buildingStandard

components)

components)

lease

Total

By 2015 . . . . . . . . . . . . . . . . . . . . . . . . .
2016-2020 . . . . . . . . . . . . . . . . . . . . . . .
2021-2025 . . . . . . . . . . . . . . . . . . . . . . .
2026-2030 . . . . . . . . . . . . . . . . . . . . . . .
2031-2035 . . . . . . . . . . . . . . . . . . . . . . .
Automatic renewal . . . . . . . . . . . . . . . . .

—
—
4
3
1
—

—
1
4
—
1
—

3
11
12
5
2
2

3
12
20
8
4
2

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

6

35

49

Note:
1.

Includes our operational halls only and excludes a hall which has been permanently closed since the Great East
Japan Earthquake as it is located within the exclusion zones implemented by the Japanese government in March
2011. Both the land and building of that pachinko hall are leased properties expiring in 2027. See “— Pachinko andPachislot Hall Operations — Fukushima Prefecture (福島県) and the Great East Japan Earthquake” in this section
above for details.

The three lease contracts with leased land components that will expire by 2015 6 accounted
for, in aggregate, approximately 4.3%, 4.2%, 4.2% and 4.4% of our revenue for the years ended
31 March 2012, 2013 and 2014 and the six months ended 30 September 2014, respectively.
As at the Latest Practicable Date, save as disclosed in this Prospectus, none of our
Operational Premises (i) was subject to any restriction on use; (ii) was subject to encumbrances,liens, pledges and mortgages; or (iii) involved any breach of law and regulation (including
environmental regulation), title defect, investigation, notice or pending litigation, nor did we haveany plan to (a) construct, renovate, improve or develop any Operational Premise; or (b) disposeof or change the use of any Operational Premise.

6

These are for the halls numbered 10, 46 and 47 as indicated in the map in “Business — Pachinko annd Pachislot
Hall Operations — Geographical Focus in Northeast Honshu (本州島東北).”

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BUSINESSINTELLECTUAL PROPERTYOur Group’s brand name, particularly our traditional “NIRAKU” brands, are valuable assets
for our Company and operations.
As at the Latest Practicable Date, our Group had 24 registered trademarks in Japan and tenof which are material to our pachinko and pachislot hall operations. These material trademarks,
andor variations of them, under which all
are our “NIRAKU (ニラク)” brand,of our Group’s pachinko halls in Japan are operated. These material trademarks have beenregistered by our Group in Japan and are each valid for ten years from the date of registration.
The material trademarks have commencement dates ranging from April 2003 to August 2012 andwill expire between August 2018 and May 2024. These trademarks are of material importance toour business operations, financial position and prospects. As at the Latest Practicable Date, ourJapan Legal Adviser has confirmed that we own and have valid and enforceable rights to use ourintellectual property rights as set forth here.
We have also been granted exclusive use of the “LIZARRAN” trademark, a Spanish
restaurant. See “— Other Business” in this section below for details.
During the Track Record Period, no material claims or disputes were brought against us in
relation to any infringement of trademarks, patents or other intellectual property. Our Directors
are also not aware of any use by any third party of our logo or brand and believe that there has
been no infringement that would result in a significant potential impact to our business.
See “Appendix VI — Statutory and General Information — 2. Our material intellectual
property rights” for details of intellectual property rights that are material to our business.
INSURANCE
We believe that our insurance coverage is consistent with the industry standard and isadequate for our business operations. From time to time, we review and assess our risks andadjust our insurance coverage as appropriate.
We maintain fire insurance for our pachinko halls and operating properties from fire damage.
We also maintain movable property insurance, which insures our movable property (such as cashin our halls) from theft and burglary, and public liability insurance for third party physical injuries
and property damage, and labour and health insurance for our employees. Each policy contains
certain customary exclusions. In addition, certain events such as nuclear events, labour strikes,
acts of war or terrorism, and other disasters are excluded from coverage by these insurance
policies. We do not carry business interruption insurance resulting from natural disasters such as
droughts, floods, earthquakes or severe weather conditions, any suspension or cessation in the
supply of utilities and other calamities. We plan to purchase similar policies for our future
properties. However, our insurance coverage may not be adequate to cover all losses that may

262

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occur. See “Risk Factors — Risks Relating to Our Business — Our insurance coverage may not
be adequate to cover all possible operational losses that we could suffer. In addition, ourinsurance costs may increase and we may not be able to obtain the same level of insurance
coverage in the future”.
OTHER BUSINESSES
Our primary business has always been our pachinko and pachislot hall operations. Ourrevenue from pachinko and pachislot hall operations constituted almost all of our total revenue,
namely 97.6%, 97.5%, 97.5% and 97.6% of our total revenue during the years ended 31 March
2012, 2013 and 2014 and the six months ended 30 September 2014. Other than our corebusiness of pachinko and pachislot hall operations (including vending machine income), we also
have two other businesses, namely our hotel operations and also our “LIZARRAN” restaurant.
1.

Hotel Operations

We have been operating a hotel called Koriyama City Hotel (郡山シティホテル), which is abusiness hotel with basic amenities, since 1979. It is situated in the centre of Koriyama City(郡山市), Fukushima Prefecture (福島県), being in front of the Koriyama railway station. It is a
11-storey hotel with a gross floor area of 2,944.38 sq m and has 84 guest rooms.
Our Property Valuer, DTZ Debenham Tie Leung Limited, an independent property valuer, hasvalued (among others) our hotel as at 31 January 2015 and is of the opinion that its value was¥728 million, with the entire value attributable to us. See “Appendix III— Valuation Report on
Selected Property Interests” for the full text of their letter, summary of valuation and valuation
certificates.
Our revenue from our hotel operations has been relatively insignificant, namely nil, ¥84
million, ¥149 million and ¥80 million, representing only nil, 0.3%, 0.4% and 0.5% of our total
revenue, for the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, respectively. Revenue from our hotel operations was nil in the year ended 31
March 2012 because our hotel had been closed for renovation since the Great East Japan
Earthquake and reopened in August 2012. For the years ended 31 March 2012, 2013 and 2014
and the six months ended 30 September 2014, our hotel’s average occupancy rate was nil,
70.3%, 79.9% and 82.2%, respectively. As our Group’s hotel operation is not our major businessfocus, we have no intention to expand (i.e. increasing the number of hotels) our hotel operation.
For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30 September
2014, our hotel’s net profit / (loss) before tax amounted to (¥138 million), (¥12 million), ¥1 millionand ¥6 million, respectively. As our hotel is a budget hotel with limited facilities, our expected
capital expenditures on the maintenance and refurbishment of the hotel shall not be significant.

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2.

“LIZARRAN” Restaurant

On 16 December 2013, we (through our subsidiary, Niraku Corporation) and Comess GroupDe Restauración S.K. (“Comess Group”), an independent third party, entered into a franchise
agreement, whereby Comess Group granted Niraku Corporation the exclusive rights to open a
network of “LIZARRAN” restaurants in Japan. Comess Group is a reputable restaurant group thathas over 10 years’ experience in operating and franchising multiple restaurant brands (such as“LIZARRAN”, “Cantina Mariachi”, “Pasta City”, “Rock & Ribs” and “China Boom”) and over 300
restaurant establishments across the world (especially in Europe, and also the Middle East, China
and now Japan). The material terms of this franchise agreement are:Parties(1)

Comess Group, as franchisor and legal owner of the“LIZARRAN” trademark (a Spanish restaurant); and(2)

Niraku Corporation, as franchisee

Licence

Comess Group grants Niraku Corporation the exclusive
rights to open a network of “LIZARRAN” restaurants inJapan, which must always operate in accordance with the
instructions of Comess Group. Such exclusivity evenprecludes Comess Group from opening any such
restaurant in Japan

Restaurant openings

Niraku Corporation will open at least 20 restaurants by
2028, with at least one new restaurant per yearTerm

20 years (renewable for an additional 20 years by Niraku
Corporation upon six months’ written notice and Niraku
Corporation’s compliance with this franchise agreement)

Fees/Royalties

Niraku Corporation shall pay to Comess Group:•

initial licence fee - =C 250,000
approximately HK$3.04 million)•

royalties - 2.25% of Niraku Corporation’s net sales,
payable monthly(equivalenttoWe entered into this franchise agreement in order to diversify our business and because our
Directors viewed this as a sound business opportunity. A side benefit is also an added level ofhospitality training for our employees, as we will periodically rotate selected employees to serveat our restaurants.

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As at the Latest Practicable Date, we had opened one restaurant on 15 October 2014 (thus,
no revenue for our restaurant business was recorded during the Track Record Period) as our firstand flagship “LIZARRAN” restaurant (with a seating capacity of 82) and is situated in Tokyo(東京都). In each of 2015, 2016 and 2017, we plan to open one new restaurant in Tokyo (東京都).
The estimated costs of opening each new restaurant is approximately ¥40 million to ¥50 million.
For the six months ended 30 September 2014, pre-operating costs for setting up our
restaurant (including costs for staff recruitment and rental) of ¥10 million were recorded. As aresult, our Group’s “other business” recorded a loss of ¥4 million, taking into account our hotel
operation’s net profit before tax of ¥6 million for the six months ended 30 September 2014.
The strategy of our restaurant business is to capture the taste of the younger generation (aswe believe Spanish cuisine is particularly appealing to them as it is a relatively social cuisine thatis served in a relatively casual and relaxing environment) by: (1) serving authentic Spanish cuisine
at affordable prices (as opposed to other European cuisines); (2) providing attentive services (allrestaurant staff will receive extensive training); (3) strategically placing our restaurants inlocations with high customer traffic; and (4) learning from the proven track record of Lizzaran
restaurant’s chain restaurant management experience (with a network of over 300 restaurants
worldwide, including in Asia). We expect our restaurants will breakeven within approximately 12months from opening. Further, due to the relatively low investment cost of our restaurant
operation (as the opening cost of a restaurant amounts to approximately ¥40 to ¥50 million) andthe fact that restaurant operation is more of a cashflow business and does not require muchworking capital (i.e. debtor turnover days is relatively short), we do not expect any significant risk
to arise from our restaurant operation.
LEGAL PROCEEDINGS AND COMPLIANCE
From time to time, we have been (and may in the future occasionally be) involved in routine
legal proceedings or disputes in the ordinary course of our business that are common for ourindustry, which are primarily disputes with our customers, suppliers and employees regarding
minor employment disputes, customer complaints and contract disputes with our suppliers.
During the Track Record Period, we were not involved in any legal proceedings. We are also
subject to regular investigation by the relevant government regulatory bodies (including police
personnel) regarding our licenses and operations. We have not incurred significant legal costs
and expenses in connection with these legal proceedings and investigations.
Under the Amusement Business Law, we, as a pachinko hall operator, must, prior toestablishing each pachinko hall, obtain an operating licence from the relevant Prefectural Public
Safety Commission* (都道府県公安委員会). Once granted, the operating licence will remain
effective unless and until it is cancelled by the Prefectural Public Safety Commission*(都道府県公安委員会) pursuant to the Amusement Business Law. As at the Latest PracticableDate, we owned 56 halls and had obtained and directly hold a licence (through Niraku
Corporation) for each of these halls, each of which is currently valid.

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Our Japan Legal Adviser has confirmed that, during the Track Record Period and up to theLatest Practicable Date: (1) we have not been the subject of any administrative proceedings(including administrative dispositions) and have not been imposed any fines or penalties(including suspensions or revocations of operating licences) by regulatory authorities; (2) none of
our Directors or senior management has been, or are, the subject of any regulatory inquiry or
investigation in Japan; (3) we have also been, and currently are, in compliance in all material
respects with all applicable laws, rules and regulations; (4) we have obtained and currently
maintain all necessary approvals, certificates, permits or licenses that are material to ouroperations; (5) our Company was in compliance with the applicable laws and regulations in any
and all conditions imposed on it under licences granted by the relevant Prefectural Public Safety
Commission* (都道府県公安委員会) in all material respects; (6) the Prefectural Public Safety
Commission* (都道府県公安委員会) has not imposed any non-standard conditions on orsuspended or revoked any of the licenses held by our Group; (7) none of our pachinko halloperations have been suspended due to violations of the Amusement Business Law or otherapplicable laws and regulations; and (8) we were not involved in any litigation or arbitration
proceedings pending or, to our knowledge, threatened against us or any of our Directors that
could have a material adverse effect on our business, financial condition or results of operations.

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We employ internal controls and procedures designed to help ensure that our pachinko andpachislot hall operations are conducted in a professional manner and in compliance with theAmusement Business Law, as enforced by the National Public Safety Commission*(國家公安委員会), and all applicable laws and regulations in Japan. Further, even though there are
currently no specific obligations imposed on pachinko hall operators under the AML laws ofJapan, we have voluntarily established various policies and procedures designed to identify andmitigate money-laundering activities in our pachinko and pachislot hall operations and avoid
dealing in the proceeds of any indictable offence. Our internal control measures enable us todetect irregularities and unusual activities or trends in the transactions that take place in our
pachinko halls which, if detected, are reported to our Directors and senior management forinvestigation, remediation and, if necessary, reporting to the relevant authorities in Japan. In
addition, our hall staff are trained to detect irregular customer activities, particularly those
involving large amounts of cash. Money-laundering is difficult to carry out through pachinko
operations, in general, because (1) pachinko ball and pachislot token dispensers are only able torelease a maximum of approximately 750 pachinko balls or 600 pachislot tokens per minute due
to inherent mechanical limitations; (2) the value of balls shot into the playing field is limited byregulations to ¥400 per minute; and (3) payout ratios are also limited by regulations. Furthermore,as with all pachinko hall operators in Japan, we are subject to on-site supervision by thePrefectural Public Safety Commission* (都道府県公安委員会). See “Applicable Laws andRegulations” for more information regarding the regulations to which we are subject.
INTERNAL CONTROLS RELATING TO PACHINKO AND PACHISLOT HALL OPERATIONSOur Internal Control Framework
Our pachinko and pachislot hall operations are subject to risks of loss resulting from
employee or customer dishonesty. Minimising such risks requires a set of robust procedures thatcan control the authorisation, accountability and safekeeping of pachinko balls and tokens, cash
and pachinko-related equipments, such as pachinko and pachislot machines. We have
implemented anti-cheating and anti-counterfeiting surveillance systems designed to detect
irregularities incurred during our daily operations, which includes a surveillance system and aninternal audit team which is responsible for hall operational audits, as described below.
Prevention and investigation of fraud and cheating in our pachinko halls are primarily carried out
by our hall operations staff with the cooperation of our internal audit team. To ensure the integrityof operations and compliance with operational policies and procedures, our internal audit team
operates independently from our hall operations units.
Fraud Prevention and Detection Measures
We also have in place measures in our pachinko and pachislot hall operations to detect
potential fraud, cheating or counterfeiting activities. For instance, our pachinko and pachislot
machines have mechanisms detect and reject any counterfeit bank notes inserted. Each of our267

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pachislot tokens feature a ‘‘NIRAKU’’ stamp. To ensure that no altered or counterfeited pachinkoballs or pachislot tokens are brought into or taken out of our pachinko halls, the entrances of ourpachinko halls are monitored by our hall operations staff supported by surveillance cameras.
Hall Management System
Our hall management system (licensed from a third party supplier) captures data on thenumber of pachinko balls and pachislot tokens played and paid out at each machine. At the endof each day, our assistant hall managers in each hall reconcile the opening balance of pachinkoballs and pachislot tokens against the ending balance, and carry out investigation on any
discrepancies greater than a certain number of balls or pachislot tokens, which may varydepending on the number of machines in the relevant hall.
Anti-Modification Controls
The operations of our pachinko and pachislot machines are monitored by surveillancecameras and our hall computers. Our hall operations staff who patrol the hall and monitor the
footage of surveillance cameras as well as our hall computers are able to detect and prevent any
attempts to tamper with the pin angle maintenance adjustments, payout setting adjustments orotherwise illegally manipulate the machines. Our hall operations staff are responsible for dailytasks relating to machine maintenance, such as cleaning. However, our hall operations staff areprohibited from performing any maintenance on a machine that results in a modification of its
systems, electronic components, or any other major changes affecting machine function. Suchadjustments are done by machine manufacturers with the requisite certification from regulatory
authorities and subject to regulatory approval before that adjustment or modification is made.
However, hall managers are authorised to check and make daily adjustments to the pachinko
machines in order to ensure continued compliance with relevant regulations.
Hall Operations Staff and Internal Audit TeamOur internal audit team has an average of more than 18 years of work experience in thepachinko industry and is familiar with fraud detection mechanisms. Our hall operations staff are
required to regularly patrol the hall to monitor our machines and equipments for alerts and errors,
player traffic inside the halls, and certain customer behaviours that may be indicative offraudulent acts, and to report any perceived irregularities to our hall managers.
Cooperation with Police
We work closely with officers of the prefectural police agency. If a member of our staff
identifies suspicious activity which may constitute a crime, we will report such activity to the local
police for further investigation. Our pachinko halls also cooperate with the pachinko halls within
the relevant operation area to alert and notify other halls of persons suspected of cheating or
engaging in other suspicious or illegal activity. Our pachinko halls exchange surveillance photosof such persons to ensure that such persons are not allowed entry into our pachinko halls.

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Whistleblowing Policy
Our officers, employees and their relatives could report irregularities or suspected fraud tomanagement verbally through a “whistleblowing” telephone hotline or in writing. Our
whistleblowing policy further requires such reporting when any officer or employee becomesaware of any act that falls within the range reportable acts specified in our policy. Our internal
audit team who reports directly to our Audit Committee is responsible for handling all reports
received and conducting the appropriate enquiries. Upon receiving of such result of reports, ourinternal audit team will consolidate and escalate these cases to our Audit Committee which
determines if further investigation is necessary, in which case our internal audit team must thenopen an investigation file and notify the whistleblower of the results of the investigation andcorrective measures taken or, if the investigation is discontinued, the reason for the
discontinuation. A written report must be provided to our Audit Committee, which is responsible
for reporting to our Board of Directors. The identities of any whistleblowers are kept confidential
and our policy protects any whistleblowers from retaliatory action by our Company. Our Board of
Directors is, if required under the relevant laws and regulations in Japan, required to report any
findings of irregularities and defrauds to the relevant authorities in Japan.
INTERNAL CONTROLS RELATING TO CASH AND G-PRIZES
Cash and G-prize Handling Measures
We employ stringent internal control measures with respect to the handling of cash andG-prizes in our pachinko halls. Such measures include the followings:•

Handling of significant amounts of cash and G-prizes is required to be done in thepresence of at least two staff, who are either a hall manager, an assistant hall manager
or the designated staff in charge of cash management, and such activity is recordedby our surveillance cameras. All significant amounts of cash for daily use are stored in
the safe(s) located inside a separate locked room in each of our pachinko halls which
is only accessible by our hall managers, assistant hall managers and the designatedstaff in charge of cash management, while G-prizes are stored in the locked drawers
at each hall counter. The key and password of the safe(s) and the key of the hallcounter drawer of each of our pachinko halls are kept by our hall managers, assistanthall managers and designated staff in charge of cash management;•

Our hall managers, assistant hall managers or the designated staff in charge of cash
management will conduct an inventory check of cash and G-prizes after the close ofbusiness each day, regardless of whether the safe(s) or locked hall counter drawers
have been accessed during the day, and cross-check the total actual amount on handagainst the daily system record which is updated to reflect all inventory movements ofcash or G-prizes;

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INTERNAL CONTROLS AND ANTI-MONEY LAUNDERING•

Based on the inventory record, our hall managers or assistant hall managers determine
the quantity of G-prizes to be purchased in order to replenish the G-prize inventory toan appropriate level. Purchase orders for G-prizes must be maintained in our prize
management system, which is used for prize ordering and inventory management. Our
hall managers or assistant hall managers are authorised to approve G-prize purchaseorders in our prize management system;•

G-prizes are delivered in the presence of our hall managers, assistant hall managers or
the designated staff in charge of cash management. Quantity of G-prizes delivered arecross-checked against purchase orders and the inventory records in our prize
management system are updated accordingly, of which our headquarters havereal-time access. The payment for such deliveries are also handled by these authorised
staff members;•

The staff in charge of cash management and our assistant hall managers carry out
manual cash count which is stored in our sales reporting system and sign off our daily
hall reports at the close of each business day, subject to the ultimate approval of eachhall managers. Our headquarters have real-time access to our sales reporting system
as well as access and review authority to daily hall reports of each pachinko hall; and•Our headquarters perform a daily review of sales record and the amount of cash
collected and reported by each hall in our sales reporting system. Reconciliation
between the daily statements of cash collection provided by the security transportationcompany, an independent third party, and the amount reported by each pachinko hallis performed on a monthly basis.

Cash Management and Collection Guidelines
We have established written guidelines on the maximum amount of cash to be kept at eachpachinko hall for daily operations, which is ¥35 million, which includes changes, pay-ins andmoney for buying G-prize. We also contract with a security transportation company, an
independent third party, for the collection of cash in excess of the amount necessary for daily
operations as prescribed in the guidelines. Such excess cash is deposited into a secure safe thatis located in each of our pachinko halls, which is only accessible for collection by ourtransportation company. Upon deposit into the safe, a deposit slip is automatically generated,
and risks of loss are transferred to our transportation company. Our transportation company
collects cash from our safes on a regular basis ranging from daily to weekly, which may varydepending on the number of machines in the relevant hall, transports it to the bank and deposit
the cash into our account. We reconcile the amount collected by our transportation company
against the amount credited to our bank accounts on a monthly basis.

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Financial Statement Reconciliation
Our accounting system, which is licensed from an independent third party supplier, is used
for accounts preparation. Our finance department reconciles our cash balances with various
records, including bank-in statements provided by our transportation company and the amountof cash collected and reported by pachinko halls in our sales reporting system. The accounting
entries which record cash bank-ins are subject to approval from the designated personnel in our
finance department in our accounting system.
Prize Management System
Our prize management system keeps up-to-date inventories of our various prizes, including
G-prizes. This enables our prize management system to keep up-to-date and accurate
inventories, including tracking transactions in which customers exchange pachinko balls or
pachislot tokens for prizes. Daily reports are generated and reviewed by our hall managers inwhich irregularities such as abnormal increases in the volume of G-prizes being exchanged canbe detected. These information are also accessible by our headquarters to identify any
abnormalities.
INTERNAL CONTROLS RELATING TO INFORMATION TECHNOLOGY AND COMPUTERSYSTEMS
Internal controls related to Information Technology and Computer Systems
Our information technology department supports several systems which are only accessibleby authorised employees in order to ensure smooth operations. To ensure the security of our
information technology systems, we have implemented certain measures, such as:•access rights to the various systems are assigned to employees based on theirdesignated roles and responsibilities;•

our major systems, including our prize management system, hall computers, sales
reporting system, accounting system and human resources and payroll system are
password-protected;•

our computing facilities in Tokyo (東京都) and Koriyama City (郡山市) are accessible
only by authorised personnel; and•To protect our information, we have a backup plan in place for critical systems anddata. Full backups are performed on a daily basis.

INTERNAL CONTROLS ON MONEY LAUNDERING
We believe that, money laundering risks associated with our pachinko and pachislot halloperations are inherently low, due to the stringent regulations and machine limitations pertaining
to the number of pachinko balls or pachislot tokens that can be played as well as won at our

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INTERNAL CONTROLS AND ANTI-MONEY LAUNDERING
pachinko and pachislot machines. Even though there are currently no specific obligations
imposed on pachinko hall operators under the AML laws of Japan, we have voluntarily
established various policies and procedures designed to identify and mitigate money laundering
activities in our pachinko and pachislot hall operations and avoid dealing in the proceeds of any
indictable offence. Such policies and procedures have been designed, implemented and areoperating with reference to the guidance paper titled International Standards on Combating
Money Laundering and the Financing of Terrorism and Proliferation issued by the Financial Action
Task Force in 2012 and the Amusement Business Law. In addition, the pachinko industry is
regulated by the Amusement Business Law which requires the independence of the parties
involved in the Three Party System being us, our G-prize wholesalers and the G-prize buyers
engaged by them.
Our AML Governance
Our Board of Directors is responsible for (among others) overseeing the overall managementof compliance risks, including the review and approval of AML measures as well as remediationof any issues that arise.
Our Audit Committee is responsible for (among others) reviewing any internal control issues
highlighted by our internal audit department and reporting such findings to our Board of Directors
on a regular basis to highlight any deficiencies in our AML measures and internal control systems.
Our senior management is responsible for ensuring that there is a robust AML framework inplace that is commensurate with any risks present in the pachinko industry. Furthermore, theyalso ensure that such a framework is operating effectively to facilitate the identification andmitigation of money laundering risks. Our AML framework covers systems, controls, policies andprocedures across all key areas relevant to our operations. Our framework includes clear lines of
escalation, transparent and accurate reporting and formalised risk management at both the entityand business unit level. This helps us make informed decisions as to whether pachinko halltransactions and customer relationships exceed our acceptable risk levels.
Our Risk Management Committee consists of 12 members and is headed by Mr. Akinori
OHISHI (大石明徳), an Executive Officer. Our Risk Management Committee is responsible for,among others, identifying, assessing and mitigating the risks faced by our business, which
include those pertaining to money laundering and compliance with the Three Party System. Our
Risk Management Committee periodically reviews these risks and the results of our internal audit
department’s testing and report their findings to our Audit Committee.
Our internal audit department is required to ensure adequate supervision over key aspects
relating to the prevention and detection of money laundering with respect to our operations. This
includes: (1) an inspection of each pachinko hall at least once every two months; (2) periodic
reviews of our compliance framework and effectiveness of our AML measures; (3) verification andtesting of our compliance with AML measures; and (4) reporting any findings to our Audit
Committee.

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See “Directors and Senior Management” for further details on the duties and responsibilitiesof our Board of Directors, Audit Committee and Risk Management Committee and for informationon the background and experience of Mr. Akinori OHISHI (大石明徳).
Our AML Operational Controls
We have implemented the following controls to help detect and mitigate money launderingrisks in our pachinko halls:•

appropriate due diligence procedures are conducted (including but not limited tobackground checks with respect to criminal records, employment history and financial
information) and documented on our directors, as well as senior management, andarea and hall managers of the our pachinko halls to among other things, identify andavoid connections to anti-social forces and ensure high standards of integrity. Suchprocedures include screening of individuals against external search engines such as
SP Networks Co., Ltd* (株式会社エス▪ピー▪ネットワーク) to identify high risk
individuals. In addition, annual background checks are conducted on our G-prize
wholesalers and the G-prize buyers engaged by them, including their directors andshareholders, in order to identify and avoid any connections with anti-social forces.
Such procedures include screening of individuals against external search engines suchas SP Networks Co., Ltd* (株式会社エス▪ピー▪ネットワーク) to identify high risk
individuals;•

written representations are obtained on a periodic basis from the G-prize wholesalersconfirming (among others): (i) their independence from us; (ii) their independence fromthe G-prize buyers with whom they conduct business; (iii) they and theirrepresentatives, statutory auditors, executive officer, shareholders and directors andalso the G-prize buyers with which they conduct business with do not have any
connections with anti-social forces, or are, or will be involved in any actions or activities
using, or jointly associate with, any anti-social force; (iv) a complete and accurate listof all G-prize buyers engaged by them who have G-prize buying shops near our halls,
and the shareholder(s) or (ultimate owner(s)) of such G-prize buyers; (v) they undertaketo conduct their own regular background checks against any G-prize buyers engaged
by them in order to monitor any potential independence issues between them, and if
there are any such issues, to inform us and resolve them immediately to ensurecompliance with the Three Party System; and (vi) they undertake to report to us in atimely manner any change in their shareholding structure and composition of theirboard of directors, or if they become aware of any change in the same of the G-prize
buyers engaged by them or other matters that may affect their own or such G-prize
buyers’ independence within the Three Party System;•

written representations are obtained (through the relevant G-prize wholesaler) on aperiodic basis from G-prize buyers confirming (among others): (i) their independence
from the us; (ii) their independence from the G-prize wholesalers engaged by us; (iii)they and their representatives, directors, statutory auditors, executive officers or
shareholders do not have any connections with anti-social forces, or are, or will be273

INTERNAL CONTROLS AND ANTI-MONEY LAUNDERING
involved in any actions or activities using, or jointly associate with, any anti-social
force; (iv) they are not aware of any of our G-prize wholesalers having connections with
anti-social forces, or are, or will be involved in any actions or activities using, or jointly
associate with, any anti-social force; (v) they have undertaken to the G-prize
wholesaler that engaged them that they shall report to such G-prize wholesaler in atimely manner any change in their shareholding structure or board of directors or any
other matters that may affect their independence within the Three Party System; and(vi) G-prizes are only paid for using cash and not any other form of payment such asbank remittance or cheques;•

external reputable corporate data research agencies are engaged to provide enhanced
due diligence information for any potentially suspicious customers or those customers
with whom there is an intention to conduct transactions exceeding a predefinedtransaction threshold of ¥500,000;•

periodic transfer of area managers and pachinko hall managers are conducted in orderto prevent development of illicit relationships, such as those involving bribery. Our
personnel development department shall have control over personnel matters;•

we reinforce monitoring of suspicious activities of customers and periodic evaluation.
Efforts shall be made to ensure the early detection and reporting of persons who intend
to gain profit illicitly by conducting thorough checks on suspicious activities;•

there is continuous monitoring of the automated systems in place in our pachinko halls,
including but not limited to our prize management system, information technology
system and hall computers, as well as analysis of financial and operating data, tomonitor and detect unusual fluctuations that may indicate suspicious activity;•

there is appropriate guidance in place to ensure the timeliness, appropriateness andquality of both internal reporting to our headquarters and external disclosure to therelevant authorities in Japan;•

in the event where suspicious activities are discovered upon conducting an exhaustive
check of suspicious activities relating to anti-social forces and money laundering, ourstaff in charge of compliance will be promptly alerted, in accordance with our
emergency response flow. Our staff in charge of compliance shall share suchinformation with our sales department and the responsible Director, and implement
appropriate responses when there is suspicion of money laundering;•

early detection of and response to abnormal values in our systems is also conducted.
In particular, any act of exchanging pachinko balls or pachislot tokens for prizes
without playing shall be investigated. Our hall staff perform regular monitoring ofcustomers during operation hours to identify (among others) customers exchanging
prizes without playing. Further, at the end of each day, our hall managers compare theratio of the number of balls played to the number of balls rented at the pachinko hall,with historical figures. If abnormal values are detected, our hall manager will instruct274

INTERNAL CONTROLS AND ANTI-MONEY LAUNDERING
hall staff to review surveillance camera footage of the day to identify any customers
who exchanged prizes without playing. Hall staff will also pay special attention tocustomers on the next day to identify such suspicious activity. If the person engaged
in such activity does not cease the relevant activity after being asked to do so, suchact shall be immediately reported to the police. We may request such person to
immediately leave the premises and refuse the exchange of rent balls earned without
playing;•data checks are also performed on sales per machine and other business data every
two hours during business hours to discover any renting of balls or tokens for purposes
other than entertainment;•

moreover, at the end of each day, each hall must aggregate the number of pachinkoballs and pachislot tokens rent to customers, used in play, collected or exchanged withprizes and check for any abnormalities. Any ball which was not played but exchanged
into prizes will also be detected and the hall operations staff will need to report such
instances to our headquarters. This aggregation serves as an aid in detecting abnormal
payout status of prizes;•

employee education for the prevention of money laundering shall be conducted incompliance with our management manual, and education on anti-money laundering
guidelines and other supplementary and updated information shall be conveyed
through various training programs. This will help ensure that there is sufficientawareness from our staff of money laundering activities and risks;•

we record customer information in relation to, and report to our headquarters instancesof, all transactions in which pachinko balls or pachislot tokens totalling ¥500,000 or
more are exchanged for prizes (per transaction). When a customer seeks to redeem
more than 100 G-prizes of large denomination, our hall managers or staff of a higher
rank will (i) request for identification document; (ii) record the name and address of therelevant customers and the circumstances of the redeem request; and (iii) if there is any
suspicious matter, track the relevant customer through his/her play history and thesurveillance camera footage of the relevant customer;•

mechanical limitations, under which pachinko ball and pachislot token dispensers are
only able to release a maximum of approximately 750 pachinko balls or 600 pachislot
tokens per minute;•specifications of the pachinko machines as regulated by the Amusement Business
Law, the Enforcement Ordinance and the enforcement regulations prescribed underthe Amusement Business Law, which limit the possible payouts to (among others): (1)for pachinko machines, it cannot release more than twice, or keep more than half, thenumber of pachinko balls played in a ten-hour period; and (2) for pachislot machines,
its payouts must be between 0.55 to 1.2 times the number of tokens played over
17,500 continuous plays.

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our Board of Directors is required to report any actual or potential money laundering
activity that has come into their attention through any internal communication channels
or reporting mechanism described in this section to the relevant authorities in Japan.

In particular, as a result of the machine limitations set out above (some of which are required
under Japan laws and regulations), money laundering through pachinko and pachislot halloperations is difficult, especially as a lengthy period of time would be required to convert sizable
sums of money into balls or tokens, and unusual activity in connection with play or failure to playwill be observed and reported by our staff. See “Applicable Laws and Regulations” for details on
the Japan laws and regulations relating to pachinko and pachislot hall operations and machines.
PACHINKO TRUSTY BOARD
We are one of the members of the Pachinko Trusty-Board* (一般社団法人パチンコ•トラスティ•ボード) (“PTB”), which is an organisation comprised of pachinko hall operators as well as third
party professionals, such as lawyers, accountants and experts in business and corporate
governance. The PTB’s Monitor Committee of third party professional members investigates andevaluates corporate governance and compliance of pachinko hall operators and provides
suggested standards regarding management and operation of pachinko halls. We hope that our
involvement with the PTB will raise corporate governance standards and industry standards forthe operation of pachinko halls in order to bolster a positive image of pachinko in the community.
Through the work of its various committees of third party professionals and experts, the PTB
has developed a set of pachinko hall accounting standards which is based on generally accepted
corporate accounting practices in Japan while taking into consideration the environment andcharacteristics of pachinko and pachislot hall operations. These standards propose methods forthe treatment of pachinko ball deposits and IC cards, costs of pachinko operations, recording ofsales and other items unique to accounting in pachinko and pachislot hall operations. PTB also
has a set of evaluation standards covering governance, internal controls, legal compliance,labour and employee and internal audit issues. PTB rates its member companies based on theseevaluation standards and gives letter ratings which may be published upon request in order toencourage and improve transparency across the industry. Our own internal controls measurestake into account concerns raised in the findings and suggested standards of the PTB’s monitor
committee.

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FINANCIAL INFORMATION

You should read the following discussion and analysis of our financial condition andresults of operations together with the financial information as at and for each of the three
years ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2014
and the accompanying notes included in the accountant’s report set out in Appendix I to thisProspectus. The financial information in the accountant’s report has been prepared inaccordance with IFRS, which may differ in material aspects from generally accepted
accounting principles in other jurisdictions. Potential investors should read the accountant’sreport and not merely rely on the information contained in this section. The following
discussion and analysis contains forward-looking statements that involve risks anduncertainties. Our actual results and timing of selected events could differ materially fromthose anticipated in these forward-looking statements. For additional information regardingthese risks and uncertainties, see “Risk Factors”.

OVERVIEW
We operate pachinko halls in Japan where customers can play pachinko and pachislot,
which are recreational arcade games characterised by an element of chance. We were the fourthlargest pachinko hall operator in Japan in 2013 (based on gross pay-ins), according to EBI. Our
headquarters are located in Fukushima Prefecture (福島県). Ever since we opened our firstpachinko hall in 1950, all our operations have been focused in Northeast Honshu (本州島東北),Japan, covering ten prefectures that have a total population of approximately 47.4 million(representing 37.7% of the total population in Japan) as at 31 December 2013, and accounted
for 38.6% of real GDP in Japan for the year ended 31 December 2013, according to EBI. Our halls
can be categorised into suburban halls and urban halls. Suburban halls are our primary focus andare typically located in suburban areas and require car access, while our urban halls are typicallylocated in urban areas and within walking distance of a train station. As at the Latest PracticableDate, we operated 55 halls, consisting of 46 suburban halls and 9 urban halls.
The number of our pachinko halls grew during the Track Record Period. The table below
shows the number of our halls as at the indicated dates:
As at 31 March
2012

2013

As at 30 September
2014

2013

As at the Latest

2014

Practicable Date

(number of halls, except for percentages)
%

%

%

%

%

%

Suburban . . . . . .

42

84.0

43

82.7

44

83.0

44

83.0

44

83.0

46

83.6

Urban . . . . . . .

8

16.0

9

17.3

9

17.0

9

17.0

9

17.0

9

16.4

Total . . . . . . . .

50

100.0

52

100.0

53

100.0

53

100.0

53

100.0

55

100.0

For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, we generated total revenue of ¥30,352 million, ¥32,751 million, ¥33,847 millionand ¥15,572 million and our profit attributable to shareholders of our Company amounted to¥3,329 million, ¥3,765 million, ¥3,698 million and ¥937 million, respectively.

277

FINANCIAL INFORMATIONFINANCIAL AND OPERATIONAL METRICS OF OUR BUSINESSThe following are the financial and operational metrics that are key to understanding our
results of operations:
Financial metrics
Gross pay-ins

amount received from customers for rental pachinko balls andpachislot tokens
It is primarily affected by the level of customer spending in our halls which isin turn largely affected by: (1) G-prize markups; (2) payout ratios; (3) number,
types and mixes of machines; (4) number and types of halls; (5) number andplaying time of customers; (6) competitors’ behaviour and the general trendof the pachinko industry; and (7) macroeconomic factors (such as tax andinflation).

Gross payouts

aggregate cost of G-prizes and general prizes exchanged bycustomers 1
It is to a large extent affected by G-prize mark-ups and payout ratios of ourmachines.

Revenue from pachinko
and pachislot businessgross pay-ins less gross payouts
In substance, such revenue can be considered as comprising two
components: (1) the revenue derived from balls or tokens lost to themachines during game play by customers; for example: assuming the payout
ratio is 90%, when the customer has finished putting 100 ¥1 balls into play,theoretically, he should win back 90 balls and lose 10 balls to the operator,
who would have recorded a revenue of ¥10 from such customer; and (2) therevenue derived from the mark-up imposed on prizes redeemed bycustomers; for example, if a 10% mark-up is imposed on G-prize redemption,a player needs to use 1,100 ¥1 balls to exchange a G-prize with a cost of¥1,000 at which the operator purchases such G-prize from the G-prize
wholesaler. In this case, the operator makes ¥100 revenue through prize
redemption.

Revenue from pachinko
and pachislot halloperations

revenue from pachinko and pachislot business, together withthe revenue from vending machines

Revenue margin

gross pay-ins less gross payouts, divided by gross pay-ins,
representing the portion of gross pay-ins that we receive asrevenue, namely through customers playing our machines
and our mark-ups on prize redemption

Note:
1

The amount of gross payouts in the consolidated financial information is subtracted from the opening balance of
unutilised balls and tokens brought forward and added with the closing balance of unutilised balls and tokens at
the period end.

278

FINANCIAL INFORMATION
Operational metrics
G-prize mark-up

difference between the value of the number of balls or tokens
required to collect a G-prize and the cost of the G-prize
G-prizes constitute virtually all (around 99% during the Track Record Period)of the value of all prizes exchanged by our customers. As such, G-prize
mark-ups is one of the more significant factors that affect the profitability ofour business. A higher G-prize mark-up means a higher revenue margin
because we are charging more on prize redemption from our customers.
However, the ultimate effect on revenue depends on customer sensitivity
towards prize mark-ups, competitors’ behavior and macroeconomic factors(such as tax and inflation), as imposing a prize mark-up may drive customers
to play at competitors’ halls (with lower or even no mark-up) or even to notplay pachinko or pachislot at all, which will mean decreased gross pay-ins
and revenue.

Payout ratio (of eachmachine)total number of balls or tokens won divided by the total
number of balls or tokens played, representing the average
probability of winning balls or tokens when playing ourmachines
Payout ratios must fall within the legally permissible range at all times. See“Applicable Laws and Regulations — D. Other Regulations on PachinkoBusinesses — 2. Pachinko and Pachislot Machine Regulations”. Our
machines generally have payout ratios that are less than 1.00, meaning
players, on average, win less balls or tokens than that they put into play. A
higher payout ratios means a lower revenue margin because customers areon probability winning more from us. However, the ultimate effect on revenue
is uncertain. On the one hand, customers are winning more, which shouldmean an increase in gross payouts and a decrease in revenue. On the other
hand, customers are more willing to play at our halls and for a longer time pervisit, which could result in an increase in gross pay-ins and revenue.
Therefore, the net effect on revenue is dependent on the respective
magnitude of changes on gross pay-ins and gross payouts as a result of thechange in payout ratio.

Jackpot probability (ofeach machine)

probability of triggering the jackpot mode, during which a
relatively large number of balls and tokens may be won
A lower jackpot probability machine will pay out more balls or tokens for eachjackpot than a higher jackpot probability machine. Customers can choose toplay the type of machine according to their own preference. Therefore, anoperator needs to adjust the machine mix accordingly to suit customer
preferences in order to capture more gross pay-ins from the playing
population.

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FINANCIAL INFORMATION
Machine utilisation (ofeach machine)

the average number of balls or tokens played per day, divided
by the maximum number of balls or tokens allowed to beplayed under the machine settings per day. This can provide
information to the management as to the popularity ofmachines. A higher machine utilisation should generally bringabout an increase in gross pay-ins and revenue.
The maximum number of balls or tokens allowed to be played under themachine settings per day is defined as the maximum number of balls or
tokens allowed to be played under the machine settings per hour (i.e. 6,000
balls or 2,634 tokens) multiplied by the number of operating hours per day(i.e. 13.5 hours).

The table below shows the key financial and operational metrics of our business during theTrack Record Period:
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

Revenue (¥, in millions) . . . . . .

30,35232,751

33,847

16,42915,572Gross pay-ins (¥, in millions) . .

224,968

242,217

236,449

120,674

90,989Gross payouts (¥, in millions) .

195,340

210,298

203,455

104,682

75,798

Revenue margin (%) . . . . . . . . .

13.2

13.2

14.0

13.3

16.7

G-Prize mark-up (%) . . . . . . . . .

—

—

—

—

4-20%

........

37.3

34.9

32.2

34.5

27.5

Overall for pachislot . . . . . . . . .

31.0

29.3

28.4

29.2

22.8

Machine utilisation (%)
Overall for pachinko

Our Business Objective
We always strive to maximise our revenue. A lower payout ratio and a higher prize mark-up
will raise our revenue margin. However, as mentioned above, the potential impact on gross
pay-ins through movements in payout ratios and G prize mark-ups is always contingent upon arange of factors, such as competitor behaviour and customer sensitivity. Therefore, through ourmanagement’s knowledge of, experience in, and judgment over (i) the above metrics and theirinter-relationship, (ii) competitors’ behaviour and (iii) players’ sensitivity to changes in gaming
experience as a result of movements in such metrics, we aim to strike an optimal balance
between gross pay-ins and revenue margin in order to maximise our revenue.

280

FINANCIAL INFORMATION
Basis of Presentation
Immediately prior to and after the Reorganisation, the business of our Group was held by
the Controlling Shareholders. Our business was mainly conducted through Niraku Corporation,
Nexia and Merrist which are the operating entities of our Group. Pursuant to the Reorganisation,
our business was transferred to and held by our Company. Our Company was not been involvedin any other business prior to the Reorganisation and did not meet the definition of a business.
The transaction undertaken for the Reorganisation represents reorganisation of our business withno change in management of such business and the ultimate owners of our business remain thesame. Accordingly, the consolidated financial information of the companies now comprising ourGroup is prepared in accordance with IFRS 10 “Consolidated Financial Statements” issued by theInternational Accounting Standard Board, using the carrying values of our business under theControlling Shareholders for all periods presented.
For companies acquired during each of the years ended 31 March 2012, 2013 and 2014 andthe six months ended 30 September 2013 and 2014, they are included in the Financial
Information of the Group from the date of the acquisition.
Inter-company transactions, balances and unrealised gains/losses on transactions between
group companies now comprising our Group are eliminated on consolidation.
SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITIONS
Our results of operations have been, and are expected to continue to be, affected by anumber of factors, which primarily include the following:
Market consolidation
As set out in “Industry Overview”, according to EBI, gross pay-ins of the pachinko industry
has been decreasing since the early 2000’s, due in part to the introduction of legislation reducing
jackpot sizes and in part to the competition from other forms of entertainment options available
to our target customers. From 2009 to 2013, the industry gross pay-ins decreased at acompound rate of 2.8%. See “— Competition from other forms of entertainment” in this section
below. As a result, the pachinko industry is expected to experience a further decline from 2014
to 2018 with total gross pay-ins gradually declining from approximately ¥17.3 trillion in 2014 toapproximately ¥16.1 trillion in 2018. Nevertheless, the shrinkage of the pachinko industry
presents an opportunity to larger hall operators (such as ourselves) to take up more market sharein the industry. Small hall operators have been and are likely to continue to be squeezed out of
the industry. Large pachinko operators have greater financial and other resources and those who
enjoy economies of scales, including operational cost efficiencies and priorities in procuring new
machines from machine manufacturers, are more likely to benefit from absorbing the freed up
market share. The opportunities for us from such consolidation is compounded by the highfragmentation of the industry and the fact that there are very few hall operators that are as large

281

FINANCIAL INFORMATION
as us. Approximately 95.8% pachinko operators are small hall operators with less than 10 halls
as at 31 December 2013, according to EBI. However, if we are unable to capture the market intime and maintain our existing market share in the market, our results of operations may be
adversely affected.
The Japanese Economy
We conduct all of our operations in Japan and in each of the financial years ended 31 March
2012, 2013 and 2014 and the six months ended 30 September 2014 derived all of our revenue
from the domestic Japanese market. Customers’ spending on pachinko forms part of theirdisposable income and the level of personal disposable income is generally influenced by thechanges in GDP. Therefore, customers’ spending in the pachinko industry as a whole is in turnimpacted by the changes in Japan’s GDP. The meagre growth in GDP in Japan for the past
decade and the recent recession as represented by the contraction of Japan’s GDP in the firsttwo quarters in 2014, as well as the recent consumption tax hike, from 5% to 8%, in April 2014,
led to a reduction in overall spending by consumers in Japan. If the Japan economy does notstage positive growth in the coming years, the pachinko players’ spending and our results ofoperation may be adversely affected.
Our operations in the ten prefectures in Japan
As at the Latest Practicable Date, our Group operated pachinko halls in ten prefectures ofNortheast Honshu (本州島東北), Japan, namely: (1) in the To៮ hoku Region (東北地方): Fukushima
Prefecture (福島県), Miyagi Prefecture (宮城県) and Yamagata Prefecture (山形県); (2) in the Kanto៮
Region (関東地方): Tokyo (東京都), Ibaraki Prefecture (茨城県), Gunma Prefecture (群馬県),
Kanagawa Prefecture (神奈川県), Tochigi Prefecture (栃木県) and Saitama Prefecture (埼玉県);
and (3) in the Chūbu Region (中部地方): Niigata Prefecture (新潟県). These ten prefectures had atotal population of 47.4 million as at 31 December 2013 and real GDP of ¥202.9 trillion in 2013,
representing 37.7% and 38.6% of the total population as at 31 December 2013 and real GDP ofJapan in 2013, respectively. From 2014 to 2018, for these ten prefectures, it is forecasted thatits population will remain stable and its total real GDP will increase slightly, while for the wholeof Japan, it is forecasted that its population will decrease slightly while its real GDP will increaseslightly. The real GDP of these ten prefectures is forecasted to increase by CAGR of 1.5% from2014 to 2018 while that of the entire Japan is forecasted to increase by CAGR of only 0.9% in
the same period. Such stable population and growth in real GDP in these ten prefectures arelikely to provide us with a favourable environment for future expansion.
In particular, Fukushima Prefecture (福島県) is our most important strategic location, in
which our headquarters, one hotel and 20 of our halls (as at the Latest Practicable Date) arelocated and with the highest number of our halls and machines. Our halls in Fukushima Prefecture(福島県) accounted for 40.1%, 40.7%, 40.5% and 42.7% of our total revenue during the Track
Record Period, respectively. In March 2011, the Great East Japan Earthquake initially forced thetemporary closure of our halls in Fukushima. That incident, however, did not cause much negative
impact on our hall business. See “Business — Pachinko and Pachislot Hall Operations —Fukushima Prefecture (福島県) and the Great East Japan Earthquake” for details. The Directors
have observed that, after the earthquake, the general public was more willing to spend more time282

FINANCIAL INFORMATION
in pachinko halls to experience the sense of community. Further, there has been a growth ofworking population in Fukushima, partly attributable to the rebuilding efforts, which also brought
about more spending in our halls. The gross pay-ins for halls in Fukushima for the year ended 31
March 2013 amounted to ¥109,917 million, representing an increase of 12.9% compared to¥97,367 million for the year ended 31 March 2012. However, if natural disasters strike the
Fukushima area again in the future, we cannot be certain that our results of operation would
remain as unaffected as before.
Competition from other forms of entertainment
Since its introduction in the 1940’s, Pachinko has became an established form ofentertainment in Japan that incorporates an element of chance. However, in recent years,
pachinko operators have been facing competition from gaming activities, namely, horse-racing,bicycle-racing, boat-racing and auto-racing whose target customers overlap with ours. The riseof video games, the internet and other mobile entertainment services, also fuelled thecompetition that pachinko operators face. In addition, the Diet was previously examining a billlegalising the operations of casinos in Japan in 2014, though, as advised by our Japan Legal
Adviser, this bill has since been discarded and there is no longer any formal legislative procedure
to consider the legalisation of casino operations in Japan. However, if casino is eventuallylegalised, pachinko operators will face additional competition.
Competition among pachinko hall operators
Competition among pachinko hall operators is intense. According to EBI, the pachinko
market is highly fragmented. There were more than 3,800 pachinko hall operators withapproximately 11,893 halls in Japan as of 2013, with only eight large scale operators with over
50 halls each. At the same time, the market size for pachinko shrank at a compound rate of 2.8%
from 2009 to 2013.
Our Directors believe that pachinko and pachislot players take into account the following
factors when they choose which pachinko hall to visit:•

Selection of machines — whether the variety of machine offerings matches customer
tastes in terms of machines titles, jackpot probability, jackpot size and playing cost•

payout ratio of pachinko and pachislot machines and prize mark-up in the hall —whether they are competitive enough as compared to nearby halls•

Cleanliness of the halls and the friendliness of the hall staff — whether the hallenvironment and services provide a comfortable playing experience•

Location — whether the location of our hall is convenient and close to the playing
population and whether it has parking facilities

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FINANCIAL INFORMATION
From an operator’s perspective, we consider payout ratio, G-prize mark-up, and machineofferings as the most important factors in attracting traffic to our halls. Any change of the payout
ratio and G-prize mark-up will impact our revenue margin, as well as the amount of net revenue
we earn from our players spending in our halls.
Furthermore, the more frequent we replace the existing machines with machines with thelatest new titles, the better chance we can retain and attract pachinko players. However, this will
also increase our machine expenses. Therefore, it is vital that we can find the optimal point in ouroperation whereby the incremental cost incurred would not exceed the amount of additional
revenue so produced.
Our Directors believe that with:(i)our advanced management information system providing us with real time data on theutilisation and financial performance of our machines;(ii)

our well established relationships with machine manufacturers and priority in securing
the newest machine models; and(iii)

our monitoring team constantly gathering information about our competitors’
behaviours;

we are equipped with the necessary tools to operate and react efficiently to remain competitive.
Operating efficiency
Our operating efficiency are key to our results of operation and financial results. During theTrack Record Period, our hall operating expenses accounted for 67.9%, 66.9%, 67.4%, 70.0%
and 74.8% of our total revenue for the years ended 31 March 2012, 2013 and 2014 and the six
months ended 30 September 2013 and 2014, respectively, while our administrative and otheroperating expenses accounted for 10.9%, 12.6%, 13.7%, 12.3% and 18.0% of our total revenue
for the corresponding year/period, respectively. Our key operating cost included cost of pachinko
machines, staff cost for hall staff, and rental expenses as included in our hall operating expenses,
and advertising expense as included in our administrative and other operating expenses.
Through our centralised management strategy, we seek to achieve greater operational
efficiency and cost controls through standardisation in the branding and building of, theprocurement of general prizes and other supplies for use in our pachinko halls across Northeast
Honshu (本州島東北) and bulk purchase of advertising space or air time from the media. However,
if we are unable to control our cost and we unable to pass such cost to our customers, our resultsof operations may be adversely affected.

284

FINANCIAL INFORMATION
Sensitivity analysis
For illustrative purpose, the following sets out the sensitivity analysis in respect of the impact
of hypothetical changes in (i) revenue margin; and (ii) pachinko and pachislot machines expenses.
(i)

Revenue Margin

Hypothetical Fluctuation in percentage
points

+1%

-1%

+3%

-3%

(¥, in millions)

Impact on Consolidated Statements of Comprehensive Income Items for the six months
ended 30 September 2014
Change in revenue . . . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

910
910
590

(910)
(910)
(590)

2,730
2,730
1,769

(2,730)(2,730)(1,769)Impact on Consolidated Statements of Comprehensive Income Items for the year ended 31
March 2014
Change in revenue . . . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

2,364
2,364
1,475

(2,364)(2,364)(1,475)

7,093
7,093
4,426

(7,093)(7,093)(4,426)

Impact on Consolidated Statements of Comprehensive Income Items for the year ended 31
March 2013
Change in revenue . . . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

2,422
2,422
1,511

(2,422)(2,422)(1,511)

7,267
7,267
4,534

(7,267)(7,267)(4,534)

Impact on Consolidated Statements of Comprehensive Income Items for the year ended 31
March 2012
Change in revenue . . . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

2,250
2,250
1,345

285

(2,250)(2,250)(1,345)

6,749
6,749
4,036

(6,749)(6,749)(4,036)

FINANCIAL INFORMATION(ii)

Pachinko and pachislot machines expenses

Hypothetical Fluctuation

+5%

-5%

+10%

-10%

(¥, in millions)

Impact on Consolidated Statements of Comprehensive Income Items for the six months
ended 30 September 2014
Change in pachinko and pachislot
machines expenses . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

224
(224)
(145)

(224)
224
145

448
(448)
(290)

(448)
448
290

Impact on Consolidated Statements of Comprehensive Income Items for the year ended 31
March 2014
Change in pachinko and pachislot
machines expenses . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

411
(411)
(256)

(411)
411
256

822
(822)
(513)

(822)
822
513

Impact on Consolidated Statements of Comprehensive Income Items for the year ended 31
March 2013
Change in pachinko and pachislot
machines expenses . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

397
(397)
(248)

(397)
397
248

795
(795)
(496)

(795)
795
496

Impact on Consolidated Statements of Comprehensive Income Items for the year ended 31
March 2012
Change in pachinko and pachislot
machines expenses . . . . . . . . . . . . . . .
Change in profit before income tax . . . .
Change in profit after income tax . . . . .

358
(358)
(214)

(358)
358
214

716
(716)
(428)

(716)
716
428

The opening of new pachinko halls
Opening of new pachinko halls is one of the most direct means to increase our reach to ourtarget customer base. Currently, we plan to open a total of seven halls by 31 March 2018. The
opening of new hall requires substantial capital investment upfront for hall construction andfurnishing hall with necessary equipment and supplies including pachinko and pachislot
machines. Meanwhile, it takes time to build up player traffic and spending, and hence gross
pay-ins, in a newly established hall and additional working capital is required to fund the286FINANCIAL INFORMATION
operation before these new halls turn around and start to achieve net operating cash inflows. The
demographics, level of disposable income of pachinko customers and the competitive landscapein a particular location varies and can be beyond our control after new halls are constructed andopen.
As discussed in “Business — New Hall Development”, when selecting a location for opening
a new hall, we consider the following characteristics of the targeted region: (1) its proximity to
Fukushima Prefecture (福島) and Tokyo (東京都) (and it is located in Northeast Honshu(本州島東北)); (2) its proximity to our own halls; (3) the population density and demographic, (4)the number of competing halls, (5) the number of machines in the competing halls; and (6) the
average number of players per machine. As a general rule, for our suburban halls, there will becommercial areas within a 15 minute drive radius, and such radius must cover at least 50,000
people and have at least 18 people (above 18 years old) per machine (owned by all operators).
We will only open halls with an anticipated investment payback period of up to seven years.
However, if we are unable to expand according to our plan, or our assessment of location for
opening halls proves to be incorrect, our expansion plan may fail and our results of operation may
be adversely affected.
Increase in consumption tax in Japan
The increase in consumption tax in Japan has negatively impacted our gross pay-ins and inturn our overall operating results. From 1 April 2014, Japan’s consumption tax rate increased
from 5% to 8%. As the players’ spending in our halls are subject to consumption tax, we are
required by law to collect such amount and pay to the government. According to our accounting
policies, we record the consumption tax net of gross pay-ins, i.e. when a player rents 100 ¥1 ballswith us, we record a gross pay-ins of ¥92 only. As such, our gross pay-ins decreased, and thishas a negative impact on our revenue and revenue margin. Any further increase in consumption
tax rate will exert further pressure on our revenue margin and will adversely affect our revenue
and results of operations accordingly.
Policies and regulations relating to the pachinko industry
Policies and regulations implemented by the Japanese government relating to our industry
may significantly affect customer demand and behaviour as well as the various operating metrics
that impact our results of operations. For example, a regulation was introduced by the Japanese
government in 2006 which reduced the jackpot size brought about a sharp drop in the popularityof pachinko and pachislot and adversely impacted the operating results of pachinko halloperators across the industry, including us. Any similar or additional regulatory changes may
adversely impact our operating results further.

287

FINANCIAL INFORMATIONCRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The principal accounting policies adopted in preparation of our financial information areprepared in accordance with International Financial Reporting Standards (“IFRS”) issued by theInternational Accounting Standards Board (“IASB”) and have been prepared under the historicalcost convention, as modified by the revaluation of financial assets and financial liabilities(including derivative instruments) which are carried at fair value. A summary of such principal
accounting policies adopted in the preparation of our financial information is set out in Note 2 ofSection II to the accountant’s report in Appendix I. The following is a discussion of thoseaccounting policies that we believe are most critical in preparing our financial information.
Revenue recognition
We recognise revenue when the amount of revenue can be reliably measured; when it isprobable that future economic benefits will flow to the entity; and when specific criteria have been
met for each of the Group’s activities, as described below.
Type of revenue/income

Basis of recognition and timing

Revenue from pachinko and pachislot
Representing gross pay-ins, net of the grossbusiness . . . . . . . . . . . . . . . . . . . . . . . . . . payouts to customers. Revenue is recognised at
the end of each player’s visit to a machine. (1)Hotel income . . . . . . . . . . . . . . . . . . . . . . . . Hotel is recognised at the time of occupancy.
Vending machine income . . . . . . . . . . . . . . . Recognised on a straight line basis over theaccounting periods covered by the terms andconditions as stipulated in their respective
agreement (the monthly rental received).
Contingent vending machine income is recognisedin the accounting period in which they are earned(a certain % of sales derived from the vending
machines).
Interest income . . . . . . . . . . . . . . . . . . . . . . . Recognised on a time-proportion basis using theeffective interest method.
Income from expired IC and membership
Representing unused cash balances stored in IC
cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . cards and membership cards. Recognised upon
the expiry of such cards. (2)Dividend income . . . . . . . . . . . . . . . . . . . . . . Recognised when the right to receive payment isestablishedSundry income . . . . . . . . . . . . . . . . . . . . . . . Recognised when the right to receive payment isestablished.

288

FINANCIAL INFORMATION

Notes:
1

Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activitiesof our Group when those inflows result in increase in equity, other than increases relating to contributions fromequity participants. The ordinary activity of our Group is the operation of pachinko and pachislot halls to generate
economic benefits from customers’ visits to the pachinko or pachislot machines. Gross pay-ins represents theamount received from customers for rental pachinko balls and pachislot tokens. Customers utilise such rented
pachinko balls and pachislot tokens as they visit the machines and our Group makes payouts to the customers
based on the result of their game. Gross pay-outs represents the aggregate cost of G-prizes and general prizes
exchanged by customers. As such, the gross inflow of economic benefits to our Group represents the gross
pay-ins, net of the gross pay-outs to customers. Therefore, revenue from pachinko and pachislot business isrecognised as gross pay-ins net of gross payouts.

2

Cash balances stored in membership cards expire when the player does not play with the membership card for 90
consecutive days. Cash balances stored in IC cards expire 21 days after purchase.

Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided
to our chief operating decision-maker. We present our results of operations in two reporting
segments (i) pachinko and pachislot hall operations, which includes vending machine income;and (ii) others (representing hotel operations).
Investment properties
Investment properties, principally comprising land and buildings, are held for long-term
rental yields or for capital appreciation or both, and that is not occupied by our Group. Investment
properties are initially measured at cost, including related transaction costs and where applicableborrowing costs. Investment properties are then stated at historical cost less accumulated
depreciation and impairment losses.
Depreciation of investment properties is calculated using the straight-line method theirestimated useful lives amounted to 27 to 31 years.
Property, plant and equipment
Land and buildings comprise mainly pachinko and pachislot halls and offices. All property,
plant and equipment are stated at historical cost less depreciation, except freehold land which
is not subject to amortisation. Historical cost includes expenditure that is directly attributable tothe acquisition of the items.
Construction in progress is stated at cost less impairment loss. It is not depreciated until
completion of the construction and the relevant assets are available for use.

289

FINANCIAL INFORMATION
Depreciation is calculated using the straight-line method to allocate their cost to theirresidual values over their estimated useful lives, as follows:- Buildings- Leasehold improvement- Equipment and tools- Motor vehicles

20 to 40 years
Shorter of lease term or useful lives
2 to 20 years
2 to 5 years

We review the residual values and useful lives of our property, plant and equipment at theend of each reporting date and adjust such as necessary.
Impairment of non-financial assets (property, plant and equipment, investment
properties and intangible assets)
Assets that are subject to amortisation are reviewed for impairment whenever events orchanges in circumstances (i.e. when the asset gives rise to negative operating cash flow or there
is a significant diminution in fair value of such asset) indicate that the carrying amount (bookvalue) may not be recoverable. An impairment loss is recognised for the amount by which theasset’s carrying amount exceeds its recoverable amount, which is the higher of an asset’s fairvalue less costs to sell and value in use. For the purposes of assessing impairment, assets aregrouped at the lowest levels for which there are separately identifiable cash flows (CGUs).
Financial assets(a)Classification

We classify our financial assets in the following categories according to IFRS 9: “Financial
Instruments”: (i) financial assets at amortised costs (such as non-current portion of rental
prepayments) and (ii) financial assets (i.e. listed shares and debt securities we held in the Track
Record Period) at fair value. Our management determines the classification of its financial assets
at initial recognition and depends on whether the financial asset is a debt or equity instrument.
Financial assets at amortised costs
Financial assets at amortised costs are debt instruments that meet our Group’s businessmodel for holding the investments to collect contractual cash flows and the contractual terms of
the instrument give rise to cash flows that are solely payments of principal and interest on theprincipal amount outstanding.
Financial assets at fair value
All equity instruments are measured at fair value. Equity instruments that are held for trading
are measured at fair value through profit or loss. For all other equity instruments, we can make290

FINANCIAL INFORMATIONan irrevocable election at initial recognition to recognise changes in fair value through othercomprehensive income rather than profit or loss. We have chosen to recognise the movements
of fair value of all our equity securities to other comprehensive income in the Track Record Period.
All debt instruments not accounted for under amortised cost are measured at fair value.
(b)

Recognition

Financial assets are recognised on the trade-date — the date on which our Group commits
to purchase or sell the asset. Financial assets are derecognised when our group has transferred
substantially all risks and rewards of ownership.
(c)

Measurement at recognition
Types of Financial Assets

Recognition and measurement•

Financial assets at amortised costs

Measured at amortised cost using theeffective interest method.

•

Financial assets carried at fair value

Financial assets carried at fair value
through profit or loss — initially recognised
at fair value, and transaction costs are
expensed in the consolidated statementsof comprehensive income
Financial assets carried at fair value
through other comprehensive income —initially recognised at fair value plustransaction costs(d)Subsequent measurement for changes in fair value
Types of assets / income

Subsequent measurement•

Financial assets at amortised cost

Profit or loss when the financial asset isderecognised or impaired and through theamortisation process using the effective
interest rate method•

Financial assets at fair value

Financial assets at fair value through profit
or loss — Presented in the consolidated
statements of comprehensive income
within ‘Other losses - net’ in the period inwhich they arise
Financial assets at fair value through othercomprehensive income — Recognised inother comprehensive income291

FINANCIAL INFORMATION
Types of assets / income

Subsequent measurement

Debt instrument that is subsequently
measured at fair value — Profit or loss andpresented in the consolidated statementsof comprehensive income within other(losses)/gains - net in the period in which
they arise
Dividend income is recognised as otherincome in consolidated statements ofcomprehensive income when our right toreceive payments is established

Impairment of financial assets
We assess at the end of each reporting period whether there is objective evidence that afinancial asset or group of financial assets is impaired.
Evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal
payments, among others.
Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred.
Transaction costs included fees paid on the establishment of loan facilities and are recognised
as transaction costs of the loan to the extent that it is probable that some or all of the facility will
be drawn down. Borrowings are subsequently carried at amortised cost; any difference between
the proceeds (net of transaction costs) and the redemption value is recognised in the
consolidated statements of comprehensive income over the period of the borrowings using theeffective interest method.
Borrowings are classified as current liabilities unless our Group has an unconditional rightto defer settlement of the liability for at least 12 months after the end of the reporting period.
LeasesOperating lease
Leases in which a significant portion of the risks and rewards of ownership are retained by
the lessor are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the consolidated statements ofcomprehensive income on a straight-line basis over the period of the lease.

292

FINANCIAL INFORMATION
Finance lease
Leases of property, plant and equipment where we have substantially all the risks andrewards of ownership are classified as finance leases. Finance leases are capitalised at thelease’s commencement at the lower of the fair value of the leased property and the present valueof the minimum lease payments. Each lease payment is allocated between the liability andfinance charges. The corresponding rental obligations, net of finance charges, are included inother long-term payables. The interest element of the finance cost is charged to the consolidated
statements of comprehensive income over the lease period so as to produce a constant interest
rate on the remaining balance of the liability for each period. Property, plant and equipment
acquired under finance leases is depreciated over the shorter of the useful life of the asset andthe lease term.
Critical accounting estimates and judgments
Accounting estimates and judgments made are continuously evaluated and are based on
historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. We make estimates and assumptions concerning thefuture and by definition, seldom equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year (i.e. the year ending 31 March 2015) are addressed below.
Income taxes
We are subject to income taxes in Japan. Significant judgment is required in determining theprovision for income taxes. There are many transactions and calculations for which the ultimate
tax determination is uncertain. Where the final tax outcome of these matters is different from theamounts that were initially recorded, such differences will impact the current and deferred income
tax assets and liabilities in the period in which such determination is made.
Fair value of financial instruments
The fair value of financial instruments that are not traded in an active market (for example,
unlisted securities) is determined by using valuation techniques. We use its judgment to select avariety of methods and make assumptions that are mainly based on market conditions existingat the end of each reporting period.
Impairment assessment of property, plant and equipment
We have substantial investments in property, plant and equipment. Judgment is required in
the area of asset impairment, particularly in assessing:(1)

whether an event has occurred that may indicate that the related asset values may not
be recoverable;

293

FINANCIAL INFORMATION(2)

whether the carrying value of an asset can be supported by the recoverable amount,being the higher of fair value less costs to sell or value-in-use, which is the net present
value of future cash flows which are estimated based upon the continuous use of theasset in the business; and(3)

the appropriate key assumptions to be applied in preparing cash flow projections
including whether these cash flow projections are discounted using an appropriate
rate.

Variations in the assumptions used to determine the level could materially affect the netpresent value used in the impairment test and as a result affect our financial condition and resultsof operations. If there is a significant adverse change in the projected performance and resulting
future cash flow projections, it may be necessary to take an impairment change to the profit or
loss.
Classification of leases
Determining whether a lease transaction is a finance lease or an operating lease requires
judgment as to whether the lease agreement transfers substantially all the risks and rewards ofownership to or from our Group. Judgment is required on aspects including, but not limited to,the following:(1)

the fair value of the leased asset;(2)

the economic life of the leased asset;(3)

whether renewal options are included in the lease term; and(4)determining an appropriate discount rate to calculate the present value of the minimum
lease payments.

In the Track Record Period, there were no significant change in the estimates mentioned
above, and we did not notice significant deviation of our accounting estimates comparing withthe actual results. Apart from the critical accounting estimates and judgments as mentioned
above, we did not expect our accounting estimates to change materially in the coming financial
year.

294

FINANCIAL INFORMATIONRESULTS OF OPERATIONS OF OUR GROUP
The table below shows our selected consolidated statements of comprehensive income andother financial information for the years ended 31 March 2012, 2013 and 2014 and the six
months ended 30 September 2013 and 2014, as derived from the accountant’s report of ourCompany set out in Appendix I to this Prospectus.
Six months ended
30 September

Year ended 31 March
2012

2013

2014

2013

2014

(¥, in millions)(unaudited)

Gross pay-ins . . . . . . . . . . . . . . .
Less: gross payouts . . . . . . . . . .

224,968(195,340)

242,217(210,298)

236,449(203,455)

120,674(104,682)

90,989(75,798)

Revenue from pachinko andpachislot business . . . . . . .
Other revenue (Note) . . . . . . . . . . .

29,628724

31,919832

32,994853

15,992437

15,191
381

Revenue . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . .
Other losses, net . . . . . . . . . . . .
Hall operating expenses . . . . . . .
Administrative and otheroperating expenses . . . . . . . . .

30,352
1,115(504)(20,609)32,751446(20)(21,909)33,847378(97)(22,798)

16,429182(81)(11,494)

15,572
801(25)(11,644)(3,319)(4,126)(4,636)(2,013)(2,808)Operating profit . . . . . . . . . . . .
Finance income . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . .

7,035
66
(794)

7,142
63
(720)

6,694
58
(744)

3,023
28
(368)

1,896
88
(357)

Finance costs, net . . . . . . . . . . .
Profit before income tax . . . . .
Income tax expense . . . . . . . . . .

(728)
6,307
(2,978)

(657)
6,485
(2,720)

(686)
6,008
(2,310)

(340)
2,683
(1,060)

(269)
1,627
(690)

Profit for the year/period
attributable toshareholders of theCompany . . . . . . . . . . . . . . . .

3,329

3,765

3,698

1,623

937

16

124

433

163

(39)

3,345

3,889

4,131

1,786

898

110

110

183

183

183

855

967

949

417

241

Other comprehensive income
Item that may be reclassified to
profit or loss . . . . . . . . . . . . . .
Change in value of financial
assets through othercomprehensive income . . . . . .
Total comprehensive income
for the year/period
attributable toshareholders of theCompany . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . .
Earnings per share for profit
attributable toshareholders of theCompany- Basic and diluted (expressedin Japanese Yen per share). . .

Note:

Other revenue comprises (i) vending machine income and (ii) revenue from hotel operations.

295

FINANCIAL INFORMATION
Description of Components of Results of Operations
Gross pay-ins
Our gross pay-ins represent the amount received from customers for rental pachinko balls
and pachislot tokens. Our gross pay-ins were ¥224,968 million, ¥242,217 million, ¥236,449
million, ¥120,674 million and ¥90,989 million for the years ended 31 March 2012, 2013 and 2014
and for the six months ended 30 September 2013 and 2014, respectively.
The table below shows the aggregate gross pay-ins by hall type for the indicated periods.
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

Suburban (Note) . . 206,437

91.8

224,493

92.7

219,455

92.8

111,650

92.5

84,175

92.5

Urban (Note) . . . .

18,531

8.2

17,724

7.3

16,994

7.2

9,024

7.5

6,814

7.5

Total . . . . . . . 224,968

100.0

242,217100.0

236,449

100.0

120,674

100.0

90,989

100.0

Note:

According to our accounting policy, gross pay-ins are booked net of consumption tax, i.e., in the six months
ended 30 September 2014, ¥92 gross pay-ins would only be recorded if a player rented 100 ¥1 balls with us, as
the consumption tax rate is 8%. The consumption tax rate was 5%, 5%, 5% and 8% for the year ended 31 March
2012, 2013 and 2014 and the six months ended 30 September 2014, respectively.

The table below shows the average gross pay-ins per hall by hall type for the indicatedperiods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for number of halls)
¥ per
hall

Numberof halls

¥ per
hall

Numberof halls

¥ per
hall

Numberof halls

¥ per
hall

Numberof halls

¥ per
hall

Numberof halls

Suburban . . . . .

4,915

42

5,221

43

4,988

44

2,538

44

1,913

44

Urban . . . . . . .

2,316

8

1,969

9

1,888

9

1,003

9

757

9

Total . . . . . . .

4,499

50

4,658

52

4,461

53

2,277

53

1,717

53

296

FINANCIAL INFORMATION
The table below shows the mix of pachinko machines by playing cost for each hall type asat the indicated periods:
As at 31 March2012

As at 30 September

2013

2014

2013

2014

(number of machines, except for percentages)
%

%

%

%

%

SuburbanHigh playing cost (1) . . . .

9,042

60.4

9,140

59.1

9,792

61.7

9,358

58.9

9,204

57.9

Low playing cost (2) . . . .

5,940

39.6

6,324

40.9

6,087

38.3

6,543

41.1

6,691

42.1

Sub-total . . . . . . . . . . 14,982

100.0

15,464100.0

15,879100.0

15,901

100.0

15,895

100.0

899

57.3

891

52.5

877

51.7

877

51.7

848

50.9

. . . .

670

42.7

805

47.5

819

48.3

819

48.3

819

49.1

Sub-total . . . . . . . . . .

1,569

100.0

1,696

100.0

1,696

100.0

1,696

100.0

1,667

100.0

Urban
High playing cost (1) . . . .
Low playing cost(2)

Total . . . . . . . . . . . . . . 16,551

17,16017,575(1)

Comprises pachinko machines with playing costs of ¥4 per ball.

(2)

Comprises pachinko machines with playing costs below ¥4 per ball.

17,597

17,562The table below shows the mix of pachislot machines by playing cost for each hall type asat the indicated periods:
As at 31 March
2012

2013

As at 30 September
2014

2013

2014

(number of machines, except for percentages)
%

%

%

%

%

SuburbanHigh playing cost (1) . . . .

6,045

88.8

6,389

87.5

6,644

87.0

6,155

81.2

6,545

83.5

Low playing cost (2) . . . .

765

11.2

913

12.5

990

13.0

1,428

18.8

1,289

16.5

Sub-total . . . . . . . . . .

6,810

100.0

7,302

100.0

7,634

100.0

7,583

100.0

7,834

100.0

511

100.0

635

93.5

605

89.1

605

89.1

634

89.5

. . . .

—

0.0

44

6.5

74

10.9

74

10.9

74

10.5

Sub-total . . . . . . . . . .

511

100.0

679

100.0

679

100.0

679

100.0

708

100.0

Total . . . . . . . . . . . . . .

7,321

Urban
High playing cost (1) . . . .
Low playing cost

(2)

7,981

8,313

(1)

Comprises pachislot machines with playing costs of ¥20 per token.

(2)Comprises pachislot machines with playing costs below ¥20 per token.

297

8,262

8,542

FINANCIAL INFORMATION
During the Track Record Period, our suburban halls contributed over 90% of our total gross
pay-ins. Around 60% of the pachinko machines and over 80% of the pachislot machines insuburban halls were high playing cost machines. In our urban halls, approximately 50% to 60%of the pachinko machines and approximately 90% of the pachislot machines were high playing
cost machines. We will continue to monitor and adjust the mix of machines in our halls in
response to our customers’ demands and competitors’ strategies with the objective to capture
the most business from the playing population.
The table below shows the average number of pachinko and pachislot machines per hall byplaying cost for each hall type for the indicated periods.
As at 31 March

As at 30 September

Pachinko and pachislot machines

2012

2013

2014

2013

2014

SuburbanHigh playing cost . . . . . . . . . .
Low playing cost . . . . . . . . . .

359
160

361
168

373
161

353
181

358
181

Total . . . . . . . . . . . . . . . . . . . .

519

529

534

534

539

Urban
High playing cost . . . . . . . . . .
Low playing cost . . . . . . . . . .

176
84

170
94

165
99

165
99

165
99

Total . . . . . . . . . . . . . . . . . . . .

260

264

264

264

264

The average number of pachinko and pachislot machines in suburban halls increased from519 machines per hall to 539 machines per hall from 31 March 2012 to 30 September 2014. The
number of machines per hall in our urban halls remained stable at around 264 machines per hallduring the Track Record Period. Such changes in the number of machines per hall in ouroperation was in line with the market trend.
The table below shows the utilisation rate for low and high playing cost pachinko andpachislot machine in our halls for the indicated periods.
Six months ended
Year ended 31 March

30 September

Pachinko machines (1)

2012
%

%

%

%

%

High playing cost . . . . . . . . . . .
Low playing cost (2) . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . .

34.4
39.6
37.3

31.8
37.3
34.9

27.9
35.8
32.2

30.0
37.8
34.5

20.9
33.7
27.5

2013

298

2014

2013

2014

FINANCIAL INFORMATION
Six months ended
Year ended 31 March

30 September

Pachislot machines (3)

2012
%

%

%

%

%

High playing cost . . . . . . . . . . .
Low playing cost (2) . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . .

31.0
30.7
31.0

29.1
30.2
29.3

27.9
29.0
28.4

28.0
31.4
29.2

22.7
23.0
22.8

(1)

2013

2014

2013

2014

The pachinko machine utilisation rate is calculated by dividing the average number of balls played per day by the
maximum number of balls allowed to be played under the machine settings per day. The maximum number of balls
allowed to be played under the machine settings played per day is defined as the maximum number of balls allowed
to be played under the machine settings per hour (i.e. 6,000 balls) multiplied by the number of operating hours perday (i.e. 13.5 hours).

(2)

Historically, low playing cost machines have a higher utilisation rate, as we believe players tend to stay longer withthese machines for entertainment purpose.

(3)

The pachislot machine utilisation rate is calculated by dividing the average number of tokens played per day by the
maximum number of tokens allowed to be played under the machine settings per day. The maximum number oftokens allowed to be played under the machine settings per day is defined as the maximum number of tokens
allowed to be played under the machine settings per hour (i.e. 2,634 tokens) multiplied by the number of operating
hours per day (i.e. 13.5 hours).

Throughout the Track Record Period, we note that the machine utilisation rate wasdeclining. We believe that this was mainly attributable to the decreasing overall spending by
customers, as well as the growing number of machines installed in our halls.
Gross payouts
Gross payouts, which represents the aggregate cost of G-prizes and general prizes
exchanged by our customers, amounted to ¥195,340 million, ¥210,298 million, ¥203,455 million,¥104,682 million and ¥75,798 million for the years ended 31 March 2012, 2013 and 2014 andthe six months ended 30 September 2013 and 2014, respectively. The table below shows thebreakdown of our gross payouts by hall type for the indicated periods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

Suburban . . . . . 179,324

91.8

195,15192.8

189,003

92.9

96,924

92.6

70,207

92.6

Urban . . . . . . .

16,016

8.2

15,1477.2

14,452

7.1

7,758

7.4

5,591

7.4

Total . . . . . . . . 195,340

100.0

210,298

100.0

203,455

100.0

104,682

100.0

75,798100.0

299

FINANCIAL INFORMATION
The table below shows a breakdown of the average gross payouts per hall by hall type forthe indicated periods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for number of halls)¥ per

Number¥ per

Number¥ per

Number¥ per

Number¥ per

Numberhallof halls

hallof halls

hallof halls

hallof halls

hallof halls

Suburban . . . . .

4,270

42

4,538

43

4,296

44

2,203

44

1,596

44

Urban . . . . . . .

2,002

8

1,683

9

1,606

9

862

9

621

9

Total . . . . . . . .

3,907

50

4,044

52

3,839

53

1,975

53

1,430

53

The redemption value of G-prizes and general prizes is subject to the level of mark-up which
we determine and apply. The higher the mark-up added onto the cost of prizes, the lower thegross payouts would be in redeeming the same amount of balls for prize.
Our general prize (excluding our private brand products) mark-up ranged from 18% to 25%,
while our private brand product mark-up was higher, ranging from 43% to 46%. Our Directors
have confirmed that there was no material change in our general prize mark-ups (including our
private brand products) during the Track Record Period and up to the Latest Practicable Date.
We had no G-prize mark-up during the three years ended 31 March 2014. With effect from
1 April 2014, consumption tax in Japan was increased from 5% to 8%. Significantly, this would
have reduced our revenue margin by 3% and also our revenue as we had to bear such tax
increase on our gross pay-ins. To counter this, also effective from 1 April 2014, we imposed
G-prize mark-ups for all of our halls ranging from 4% to 20% (with an average of around 10%).
For example, a mark-up of 10% means a G-prize with a value of ¥5,000 will require an amountof balls or tokens worth ¥5,500 to be exchanged. We applied different G-prize mark-ups (with anobjective of maximising our revenue) for different playing costs and game types and in different
halls, depending on relevant factors such as player sensitivity to mark-ups and competitors’
behavior. In our Directors’ view based on market observations, the G-prize mark-ups applied in
our halls in Fukushima Prefecture (福島県) were generally similar to that imposed by our major
competitors, while some pachinko operators in other areas (such as the Kantō Region (関東地方))
adopted mark-up strategies that were different from ours. Even though such G-prize mark-ups(imposed during the six months ended 30 September 2014) was a key factor in the 24.6%
decrease in our gross pay-ins, they also helped increase our revenue margin from 13.3% to16.7% and ultimately led to a mere drop in revenue by 5.2% (compared to the corresponding
period of the previous year).

300

FINANCIAL INFORMATION
After the Track Record Period (namely, in December 2014), we cancelled the G-prize
mark-ups for 17 of our halls (all located in the Kantō Region (関東地方)) as some competing halls
nearby did not adopt such mark-ups. For these 17 halls 1 , the gross pay-ins attributable to themaccounted for 34.5%, 34.0%, 35.3%, 34.8% and 34.1% of our total gross pay-ins, while therevenue attributable to them accounted for 35.1%, 35.7%, 36.4%, 36.3% and 34.3% of ourrevenue from pachinko and pachislot business, for the years ended 31 March 2012, 2013 and2014 and the six months ended 30 September 2013 and 2014, respectively. Such cancellationof G-prize mark-ups will directly cause an increase in gross payouts and a decrease in therevenue margin of such halls. Nevertheless, our Directors expect such cancellation will improve
the player traffic (and consequently gross pay-ins) of such halls by attracting players who are
relatively sensitive to G-prize mark-ups. Ultimately, the revenue of such halls will also improve if
the increase in gross pay-ins is greater than the increase in gross payouts, though this will further
depend on a range of interrelated metrics and factors (with G-prize mark-ups being but one ofthem) that our Directors take into account when they pursue our business objective of maximising
our revenue (by striking an optimal balance between gross pay-ins and revenue margin). See “—Financial and Operational Metrics of Our Business” in this section above for details on the impactof G-prize mark-ups on our gross pay-ins, revenue margin and revenue, as well as our othermetrics and our business objective. Further, our Directors have confirmed that, saved as
disclosed above, there was no material change in our G-prize mark-ups during the Track Record
Period and up to the Latest Practicable Date. Going forward, we will continue to monitor andadjust our G-prize mark-ups (with an objective of maximising our revenue), taking into accountall relevant factors, such as player sensitivity to mark-ups and competitors’ behavior.
Revenue
Our total revenue comprises (i) revenue from pachinko and pachislot business, representing
gross pay-ins less gross payouts; (ii) rental income from and revenue sharing with vending
machine operators for machines placed in our halls; and (iii) revenue from hotel operations in
respect of our hotel in Koriyama. Our total revenue amounted to ¥30,352 million, ¥32,751 million,¥33,847 million, ¥16,429 million and ¥15,572 million for the years ended 31 March 2012, 2013
and 2014 and the six months ended 30 September 2013 and 2014, respectively.
Revenue and revenue margin of our pachinko and pachislot business are affected by thelevel of gross pay-ins and gross payouts. Gross pay-ins is primarily affected by the level ofcustomer spending at our halls, which is in turn largely affected by: (1) G-prize mark-ups; (2)payout ratios; (3) number, types and mixes of machines; (4) number and types of halls; (5) number
and playing time of customers; (6) competitors’ behavior and the general trend of the pachinko
industry; and (7) macroeconomic factors (including tax and inflation). Gross payouts is to a large
extent affected by G-prize mark-ups and payout ratios.

1

These 17 halls are the halls numbered 29, 34 to 40, 42 to 44, 48 to 51 and 53 to 54 as indicated in the map in“Business — Pachinko and Pachislot Hall Operations — Geographical Focus in Northeast Honshu (本州島東北)”.

301

FINANCIAL INFORMATION
Also included in our revenue were (i) vending machine income represented the rental income
and concession income for sharing of the gross receipts of such vending machines; and (ii)revenue from hotel operations for our hotel in Koriyama. The total of such amounted to 2.4%,
2.5%, 2.5%, 2.7% and 2.4% of our total revenue in the years ended 31 March 2012, 2013 and2014 and the six months ended 30 September 2013 and 2014, respectively.
Despite the shrinkage of the pachinko market in general, we were able to achieve an
increase in revenue in the year ended 31 March 2012, 2013 and 2014, and only suffered a slightdecrease in revenue in the six months ended 30 September 2014 due to our efforts to raise ourrevenue margin.
The table below shows a breakdown of our total revenue during the indicated periods:
Year ended 31 March
2012
¥

2013

Six months ended 30 September
2014

2013

2014

(in millions, except for percentages)
%
¥
%
¥
%
(unaudited)

%

¥

¥

%

89.3

29,342
2,577

89.6

7.5

14,727
1,265

89.6

7.9

30,452
2,542

90.0

8.3

13,968
1,223

89.7

7.7

97.6

31,91997.5

32,99497.5

15,992

97.3

15,191

97.6

2.4

748

2.3

704

2.1

362

2.2

301

1.9

operations . . . . . . . . 30,352
Hotel operations (Note 2) . . .
—

100.0

32,667
84

99.7

0.0

0.3

33,698149

99.6

16,354
75

99.5
0.5

15,492
80

99.5

0.4

Total revenue . . . . . . . . 30,352

100.0

32,751

100.0

33,847100.0

16,429100.0

15,572

100.0

Revenue from pachinko
and pachislot
business
Suburban halls . . . . . . . 27,113
Urban halls . . . . . . . . . 2,515
Sub-total . . . . . . . . . . 29,628
Vending machine724
income (Note 1) . . . . . . . .

7.9

Revenue from pachinko
and pachislot hall
0.5

Notes:(1)

The total of (i) vending machine income and (ii) revenue from hotel operations equals to “Other revenue” in thestatements of comprehensive income as set out in Appendix I to this Prospectus.

(2)

The hotel was temporarily closed in the year ended 31 March 2012 for renovation after the Great East Japan
Earthquake.

302

FINANCIAL INFORMATION
Revenue Margin
Revenue margin for pachinko and pachislot business is calculated as revenue from ourpachinko and pachislot business (i.e. gross pay-ins less gross payouts, divided by gross pay-ins).
It represents portion of gross pay-ins that we receive as revenue, namely through customers
playing our machines and our mark-ups on prize redemption. See “Results of Operations of Our
Group — Description of Components of Results of Operations —Revenue” in this section above
for discussion of factors impacting our revenue margin. Revenue margin for vending machine
income and hotel operations are 100% in the Track Record Period as their income is recognised
gross as revenue.
The table below shows a breakdown of revenue margin by type of hall for the indicatedperiods:
Six months ended
Year ended 31 March
2012

Suburban . . . . . . . . . . . . . . . . . .
Urban . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . .

2013

30 September
2014

2013

2014

%

%

%

%

%

13.1

13.1

13.9

13.2

16.6

13.6

14.5

15.0

14.0

17.9

13.2

13.2

14.0

13.3

16.7

In general, revenue margin for our urban halls is higher than our suburban halls, since urban
halls are usually smaller in terms of hall size and gross pay-ins per hall. Therefore, we need ahigher margin to recoup the necessary revenue to cover our fixed overheads (in particular, landcosts and rent are usually higher in the urban area than in the suburban area).
Revenue margin was rather stable for the three years ended 31 March 2014 but went up to
16.7% for the six months ended 30 September 2014. Such increase in revenue margin mainly
resulted from the imposition of G prize mark-ups from 1 April 2014 onwards as a means to
mitigate the negative impact on our revenue arising out of the increase in consumption tax from
5% to 8%.
Other income
Other income mainly represents (i) compensations and subsidies received from government
agencies and recovery from insurance companies; (ii) rental income received from G-prize
wholesalers for leasing of land in the vicinity of our halls for G-prize buyers and from investment
properties; (iii) income from sales of used pachinko and pachislot machines; (iv) dividend income
from equity securities and (v) income from expiry of cash balances stored in our IC andmembership cards.

303

FINANCIAL INFORMATION
The table below shows a breakdown of other income for the indicated periods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

(unaudited)
Compensation andsubsidies and recovery
from insurancecompanies (1) . . . . . . . .

889

79.7

127

28.5

44

11.6

10

5.5

598

74.7

89

8.0

161

36.1

149

39.4

76

41.8

74

9.2

pachinko and pachislot
machines (3) . . . . . . . . .

94

8.4

59

13.2

51

13.5

34

18.7

68

8.5

Dividend income (4) . . . . . .

4

0.4

29

6.5

67

17.7

35

19.2

34

4.2

36

3.2

41

9.2

40

10.6

21

11.5

18

2.2

. . . . . . . . . . . .

3

0.3

29

6.5

27

7.1

6

3.3

9

1.1

Total . . . . . . . . . . . . . .

1,115

100.0

446

100.0

378

100.0

182

100.0

801

100.0

Rental income(2). . . . . . .

Income from sales of used

Income from expiry of cash
balances stored in IC
card and membershipcard (5) . . . . . . . . . . . .
Others(6)(1)

The amount mainly represents compensations and subsidies from various government and semi-governmentalorganisations in Japan, such as the subsidies from (i) the Fukushima Labour Bureau* (福島労働局) for employing
disabled staff, (ii) Fukushima Labour Bureau* (福島労働局) for employing people who were victims of the Great East
Japan Earthquake on 11 March 2011 and (iii) compensation received from the Centre for Development of Power
Supplies of Japan* (電源地域振興 センター) for being located in the proximity of a nuclear power plant. The amountalso included recovery from insurance companies in the year ended 31 March 2012 on the loss from a fire incident
in one of our halls in May 2011. The balance in 30 September 2014 also consisted of compensation from the Tokyo
Electric Power Company for the Great East Japan Earthquake on 11 March 2011. See Note 6 of the Accountant’s
Report set out in Appendix I for further details.

(2)

The amount mainly represents rental income received from G-prize wholesalers for leasing of land in the vicinity of
our halls, and rental income from leasing of our investment properties. The rental income in the years ended 31
March 2013 and 2014 also included rental income from subleasing of a piece of land originally rented by us for
expansion of our pachinko and pachinko hall operations. All leases in relation to this piece of land was terminatedin the year end 31 March 2014.

(3)

The amount represents the income from the sales of used pachinko and pachislot machines. According to our
accounting policies, pachinko and pachislot machines are recognised as inventory when they are acquired, and are
expensed in the consolidated statements of comprehensive income upon installation. As a result, the net proceedsfrom sales of used pachinko and pachislot machines are recognised as other income.

(4)

Dividend income represents dividend received from equity securities held in the Track Record Period.

(5)

Income from expiry of cash balances of IC card and membership card represents the income earned when the cash
balances stored in IC cards and membership cards expired. Based on the terms of membership card and IC cardin force in the Track Record Period, the cash balances stored in the membership cards expire after the customer
stops playing for a consecutive period of 90 days while the cash balances stored in IC cards expire 21 days after
purchase and such cash balances were recognised as other income upon expiry.

(6)

Others include income derived from the sale of agricultural produce of Merrist’s business.

304

FINANCIAL INFORMATIONOther losses, net
Other losses, net mainly represents (i) the loss on disposal of property, plant and equipment,
and loss from the fire incident, (ii) net exchange gain/(loss), (iii) gain/(loss) on movement of fairvalue of financial assets, (iv) gain/(loss) on fair value for interest rate swap, and (v) gains or losses
on disposal of financial assets at fair value through profit or losses.
The table below shows a breakdown of other losses, net for the indicated periods.
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

(unaudited)
Loss on disposal ofproperty, plant andequipment and fireincident (1) . . . . . . . . . .

(537)

106.5

(24)

120.0

(101)

104.1

(85)

104.9

(39)

156.0

(3)

0.6

10

-50

3

-3.1

—

0.0

—

0.0

value through profit orloss (3) . . . . . . . . . . . .

(8)

1.6

11

-55

5

-5.2

2

-2.5

4

-16.0

Gain/(loss) on fair value forinterest rate swap (4) . . .

44

-8.7

11

-55

(4)

4.1

(3)

3.7

10

-40

—

0.0

(28)

140

—

0.0

5

-6.2

—

0.0

(504)

100.0

(20)

100.0

(97)

100.0

(81)

100.0

(25)

100.0

Net exchange (loss)/gain(2).

(Loss)/gain on fair value forfinancial assets at fair

(Loss)/gain on disposal of
financial assets at fairvalue through profit orloss (5) . . . . . . . . . . . .

(1)

The amount mainly represents net loss from disposal of property, plant and equipment. Included in the amount for
the year ended 31 March 2012 was a sum of impairment loss of ¥468 million incurred for damage to our properties
from the fire in one of our halls.

(2)

The amount represents the net exchange gains and losses arising from the translation of the monetary assets andliabilities denominated in currencies other than the functional currency of our Group and the transaction gains orlosses arising from the difference of exchange rate between recording and settlement of expenses.

(3)

The amount represents the net gains and losses arising from the change in fair value for financial assets recognised
as fair value through profit and loss.

(4)

The amount represents the net gains and losses arising from the change in fair value for the interest rate swap.

(5)

The amount represents the net gains and losses on disposal of financial assets at fair value through profit andlosses.

305

FINANCIAL INFORMATIONHall operating expenses
Hall operating expenses amounted to 67.9%, 66.9%, 67.4%, 70.0%, and 74.8% of our total
revenue in the years ended 31 March 2012, 2013, and 2014 and for the six months ended 30
September 2013 and 2014, respectively. The largest component of our hall operating expenses
has been purchases of pachinko and pachislot machines. Such expenditure does not necessarily
fluctuate with the trend of our monthly gross pay-ins or revenue. We usually budget our machinespendings based on the forecasted performance of our halls. However, our purchases of new
machines are sometimes also dependent on timing of new release of machines from the machine
manufacturers.
The table below shows a breakdown of hall operating expenses for the indicated periods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

(unaudited)
Pachinko and pachislot
machine expense . . . . .

7,161

34.7

7,948

36.3

8,216

36.0

4,163

36.2

4,482

38.5

Staff costs for hall staff . . .

4,818

23.4

4,594

21.0

4,626

20.3

2,362

20.5

2,417

20.8

Rental expenses . . . . . . .

2,198

10.6

2,261

10.3

2,364

10.4

1,147

10.0

1,326

11.4

Utilities and consumables
expense . . . . . . . . . . .

2,033

9.8

2,366

10.8

2,577

11.3

1,376

12.0

1,306

11.2

Depreciation andamortisation expenses . .

1,848

9.0

1,941

8.9

2,117

9.3

1,059

9.2

948

8.1

Outsourcing service fee . . .

977

4.8

1,148

5.2

1,175

5.2

607

5.3

498

4.3

G-prize procurement
expenses . . . . . . . . . .

755

3.7

774

3.5

804

3.5

401

3.5

399

3.4

Repairs and maintenance .

294

1.4

320

1.5

328

1.4

199

1.7

116

1.0

Others. . . . . . . . . . . . . .

525

2.6

557

2.5

591

2.6

180

1.6

152

1.3

20,609100.0

21,909100.0

22,798100.0

11,494100.0

11,644

100.0

Hall operating expenses
per hall . . . . . . . . . . .

412

421

430

217

220

Administrative and other operating expenses
Administrative and other operating expenses mainly represent (i) staff cost, including salary,bonus and other benefits for our administrative and other non-hall staff; (ii) advertising expenses;(iii) listing expenses for the Listing; (iv) rental expenses for our warehouse and business centre;(v) depreciation expenses; (vi) recruitment expenses for recruiting staff to work in our headquarterin Koriyama and our hotel operations; (vii) travelling and transportation expenses; (viii) tax andduties which mainly includes the fixed property tax and revenue stamp duty tax in Japan; (ix) legal
and professional fee representing fees paid to auditors, legal advisors and other professional
parties; (x) outsourcing service fee mainly includes IT outsourcing services and cleaning service
fees; (xi) utilities, repair and maintenance expenses; (xii) impairment loss on property, plant and306

FINANCIAL INFORMATION
equipment outside our hall operations; and (xiii) provision/(reversal of provision) for trade andother receivables. Administrative and other operating expenses amounted to 10.9%, 12.6%,
13.7%, 12.3% and 18.0% of our total revenue in the years ended 31 March 2012, 2013 and 2014
and for the six months ended 30 September 2013 and 2014, respectively.
The table below shows a breakdown of administrative and other operating expenses for theindicated periods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

(unaudited)
Staff costs foradministrative staff . . .

1,331

40.1

1,891

45.8

1,318

28.4

654

32.5

1,331

47.4

Advertising expenses . . .

939

28.3

1,231

29.8

1,362

29.4

733

36.4

680

24.2

Listing expenses . . . . . .

—

—

—

—

—

—

—

—

226

8.0

Rental expenses . . . . . .

97

2.9

101

2.4

119

2.6

72

3.6

73

2.6

Depreciation andamortisation expenses .

206

6.2

84

2.0

138

3.0

69

3.4

70

2.3

Recruitment expense . . .

34

1.0

232

5.6

253

5.5

64

3.2

64

2.3

Travelling andtransportation . . . . .

83

2.5

109

2.7

119

2.6

57

2.9

61

2.2

Tax and duties . . . . . . .

85

2.6

99

2.4

100

2.2

11

0.5

54

1.9

Auditor’s remuneration andlegal and professional
fee . . . . . . . . . . .

35

1.1

45

1.1

53

1.1

28

1.4

50

1.8

Outsourcing service fees . .

25

0.8

33

0.8

48

1.0

23

1.1

32

1.1

Utilities, repair andmaintenance expenses .

50

1.5

90

2.2

72

1.5

37

1.8

24

0.9

Impairment loss onproperty, plant andequipment . . . . . . .

620

13.4

—

—

—

—

124

3.7

—

—

Write-off/(reversal) of
doubtful debts . . . . .

116

3.5

(102)

-2.4

2

—

—

—

—

—

Others . . . . . . . . . . .

194

5.8

313

7.6

432

9.3

265

13.2

143

5.3

3,319

100.0

4,126

100.0

4,636

100.0

2,013

100.0

2,808

100.0

Finance income and finance cost
Finance income represents the interest income from banks, construction funds placed atcertain landlords for our leased properties and debt securities. Finance cost represents theinterest expense for our bank borrowings and interest swap contracts, bonds issued, and interest
portion of our finance lease and provision for amortisation of initial service charges for our bankborrowings. All of our bank loans are amortising loans, in which principal of our loans is paid
down over the life of the loans.

307

FINANCIAL INFORMATION
The table below shows a breakdown of finance income and finance cost for the indicatedperiods:
Year ended 31 March2012

Six months ended 30 September

2013

2014

2013

2014

(in millions, except for percentages)
¥

%

¥

%

¥

%

¥

%

¥

%

(unaudited)
Finance income
Bank interest income . . . .

3

5

—

—

1

2

—

—

—

—

Other interest income

63

95

63

100

57

98

28

100

88

100

66

100

63

100

58

100

28

100

88

100

36

. . .

Finance costs
Bank borrowings- wholly repayable within 5
years . . . . . . . . . . . .

(337)

42

(212)

29

(249)

33

(121)

33

(127)

- Not wholly repayable
within 5 years . . . . . . .

(54)

7

(86)

12

(74)

10

(36)

10

(30)

8

Bond interest expense . . .

(9)

1

(5)

1

(5)

1

(3)

1

(1)

—

Obligations under financeleases . . . . . . . . . . . .

(307)

39

(338)

47

(364)

49

(184)

50

(173)

48

Provision for unwinding
discount . . . . . . . . . .

(87)

11

(79)

11

(52)

7

(24)

7

(26)

7

(794)

100

(720)

100

(744)

100

(368)

100

(357)

100

(728)

N/A

(657)

N/A

(686)

N/A

(340)

N/A

(269)

N/A

Finance costs, net. . . .

Income tax expenses
Our income tax expenses primarily include taxes that we pay in Japan and movements indeferred income tax. Deferred income tax is recognised on temporary differences between the
carrying amounts of assets and liabilities recorded in consolidated statements of financial
position and the corresponding tax bases used in the computation of taxable profit.
We are subject to corporate income tax, temporary restoration corporation surtax,
inhabitants tax, and enterprise tax in Japan, which, in aggregate, resulted in effective statutory
income tax rates of approximately 40.2%, 37.6%, 37.6%, 37.6% and 35.2% for the years ended
31 March 2012, 2013 and 2014 and the six months ended 30 September 2013 and 2014,
respectively.
As a result of 2011 Reform Amendment Tax Law and the Special Restoration Tax Law thatwere promulgated on 2 December 2011, the corporate income tax rate of Japan reduced from
30% to 25.5% from fiscal years beginning on or after 1 April 2012 and 10% temporary restoration
corporation surtax was introduced on the corporate income tax applicable for 3 years period fromfiscal years beginning on or after 1 April 2012. The combined effect of these changes led to thedecrease in effective statutory tax rate from 40.2% in the year ended 31 March 2012 to 37.6%
in the year ended 31 March 2013.

308

FINANCIAL INFORMATIONAs advised by our Tax Adviser, under the 2014 Tax Reform that was promulgated on 31
March 2014, 10% temporary restoration corporation surtax ceased one year ahead of scheduleand do not apply for the fiscal year beginning on or after 1 April 2014 which led to decrease in
our effective statutory tax rate from 37.6% in the year ended 31 March 2014 to 35.2% in the six
months ended 30 September 2014. We measured the current income tax for the six months
ended 30 September 2014 based on revised applicable income tax rates. The relevant deferred
tax assets and liabilities as at 31 March 2014 have been remeasured at the tax rates that are
expected to apply to the period when the related assets and liabilities are realised or settled.
The table below shows the tax rate applicable to us in the Track Record Period and theformula in calculating each type of tax, as advised by our Tax Adviser:
Six months ended
Year ended 31 March

Corporate tax rate . . . . . . . . . . . . . . .
Temporary restoration corporate
surtax . . . . . . . . . . . . . . . . . . . . . . . . .
Inhabitants tax rate
Fukushima Prefecture (福島県) . . . . . .
Tokyo (東京都) . . . . . . . . . . . . . . . . . . .
Average: . . . . . . . . . . . . . . . . . . . . . . .

2012

2013

2014

2013

2014

30.0%

25.5%

25.5%

25.5%

25.5%

—

10.0%

10.0%

10.0%

—

18.1%
20.7%
19.4%

18.1%
20.7%
19.4%

18.1%
20.7%
19.4%

18.1%
20.7%
19.4%

18.1%
20.7%
19.4%

2.90%
3.26%
3.08%

2.90%
3.26%
3.08%

2.90%
3.26%
3.08%

2.90%
3.26%
3.08%

0.20%

0.20%

0.20%

0.20%

0.48%
0.504%
0.492%

0.48%
0.504%
0.492%

0.48%
0.504%
0.492%

0.48%
0.504%
0.492%

4.292%

4.292%

4.292%

4.292%

37.6%

37.6%

37.6%

35.2%

Enterprise tax rate(1) Profit-based tax rate:
Fukushima Prefecture (福島県) . . . . 2.90%
Tokyo (東京都). . . . . . . . . . . . . . . . . 3.26%
Average: . . . . . . . . . . . . . . . . . . . . 3.08%(2) Size-based enterprise tax rate:(a) Capital-based . . . . . . . . . . . . . 0.20%(b) Additional value-based . . . . .
Fukushima Prefecture(福島県) . . . . . . . . . . . . . . . . 0.48%
Tokyo (東京都). . . . . . . . . . . . . 0.504%
Average: . . . . . . . . . . . . . . . . 0.492%(3) Special local corporate tax
rate: . . . . . . . . . . . . . . . . . . . . . . . . 4.292%
Effective statutory tax rate . . . . . . . .

30 September

40.2%

The formulas for calculating each type of taxes are:1.

Corporate tax = (Taxable income x Corporate tax rate) + Accumulated earnings tax income tax credit (Note i)309

FINANCIAL INFORMATION
2.

Temporary restoration corporate surtax = (Taxable income x Corporate tax rate) x
Restoration surtax rate

3.

Inhabitants tax = (Corporate tax + income tax credit) x Inhabitants tax rate +Inhabitants tax on per capital basis (Note ii, v)

4.

Enterprise tax is calculated as the sum of the followings:(1)

Profit-based tax = Taxable income x Profit-based tax rate (Note v)(2)

Size-based enterprise tax

(3)

(a)

Capital based: (Capital + Capital surplus) x Capital-based tax rate(b)

Additional value based: (Value added expenses + Taxable income) x
Additional value-based tax rate (Note iii, v)

Special local corporate tax = Taxable income x Special local corporate tax rate
(Note iv)

5.

Effective statutory tax rate is calculated as:
Corporate tax rate x [(1+ Restoration corporation surtax) + Inhabitants tax rate] + Enterprise tax rate
1+ enterprise tax rate

Notes:(i)

Accumulated earnings tax = Taxable undistributed current earnings x progressive accumulated earnings tax
rates as follow:

(ii)

a.

First ¥ 30 million 10% per annumb.

Next ¥ 70 million 15% per annumc.

Over ¥100 million 20% per annum

Inhabitants tax on per capital basis is determined by the local government by the factors of paid-in capitaland the number of employees(iii)

Value added expenses include labour costs, net interest payment and net rental payment(iv)

Special local corporate tax rate = profit based-rate x 148%(v)

Calculated using average rates of Fukushima Prefecture (福島県) and Tokyo (東京都)310FINANCIAL INFORMATION
Our income tax expenses were ¥2,978 million, ¥2,720 million, ¥2,310 million, ¥1,060 millionand ¥690 million for the years ended 31 March 2012, 2013 and 2014 and the six months ended
30 September 2014, respectively. Our effective tax rates were 47.2%, 41.9%, 38.4%, 39.5% and42.4% for the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2013 and 2014. We did not have any dispute with all the relevant tax authorities in
the Track Record Period and we have paid all tax in accordance with all relevant laws andregulations. See Note 10 of Section II to the Accountant’s Report set forth in Appendix I for more
information.
PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS
Six months ended 30 September 2014 compared with six months ended 30 September
2013
Gross pay-ins
Our gross pay-ins decreased by ¥29,685 million, or 24.6%, from ¥120,674 million for the six
months ended 30 September 2013 to ¥90,989 million for the six months ended 30 September
2014. The table below shows changes in gross pay-ins and machine utilisation in our halls:
Six months ended
30 September
2013

2014

Difference%

2013 vs 2014(¥ in millions, except for percentages)

Gross pay-ins
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

111,650
9,024

84,175
6,814(27,475)-24.6%(2,210)-24.5%

120,674

90,989(29,685)-24.6%

Average gross pay-ins per hall
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

2,538
1,003
2,277

1,913
757
1,717

(625)

-24.6%

Machine utilisation
Pachinko machines
High playing cost . . . . . . . . . . . . . . . .
Low playing cost . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

30.0
37.8
34.5

20.9
33.7
27.5

Pachislot machines
High playing cost . . . . . . . . . . . . . . . .
Low playing cost . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

28.0
31.4
29.2

22.7
23.0
22.8

311

(246)

-24.5%(560)-24.6%

-9.1%

N/A

-4.1%

N/A

-7.0%

N/A

-5.3%

N/A

-8.4%

N/A

-6.4%

N/A

FINANCIAL INFORMATION
The decrease in gross pay-ins in our halls was mainly due to decreases in player traffic, asa result of (i) the increase in consumption tax from 5% to 8% on 1 April 2014, which had anegative impact on consumer spending in general and (ii) our new policy of imposing mark-ups
ranging from 4% to 20% (with an average of around 10%) on G prize redemption. The intentionof imposing G-prize mark-up was to raise our revenue (by reducing our gross payouts) to mitigate
the adverse effect from the increase in consumption tax from 5% to 8% on our profitability. This
new approach increased the revenue margin of our halls but at the same time discouraged thoseplayers who sought higher payouts from playing at our halls. Relating to this, we also witnesseda significant drop in the utilisation rate of our machines during the period.
Gross payouts
Our gross payouts decreased by ¥28,884 million, or 27.6%, from ¥104,682 million for thesix months ended 30 September 2013 to ¥75,798 million for the six months ended 30 September
2014. The table below shows changes in gross payouts in suburban and urban halls:
Six months ended
30 September
2013

2014

Difference%

2013 vs 2014(¥ in millions, except for percentages)

Gross payouts
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

Average gross payouts per hall
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

96,924
7,758

70,207
5,591(26,717)-27.6(2,167)-27.9

104,682

75,798(28,884)

-27.6

2,203
862
1,975

1,596
621
1,430

(607)

-27.6

(241)

-28.0

545

-27.6

The decrease in gross payouts in the period was mainly due to (i) a decrease in the player
traffic, as reflected in drop in gross pay-ins and utilisations in our machines as a result ofincorporating G-prize mark-ups on prize redemption from April 2014 onwards as mention above.

312

FINANCIAL INFORMATION
Revenue and revenue margin
Revenue decreased by ¥857 million, or 5.2%, from ¥16,429 million for the six months ended
30 September 2013 to ¥15,572 million for the six months ended 30 September 2014. The tablebelow shows changes in revenue and revenue margin in the period:
Six months ended
30 September
2013

2014

Difference%

2013 vs 2014(¥ in millions, except for percentages)

Revenue from pachinko andpachislot business
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

14,7271,265

13,968
1,223

(759)

-5.2

(42)

-3.3

Sub-total . . . . . . . . . . . . . . . . . . . . . .
Vending machine income . . . . . . . . . . . .

15,992362

15,191
301

(801)

-5.0

(61)

-16.9

Revenue from pachinko andpachislot hall operations. . . . . . . . .
Revenue from hotel operations . . . . . . .

16,35475

15,492
80

(862)

-5.3

5

6.7

Total revenue . . . . . . . . . . . . . . . . . . . .

16,42915,572

(857)

-5.2

Revenue margin of pachinko andpachislot business
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

13.2%
14.0%
13.3%

16.6%
17.9%
16.7%

3.4%

N/A

3.9%

N/A

3.4%

N/A

Revenue from and revenue margin of pachinko and pachislot business
Revenue from pachinko and pachislot hall operations declined by ¥801 million, or 5.0%,
from ¥15,992 million for the six months ended 30 September 2013 to ¥15,191 million for the six
months ended 30 September 2014. As a result of imposing G-prize mark-ups on prize
redemption from 1 April onwards as mentioned above, our revenue margin rose from 13.3% to16.7%, which helped lessen the drop in revenue from pachinko and pachislot hall operations to
only 5.0%, despite the fact that our gross pay-ins decreased by 24.6% during the period.
Together with the decrease in vending machine income resulted from fall in hall traffic, werecorded a decrease in our overall revenue of 5.2% during the period.
Other income
Our other income increased by ¥619 million, or 340%, from ¥182 million for the six months
ended 30 September 2013 to ¥801 million for the six months ended 30 September 2014. The
increase was mainly attributable to the increase in compensation, subsidies and recovery frominsurance companies by ¥588 million, or 57.8 times, from ¥10 million for the six months ended
30 September 2013 to ¥598 million for the six months ended 30 September 2014, which included

313

FINANCIAL INFORMATIONa receipt of compensation of ¥590 million from Tokyo Electric Power Company for the loss arisingfrom damages of our hall properties and loss of suspended operation sustained from the Great
East Japan Earthquake on 11 March 2011.
Other losses, net
Our other losses, net decreased by ¥56 million, or 69.1%, from ¥81 million for the six
months ended 30 September 2013 to ¥25 million for the six months ended 30 September 2014.
The decrease in other losses was mainly due to (i) the decrease in loss on disposal of property,
plant and equipment by ¥46 million; and (ii) the gain on fair value movement for interest rate
swaps for ¥10 million for the six months ended 30 September 2014 compared to the loss of ¥3
million for the six months ended 30 September 2013, as the fair value of our fixed to floatinginterest rate swaps (i.e. we pay fixed rate and receive floating rate) held by us rose.
Hall operating expenses
Our hall operating expenses increased slightly in the six months ended 30 September 2014
as compared to that in the six months ended 30 September 2013. Our hall operating expenses
amounted to ¥11,494 million and ¥11,644 million and represented 70.0% and 74.8% of our total
revenue in the six months ended 30 September 2013 and 2014, respectively. The increase of ourhall operating expenses in the six months ended 30 September 2014 was mainly attributable tothe increase of pachinko and pachislot machine expenses as we continued to increase our hall
size and to purchase new machines upon their new releases to ensure wide and up-to-dateselection of machines was available to attract customers. Furthermore, we also incurred higher
staff costs for hall staff in the six months ended 30 September 2014 as a result of our strategy
to increase the number of staff per hall to improve our customer experience.
Administrative and other operating expenses
Our administrative and other operating expenses increased by ¥795 million, or 39.5%, from
¥2,013 million for the six months ended 30 September 2013 compared to ¥2,808 million for six
months ended 30 September 2014. The increase was mainly driven by the increase of staff costsby ¥677 million, or 103.5%, from ¥654 million for the six months ended 30 September 2013 to¥1,331 million for the six months ended 30 September 2014, which was primarily attributable tothe one-off payment of ¥600 million to the retiring director of our Company, Mr. Tatsuo
TANIGUCHI, as special benefit for his retirement. Such payment was entirely discretionary andwas approved by the then board of Directors. Also included in the administrative and otheroperating expenses was the professional expenses incurred for Listing for ¥226 million.

314

FINANCIAL INFORMATION
Finance income and finance cost
Our net finance cost decreased by ¥71 million, or 20.9%, from ¥340 million for the six
months ended 30 September 2013 to ¥269 million for the six months ended 30 September 2014.
The decrease was driven by (i) increase in other interest income by ¥60 million, or 214.3%, from
¥28 million for the six months ended 30 September 2013 to ¥88 million for the six months ended
30 September 2014; and (ii) slight decrease in the finance cost by ¥11 million, or 3.0%, from ¥368
million for the six months ended 30 September 2013 to ¥357 million for the six months ended 30
September 2014.
The increase in other interest income was primarily attributable to the rise in interest income
arising from the difference between the cash received from the cancellation of lease of hallproperties in Nakano we acquired in the period, and its discounted booked value of the
non-current portion of rental prepayments in relation thereto.
The decrease in finance cost was mainly due to the decrease in the interest component forour obligations under finance leases as the balance of outstanding finance lease liabilities
decreased compared to that as at 30 September 2013.
Income tax expenses
Our income tax expenses decreased by ¥370 million, or 34.9%, from ¥1,060 million for thesix months ended 30 September 2013 to ¥690 million for the six months ended 30 September
2014. Effective tax rate increased from 39.5% for the six months ended 30 September 2013 to42.4% for the six months ended 30 September 2014.
The decrease in tax expenses was mainly due to the decrease in profit before tax in the six
months ended 30 September 2014 compared to that for the six months ended 30 September
2013. The increase of effective tax rate was mainly attributable to the additional ¥111 million oftax expense arising from the unrecognised tax losses of ¥314 million in relation to interest
expenses incurred by our Company in the period.
Profit for the period attributable to shareholders of the Company
As a result of the foregoing, our profit attributable to shareholders of the Company
decreased by ¥686 million, or 42.3%, from ¥1,623 million for the six months ended 30 September
2013 to ¥937 million for the six months ended 30 September 2014. Our net profit margindecreased from 9.9% for the six months ended 30 September 2013 to 6.0% for the six months
ended 30 September 2014. However, without the one-off retirement payment of ¥600 million
made to Mr. Tatsuo TANIGUCHI and the professional fees of ¥226 million incurred for Listing, ournet profit margin for this period would have been stable as compared to the previous period.

315

FINANCIAL INFORMATION
Year ended 31 March 2014 compared with year ended 31 March 2013
Gross pay-ins
Our gross pay-ins decreased slightly by ¥5,768 million, or 2.4%, from ¥242,217 million forthe year ended 31 March 2013 to ¥236,449 million for the year ended 31 March 2014. The tablebelow shows changes in gross pay-ins and machine utilisation in our halls:
Year ended 31 March
2013

2014

Difference%

2013 vs 2014(¥ in millions, except for percentages)

Gross pay-ins
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

224,493
17,724219,455
16,994(5,038)

-2.2

(730)

-4.1

242,217

236,449(5,768)-2.4

Average gross pay-ins per hall
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

5,221
1,969
4,658

4,988
1,888
4,461

(233)

-4.5

(81)

-4.1

197

-4.2

Machine utilisation
Pachinko machines
High playing cost . . . . . . . . . . . . . . . .
Low playing cost . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

31.8%
37.3%
34.9%

27.9%
35.8%
32.2%

-3.9%

N/A

-1.5%

N/A

-2.7%

N/A

Pachislot machines
High playing cost . . . . . . . . . . . . . . . .
Low playing cost . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

29.1%
30.2%
29.3%

27.9%
29.0%
28.4%

-1.2%

N/A

-1.2%

N/A

-0.9%

N/A

On an average per hall basis, our gross pay-ins for our suburban hall and urban halldecreased by approximately 4.5% and 4.1%, respectively, during the year which was mainly
attributable to the decrease in customer traffic and spending as evident in the drop in utilisation
across all machines types. At the same time, we also opened a suburban hall in the year ended
31 March 2014, as a result our overall gross pay-ins only suffered a slight decline of 2.4%.

316

FINANCIAL INFORMATION
Gross payouts
Our gross payouts decreased slightly by ¥6,843 million, or 3.3%, from ¥210,298 million forthe year ended 31 March 2013 to ¥203,455 million for the year ended 31 March 2014. The tablebelow shows changes in gross payouts in suburban and urban halls:
Year ended 31 March
2013

2014

Difference%

2013 vs 2014(¥ in millions, except for percentages)

Gross payouts
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

Average gross payouts per hall
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

195,151
15,147

189,003
14,452(6,148)

-3.2

(695)

-4.6

210,298

203,455(6,843)

-3.3

4,538
1,683
4,044

4,296
1,606
3,839

(242)

-5.3

(77)

-4.6

(205)

-5.1

The decrease in gross payouts in the year was in line with the decrease in gross pay-ins in
the year as a result of a decrease in utilisation of our machines.
Revenue and revenue margin
Revenue increased by ¥1,096 million, or 3.3%, from ¥32,751 million for the year ended 31
March 2013 to ¥33,847 million for the year ended 31 March 2014. The table below showschanges in revenue and revenue margin in the year:
Year ended 31 March
2013

2014

Difference%

2013 vs 2014(¥ in millions, except for percentages)

Revenue from pachinko andpachislot business
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

29,342
2,577

30,452
2,542

1,110

3.8

(35)

-1.4

Sub-total . . . . . . . . . . . . . . . . . . . . . .
Vending machine income . . . . . . . . . . . .

31,919748

32,994
704

1,075

3.4

(44)

-5.9

Revenue from pachinko andpachislot hall operations. . . . . . . . .
Revenue from hotel operations . . . . . . .

32,66784

33,698
149

1,031

3.2

65

77.4

Total revenue . . . . . . . . . . . . . . . . . . . .

32,751

33,847

1,096

3.3

Revenue margin of pachinko andpachislot business
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

13.1%
14.5%
13.2%

13.9%
15.0%
14.0%

0.8%

N/A

0.5%

N/A

0.8%

N/A

317

FINANCIAL INFORMATION
Revenue and revenue margin of pachinko and pachislot businessOur revenue from pachinko and pachislot business increased by ¥1,075 million, or 3.4%,
from ¥31,919 million for the year ended 30 September 2013 to ¥32,994 million for the year ended
31 March 2014. Despite the decrease in our gross pay-ins, we managed to record an increase
in revenue by ¥1,096 million or 3.3%, of which ¥1,075 million was attributable to our halloperations during the period. We managed to raise the overall revenue margin of our halls from
13.2% for the year ended 31 March 2013 to 14.0% for the year ended 31 March 2014 with alower payout ratio for our machines. This enabled us to achieve a 3.4% increase in revenue
against a 2.4% drop in gross pay-ins.
Other income
Our other income decreased by ¥68 million, or 15.2%, from ¥446 million for the year ended
31 March 2013 to ¥378 million for the year ended 31 March 2014. The decrease was mainly due
to a decrease in compensation, subsidies and recovery from insurance companies by ¥83 million,
or 65.4%, from ¥127 million for the year ended 31 March 2013 resulting from the receipt of a
subsidy of ¥58 million from the Fukushima Prefecture Government for the repair and maintenanceof buildings damaged by the Great East Japan Earthquake to ¥44 million for the year ended 31
March 2014. The decrease was partially set off by an increase in dividend income by ¥38 million,or 131.0%, from ¥29 million for the year ended 31 March 2013 to ¥67 million for the year ended
31 March 2014 from an equity investment in a Hong Kong listed pachinko hall operator in Japan,
which paid a total of ¥14.25 per share of dividend in the year ended 31 March 2014 comparedto ¥5.75 per share in the year ended 31 March 2013.
Other losses, net
Our other losses increased by ¥77 million, or 3.9 times, from ¥20 million for the year ended
31 March 2013 to ¥97 million for the year ended 31 March 2014. The increase in other losses was
mainly due to the increase in loss on disposal of property, plant and equipment by ¥77 million inlight of minor improvement and maintenance work for our halls performed in the year ended 31
March 2014.
Hall operating expenses
Our hall operating expenses increased by ¥889 million, or 4.1%, from ¥21,909 million for theyear ended 31 March 2013 to ¥22,798 million for the year ended 31 March 2014. The increase
was mainly caused by (i) an increase in pachinko and pachislot machine expenses by ¥268
million, or 3.4%, primarily attributable to the purchase of new machines for the new hall openedin the year; (ii) an increase in utilities and consumables expenses by ¥211 million, or 8.9%,
primarily attributable to the increased number of halls and also due to the colder climate in thewinter seasons requiring more usage of heating system which led to increased electricity
expenses; and (iii) an increase in depreciation and amortisation expenses by ¥176 million, or
9.1%, attributable to the increase in fixed asset as our Company opened a new hall in the year.

318

FINANCIAL INFORMATION
Administrative and other operating expenses
Our administrative and other operating expenses increased by ¥510 million, or 12.4%, from
¥4,126 million for the year ended 31 March 2013 to ¥4,636 million for year ended 31 March 2014.
The increase was mainly caused by (i) an impairment loss on property, plant and equipment for¥620 million, which was attributable to the impairment of three halls whose net present value
calculated under the discounted cash flow model and based on their operating cash flow
forecasts fell below their respective net book value, and (ii) an increase in advertising expensesby ¥131 million due to the increase in advertising effort in promoting our new and existing halls.
The increase in administrative and other operating expenses was partially off-set by thedecrease in staff cost by ¥573 million, mainly due to the one-off payment of ¥600 million to theretiring director of our Company, Mr. Masataka TANIGUCHI, as special payment for his retirementin the prior year. Such payment was entirely discretionary and was approved by the board of
Directors at that time.
Finance income and finance cost
Our net finance cost increased slightly by ¥29 million, or 4.4%, from ¥657 million for the year
31 March 2013 to ¥686 million for the year ended 31 March 2014. The increase was caused bya slight increase in the finance cost by ¥24 million, or 3.3%, from ¥720 million for the year ended
31 March 2013 to ¥744 million for the year ended 31 March 2014.
The increase in finance cost was mainly due to an increase in the total loan balances from
¥11,073 million as at 31 March 2013 to ¥12,379 million as at 31 March 2014. The average
effective interest rate of our bank loans, syndicated loans and bonds we have issued for the year
remained stable as compared to the prior year.
Income tax expenses
Our income tax expenses decreased by ¥410 million, or 15.1%, from ¥2,720 million for theyear ended 31 March 2013 to ¥2,310 million for the year ended 31 March 2014. Effective tax rate
decreased from 41.9% for the year ended 31 March 2013 to 38.4% for the year ended 31 March2014.
The decrease in tax expenses was mainly due to a drop in profit before tax for the year ascompared to that for the year ended 31 March 2013. The decrease of effective tax rate wasmainly due to the utilisation of the tax losses of approximately ¥223 million brought over from a
subsidiary, namely Jin Corporation, which was acquired in June 2012.
On 15 June 2012, we acquired the entire share capital of Jin Corporation, a company inwhich its main asset was the pachinko hall in Hanyu in Saitama Prefecture, with a considerationof ¥820 million. Before the acquisition, Jin corporation had an unutilised tax losses amounting to¥223 million in its books. As the acquisition of the share capital of the Jin corporation was
accounted for as an absorption type merger under the Japan Companies Act, the asset and319

FINANCIAL INFORMATION
liabilities of Jin Corporation, including its unutilised tax losses were merged with Niraku
Corporation. Such unutilised tax loss was set off against the taxable profits of Niraku Corporationin the year ended 31 March 2014. See “History and Corporate Development — Corporate
structure and development — Dissolved entities” for further details.
Profit for the year attributable to shareholders of the Company
As a result of the foregoing, our profit attributable to shareholders of the Company for theyear remained stable as compared to the prior year. Our net profit margin decreased from 11.5%
for the year ended 31 March 2013 to 10.9% for the year ended 31 March 2014, which was
primarily due to an impairment loss on hall assets of ¥620 million made on three of ourunder-performing halls as included in the administrative and other operating expenses in the year.
Year ended 31 March 2013 compared with year ended 31 March 2012
Gross pay-ins
Our gross pay-ins increased by ¥17,429 million, or 7.7%, from ¥224,968 million for the year
ended 31 March 2012 to ¥242,217 million for the year ended 31 March 2013. The table below
shows changes in gross pay-ins and utilisation in our halls:
Year ended 31 March
2012

2013

Difference%

2012 vs 2013(¥ in millions, except for percentages)

Gross pay-ins
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

206,437
18,531

224,493
17,72418,056

8.7%

(807)

-4.4%

224,968

242,217

17,249

7.7%

Average gross pay-ins per hall
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

4,915
2,316
4,499

5,221
1,969
4,658

306

6.2%

(347)

-15.0%

159

3.5%

Machine utilisation
Pachinko machines
High playing cost . . . . . . . . . . . . . . . .
Low playing cost . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

34.4%
39.6%
37.3%

31.8%
37.3%
34.9%

(2.6)%

N/A(2.3)%

N/A(2.4)%

N/A

Pachislot machines
High playing cost . . . . . . . . . . . . . . . .
Low playing cost . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

31.0%
30.7%
31.0%

29.1%
30.2%
29.3%

(1.9)%

N/A(0.5)%

N/A(1.7)%N/A

320

FINANCIAL INFORMATION
For the year ended 31 March 2013, our overall gross pay-ins from suburban halls registereda gain of 8.7% over the prior year as a result of (i) a strong rebound in player traffic in our halls
located in the Fukushima prefecture after the Great East Japan Earthquake and (ii) the additionof an acquired hall through taking over of Jin Corporation. On an average gross pay-ins per hallbasis, our suburban halls achieved an increase of 6.2% as compared to the prior year. Although
the Great East Japan Earthquake initially forced the temporary closure of our halls in Fukushima,
the incident in fact did not cause significant negative impact on our hall business. See “Business— Pachinko and Pachislot Hall Operations — Fukushima Prefecture (福島県) and the Great East
Japan Earthquake”) for further details of the impact of the Great East Japan Earthquake on ouroperations. Indeed, according to our observation, after the earthquake, some members of thegeneral public spent more time in pachinko halls. Further, partly attributable to the rebuilding
efforts, there was a growth of working population in Fukushima, which brought about more
spending in our halls.
For our urban halls, even though we opened a new hall in Tokyo in the year, the gross
pay-ins suffered a drop of 4.4%. On an average gross pay-ins per hall basis, we recorded a larger
decline of 15% over the prior period. Such a decrease was primarily due to the facts that (i) the
newly opened hall in Tokyo did not generate sufficient player traffic in its first year of operation,and (ii) we recorded a higher revenue margin from 13.6% to 14.5% with a slightly lower payout
ratio for machines in our halls, which discouraged some customers who were conscious ofmachine payouts from playing in our halls.
Gross payouts
Our gross payouts increased by ¥14,958 million, or 7.7%, from ¥195,340 million for the year
ended 31 March 2012 to ¥210,298 million for the year ended 31 March 2013. The table below
shows changes in gross payouts in suburban and urban halls:
Year ended 31 March
2012

2013

Difference%

2012 vs 2013(¥ in millions, except for percentages)

Gross payouts
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

Average gross payouts
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

179,324
16,016

195,151
15,147

15,827

8.8%

(869)

-5.4%

195,340

210,298

14,958

7.7%

4,270
2,002
3,907

4,538
1,683
4,044

268

6.3%

(319)

-15.9%

137

3.5%

The movement of gross payouts in both suburban and urban halls generally followed thetrend of their respective gross pay-ins.

321

FINANCIAL INFORMATION
Revenue and revenue margin
Revenue increased by ¥2,399 million, or 7.9%, from ¥30,352 million for the year ended 31
March 2012 to ¥32,751 million for the year ended 31 March 2013. The table below showschanges in revenue and revenue margin in the year:
Year ended 31 March
2012

2013

Difference%

2012 vs 2013(¥ in millions, except for percentages)

Revenue from pachinko andpachislot business
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .

27,113
2,515

29,342
2,577

2,229

8.2%

62

2.5%

Sub-total . . . . . . . . . . . . . . . . . . . . . .
Vending machine income . . . . . . . . . . . .

29,628724

31,919
748

2,291

7.7%

24

3.3%

Revenue from pachinko andpachislot hall operations . . . . . . . .
Revenue from hotel operations . . . . . . .

30,352—

32,667
84

2,315

7.6%

84

N/A

Total revenue . . . . . . . . . . . . . . . . . . . .

30,35232,751

2,399

7.9%

Revenue margin of pachinko andpachislot business
Suburban . . . . . . . . . . . . . . . . . . . . . . .
Urban. . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . .

13.1%
13.6%
13.2%

13.1%
14.5%
13.2%

0.0%

N/A

0.9%

N/A

0.0%

N/A

The increase in our revenue was mainly due to the improvement in our gross pay-ins
amongst our suburban halls, as the revenue margin was maintained at a stable 13.2% during theyear. For our urban halls, we were able to keep our revenue stable, despite a drop of 4.4% in the
gross pay-ins during the year, with a slightly lower payout ratio in our halls.
Other income
Our other income decreased by ¥669 million, or 60%, from ¥1,115 million for the year ended
31 March 2012 to ¥446 million for the year ended 31 March 2013. The decrease was mainly
attributable to the decrease in compensation, subsidies and recovery from insurance companiesby ¥762 million, or 6.0 times, from ¥889 million for the year ended 31 March 2012 to ¥127 million
for the year ended 31 March 2013, which was due to the one off recovery of ¥788 million froma insurance company for the fire incident in our hall located in Hiramise, Fukushima in the year
ended 31 March 2012.
On 3 May 2011, one of our halls temporarily suspended its operations due to a fire accident.
This fire accident caused significant damage to certain property, plant and equipment andinventories and the loss amounted to ¥468 million which was recognised in the year ended 31
March 2012. In addition, the fire accident also interrupted the operation of that hall. We had

322

FINANCIAL INFORMATION
insurance policies which coverage included the damage and costs associated with property,
plant and equipment and inventories and provide business interruption coverage, including lost
profits. In the year ended 31 March 2012, insurance compensation amounting to ¥788 million
was claimed and paid to us from the insurance companies.
Other losses, net
Our other losses decreased by ¥484 million, or 96.0%, from ¥504 million for the year ended
31 March 2012 to ¥20 million for the year ended 31 March 2013. The decrease in other losses
in the year ended 31 March 2013 was mainly due to a loss of ¥468 million incurred in the fireincident in the year ended 31 March 2012, as discussed in the paragraph headed “Other income”
above.
Hall operating expenses
Our hall operating expenses increased by ¥1,300 million, or 6.3%, from ¥20,609 million forthe year ended 31 March 2012 to ¥21,909 million for the year ended 31 March 2013. Our halloperating expenses per hall increased by 2.2% from ¥412 million per hall in the year ended 31
March 2012 to ¥421 million per hall in the year ended 31 March 2013. The increase was mainly
driven by (i) an increase in pachinko and pachislot machine expenses by ¥787 million, or 11.0%,
primarily attributable to the purchase of new machines for the two new halls opened in the year;(ii) an increase in utilities and consumables expenses by ¥333 million, or 16.4%, primarily
attributable to the increased number of halls; and (iii) an increase in depreciation and amortisation
expenses by ¥93 million, or 5.0%, primarily attributable to the increase in buildings, leasehold
improvements and equipment and tools accompanying the opening of two new halls in the year.
Administrative and other operating expenses
Our administrative and other operating expenses increased for ¥807 million, or 24.3%, from
¥3,319 million for the year ended 31 March 2012 compared to ¥4,126 million for year ended 31
March 2013. The increase was mainly due to (i) an increase in staff cost by ¥560 million, resulted
from the one-off discretionary special payment of ¥600 million to the retiring director of ourCompany, Mr. Masataka TANIGUCHI, for his retirement in the year ended 31 March 2013 as
discussed above; (ii) an increase in advertising expenses by ¥292 million in connection with thestronger advertising effort in promoting our new and existing halls; and (iii) an increase inrecruitment expense by ¥198 million, mainly attributable to the promotional expenses incurred forthe adoption of a new recruitment scheme in the year ended 31 March 2013 for recruiting
university graduates to join our ranks.
Finance income and finance cost
Our net finance cost decreased by ¥71 million, or 9.8%, from ¥728 million for the year 31
March 2012 to ¥657 million for the year ended 31 March 2013. The decrease was caused by adecrease in the finance cost by ¥74 million, or 9.3%, from ¥794 million for the year ended 31
March 2012 to ¥720 million for the year ended 31 March 2013.

323

FINANCIAL INFORMATION
The decrease in finance cost was mainly due to (i) a decrease in the total loan balances from
¥12,229 million as at 31 March 2012 to ¥11,073 million as at 31 March 2013; and (ii) a decreaseof average effective interest rate of our syndicated loans from 2.8% per annum for the year ended
31 March 2012 to 2.2% per annum for the year ended 31 March 2013.
Income tax expenses
Our income tax expenses decreased by ¥258 million, or 8.7%, from ¥2,978 million for theyear ended 31 March 2012 to ¥2,720 million for the year ended 31 March 2013. Effective tax rate
decreased from 47.2% for the year ended 31 March 2012 to 41.9% for the year ended 31 March2013.
The decrease in tax expenses was mainly due to a decrease in tax rate in Japan. The
national corporate income tax rate of Japan reduced from 30% to 25.5% from fiscal years
beginning on or after 1 April 2012 as a result of 2011 Reform Amendment Tax Law promulgatedon 2 December 2011. Taking into account other types of statutory tax payable by our Group, oureffective statutory income tax rates decreased from 40.2% for the year ended 31 March 2012 to
37.6% for the year ended 31 March 2013.
Profit for the year/period attributable to shareholders of the Company
As a result of the foregoing, our profit attributable to shareholders of the Company increasedby ¥436 million, or 13.1%, from ¥3,329 million for the year ended 31 March 2012 to ¥3,765
million the year ended 31 March 2013. Our net profit margin increased from 11.0% for the year
ended 31 March 2012 to 11.5% for the year ended 31 March 2013, which was primarily
attributable to a reduction in tax expenses resulting from the decrease in national corporate
income tax rate in Japan from 30% to 25.5% from fiscal years beginning on or after 1 April 2012.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow and treasury management
Our principal sources of funds are cash generated from our operations, various short-termand long-term bank borrowings and lines of credit, and cash generated from our bond issues. We
generally assess our liquidity based on these items. Our primary liquidity requirements are tofinance working capital, fund the payment of interest and principal on our borrowings and bonds,
and fund our capital expenditures and the growth and expansion of our operations. We havehistorically met our working capital and other liquidity requirements principally from cash
generated by our operations, while we used proceeds from bank borrowings, syndicate loans andbond issues to finance our capital expenditures, hall investments and expansion of ouroperations. Going forward, we expect to continue our current approach of (i) relying principallyon our internally-generated cash flows for our working capital and other liquidity requirements,and (ii) using the proceeds from the Global Offering and bank borrowings as well as bond issues

324

FINANCIAL INFORMATION
as capital resources to finance our expansion plans. The amount and type of borrowings we may
incur in the future depends on (i) the actual capital need, (ii) the cost of financing, (iii) the progressof implementation of our hall opening plan and (iv) our financial performance, among otherfactors, from time to time.
Cash flows
The table below shows a summary of our cash flows for the indicated periods:
Six months ended
Year ended 31 March
2012

2013

30 September
2014

2013

2014

(¥, in millions)(unaudited)

Operating cash flows before
movements in working
capital . . . . . . . . . . . . . . . . . . .
Changes in working capital
usage . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . .
Income tax paid . . . . . . . . . . . . .
Net cash generated fromoperating activities . . . . . . . . .
Net cash used in investing
activities . . . . . . . . . . . . . . . . .
Net cash (used in)/generated
from financing activities . . . . .
Net increase/(decrease) in cash
and cash equivalents . . . . . . .
Cash and cash equivalents atthe beginning of theyear/period . . . . . . . . . . . . . . .
Cash and cash equivalents at
the end of the year/period,
represented by bankbalances and cash . . . . . . . .

9,358

9,066

9,604

4,196

2,905

4,077
(707)
(1,264)

3,202
(641)
(3,943)3(692)(2,635)

(635)
(344)
(1,293)

1,622
(331)
(1,032)

11,464

7,684

6,280

1,924

3,164

(695)

(2,902)(1,390)

(962)

(734)

(3,815)(10,458)(3,390)

80

(837)

6,954

(5,676)

1,500

1,042

1,593

5,631

12,585

6,909

6,909

8,409

12,585

6,909

8,409

7,951

10,002

Operating Activities
In the six months ended 30 September 2014, net cash generated from operating activitieswas ¥3,164 million, which comprised operating cash flows before working capital changes of¥2,905 million, decrease in working capital usage of ¥1,622 million, interest paid of ¥331 million
and income tax paid of ¥1,032 million. The change in working capital mainly reflects (i) an

325

FINANCIAL INFORMATION
increase in accruals, provisions and other payables of ¥1,564 million; (ii) an increase inprepayment, deposits and other receivables of ¥857 million; and (iii) a decrease in inventory of¥591 million mainly attributable to the purchase of new machines using finance lease. The
increase in accruals, provisions and other payables was mainly due to an increase in payables for
retirement payment of ¥600 million to Mr. Tatsuo TANIGUCHI (谷口龍雄) and an increase inaccrued expenses by ¥546 million for the purchase of pachinko machines. The increase inprepayment, deposits and other receivables was mainly due to an addition of rental deposits forthe new halls due to open in November and December 2014.
In the year ended 31 March 2014, net cash generated from operating activities was ¥6,280
million, comprising an operating cash flow before working capital change in the amount of ¥9,604
million, a decrease in working capital usage of ¥3 million, an interest payment of ¥692 million andan income tax payment of ¥2,635 million. The change in working capital mainly reflected (i) amovement of inventory of ¥2,535 million, mainly attributable to the purchase of machines using
finance lease; (ii) a decrease in accrual, provisions and other payables of ¥1,222 million; and (iii)
an increase in prepayments, deposits and other receivables (mainly including rental and otherdeposits and rental prepayments) for ¥1,151 million. The decrease in accrual, provisions andother payables was primarily due to (i) a decrease in accrued expenses as there was an accrualof ¥600 million for the retirement payment for Mr. Masataka TANIGUCHI (谷口晶貴) in the year
ended 31 March 2013; (ii) a decrease in provisions for utilities and consumables for ¥287 million;and (iii) a decrease in provisions for unutilised balls for ¥145 million. The increase in prepayments,
deposits and other receivables was mainly attributable to an increase in prepayment for G-prizes
as at 31 March 2014. To maintain a sufficient level of G-prize at our halls, we usually order from
our G-prize wholesaler daily to replenish our stock of G-prize to a pre-set level, usually
representing the G prize redemption volume for around two days. As 31 March 2014 fell on a
Monday with relatively low player traffic whilst 31 March 2013 fell on a Sunday, there was lesscustomers exchanging G-prize on 31 March 2014 leading to a larger amount of G-prize kept in
our hall that day. The increase was also due to an increase in rental prepayments by ¥244 million
due to recognition of construction fund prepayment for the hall properties for our pachinko hall
at Hanyu upon the merger with Jin Corporation in the year.
In the year ended 31 March 2013, net cash generated from operating activities was ¥7,684
million, which was a result of an operating cash flow before working capital change in the amountof ¥9,066 million, a decrease in working capital usage of ¥3,202 million, an interest payment of¥641 million and an income tax payment of ¥3,943 million. The change in working capital mainlyreflected a movement in inventory of ¥3,081 million, which was primarily attributable to thepurchase of new pachinko and pachislot machines using finance lease.
In the year ended 31 March 2012, net cash generated from operating activities was ¥11,464
million, which was a result of an operating cash flow before working capital change in the amountof ¥9,358 million, a decrease in working capital usage of ¥4,077 million, an interest payment of¥707 million and an income tax payment of ¥1,264 million. The change in working capital mainlyreflected (i) a movement in inventory of ¥2,365 million mainly attributed to the purchase of new
machines using finance lease, (ii) an increase in accruals, provisions and other payables of ¥934
million, and (iii) a decrease in prepayment, deposits and other receivables of ¥561 million. The
increase in accruals, provisions and other payables was mainly due to an increase in accrued hall

326

FINANCIAL INFORMATION
construction cost, IT system payables and machine purchasing expenses compared to that as at
31 March 2011 in relation to the cost of opening of the two new halls in the year ended 31 March
2012. The decrease in prepayment, deposits and other receivables was mainly attributable to adecrease in prepayment for G-prizes on 31 March 2012, as there were more player traffic on 31
March 2012, which fell on a Saturday, compared with that of 31 March 2011, which fell on a
Thursday.
Investing Activities
In the six months ended 30 September 2014, net cash used in investing activities amounted
to ¥734 million. Our net cash used in investing activities primarily resulted from (i) net cash usedin purchase and sale of property, plant and equipment and investment properties of ¥819 million;(ii) net cash inflow from dividend income and from movements of financial assets of ¥73 million;(iii) net cash inflow from movements in long-term and pledged bank deposits of ¥32 million; and(iv) net cash outflow for acquisition of intangible assets for ¥20 million. Net cash used in thepurchase and sale of property, plant and equipment and investment properties mainly
represented the additions in construction in progress for our new halls opened in November
2014.
In the year ended 31 March 2014, net cash used in investing activities amounted to ¥1,390
million. Our net cash used in investing activities primarily resulted from (i) net cash used inpurchase and sale of property, plant and equipment and investment properties of ¥1,314 million;(ii) net cash used in investments of financial assets of ¥145 million; (iii) net cash inflow frommovements in long-term and pledged bank deposits of ¥35 million; and (iv) net cash inflow fromother items of ¥34 million. Net cash used in purchase of property, plant and equipment mainly
represented the additions in buildings for our new hall opened in the period.
In the year ended 31 March 2013, net cash used in investing activities amounted to ¥2,902
million. Our net cash used in investing activities primarily resulted from (i) net cash used inpurchase and sale of property, plant and equipment of ¥1,042 million; (ii) net cash outflow frominvestments of financial assets of ¥633 million; (iii) net cash outflow from movements in long-termand pledged bank deposits of ¥925 million; (iv) cash used in the acquisition of Jin corporation for¥820 million; (v) net cash inflow from decrease in amounts due from related parties of ¥435 millionand (vi) net cash inflow from movements in other items of ¥83 million. Cash used in purchase andsale of property, plant and equipment and investment properties mainly represented the increasein buildings and lands for the two new halls opened in the year.
In the year ended 31 March 2012, net cash used in investing activities amounted to ¥695
million. Our net cash used in investing activities primarily resulted from (i) net cash used inpurchase and sale of property, plant and equipment and investment properties of ¥702 million;(ii) net cash inflow from investments of financial assets of ¥5 million; (iii) net cash outflow frommovements in long-term and pledged bank deposits of ¥29 million; and (iv) net cash inflow fromother items of ¥31 million. Net cash used in purchase and sale of property, plant and equipment
and investment properties mainly represented the additions of tools and equipments and the
Nomurasyoken Building which is one of our investment properties.

327

FINANCIAL INFORMATION
Financing Activities
In the six months ended 30 September 2014, net cash used in financing activities amounted
to ¥837 million. Our cash used in financing activities primarily resulted from (i) net cash inflow
from borrowings and loans of ¥1,636 million; (ii) repayment of obligations under finance leasesof ¥776 million; (iii) cash outflow from distribution to shareholders amounted to ¥988 million; (iv)
cash outflow from purchase of shares of ¥526 million; and (v) cash outflow from payment ofdividend of ¥183 million in the period. The new proceeds from borrowings and loans represented
the net proceeds from new loans made to finance our expansion plans and for working capital
purpose. The cash distribution to shareholders represented distribution of entire holdings ofshares of NI to our controlling shareholder with carrying value of ¥988 million. Cash used inpurchase of shares represented the repurchase of shares of companies in our Group from their
then shareholders for ¥526 million as part of the reorganisation. See Note 25(e) to the
Accountant’s Report in Appendix I for further details.
In the year ended 31 March 2014, net cash used in financing activities amounted to ¥3,390
million. Our cash used in financing activities primarily resulted from (i) net cash inflow fromborrowings and loans of ¥1,254 million; (ii) repayment of obligations under finance leases of¥4,461 million; and (iii) cash outflow from dividend payment of ¥183 million in the year.
In the year ended 31 March 2013, net cash used in financing activities amounted to ¥10,458
million. Our cash used in financing activities primarily resulted from (i) net outflow of cash fromborrowings and loans of ¥1,235 million; (ii) repayment of obligations under finance leases of¥4,393 million; (iii) cash outflow from purchase of shares of ¥4,575 million; (iv) cash outflow fromrepayment of ¥145 million of balances due to a shareholder and related company and (v) cash
outflow from dividend payment of ¥110 million in the year. Cash used in purchase of shares
represented the repurchase of shares of Niraku Corporation by itself and purchase of Niraku
Corporation’s shares from the then shareholders for ¥1,131 million and ¥3,432 million
respectively. Cash outflow from repayment of balances due to shareholder represented therepayment of principal and interest portion of a loan from Mrs. Kyoko TANIGUCHI (谷口京子) and
KAWASHIMA Co., Ltd in the year.
In the year ended 31 March 2012, net cash used in financing activities amounted to ¥3,815
million. Our cash used in financing activities primarily resulted from (i) net cash inflow fromborrowings and loans of ¥281 million; (ii) repayment of obligations under finance leases of ¥4,086
million; (iii) cash inflow from collection of ¥100 million of balances from shareholder; and (iv) cash
outflow from payment of dividend of ¥110 million paid in the year.

328

FINANCIAL INFORMATIONCAPITAL EXPENDITURE
Historical Capital Expenditure
Our capital expenditure was mainly comprised of expenditure for (i) the purchase ofproperty, plant and equipment mainly used for construction of buildings, or (ii) the acquisition ofequipment and tools for the expansion and maintenance of our pachinko and pachislot halloperations. We also incurred capital expenditure for the acquisition for an investment property inyear ended 31 March 2012. The table below shows a breakdown of the uses of our historicalcapital expenditure for the indicated periods:
For the six
months ended
For the year ended 31 March
2012

2013

30 September

2014

2014

(¥, in millions)

Property, plant and equipment . . . . . . . .
Investment properties . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,065
519
1

3,457
—
15

5,049
21
34

1,219
—
20

Total capital expenditure . . . . . . . . . .

2,585

3,472

5,104

1,239

Estimated Future Capital Expenditure
We expect to incur approximately ¥2,124 million and ¥3,019 million of capital expenditure
for the six months ending 31 March 2015 and for the year ending 31 March 2016, respectively,
for our business expansion. We expect to fund the capital expenditure for the six months ending
31 March 2015 and for the year ending 31 March 2016 with proceeds from the Global Offering,
cash flows from operations and debt financing which may include drawing new short or long termloans or issuing debt instruments. See “— Liquidity and Capital Resources — Cash flow andtreasury management” in this section above further details.
The table below shows a breakdown of the uses of our estimated capital expenditure for theindicated periods:
For the six
months ending
31 March

For the year
ending31 March

2015

2016
(¥, in millions)

Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .

329

2,124

3,019

FINANCIAL INFORMATIONCONTRACTUAL COMMITMENTS
Operating lease commitments
During the Track Record Period, we leased a number of properties (as lessee) underoperating lease to use as our office premises and pachinko hall. The table below sets forth ourminimum lease payments payable under non-cancellable operating leases as at the indicateddates:As at
As at 31 March
2012

2013

30 September
2014

2014

(¥, in millions)

No later than one year . . . . . . . . . . . . . .
Later than one year and no later than
five years . . . . . . . . . . . . . . . . . . . . . . .
Over five years . . . . . . . . . . . . . . . . . . . .

595

611

737

848

2,378
4,239

2,445
3,714

3,089
5,247

3,412
5,424

7,212

6,770

9,073

9,684

Capital commitments
In 2014, we entered into a contract for hall construction. The table below sets forth thecapital commitments contracted for but not provided in the financial statement under that hallconstruction contract as at 30 September 2014:
As at
30 September

As at 31 March
2012

2013

2014

2014

(¥, in millions)

Capital commitments contracted forbut not provided in the financial
statements
Hall construction. . . . . . . . . . . . . . . . . . .

—

407

—

866

INDEBTEDNESSAs at 31 January 2015, being the latest date for the purpose of liquidity disclosure in thisProspectus, bank borrowings of ¥10,716 million were secured by land and buildings, investment
properties, bank deposits, deposits and other receivable and other long-term assets held by ourCompany and corporate guarantees provided by Niraku Corporation and Nexia. Except for thebank borrowing of ¥2,765 million, ¥4,723 million and ¥3,107 million which was repayable
between 1 and 2 years, between 2 and 5 years and over 5 years, respectively, and long term
obligations under finance lease of ¥4,578 million, all the remaining indebtedness was repayable
within the coming 12 months.

330

FINANCIAL INFORMATION
The table below shows the breakdown of our interest-bearing borrowings, including bankloans, syndicated loans, bond issues and amount due to related parties and company as at theindicated dates:

As at 31 March
2012

2013

As at

As at

30 September

31 January

2014

2015

2014
(¥, in millions)Non-current Liabilities
Borrowings
Bank loans . . . . . . . . . . .
Syndicated loans . . . . . . .
Bonds . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . .
Amount due to a related
party . . . . . . . . . . . . . . . .

Current Liabilities
Borrowings
Bank loans . . . . . . . . . . .
Syndicated loans . . . . . . .
Bonds . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . .
Amount due to a related
party . . . . . . . . . . . . . . . .
Amount due to a relatedcompany . . . . . . . . . . . . .

Total indebtedness . . . . .

2,149
2,854
23

2,617
5,155
219

3,469
5,606
195

3,627
5,772
569

4,196
5,833
566

5,026

7,991

9,270

9,968

10,595

4,135

4,158

5,366

4,090

4,578

45

—

—

—

—

9,206

12,14914,636

14,05815,173

1,689
5,319
195

2,034
1,001
47

2,233
851
25

3,048
903
122

3,321
983
123

7,203

3,082

3,109

4,073

4,427

2,392

2,394

2,253

2,808

2,073

100

—

—

—

—

—

—

—

24

—

9,695

5,476

5,362

6,905

6,500

18,901

17,62519,99820,963

21,673Due to the capital needed for construction of new halls for our expansion, we have relied onbank borrowings, syndicated loans and bond issues to fund a substantial portion of our capitalrequirements, and we may also finance portions of our capital expenditure with bank borrowings
in the foreseeable future. As at 31 March 2012, 2013 and 2014, 30 September 2014, and 31
January 2015, our total indebtedness amounted to ¥18,901 million, ¥17,625 million, ¥19,998
million, ¥20,963 million and ¥21,673 million, respectively. The increase in balance ofindebtedness as at 31 January 2015 was mainly due to bank borrowings drawn to finance theopening of our halls in November and December 2014.

331

FINANCIAL INFORMATION
Most of our loans borrowed in the Track Record Period charged floating interest rate basedon a benchmark interest rate (ex. TIBOR or LIBOR) plus a margin. As a measure to manage ourinterest rate risk, we entered into 16 interest rate swap transactions with notional principal andmaturity which substantially matched with the 16 bank loans as detailed in “— Analysis of Certain
Consolidated Statement of Financial Position Items — Derivative Financial Liability” in thissection. See “— Analysis of Certain Consolidated Statement of Financial Positions Items —Financial assets and liabilities at fair value — Derivative financial liability” in this section for further
details on the interest rate swaps.
The following sets out the effective interest rate (taking into account the upfront
arrangement fees) of our loans in the Track Record Period.
As at
As at 31 March

Bank loans . . . . . . . . . . . . . . . . . . . . . . .
Syndicated loans . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

2.9%
2.8%
2.1%

2.8%
2.2%
1.5%

2.7%
2.3%
1.4%

2.7%
2.3%
2.0%

Our indebtedness are secured by the following assets as at the indicated periods in the tablebelow:

As at 31 March
2012

2013

As at

As at

30 September

31 January (Note)

2014

2015

2014
(¥, in millions)

Property, plant andequipment . . . . . . . . . . .
Investment properties . . . . .
Bank deposits . . . . . . . . . . .
Deposits and otherreceivables . . . . . . . . . . .
Other long term assets. . . .

Note:10,405683
200

10,439
669
1,100

7,902
676
1,100

8,975
669
1,100

10,252
665
1,100

185
28

180
35

339
37

335
67

333
68

11,501

12,423

10,054

11,146

12,418Date of our indebtedness statement.

332

FINANCIAL INFORMATIONAs at 31 March 2012, 2013 and 2014, 30 September 2014 and 31 January 2015, the assets
with carrying amounts of ¥11,501 million, ¥12,423 million, ¥10,054 million, ¥11,146 million and¥12,418 million, respectively, including property, plant and equipment, investment properties,bank deposits, deposits and other receivables and other assets, were pledged to secure ourbank loans and syndicated loans. Our bank loans, syndicated loans and bonds as at 31 January
2015 have certain financial covenants that we have to comply with. The table below sets out thedetails of major covenants for the companies in our Group:

Covenant

Fulfilment of

Breach ofcovenants as atcovenants in the

31 March

Track Record

2014 (note)

PeriodNiraku Corporation . . (i) Net Asset
Net asset as at subsequent year
ends must not be lower than 80%of that as at:
31 March 2007
31 March 2012
31 March 2013
31 March 2014

119%

N/A

Net profit in
the years ended
31 March 2013
and 31 March
2014

N/A

Net equity as at subsequent year
ends must not be lower than 75%of that as at 31 March 2013

119%

N/A

(iv) Capital adequacy ratio(total equity ⴓ total assets)

59%

N/A

(ii) Net loss
Must not have net loss for two
consecutive years(iii) Net equity

Must be higher than 5% as at
subsequent year ends

333

FINANCIAL INFORMATION

Covenant

Nexia . . . . . . . . . . . . . . (i) Net Asset

Fulfilment of

Breach ofcovenants as atcovenants in the

31 March

Track Record

2014 (note)

Period¥538million

N/A

Net profit in
the years ended
31 March 2013
and 2014

N/A

153,997%

N/A

Net profit in
the year ended
31 March 2014

N/A

104%

N/A

Positive net asset at subsequent
year ends(ii) Net loss
Must not have net loss for two
consecutive years
NGCH . . . . . . . . . . . . . . (i) Net Asset
Net asset at subsequent year
ends must not be lower than 80%of that as at 31 March 2013(ii) Net loss
Must not have net loss for two
consecutive years
Group basis . . . . . . . . (i) Consolidated Net Asset
The consolidated net asset as at
subsequent year ends must not
be lower than 80% of that as at
31 March 2014

Note:

Representing the latest financial year end for the purpose of determining compliance with covenants in loans andborrowings.

Based on our financial performance in the Track Record Period, we do not consider
abovementioned covenants will materially restrict our ability to borrow new loans in the future.
Certain of our loans and borrowings as at 31 January 2015 were guaranteed by our
Directors and shareholders. Such guarantees will be released or replaced by guarantees bycompanies in our Group before Listing.

334

FINANCIAL INFORMATION
Borrowings — non-current portion
The balances represent non-current portion (balances over one year) of our long term
borrowings. We generally incur long-term bank and syndicated loans to fund the construction
and other capital expenditure of new halls and provide general working capital. We also issued
bonds from time to time to finance our capital needs. The non-current portion of our long term
borrowings amounted to ¥5,026 million, ¥7,991 million, ¥9,270 million, ¥9,968 million and¥10,595 million as at 31 March 2012, 2013 and 2014, 30 September 2014 and 31 January 2015,
respectively.
The table below shows the maturity profile of the non-current portion of our long-term bankborrowings as at the indicated dates:

As at 31 March

As at

As at

30 September

31 January

2014

2015

2012

2013

2014

1,765
1,357
1,904

1,479
2,936
3,576

2,278
3,884
3,108

2,761
4,238
2,969

2,765
4,723
3,107

5,026

7,991

9,270

9,968

10,595(¥, in millions)

Between 1 and 2 years . .
Between 2 and 5 years . .
Over 5 years . . . . . . . . . . .

Included in our long-term borrowings are bond issues consisting of our outstanding
corporate bonds issued from 2004 to 2014 in 9 batches, all of which are unlisted. Our
outstanding bonds balance amounted to ¥218 million, ¥266 million, ¥220 million and ¥691 million
as at 31 March 2012, 2013 and 2014 and 30 September 2014, respectively. The table below
shows certain details of these corporate bonds which are unsecured and not guaranteed:

Issue date

30 March 2004 . . . . . . . . . . . . .
13 July 2006. . . . . . . . . . . . . . .
28 December 2009. . . . . . . . . .
18 June 2010 . . . . . . . . . . . . . .
28 December 2010. . . . . . . . . .
28 August 2012 . . . . . . . . . . . .
30 November 2012. . . . . . . . . .
28 August 2014 . . . . . . . . . . . .
19 September 2014 . . . . . . . . .

Principal
amountOutstanding
principle
amount (As of
31 January
2015)¥ million¥ million

(%)

250
300
200
200
200
160
100
400
100

—
—
—
—
—
160
100
400
100

1.20
1.61
0.70
0.63
0.62
0.70
0.60
0.31
1.00

335

Annualinterest rate

Maturity date

28 February 201412 July 201228 December 201128 June 201228 December 2012
26 August 2022
30 November 2022
26 August 201619 September 2019

FINANCIAL INFORMATION
Borrowings — current portion
The balances represent short term borrowings (maturity less than one year) and the current
portion (less than one year) of our long term borrowings. We take out short-term bank loans
generally to fund our general working capital. Our short-term bank borrowings and current
portion of long term borrowings amounted to ¥7,203 million, ¥3,082 million, ¥3,109 million,¥4,073 million and ¥4,427 million as at 31 March 2012, 2013 and 2014, 30 September 2014 and31 January 2015, respectively.
Obligations under finance lease
Obligation under finance lease is a major component of our liabilities and is principally
comprised of a stream of cash flows payable to our landlord or to the vehicle owners inaccordance with the property lease agreement or vehicle lease agreements entered with us after
netting off the future interest expenses during the remaining lease term of the relevant property
lease agreement or vehicle lease agreement. The balance also included finance lease liabilities forthe purchase of pachinko and pachislot machines. Future interest expenses are the difference
between the present value and the gross value for the finance lease payables. The table below
shows the components of our finance lease liabilities as at 31 March 2012, 2013 and 2014 and
30 September 2014:
As at
30 September

As at 31 March
2012

2013

2014

2014

(¥, in millions)

Gross finance lease liabilities - minimum
lease payments . . . . . . . . . . . . . . . . . . .
No later than 1 year . . . . . . . . . . . . . . . . . .
Later than 1 year and no later than 2
years . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Later than 2 year and no later than 5
years . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Later than 5 years . . . . . . . . . . . . . . . . . . .

2,635

2,624

2,536

3,065

1,206

1,331

1,521

1,357

2,185
1,340

2,142
1,192

2,383
2,449

1,835
1,754

Future finance charges on finance leases .

7,366
(839)

7,289
(737)

8,889
(1,270)8,011(1,113)Present value of finance leaseliabilities . . . . . . . . . . . . . . . . . . . . . . . .

6,527

6,552

7,619

6,898

In which comprises of:Current portion of finance leaseliabilities . . . . . . . . . . . . . . . . . . . . . . . .

2,392

2,394

2,253

2,808

Non-current portion of finance leaseliabilities . . . . . . . . . . . . . . . . . . . . . . . .

4,135

4,158

5,366

4,090

336

FINANCIAL INFORMATION
Our obligations under finance lease mainly include the leases of hall properties for our
pachinko halls which accounted for more than 90% of the total finance lease liabilities as at eachof the period/year end in the Track Record Period. As at 31 March 2012, 2013 and 2014 and 30
September 2014, there were eight, nine, ten, and ten pachinko hall properties of which theproperty lease agreements were classified as finance lease.
The effective interest rate of the finance lease ranged from 4.56% to 4.86% per annum as
at 31 March 2012, 2013 and 2014 and as at 30 September 2014. All of these leases are on a
fixed repayment term basis and do not have any contingent rental payments arrangements during
the Track Record Period.
Contingent Liabilities
We did not have any contingent liabilities as at 31 January 2015.
Save as disclosed in this Prospectus, we did not have outstanding indebtedness or any loan
capital issued and outstanding or agreed to be issued, bank overdrafts, loans or similar
indebtedness, liabilities under acceptances (other than normal trade bills), acceptance credits,debentures, mortgages, charges, finance leases or hire purchase commitments, guarantees orother contingent liabilities as of 31 January 2015, being our indebtedness statement date. Detailsof material changes to our Group’s indebtedness subsequent to the Track Record Period and up
to the Latest Practicable Date are set out under the paragraph headed “Financial information —Net current liabilities”. Save for the information as disclosed under the paragraph headed“Financial information — Net current liabilities”, our Directors confirm that, as at the Latest
Practicable Date, there had been no material change in our Group’s indebtedness since 31
January 2015.
OFF BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
During the Track Record Period and up to the Latest Practicable Date, we did not have any
off balance sheet commitments and arrangements.

337

FINANCIAL INFORMATIONNET CURRENT ASSETS
The table below shows our current assets and current liabilities as at the date indicated:

As at 31 March
2012

2013

As at

As at

30 September

31 January

2014

2015

2014
(¥, in millions)(unaudited)

ASSETS
Current assets
Inventories . . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . .
Prepayments, deposits and otherreceivables . . . . . . . . . . . . . . . . . .
Amounts due from Directors . . . . . .
Financial assets at fair value
through profit or loss . . . . . . . . . .
Pledged bank deposits and bankdeposits with maturity over 3
months . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . .
Current income tax recoverable . . .
Total current assets . . . . . . . . . . .

412
60

86
64

21
54

40
52

44
57

989
10

1,035
12

1,546
12

1,487
—

1,343
—

34

—

100

—

100

758
12,585
—

1,754
6,909
—

1,706
8,409
121

1,639
10,002
370

1,940
9,000
491

14,848

9,860

11,96913,59012,975

347
7,203
2,392
100
—

382
3,082
2,394
—
—

201
3,109
2,253
—
—

145
4,073
2,808
—
24

272
4,427
2,073
—
—

3,577
18
2,375

3,584
18
1,277

2,344
15
1,029

4,325
15
1,235

3,803
15
670

Total current liabilities . . . . . . . . .

16,012

10,737

8,951

12,625

11,260Net current (liabilities)/assets . .

(1,164)

(877)

3,018

965

1,715

Current liabilities
Trade payables . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . .
Amount due to a related party . . . .
Amount due to a related company .
Accruals, provisions and otherpayables . . . . . . . . . . . . . . . . . . .
Derivative financial instrument . . . .
Current income tax liabilities . . . . . .

We incurred significant capital expenditure in the expansion of our business. Our net current
liabilities as at 31 March 2012 and 31 March 2013 primarily reflected (i) the current portion of ourobligations under finance leases of properties for our pachinko and pachislot hall operations, and(ii) our short-term borrowings and the current portion of our long-term borrowings, primarily tofund our construction and acquisition of pachinko halls. Our working capital positions improved

338

FINANCIAL INFORMATION
during the Track Record Period and we were in net current asset position as at 31 March 2014,
30 September 2014 and 31 January 2015 mainly because we chose to use long term bank loans
with tenure of over three years instead of short term borrowings to finance our hall investments
during the Track Record Period.
We recorded net current liabilities of ¥1,164 million, ¥877 million and net current assets of¥3,018 million, ¥965 million and ¥1,715 million as at 31 March 2012, 2013 and 2014, 30
September 2014 and 31 January 2015. Our net current liabilities position improved during 31
March 2013 mainly due to (i) the decrease in short-term bank borrowing and current portion oflong term borrowing by ¥4,121 million as such balance had been fully repaid during the year; and(ii) the reduction in the current income tax liabilities by ¥1,098 million as the income tax rate
decreased from 40.2% to 37.6% in the year, which was partially set off by the decrease in current
asset by ¥4,988 million mainly due to the decrease in cash and cash equivalents from therepurchase of shares in the year.
Our working capital position was further improved during the year ended 31 March 2014.
Our cash balance increased by ¥1,500 million whilst our accruals, provisions and other payables
balance was reduced by ¥1,240 million during the year, which resulted in a net current asset
position of ¥3,018 million as at 31 March 2014.
As at 31 January 2015, the latest date of disclosure of working capital position, we have net
current assets of ¥1,715 million. The decrease in net current assets compared to 31 March 2014
was mainly attributable to (i) increase in borrowings by ¥1,318 million to finance the opening of
our new halls in November and December, and (ii) increase in accruals, provisions and otherpayables by ¥1,459 million arising from pachinko and pachislot machines purchased and fixed
assets acquired for our new halls not yet settled and accruals for listing expenses in the period.
The decrease was partially offset by the increase in pledged bank deposits and bank deposits
with maturity over 3 months by ¥234 million as we placed fixed-termed deposits (with maturity
less than 1 year) of the same amount in the period.
Although we had historically incurred net current liabilities (see above) as at 31 March 2012
and 31 March 2013, we recorded net current assets of ¥ 3,018 million, ¥965 million and ¥1,715
million as at 31 March 2014, 30 September 2014 and 31 January 2015, respectively, and ourdaily operations and hall investments were not adversely affected for the following reasons:•

We had significant cash resources during the Track Record Period. Our cash and cash
equivalents amounted to ¥12,585 million, ¥6,909 million, ¥8,409 million and ¥10,002
million and ¥9,000 million as at 31 March 2012, 2013 and 2014 and 30 September
2014 and 31 January 2015, respectively.

•

We have a strong net cash flow from our operating activities. Our net cash generated
from operating activities amounted to ¥11,464 million, ¥7,684 million, ¥6,280 millionand ¥3,164 million, for the years ended 31 March 2012, 2013 and 2014 and the six
months ended 30 September 2014, respectively. We expect net cash inflow from ouroperating activities to remain positive for the year ending 31 March 2015; and339

FINANCIAL INFORMATION•

We have long-term relationships with major commercial banks and financial institutionsin Japan. During the Track Record Period, we had made all interest payments on ourbank borrowings in a timely manner and we had been able to renew our bankborrowings at maturity. Our Directors do not expect any significant difficulty to obtainnew financing if so required.

ANALYSIS OF CERTAIN CONSOLIDATED STATEMENT OF FINANCIAL POSITION ITEMSThe table below shows our non-current assets and non-current liabilities as at the indicateddates:As at
As at 31 March
2012

2013

30 September
2014

2014

(¥, in millions)Non-current assets
Property, plant and equipment . . . . . . . .
Investment properties . . . . . . . . . . . . . . .
Intangible assets. . . . . . . . . . . . . . . . . . .
Prepayments, deposits and otherreceivables . . . . . . . . . . . . . . . . . . . . .
Amounts due from directors. . . . . . . . . .
Amounts due from related companies . .
Financial assets at fair value throughprofit or loss . . . . . . . . . . . . . . . . . . . .
Financial assets at fair value throughother comprehensive income . . . . . . .
Deferred income tax assets . . . . . . . . . .
Bank deposits with maturity over 1
year . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . .
Amount due to a related company. . . . .
Provisions and other payables . . . . . . . .
Derivative financial instrument . . . . . . . .

22,351
683
177

23,735669
161

25,817676
167

25,806
669
172

4,051
318
435

4,310
311
—

4,251
304
—

4,519
—
—

395

546

601

697

220
1,563

919
1,612

1,574
1,462

1,476
2,038

142

71

84

119

30,33532,33434,93635,496

5,026
4,135
45
1,280
37

7,991
4,158
—
1,430
26

9,270
5,366
—
1,485
33

9,968
4,090
—
1,501
23

10,523

13,605

16,154

15,582

340

FINANCIAL INFORMATION
Property, Plant and Equipments
The table below shows our property, plant and equipment as at the indicated dates:
As at
As at 31 March

30 September

2012

2013

2014

2014

7,253
7,271
4,301
3,351
70
105

7,400
7,691
4,482
3,998
103
61

7,389
9,351
4,568
4,374
83
52

7,752
9,005
4,375
4,029
68
577

22,351

23,73525,81725,806(¥, in millions)Freehold land . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvement . . . . . . . . . . . . .
Equipment and tools . . . . . . . . . . . . . . .
Motor vehicles . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . .

As at 31 March 2012, 2013 and 2014 and 30 September 2014, we had property, plant andequipment of ¥22,351 million, ¥23,735 million, ¥25,817 million and ¥25,806 million, respectively.
Our property, plant and equipment primarily include freehold land, buildings, leasehold
improvements, tools and equipment, construction in progress and motor vehicles.
Our balance of property, plant and equipment as at 30 September 2014 remained stablecompared with that as at 31 March 2014.
Our property, plant and equipment increased by ¥2,082 million, or 8.8%, from ¥23,735
million as at 31 March 2013 to ¥25,817 million as at 31 March 2014, primarily attributable to a
net increase relating to buildings by ¥1,660 million and net increase relating to equipment andtools by ¥376 million. The net increase relating to buildings was mainly due to the cost capitalised
for the construction of buildings for the new hall opened in the year. The increase relating toequipment and tools was mainly attributable to the purchase of IT and island equipment for
pachinko and pachislot operations in our halls. The increase relating to property, plant andequipment was partially set off by the impairment of ¥620 million made on three of our halls as
mentioned in “— Period to period comparison of results of operations — Year ended 31 March2014 compared with year ended 31 March 2013” above.
Our property, plant and equipment increased by ¥1,384 million, or 6.2%, from ¥22,351
million as at 31 March 2012 to ¥23,735 million as at 31 March 2013. The increase was mainly
attributable to the net increase relating to equipment and tools, buildings and leasehold
improvements by ¥647 million, ¥420 million and ¥181 million, respectively, as a result of openingof the two new halls in the year ended 31 March 2013.

341

FINANCIAL INFORMATION
Investment Properties
As at 31 March 2012, 2013 and 2014 and 30 September 2014, we had investment
properties of ¥683 million, ¥669 million, ¥676 million and ¥669 million, respectively. Ourinvestment properties are comprised of the following:(i)

Nomurasyoken Building — an eight storey office building in Koriyama city in the vicinityof Koriyama train station. We own the entire interest of this property including thebuilding and the piece of land on which the property is situated. The building waspurchased by our Company in the year ended 31 March 2012 for a consideration of¥519 million.

(ii)

Nikku Club Omori Building — a three storey residential building near the Omori train
station. We own the entire interest in this property including the building and the pieceof land on which the property is situated. The building was originally used as staff
quarters and was classified as property, plant and equipment in our financial
statement. We renovated this property and leased the apartments out in the year
ended 31 March 2012. As such, the property was reclassified as our investment
properties in the same year at its carrying value of ¥178 million.

As set out in “Critical Accounting Policies — Property, Plant and Equipment” in the section
above, investment properties are initially recognised at cost and are subsequently measured atcost minus depreciation. As such, the balance of investment properties as at 31 March 2012 and2013 represented the cost of acquisition of the Nomurasyoken Building and the net book valueof Nikku Club Omori at the date of transfer into investment properties less the accumulated
depreciation charged.
We performed certain renovation work on the Nomurasyoken Building in the year ended 31
March 2014 and this led to an increase in the carrying value of investment properties from ¥669
million as at 31 March 2013 to ¥676 million as at 31 March 2014. The decrease in carrying value
as at 30 September 2014 was due to the depreciation expenses charged in the period.
We engaged DTZ as our valuer for some of our properties including the investment
properties. We note that the market value for our investment properties as per the valuation
report exceeds their book value. See “— Property Interest and Property Valuation” in this section
below and the valuation report as set out in Appendix III for further details.

342

FINANCIAL INFORMATION
Prepayments, Deposits and Other Receivables
Prepayments, deposits and other receivables are mainly comprised of (i) rental and otherdeposits; (ii) rental prepayments for our leased hall properties; (iii) loans receivables from
employees; and (iv) prepayment for G-prize and general prize representing the G-prize andgeneral prize held by us as stock as at the period/year end. The table below shows the amounts
as at the indicated dates:
As at
As at 31 March
2012

2013

30 September
2014

2014

(¥, in millions)Non-current portion
Rental and other deposits . . . . . . . . . . .
Rental prepayments . . . . . . . . . . . . . . . .
Loans receivables . . . . . . . . . . . . . . . . . .
Other prepayments and receivables. . . .

Current portion
Prepayment for G-prize . . . . . . . . . . . . .
Prepayment for general prize . . . . . . . . .
Rental prepayments . . . . . . . . . . . . . . . .
Other prepayments and receivables. . . .
Loans receivables . . . . . . . . . . . . . . . . . .

2,567
1,410
21
53

2,781
1,443
21
65

2,597
1,540
2
112

3,022
1,386
2
109

4,051

4,310

4,251

4,519

283
97
362
246
1

304
101
363
266
1

542
147
510
346
1

617
99
519
251
1

989

1,035

1,546

1,487

5,040

5,345

5,797

6,006

Our total prepayments, deposits and other receivables increased by ¥209 million, or 3.6%,
from ¥5,797 million as at 31 March 2014 to ¥6,006 million as at 30 September 2014. The
increase was mainly attributable to the increase in rental and other deposits by ¥425 million,
which was mainly due to deposits paid to landlords in respect of leases of properties for our hall
opened in December 2014.
Our total prepayments, deposits and other receivables increased by ¥452 million, or 8.5%,
from ¥5,345 million as at 31 March 2013 to ¥5,797 million as at 31 March 2014. The increase wasmainly attributable to (i) an increase in prepayment for G-prize by ¥238 million; and (ii) an increasein current and non-current portion of rental prepayments by ¥147 million and ¥97 million,
respectively.

343

FINANCIAL INFORMATIONThe balance of prepayment for G-prize at year/period end date depends on the player trafficof that particular day. At the beginning of each day, we generally keep stock of G-prizes sufficientfor our customer traffic for two days. At the end of each day, we will place order with G-prize
wholesaler for delivery on the next working day to top up our holdings to the pre-set stock level.
The increase in prepayment for G-prize as at 31 March 2014 was mainly attributable to the factthat 31 March 2014 fell on a Monday with lower player traffic (i.e. less G-prize exchanged in theday) than 31 March 2013, which fell on a Sunday with higher player traffic (i.e. more G-prize
exchanged in the day).
When opening a new suburban hall, we will identify the appropriate property site and thentypically enter into a lease agreement (with a term of up to 20 years) to lease the piece of land
which may include the actual hall properties. In some cases, the hall properties would not havebeen built when we sign the lease agreement. If so, upon signing, we will prepay to the landlorda portion of our total lease payment obligations (under the lease agreement) in order to financethe landlord’s construction of the hall properties. This prepayment will be amortised throughout
the entire term of the lease (thus, there is a current and non-current portion) and set off against
each of our monthly lease payments. The current and non-current portion of rental prepayments
in aggregate amounted to ¥1,772 million, ¥1,806 million, ¥2,050 million, ¥1,905 million as at 31
March 2012, 2013 and 2014 and 30 September 2014, respectively. We have never experienced
landlords failing to deliver the hall properties for our use, and there was no impairment charged
in relation to such rental prepayments in the Track Record Period. The increase in rental
prepayments was mainly because of the recognition of rental prepayment made to landlord of
Hanyu hall upon its acquisition in the year ended 31 March 2013.
Our total prepayments, deposits and other receivables increased by ¥305 million, or 6.1%,
from ¥5,040 million as at 31 March 2012 to ¥5,345 million as at 31 March 2013. The increase wasmainly attributable to the increase in rental and other deposits by ¥214 million, which was due
to deposits paid to landlords for the new hall opened in the year ended 31 March 2014.

344

FINANCIAL INFORMATION
Amount Due from Directors, a Shareholder and Related Companies
The table below shows our amount due from directors, shareholders and related companies
as at the indicated dates:
As at
As at 31 March
2012

2013

30 September
2014

2014

(¥, in millions)

Amounts due from directors and ashareholder
Hisanori TANIGUCHI . . . . . . . . . . . . . . . . . .
Tatsuo TANIGUCHI . . . . . . . . . . . . . . . . . . .
Masataka TANIGUCHI. . . . . . . . . . . . . . . . .

98
98
132

97
97
129

95
95
126

—
—
—

328

323

316

—

70
70
70
70
155

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

435

—

—

—

(45)
—

—
—

—
—

—
(24)

(45)

—

—

(24)

(100)

—

—

—

Amounts due from related companies
Jukki Limited . . . . . . . . . . . . . . . . . . . . . . .
Densho Limited. . . . . . . . . . . . . . . . . . . . . .
Echo Limited . . . . . . . . . . . . . . . . . . . . . . . .
Daiki Limited . . . . . . . . . . . . . . . . . . . . . . . .
Hokuyo Kanko Limited . . . . . . . . . . . . . . . .

Amounts due to related companies
KAWASHIMA Co., Ltd. . . . . . . . . . . . . . . . .
Niraku Investment Inc. . . . . . . . . . . . . . . . .

Amount due to a related party
Kyoko TANIGUCHI . . . . . . . . . . . . . . . . . . .

Amounts due from Directors and Shareholders mainly represent the rental deposits andprepaid rental for leasing property from them in respect of our hall in Nakano. The amounts havebeen settled after we acquired the hall property in the six months ended 30 September 2014.
Amounts due from related companies represented the interest bearing loans offered tocompanies which are members of the Taniguchi Consortium. Amount due to related companies
represented (i) a loan, which was interest bearing due to KAWASHIMA Co., Ltd, a company
owned by members of the Taniguchi family; and (ii) a sum of short-term advance from Niraku
Investment Inc., a company owned by our shareholders. Amount due to a related party
represented an interest bearing loan which was repayable on 1 February 2012 from Kyoko
TANIGUCHI, a member of the Taniguchi Consortium.

345

FINANCIAL INFORMATION
Since we were a private company before Listing and our Directors managed the capital andfunding needs of the then members of our Group as a whole, we occasionally entered into various
loans and short-term advances arrangement with members of our shareholder, Directors andrelated companies. In view of our Listing, all of the balances due from or due to our shareholder,
Directors and related companies as mentioned above have been settled before the date of issueof this Prospectus.
Financial assets and liabilities at fair value
The table below shows our financial assets and liabilities recorded at fair value as at theindicated dates:
Financial assets at fair value through profit or loss
As at
As at 31 March
2012

2013

30 September
2014

2014

(¥, in millions)

Unlisted securities- Debt securities . . . . . . . . . . . . . . . . . . .
- Less non-current portion . . . . . . . . . . .

429
(395)

546
(546)

701
(601)

697
(697)

Current portion . . . . . . . . . . . . . . . . . . . .

34

—

100

—

Financial assets at fair value through other comprehensive income
As at
30 September

As at 31 March
2012

2013

2014

2014

(¥, in millions)

Listed securities- Equity securities . . . . . . . . . . . . . . . . . .

134

909

1,574

1,474

Unlisted securities- Equity securities . . . . . . . . . . . . . . . . . .

86

10

—

2

Non-current portion . . . . . . . . . . . . . . . .

220

919

1,574

1,476

346

FINANCIAL INFORMATION
Derivative financial liability
As at
As at 31 March
2012

2013

30 September
2014

2014

(¥, in millions)Interest rate swap. . . . . . . . . . . . . . . . . .
Less non-current portion . . . . . . . . . . . .

55
(37)

44
(26)

48
(33)

38
(23)

Current portion . . . . . . . . . . . . . . . . . . . .

18

18

15

15

Financial assets at fair value through profit or loss
Our financial assets at fair value through profit or loss represents unlisted debt securities inJapan that we purchased as part of our treasury management strategy aiming to obtain higher
yield than regular bank deposits. Our investments in debt securities in the Track Record Period
were kept with registered banks in Japan. We invested in (i) sovereign bonds issued by Japan,(ii) bonds with fixed return, (iii) bonds with embedded options resulting in variable return, and (iv)units in a certain trust in the Track Record Period. There has been no default or any impairment
made to the debt securities we held in the Track Record Period. The table below shows the total
gains/losses of our financial assets at fair value through profit and loss during the Track Record
Period:Six months ended
Year ended 31 March
2012

2013

30 September
2014

2013

2014

(¥, in millions)(unaudited)(Loss)/gain on fair value forfinancial assets at fair throughprofit or loss . . . . . . . . . . . . . .
(Loss)/gain on disposal of
financial assets at fair value
through profit or loss . . . . . . .

(8)

11

5

2

4

—

(28)

—

5

—

Total . . . . . . . . . . . . . . . . . . . . . .

(8)

(17)

5

7

4

347

FINANCIAL INFORMATIONAs at 30 September 2014, the fair value of the debt securities we held amounted to ¥697
million. The debt securities consisted of sovereign bonds issued by Japanese government, debt
securities issued by financial institutions in Japan, and units in two trusts organised by a bankin Japan. In the future, if we are to dispose of the investments in sovereign bonds, we willapproach banks or securities houses for price quotes. If we are to dispose of the bonds withembedded options, we will contact the issuer of the bonds to unwind the investment positions.
We intend to hold the trust instruments till their maturity. There are no terms in such debt
securities that will cause us to lose our entitlement to the full principal amount thereunder. The
table below shows a summary of the features of the debt securities:

Type of debt
instrument

Name

IssuerTerm

Maturity

Interest rate

Other features

Carrying
value asat 30
September
2014(¥, inmillions)

Sovereign bond (1)Interest-bearing treasury bonds - 333th
round
Interest-bearing treasury bonds - 340th
round

Plain bondPlain bondJapanesegovernment
Japanesegovernment

1 year 11
months1 year 11
months

15/10/2015 0.058%

100

15/5/2016

100

0.053%

200
Bond with embedded options (2)Unsecured bond with repayment clause 2nd round

Multi-Collar bull swap rate-linked bond

Bond with early A bank inretirementJapanfeature andvariable return

Bond with early
retirement
feature andvariable return

A registeredfinancial
institution inJapan

10 years

25/3/2020

20 years

19/3/2027(i) First 5 years - 3.36%,(ii) Remaining term - 6
month TIBOR + 4.1%

Early retirement
clause:Issuer can recall all orpart of the loan at eachinterest payment date atface value.
Early retirement(i) First 6 months - 2%,
clause:(ii) Remaining term a. Nikkei > 15,160 points (i) Issuer can recall all orpart of the loan at each
- Different between
interest payment date at
10-year and 2-year yen
face value.
swap rate + 0.5%(ii) Force redemption
When Nikkei <15,160,
interest rate = 0.1%
when Nikkei > 18,530 at
any interest payment date

300

97

397
Trust instruments (3)Trust instrument (with designated usage)

Trust units

Trust instrument (with designated usage)

Trust units

A bank inJapan
A bank inJapan

10 years

3/8/2022

0.680%

50

10 years

21/6/2023

0.730%

50
100

Total

697

Notes:(1)

It represents bonds issued by government or fully backed by government. Bonds included in this category are plain
bonds with no embedded options or features.

(2)

It represents debt instruments with return linked to the performance of stock index or share price of a basket ofshares.

348

FINANCIAL INFORMATION(3)

It represents investments in unit of a trust organised by a bank in Japan. The aim of these trust funds is to invest
in business in Fukushima to support the revival of its economy. The trust intends to offer a fixed return over its
investment period but the final return is subject to the actual performance of the trust.

Financial assets at fair value through other comprehensive income
Our financial asset at fair value through other comprehensive income represented ourinvestments in equity securities. The majority of our holdings in equity securities in the Track
Record Period was the Hong Kong listed shares of a fellow pachinko hall operator in Japan. Ourother holdings of equity securities mainly represented holdings in listed shares of banks,
consumables suppliers, machines suppliers and engineering companies in which we hadbusiness relationship with. We consider these investments as our strategic investment and does
not have any plans to dispose of such equity securities. Hence, such shares are accounted for
as financial assets at fair value through other comprehensive income in non-current assets.
The increase of financial asset at fair value through other comprehensive income in the Track
Record Period mainly represented the increase in share price of the fellow pachinko hall operator
due to the listing of its shares in the year ended 31 March 2013. The slight decrease in thebalance as at 30 September 2014 mainly represented the decrease in quoted market price ofshares of the fellow pachinko player. The table below shows the changes in other comprehensive
income as a result of movement in fair value of these investments during the Track Record Period.
Six months ended
Year ended 31 March
2012

2013

30 September
2014

2013

2014

(¥, in millions)(unaudited)

Changes in fair value offinancial assets through othercomprehensive income . . . . . .

16

124

433

163

(39)

As a measure to further strengthen our risk management, we will limit the total amount of
our investments in debt securities and equity securities in aggregate to not more than 5% of our
total assets upon Listing. Our equity investments mainly represented strategic investments in theequity of various stakeholders in the pachinko industry, primarily to support and promote
long-term relationships with industry players. In particular, we purchased shares of a fellow
pachinko hall operator listed on the Stock Exchange to show support towards and promote theimage of the pachinko industry. Such investment accounted for approximately 55% of the total
amount of our investments in securities as at 30 September 2014. Going forward, while
maintaining our securities investment limit to 5% of our total assets, we intend to prioritise ourinvestment in the stakeholders of the pachinko industries with a secondary focus on debt
securities having a credit rating of investment grade or above (as rated by international rating
agencies). We do not plan to enter into any derivatives transactions with the exceptions ofinterest rate swap to manage our interest rate exposures arising from floating rate borrowings ifsuch need arises.

349

FINANCIAL INFORMATIONAs at 30 September 2014, except for the ¥2 million equity investment in a private company
in Japan, all the other holdings in equity securities were listed securities, while all of our debt
securities held were unlisted. The table below shows a breakdown of our equity holdings bylocation of listing and industry as at 30 September 2014:
As at 30 September 2014(¥, in millions)

Equity securities listed on- Tokyo Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- Sapporo Securities Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

212
11
1,251

Unlisted equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,474
2

Total value of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,476

Our Executive Director is responsible for monitoring our investment limit, investment
decisions and the performance of the investment portfolio, in accordance with the internal control
measures. Our head of finance department will monitor the price of equity securities on a daily
basis and price of debt securities by checking to the monthly custodian statement received. The
credit rating of the issuer of the debt securities will also be checked monthly. The head of financedepartment will alert our Executive Director when price of the listed share drops by 15% of its
acquisition cost, or when an issuer of debt securities we hold suffers a major credit downgrade.
Our Executive Director will decide on whether to dispose of the investment depending on
assessment of market outlook and potential loss. Our Audit Committee will be responsible forreviewing the positions and performance of our investment portfolio on a quarterly basis andprovide recommendation as to the internal control procedures for our investment as appropriate.

350

Start date

25/12/2006

25/12/2006

3/9/2007

24/3/2008

28/12/2007

7/3/2008

7/3/2008

Contract
Number

201

202

351

227

249

238

240-A

240-B

7/9/2012

7/9/2017

28/6/2013

22/3/2013

22/3/2013

26/3/2012

26/3/2012

End date

Swap contracts

3.67%

3.99%

3.94%

3.70%

3.86%

4.15%

4.14%

Interest
rate wepay

3 mth TIBOR+2.125%3 mth TIBOR+2.125%3 mth TIBOR+2.125%3 mth TIBOR+2.125%3 mth TIBOR+2.125%6 mth TIBOR+2.25%

3 TIBOR+2.25%

Interest rate
we receive

33

694

375

350

210

N/A

N/A

31 March
2012

Interest Rate Swaps

N/A

568

75

70

N/A

N/A

N/A

31 March
2013

N/A

442

N/A

N/A

N/A

N/A

N/A

31 March
2014

N/A

378

N/A

N/A

N/A

N/A

N/A

30 September
2014

Notional amount as at (1)

240

240

238

249

227

202

201

Loan
NumberSyndicatedloan - 15thround - B

Syndicatedloan - 15thround - A

Syndicatedloan - 12thround

Syndicatedloan - 11thround

Syndicatedloan - 14thround

Syndicatedloan - 10thround

Syndicatedloan - 9thround

Loan Name

End dateof theloan
Interest rate

7/9/2007

7/9/2007

7/9/2012 3 mth TIBOR+2.125%

7/9/2017 3 mth TIBOR+2.125%28/12/2007 30/6/2013 3 mth TIBOR+2.125%24/3/2008 22/3/2013 3 mth TIBOR+2.125%

21/3/2007 22/3/2013 3 mth TIBOR+2.125%25/12/2006 25/3/2012 6 mth TIBOR+2.25%

30/9/2007 26/3/2012 3 mth TIBOR+2.25%Start dateof the
loan

33

694

375

250

300

N/A

N/A

31 March
2012

Loans with Floating Interest Rate

N/A

568

75

N/A

N/A

N/A

N/A

31 March
2013

N/A

442

N/A

N/A

N/A

N/A

N/A

31 March
2014

Loan Balance as at (1)

N/A

378

N/A

N/A

N/A

N/A

N/A

30 September
2014

In the Track Record Period, we entered into a total of 16 floating to fix interest rate swap contracts with three banks in Japan (i.e.
we pay fixed rate and receive floating rate). We entered into these interest rate swaps as a measure to manage our interest rate risk inrelation to our loans. As some of our loans’ interest rate is on a floating rate basis, by entering into a floating interest rate to fixed interest
rate swap, we can lock in our finance cost at the desired fixed interest rate. The following sets forth a breakdown of the interest rate
swaps and the respective loan pair in the Track Record Period:

Derivative financial liability

FINANCIAL INFORMATION

352

30/9/2014

442

(1)

29/9/201731/3/2021

31/3/201728/2/2018

30/9/2016

31/3/2016

30/9/2015

28/2/2014

22/3/2013

End date

2.57%

2.5%

2.55%

2.60%

2.60%

2.70%

2.90%

3.25%

3.70%

Interest
rate wepay

3 mth LIBOR+ 1.21%3 mth TIBOR+ 1.8%

3 mth LIBOR+1.19%

3 mth LIBOR+1.25%

3 mth LIBOR+1.17%

3 mth LIBOR+1.24%

3 mth LIBOR+1.30%

3 mth LIBOR+1.40%

3 mth TIBOR+2.125%Interest rate
we receive

N/A

N/A

N/A

N/A

N/A

N/A

N/A

600

300

31 March
2012

N/A

N/A

N/A

N/A

N/A

N/A

N/A

500

N/A

31 March
2013

N/A

N/A

300

400

420

340

150

N/A

N/A

31 March
2014

300

480

250

350

340

260

100

N/A

N/A

30 September
2014

Notional amount as at (1)

442

427

426

424

410

389

372

325

226

Loan
Number

24/3/2008

Interest rate

31/3/2014

Loan forworking
capital30/9/2014

Loan for26/3/2014
construction of
storesLoan forworking
capital

29/9/2017 3 mth LIBOR+1.21%

31/3/2021 3 mth TIBOR+1.8%

31/3/2017 3 mth LIBOR+1.19%

28/2/2018 3 mth LIBOR+1.25%

28/2/2014
Loan forconstruction of
stores31/3/2016 3 mth LIBOR+1.24%

29/3/2013

30/9/2016 3 mth LIBOR+1.17%

30/9/2015 3 mth LIBOR+1.30%

28/9/2012

28/2/2014 3 mth LIBOR+1.40%

22/3/2013 3 mth TIBOR+2.125%End dateof theloan

30/9/2013

Loan forworking
capitalLoan forworking
capitalLoan forworking
capitalLoan for18/3/2011
construction of
storesSyndicatedloan - 13thround

Loan Name

Start dateof the
loan

N/A

N/A

N/A

N/A

N/A

N/A

N/A

600

300

31 March
2012

Loans with Floating Interest Rate

N/A

N/A

N/A

N/A

N/A

500

250

500

N/A

31 March
2013

N/A

N/A

300

400

420

340

150

N/A

N/A

31 March
2014

Loan Balance as at (1)

300

650

250

350

340

260

100

N/A

N/A

30 September
2014

The notional amount of a amount of a swap and the loan balance of a loan is shown as “N/A” when the loan had not been entered into or already expired at that
period/year and date.

30/12/2014

427

Note:

31/3/2014426

29/3/2013

389

28/2/2014

28/9/2012

372

424

18/3/2011325

30/9/2013

24/3/2008

226

410

Start date

Contract
NumberInterest Rate Swaps

FINANCIAL INFORMATION

FINANCIAL INFORMATION
The table below shows the gain and loss arising from movements in fair value and net
interest expenses arising from interest rate swaps during the indicated periods:
Six months ended
Year ended 31 March
2012

2013

30 September
2014

2013

2014

(¥, in millions)

Gain/(loss) from interest rate
swaps arising from:- movement in fair value . . . . .
- net interest expenses . . . . . .

44
(55)

11
(33)

(4)
(28)

(3)
(16)

10
(13)

Total . . . . . . . . . . . . . . . . . . . . . .

(11)

(22)

(32)

(19)

(3)

Given our view on the continuously stagnant Japanese economy and the quantitative easing
programs implemented by major central banks (including The Bank of Japan) around the world
over the past few years and recently, we did not consider it to be necessary to hedge our interest
rate exposure arising out of our floating rate long-term bank borrowings during the Track Record
Period, nor do we consider such to be necessary in the near future until the Japanese economy
is able to show more signs of sustainable growth. For details of the maturity profile of the
non-current
portionof
ourlong-termbankborrowings,
see“—Indebtedness—Borrowings—non-current portion” in this section above.
Nevertheless, during the Track Record Period, certain financial institutions bundled aninterest rate swap as an integral part of the loans extended to us. We note that, with the interest
rate swap, our cost of borrowings for such loans, on average, would increase by approximately
1% per annum throughout their term. However, for the sake of maintaining good relationships
with our bankers, we found it acceptable to enter into such interest rate swap transactions asadvised by our bankers. As at 30 September 2014, approximately 25% of the outstandingbalance of long term bank borrowings was hedged with interest rate swaps.
Inventory
The table below shows our inventory as at the indicated dates:
As at
30 September

As at 31 March
2012

2013

2014

2014

(¥, in millions)

Pachinko and pachislot machines . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . .

Inventory turnover days (Note) . . . . . . . .

407
5

65
21

16
5

34
6

412

86

21

40

0.41

0.38

0.08

0.06

353

FINANCIAL INFORMATION

Note:

Inventory turnover days are calculated based on the average of the beginning and ending inventory balance of agiven year/period divided by the total gross pay-ins of our Group, and multiplied by 365 days for year ended 31
March 2012, 2013 and 2014, and by 183 days for the six months ended 30 September 2014.

Our inventory mainly included pachinko and pachislot machines not yet installed. The
decrease in the balance of pachinko and pachislot machines as at 31 March 2013 by ¥326 million
was mainly due to delivery of a large batch of machines worth around ¥400 million but remained
uninstalled as at 31 March 2012. All of such machines were subsequently installed into our halls
and therefore the cost of such machines have been charged to our hall operating expenses.
Our inventory turnover days were low as we do not require significant amount of inventory
to operate our business. Our inventory turnover days were less than 1 day for the years ended
31 March 2012, 2013 and 2014 and for the six months ended 30 September 2014.
For the inventory as at 30 September 2014, all except ¥1 million were subsequently used
up by 31 January 2015.
Trade receivables
Our pachinko and pachislot business does not generate any trade receivables as all ourcustomers are required to pay for the pachinko balls and pachislot tokens when rented. Our tradereceivable mainly represents balances due from vending machine operators for the concession
income from vending machines, which usually amounted to up to 40% of the gross receipts ofsuch machines. We typically offer credit period of 0-30 days to our vending machine operators.
In respect of adopting a new vending machine operator, we will normally assess its credit
worthiness by conducting company searches. We monitor closely our outstanding tradereceivables and will issue written reminders to follow-up with our customers if trade receivablebalances become long outstanding.
Our trade receivables balance remained stable in the Track Record Period. It amounted to¥60 million, ¥64 million, ¥54 million and ¥52 million for the years ended 31 March 2012, 2013 and2014 and for the six months ended 30 September 2014. The table below shows our tradereceivables as at the indicated dates:
As at
30 September

As at 31 March

Trade receivables . . . . . . . . . . . . . . . . . .
Less: provision for impairment of tradereceivables . . . . . . . . . . . . . . . . . . . . .

2012

2013

2014

2014

¥million¥million¥million¥million

65

69

59

57

(5)

(5)

(5)

(5)

60

64

54

52

354

FINANCIAL INFORMATION
The table below shows the ageing analysis of our trade receivables based on invoice date:
As at
As at 31 MarchLess than 30 days . . . . . . . . . . . . . . . . .
31-90 days . . . . . . . . . . . . . . . . . . . . . . .
Over 90 days . . . . . . . . . . . . . . . . . . . . .

Debtor turnover days (Note) . . . . . . . . .

Note:

30 September

2012

2013

2014

2014

¥million¥million¥million¥million

57
—
8

61
—
8

51
—
8

49
—
8

65

69

59

57

25.2

30.3

30.6

32.2

Our trade receivables represent the receivables from vending machines operators. The debtor turnover days arecalculated based on the average of beginning and the ending trade receivables balance (net of provision for
impairment of trade receivables) of a given year/period divided by our vending machine income, and multipliedby 365 days for year ended 31 March 2012, 2013 and 2014, and by 183 days for the six months ended 30
September 2014.

Our debtor turnover days were stable in the Track Record Period and amounted to 25.2
days, 30.3 days, 30.6 days and 32.2 days for the years ended 31 March 2012, 2013 and 2014
and for the six months ended 30 September 2014, which aligned with the credit period we offeredto vending machine operators.
For our trade receivables, the maximum exposure to credit risk at the reporting date is the
carrying value of such receivables mentioned above. We do not hold any collateral as security inrespect of our trade receivables. Our policy for impairment loss on trade receivables is based onan evaluation of evidence of impairment, including collectability and ageing analysis of thereceivables, on both individual and collective basis, which requires the use of judgment andestimates. We make provisions for receivables when there are events or changes incircumstances which indicate that the balances may not be collectible. Our management closely
review the trade receivable balances and any overdue balances on an ongoing basis andassessments are made by our management on the collectability of overdue balances. In 2011, we
recognised a provision for impairment of ¥5 million of trade receivable balances due from avending machines operator in which we were unable to collect.
Save as mentioned above, we have not made any provision for allowance for doubtful debts
and any impairment on the trade receivables during the Track Record Period and up to Latest
Practicable Date.
As at 31 January 2015, all of our trade receivables as at 30 September 2014 were settled.

355

FINANCIAL INFORMATION
Trade Payables
Our trade payables mainly represent payables to suppliers of general prize. The table below
shows the ageing analysis of our trade receivables as at the indicated dates:
As at
As at 31 March
2012

2013

30 September
2014

2014

(¥, in millions)Less than 30 days . . . . . . . . . . . . . . . . .
31-90 days . . . . . . . . . . . . . . . . . . . . . . .

164
183

213
169

112
89

62
83

347

382

201

145

Creditor’s turnover days (1) . . . . . . . . . . .

0.37

0.55

0.45

0.35

Adjusted creditor’s turnover days (2) . . . .

42.6

66.7

56.1

33.5

Notes:(1)

Creditor’s turnover days are calculated based on (i) the average of the beginning and ending trade payablebalances of a given year/period; (ii) divided by our gross pay-ins for the corresponding year/period and (iii)
multiplied by 365 days for years ended 31 March 2012, 2013 and 2014 and by 183 days for the six months ended
30 September 2014.

(2)

Adjusted creditor’s turnover days are calculated based on: (i) the average of the beginning and ending trade
payable balances (entirely related to general prize suppliers) of a given year/period; (ii) divided by the total costsof general prizes redeemed for the corresponding year/period; and (iii) multiplied by 365 days for the years ended
31 March 2012, 2013 and 2014 and by 183 days for the six months ended 30 September 2014.

We are generally required to settle our purchases to G-prize wholesaler by cash upondelivery of the G-prize, as such there were no trade payables to G-prize suppliers in the Track
Record Period. General prize supplier usually allows credit period up to 60 days. Our adjusted
creditor turnover days (showing the average days of turnover of our trade payables in respect of
cost of general prize exchanged) remained at similar level to credit period offered in the Track
Record Period as it is our practice to settle trade payable balances according to credit terms
offered.
As at 31 January 2015, all of our trade payables as at 30 September 2014 have been
settled.

356

FINANCIAL INFORMATION
Accruals, provision and other payables
The table below shows the accruals, provisions and other payables as at the indicateddates:As at
As at 31 March
2012

2013

30-Sep2014

2014(¥, in millions)Non-current portion
Provision for reinstatement costs . . . . . .
Vending machine rental deposit andrental receipt in advance. . . . . . . . . . .
Other payables and provision for longservice payment . . . . . . . . . . . . . . . . .

Current portion
Accrued expenses . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . .
Vending machine rental receipt inadvance . . . . . . . . . . . . . . . . . . . . . . . .
Unutilised balls and tokens . . . . . . . . . .

1,141

1,267

1,320

1,337

96

111

105

105

43

52

60

59

1,280

1,430

1,485

1,501

1,490
1,465

1,450
1,513

837
1,016

2,369
1,215

280
342

261
360

276
215

230
511

3,577

3,584

2,344

4,325

Provision for reinstatement cost represents the provision for cost to reinstate rental
premises into its original conditions upon termination of lease. The amount of provision was
spread evenly across the lease term as stated in the rental contract. The increase of provision forreinstatement cost in the Track Record Period was mainly due to the increase in our rented hallproperties for opening new halls as part of our expansion plan.
Vending machine rental deposits and rental receipt in advance represent the advances anddeposits received from the vending machine operators. We generally require the vending machine
operators to prepay their rent at the inception of their lease of the vending machine slots (usuallyfor 3 years). The balance remained stable in the Track Record Period.
Accrued expenses represent (i) accrual for the purchases of pachinko and pachislot
machines which has been delivered; (ii) accrual for the purchases of property, plant andequipment which has not yet been billed by the suppliers; and (iii) accrued staff benefits. The
amount remained stable from 31 March 2012 to 31 March 2013. The decrease from ¥1,450
million as at 31 March 2013 to ¥837 million as at 31 March 2014 followed by an increase to¥2,369 million as at 30 September 2014 was mainly due to the retirement payments of ¥600
million each paid to Mr. Masataka TANIGUCHI and Mr. Tatsuo TANIGUCHI in the year ended 31
March 2013 and in the six months ended 30 September 2014, respectively. The increase inaccrued expenses as at 30 September 2014 was also due to the increase in accrual forpurchases of pachinko and pachislot machines of ¥546 million as compared to the prior year.

357

FINANCIAL INFORMATIONOther payables mainly represent (i) payables due to suppliers for office consumables andservices; (ii) payables for fixed property tax; (iii) payables for utilities; and (iv) insurance premium
payable. The decrease of balance from ¥1,513 million as at 31 March 2013 to ¥1,016 million as
at 31 March 2014 was mainly due to the decrease of provisions for office services consumables
and of ¥287 million. The balance remained stable at the end of other period/year.
The balance of unutilised balls and tokens represents the monetary value of ball and tokens
stored in membership cards. According to the terms of our membership card, we allow ourmembers to store a maximum of 999,999 balls and 199,999 tokens in their membership card
which they can use to play pachinko and pachislot games and redeem general prizes andG-prizes, and there is no expiry for such balls and tokens. The monetary amount of such
unutilised balls and tokens remained stable from 31 March 2012 to 31 March 2013. The amountdecreased to ¥215 million as at 31 March 2014 and subsequently bounced back to ¥511 million
as at 30 September 2014, as our customers delayed their redemption of G-prizes with their
unutilised balls after we implemented mark-ups on G-prizes with effect from 1 April 2014, whichgave rise to an increase in the unutilised balls and tokens. See “— Financial Metrics of Our
Business” in this section above for further details on unutilised balls and tokens.
PROPERTY INTEREST AND PROPERTY VALUATIONDTZ Debenham Tie Leung Limited, an independent property valuer, has valued certain
interests of our properties in Japan as at 31 January 2015 and is of the opinion that the value
was, in aggregate, ¥1,452 million, with the entire value attributable to us. The full text of the letter,summary of valuation certificates with regard to such property interests are set forth in “Appendix
III — Valuation Report on Selected Property Interests” to this Prospectus.
The statement below shows the reconciliation of aggregate amounts of certain properties as
selected in our audited consolidated financial information as at 30 September 2014 as set forthin “Appendix I — Accountant’s Report” to this Prospectus with the valuation of these properties
as at 31 January 2015 as set forth in “Appendix III — Valuation Report on Selected Property
Interests” to this Prospectus.
¥ (million)

Net book value of the following properties as at 30 September 2014 .
- Freehold land and buildings included in investment properties (1) . . . . . . . .
- Freehold land and buildings included in property, plant and equipment (2) . .

669
536

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Movements during the period from 1 October 2014 to 31 January 2015 (3) . .

1,205
(11)

Net book value as at 31 January 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net valuation surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,194
258

Valuation of properties owned by our Group as at 31 January 2015 as set
out in the property valuation report in Appendix III to this Prospectus . . . .

1,452

358

FINANCIAL INFORMATION

Notes:(1)

Freehold land and buildings included in investment properties represents the property interests in Nomurasyoken
Building and Nikku Club Omori Building and the parcel of land these buildings sit on respectively.

(2)

Freehold land and buildings included in property, plant and equipment represents the property interests in Koriyama
City Hotel and the parcel of land it sits on.

(3)

Movements for the period from 1 October 2014 to 31 January 2015 represented the depreciation of ¥4 million and¥7 million of buildings included in investment properties and property, plant and equipment, respectively.

SELECTED KEY FINANCIAL RATIOS
As at
As at 31 March2012

Current ratio (1) . . . . . . . . . . . . . . . . . . . .
Quick ratio (2) . . . . . . . . . . . . . . . . . . . . . .
Gearing ratio (%) (3) . . . . . . . . . . . . . . . . .
Debt to equity ratio (%) (4) . . . . . . . . . . . .
Return on total assets (%) (5) . . . . . . . . . .
Return on equity (%) (6) . . . . . . . . . . . . . .
Interest coverage (7) . . . . . . . . . . . . . . . . .

0.93
0.90
101.4
33.9
7.4
17.9
9.7

2013

0.92
0.91
98.7
60.0
8.9
21.1
10.9

30 September
2014

1.34
1.33
91.7
53.2
7.9
17.0
9.8

2014

1.08
1.07
100.4
52.5
3.8*
9.0*
7.0

Notes:*

Profit attributable to shareholders used for calculation is annualised based on the actual results for the six months
ended 30 September 2014 as to be comparable with annual data.

(1)

Current ratio is calculated by dividing current assets with current liabilities as at the respective year/period end.

(2)

Quick ratio is calculated by dividing current assets (less inventory) with current liabilities as at the respective
year/period end.

(3)

Gearing ratio is calculated by dividing the (i) aggregate of interest-bearing loans, (ii) shareholder’s loans and (iii)
obligations under finance leases and (iv) amount due to related company with the total equity as at the respective
year/period end times 100%.

(4)

Debt to equity ratio is calculated by dividing the net debt (being the total debt less cash and cash equivalents) withtotal equity as at the respective year/period end times 100%.

(5)Return on total assets is calculated by dividing profit attributable to shareholders for the year or period with thetotal assets as at the respective year or period end times 100%.

(6)Return on equity is calculated by dividing profit attributable to shareholders for the year or period with the total
equity as at the respective year or period end times 100%.

(7)Interest coverage is calculated by dividing profit before interest and tax with the finance cost for the corresponding
year/period.

359

FINANCIAL INFORMATION
Current Ratio
As at 31 March 2012, 2013 and 2014 and 30 September 2014, our current ratio was 0.93,
0.92, 1.34 and 1.08, respectively. Our current ratio remained stable from 31 March 2012 to 31
March 2013.
Our current ratio increased from 0.92 as at 31 March 2013 to 1.34 as at 31 March 2014 was
mainly due to (i) an increase in cash and cash equivalents by ¥1,500 million as a result of theincrease in borrowings (current and non-current portion), and (ii) a decrease in accruals,
provisions and other payables primarily as a result of the one-off special retirement benefit to Mr.
Masataka TANIGUCHI of ¥600 million was accrued in the year ended 31 March 2013 but not in
the year ended 31 March 2014.
Our current ratio decreased from 1.34 as at 31 March 2014 to 1.08 as at 30 September
2014 was mainly due to the increase in current liabilities outpaced the increase in current assets
in the six months ended 30 September 2014. The increase in current liabilities was mainly due
to (i) an increase in current portion of borrowings by ¥964 million for the six month ended 30
September 2014, (ii) the accrued one-off special retirement benefit to Mr. Tatsuo TANIGUCHI
which amounted to ¥600 million, (iii) an increase in obligation under finance lease by ¥555 million,and (iv) an increase in accrued purchases of pachinko and pachislot machines by ¥546 million forour new hall opened in November 2014. The increase in current assets was mainly due to theincrease in cash and cash equivalents by ¥1,593 million as a result of the increase in totalborrowings (current and non-current portion) for the six months ended 30 September 2014.
Quick Ratio
As at 31 March 2012, 2013 and 2014 and 30 September 2014, our quick ratio was 0.90,
0.91, 1.33 and 1.07, respectively. As our inventory merely represented 2.8%, 0.9%, 0.2% and0.3% of our total current assets as at 31 March 2012, 2013 and 2014 and 30 September 2014,
respectively, changes in our quick ratio was primarily due to the same reason as the changes inour current ratio discussed above.
Gearing Ratio
As at 31 March 2012, 2013 and 2014 and 30 September 2014, our gearing ratio was
101.4%, 98.7%, 91.7% and 100.4%, respectively. Our gearing ratio remained stable from 31
March 2012 to 31 March 2013.
Our gearing ratio decreased from 98.7% as at 31 March 2013 to 91.7% as at 31 March 2014
was mainly because the increase in total equity outpaced the increase in total debt in the year
ended 31 March 2014. The increase in total equity was mainly due to the profit made for the year
ended 31 March 2014, which amounted to ¥3,698 million. The increase in total debt was mainly
due to the increase in total borrowings (current and non-current portion) and total obligation
under finance leases (current and non-current portion) by ¥1,306 million and ¥1,067 million,
respectively, in the year ended 31 March 2014.

360

FINANCIAL INFORMATIONOur gearing ratio increased from 91.7% as at 31 March 2014 to 100.4% as at 30 September
2014 was mainly due to the increase in total borrowings (current and non-current portion) by¥1,662 million, while equity remained relatively stable in the six months ended 30 September
2014.
Debt to Equity Ratio
As at 31 March 2012, 2013 and 2014 and 30 September 2014, our debt to equity ratio was
33.9%, 60.0%, 53.2% and 52.5%, respectively. Our debt to equity ratio increased from 33.9% as
at 31 March 2012 to 60.0% as at 31 March 2013 was mainly due to the increase of net debt
balance, while our equity balance remained relatively stable. The increase in our net debt balance
was mainly due to the decrease in cash and cash equivalent primarily as a result of the cash
outflow for the purchase of shares of Niraku Corporation and Nexia which amounted to ¥4,575
million.
Our debt to equity ratio decreased from 60.0% as at 31 March 2013 to 53.2% as at 31
March 2014 was mainly because the increase in total equity outpaced the increase in total debt
in 31 March 2014. The increase in total equity was mainly due to the profit made for year ended
31 March 2014, which amounted to ¥3,698 million.
Our debt to equity ratio remained stable from 31 March 2014 to 30 September 2014.
Return on Total Assets
For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, our return on total assets was 7.4%, 8.9%, 7.9% and 3.8%, respectively. Our
return on total assets increased from 7.4% for the year ended 31 March 2012 to 8.9% for the year
ended 31 March 2013 was mainly due to (i) an increase in the profit made for the year by ¥436
million primarily as a result of the increase in revenue caused by the increase in our pachinko hall
network from 50 halls as at 31 March 2012 to 52 halls as at 31 March 2013 under similar cost
structure, and (ii) a decrease in our total assets primarily as a result of the decrease in cash andcash equivalent caused by the cash outflow for the purchase of shares of Niraku Corporation and
Nexia which amounted to ¥4,575 million.
Our return on total assets decreased from 8.9% for the year ended 31 March 2013 to 7.9%
for the year ended 31 March 2014 was mainly due to the increase in total assets primarily as theresult of (i) an increase in our cash and cash equivalents by ¥1,500 million caused by the increase
in total borrowings (current and non-current portion); (ii) an increase in our property, plant andequipment by ¥2,082 million caused by the increase in our pachinko hall network from 52 halls
as at 31 March 2013 to 53 halls as at 31 March 2014 which was substantially financed by debt;
and (iii) an increase in fair value of equity securities held by ¥665 million for the year ended 31
March 2014.
Our return on total assets decreased from 7.9% for the year ended 31 March 2014 to 3.8%
for the six months ended 30 September 2014 was mainly due to (i) a decrease in our profit by¥686 million primarily as a result of the one-off special retirement benefit to Mr. Tatsuo

361

FINANCIAL INFORMATIONTANIGUCHI which amounted to ¥600 million, and (ii) an increase in our total assets primarily asa result of the increase in our cash and cash equivalent by ¥1,593 million caused by the increase
in total borrowings (current and non-current portion) in the six months ended 30 September 2014
as compared to the same period in 2013.
Return on Equity
For the years ended 31 March 2012, 2013 and 2014 and the six months ended 30
September 2014, our return on total equity was 17.9%, 21.1%, 17.0% and 9.0%, respectively.
Our return on equity increased from 17.9% for the year ended 31 March 2012 to 21.1% for theyear ended 31 March 2013 was mainly due to an increase in our profit by ¥436 million as a resultof an increase of revenue caused by the increase in our pachinko hall network from 50 halls as
at 31 March 2012 to 52 halls as at 31 March 2013 under similar cost structure, while our equity
balance remained relatively stable.
Our return on equity decreased from 21.1% for the year ended 31 March 2013 to 17.0% for
the year ended 31 March 2014 was mainly due to an increase in total equity as a result of theincrease in fair value of equity securities (net of tax) realised through other comprehensive income
which amounted to ¥433 million in the year ended 31 March 2014, while profit remained relatively
stable for the year ended 31 March 2014.
Our return on equity decreased from 17.0% for the year ended 31 March 2014 to 9.0% for
the six months ended 30 September 2014 was mainly due to a decrease in our profit by ¥686
million as a result of the one-off special retirement benefits to Mr. Tatsuo TANIGUCHI whichamounted to ¥600 million.
Interest Coverage
As at 31 March 2012, 2013 and 2014 and 30 September 2014, our interest coverage was
9.7, 10.9, 9.8 and 7.0, respectively. Our interest coverage increased from 9.7 to 10.9 for the year
ended 31 March 2013 mainly due to an increase in net profit before interest and tax by ¥107
million primarily driven by the increase in our revenue from pachinko and pachislot hall operationsin the year. The increase was also due to a decrease in finance cost by ¥71 million as our totalborrowings (current and non-current portion) decreased by ¥1,156 million as at 31 March 2013
as compared to that as at 31 March 2012.
Our interest coverage decreased from 10.9 for the year ended 31 March 2013 to 9.8 for theyear ended 31 March 2014 mainly due to a decrease in net profit before interest and tax by ¥448
million primarily driven by a decrease in our operating profit in the year. The decrease was also
due to an increase in finance cost for ¥29 million as our total borrowings increased by ¥1,306
million from 31 March 2013 to 31 March 2014.

362

FINANCIAL INFORMATION
Our interest coverage decreased from 9.8 for the year ended 31 March 2014 to 7.0 for thesix months ended 30 September 2014. The decrease was mainly due to a decrease in our profit
before interest and tax by ¥1,127 million compared to that for the six months ended 30
September 2013 (or decrease in annualised profit before interest and tax for ¥2,902 million
compared to the year ended 31 March 2014) as a result of the one-off special retirement benefits
to Mr. Tatsuo TANIGUCHI which amounted to ¥600 million.
WORKING CAPITAL SUFFICIENCYOur Directors are of the opinion that, after due and careful enquiry and taking into
consideration the financial resources presently available to us, including borrowings andinternally generated funds, and the estimated net proceeds of the Global Offering, our Group has
sufficient working capital for our present requirements and for at least the next 12 months
commencing from the date of this Prospectus.
RELATED PARTY TRANSACTIONSWith respect to the related party transactions set out in note 35 to the accountant’s reportin Appendix I to this Prospectus, our Directors confirmed that these transactions were conducted
on an arm’s length basis and normal commercial terms. The effect of such related party
transactions would not distort the track record to the extent that the historical results of ourGroup are not reflective of its performance.
DECREASE IN NET PROFIT FOR SIX MONTHS ENDED 30 SEPTEMBER 2014 AS
COMPARED TO SIX MONTHS ENDED 30 SEPTEMBER 2013
Our net profit after tax attributable for the six months ended 30 September 2014 hasdecreased by 42.2% as compared to six months ended 30 September 2013. The decrease in net
profit was mainly due to the effects of the following one-off items:(1)listing expenses of ¥226 million recognised as expenses in our consolidated
statements of comprehensive income; and(2)

retirement payment of ¥600 million made to Mr. Tatsuo TANIGUCHI (谷口龍雄) during
the six months ended 30 September 2014 for his retirement as a Director of ourCompany in the same period.

See “— Listing Expenses” in this section below for listing expenses that will be charged after
30 September 2014.

363

FINANCIAL INFORMATIONLISTING EXPENSES
The estimated total listing expenses (assuming an Offer Price of HK$1.19 per Offer Share,
being the mid-point of our indicative Offer Price range of HK$1.10 to HK$1.28 and that theOver-allotment Option is not exercised) incurred or to be incurred in relation to the Global Offering
are approximately ¥1,149 million (approximately HK$76 million), of which approximately: (1) ¥340
million (approximately HK$22 million) is directly attributable to the issue of new Shares in the
Global Offering and to be accounted for as a deduction from equity; and (2) ¥809 million(approximately HK$54 million) is to be charged as administrative expenses to our profit and loss
accounts for the year ending 31 March 2015. Out of this amount, approximately ¥226 million(approximately HK$15 million) had been charged to our profit and loss account for the six months
ended 30 September 2014, and a further amount of approximately ¥583 million (approximately
HK$39 million) is expected to be charged to our profit and loss account as administrative andother operating expenses for the six months ending 31 March 2015.
DISTRIBUTABLE RESERVESOur Company was incorporated in Japan on 10 January 2013. As at 30 September 2014,
there was ¥2,748 million distributable reserves (calculated according to the relevant provisions as
set out in the Japan Companies Act) available for distribution to our shareholders. See “Appendix
V — Summary of Our Articles of Incorporation and Japan Corporation Law — 6. Dividends andDistributions — Distributable amount” for further details on calculation of amounts of
distributable reserves.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT OUR FINANCIAL RISKS
Cash Flow and Fair Value Interest Rate Risk
Our interest rate risk mainly arises from bank balances and borrowings which are carried atvariable rates, which expose us to interest rate risk.
As at 31 March 2012, 2013 and 2014, and as at 30 September 2014, if interest rates wereto increase or decrease by 25 basis points and all other variables were held constant, our Group’s
pre-tax profit would decrease or increase by approximately ¥3 million, ¥6 million, ¥5 million and¥6 million, respectively, as a result of increase or decrease in net interest expense.
We manage our interest rate exposure with a focus on reducing (i) our overall debt balance;and (ii) exposure to changes in interest rates. When considered appropriate, we may use
derivatives such as interest rate swaps to manage our interest rate exposure.

364

FINANCIAL INFORMATION
Price Risk
Our Group is exposed to equity securities price risk because of investments in listed
securities held by us which are classified in the consolidated statements of financial position asfair value through other comprehensive income.
As at 31 March 2012, 2013 and 2014, and as at 30 September 2014, if the share prices of
our listed investments to increase or decrease by 5% and all other variables were held constant,the impact on our Group’s equity would increase or decrease by approximately ¥7 million, ¥45
million, ¥79 million and ¥73 million, respectively.
Credit Risk
Credit risk arises mainly from cash deposited at banks, trade receivables, deposits andother receivables, financial assets at fair value through profit or loss and through othercomprehensive income.
In respect of cash deposited at banks and financial assets at fair value through profit or loss
and through other comprehensive income, the credit risk is considered to be low as thecounterparties are banks with high credit ratings assigned by international credit rating agencies.
Approximately 99% of our Groups revenue is received in cash. Our Group’s credit risk mainly
arises from vending machine income receivable from vending machines providers representing
approximately 1% of our receivables.
As at 31 March 2012, 2013 and 2014 and as at 30 September 2014, top five customers
which are all vending machine providers of our Group accounted for approximately 58%, 53%,
56% and 60%, respectively, of the trade receivables of our Group. We have set up long-termcooperative relationship with these customers. In view of the history of business dealings with thecustomers and the sound collection history of the receivables due from them, management
believes that there is no material credit risk inherent in the Group’s outstanding receivablebalance due from these customers. Management makes periodic assessment on therecoverability of trade and other receivables based on historical payment records, the length ofthe overdue period, the financial strength of the debtors and whether there are any disputes withthe debtors. Our historical records in collection of trade and other receivables confirmed that
adequate provision for uncollectible receivables has been made in the Financial Information.

365

FINANCIAL INFORMATION
Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and bank balances,
the availability of funding from an adequate amount of facilities from banks and the ability to repay
such debts.
The Group maintains liquidity by a number of sources including orderly realisation ofshort-term financial assets and receivables; and long term financing including long-termborrowings. The Group aims to maintain flexibility in funding by keeping sufficient bank balancesand committed credit lines available.
See the table included in note 3.1(c) of the Accountant’s Report in Appendix I for an analysis
of our non-derivative financial liabilities into relevant maturity groupings based on the remaining
period at the statement of financial position date to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows. Balances due within 12
months equal to their carrying balances as the impact of discounting is not significant.
DIVIDEND POLICY
During the Track Record Period we declared and paid dividends in the amount of ¥110
million, ¥110 million, ¥183 million and ¥183 million for the years ended 31 March 2012, 2013 and2014 and for the six months ended 30 September 2014, respectively.
Our distribution of dividends will be subject to the availability of Distributable Amount andcompliance with applicable laws and regulations in Japan and Hong Kong. We may declare andpay dividends by way of cash or by other means that we consider appropriate in the future.
Distribution of dividends will be formulated by our Board at their discretion. A decision to declareor to pay any dividends in the future, and the amount of any dividends, will depend on, among
other things, our results of operations, cash flows and financial condition, operating and capital
expenditure requirements, the size of our Distributable Amount (calculated according to therelevant provision under the Japan Companies Act), our Articles, the Japan Companies Act andany other applicable Japan law and regulations (as discussed below) and other factors that our
Directors may consider relevant. See “Appendix V — Summary of Our Articles of Incorporation
and Japan Corporation Law — 6. Dividends and distributions”. We currently intend torecommend dividends totalling approximately 30% of our consolidated net profit after tax
attributable to our shareholders (calculated in accordance with IFRS) from the year ending 31
March 2016 onwards, to be distributed on an interim and year-end basis. The amount ofdividends actually distributed to our Shareholders will depend upon our earnings and financial
condition, operating requirements, capital requirements, availability of Distributable Amount andany other conditions that our Directors may deem relevant. There is no assurance that dividendsof any amount will be declared or distributed in any year. You should note that historical dividend
distributions are not indicative of our future dividend policy.

366

FINANCIAL INFORMATION
Pursuant to the Japan Companies Act and our Articles of Incorporation, through a resolutionof the Board of Directors unless such dividend is proposed to be paid in kind (other than Shares,
bonds (including convertible bonds) and SARs issued by our Company, which the Companies Act
prohibits) without giving Shareholders the right to demand distribution in cash (in which case a
special Shareholder resolution is required)), we may declare dividends to our Shareholders
subject to a limit equal to the Distributable Amount. Pursuant to the Japan Companies Act andthe relevant Ordinance of the Ministry of Justice of Japan, the Company’s Distributable Amountis calculated based on the retained earnings recorded in the Company’s financial statements
prepared in accordance with JGAAP (rather than IFRS) with certain adjustments (including thededuction of the book value of any treasury Shares held by our Company). See “Appendix V —Summary of Our Articles of Incorporation and Japan Corporation Law — 6. Dividends anddistributions — Distributable Amounts” in Appendix V. Going forward, Shareholders that areentitled to receive cash dividends (if any) from our Company will have the option of receiving theirentitlements in either Japanese Yen or Hong Kong dollars, except for CCASS Beneficial Owners,
who will receive dividend payments in Hong Kong dollars. Other distributions, if any, will be paid
to our Shareholders by any means which our Directors consider legal, fair and practicable. Scrip
dividends in the form of Shares, bonds (including convertible bonds) or SARs issued by ourCompany are prohibited under the Japan Companies Act.
We are required under Japan law to withhold tax prior to payment of dividends. Our Tax
Adviser has advised us that shareholders interested in less than 3% of our total number of issued
Shares that are non-residents individuals of Japan or non-Japanese corporations without apermanent establishment in Japan are subject to Japanese withholding tax of 15.315% for any
dividend distributions due and paid on or before 31 December 2037. Shareholders holding 3%
or more of our total number of issued Shares are subject to a withholding tax in Japan of
20.420% on or before 31 December 2037. Shareholders who are either residents in Hong Kongor corporations established in Hong Kong without any permanent establishment in Japan areentitled to a reduced withholding tax rate of not exceeding 10% (or not exceeding 5% forcorporate Shareholders who are interested in 10% or more of our total number of issued Sharesfor six consecutive months ending on the record date for dividend distribution) under the Hong
Kong-Japan Tax Treaty. See “Key Japan Legal and Regulatory Matters — E. Taxation — 1.
Withholding Tax on Dividend Payment” for further information on Japanese withholding taxes.

367

FINANCIAL INFORMATIONUNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma adjusted net tangible assets prepared in accordance with
Rule 4.29 of the Listing Rules are set out below to illustrate the effect of the Global Offering on
the consolidated net tangible assets of our Group attributable to the shareholders of ourCompany as of 30 September 2014 as if the Global Offering had taken place on that date.
The unaudited pro forma adjusted net tangible assets have been prepared for illustrative
purposes only and, because of its hypothetical nature, it may not give a true picture of theconsolidated net tangible assets of our Group had the Global Offering been completed as at 30
September 2014 or at any future dates.
Auditedconsolidated
net tangible
assets of

Unaudited

our Group

pro forma

attributable
to theadjusted net
Estimatedshareholdersof the Company

tangiblenet

assetsproceeds

attributable

as at 30

from theto theUnaudited pro forma

September

Globalshareholders

adjusted net tangible

2014

Offeringof theassets per Share(Note 1)

(Note 2)Company(Notes 3, 5)¥ million¥ million¥ million¥HK$

Based on an Offer Price of
HK$1.10 per Share . . . . . . . . .

20,707

4,087

24,79420.7

1.37

Based on an Offer Price of
HK$1.28 per Share . . . . . . . .

20,707

4,884

25,59121.4

1.41

Notes:(1)

The unadjusted audited consolidated net tangible assets of our Group attributable to the shareholders of theCompany as at 30 September 2014 is extracted from the accountant’s report set out in Appendix I to thisProspectus, which is based on the audited consolidated net assets of our Group attributable to the shareholdersof our Company as at 30 September 2014 of ¥20,879 million with an adjustment for the intangible assets as at 30
September 2014 of ¥172 million.

(2)

The estimated net proceeds from the Global Offering are based on the indicative Offer Price of HK$1.10 and
HK$1.28 per Share, respectively, after deduction of the underwriting fees and other related expenses borne by theCompany (excluding approximately ¥226 million listing expenses which have been incurred as of 30 September2014) and takes no account of any Shares which may fall to be issued upon the exercise of the Over-allotment
Option or any Shares which may be granted and issued or repurchased by the Company pursuant to the Issuing
Mandate and the Repurchase Mandate.

368

FINANCIAL INFORMATION(3)

The unaudited pro forma net tangible assets per Share is arrived at after the adjustments referred to in thepreceding paragraphs and on the basis that 1,195,850,460 Shares were in issue assuming that the Global Offering
have been completed on 30 September 2014 but takes no account of any Shares which may fall to be issued upon
the exercise of the Over-allotment Option or any Shares which may be granted and issued or repurchased by theCompany pursuant to the Issuing Mandate and the Repurchase Mandate.

(4)

No adjustment has been made to reflect any trading result or other transactions of our Group entered into
subsequent to 30 September 2014.

(5)

For the purpose of this unaudited pro forma adjusted net tangible assets, the balances stated in Japanese Yen areconverted into Hong Kong dollars at the rate of HK$1.00 to ¥15.15.

DISCLOSURE REQUIRED UNDER THE LISTING RULES
Our Directors have confirmed that as at the Latest Practicable Date, they were not aware of
any circumstances that would give rise to a disclosure requirement under Rules 13.13 to 13.19of the Listing Rules had our Shares been listed on the Stock Exchange.
NO MATERIAL ADVERSE CHANGE
Save as disclosed in this Prospectus, including in “Summary — Recent Developments”, ourDirectors confirm that there has been no material adverse change in our financial or trading
position, indebtedness, mortgage, contingent liabilities, guarantees or prospects of our Groupsince 30 September 2014 (the date of the latest audited consolidated financial information of ourGroup) and up to the date of this Prospectus. Also, as far as our Directors are aware, there has
also been no material change in the general economic or market conditions in Japan that would
have a material and adverse impact on our business operation or financial condition since 30
September 2014 to the date of this Prospectus.

369

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERSOVERVIEW
Immediately upon completion of the Global Offering, members of the Taniguchi Consortium
will collectively be interested in approximately 69.5% of our total number of issued Shares.
Because each member of the Taniguchi Consortium is acting in concert with each other, they will
together be entitled to exercise and control the voting power in the general meetings of ourCompany attached to these Shares and will collectively be regarded as our Controlling
Shareholders under the Listing Rules. For further details of the identities of, and relationshipamong, each member of the Taniguchi Consortium as well as their respective shareholdings in
our Company, see “History and Corporate Development — Shareholding Structure — Taniguchi
Consortium”.
The Taniguchi Consortium comprises (i) our Chairman, who, as an Executive Director and
our Chief Executive Officer, is chiefly responsible for our overall business strategy and operational
direction; (ii) Mr. Tatsuo TANIGUCHI (谷口龍雄), Mr. Masataka TANIGUCHI (谷口晶貴), Mr.
Yoshihiro TEI (鄭義弘) # (also known as Mr. JEONG Jungwung), Mr. Mitsuhiro TEI (鄭允碩), Mr.
Motohiro TEI (鄭元碩), Ms. Eijun TEI (鄭盈順), Ms. Rika TEI (鄭理香) and Ms. Noriko KANESHIRO(金城徳子), each being a family member of our Chairman; and (iii) Jukki Limited* (有限会社十起),
Densho Limited* (有限会社伝承), Echo Limited* (有限会社エコー), Daiki Limited* (有限会社大喜),
Hokuyo Kanko Limited* (有限会社北陽観光) and KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA),
each being an investment holding entity owned and controlled by family members of ourChairman having no business activity. See “Directors and Senior Management — Board of
Directors — Executive Director” for the biographical information and experiences of ourChairman.
None of our Controlling Shareholders is interested in any public company other than our
Company.
Controlling Shareholders acting in concert
By virtue of their intricate family and shareholding relationship, each member of the
Taniguchi Consortium is an associate of each other under the Listing Rules. In addition, over thecourse of our business history, each member of the Taniguchi Consortium has, in exercising andimplementing the management and operations of our subsidiaries, been acting in concert witheach other. Because we were a group of private entities in the past, the acting in concert
arrangements were not formalised in writing.
On 9 December 2014, each member of the Taniguchi Consortium executed a confirmatorydeed (the “Deed of AIC Confirmation”), whereby they have confirmed their acting in concert
arrangements in the past as well as their intention to continue to act in the above manner upon
Listing to consolidate their control over our Group until and unless the Deed of AIC Confirmation

370

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
is terminated in writing. The Deed of AIC Confirmation covers our Company and all of our
subsidiaries and contains the following salient terms:
With respect to the businesses of our Company and our subsidiaries, the members of the
Taniguchi Consortium have, pursuant to the Deed of AIC Confirmation, confirmed to each otherthat, for the entire duration when they were/are contemporaneously the shareholders of ourCompany and/or our subsidiaries:(a)they have agreed to, and shall continue until the termination of the Deed of AIC
Confirmation to, consult each other and reach an unanimous consensus among
themselves on such matters being the subject matters of any shareholders’ resolution,prior to putting forward such resolution to be passed at any shareholders’ meeting of
our Company and our subsidiaries, and have historically voted on such resolutions inthe same way;(b)

they have centralised, and shall continue until the termination of the Deed of AIC
Confirmation to centralise, the ultimate control and right to make final decisions withrespect to their interests in the businesses and projects of our Company and our
subsidiaries;(c)they have operated, and shall continue until the termination of the Deed of AIC
Confirmation to operate, our Company and our subsidiaries as a single businessventure.

On the basis of the provisions under the Deed of AIC Confirmation, members of the
Taniguchi Consortium are regarded as persons acting in concert with each other within themeanings under the Takeovers Code, and are deemed to be entitled to exercise the voting
powers attached to the Shares owned by each of them in the general meetings of our Company.
INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS
Our Directors are satisfied that our Group can function, operate and carry on our business,and is financially and operationally, independent of our Controlling Shareholders and theirrespective close associates based on the following reasons:1.

No competition and clear delineation of business

Our Directors, including our Independent Non-executive Directors, confirm that, none of ourControlling Shareholders, our Directors or any of their respective close associates have interests
in any businesses other than our business which compete, or are likely to compete, either directly
or indirectly, with our business and would require disclosure under Rule 8.10 of the Listing Rules.
Apart from their respective interests in our Group, which is their principal business venture,
the only other material business interest of our Controlling Shareholders is the Excluded Group,
which comprises NI and NUSA. As at the Latest Practicable Date, members of the Taniguchi
Consortium were collectively interested in approximately 93.2% of the total number of sharesissued by NI. NUSA is a wholly-owned subsidiary of NI.

371

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
NI was incorporated in September 2014 as part of our Reorganisation as the holding entityof the Excluded Group. NUSA was incorporated in July 2014 initially as a wholly-owned
subsidiary of Niraku Corporation but was transferred to NI as part of our Reorganisation. NI and
NUSA were excluded from our Group as they engage in business activities that are completely
unrelated to, and clearly delineated from, our principal business activities of pachinko andpachislot hall operations. See “History and Corporate Development — Corporate Structure andDevelopment — Reorganisation” for the restructuring steps undergone by our Group as part of
our Reorganisation.
Aside from the Las Vegas Property as detailed below, it is currently expected that NI will act
as the holding entity of the prospective business ventures, if any, of the Taniguchi Consortium.
These business ventures, if any, for which the Taniguchi Consortium had no concrete plan as atthe Latest Practicable Date, will be subject to the Deed of Non-Competition and will not compete,
directly or indirectly, with our pachinko hall operations.
Las Vegas Property
NI is an investment holding company with no business interest other than NUSA. The only
business venture of NUSA is a 10% interest in a limited liability company incorporated in the stateof Delaware in the U.S. acquired in February 2015. This company is a property holding companyof the Las Vegas Property, which is a piece of land and the premises of a hotel and casino locatedin downtown Las Vegas, Nevada, the U.S.
The Las Vegas Property is leased to the operator of the said hotel and casino at a
combination of fixed and contingent rent. According to the information provided by ourControlling Shareholders, the revenue of the Las Vegas Property was approximately USD12.9
million, USD35.7 million and USD31.9 million respectively, for the years ended 31 December
2011 and 2012 and the ten months ended 31 October 2013, and its net income (loss) wasapproximately (USD11.0 million), USD3.4 million and USD1.5 million, respectively, for the same
periods. These financial figures are unaudited and prepared by an independent accountant
appointed for the purpose of financial diligence in relation to NUSA’s investment into the Las
Vegas Property.
NUSA acquired the 10% interests in the Las Vegas Property in February 2015 from an
independent third party of our Company at a consideration of approximately USD8 million paidin cash.
As at the Latest Practicable Date, we did not operate any casino or gambling facility insideor outside Japan and had no operation in the U.S. Whilst we are the operator and owner of a hotelin Koriyama City (郡山市), Fukushima Prefecture (福島県), this hotel has no co-relation with casino
operation and is located outside the U.S. As such, the Las Vegas Property is clearly delineatedfrom our business because of their clearly separate and distinct business nature and different
geographical locations.

372

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
In particular, the Diet was previously examining a bill legalising the operations of casinos inJapan in 2014, though, as advised by our Japan Legal Adviser, this bill has since been discarded
and there is no longer any formal legislative procedure to consider the legalisation of casino
operations in Japan. Notwithstanding that we will consider progressively venturing into theoperation of casinos in Japan if and when gambling is legalised in Japan, the Las Vegas Property
is not expected to compete, either directly or indirectly, with us as our prospective future casino
operations (if materialised) are expected to be conducted within Japan. We have no current
intention to expand anywhere outside Japan. Any of our future business ventures will be subject
to the Deed of Non-Competition.
The Excluded Group currently has no other business interest other than the Las Vegas
Property.
2.

Independence of management and directorship

Our Company has a Board and members of senior management that function independently
from our Controlling Shareholders and their respective close associates. Our Board is comprisedof one Executive Director and four Independent Non-executive Directors. Our senior
management consists of four Executive Officers and two other members. On the basis of thefollowing reasons, our Directors believe that our Directors, Executive Officers and members of
our senior management are able to manage our business independently of our Controlling
Shareholders:(i)with four Independent Non-executive Directors out of a total of five Directors in our
Board, which exceeds the requirements under the Listing Rules, there will be a
sufficiently robust and independent voice within our Board to counter-balance any
situation involving a conflict of interest and protect the interests of our independent
Shareholders;(ii)

all Executive Officers and members of our senior management are full-time employees
of our Group and most have, for the entire or substantially the entire Track Record
Period, undertaken senior management supervisory responsibilities in our business.
The responsibilities of our senior management team include managing operational andfinancial matters, making general capital expenditure decisions and the daily
implementation of the business strategies of our Group. This ensures theindependence of the daily management and operations of our Group from those of ourControlling Shareholders;(iii)

instances of actual or potential conflict have been identified (by virtue of the connectedtransactions regime under the Listing Rules) and minimised (by virtue of the Deed of
Non-Competition);(iv)

each of our Directors is aware of his fiduciary duties as a Director of our Company,
which require, among other things, that he acts for the benefit and in the best interestsof our Shareholders as a whole and does not allow any conflict between his duties asa Director and his personal interests to affect the performance of his duties as a
Director;

373

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS(v)

notwithstanding that our Chairman and Mr. Akinori OHISHI (大石明徳), an Executive
Officer, are both directors of NI and NUSA, they have no on-going executive or
non-executive duties in the Las Vegas Property. In particular, the fellow shareholder of
NUSA in the Las Vegas Property has the sole and exclusive right to manage thebusiness and affairs of the Las Vegas Property and to make all related decisions under
the relevant investment agreements. Hence, our Chairman and Mr. Akinori OHISHI(大石明徳) will not be involved in the management of the Las Vegas Property, NI or
NUSA and will devote their full-time capacity to take care of our Group’s interests. Allof our Executive Officers and members of our senior management will devote full-time
capacity to our Group;(vi)

there will be no continuing connected transaction between our Group and ourControlling Shareholders upon Listing. Any connected transactions between our
Company and companies controlled by our Controlling Shareholders will be subject tothe rules and regulations under the Listing Rules including rules requiring
announcement, reporting and independent Shareholders’ approval (where applicable);(vii) all of the businesses that are related to the operation of pachinko halls held by ourControlling Shareholders have been consolidated into our Group as part of ourReorganisation. Therefore, there is no competition that would adversely affect the
management independence of our Group; and(vii) a number of corporate governance measures are in place to avoid any potential conflictof interests between our Company and our Controlling Shareholders, and to safeguard
the interests of our independent Shareholders. See ‘‘— Corporate Governance
Measures’’ in this section below for details.
Save and except for our Chairman’s and Mr. Akinori OHISHI (大石明徳)’s directorship in NI
and NUSA, our Directors have confirmed that there is no overlap in the directors and senior
management between our Company and our Controlling Shareholders and/or their respective
close associates.
3.

Operational independence

Our Company makes business decisions independently. On the basis of the following
reasons, our Directors consider that our Company will continue to be operationally independentof our Controlling Shareholders and their respective close associates:(i)our Company is not reliant on trademarks owned by our Controlling Shareholders, orother companies controlled by our Controlling Shareholders;(ii)

our Group is the holder of all relevant licenses material to the operation of our businessand has sufficient capital, equipment and employees to operate our businessindependently;(iii)

our Company has our own administrative and corporate governance infrastructure(including our own accounting, legal and human resources departments);

374

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS(iv)

all of the properties used as our principal place of business, offices premises andpachinko halls are either self-owned or leased from independent third parties by ourCompany or our subsidiaries;(v)

all external services and/or procurement required by our Company or our subsidiaries
are provided by and, if needed, can be easily sourced from, independent third parties;
and

(vi)

our Company has established a set of internal control procedures to facilitate theeffective operation of our business.

Based on the above-mentioned arrangements, our Directors are of the view that our
Company will be able to operate independently of our Controlling Shareholders and theirrespective close associates.
4.

Related-party transactions between our Group and entities controlled by ourControlling Shareholders

During the Track Record Period, certain entities controlled by our Controlling Shareholders
entered into related party transactions with our Group in the ordinary course of our business andon normal commercial terms. Such related party transactions are disclosed in Note 35 to“Appendix I — Accountant’s Report”. Such transactions, if continued after the Listing, will
constitute continuing connected transactions of our Company under the Listing Rules.
Our Directors confirm that all non-trade related party transactions with our Controlling
Shareholders and their respective close associates will be discontinued upon Listing.
5.

Financial independence

Our Directors are of the view that our Group will be financially independent of our Controlling
Shareholders and any of their respective close associates upon Listing. All loans, advances andbalances due to and from our Controlling Shareholders and their respective close associates(e.g., the shareholder loan) will be fully settled and that all share pledges and guarantees provided
by our Controlling Shareholders and their respective close associates on our Group’s borrowing
will be fully released upon Listing. In addition, we have our own internal control and accounting
systems, accounting and finance department, independent treasury function for cash receipts
and payment and independent access to third-party financing. Our Directors are satisfied that weare capable of conducting our business independently of any of our Controlling Shareholders(including their respective close associates) after our Company is listed on the Stock Exchange.

375

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
DEED OF NON-COMPETITION
Non-competition
For the purpose of the Listing, our Controlling Shareholders (as convenantors) and ourCompany have entered into the Deed of Non-Competition on 16 March 2015, pursuant to which
each of our Controlling Shareholders has irrevocably undertaken to our Company (for itself andon behalf of each other member of our Group) that he/she/it would not, and would procure that
his/her/its close associates (except any members of our Group) would not, during the restrictedperiod set out below, directly or indirectly, either on his/her/its own account or in conjunction withor on behalf of any person, firm or company, among other things, carry on, participate or beinterested or engaged in or acquire or hold (in each case whether as a shareholder, director,
partner, agent, employee or otherwise, and whether for profit, reward or otherwise) any
Restricted Business (whether alone or jointly with another person and whether directly or
indirectly or on behalf of or to assist or act in concert with any other person).
“Restricted Business” stated in the Deed of Non-Competition refers to any activity or
business which competes, or is likely to compete, either directly or indirectly, with:(a)the pachinko and pachislot hall operations in Japan referred to in “Business”;(b)

the operation of restaurants serving Spanish or Western cuisine in general in Japan;(c)operation of hotel(s) in Fukushima Prefecture (福島県), Japan; and(d)any other business from time to time conducted, engaged in or invested in by any
member of our Group or which any member of our Group has otherwise publicly
announced its intentions to conduct, enter into, engage in or invest in on the Stock
Exchange pursuant to the Listing Rules and the SFO.

Each of our Controlling Shareholders has also undertaken to our Company the following:(a)to provide all information requested by our Company (including a quarterly update on
their current business ventures in writing) which is necessary for the annual review by
our Independent Non-executive Directors and the enforcement of the Deed of
Non-Competition or a negative confirmation, as appropriate; and(b)

to make an annual declaration on compliance with his/her/its undertaking under the
Deed of Non-Competition in the annual reports of our Company as our IndependentNon-executive Directors think fit and/or as required by the relevant requirements under
the Listing Rules.

376

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERSNew Opportunity
Our Controlling Shareholders have further undertaken to procure that, during the restrictedperiod, any business investment or other commercial opportunity which competes or is likely tocompete either directly or indirectly with the Restricted Business (the ‘‘New Opportunity’’)identified by or offered to him/her/it or any entity controlled by him/her/it, is first referred to us
in the following manner:(a)the relevant Controlling Shareholder is required to refer, or to procure the referral of, the
New Opportunity to us, and shall give written notice (the ‘‘Offer Notice’’) to us of any
New Opportunity containing all information reasonably necessary for us to consider
whether (i) such New Opportunity would constitute competition with our core business,and (ii) it is in the interest of our Company and our Shareholders as a whole to pursue
such New Opportunity, including but not limited to the nature of the New Opportunity
and the details of the investment or acquisition costs; and(b)upon receiving the Offer Notice, our Company shall seek approval from a Board
committee (comprising, among others, all the Independent Non-executive Directors
who do not have an interest in the New Opportunity) (the ‘‘Independent Board’’) as towhether to pursue or decline the New Opportunity. Any Director who has actual or
potential interest in the New Opportunity shall not be a member of the Independent
Board and shall abstain from attending (unless their attendance is specificallyrequested by the Independent Board) and voting at, or count towards the quorum for,any meeting or part of a meeting convened to consider such New Opportunity;(i)the Independent Board shall consider the financial impact of pursuing the New
Opportunity offered, whether the nature of the New Opportunity is consistent with
our Group’s strategies and development plans and the general market conditions;if appropriate, the Independent Board may appoint independent financial andlegal advisers or other professional experts to assist at the cost of our Company,
the decision-making process in relation to such New Opportunity;(ii)

the Independent Board shall, within 20 business days of receipt of the written
notice referred to in (a) above, inform the relevant Controlling Shareholder inwriting on behalf of our Company its decision whether to pursue or decline the
New Opportunity. Such notice period can be extended if mutually agreed inwriting;(iii)

the relevant Controlling Shareholder shall be entitled but not obliged to pursue
such New Opportunity if he or she or it has received a notice from the
Independent Board declining such New Opportunity or if the Independent Board
failed to respond within such 20 business days period (or the extended period,
where applicable) pursuant to (b)(ii) above; and377

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS(iv)

if there is any material change in the nature, terms or conditions of such New
Opportunity pursued by the relevant Controlling Shareholder, he or she or it shallrefer such New Opportunity as so revised to our Company in the manner as
outlined in the Deed of Non-Competition as if it were a New Opportunity.

Our Independent Board will also review, on an annual basis, the compliance with the Deedof Non-Competition by our Controlling Shareholders, the results of which will be disclosed in ourannual reports. Furthermore, the Independent Board may appoint financial advisors or
professional experts to provide advice, at the cost of our Company, in connection with whether
to take up any New Opportunity.
Exceptions
The Deed of Non-Competition does not apply to:(a)any interests in the shares of any member of our Group since the business of suchmember is not in competition with our Group. Moreover, none of our Controlling
Shareholders currently has any intention to hold shares directly in any member of ourGroup; or(b)interests in the shares of a company other than our Group which shares are listed ona recognised stock exchange provided that:

(c)

(i)

any Restricted Business conducted or engaged in by such company (and assets
relating thereto) accounts for less than 10% of that company’s consolidated
turnover or consolidated assets, as shown in that company’s latest audited
accounts; or(ii)

the total number of the shares held by the relevant Controlling Shareholder and/or
his/her/its close associates in aggregate does not exceed 5% of the issued sharesof that class of the company in question and such Controlling Shareholder andhis/her/its close associates, whether acting singly or jointly, are not entitled toappoint a majority of the directors of that company and at any time there should
exist at least another shareholder of that company (together, where appropriate,with its close associates) whose shareholdings in that company should be morethan the total number of shares held by the Controlling Shareholder and his/her/its
close associates in aggregate; orany business in relation to the leasing of property interests (commercial, residential orotherwise) to third party tenants.

The ‘‘restricted period’’ stated in the Deed of Non-Competition refers to the period during
which (i) the Shares of our Company remain listed on the Stock Exchange; (ii) the relevantControlling Shareholder and his/her/its close associate holds an equity interest in our Company;and (iii) the relevant Controlling Shareholder and/or his/her/its close associates jointly or severally(whether pursuant to the Deed of AIC Confirmation or not) are entitled to exercise or control the378

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
exercise of not less than 30% in aggregate of the voting power in the general meetings of ourCompany. In other words, if our Company was no longer listed on the Stock Exchange or the
relevant Controlling Shareholder came to hold less than 30% of the Shares then issued, the Deedof Non-Competition would not apply. We believe the 30% threshold is justifiable as it is equivalent
to the thresholds applied under the Listing Rules and the Takeovers Code for the concept of‘‘control’’.
CORPORATE GOVERNANCE MEASURESOur Company will further adopt the following measures to manage the conflict of interests
arising from the possible competing business of our Controlling Shareholders and to safeguard
the interests of our independent Shareholders:(i)in preparation for the Listing, our Company has amended our Articles to comply with
the Listing Rules. In particular, our Articles provide that, except for certain exceptions
permitted under the Listing Rules or the Stock Exchange, a Director shall not vote on
any Board resolution approving any contract in relation to which he has a materialinterest, nor shall such Director be counted in the quorum present at that meeting.
Furthermore, a Director who holds directorship and/or senior management positions in
our Controlling Shareholders or any of its close associates (other than our Company or
any member of our Group) shall not vote on any Board resolution regarding any
transactions proposed to be entered into between any member of our Group and ourControlling Shareholders or any of its close associates (other than our Company or any
member of our Group), nor shall such Director be counted in the quorum present atsuch meeting;(ii)

we have appointed Shenyin Wanguo Capital (H.K.) Limited as our compliance adviser,
which will provide advice and guidance to us with respect to compliance with theapplicable laws and the Listing Rules, including but not limited to various requirements
relating to Directors’ duties and internal controls;(iii)

our Independent Non-executive Directors will review, at least on an annual basis, thecompliance with the Deed of Non-Competition by our Controlling Shareholders;(iv)

each of our Controlling Shareholders has undertaken to provide all informationnecessary for the annual review by our Independent Non-executive Directors and theenforcement of the Deed of Non-Competition;(v)

we will disclose decisions on matters reviewed by our Independent Non-executive
Directors relating to compliance and enforcement of the Deed of Non-Competition
either through an annual report, or by way of announcement to the public;(vi)

each of our Controlling Shareholders will make an annual declaration of compliancewith the Deed of Non-Competition in the annual reports of our Company;

379

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS(vii) the management structure of our Group includes our Audit Committee, ourRemuneration Committee and our Nomination Committee, the written rules of each ofwhich will require them to be alert to prospective conflict of interests and to formulate
their proposals accordingly;(viii) pursuant to the Corporate Governance Code set out in Appendix 14 of the Listing
Rules, our Directors, including our Independent Non-executive Directors, will be able
to seek independent professional advice from external parties in appropriate
circumstances at our Company’s costs;(ix)

each of the Controlling Shareholders undertakes to keep us informed and shall procure
his/her/its respective close associates to keep us informed, of new business
opportunities and to provide all information reasonably required by the IndependentNon-executive Directors to assist them in their consideration of any new business
opportunity; and(x)

our Independent Non-executive Directors will also review, on an annual basis, theimplementation of the Deed of Non-competition and any decisions in relation to new
business opportunities referred to us, and state their basis and reasons in our
Company’s annual reports.

Our Company expects to comply with the Corporate Governance Code set out in Appendix
14 of the Listing Rules which sets out principles of good corporate governance in relation to,among others, Directors, Chief Executive Officer, Board composition, the appointment,
re-election and removal of Directors, their responsibilities and remuneration and communication
with our Shareholders. Our Company will state in our interim and annual reports whether we havecompiled with such code, and will provide details of, and reasons for, any deviation from it in thecorporate governance reports attached to our annual reports.
In the event that our Company decides not to proceed with any particular projects orbusiness opportunities and that our Controlling Shareholders decides to proceed with such a
project or business opportunity, we will announce such decision by way of an announcement
setting out therein the basis for us not taking the project or the business opportunity.

380

SHARE CAPITALCAPITAL STRUCTURE
As at the Latest Practicable Date, our Company had a core capital* (資本金) of ¥10 million.
Our Company does not have any specific value of authorised and issued share capital as theconcept of shares with par value has been abolished under the Japan Companies Act.
Authorised share capital
Immediately upon completion of the Global Offering, the total number of Shares authorised
to be issued by our Company pursuant to our Articles will be 2,000,000,000 Shares.
Issued share capital
Assuming the Over-allotment Option is not exercised, the number of Shares issued by ourCompany immediately upon completion of the Global Offering will be as follows:
Issued and to be issued:

300,000,000

Shares in issue immediately prior tothe completion of the Global Offering
Share to be issued pursuant to the Global Offering (excluding any
Shares which may be issued under the Over-allotment Option)

1,195,850,460

Total

895,850,460

Assuming the Over-allotment Option is exercised in full, the number of Shares issued by ourCompany immediately upon completion of the Global Offering will be as follows:
Issued and to be issued:

345,000,000

Shares in issue immediately prior tothe completion of the Global Offering
Share to be issued pursuant to the Global Offering (including all
Shares which may be issued under the Over-allotment Option)

1,240,850,460

Total

895,850,460

Assumptions
This table assumes the Global Offering has become unconditional and the issue of Sharespursuant thereto is made as described herein. It does not take into account of any Shares which
may be allotted and issued or repurchased by our Company under the Issuing Mandate andRepurchase Mandate granted to our Board as referred to below or otherwise.

381

SHARE CAPITAL
Ranking
The Offer Shares and the Shares that may be issued pursuant to the Over-allotment Option
shall rank pari passu with all existing Shares in issue on the date of the allotment and issue ofsuch Shares, and in particular will be entitled to all dividends or other distributions declared,
made or paid thereafter.
Treasury stock
As at the Latest Practicable Date, none of our issued Shares was a treasury stock* (自己株式).
GENERAL MANDATE TO ISSUE SHARESOur Board has been granted with the Issuing Mandate to allot, issue and deal in an
aggregate number of Shares that is no more than the sum of:(a)

20% of the total number of Shares issued by our Company immediately uponcompletion of the Global Offering; and(b)the aggregate number of Shares repurchased by our Company, if any, under the
Repurchase Mandate referred to below.

The aggregate number of Shares which our Directors are authorised to allot and issue underthe Issuing Mandate will not be reduced by the allotment and issue of Shares pursuant to (i) arights issue; or (ii) any specific authority granted by our Shareholders in general meeting(s).
The Issuing Mandate will expire at the earliest of:(a)the conclusion of our Company’s next AGM unless by ordinary resolution at thatmeeting, the authority is renewed, either unconditionally or subject to conditions; or(b)the expiration of the period within which our Company is required by the applicable
Japan law or our Articles to hold our next AGM; or(c)when varied, revoked or renewed by a resolution of our Shareholders in a general
meeting.

For the avoidance of doubt, the Issuing Mandate grants power to our Board to issue, allot
and deal with Shares only and does not grant authority to issue SARs and dispose of treasury
stock* (自己株式). For further details of the Issuing Mandate, see “Appendix VI — Statutory andGeneral Information — A. Further information about our Company — 5. Extraordinary general
meeting held on 16 March 2015”.

382

SHARE CAPITAL
Under our Articles and the Japan Companies Act, the Issuing Mandate is only enforceable
when (i) our total number of issued Shares will not exceed 2,000,000,000 Shares, which are thetotal number of Shares authorised to be issued by our Company, as a result of the issue andallotments made under the Issuing Mandate; and (ii) the allotments under the Issuing Mandate are
not made at a price or on term(s) especially favourable to the allottees.
Our Directors have undertaken to the Stock Exchange not to exercise the Issuing Mandate
if any of the aforementioned conditions has not been fulfilled, in which case they will seek specificapproval from our Shareholders in order to issue and allot new Shares. For a detailed discussion
on the Japan law provisions relating to the enforceability of the Issuing Mandate, see “Key Japan
Legal and Regulatory Matters - D. Capital Structure - Issuing Mandate”.
We will comply with Rule 13.36 of the Listing Rules in relation to pre-emptive rights and theIssuing Mandate.
GENERAL MANDATE TO REPURCHASE SHARESOur Board has been granted with the Repurchase Mandate to exercise all the powers of ourCompany to repurchase an aggregate number of Shares that is no more than 10% of the total
number of Shares issued by our Company immediately upon completion of the Global Offering.
The Repurchase Mandate only relates to repurchases made on the Stock Exchange, or any
other stock exchange on which the Shares are listed (and which is recognised by the SFC andthe Stock Exchange for this purpose), subject to and in accordance with our Articles, allapplicable laws and regulations in Japan and Hong Kong, and the requirements of the Listing
Rules and any other stock exchange on which our securities may be listed, as amended from time
to time. Further information required by the Stock Exchange to be included in this Prospectus
regarding the repurchase of Shares is set out in “Appendix VI — Statutory and General
Information — B. Repurchase of our Shares”.
The Repurchase Mandate will expire at the earliest of:(a)the conclusion of our Company’s next AGM unless by ordinary resolution at thatmeeting, the authority is renewed, either unconditionally or subject to conditions; or(b)the expiration of the period within which our Company is required by the applicable
Japan law or our Articles to hold our next AGM; or(c)when varied, revoked or renewed by a resolution of our Shareholders in a general
meeting.

Upon Listing, repurchases on the Stock Exchange will be effected under the Repurchase
Mandated granted to our Board by our Shareholders on 16 March 2015 in compliance with Rule
10.06 of the Listing Rules as market transactions etc.* (市場取引等) as defined under the Japan
Companies Act. Our Articles provide that repurchases of our own Shares can be effected through383

SHARE CAPITALa market transaction etc.* (市場取引等) with a resolution of our Board (so long as such
repurchases comply with the applicable requirements under the Listing Rules), allowing ourBoard to effect repurchases under the Repurchase Mandate without Shareholders’ specificapproval.
Based on the foregoing Articles and Japan law provisions, repurchases under the
Repurchase Mandate must be market transactions etc.* (市場取引等) as defined under the Japan
Companies Act. There is no judicial precedent or interpretation confirming that a repurchasethrough the Stock Exchange, which is not a securities exchange in Japan, is a market transaction
etc.* (市場取引等). Given the lack of judicial precedent, our Directors have undertaken to the
Stock Exchange that they will not exercise the Repurchase Mandate to repurchase our Shares on
the Stock Exchange unless there is clear judicial authority allowing us to make repurchases on
the Stock Exchange thereunder.
We will comply with the requirements in respect of the Repurchase Mandate under the Rule
10.06 of the Listing Rules.
GENERAL MEETINGS AND CLASS MEETINGS
See “Appendix V — Summary of our Articles of Incorporation and Japan Corporation Law— 4. Transactions requiring Shareholders approval” for circumstances under which a resolutionof our Shareholders are required under our Articles and/or the Japan Companies Act.
Under our Articles, our Company is not allowed to issue any class of shares other than ourcommon Shares* (普通株式). Our Articles therefore do not contain any provision as to thecircumstances where a separate class meeting is required.

384

SUBSTANTIAL SHAREHOLDERSSUBSTANTIAL SHAREHOLDERS
So far as our Directors are aware, immediately following the completion of the Global
Offering, the following persons will have an interest or short position in the Shares and theunderlying Shares which would fall to be disclosed to our Company under provisions of Divisions
2 and 3 of Part XV of the SFO, or who are, directly or indirectly, interested in 10% or more of thenominal value of any class of share capital carrying rights to vote in all circumstances at general
meetings of our Company:
Interests held immediately uponcompletion of the Global Offering
Approximate
Name of shareholder

Capacity/ Nature of interest

Numberpercentage

224,480,460

18.8%

Tatsuo TANIGUCHI (谷口龍雄) . . . . . Beneficial interest;
custodian (2)223,790,000

18.5%

Masataka TANIGUCHI (谷口晶貴) . . . Beneficial interest;
custodian (3)151,570,000

12.7%

Yoshihiro TEI (鄭義弘) # (also known Beneficial interest;
as JEONG Jungwung) . . . . . . . . . . custodian (4)98,440,000

8.3%

SMBC Trust Bank Ltd.*
Trustee (2), (3), (4)(株式会社SMBC信託銀行) . . . . . . .

229,137,500

19.1%

ESOA . . . . . . . . . . . . . . . . . . . . . . . . Custodian (5)61,870,000

5.2%

Seiai HATOYAMA (鳩山正愛) . . . . . . . Interest of a spouse (6)224,480,460

18.8%

Hideko TANIGUCHI (谷口秀子) . . . . . Interest of a spouse (7)223,790,000

18.5%

Eiko TANIGUCHI (谷口栄子) . . . . . . . Interest of a spouse (8)151,570,000

12.7%

Keie TEI (鄭慶恵). . . . . . . . . . . . . . . . Interest of a spouse (9)98,440,000

8.3%

Hidenori TANIGUCHI (谷口秀憲) . . . . Interest of a child (10)224,480,460

18.8%

Yuryon TANIGUCHI (谷口有鈴) . . . . . Interest of a child (10)224,480,460

18.8%

Hirohide TANIGUCHI (谷口博秀) . . . Interest of a child (10)224,480,460

18.8%

Yuri TANIGUCHI (谷口裕里) . . . . . . . . Interest of a child (10)224,480,460

18.8%

Our Chairman . . . . . . . . . . . . . . . . . Beneficial interest

385

(1)

SUBSTANTIAL SHAREHOLDERS
Interests held immediately uponcompletion of the Global Offering
Approximate
Name of shareholder

Capacity/ Nature of interest

Numberpercentage

Masahide TEI (鄭將英) (also known Interest of a child;as JEONG Jangyeong) . . . . . . . . . beneficial interest (11)98,440,000

8.3%

Akinori TEI (鄭敬憲) # (also known as Interest of a child;
JEONG Kyeongheon) . . . . . . . . . . beneficial interest (11)98,440,000

8.3%

#

Notes:(1)

The interests held by our Chairman shown above include 212,980,460 Shares held in his own name for his own
benefit and 11,500,000 Shares held by Densho Limited* (有限会社伝承), a company collectively wholly-owned byhis children, the voting rights of which are exercisable by our Chairman.

(2)

The interests held by Mr. Tatsuo TANIGUCHI (谷口龍雄) shown above include (i) 161,690,000 Shares held in his own
name for his own benefit, (ii) 19,320,000 Shares held by Jukki Limited* (有限会社十起), a company collectively
wholly-owned by his children, the voting rights of which are exercisable by Mr. Tatsuo TANIGUCHI (谷口龍雄); (iii)
1,380,000 Shares held by KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA), a company collectively wholly-owned
by our Chairman, Mr. Tatsuo TANIGUCHI (谷口龍雄) and Mr. Masataka TANIGUCHI (谷口晶貴), the voting rights ofwhich are exercisable by Mr. Tatsuo TANIGUCHI (谷口龍雄); and (iv) 41,400,000 Shares held by the TT Family Trustfor the benefit of his children, namely Ms. Yoshika TEI (鄭淑佳) # (also known as Ms. JEONG Sukka), Mr. Kousei TEI(鄭光誠) # (also known as Mr. CHONG Gangsong) and Mr. Kiyokazu TANIGUCHI (谷口清和). SMBC Trust Bank Ltd.*(株式会社SMBC信託銀行) is the trustee and assignee* (受託者) of the TT Family Trust and Mr. Tatsuo TANIGUCHI(谷口龍雄) is entitled to exercise the voting rights attached to the Shares under the TT Family Trust. The interests
under the TT Family Trust are equally distributed among the three beneficiaries under the TT Family Trust.

(3)

The interests held by Mr. Masataka TANIGUCHI (谷口晶貴) shown above include (i) 11,442,500 Shares held in his
own name for his own benefit; (ii) 5,750,000 Shares held by Hokuyo Kanko Limited* (有限会社北陽観光), a company
collectively wholly-owned by his children, the voting rights of which are exercisable by Mr. Masataka TANIGUCHI(谷口晶貴); and (iii) 134,377,500 Shares held by the MT Family Trust for the benefit of his children, namely Mr.
Tatsunari TANIGUCHI (谷口辰成) # (also known as Mr. CHONG Jinsong), Mr. Takanari TANIGUCHI (谷口喆成) # (alsoknown as Mr. JEONG Cheolseong) and Mr. Toshinari TANIGUCHI (谷口才成) # (also known as Mr. CHUNG
Jaeseong). SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行) is the trustee and assignee* (受託者) of the MT Family
Trust and Mr. Masataka TANIGUCHI (谷口晶貴) is entitled to exercise the voting rights attached to the Shares under
the MT Family Trust. The interests under the MT Family Trust are equally distributed among the three beneficiaries
under the MT Family Trust.

(4)

The interests held by Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) shown above include (i)33,580,000 Shares held in his own name for his own benefit; (ii) 11,500,000 Shares held by Daiki Limited*(有限会社大喜), a company collectively wholly-owned by his children, the voting rights of which are exercisable by
Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung); and (iii) 53,360,000 Shares held by the YT Family
Trust for the benefit of his children, namely Mr. Akinori TEI (鄭敬憲) # (also known as JEONG Kyeongheon) and Mr.
Masahide TEI (鄭將英)# (also known as JEONG Jangyeong). SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行) is
the trustee and assignee* (受託者) of the YT Family Trust and Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG
Jungwung) is entitled to exercise the voting rights attached to the Shares under the YT Family Trust. The interests
under the YT Family Trust are equally distributed among the two beneficiaries under the YT Family Trust.

(5)

The ESOA is the registered owner of 61,870,000 Shares held for the benefit of the members of the ESOA, who are
current employees of our Group. The voting rights attached to the Shares held by the ESOA are exercisable by its
president* (理事長), currently Mr. Takashi ENDO (遠藤孝), who is not a core connected person of our Company.

386

SUBSTANTIAL SHAREHOLDERS(6)

Mrs. Seiai HATOYAMA (鳩山正愛) is the spouse of our Chairman and is therefore deemed to be interested in the
Shares that our Chairman is interested in under the SFO.

(7)

Mrs. Hideko TANIGUCHI (谷口秀子) is the spouse of Mr. Tatsuo TANIGUCHI (谷口龍雄) and is therefore deemed to
be interested in the Shares that Mr. Tatsuo TANIGUCHI (谷口龍雄) is interested in under the SFO.

(8)

Mrs. Eiko TANIGUCHI (谷口栄子) is the spouse of Mr. Masataka TANIGUCHI (谷口晶貴) and is therefore deemed to
be interested in the Shares that Mr. Masataka TANIGUCHI (谷口晶貴) is interested in under the SFO.

(9)

Mrs. Keie TEI (鄭慶恵) is the spouse of Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) and istherefore deemed to be interested in the Shares that Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG
Jungwung)is interested in under the SFO.

(10)

Mr. Hidenori TANIGUCHI (谷口秀憲), Ms. Yuryon TANIGUCHI (谷口有鈴), Mr. Hirohide TANIGUCHI (谷口博秀) and
Ms. Yuri TANIGUCHI (谷口裕里) are the children of our Chairman under the age of 18 and are therefore deemed to
be interested in the Shares that our Chairman is interested in under the SFO.

(11)

Ms. Masahide TEI (鄭將英)# (also known as JEONG Jangyeong) and Mr. Akinori TEI (鄭敬憲)# (also known as
JEONG Kyeongheon) are the children of Mr. Yoshihiro TEI (鄭義弘)# (also known as Mr. JEONG Jungwung) under
the age of 18 and are therefore deemed to be interested in the Shares that Mr. Yoshihiro TEI (鄭義弘)# (also known
as Mr. JEONG Jungwung) is interested in under the SFO. In addition, they are the beneficiaries under the YT Family
Trust.

(12)

Shareholding percentages are approximate and subject to rounding.

Save as disclosed in this Prospectus, our Directors are not aware of any persons who will,
immediately following completion of the Global Offering, have an interest or a short position in the
Shares or underlying Shares which would fall to be disclosed to our Company under theprovisions of Divisions 2 and 3 of Part XV of the SFO, or, will be, directly or indirectly, interested
in 10% or more of the nominal value of any class of share capital carrying rights to vote in all
circumstances in the general meetings of our Company. Our Directors are not aware of any
arrangement which may at a subsequent date result in a change of control of our Company.

387

DIRECTORS AND SENIOR MANAGEMENT
GENERAL
Directors
The table below presents certain information in respect of the members of our Board:
Date of

Name

Current
Position/Title

Date of
Joining

Appointment
as aRoles andAgein our Group

our Group

Director

Responsibilities

52

Chairman of
the Board,

1 April 1983

10 January Responsible for our2013 overall corporate

Executive Director
Hisanori TANIGUCHI(谷口久徳) # (also known as
Mr. JEONG Seonggi) (2) . . . . . .

Executive

strategies, management

Director andChief

and businessdevelopment; member of

Executive

our Nomination and

Officer

Remuneration
Committees

Independent Non-executive Directors
Hiroaki MORITA (森田弘昭) . . . . .

78

IndependentNon-executive
Director

N/A (1)25 June Supervising the overall
2014 management andbusiness operations of
our Group; chairman of
our Nomination
Committee and memberof our Audit andRemuneration
Committees

Norio NAKAYAMA (中山宣男) . . . .

67

Independent

N/A (1)Non-executive
Director

25 June Supervising the overall
2014 management andbusiness operations of
our Group; chairman of
our Remuneration
Committee and memberof our Audit Committee

Masaharu TOGO (東郷正春). . . . .

66

IndependentNon-executive
Director

N/A (1)25 June Supervising the overall
2014 management andbusiness operations of
our Group; member of
our Nomination
Committee

Hiroaki KUMAMOTO (熊本浩明) . .

46

IndependentNon-executive
Director

N/A (1)28 November Supervising the overall
2014 management andbusiness operations of
our Group; chairman of
our Audit Committee

388

DIRECTORS AND SENIOR MANAGEMENT

Notes:(1)

Except for our Chairman, all Directors of our Company are external Directors* (社外取締役) under the Japan
Companies Act. They are not employees of our Group and have no executive functions in our Group whatsoever.

(2)

Our Chairman is a brother of Mr. Tatsuo TANIGUCHI (谷口龍雄), a Controlling Shareholder, a member of our senior
management and an associate of him under the Listing Rules. He is also a person acting in concert with him within
the meanings of the Takeovers Code.

Executive Officers
The table below presents certain information in respect of our Executive Officers:
Date ofAppointment
Current
Position/Title

Date of
Joining

as an
Executive

Roles andResponsibilities

Name

Age

in our Group

our Group

Officer

Hisanori TANIGUCHI(谷口久徳) # (also known as
Mr. JEONG Seonggi) . . . . . . .

52

Chairman of
the Board,
Executive

1 April 1983

10 January Responsible for our2013 overall corporate
strategies, management

Director andChief

and businessdevelopment; member of

Executive
Officer

our Nomination andRemuneration
Committees

Akinori OHISHI (大石明徳) . . . . . .

50

Executive
Officer

1 April 201025 June Management of our2014 Group’s day-to-day
operations

Hidenori MOROTA (諸田英模) . . . .

49

Executive
Officer

6 October
1988

28 November Oversight of our sales
2014 department; Director of
Niraku Corporation

Mototaka TANAKA (田中基隆) . . .

48

Executive
Officer

21
September
2012

28 November Oversight of our legal
2014 and corporate affairs;
corporate records andgeneral compliance withcorporate and otherrelevant laws andregulations in Japan

Note:
(1)

The business address of all of our Executive Officers is our headquarters at 1-39 Hohaccho 1-chome,
Koriyama-shi, Fukushima, Japan

389

DIRECTORS AND SENIOR MANAGEMENTOther senior management
The table below presents certain matters in respect of the members of our senior
management (other than our Directors and Executive Officers):
Date ofAppointment

Name

Age

Tatsuo TANIGUCHI (谷口龍雄) (1).

61

Current
Position/Title

Date of
Joiningas ourseniorRoles andin our Group

our Group

management

Responsibilities

Representative

1 Junedirector andpresident,

1974

19 June Oversight of our2009 property activities

Nexia
Tadashi UCHIYAMA (内山忠) . . . .

63

Statutory

24 Juneauditor,2011

NirakuCorporation

24 June Auditing the directors of2011 Niraku Corporation in
the proper execution of
their duties

Notes:(1)

Mr. Tatsuo TANIGUGHI (谷口龍雄) is a brother of our Chairman and an associate of our Chairman under the Listing
Rules. He is also a person acting in concert with our Chairman within the meanings of the Takeovers Code.

(2)

The business address of all of our senior management is our headquarters at 1-39 Hohaccho 1-chome,
Koriyama-shi, Fukushima, Japan

BOARD OF DIRECTORS
Our Board of Directors is the primary decision-making body of our Company, setting
fundamental business strategies and policies for the management and operation of our businessand monitoring their implementation.
Our Board currently consists of five Directors, comprising one Executive Director and four
Independent Non-executive Directors. Pursuant to our Articles and the Japan Companies Act,
our Directors are elected by our Shareholders in our general meetings. The term of office of a
Director shall expire at the end of the next AGM to be held after his appointment.
Executive Director
Mr. Hisanori TANIGUCHI (谷口久徳) # (also known as Mr. JEONG Seonggi)
Chairman of the Board, Executive Director and Chief Executive Officer
Our Chairman, aged 52, is the primary leadership figure of our Group. He was appointed as
the Representative Director and President* (代表取締役社長) of our Company on 10 January
2013, the date of incorporation of our Company, and was re-designated as a Director and Chief390

DIRECTORS AND SENIOR MANAGEMENT
Executive Officer on 25 June 2014 when our Shareholders resolved to convert our Company into
a company with three committees* (委員会設置会社) under the Japan Companies Act. Apart fromhis role as an Executive Director and Chief Executive Officer, our Chairman was appointed as ourChairman of the Board in February 2013 and is responsible for our Group’s overall corporate
strategies, management and business development. He is also a member of our Nomination
Committee and Remuneration Committee.
Having joined Niraku Corporation in April 1983, our Chairman has spent over 31 years in ourGroup and worked closely with generations of the Taniguchi family in building up our Group froma small-scale operation to the fourth largest pachinko hall operator in Japan in 2013 (based ongross pay-ins 1 ), according to EBI. Between 1987 and 2002, our Chairman headed a number of
departments across our operations, from human resources to hall development and sales, andacquired extensive knowledge in a wide array of aspects in pachinko and pachislot halloperations.
Our Chairman first involved in our overall general management in November 2002, when he
was appointed as the managing director* (常務取締役) of Niraku Corporation. He wassubsequently elected as the vice president* (取締役副社長), president* (取締役社長) andrepresentative director and president* (代表取締役社長) of Niraku Corporation in June 2008, June2009 and April 2010, respectively. He is currently the representative director and president*(代表取締役社長) of Niraku Corporation and Merrist.
Our Chairman spent substantially his entire career with our Group and has led us inachieving significant milestones through several economic cycles. He is instrumental in theimplementation of our centralised management strategy since 1999 and the gradual introductionof low-cost pachinko and pachislot machines in our halls since 2007. Under his leadership, we
opened our 50th pachinko hall in Koriyama Arai (郡山荒井), Fukushima Prefecture (福島県) in May
2011 and have continued to grow organically beyond this significant accomplishment.
We believe that the success of our Group and his personal attributes earned our Chairman
wide recognition as a leading figure in the pachinko industry in Japan. He is currently the vicepresident* (副理事長) of Nihon Yugi-kanren Jigyo Kyokai* (Japan Amusement Business
Association*) (一般社団法人 日本遊技関連事業協会) and the head of its Tohoku branch. He is alsoa director* (理事) of Pachinko Trusty Board* (一般社団法人パチンコ•トラスティ•ボード), an
organisation comprised of pachinko operators as well as third party professionals, such as
lawyers, accountants and experts in business and corporate governance.
Our Chairman was born and brought up in Japan. He is one of our Controlling Shareholders
and, together with other members of the Taniguchi Consortium with whom he acts in concert, willcontrol approximately 69.5% of the voting rights in our Company upon completion of the Global
Offering.

1

Represents the amount received from customers for rental pachinko balls and pachislot tokens.

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DIRECTORS AND SENIOR MANAGEMENT
Independent Non-executive Directors
Mr. Hiroaki MORITA (森田弘昭)
Independent Non-executive Director
Mr. Morita, aged 78, is an external Director* (社外取締役) of our Company and has held thisposition since 25 June 2014. He was previously a statutory auditor* (監査役) of our Company
between 10 January 2013, the date of incorporation of our Company, and 25 June 2014, when
our Shareholders resolved to convert our Company into a company with three committees* (委員会設置会社) under the Japan Companies Act. Under the Listing Rules, Mr. Morita is an
Independent Non-executive Director.
Mr. Morita has been a director of IPO Research Institute, Ltd.* (IPO総合研究所), a consulting
firm that provides management and business advice to Japanese corporations looking toconduct initial public offerings and listings, since April 2000. In addition, Mr. Morita also worked
for Nomura Securities Co., Ltd.* (野村證券株式会社) between April 1960 and June 1989 andserved various positions in its underwriting and finance divisions. He has also been the
representative director (代表取締役) of Morita Office* (株式会社森田 • 栗山事務所), which provides
management consulting services, since August 1997. With his current and previous positions inthese institutions in Japan and as a chartered member of the Securities Analysts Association ofJapan* (日本証券アナリスト協会) since August 1981, he has extensive experience in securities
dealings, financial analysis, corporate governance and other aspects relating to listed companies
in Japan.
Mr. Morita supervises the overall management and business operations of our Group. He is
also the chairman of our Nomination Committee and a member of our Audit Committee andRemuneration Committee. Our Directors have confirmed that Mr. Morita fulfils the independence
requirements under Rule 3.13 of the Listing Rules.
Mr. Morita graduated from Nagasaki University* (長崎大学) with a bachelor’s degree in
economics in March 1960.
Mr. Norio NAKAYAMA (中山宣男)
Independent Non-executive Director
Mr. Nakayama, aged 67, was appointed as an external Director* (社外取締役) of ourCompany on 25 June 2014, when our Shareholders resolved to convert our Company into a
company with three committees* (委員会設置会社) under the Japan Companies Act. Under the
Listing Rules, Mr. Nakayama is an Independent Non-executive Director.
Mr. Nakayama joined Kaneka Corporation* (株式会社カネカ), a listed company on both The
Tokyo Stock Exchange (4118:JP) and Nagoya Stock Exchange (4118:JP) which is primarily
engaged in the manufacturing of chemical products in Japan, in April 1969, and was its corporate
auditor prior to his departure in May 2009. Through his positions within Kaneka Corporation*(株式会社カネカ), Mr. Nakayama acquired experiences in on-going compliance matters andcorporate governance of a listed corporation in Japan. Until November 2006, Mr. Nakayama also392

DIRECTORS AND SENIOR MANAGEMENT
served as an external corporate auditor for Asahi Homes Co. Ltd * ( 旭ホームズ株式会社). Mr.
Nakayama has also been a director of Fire Stove Japan Co., Ltd.* (株式会社ファイヤーストーブジャパン), a company primarily engaged in the sales of stoves and related accessories in Japan
since December 2010.
The primary duty of Mr. Nakayama within our Group is to supervise our overall management
and business operations. He was also appointed as the chairman of our Remuneration
Committee and a member of our Audit Committee. Our Directors have confirmed that Mr.
Nakayama fulfils the independence requirements under Rule 3.13 of the Listing Rules.
Mr. Nakayama obtained a bachelor’s degree in commerce from Keio University* (慶応義塾大学) in March 1969.
Mr. Masaharu TOGO (東郷正春)
Independent Non-executive Director
Mr. Togo, aged 66, has been an external Director* (社外取締役) of our Company since 25
June 2014, when our Shareholders resolved to convert our Company into a company with threecommittees* (委員会設置会社) under the Japan Companies Act. Under the Listing Rules, Mr. Togo
is an Independent Non-executive Director.
In April 1973, Mr. Togo joined Sumitomo Corporation* (住友商事株式会社), one of the leading
general trading conglomerates in Japan (the shares of which are listed on The Tokyo Stock
Exchange (8053:JP), Osaka Securities Exchange Co., Ltd. (8053:JP), Nagoya Stock Exchange(8053:JP) and Fukuoka Stock Exchange (8053:JP)) and was a manager in charge of its stainlesssteel and magnesium production division until his departure in May 2006. Prior to that, Mr. Togo
was a corporate auditor for Daiwa Kohtai Co., Ltd* (大和鋼帯株式会社) from June 2001 to June
2003.
Mr. Togo received a bachelor’s degree in commerce from Keio University* (慶応義塾大学) in
March 1973. He was appointed to our Board to supervise the overall management and business
operations of our Group and is also a member of our Nomination Committee. Our Directors haveconfirmed that Mr. Togo fulfils the independence requirements under Rule 3.13 of the Listing
Rules.
Mr. Hiroaki KUMAMOTO (熊本浩明)
Independent Non-executive Director
Mr. Kumamoto, aged 46, is an external Director* (社外取締役) of our Company and has held
this position since 28 November 2014. Within the meanings of the Listing Rules, He is an
Independent Non-executive Director of our Company.
Mr. Kumamoto spent over 14 years of his career both in the Japan and Hong Kong officesof PricewaterhouseCoopers, gaining experience in their audit, business development andconsulting divisions. Between October 1997 and July 2004, Mr. Kumamoto was a senior audit
associate at the Tokyo office of PricewaterhouseCoopers. He was subsequently seconded toPricewaterhouseCoopers’ Hong Kong office as a manager of its Japan business development
division and supported the local auditing teams in performing statutory audit in accordance with393

DIRECTORS AND SENIOR MANAGEMENT
the accounting principles in Hong Kong and acquired the requisite knowledge in the financial
reporting standards of Hong Kong. Upon his return to Japan, he was promoted to a senior
manager of the consulting division and specialised in in assisting Japanese companies, including
listed companies, to prepare their financial statements under the IFRS.
Mr. Kumamoto left PricewaterhouseCoopers in December 2011 to set up his own business,
Global Japan Consulting Limited, which provides business, financial and marketing consulting
services. He is currently its chief executive officer* (代表執行役). Mr. Kumamoto received abachelor’s degree in economics from the University of Tokyo* (東京大学) in March 1993 and amaster’s degree in international business administration from the University of Tsukuba*(筑波大学) in July 2012. He qualified as a certified public accountant in Japan in May 2001. Our
Directors consider his unique experience and knowledge in JGAAP and IFRS made him a suitable
candidate as an Independent Non-executive Director of our Company and a valuable addition to
our Board. Our Directors have confirmed that Mr. Kumamoto possesses the appropriate
accounting or related financial management expertise required under Rule 3.10(2) and 3.21 of the
Listing Rules.
Mr. Kumamoto supervises the overall management and business operations of our Group.
He is also the chairman of our Audit Committee. Our Directors have confirmed that Mr.
Kumamoto fulfils the independence requirements under Rule 3.13 of the Listing Rules.
SENIOR MANAGEMENT
Our senior management comprises our Executive Officers and two other management
personnel.
Executive Officers
As a company with three committees* (委員会設置会社), Directors of our Company do not
execute the business of our Group and are intended to perform a supervisory role. Instead, ourDirectors formulate general business strategies and entrust the implementation and execution ofthese strategies, together with the day-to-day management and operation of our Group, to our
Executive Officers. Executive Officers are thus key members of our management. Under our
Articles, Executive Officers are elected and appointed by our Board of Directors.
Our Company has four Executive Officers. Our Chairman, who also serves as an Executive
Director and our Chairman of the Board, is our Chief Executive Officer. Under the Japan
Companies Act, our Chief Executive Officer is the legal representative of our Company with theauthority to sign and effect agreements for and on behalf of our Company. We are required toappoint at least one Executive Officer from time to time.
See “— Board of Directors — Executive Director” in this section above for the biographicaldetails of our Chairman.

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DIRECTORS AND SENIOR MANAGEMENT
Mr. Akinori OHISHI (大石明徳)
Executive officer
Mr. Ohishi, aged 50, has been our Executive Officer since 25 June 2014, when our
Shareholders resolved to convert our Company into a company with three committees* (委員会設置会社) under the Japan Companies Act. He is a prominent management figure in our Groupand manages our day-to-day operations. Mr. Ohishi is also a member of our Risk Management
Committee.
Mr. Ohishi joined our Group in April 2010 as an advisor of Niraku Corporation. He waspromoted to his current position of director and head of corporate planning of Niraku Corporationin June 2012 and is chiefly responsible for implementing the corporate and business strategies
of our pachinko and pachislot hall operations. Mr. Ohishi was elected as a Director of ourCompany upon our incorporation in January 2013, and was re-designated as an Executive Officer
on 25 June 2014. Mr. Ohishi’s prior business management experiences include his services at
WorkDesign Co., Ltd.* (株式会社ワーク▪デザイン), where he was the representative director*(代表取締役) from July 2006 to March 2010.
Mr. Ohishi’s industry positions include his directorship* (理事) at Pachinko Chain Store
Association* (一般社団法人パチンコ•チェーンストア協会). Mr. Ohishi graduated from Nihon
University* (日本大学) in March 1987 with a bachelor’s degree in sociology.
Mr. Hidenori MOROTA (諸田英模)
Executive Officer
Mr. Morota, aged 49, was appointed as our Executive Officer on 28 November 2014. He is
also a director of Niraku Corporation, our subsidiary, and has held this position since 22 June
2012. He is the head of our sales department and overseas the advertising, marketing, sales,machine selection and general prize offerings functions of our Group. Mr. Morota is also amember of our Risk Management Committee.
Mr. Morota joined our Group in October 1988 and spent over 13 years in operating andmanaging our pachinko hall operations. Throughout his career with us, Mr. Morota has served arange of corporate positions across our sales, corporate management, store operations andinformation technology divisions and has gained extensive experiences in the pachinko industry
throughout the process. His senior management duties came in June 2001 when he was elected
as a director of Niraku Corporation and was subsequently promoted to an executive officer*(執行役) in June 2005. He served as a Director of our Company from 10 January 2013 to 25 June
2014. On 28 November 2014, he was designated as our Executive Officer. Prior to joining ourGroup, Mr. Morota worked at Koriyama Meat Wholesale Co., Ltd.* (郡山食肉御売(株)) from July
1985 to October 1986.
As at the date of this Prospectus, Mr. Morota is interested in approximately 0.1% of our total
number of issued Shares.

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DIRECTORS AND SENIOR MANAGEMENT
Mr. Mototaka TANAKA (田中基隆)
Executive Officer
Mr. Tanaka, aged 50, was elected as our Executive Officer on 28 November 2014.
Concurrently he also serves as a manager of our legal department and is primarily in charge of
our legal and corporate affairs, corporate records and our general compliance with corporate andother relevant laws and regulations in Japan.
Mr. Tanaka is a graduate from Kansai University* (関西大学) and obtained a bachelor’s
degree in law in March 1990. Prior to joining our Group, he served in the legal department andthe general department of SG Holdings Co., Ltd.* (SGホールディングス), a Japanese
conglomerate that provides logistics, courier, real estate and other related services in Japan,
from 2005 to 2010, and was the deputy head of its legal department prior to his departure.
Having joined our Group in September 2012, he has been a manager of our legal department andwas promoted as our Executive Officer in November 2014 in an attempt to strengthen the
management and corporate governance functions of our Company.
Other Senior Management
Mr. Tatsuo TANIGUCHI (谷口龍雄)
Representative Director and President, Nexia
Mr. Taniguchi, aged 61, was appointed as the representative director and president*(代表取締役社長) of Nexia on 19 June 2009. His primary duties within our Group are the oversightof our property activities, including the selection, acquisition and maintenance of the lands andpremises of our pachinko halls. He also manages the office premises and residential apartmentbuilding owned by our Group which were leased to third party customers as an ancillary business.
Mr. Taniguchi joined our Group in June 1974 as an operations manager of Niraku
Corporation and was appointed as the managing director* (常務取締役) in October 1981. Heserved as the deputy president* (副社長) of Niraku Corporation between August 1998 and June2012 and a Director of our Company since 10 January 2013 and was an integral part of ourpachinko hall operations until his retirement, as a Director of our Company and Niraku
Corporation, in June 2014 and September 2014, respectively. He remains on with an advisoryrole within our Group, focusing on property activities. Mr. Taniguchi is the brother of our Chairman
and is therefore his associate under the Listing Rules. Mr. Taniguchi is also a Controlling
Shareholder of our Company and also a person acting in concert with our Chairman within themeanings of the Takeovers Code. See “Relationship with our Controlling Shareholders —Controlling Shareholders acting in concert” for details.

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DIRECTORS AND SENIOR MANAGEMENT
Mr. Tadashi UCHIYAMA (内山忠)
Statutory Auditor, Niraku Corporation
Mr. Uchiyama, aged 63, has been a statutory auditor* (監査役) of Niraku Corporation since
24 June 2011. As provided under the Japan Companies Act, Mr. Uchiyama’s functions within
Niraku Corporation is to audit its directors in the proper execution of their duties and supervises
the overall management, operation, accounting and financial matters and corporate governanceof Niraku Corporation.
Mr. Uchiyama has spent over 37 years in the group of companies under The Toho Bank,
Ltd.* (東邦銀行) between April 1974 and June 2011, and had gained considerable experiences
across its business functions, including banking, information system and business consulting.
His last position prior to joining our Group was the representative director* (代表取締役) of Toho
Computer Services Co., Ltd.* (東邦コンピューターサービス株式会社), a business administrative
services and support provider to banking institutions in Japan, from June 2010 to June 2011. Mr.
Uchiyama has been a member of the Civil Dispute Resolution Committee* (民事調停委員会) of theJapanese government since October 2012. He received a bachelor’s degree in economics from
Fukushima University* (福島大学) in March 1974.
JOINT COMPANY SECRETARIES
Pursuant to Rule 3.28 and Rule 8.17 of the Listing Rules, the secretary of our Company
must be an individual who, by virtue of his or her academic or professional qualifications or
relevant experience, is, in the opinion of the Stock Exchange, capable of discharging thefunctions of a company secretary. The Stock Exchange considers (a) an ordinary member of The
Hong Kong Institute of Company Secretaries, (b) a solicitor or barrister as defined in the Legal
Practitioners Ordinance (Chapter 159 of the Laws of Hong Kong) or (c) a certified public
accountant as defined in the Professional Accountants Ordinance (Chapter 50 of the Laws ofHong Kong) as acceptable academic or professional qualifications.
We have appointed Ms. YIU Wai Man Karen (姚慧敏) and Ms. NG Sau Mei (伍秀薇), both ofwhom satisfy the qualification requirements under Rules 3.17 and 8.28 of the Listing Rules, as
our joint companies secretaries.
Ms. YIU Wai Man Karen (姚慧敏)
Joint Company Secretary
Ms. Yiu, aged 39, was appointed as our joint company secretary on 9 December 2014.
Aside from her company secretarial duties, Ms. Yiu is also responsible for our accounting andfinancial reporting matters under IFRS and our financial management controls.
Prior to joining our Group in August 2014, Ms. Yiu was a senior manager in the assurance
department of PricewaterhouseCoopers, where she mainly performed audit and financial
reporting on Japanese clients, listed issuers on the Stock Exchange and applicants for listing on
the Stock Exchange. Between September 2007 and December 2009, Ms. Yiu was seconded toPricewaterhouseCoopers Aarata in Japan and assisted a number of Japanese institutions in

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DIRECTORS AND SENIOR MANAGEMENT
preparing their financial statements under IFRS and reconciliation of the differences between
JGAAP and IFRS. Our Directors believe that her unique skill set and experiences both in Japanand Hong Kong will enhance our corporate governance and internal auditing functions upon
Listing.
Ms. Yiu graduated from the University of Liverpool with a bachelor’s degree of Arts in July
1998. She has been a member of the Hong Kong Institute of Certified Public Accountants since
September 2009.
As a voluntary measure and for good corporate governance purposes, we have engaged
KCS Hong Kong Limited and appointed Ms. NG Sau Mei (伍秀薇) as a joint company secretary
to assist Ms. Yiu in her execution of our company secretarial matters upon Listing.
Ms. NG Sau Mei (伍秀薇)Joint Company Secretary
Ms. Ng, aged 37, was appointed as our joint company secretary on 9 December 2014. She
is a manager of the listing services department of KCS Hong Kong Limited, a corporate
secretarial and accounting service provider in Hong Kong.
Ms. Ng currently serves as a joint company secretary of China Shipping Container Lines Co.,
Ltd. (2866:HK) and Tian Ge Interactive Holdings Ltd. (1980:HK). The shares of both companies
are listed on the Stock Exchange.
Ms. Ng graduated from the City University of Hong Kong with a bachelor’s degree in lawsin November 2001. She has been an associate member of The Hong Kong Institute of Chartered
Secretaries since September 2007 and an associate member of The Institute of Chartered
Secretaries and Administrators in the United Kingdom since September 2007.

398

DIRECTORS AND SENIOR MANAGEMENTCORPORATE GOVERNANCE
The following chart sets forth our organisational structure, which reflects our corporate
governance regime:
Shareholder’s general meetings

Accounting auditors

Audit Committee

Board of Directors

Risk Management Committee

Nomination Committee

Remuneration Committee

Management
supervision

Niraku Corporation
Executive Officers
Merrist

Nexia
Execution of day-to-day operation- Delegation of authority- Accountability

Under the Japan Companies Act, a stock company* (株式会社) is in general required toadopt either (a) statutory auditors* (監査役) or a board of statutory auditors* (監査役), the primaryfunction of which is to supervise and audit the executive actions of the directors or (b) athree-committee system by establishing a nominating committee, a remuneration committee andan audit committee. In addition, the Listing Rules require a listed issuer to establish an audit
committee and a remuneration committee, and the Corporate Governance Code requires theestablishment of a nomination committee. To ensure management transparency and soundcorporate governance, our Shareholders resolved to adopt the three-committee system on 25
June 2014.
Unlike a statutory auditor system where directors perform executive functions, ourcorporate governance enables the management supervisory function of our Directors to be
separate from the business-execution functions of our Executive Officers. Under our corporate
governance regime, the primary decision-making body is our Board of Directors, the role of which
is primarily supervisory and strategic. Our Executive Officers are entrusted by our Board withtasks of business execution, which are subject to the oversight of our Board and the supervisionof our Audit Committee. The majority of our Directors do not serve as Executive Officers, which
reinforces the supervisory function of our Board.

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DIRECTORS AND SENIOR MANAGEMENT
Our organisational structure consists of our Company, one directly wholly-owned subsidiaryand two indirectly wholly-owned subsidiaries. Niraku Corporation, our wholly-owned subsidiary,
conducts our primary business of pachinko and pachislot hall operations. Nexia, our indirectly
wholly-owned subsidiary, is a property holding and investment company which holds the land andpremises on which our Group operates some of our pachinko halls, as well as an office building
and a residential apartment building for lease to third party tenants. Merrist, our indirectly
wholly-owned subsidiary, is primarily engaged in the employment of disabled people to provide
gardening, cleaning and general management services in our pachinko halls.
We recognise the importance of building, maintaining and improving upon a corporate
governance regime that is transparent, fair and shareholder-oriented. Our Shareholders elect andappoint our Directors, who in turn appoints our Executive Officers (including our Chief Executive
Officer, whose executive actions are ultimately accountable to our Shareholders). Our general
corporate strategies are formulated by our Board of Directors and implemented by our Executive
Officers in our day-to-day operations.
Our Directors believe that we have established a sound corporate governance regime withthe three-committee system that is in compliance with the requirements under the Japan
Companies Act and the Listing Rules, adopting the good corporate governance practices
recommended in the Corporate Governance Code in all material aspects.
CORPORATE GOVERNANCE CODE
Our Company complies or intends to comply with the Corporate Governance Code set out
in Appendix 14 of the Listing Rules with the exception for Code A.2.1, which requires the rolesof chairman and chief executive be different individuals.
Under code provision A.2.1 of the Corporate Governance Code, the roles of chairman andchief executive should be separate and should not be performed by the same individual. Our
Chairman holds both positions. Since April 2010, our Chairman has been the key leadershipfigure of our Group who has been primarily involved in the formulation of business strategies anddetermination of the overall direction of our Group. He has also been chiefly responsible for ourGroup’s operations as he directly supervises our Executive Officers (other than himself) andmembers of our senior management. Taking into account the continuation of the implementationof our business plans, our Directors (including our Independent Non-executive Directors)
consider our Chairman is the best candidate for both positions and the present arrangements are
beneficial and in the interests of our Company and our Shareholders as a whole.
Our Directors will review our corporate governance policies and compliance with the
Corporate Governance Code in each financial year and comply with the “comply or explain”
principle in our corporate governance report which will be included in our annual reports after the
Listing.

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DIRECTORS AND SENIOR MANAGEMENTBOARD COMMITTEES
Our Board delegates certain responsibilities to our Audit Committee, Remuneration
Committee and Nomination Committee. In accordance with the Japan Companies Act, the Listing
Rules, our Articles and the relevant laws and regulations in Hong Kong and Japan, we haveformed the following committees:
Audit Committee
We established our Audit Committee pursuant to the Japan Companies Act on 25 June
2014. In preparation for the Listing, we have incorporated the contents required under paragraph
C3 of the Corporate Governance Code as well as Rule 3.22 of the Listing Rules into the written
rules of our Audit Committee on 16 March 2015. Our Audit Committee consists Mr. Hiroaki
KUMAMOTO (熊本浩明) (chairman), Mr. Hiroaki MORITA (森田弘昭) and Mr. Norio NAKAYAMA(中山宣男). The primary duties of our Audit Committee are to assist our Board in providing an
independent view of the effectiveness of our financial reporting process, internal control and risk
management system, overseeing the audit process and performing other duties andresponsibilities as assigned by our Board. Our Audit Committee also monitors our Directors infulfilling their fiduciary duties.
We believe that the composition and the function of our Audit Committee complies with theapplicable requirements of the Stock Exchange. We intend to comply with future requirements tothe extent that they become applicable.
Remuneration Committee
We established our Remuneration Committee pursuant to the Japan Companies Act on 25
June 2014. In preparation for the Listing, we have incorporated the contents required underparagraph B1 of the Corporate Governance Code as well as Rule 3.26 of the Listing Rules into
the written rules of our Remuneration Committee on 16 March 2015. Our Remuneration
Committee consists of three members, namely Mr. Norio NAKAYAMA (中山宣男) (chairman), Mr.
Hiroaki MORITA (森田弘昭) and our Chairman. The primary duties of our Remuneration
Committee are to evaluate the performance of our Directors and senior management anddetermine the remuneration package of our Directors, Executive Officers and senior
management.
Nomination Committee
We established our Nomination Committee pursuant to the Japan Companies Act on 25
June 2014. In preparation for the Listing, we have incorporated the contents required underparagraph A5 of the Corporate Governance Code into the written rules of our Nomination
Committee on 16 March 2015. Our Nomination Committee consists of three members, namely
Mr. Hiroaki MORITA (森田弘昭) (chairman), Mr. Masaharu TOGO (東郷正春) and our Chairman. The
primary duties of our Nomination Committee are to make recommendations to our Shareholders
on the appointment of our Directors and members of our senior management.

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DIRECTORS AND SENIOR MANAGEMENT
We have limited the number of Executive Director in each of our Remuneration Committee
and Nomination Committee to one, representing a minority in each of these committees, as ameans to enhance transparency and protection of independent Shareholders.
Risk Management Committee
We established our Risk Management Committee on 19 December 2014 as a
sub-committee under our Audit Committee with written rules adopted on the same day. Our Risk
Management Committee consists of twelve members, namely, Mr. Akinori OHISHI (大石明徳) (anExecutive Officer) (chairman), Mr. Hidenori MOROTA (諸田英模) (an Executive Officer) and tenother officers of our Group. The primary duties of our Risk Management Committee are
identifying, assessing and mitigating the risks faced by our business, including those pertaining
to AML and compliance with the Three Party System. Our Risk Management Committee reports
its findings (including any irregularity and deficiency) to our Audit Committee. See “Internal
Controls and Anti-Money Laundering — Our AML Governance” for details.
DIRECTOR’S INTEREST
Our Chairman, being a member of the Taniguchi Consortium, is one of our Controlling
Shareholders. Our Chairman will be interested in approximately 69.5% of our total number ofissued Shares immediately upon completion of the Global Offering together with other membersof the Taniguchi Consortium, whom our Chairman acts in concert with. For further details of theidentities of, and relationship among, each member of Taniguchi Consortium as well as theirrespective shareholdings in our Company, see “History and Corporate Development —Shareholding Structure — Taniguchi Consortium”.
Except as disclosed in this Prospectus, each of our Directors (i) did not hold other positions
in our Company or other members of our Group as at the Latest Practicable Date; (ii) had no otherrelationship with any Director, senior management, substantial Shareholder or Controlling
Shareholder of our Company as at the Latest Practicable Date; and (iii) did not hold any otherdirectorships in listed public companies in the three years immediately prior to the date of thisProspectus. Except as disclosed in this Prospectus, none of our Executive Officers and senior
management holds any directorships in listed public companies in the three years prior to thedate of this Prospectus. As at the Latest Practicable Date, except as disclosed in thisProspectus, each of our Directors did not have any interest in the Shares within the meaning ofPart XV of the SFO.
Further, save as disclosed in this Prospectus, there is no other matter with respect to our
Directors that need to be brought to the attention of our Shareholders and there is no information
to our Directors that is required to be disclosed pursuant to Rule 13.51(2) of the Listing Rules.

402

DIRECTORS AND SENIOR MANAGEMENTDIRECTORS’ AND SENIOR MANAGEMENT’S REMUNERATIONOur Directors and members of our senior management receive compensation in the form ofsalaries, allowances, bonuses and other benefits-in-kind, including our contribution to thepension scheme. Our Remuneration Committee determines the salaries of our Directors,
Executive Officers and other senior management based on their qualifications, positions andseniority.
The aggregate amount of remuneration (including salaries, allowances, discretionary
bonuses, other benefits and contributions to pension schemes) paid to our Directors for each offinancial years ended 31 March 2012, 2013 and 2014 and the six months ended 30 September
2014 were ¥46 million, ¥110 million, ¥123 million and ¥685 million, respectively.
The aggregate amount of remuneration (including salaries, allowances, discretionary
bonuses, other benefits and contributions to pension schemes) paid to our five highest paid
individuals for each of financial years ended 31 March 2012, 2013 and 2014 and the six months
ended 30 September 2014 were ¥165 million, ¥727 million, ¥131 million and ¥686 million,
respectively.
It is estimated that an aggregate amount of remuneration equivalent to approximately ¥46.1
million will be paid and granted to our Directors by us for the year ending 31 March 2015 underarrangements in force on the date of this Prospectus.
During the year ended 31 March 2013, a ¥600 million special benefit was paid to Mr.
Masataka TANIGUCHI (谷口晶貴) for his retirement, who resigned as a director of Niraku
Corporation in September 2012. During the six months ended 30 September 2014, a ¥600 million
special benefit was paid to Mr. Tatsuo TANIGUCHI (谷口龍雄) for his retirement, who resigned asa Director of our Company in June 2014 and a director of Niraku Corporation in September 2014.
The special benefits paid to these former directors were calculated with a specific formula, taking
into consideration (i) their number of years serviced in our Group; (ii) their number of positions
served in our Group; and (iii) their remuneration prior to retirement, amongst others. Upon Listing,the remuneration (including retirement allowances) of our Directors, senior management andExecutive Officers will be determined by our Remuneration Committee, the majority of which will
be made up of Independent Non-executive Directors. The rules of our Remuneration Committee
provide that our Group shall not make any retirement payments to our Directors after the Listing.
Save as disclosed in this Prospectus, (i) no remuneration was paid to our Directors or thefive highest paid individuals as an inducement to join, or upon joining, our Group; (ii) nocompensation was paid to, or receivable by, our Directors or past Directors or the five highest
paid individuals during the Track Record Period for the loss of office as director of any memberof our Group or of any other office in connection with the management of the affairs of any
member of our Group; and (iii) none of our Directors waived any emoluments during the same
period.

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DIRECTORS AND SENIOR MANAGEMENT
Our policy concerning the remuneration of our Directors is that the amount of remuneration
is determined on the basis of the relevant Director’s experience, responsibility, performance andthe time devoted to our business.
Except as disclosed in this Prospectus, no Director has been paid in cash or shares orotherwise by any person either to induce him to become, or to qualify him as a Director, orotherwise for service rendered by him in connection with the promotion or formation of us.
COMPLIANCE ADVISER
We have appointed Shenyin Wanguo Capital (H.K.) Limited as our compliance adviser
pursuant to Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, thecompliance adviser will advise us on the following circumstances:•the publication of any announcements, circulars or financial reports under any
applicable laws, rules, codes and guidelines;•

where a transaction, which might be discloseable or being a notifiable or connectedtransaction under Chapter 13, 14 and/or 14A of the Listing Rules, is contemplated
including share issues and share repurchases;•

where we propose to use the proceeds of the Global Offering in a manner different fromthat detailed in this Prospectus or where our business activities, developments or
results deviate from any forecast, estimate, or other information in this Prospectus; and•where the Stock Exchange makes an inquiry of us in respect of unusual pricemovement and trading volume or other issues under Rule 13.10 of the Listing Rules.

The terms of the appointment shall commence on the Listing Date and end on the date ofdespatch of our annual report in respect of our financial results for the first full financial year
commencing after the Listing Date and such appointment shall be subject to extension by mutual
agreement.

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FUTURE PLANS AND USE OF PROCEEDS
FUTURE PLANS
See “Business — Our Strategies” for details of our future plans.
USE OF PROCEEDS
We estimate that the net proceeds of the Global Offering (after deducting underwriting feesand estimated expenses payable by us in relation to the Global Offering) will be approximately
HK$281 million (equivalent to approximately ¥4,259 million) (assuming an Offer Price of HK$1.19
per Offer Share, being the mid-point of the indicative Offer Price range, and that theOver-allotment Option is not exercised). We currently intend to apply the net proceeds as follows:(1)

approximately HK$253 million (equivalent to approximately ¥3,833 million) (being 90%of the net proceeds) to open:(a)three new suburban halls in Fukushima Prefecture (福島県), Gunma Prefecture(群馬県) and Ibaraki Prefecture (茨城県) during the year ending 31 March 2016;
and

(b)

two new suburban halls in Fukushima Prefecture (福島県) and Ibaraki Prefecture(茨城県) during the year ending 31 March 2017.

See “Business — Strategies — Continue to leverage our strengths and expand our
suburban halls network in Northeast Honshu (本州島東北) and to extend our leading
market position” for details;(2)

approximately HK$22 million (equivalent to approximately ¥341 million) (being 8% of
the net proceeds) to invest in our information technology system, namely toconsolidate certain software systems into an advanced integrated software system,with improved data-analysis functions and increased efficiency in information sharing
and communication among our various departments.
See “Business — Strategies — We will continue to invest in our information technology
system” for details; and(3)approximately HK$6 million (equivalent to approximately ¥85 million) (being 2% of the
net proceeds) for working capital and other general corporate purposes of our Group.

If the final Offer Price is at the high-end of the indicative Offer Price range (being HK$1.28
per Share), the net proceeds will increase by approximately HK$26 million (equivalent toapproximately ¥398 million). If the final Offer Price is at the low-end of the indicative Offer Price
range (being HK$1.10 per Share), the net proceeds will decrease by approximately HK$26 million(equivalent to approximately ¥398 million). In such event, we will increase or decrease theintended use of the net proceeds for the above purpose on a pro-rata basis.

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FUTURE PLANS AND USE OF PROCEEDS
If the Over-allotment Option is exercised in full, the net proceeds (after deducting
underwriting fees and estimated expenses payable by us in relation to the Global Offering) will
increase to approximately HK$333 million (equivalent to approximately ¥5,049 million), assuming
an Offer Price of HK$1.19 per Share, being the mid-point of the proposed Offer Price range. If
the Offer Price is set at the high-end or low-end of the proposed Offer Price range, the net
proceeds, including the proceeds from the exercise of the Over-allotment Option, will increase or
decrease by approximately HK$30 million (equivalent to approximately ¥458 million), respectively.
In such event, we will increase or decrease the allocation of the net proceeds to the above
purposes on a pro-rata basis.
To the extent that the net proceeds are not immediately used for the above purposes andto the extent permitted by the relevant laws and regulations, we intend to deposit such net
proceeds into interest-bearing bank accounts with licensed banks and/or financial institutions.
The application of the net proceeds as stated above are only current estimates and are
subject to changes based on prevailing economic, market and business conditions. To the extent
that the net proceeds are not immediately applied to the above purposes, we intend to deposit
the proceeds in interest bearing bank accounts, such as short-term savings accounts or basic
short-term money market funds, with licensed commercial banks and/or authorised financial
institutions in Hong Kong and Japan.

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UNDERWRITING
HONG KONG UNDERWRITER
The Hong Kong Underwriter is:
Shenyin Wanguo Capital (H.K.) Limited
INTERNATIONAL UNDERWRITER
The International Underwriter is expected to be:
Shenyin Wanguo Capital (H.K.) Limited
UNDERWRITING ARRANGEMENTS AND EXPENSES
Hong Kong Public Offering
Hong Kong Underwriting Agreement
The Hong Kong Underwriting Agreement was entered into on 23 March 2015. As describedin the Hong Kong Underwriting Agreement, we are offering the Hong Kong Offer Shares forsubscription on the terms and subject to the conditions of this Prospectus and the Application
Forms at the Offer Price. Subject to the Listing Committee granting the listing of, and permission
to deal in, our Shares in issue and to be issued as mentioned herein, and to certain otherconditions set out in the Hong Kong Underwriting Agreement, the Hong Kong Underwriter haveagreed severally to apply to purchase or procure applications to purchase the Hong Kong Offer
Shares which are being offered but are not taken up under the Hong Kong Public Offering.
The Hong Kong Underwriting Agreement is conditional upon and subject to, among otherthings, the International Underwriting Agreement having been signed and becoming
unconditional and not having been terminated in accordance with its terms or otherwise, prior to
8:00 a.m. on the Listing Date.
Grounds for termination
The obligations of the Hong Kong Underwriter to subscribe or procure subscribers to
subscribe for the Hong Kong Offer Shares under the Hong Kong Underwriting Agreement will be
subject to termination with immediate effect by notice (orally or in writing) from the Sole Global
Coordinator (for itself and on behalf of the Hong Kong Underwriter) if at any time prior to 8:00
a.m. on the Listing Date:(a)there develops, occurs, exists or comes into effect:(i)

any event, circumstance, or series of events, in the nature of force majeure(including, without limitation, any acts of government, declaration of a national orinternational emergency or war, calamity, crisis, epidemic, pandemic, outbreak of

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UNDERWRITING
disease, economic sanction, withdrawal of trading privileges, strike, lock-out, fire,
explosion, flooding, earthquake, volcanic eruption, civil commotion, riot, publicdisorder, acts of war, outbreak or escalation of hostilities (whether or not war isdeclared), acts of God or acts of terrorism); or(ii)

any change or development involving a prospective change, or any event,circumstance or series of events likely to result in any change or development
involving a prospective change, in local, national, regional or international
financial, economic, political, military, industrial, fiscal, regulatory, currency, credit
or market conditions (including, without limitation, conditions in the stock andbond markets, money and foreign exchange markets, the interbank markets andcredit markets), in or affecting Hong Kong, the PRC, the United States, the United
Kingdom, the European Union (as a whole), Japan or Switzerland (the “Relevant
Jurisdictions”); or(iii)

any moratorium, suspension or restriction (including, without limitation, any
imposition of or requirement for any minimum or maximum price limit or pricerange) in or on trading in securities generally on the Stock Exchange, the New
York Stock Exchange, the NASDAQ Global Market, the London Stock Exchange,
the Tokyo Stock Exchange, the Shenzhen Stock Exchange and the Shanghai
Stock Exchange; or(iv)

any general moratorium on commercial banking activities in Hong Kong (imposedby the Financial Secretary or the Hong Kong Monetary Authority or othercompetent administrative, governmental or regulatory commission, board, body,authority or agency, or any stock exchange, self-regulatory organization or othernon-governmental regulatory authority, or any court, tribunal or arbitrator, in eachcase whether national, central, federal, provincial, state, regional, municipal,
local, domestic or foreign “Authority”), New York (imposed at Federal or New
York State level or other competent Authority), London, the PRC, the European
Union (as a whole), Japan or Switzerland, or any disruption in commercial banking
or foreign exchange trading or securities settlement or clearance services,
procedures or matters in those places or jurisdictions; or(v)

any new law or any change or development involving a prospective change inexisting laws or any event or circumstance resulting in a change or development
involving a prospective change in the interpretation or application thereof by any
court or other competent Authority in or affecting the Relevant Jurisdictions; or(vi)

the imposition of economic sanctions, in whatever form, directly or indirectly, by,or for, the United States or the European Union (as a whole), or Japan or
Switzerland; or

408

UNDERWRITING(vii) a change or development involving a prospective change in or affecting taxation
or exchange control, currency exchange rates or foreign investment regulations(including, without limitation, a material devaluation of the United States dollar,
Euro, Hong Kong dollar, Japanese Yen, Swiss franc or the Renminbi against any
foreign currencies), or the implementation of any exchange control, in the
Relevant Jurisdictions; or(viii) any material litigation, legal action, claim or legal proceeding of any third party
being threatened or instigated against any member of our Group; or(ix)

a Director or Executive Officer being charged with an indictable offence or
prohibited by operation of law or otherwise disqualified from taking part in the
management of our Company; or(x)

the Executive Director or an Executive Officer of our Company vacating his or her
office; or(xi)

any breach of any of the obligations imposed upon any party to the Hong Kong
Underwriting Agreement or the International Underwriting Agreement (other than
any breach thereof by any of the Hong Kong Underwriter or the International
Underwriter); or(xii) an Authority or a political body or organisation in any relevant jurisdictioncommencing any investigation or other action, or announcing an intention toinvestigate or take other action, against any Director; or(xiii) save as disclosed in this Prospectus, the Application Forms, the preliminary andfinal offering circulars, a contravention by any member of our Group of the Listing
Rules or applicable laws; or(xiv) a prohibition on our Company for whatever reason from offering, allotting, issuing,
selling or delivering the Shares (including the Over-allotment Shares) pursuant to
the terms of the Global Offering; or(xv) any adverse change or development involving a reasonably likely material adversechange, or any development involving a prospective material adverse change, inor affecting the assets, liabilities, business, general affairs, management,
prospects, shareholders’ equity, profits, losses, results of operations, position,
prospects or condition, financial or otherwise, or performance of our Group, taken
as a whole of any of the risks set out in the section “Risk Factors” in thisProspectus; or(xvi) non-compliance of this Prospectus (or any other documents used in connection
with the contemplated offer and sale of the Shares) or any aspect of the Global
Offering with the Listing Rules or any other applicable law; or

409

UNDERWRITING(xvii) the issue or requirement to issue by our Company of any supplement oramendment to this Prospectus (or to any other documents used in connection
with the contemplated offer and sale of the Shares) pursuant to the Companies
Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinanceor the Listing Rules or any requirement or request of the Stock Exchange and/or
the SFC; or(xviii) any event, act or omission which gives or is likely to give rise to any liability of anyof the indemnifying parties pursuant to the Hong Kong Underwriting Agreement;or(xix) an order or petition for the winding up of any member of our Group or any
composition or arrangement made by any member of our Group with its creditors
or a scheme of arrangement entered into by any member of our Group or any
resolution for the winding-up of any member of our Group or the appointment ofa provisional liquidator, receiver or manager over all or part of the assets orundertaking of any member of our Group or anything analogous thereto occurringin respect of any member of our Group,
which, individually or in the aggregate, in the sole opinion of the Sole Global
Coordinator:

(b)

(1)

has or will or may have a material adverse effect on the assets, liabilities,business, general affairs, management, prospects, shareholders’ equity, profits,losses, results of operations, position or condition, financial or otherwise, or
performance of our Group as a whole; or(2)

has or will have or may have a material adverse effect on the success of the Global
Offering or the level of applications under the Hong Kong Public Offering or thelevel of interest under the International Offering; or(3)

makes or will make or may make it inadvisable or inexpedient or impracticable for
the Global Offering to proceed or to market the Global Offering; or(4)

has or will have or may have the effect of making any part of the Hong Kong
Underwriting Agreement (including underwriting) incapable of performance inaccordance with its terms or preventing or materially delaying the processing of
applications and/or payments pursuant to the Global Offering or pursuant to theunderwriting thereof; orthere has come to the notice of the Sole Global Coordinator:(i)that any statement contained in any of this Prospectus or the Application Forms
and/or in any notices, announcements, communications or other documents
issued or used by or on behalf of our Company in connection with the Hong Kong
Public Offering (including any supplement or amendment thereto) was, when it

410

UNDERWRITING
was issued, or has become, untrue, incorrect or misleading in any material
respect, or that any forecast, estimate, expression of opinion, intention or
expectation contained in any of this Prospectus or the Application Forms and/or
any notices, announcements, advertisements, communications or otherdocuments issued or used by or on behalf of our Company in connection with theHong Kong Public Offering (including any supplement or amendment thereto) is
not fair and honest and based on reasonable assumptions in any material respect;or(ii)that any matter has arisen or has been discovered which would, had it arisen or
been discovered immediately before the date of this Prospectus, constitute amaterial omission from any of the this Prospectus or the Application Forms and/orin any notices, announcements, communications or other documents issued orused by or on behalf of our Company in connection with the Hong Kong Public
Offering (including any supplement or amendment thereto); or(iii)

any material adverse change or development involving a prospective material
adverse change in the assets, liabilities, business, general affairs, management,
prospects, shareholders’ equity, profits, losses, results of operations, position orcondition, financial or otherwise, or performance of any member of our Group; or(iv)

any breach of, or any event or circumstance rendering untrue, incorrect ormisleading in any material respect, any of the warranties given under the Hong
Kong Underwriting Agreement (other than any such breach thereof by the Hong
Kong Underwriter); or(v)

approval by the Listing Committee of the Stock Exchange of the listing of, andpermission to deal in, the Shares to be issued or sold (including any additional
Shares that may be issued or sold pursuant to the exercise of the Over-Allotment
Option) under the Global Offering is refused or not granted, other than subject tocustomary conditions, on or before the date of the listing, or if granted, theapproval is subsequently withdrawn, qualified (other than by customary
conditions) or withheld; or(vi)

our Company withdraws this Prospectus (and/or any other offering document
issued or used in connection with the Global Offering) or the Global Offering;(vii) any expert named in the section “Appendix VI — Statutory and General
Information — F. Other Information — 7. Qualification of experts” has withdrawn
its consent to being named in any of this Prospectus and the Application Formsor to the issue of any of this Prospectus and the Application Forms; or

411

UNDERWRITING(viii) that, as a result of material adverse and abrupt change in market conditions orotherwise, any order placed by any investor immediately before the Price
Determination Agreement is entered into, has been withdrawn or cancelled, andthe Sole Global Coordinator, in its sole and absolute discretion, after due
consideration, conclude that it is therefore inadvisable or inexpedient or
impracticable to proceed with the Global Offering. For the avoidance of doubt, theright to terminate under this paragraph (viii) is exercisable only from 3:00 p.m. on
the day immediately before the Listing Date to 8:00 a.m. on the Listing Date.
Undertakings to the Stock Exchange pursuant to the Listing Rules
Undertakings by us
Pursuant to Rule 10.08 of the Listing Rules, except pursuant to the Global Offering(including pursuant to the Over-allotment Option) or any capitalisation issue, capital reduction orconsolidation or sub-division of Shares, we will not, at any time within six months from the Listing
Date, issue any further shares or other securities convertible into our equity securities (whether
or not of a class already listed) or enter into any agreement to such issue (whether or not such
issue of shares or securities will be completed within six months from the Listing Date).
Undertakings by our Controlling Shareholders
Pursuant to Rule 10.07 of the Listing Rules, each of our Controlling Shareholders has jointly
and severally undertaken to each of us, the Stock Exchange, the Sole Sponsor, the Sole Global
Coordinator and the Hong Kong Underwriter except pursuant to the Global Offering (including
pursuant to the Over-allotment Option) or the Stock Borrowing Agreement, that he or it will not,and shall procure that any other relevant registered holder(s) of the Shares, any close associates
or companies controlled by him or it, any nominees or trustees holding the Shares in trust for him
or it (as the case may be), will not, without the prior written consent of the Stock Exchange orunless otherwise in compliance with applicable requirements of the Listing Rules:(a)in the period commencing on the date of this Prospectus and ending on the date which
is six months from the Listing Date (the “First Six-month Period”), dispose of, or
enter into any agreement to dispose of or otherwise create any options, rights,
interests or encumbrances in respect of (but save pursuant to a pledge or charge as
security in favour of an authorised institution for a bona fide commercial loan) any of
our Shares or securities in respect of which he or it is shown by this Prospectus to be
the beneficial owner (as defined in Rule 10.07(2) of the Listing Rules) (“Parent
Shares”); or

412

UNDERWRITING(b)

in the period of a further six months commencing on the date on which the First
Six-month Period expires (the “Second Six-month Period”), dispose of, or enter into
any agreement to dispose of or otherwise create any options, rights, interests orencumbrances in respect of, any of the Parent Shares to such an extent that
immediately following such disposal, or upon the exercise or enforcement of such
options, rights, interests or encumbrances, he or it would cease to be our Controlling
Shareholder (as defined in the Listing Rules).

Further, pursuant to Note (3) to Rule 10.07(2) of the Listing Rules, each of our Controlling
Shareholders has undertaken to us and to the Stock Exchange that, during the First Six-month
Period and the Second Six-month Period, he or it will:(a)

if he or it pledges or charges any of our securities beneficially owned by him or it infavour of an authorised institution (as defined in the Banking Ordinance, Chapter 155of the Laws of Hong Kong) for a bona fide commercial loan, immediately inform us ofsuch pledge or charge together with the number of securities so pledged or charged;
and

(b)

if he or it receives indications, either verbal or written, from the pledgee or chargee thatany of our pledged or charged securities will be disposed of, immediately inform us ofsuch indications.

We will also inform the Stock Exchange as soon as we have been informed of the above
matters, if any, by any of our Controlling Shareholders and disclose such matters in accordancewith the publication requirements under Rule 2.07C of the Listing Rules as soon as possible after
being so informed.
Undertakings pursuant to the Hong Kong Underwriting Agreement
Undertakings by our Company
Pursuant to the Hong Kong Underwriting Agreement, our Company has undertaken to theSole Global Coordinator, the Sole Sponsor and the Hong Kong Underwriter that, and ourControlling Shareholders have agreed to procure that, except for the offer and sale of the Offer
Shares pursuant to the Global Offering (including pursuant to the Over-allotment Option), during
the period commencing on the date of the Hong Kong Underwriting Agreement and ending on,
and including, the date that is six months after the Listing Date (the “First Half-Year Period”),
our Company will not, and will procure each other member of our Group not to, without the priorwritten consent of the Sole Sponsor and the Sole Global Coordinator (on behalf of theUnderwriters) and unless in compliance with the requirements of the Listing Rules:(a)allot, issue, sell, accept subscription for, offer to allot, issue or sell, contract or agree
to allot, issue or sell, mortgage, charge, pledge, hypothecate, lend, grant or sell any
option, warrant, contract or right to subscribe for or purchase, grant or purchase any
option, warrant, contract or right to allot, issue or sell, or otherwise transfer or disposeof or create an Encumbrance over, or agree to transfer or dispose of or create any

413

UNDERWRITING
mortgage, charge, pledge, lien or other security interest or any option, restriction, rightof first refusal, right of pre-emption or other third party claim, right, interest or
preference or any other encumbrance of any kind (“Encumbrance”) over, either
directly or indirectly, conditionally or unconditionally, any Shares or any other securitiesof our Company or any shares or other securities of such other member of our Group,
as applicable, or any interest in any of the foregoing (including, without limitation, any
securities convertible into or exchangeable or exercisable for or that represent the rightto receive, or any warrants or other rights to purchase, any Shares or any shares ofsuch other member of our Group, as applicable); or(b)

enter into any swap or other arrangement that transfers to another, in whole or in part,any of the economic consequences of ownership of Shares or any other securities of
our Company or any shares or other securities of such other member of our Group, asapplicable, or any interest in any of the foregoing (including, without limitation, any
securities convertible into or exchangeable or exercisable for or that represent the rightto receive, or any warrants or other rights to purchase, any Shares or any shares ofsuch other member of our Group, as applicable); or(c)enter into any transaction with the same economic effect as any transaction specifiedin paragraph (a) or (b) above; or(d)offer to or agree to or announce any intention to effect any transaction specified inparagraph (a), (b) or (c) above,in each case, whether any of the transactions specified in (a), (b) or (c) above is to be settled bydelivery of Shares or such other securities of our Company or shares or other securities of suchother member of our Group, as applicable, or in cash or otherwise (whether or not the issue of
Shares or such other securities will be completed within the aforesaid period). In the event that,during the period of six months commencing on the date on which the First Half-Year Period
expires (the “Second Half-Year Period”), our Company enters into any of the transactions
specified in (a), (b) or (c) above or offers to or agrees to or announces any intention to effect any
such transaction, our Company shall take all reasonable steps to ensure that it will not create adisorderly or false market in the securities of our Company.
Undertakings by our Controlling Shareholders
Pursuant to the Hong Kong Underwriting Agreement, each of our Controlling Shareholders
has undertaken to each of our Company, the Sole Global Coordinator, the Sole Sponsor and theHong Kong Underwriter that, without the prior written consent of the Sole Sponsor and the Sole
Global Coordinator (on behalf of the Hong Kong Underwriter) and unless in compliance with the
Listing Rules:(a)it/he/she will not at any time during the First Half-Year Period:(i)sell, offer to sell, contract or agree to sell, mortgage, charge, pledge,
hypothecate, lend, grant or sell any option, warrant, contract or right to purchase,

414

UNDERWRITING
grant or purchase any option, warrant, contract or right to sell, or otherwisetransfer or dispose of or create an Encumbrance over, or agree to transfer or
dispose of or create an Encumbrance over, either directly or indirectly,
conditionally or unconditionally, any Shares or any other securities of ourCompany or any interest therein (including, without limitation, any securities
convertible into or exchangeable or exercisable for or that represent the right toreceive, or any warrants or other rights to purchase, any Shares, or any such othersecurities or any interest in any of the foregoing, as applicable) (the “Relevant
Shares”) or any interest in any company or entity holding, directly or indirectly,
any of the Relevant Shares (the “Holding Entity”); or(ii)

enter into any swap or other arrangement that transfers to another, in whole or inpart, any of the economic consequences of ownership of Shares or any othersecurities of our Company or any interest therein (including, without limitation, any
securities convertible into or exchangeable or exercisable for or that represent theright to receive, or any warrants or other rights to purchase, any Shares) or aninterest in any Holding Entity; or(iii)

enter into any transaction with the same economic effect as any transaction
specified in paragraph (i) or (ii) above; or(iv)

offer to or agree to or announce any intention to effect any transaction specifiedin paragraph (i), (ii) or (iii) above, in each case, whether any of the transactions
specified in paragraph (i), (ii) or (iii) above is to be settled by delivery of Shares orsuch other securities of our Company or shares or other securities of such othermember of our Group, as applicable, or in cash or otherwise (whether or not theissue of Shares or such other securities will be completed within the aforesaid
period);(b)

it/he/she will not, during the Second Half-Year Period, enter into any of thetransactions specified in paragraph (a)(i), (ii) or (iii) above or offer to or agree to or
announce any intention to effect any such transaction if, immediately following any
sale, transfer or disposal or upon the exercise or enforcement of any option, right,
interest or Encumbrance pursuant to such transaction, it will cease to be a Controlling
Shareholder (if applicable) of our Company; and(c)until the expiry of the Second Half-Year Period, in the event that it/he/she enters into
any of the transactions specified in paragraph (a)(i), (ii) or (iii) above or offer to or agrees
to or announce any intention to effect any such transaction, it will take all reasonable
steps to ensure that it will not create a disorderly or false market in the securities of ourCompany.

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UNDERWRITING
IndemnityWe, our Controlling Shareholders and our Executive Director have agreed to indemnify theSole Sponsor, the Sole Global Coordinator and the Hong Kong Underwriter for certain losses
which they may suffer, including losses incurred arising from their performance of their obligations
under the Hong Kong Underwriting Agreement and any breach by us, our Controlling
Shareholders or our Executive Director of the Hong Kong Underwriting Agreement.
The International Offering
In connection with the International Offering, it is expected that our Company and ourControlling Shareholders (among others) will enter into the International Underwriting Agreementwith the Sole Sponsor, the Sole Global Coordinator and the International Underwriter. Under theInternational Underwriting Agreement, the International Underwriter would, subject to certain
conditions set out therein, severally agree to purchase the International Offer Shares or procurepurchasers to purchase such International Offer Shares.
We will grant to the International Underwriter the Over-allotment Option, exercisable by theSole Global Coordinator on behalf of the International Underwriter at any time from the date of
the International Underwriting Agreement until the 30th day from the last day for lodging
applications under the Hong Kong Public Offering, to require us to offer up to an aggregate of
45,000,000 additional Shares, together representing 15% of the number of Shares initially being
offered under the Global Offering, at the Offer Price solely to cover over-allocations in theInternational Offering, if any.
Under the International Underwriting Agreement, our Company, our Controlling
Shareholders and our Executive Director will agree to indemnify the International Underwriteragainst certain losses which they may suffer including losses as a result of certain claims or
liabilities which might be incurred by the International Underwriter.
Underwriting commission and expenses
Under the terms and conditions of the Hong Kong Underwriting Agreement, the Sole Global
Coordinator (on behalf of the Hong Kong Underwriter) will receive an underwriting commission
equal to 2.5% on the aggregate Offer Price payable in respect of all of the Hong Kong Offer
Shares (excluding any International Offer Shares reallocated to the Hong Kong Public Offeringand any Hong Kong Offer Shares reallocated to the International Offering). The respective
entitlements of the Hong Kong Underwriter to the underwriting commission will be paid asseparately agreed between the Sole Global Coordinator and the Hong Kong Underwriter. For
unsubscribed Hong Kong Offer Shares reallocated to the International Offering, we will pay anunderwriting commission at the rate applicable to the International Offering and such commission
will be paid to the relevant International Underwriter (but not the Hong Kong Underwriter). In
addition, our Company may, at its sole and absolute discretion, pay to the Sole Global
Coordinator for its accounts an incentive fee.

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UNDERWRITING
Assuming the Over-allotment Option is not exercised at all and based on an Offer Price of
HK$1.19 per Share (being the mid-point of the indicative Offer Price range of HK$1.10 to
HK$1.28 per Share), the aggregate commissions and fees, together with the Stock Exchange
listing fees, the SFC transaction levy, the Stock Exchange trading fee, legal and otherprofessional fees and printing and other expenses relating to the Global Offering to be borne by
us are estimated to amount to approximately HK$1,149 million in aggregate.
Hong Kong Underwriter’s interests in our Company
Save for their respective obligations under the Hong Kong Underwriting Agreement or asotherwise disclosed in this Prospectus, none of the Underwriters is interested legally or
beneficially in any shares of any of our members or has any right or option (whether legally
enforceable or not) to subscribe for or purchase or to nominate persons to subscribe for orpurchase securities in any of the members of our Group in the Global Offering.
Following the completion of the Global Offering, the Hong Kong Underwriter and theiraffiliated companies may hold a certain portion of the Shares as a result of fulfilling their
obligations under the Underwriting Agreements and the Stock Borrowing Agreement.
Independence of the Sole Sponsor
Shenyin Wanguo Capital (H.K.) Limited satisfies the independence criteria applicable tosponsors as set out in Rule 3A.07 of the Listing Rules.
ACTIVITIES BY SYNDICATE MEMBERS
The underwriters of the Hong Kong Public Offering and the International Offering (together,
the “Syndicate Members”) and their affiliates may each individually undertake a variety ofactivities (as further described below) which do not form part of the underwriting or stabilisingprocess.
The Syndicate Members and their affiliates are diversified financial institutions withrelationships in countries around the world. These entities engage in a wide range of commercial
and investment banking, brokerage, funds management, trading, hedging, investing and otheractivities for their own account and for the account of others. In relation to the Shares, those
activities could include acting as agent for buyers and sellers of the Shares, entering intotransactions with those buyers and sellers in a principal capacity, proprietary trading in the
Shares, and entering into over the counter or listed derivative transactions or listed and unlisted
securities transactions (including issuing securities such as derivative warrants listed on a stock
exchange) which have as their underlying assets, assets including the Shares. Those activities
may require hedging activity by those entities involving, directly or indirectly, the buying andselling of the Shares. All such activity could occur in Hong Kong and elsewhere in the world andmay result in the Syndicate Members and their affiliates holding long and/ or short positions in
the Shares, in baskets of securities or indices including the Shares, in units of funds that may
purchase the Shares, or in derivatives related to any of the foregoing.

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UNDERWRITING
In relation to issues by Syndicate Members or their affiliates of any listed securities having
the Shares as their underlying securities, whether on the Stock Exchange or on any other stock
exchange, the rules of the exchange may require the issuer of those securities (or one of its
affiliates or agents) to act as a market maker or liquidity provider in the security, and this will also
result in hedging activity in the Shares in most cases.
All such activities may occur both during and after the end of the stabilising period
described in “Structure of the Global Offering”. Such activities may affect the market price orvalue of the Shares, the liquidity or trading volume in the Shares and the volatility of the price of
the Shares, and the extent to which this occurs from day to day cannot be estimated.
It should be noted that when engaging in any of these activities, the Syndicate Members will
be subject to certain restrictions, including the following:(a)the Syndicate Members (other than the Stabilising Manager, its affiliates or any person
acting for it) must not, in connection with the distribution of the Offer Shares, effect any
transactions (including issuing or entering into any option or other derivativetransactions relating to the Offer Shares). Whether in the open market or otherwise,with a view to stabilising or maintaining the market price of any of the Offer Shares atlevels other than those which might otherwise prevail in the open market; and(b)

the Syndicate Members must comply with all applicable laws and regulations, including
the market misconduct provisions of the SFO, including the provisions prohibiting
insider dealing, false trading, price rigging and stock market manipulation.

RESTRICTIONS ON THE OFFER SHARESNo action has been taken to permit a public offering of the Offer Shares other than in Hong
Kong, or the distribution of this Prospectus in any jurisdiction other than Hong Kong. Accordingly,
this Prospectus may not be used for the purpose of, and does not constitute, an offer or invitationin any jurisdiction or in any circumstances in which such an offer or invitation is not authorised
or to any person to whom it is unlawful to make such an offer or invitation.

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STRUCTURE OF THE GLOBAL OFFERINGTHE GLOBAL OFFERING
This prospectus is published in connection with the Hong Kong Public Offering which forms
part of the Global Offering. Shenyin Wanguo Capital (H.K.) Limited is the Sole Sponsor for thelisting of the Shares on the Stock Exchange and the Sole Global Coordinator, Sole Lead Manager
and Sole Bookrunner of the Global Offering.
The Global Offering initially consists of:(i)the Hong Kong Public Offering of 30,000,000 Offer Shares (subject to adjustment as
mentioned below) in Hong Kong as described in “Hong Kong Public Offering” in thissection below; and(ii)

the International Offering of 270,000,000 Offer Shares (subject to adjustment and theOver-allotment Option as mentioned below) outside the United States in reliance on
Regulation S.

Investors may apply for Offer Shares under the Hong Kong Public Offering or indicate aninterest, if qualified to do so, for the Offer Shares under the International Offering, but may not
do both. Reasonable steps will be taken to identify and reject applications in the Hong Kong
Public Offering from investors who have received Offer Shares in the International Offering, andto identify and reject indications of interest in the International Offering from investors who haveapplied for Hong Kong Offer Shares in the Hong Kong Public Offering. The Hong Kong Public
Offering is open to members of the public in Hong Kong as well as to institutional andprofessional investors in Hong Kong. The International Offering will involve selective marketing ofOffer Shares to professional, institutional and other investors anticipated to have a sizeable
demand for such Offer Shares in Hong Kong and other jurisdictions outside the United States inreliance on Regulation S. Professional investors generally include brokers, dealers, companies(including fund managers) whose ordinary business involves dealing in shares and othersecurities and corporate entities which regularly invest in shares and other securities. The
International Underwriter are soliciting from prospective investors’ indications of interest in
acquiring the Offer Shares in the International Offering. Prospective professional, institutional andother investors will be required to specify the number of Offer Shares under the International
Offering they would be prepared to acquire either at different prices or at a particular price. This
process, known as “book-building”, is expected to continue up and to cease on or around, thelast day of lodging applications under the Hong Kong Public Offering.
The number of Offer Shares to be offered under the Hong Kong Public Offering andInternational Offering respectively may be subject to adjustment and, in the case of theInternational Offering only, the Over-allotment Option as set out in “International Offering —Over-allotment Option” in this section below.

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STRUCTURE OF THE GLOBAL OFFERINGThe Hong Kong Public Offering is fully underwritten by the Hong Kong Underwriter under theterms of the Hong Kong Underwriting Agreement and is subject to our Company and the Sole
Global Coordinator (for itself and on behalf of the Underwriters) agreeing on the Offer Price. Our
Company expects to enter into the International Underwriting Agreement relating to theInternational Offering on the Price Determination Date. Details of the underwriting arrangements
are summarised in “Underwriting”.
CONDITIONS OF THE GLOBAL OFFERING
Acceptance of all applications for Offer Shares pursuant to the Global Offering will be
conditional on, among others:(i)the Listing Committee granting the listing of, and permission to deal in, the Shares inissue, the Offer Shares to be issued pursuant to the Global Offering and any Shares
which may be issued pursuant to the exercise of the Over-allotment Option and suchlisting and permission not subsequently having been revoked prior to thecommencement of dealing in our Shares on the Stock Exchange;(ii)

the Offer Price having been fixed on or around the Price Determination Date;(iii)

the execution and delivery of the International Underwriting Agreement on or aroundthe Price Determination Date; and(iv)

the obligations of the Underwriters under each of the Hong Kong Underwriting
Agreement and the International Underwriting Agreement becoming and remaining
unconditional and not having been terminated in accordance with the terms of therespective agreements, in each case on or before the dates and times specified in therespective agreementsin each case on or before the dates and times specified in the Underwriting Agreements(unless to the extent such conditions are validly waived on or before such dates and times)
and in any event not later than the date which is 30 days after the date of this Prospectus.
The Offer Shares are being offered at the Offer Price which is expected to be fixed between
the Sole Global Coordinator (for itself and on behalf of the Underwriters) and our Company on thePrice Determination Date, which is expected to be on or around Friday, 27 March 2015 and in any
event, not later than 12:00 noon on Wednesday, 1 April 2015.
If, for any reason, the Offer Price is not agreed between the Sole Global Coordinator(for itself and on behalf of the Underwriters) and our Company by 12:00 noon on
Wednesday, 1 April 2015, the Global Offering will not proceed and will lapse.
The consummation of each of the Hong Kong Public Offering and the International Offering
is conditional upon, among other things, the other offering becoming unconditional and nothaving been terminated in accordance with its terms.

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STRUCTURE OF THE GLOBAL OFFERING
If the above conditions are not fulfilled or waived prior to the times and dates specified, theGlobal Offering will lapse and the Stock Exchange will be notified immediately. We will cause a
notice of the lapse of the Hong Kong Public Offering to be published in the South China Morning
Post (in English) and the Hong Kong Economic Journal (in Chinese) and on our website(www.ngch.co.jp) and the Stock Exchange’s website (www.hkexnews.hk) on the next
business day following such lapse. In such eventuality, all application monies will be returned,
without interest, on the terms set out in “How to Apply for Hong Kong Offer Shares”. In themeantime, all application monies will be held in separate bank account(s) with the receivingbank(s) or other bank(s) in Hong Kong licenced under the Banking Ordinance (Chapter 155 of theLaws of Hong Kong) (as amended from time to time).
Share certificates for the Offer Shares are expected to be issued on Thursday, 2April 2015 but will only become valid certificates of title at 8:00 a.m. on Wednesday, 8April 2015 provided that (i) the Global Offering has become unconditional in all respects;and (ii) the right of termination as described in “Underwriting — Underwriting
Arrangements and Expenses — Hong Kong Public Offering — Grounds for termination”
has not been exercised. Investors who trade Shares prior to the receipt of sharecertificates or prior to the share certificates bearing valid certificates of title do soentirely at their own risk.
HONG KONG PUBLIC OFFERING
Number of Offer Shares initially offered
Our Company is initially offering 30,000,000 Offer Shares for subscription by the public in
Hong Kong at the Offer Price, representing 10% of the total number of Offer Shares initiallyavailable under the Global Offering (assuming that the Over-allotment Option is not exercised).
Subject to the reallocation of Shares between (i) the International Offering; and (ii) the Hong Kong
Public Offering as mentioned below, the number of the Hong Kong Offer Shares will represent
2.5% of our Company’s issued share capital immediately after completion of the Global Offering.
Completion of the Hong Kong Public Offering is subject to the conditions as set out in “—
Conditions of the Global Offering” in this section below.
Allocation
Allocation of Offer Shares to investors under the Hong Kong Public Offering will be based
solely on the level of valid applications received under the Hong Kong Public Offering. The basisof allocation may vary, depending on the number of Hong Kong Offer Shares validly applied forby applicants. Such allocation could, where appropriate, consist of balloting, which would meanthat some applicants may receive a higher allocation than others who have applied for the same
number of Hong Kong Offer Shares, and those applicants who are not successful in the ballot
may not receive any Hong Kong Offer Shares.

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STRUCTURE OF THE GLOBAL OFFERINGThe total available Shares under the Hong Kong Public Offering (after taking into account of
any reallocation of Offer Shares between the Hong Kong Public Offering and the International
Offering) is to be divided into two pools (subject to adjustment of odd lot size) for allocation
purposes: pool A and pool B. The Hong Kong Offer Shares in pool A will be allocated on an
equitable basis to applicants who have applied for Hong Kong Offer Shares with an aggregate
price of HK$5.0 million (excluding the brokerage of 1.0%, SFC transaction levy of 0.0027% andStock Exchange trading fee of 0.005% payable) or less. The Hong Kong Offer Shares in pool B
will be allocated on an equitable basis to applicants who have applied for Hong Kong Offer
Shares with an aggregate price of more than HK$5 million (excluding the brokerage of 1.0%, SFC
transaction levy of 0.0027% and Stock Exchange trading fee of 0.005% payable). Investors
should be aware that applications in pool A and applications in pool B may receive different
allocation ratios. If the Hong Kong Offer Shares in one (but not both) of the pools areunder-subscribed, the surplus Hong Kong Offer Shares will be transferred to the other pool tosatisfy demand in that other pool and be allocated accordingly. For the purpose of this paragraphonly, the “price” for Offer Shares means the price payable on application therefor (without regard
to the Offer Price as finally determined). Applicants can only receive an allocation of Hong Kong
Offer Shares from either pool A or pool B but not from both pools and can only apply for Hong
Kong Offer Shares in either pool A or pool B.
Multiple or suspected multiple applications within either pool or between pools and any
application for more than 15,000,000 Hong Kong Offer Shares (being 50% of the 30,000,000
Hong Kong Offer Shares initially comprised in the Hong Kong Public Offering) are liable to be
rejected.
Reallocation
The allocation of the Offer Shares between the Hong Kong Public Offering and theInternational Offering is subject to adjustment. If the number of Offer Shares validly applied forunder the Hong Kong Public Offering (i) 15 times or more but less than 50 times; (ii) 50 times ormore but less than 100 times; and (iii) 100 times or more, of the number of Offer Shares initiallyavailable under the Hong Kong Public Offering, then Offer Shares will be reallocated to the Hong
Kong Public Offering from the International Offering so that the total number of Offer Sharesavailable under the Hong Kong Public Offering will be increased to 90,000,000 Offer Shares (inthe case of (i)), 120,000,000 Offer Shares (in the case of (ii)) and 150,000,000 Offer Shares (in thecase of (iii)) representing 30%, 40% and 50% of the Offer Shares initially available under the
Global Offering, respectively (before any exercise of the Over-allotment Option) in each case, theadditional Offer Shares reallocated to the Hong Kong Public Offering will be allocated between
pool A and pool B and the number of Offer Shares allocated to the International Offering will becorrespondingly reduced, in such manner as the Sole Global Coordinator deems appropriate. In
addition, in certain prescribed circumstances, the Sole Global Coordinator may, at its sole andabsolute discretion, reallocate International Offer Shares as it deems appropriate from theInternational Offering to the Hong Kong Public Offering to satisfy in whole or in part the excess
valid application in the Hong Kong Public Offering.

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STRUCTURE OF THE GLOBAL OFFERING
If the Hong Kong Offer Shares are not fully subscribed for, the Sole Global Coordinator may,at its sole and absolute discretion, reallocate all or any unsubscribed Hong Kong Offer Shares tothe International Offering, in such proportion as the Sole Global Coordinator deems appropriate.
Applications
The Sole Global Coordinator (on behalf of the Underwriters) may require any investor who
has been offered Shares under the International Offering, and who has made an application underthe Hong Kong Public Offering, to provide sufficient information to the Sole Global Coordinator
so as to allow them to identify the relevant applications under the Hong Kong Public Offering andto ensure that it is excluded from any application for Shares under Hong Kong Public Offering.
Each applicant under the Hong Kong Public Offering will also be required to give an
undertaking and confirmation in the Application Form submitted by him that he and any person(s)for whose benefit he is making the application have not applied for or taken up, or indicated aninterest for, and will not apply for or take up, or indicate an interest for, any Offer Shares underthe International Offering, and such applicant’s application is liable to be rejected if the said
undertaking and/or confirmation is breached and/or untrue (as the case may be) or it has beenor will be placed or allocated (including conditionally and/or provisionally) Offer Shares under theInternational Offering.
The listing of the Offer Shares on the Stock Exchange is sponsored by the Sole Sponsor.
Applicants under the Hong Kong Public Offering are required to pay, on application, the maximum
price of HK$1.28 per Offer Share in addition to any brokerage of 1.0%, SFC transaction levy of
0.0027% and Stock Exchange trading fee of 0.005% payable on each Offer Share. If the Offer
Price, as finally determined in the manner described in “— Price Determination of the Global
Offering” in this section below, is less than the maximum price of HK$1.28 per Share, appropriate
refund payments (including the brokerage of 1.0%, SFC transaction levy of 0.0027% and Stock
Exchange trading fee of 0.005% attributable to the surplus application monies) will be made tosuccessful applicants, without interest. Further details are set out in “How to Apply for Hong
Kong Offer Shares”.
References in this Prospectus to applications, Application Forms, application monies or theprocedure for application relate solely to the Hong Kong Public Offering.
INTERNATIONAL OFFERING
Number of Offer Shares offered
The number of Offer Shares to be initially offered for subscription under the International
Offering will be 270,000,000 Shares, representing 90% of the total number of the Offer Shares
initially available under the Global Offering (subject to adjustment and the Over-allotment Option).
Subject to any reallocation of Offer Shares between the International Offering and the Hong Kong
Public Offering, the International Offer Shares will represent 22.6% of our enlarged issued sharecapital immediately after completion of the Global Offering.

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STRUCTURE OF THE GLOBAL OFFERINGThe International Offering is subject to the same conditions as stated in “— Conditions of
the Global Offering” below in this section.
Allocation
The International Offering will include selective marketing of Offer Shares to professional,
institutional and other investors anticipated to have a sizeable demand for such Offer Shares inHong Kong and other jurisdictions outside the United States in reliance on Regulation S.
Professional investors generally include brokers, dealers, companies (including fund managers)
whose ordinary business involves dealing in shares and other securities and corporate entities
which regularly invest in shares and other securities.
Allocation of Offer Shares pursuant to the International Offering will be effected inaccordance with the book-building process described in “— Price Determination of the Global
Offering” in this section below and based on a number of factors, including the level and timingof demand, the total size of the relevant investor’s invested assets or equity assets in the relevant
sector and whether or not it is expected that the relevant investor is likely to buy further Offer
Shares, and/or hold or sell its Offer Shares, after the Listing of the Offer Shares on the Stock
Exchange. Such allocation is intended to result in a distribution of the Shares on a basis which
would lead to the establishment of a solid professional and institutional shareholder base to thebenefit of our Company and our Shareholders as a whole.
The Sole Global Coordinator (for itself and on behalf of the Underwriters) may require any
investor who has been offered Shares under the International Offering, and who has made anapplication under the Hong Kong Public Offering, to provide sufficient information to the Sole
Global Coordinator so as to allow them to identify the relevant applications under the Hong Kong
Public Offering and to ensure that it is excluded from any application for Shares under the Hong
Kong Public Offering.
Over-allotment Option
In connection with the Global Offering, our Company is expected to grant an Over-allotment
Option to the Sole Global Coordinator (on behalf of International Underwriter) exercisable at thesole discretion of the Sole Global Coordinator (on behalf of the International Underwriter).
Pursuant to the Over-allotment Option, the Sole Global Coordinator has the right,
exercisable at any time from the date of the International Underwriting Agreement until 30 days
from the date of the last day of lodging application under the Hong Kong Public Offering, torequire our Company to allot and issue up to 45,000,000 additional Shares, representing 15% of
the number of the Offer Shares initially available under the Global Offering, at the same price per
Share under the International Offering to cover over-allocation in the International Offering, if any.
If the Over-allotment Option is exercised in full, the additional Offer Shares will represent
approximately 3.6% of our enlarged share capital immediately following the completion of the
Global Offering and the exercise of the Over-allotment Option. In the event that theOver-allotment Option is exercised, an announcement will be made in accordance with the Listing
Rules.

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STRUCTURE OF THE GLOBAL OFFERING
PRICE DETERMINATION OF THE GLOBAL OFFERINGThe Offer Price is expected to be fixed on the Price Determination Date, which is expected
to be on or around Friday, 27 March 2015, and in any event not later than 12:00 noon on
Wednesday, 1 April 2015, by agreement between the Sole Global Coordinator (for itself and on
behalf of the Underwriters) and our Company.
The Offer Price will be not more than HK$1.28 per Share and is expected to be not less than
HK$1.10 per Share unless otherwise announced, as further explained below, not later than themorning of the last day for lodging applications under the Hong Kong Public Offering.
Prospective investors should be aware that the Offer Price to be determined on thePrice Determination Date may be, but is not expected to be, lower than the indicative
Offer Price range stated in this Prospectus.
The Sole Global Coordinator, for itself and on behalf of the Underwriters, may, whereconsidered appropriate, based on the level of interest expressed by prospective professional,
institutional and other investors during the book-building process, and with the consent of ourCompany, reduce the number of Offer Shares offered in the Global Offering and/or the indicative
Offer Price range below that stated in this Prospectus at any time on or prior to the morning of
the last day for lodging applications under the Hong Kong Public Offering. In such a case, we will,
as soon as practicable following the decision to make such reduction, and in any event not later
than the morning of the day which is the last day for lodging applications under the Hong Kong
Public Offering, cause to be published in the South China Morning Post (in English) and the Hong
Kong Economic Journal (in Chinese), and our website (www.ngch.co.jp) and the Stock
Exchange’s website (www.hkexnews.hk) notices of the reduction in the number of Offer Shares
being offered under the Global Offering and/or the indicative Offer Price range. Upon issue ofsuch a notice, the number of Offer Shares offered in the Global Offering and/or the revised Offer
Price range will be final and conclusive and the Offer Price, if agreed upon by the Sole Global
Coordinator (for itself and on behalf of the Underwriters) and our Company, will be fixed withinsuch revised Offer Price range. Applicants should have regard to the possibility that any
announcement of a reduction in the number of Offer Shares being offered under the Global
Offering and/or the indicative Offer Price range may not be made until the day which is the lastday for lodging applications under the Hong Kong Public Offering.
Such notice will also include confirmation or revision, as appropriate, of the working capitalstatement and the Global Offering statistics as currently set out in this Prospectus, and any otherfinancial information which may change as a result of such reduction. In the absence of any such
notice so published, the Offer Price, if agreed upon by our Company with the Sole Global
Coordinator (for itself and on behalf of the Underwriters), will under no circumstances be set
outside the Offer Price range as stated in this Prospectus.
The final Offer Price, the levels of indication of interest in the Global Offering, the results ofapplications and the basis of allotment of Offer Shares under the Hong Kong Public Offering, areexpected to be announced on Thursday, 2 April 2015 in the manner set out in “How to Apply forHong Kong Offer Shares — 11. Publication of Results”.

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STRUCTURE OF THE GLOBAL OFFERINGSTABILISATION ACTION
Stabilisation is a practice used by underwriters in some markets to facilitate the distributionof securities. To stabilise, the underwriters may bid for, or purchase, the new securities in thesecondary market during a specified period of time to retard and, if possible, prevent any decline
in the market price of the securities below the offer price. Such transactions may be effected inall jurisdictions where it is permitted to do so, in each case in compliance with all applicable laws,
rules and regulations, including those of Hong Kong. In Hong Kong, activity aimed at reducing themarket price is prohibited and the price at which stabilisation is effected is not permitted to
exceed the offer price.
The Sole Global Coordinator has been appointed by us as the stabilising manager for the
purposes of the Global Offering in accordance with the Securities and Futures (Price Stabilising)Rules made under the SFO. In connection with the Global Offering, the Stabilising Manager, itsaffiliates or any person acting for it, on behalf of the Underwriters, may, to the extent permitted
by applicable laws of Hong Kong or elsewhere, over-allocate or effect any other transactions witha view of stabilising or maintaining the market price of our Shares at a level higher than that whichmight otherwise prevail in the open market for a limited period beginning on the Listing Date andexpected to end on the 30th day after the last day for lodging of applications under the Hong
Kong Public Offering. Such transactions may be effected in all jurisdictions where it is permissible
to do so, in each case in compliance with all applicable laws and regulatory requirements,
including the Securities and Futures (Price Stabilising Rules), as amended, made under the SFO.
Any market purchases of the Shares may be effected on any stock exchange, including the Stock
Exchange, any over-the-counter market or otherwise, provided that they are made in compliancewith all applicable laws and regulatory requirements. However, there is no obligation on the
Stabilising Manager, its affiliates or any person acting for it to conduct any such stabilising action,
which if commenced, will be conducted at the sole and absolute discretion of the Stabilising
Manager, its affiliates or any person acting for it and may be discontinued at any time. Any suchstabilising activity is required to be brought to an end on the 30th day after the last day for thelodging of applications under the Hong Kong Public Offering. The number of Shares that may beover-allocated will not exceed the number of Shares that may be allotted and issued by ourCompany under the Over-allotment Option, namely 45,000,000 Shares in aggregate, which is
15% of the Shares initially available under the Global Offering.
Stabilising action permitted in Hong Kong pursuant to the Securities and Futures (Price
Stabilising) Rules under the SFO includes (i) over-allocation for the purpose of preventing or
minimising any reduction in the market price of our Shares; (ii) selling or agreeing to sell our
Shares so as to establish a short position in them for the purpose of preventing or minimising any
reduction in the market price of our Shares; (iii) subscribing, or agreeing to subscribe, for our
Shares pursuant to the Over-allotment Option in order to close out any position established under(i) or (ii) above; (iv) purchasing, or agreeing to purchase, any of our Shares for the sole purposeof preventing or minimising any reduction in the market price of our Shares; (v) selling, or agreeing
to sell, our Shares in order to liquidate any position established as a result of those purchases;and (vi) offering or attempting to do anything described in (ii), (iii), (iv) or (v) above. The Stabilising
Manager, its affiliates or any person acting for it, may take all or any of the above stabilising actionin Hong Kong during the stabilisation period.

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STRUCTURE OF THE GLOBAL OFFERING
Specifically, prospective applicants for and investors in the Shares should note that:•

the Stabilising Manager, its affiliates or any person acting for it, may, in connection withthe stabilising action, maintain a long position in the Shares, and there is no certainty
regarding the extent to which and the time period for which the Stabilising Manager, itsaffiliates or any person acting for it, will maintain such a position. Investors should be
warned of the possible impact of any liquidation of such long position by the Stabilising
Manager, its affiliates or any other person acting for them, may have an adverse impact
on the market price of the Shares;•

stabilising action cannot be used to support the price of the Shares for longer than thestabilising period which will begin on the Listing Date following announcement of theOffer Price, and is expected to expire on the 30th day after the last date for lodging
applications under the Hong Kong Public Offering. After this date, when no further
stabilising action may be taken, demand for the Shares, and therefore the price of the
Shares, could fall;•

the price of the Shares cannot be assured to stay at or above the Offer Price either
during or after the stabilising period by taking of any stabilising action; and•stabilising bids may be made or transactions effected in the course of the stabilisingaction at any price at or below the Offer Price, which means that stabilising bids may
be made or transactions effected at a price below the price paid by applicants for, orinvestors in, the Shares.

Our Company will ensure or procure that a public announcement in compliance with the
Securities and Futures (Price Stabilising) Rules will be made within seven days of the expirationof the stabilising period.
In connection with the Global Offering, the Sole Global Coordinator may over-allocate up to
and not more than an aggregate of 45,000,000 additional Shares and cover such over-allocations
by exercising the Over-allotment Option, which will be exercisable by the Sole Global Coordinator(on behalf of the International Underwriter) at its sole discretion, or by making purchases in thesecondary market at prices that do not exceed the Offer Price or through stock borrowing
arrangements or a combination of these means.
STOCK BORROWING ARRANGEMENT
In order to facilitate the settlement of over-allocations in connection with the Global Offering,
the Sole Global Coordinator (or any person acting for it) may choose to borrow Shares from
Shareholders of our Company under stock borrowing arrangements, or acquire Shares from othersources, including the exercise of the Over-allotment Option.

427

STRUCTURE OF THE GLOBAL OFFERINGThe Stabilising Manager will enter into the Stock Borrowing Agreement with Mr. Taniguchi,
one of the Controlling Shareholders, whereby the Stabilising Manager may borrow Shares from
Mr. Taniguchi on the following conditions:(a)the stock borrowing will only be effected by the Stabilising Manager for the settlementof over-allocations in connection with the International Offering;(b)

the maximum number of Shares borrowed from Mr. Taniguchi will be limited to
45,000,000 Shares, being the maximum number of Shares which may be allotted andissued by our Company upon full exercise of the Over-allotment Option;(c)the same number of Shares borrowed from Mr. Taniguchi must be returned to it or its
nominees (as the case may be) no later than the third business day following the earlierof (i) the last day on which the Over-allotment Option may be exercised; (ii) the date on
which the Over-allotment Option is exercised in full and the Shares to be allotted andissued upon exercise of the Over-allotment Option have been allotted and issued; or (iii)such earlier time as may be agreed in writing between Mr. Taniguchi and the Stabilising
Manager;(d)the stock borrowing arrangement will be effected in compliance with all applicablelisting rules, laws and other regulatory requirements; and(e)no payments will be made to Mr. Taniguchi by the Stabilising Manager in relation tosuch stock borrowing arrangement.

The Stock Borrowing Agreement will be effected in compliance with all applicable laws, rules
and regulatory requirements. The Stock Borrowing Arrangement is not subject to the restrictionsof Rule 10.07(1)(a) of the Listing Rules provided that it complies with the requirements set forthin Rule 10.07(3) of the Listing Rules. No payment will be made to Mr. Taniguchi by the Stabilising
Manager or its agent in relation to such stock.
DEALINGS
Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00 a.m.
in Hong Kong on Wednesday, 8 April 2015, it is expected that dealings in the Offer Shares on the
Stock Exchange will commence at 9:00 a.m. on Wednesday, 8 April 2015, and will be traded inboard lots of 2,000.

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HOW TO APPLY FOR HONG KONG OFFER SHARES
1.

HOW TO APPLY

If you apply for Hong Kong Offer Shares, then you may not apply for or indicate an interest
for International Offer Shares.
To apply for Hong Kong Offer Shares, you may:•use a WHITE or YELLOW Application Form;•

apply online via the White Form eIPO at www.eipo.com.hk; or•electronically cause HKSCC Nominees to apply on your behalf.

None of you or your joint applicant(s) may make more than one application, except where
you are a nominee and provide the required information in your application.
Our Company, the Sole Global Coordinator, the White Form eIPO Service Provider andtheir respective agents may reject or accept any application in full or in part for any reason at theirdiscretion.
2.

WHO CAN APPLY

You can apply for Hong Kong Offer Shares on a WHITE or YELLOW Application Form if youor the person(s) for whose benefit you are applying:•are 18 years of age or older;•

have a Hong Kong address;•

are outside the United States, and are not a United States Person (as defined inRegulation S); and•are not a legal or natural person of China.

If you apply online through the White Form eIPO, in addition to the above, you must also:(i) have a valid Hong Kong identity card number and (ii) provide a valid e-mail address and acontact telephone number.
If you are a firm, the application must be in the individual members’ names. If you are a body
corporate, the application form must be signed by a duly authorised officer, who must state his
representative capacity, and stamped with your corporation’s chop.
If an application is made by a person under a power of attorney, the Sole Global Coordinatormay accept it at its discretion and on any conditions it thinks fit, including evidence of theattorney’s authority.

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HOW TO APPLY FOR HONG KONG OFFER SHARESThe number of joint applicants may not exceed four and they may not apply by means ofWhite Form eIPO for the Hong Kong Offer Shares.
Unless permitted by the Listing Rules, you cannot apply for any Hong Kong Offer Shares if
you are:3.

•

an existing beneficial owner of Shares in our Company and/or any of its subsidiaries;•

a Director or Chief Executive Officer of our Company and/or any of its subsidiaries;•

a close associate of any of the above;•a core connected person of our Company or will become a core connected person of
our Company immediately upon completion of the Global Offering; or•have been allocated or have applied for any International Offer Shares or otherwise
participate in the International Offering.

APPLYING FOR HONG KONG OFFER SHARESWhich Application Channel to Use
For Hong Kong Offer Shares to be issued in your own name, use a WHITE Application Formor apply online through www.eipo.com.hk.
For Hong Kong Offer Shares to be issued in the name of HKSCC Nominees and deposited
directly into CCASS to be credited to your or a designated CCASS Participant’s stock account,use a YELLOW Application Form or electronically instruct HKSCC via CCASS to cause HKSCC
Nominees to apply for you.
Where to Collect the Application Forms
You can collect a WHITE Application Form and a prospectus during normal business hours
from 9:00 a.m. on Tuesday, 24 March 2015 until 12:00 noon on Friday, 27 March 2015 from:(i)the office of the Hong Kong Underwriter, namely Shenyin Wanguo Capital (H.K.)
Limited at Level 19, 28 Hennessy Road, Hong Kong; and430

HOW TO APPLY FOR HONG KONG OFFER SHARES(ii)

any of the following branches of Standard Chartered Bank (Hong Kong) Limited:Hong Kong Island

KowloonNew Territories

Branch name

Address

Des Voeux Road
BranchStandard Chartered Bank Building
4-4A, Des Voeux Road Central
CentralNorth Point Centre
BranchShop G, G/F, North Point Centre
284 King’s Road, North Point

Kwun Tong Hoi Yuen
Road

G/F, Fook Cheong Building
No. 63 Hoi Yuen Road, Kwun Tong
KowloonMongkok Branch

Shop B, G/F, 1/F & 2/F
617-623 Nathan Road, Mongkok

Tai Po Branch

G/F Shop No. 2
23 - 25 Kwong Fuk Road
Tai Po Market, Tai Po

Shatin Plaza Branch

Shop No. 8, Shatin Plaza
21-27 Shatin Centre Street
Shatin, New Territories

You can collect a YELLOW Application Form and a prospectus during normal businesshours from 9:00 a.m. on Tuesday, 24 March 2015 until 12:00 noon on Friday, 27 March 2015 fromthe Depository Counter of HKSCC at 1/F, One & Two Exchange Square, 8 Connaught Place,Central, Hong Kong or from your stockbroker.

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HOW TO APPLY FOR HONG KONG OFFER SHARESTime for Lodging Application Forms
Your completed WHITE or YELLOW Application Form, together with a cheque or a banker’s
cashier order attached and marked payable to “Horsford Nominees Limited — Niraku Public
Offer” for the payment, should be deposited in the special collection boxes provided at any of the
branches of the receiving bank listed above, at the following times:•

Tuesday, 24 March 2015 — 9:00 a.m. to 5:00 p.m.

•

Wednesday, 25 March 2015 — 9:00 a.m. to 5:00 p.m.

•

Thursday, 26 March 2015 — 9:00 a.m. to 5:00 p.m.

•

Friday, 27 March 2015 — 9:00 a.m. to 12:00 noon

The application lists will be open from 11:45 a.m. to 12:00 noon on Friday, 27 March 2015,
the last application day or such later time as described in “— 10. Effect of Bad Weather on theOpening of the Applications Lists” in this section below.
4.

TERMS AND CONDITIONS OF AN APPLICATION

Follow the detailed instructions in the Application Form carefully; otherwise, your application
may be rejected.
By submitting an Application Form or applying through the White Form eIPO, among otherthings, you (and if you are joint applicants, each of you jointly and severally) for yourself or as anagent or a nominee on behalf of each person for whom you act:(i)undertake to execute all relevant documents and instruct and authorise our Company
and/ or the Sole Global Coordinator (or their agents or nominees), as agents of ourCompany, to execute any documents for you and to do on your behalf all things
necessary to register any Hong Kong Offer Shares allocated to you in your name or in
the name of HKSCC Nominees as required by the Articles of Incorporation;(ii)

agree to comply with the Companies Ordinance, the Companies (Winding Up andMiscellaneous Provisions) Ordinance and the Articles of Incorporation;(iii)

confirm that you have read the terms and conditions and application procedures set
out in this Prospectus and in the Application Form and agree to be bound by them;(iv)

confirm that you have received and read this Prospectus and have only relied on theinformation and representations contained in this Prospectus in making yourapplication and will not rely on any other information or representations except thosein any supplement to this Prospectus;(v)

confirm that you are aware of the restrictions on the Global Offering in this Prospectus;

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HOW TO APPLY FOR HONG KONG OFFER SHARES(vi)

agree that none of our Company, the Sole Global Coordinator, the Sole Sponsor, theUnderwriters, their respective directors, officers, employees, partners, agents,
advisers and any other parties involved in the Global Offering is or will be liable for any
information and representations not in this Prospectus (and any supplement to it);(vii) undertake and confirm that you or the person(s) for whose benefit you have made theapplication have not applied for or taken up, or indicated an interest for, and will not
apply for or take up, or indicate an interest for, any Offer Shares under the International
Offering nor participated in the International Offering;(viii) agree to disclose to our Company, our Hong Kong Share Registrar, the receiving bank,the Sole Global Coordinator, the Sole Sponsor, the Underwriters and/or their respective
advisers and agents any personal data which they may require about you and theperson(s) for whose benefit you have made the application;(ix)

if the laws of any place outside Hong Kong apply to your application, agree and warrant
that you have complied with all such laws and none of our Company, the Sole Global
Coordinator, the Sole Sponsor, and the Underwriters nor any of their respective officers
or advisers will breach any law outside Hong Kong as a result of the acceptance of youroffer to purchase, or any action arising from your rights and obligations under the terms
and conditions contained in this Prospectus and the Application Form;(x)agree that once your application has been accepted, you may not rescind it becauseof an innocent misrepresentation;(xi)

agree that your application will be governed by the laws of Hong Kong;(xii) represent, warrant and undertake that (i) you understand that the Hong Kong Offer
Shares have not been and will not be registered under the U.S. Securities Act; and (ii)
you and any person for whose benefit you are applying for the Hong Kong Offer Shares
are outside the United States (as defined in Regulation S) or are a person described inparagraph (h)(3) of Rule 902 of Regulation S;(xiii) warrant that the information you have provided is true and accurate;(xiv) agree to accept the Hong Kong Offer Shares applied for, or any lesser number
allocated to you under the application;(xv) authorise our Company to place your name(s) or the name of the HKSCC Nominees,on our Company’s register of members as the holder(s) of any Hong Kong Offer Shares
allocated to you, and our Company and/or its agents to send any share certificate(s)and/ or any e-Refund payment instructions and/or any refund cheque(s) to you or the
first-named applicant for joint application by registered post at your own risk to theaddress stated on the application, unless you have chosen to collect the sharecertificate(s) and/or refund cheque(s) in person;

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HOW TO APPLY FOR HONG KONG OFFER SHARES(xvi) declare and represent that this is the only application made and the only application
intended by you to be made to benefit you or the person for whose benefit you are
applying;(xvii) understand that our Company and the Sole Global Coordinator will rely on yourdeclarations and representations in deciding whether or not to make any allotment of
any of the Hong Kong Offer Shares to you and that you may be prosecuted for making
a false declaration;(xviii) (if the application is made for your own benefit) warrant that no other application has
been or will be made for your benefit on a WHITE or YELLOW Application Form or by
giving electronic application instructions to HKSCC or to the White Form eIPO
Service Provider by you or by any one as your agent or by any other person; and(xix) (if you are making the application as an agent for the benefit of another person) warrant
that (i) no other application has been or will be made by you as agent for or for the
benefit of that person or by that person or by any other person as agent for that person
on a WHITE or YELLOW Application Form or by giving electronic application
instructions to HKSCC; and (ii) you have due authority to sign the Application Form or
give electronic application instructions on behalf of that other person as their agent.
Additional instructions for YELLOW Application Form
You may refer to the YELLOW Application Form for details.
5.

APPLYING THROUGH WHITE FORM eIPO SERVICE

GeneralIndividuals who meet the criteria in “2. Who Can Apply” in this section above, may apply
through the White Form eIPO for the Hong Kong Offer Shares to be allotted and registered intheir own names through the designated website at www.eipo.com.hk.
Detailed instructions for application through the White Form eIPO are on the designatedwebsite. If you do not follow the instructions, your application may be rejected and may not be
submitted to our Company. If you apply through the designated website, you authorise the WhiteForm eIPO Service Provider to apply on the terms and conditions in this Prospectus, as
supplemented and amended by the terms and conditions of the White Form eIPO.
Time for Submitting Applications under the White Form eIPO
You may submit your application to the White Form eIPO Service Provider atwww.eipo.com.hk (24 hours daily, except on the last application day) from 9:00 a.m. on
Tuesday, 24 March 2015 until 11:30 a.m. on Friday, 27 March 2015 and the latest time forcompleting full payment of application monies in respect of such applications will be 12:00 noonon Friday, 27 March 2015 or such later time under “— 10. Effects of Bad Weather on the Openingof the Applications Lists” in this section below.

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HOW TO APPLY FOR HONG KONG OFFER SHARES
No Multiple Applications
If you apply by means of the White Form eIPO, once you complete payment in respect ofany electronic application instruction given by you or for your benefit through the White FormeIPO to make an application for Hong Kong Offer Shares, an actual application shall be deemed
to have been made. For the avoidance of doubt, giving an electronic application instruction under
the White Form eIPO more than once and obtaining different application reference numbers
without effecting full payment in respect of a particular reference number will not constitute an
actual application.
If you are suspected of submitting more than one application through the White Form eIPO
or by any other means, all of your applications are liable to be rejected.
Section 40 of the Companies (Winding Up and Miscellaneous Provisions) OrdinanceFor the avoidance of doubt, our Company and all other parties involved in the preparationof this Prospectus acknowledge that each applicant who gives or causes to give electronic
application instructions is a person who may be entitled to compensation under section 40 of theCompanies (Winding Up and Miscellaneous Provisions) Ordinance (as applied by section 342E of
the Companies (Winding Up and Miscellaneous Provisions) Ordinance).
Environmental Protection
The obvious advantage of White Form eIPO is to save the use of papers via theself-serviced and electronic application process. Computershare Hong Kong Investor Services
Limited, being the designated White Form eIPO Service Provider, will contribute HK$2 per“NIRAKU GC HOLDINGS, INC.” White Form eIPO application submitted via
www.eipo.com.hk to support the funding of “Source of DongJiang — Hong Kong Forest”
project initiated by Friends of the Earth (HK).
6.

APPLYING BY GIVING ELECTRONIC APPLICATION INSTRUCTIONS TO HKSCC VIACCASSGeneralCCASS Participants may give electronic application instructions to apply for the Hong
Kong Offer Shares and to arrange payment of the money due on application and payment ofrefunds under their participant agreements with HKSCC and the General Rules of CCASS and the
CCASS Operational Procedures.
If you are a CCASS Investor Participant, you may give these electronic application
instructions through the CCASS Phone System by calling 2979 7888 or through the CCASSInternet System (https://ip.ccass.com) (using the procedures in HKSCC’s “An Operating Guidefor Investor Participants” in effect from time to time).

435

HOW TO APPLY FOR HONG KONG OFFER SHARESHKSCC can also input electronic application instructions for you if you go to:Hong Kong Securities Clearing Company Limited
Customer Service Centre
1/F, One & Two Exchange Square
8 Connaught PlaceCentral, Hong Kongand complete an input request form.
You can also collect a prospectus from this address.
If you are not a CCASS Investor Participant, you may instruct your broker or custodian
who is a CCASS Clearing Participant or a CCASS Custodian Participant to give electronic
application instructions via CCASS terminals to apply for the Hong Kong Offer Shares on yourbehalf.
You will be deemed to have authorised HKSCC and/or HKSCC Nominees to transfer thedetails of your application to our Company, the Sole Global Coordinator and our Hong Kong
Share Registrar.
Giving Electronic Application Instructions to HKSCC via CCASS
Where you have given electronic application instructions to apply for the Hong Kong Offer
Shares and a WHITE Application Form is signed by HKSCC Nominees on your behalf:(i)

HKSCC Nominees will only be acting as a nominee for you and is not liable for any
breach of the terms and conditions of the WHITE Application Form or this Prospectus;(ii)

HKSCC Nominees will do the following things on your behalf:•agree that the Hong Kong Offer Shares to be allotted shall be issued in the nameof HKSCC Nominees and deposited directly into CCASS for the credit of the
CCASS Participant’s stock account on your behalf or your CCASS Investor
Participant’s stock account;•agree to accept the Hong Kong Offer Shares applied for or any lesser number
allocated;•

undertake and confirm that you have not applied for or taken up, will not apply foror take up, or indicate an interest for, any Offer Shares under the International
Offering;•(if the electronic application instructions are given for your benefit) declare that
only one set of electronic application instructions has been given for your benefit;

436

HOW TO APPLY FOR HONG KONG OFFER SHARES•(if you are an agent for another person) declare that you have only given one setof electronic application instructions for the other person’s benefit and are duly
authorised to give those instructions as their agent;•confirm that you understand that our Company, our Directors and the Sole Global
Coordinator will rely on your declarations and representations in deciding whether
or not to make any allotment of any of the Hong Kong Offer Shares to you and thatyou may be prosecuted if you make a false declaration;•authorise our Company to place HKSCC Nominees’ name on our Company’s
register of members as the holder of the Hong Kong Offer Shares allocated to you
and to send share certificate(s) and/or refund monies under the arrangements
separately agreed between us and HKSCC;•

confirm that you have read the terms and conditions and application procedures
set out in this Prospectus and agree to be bound by them;•confirm that you have received and/or read a copy of this Prospectus and haverelied only on the information and representations in this Prospectus in causing
the application to be made, save as set out in any supplement to this Prospectus;•

agree that none of our Company, the Sole Global Coordinator, the Sole Sponsor,
the Underwriters, their respective directors, officers, employees, partners,
agents, advisers and any other parties involved in the Global Offering, is or will be
liable for any information and representations not contained in this Prospectus(and any supplement to it);•agree to disclose your personal data to our Company, our Hong Kong Share
Registrar, the receiving bank, the Sole Global Coordinator, the Underwriters
and/or its respective advisers and agents;•

agree (without prejudice to any other rights which you may have) that once
HKSCC Nominees’ application has been accepted, it cannot be rescinded for
innocent misrepresentation;•agree that any application made by HKSCC Nominees on your behalf isirrevocable before the fifth day after the time of the opening of the application lists(excluding any day which is Saturday, Sunday or public holiday in Hong Kong),such agreement to take effect as a collateral contract with us and to become
binding when you give the instructions and such collateral contract to be inconsideration of our Company agreeing that it will not offer any Hong Kong Offer
Shares to any person before the fifth day after the time of the opening of theapplication lists (excluding any day which is Saturday, Sunday or public holiday inHong Kong), except by means of one of the procedures referred to in thisProspectus. However, HKSCC Nominees may revoke the application before thefifth day after the time of the opening of the application lists (excluding for this437

HOW TO APPLY FOR HONG KONG OFFER SHARES
purpose any day which is a Saturday, Sunday or public holiday in Hong Kong) if
a person responsible for this Prospectus under section 40 of the Companies(Winding Up and Miscellaneous Provisions) Ordinance gives a public notice underthat section which excludes or limits that person’s responsibility for thisProspectus;•

agree that once HKSCC Nominees’ application is accepted, neither thatapplication nor your electronic application instructions can be revoked, and that
acceptance of that application will be evidenced by our Company’s
announcement of the Hong Kong Public Offering results;•

agree to the arrangements, undertakings and warranties under the participant
agreement between you and HKSCC, read with the General Rules of CCASS andthe CCASS Operational Procedures, for giving electronic application instructions
to apply for Hong Kong Offer Shares;•

agree with our Company, for itself and for the benefit of each Shareholder (and sothat our Company will be deemed by its acceptance in whole or in part of theapplication by HKSCC Nominees to have agreed, for itself and on behalf of eachof the Shareholders, with each CCASS Participant giving electronic application
instructions) to observe and comply with the Companies Ordinance, theCompanies (Winding Up and Miscellaneous Provisions) Ordinance and the
Articles of Incorporation; and•agree that your application, any acceptance of it and the resulting contract will begoverned by the Laws of Hong Kong.

Effect of Giving Electronic Application Instructions to HKSCC via CCASS
By giving electronic application instructions to HKSCC or instructing your broker orcustodian who is a CCASS Clearing Participant or a CCASS Custodian Participant to give such
instructions to HKSCC, you (and, if you are joint applicants, each of you jointly and severally) are
deemed to have done the following things. Neither HKSCC nor HKSCC Nominees shall be liable
to our Company or any other person in respect of the things mentioned below:•

instructed and authorised HKSCC to cause HKSCC Nominees (acting as nominee forthe relevant CCASS Participants) to apply for the Hong Kong Offer Shares on yourbehalf;•instructed and authorised HKSCC to arrange payment of the maximum Offer Price,brokerage, SFC transaction levy and the Stock Exchange trading fee by debiting yourdesignated bank account and, in the case of a wholly or partially unsuccessful
application and/or if the Offer Price is less than the maximum Offer Price per Offer
Share initially paid on application, refund of the application monies(including
brokerage, SFC transaction levy and the Stock Exchange trading fee) by crediting yourdesignated bank account; and438

HOW TO APPLY FOR HONG KONG OFFER SHARES•

instructed and authorised HKSCC to cause HKSCC Nominees to do on your behalf all
the things stated in the WHITE Application Form and in this Prospectus.

Minimum Purchase Amount and Permitted Numbers
You may give or cause your broker or custodian who is a CCASS Clearing Participant or a
CCASS Custodian Participant to give electronic application instructions for a minimum of
2,000 Hong Kong Offer Shares. Instructions for more than 2,000 Hong Kong Offer Shares must
be in one of the numbers set out in the table in the Application Forms. No application for any
other number of Hong Kong Offer Shares will be considered and any such application is liable tobe rejected.
Time for Inputting Electronic Application Instructions
CCASS Clearing/Custodian Participants can input electronic application instructions at thefollowing times on the following dates:•

Tuesday, 24 March 2015 — 9:00 a.m. to 8:30 p.m. (1)•Wednesday, 25 March 2015 — 8:00 a.m. to 8:30 p.m. (1)•Thursday, 26 March 2015 — 8:00 a.m. to 8:30 p.m. (1)•Friday, 27 March 2015 — 8:00 a.m. (1) to 12:00 noon

Note:
(1)

These times are subject to change as HKSCC may determine from time to time with prior notification to
CCASS Clearing/Custodian Participants.

CCASS Investor Participants can input electronic application instructions from 9:00 a.m. on
Tuesday, 24 March 2015 until 12:00 noon on Friday, 27 March 2015 (24 hours daily, except on
the last application day).
The latest time for inputting your electronic application instructions will be 12:00 noon on
Friday, 27 March 2015, the last application day or such later time as described in “— 10. Effectof Bad Weather on the Opening of the Application Lists” in this section below.
No Multiple Applications
If you are suspected of having made multiple applications or if more than one application ismade for your benefit, the number of Hong Kong Offer Shares applied for by HKSCC Nominees
will be automatically reduced by the number of Hong Kong Offer Shares for which you have givensuch instructions and/or for which such instructions have been given for your benefit. Anyelectronic application instructions to make an application for the Hong Kong Offer Shares
given by you or for your benefit to HKSCC shall be deemed to be an actual application for the
purposes of considering whether multiple applications have been made.

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HOW TO APPLY FOR HONG KONG OFFER SHARES
Section 40 of the Companies (Winding Up and Miscellaneous Provisions) OrdinanceFor the avoidance of doubt, our Company and all other parties involved in the preparationof this Prospectus acknowledge that each CCASS Participant who gives or causes to giveelectronic application instructions is a person who may be entitled to compensation under
section 40 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (as appliedby section 342E of the Companies (Winding Up and Miscellaneous Provisions) Ordinance).
Personal Data
The section of the Application Form headed “Personal Data” applies to any personal data
held by our Company, the Hong Kong Share Registrar, the receiving bank, the Sole Global
Coordinator, the Underwriters and any of their respective advisers and agents about you in thesame way as it applies to personal data about applicants other than HKSCC Nominees.
7.

WARNING FOR ELECTRONIC APPLICATIONSThe subscription of the Hong Kong Offer Shares by giving electronic application
instructions to HKSCC is only a facility provided to CCASS Participants. Similarly, theapplication for Hong Kong Offer Shares through the White Form eIPO is also only a facility
provided by the White Form eIPO Service Provider to public investors. Such facilities are subject
to capacity limitations and potential service interruptions and you are advised not to wait until thelast application day in making your electronic applications. Our Company, our Directors, the Sole
Bookrunner, the Sole Sponsor, the Sole Global Coordinator and the Underwriters take no
responsibility for such applications and provide no assurance that any CCASS Participant or
person applying through the White Form eIPO will be allotted any Hong Kong Offer Shares.
To ensure that CCASS Investor Participants can give their electronic application
instructions, they are advised not to wait until the last minute to input their instructions to thesystems. In the event that CCASS Investor Participants have problems in the connection to
CCASS Phone System/CCASS Internet System for submission of electronic application
instructions, they should either (i) submit a WHITE or YELLOW Application Form, or (ii) go to
HKSCC’s Customer Service Centre to complete an input request form for electronic
application instructions before Friday, 27 March 2015.
8.

HOW MANY APPLICATIONS CAN YOU MAKE

Multiple applications for the Hong Kong Offer Shares are not allowed except by nominees.
If you are a nominee, in the box on the Application Form marked “For nominees” you must
include:•an account number; or•some other identification code,

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HOW TO APPLY FOR HONG KONG OFFER SHARES
for each beneficial owner or, in the case of joint beneficial owners, for each joint beneficial owner.
If you do not include this information, the application will be treated as being made for yourbenefit.
All of your applications will be rejected if more than one application on a WHITE or YELLOW
Application Form or by giving electronic application instructions to HKSCC or through WhiteForm eIPO, is made for your benefit (including the part of the application made by HKSCC
Nominees acting on electronic application instructions). If an application is made by anunlisted company and:•the principal business of that company is dealing in securities; and•you exercise statutory control over that company,

then the application will be treated as being for your benefit.
“Unlisted company” means a company with no equity securities listed on the Stock
Exchange.
“Statutory control” means you:9.

•

control the composition of the board of directors of the company;•

control more than half of the voting power of the company; or•hold more than half of the issued share capital of the company (not counting any partof it which carries no right to participate beyond a specified amount in a distribution ofeither profits or capital).

HOW MUCH ARE THE HONG KONG OFFER SHARESThe WHITE and YELLOW Application Forms have tables showing the exact amountpayable for Shares.
You must pay the maximum Offer Price, brokerage, SFC transaction levy and the Stock
Exchange trading fee in full upon application for Shares under the terms set out in the Application
Forms.
You may submit an application using a WHITE and YELLOW Application Form or throughthe White Form eIPO in respect of a minimum of 2,000 Hong Kong Offer Shares. Eachapplication or electronic application instruction in respect of more than 2,000 Hong Kong
Offer Shares must be in one of the numbers set out in the table in the Application Form, or asotherwise specified on the designated website at www.eipo.com.hk.

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HOW TO APPLY FOR HONG KONG OFFER SHARES
If your application is successful, brokerage will be paid to the Exchange Participants, andthe SFC transaction levy and the Stock Exchange trading fee are paid to the Stock Exchange (inthe case of the SFC transaction levy, collected by the Stock Exchange on behalf of the SFC).
For further details on the Offer Price, see “Structure of the Global Offering — Price
Determination of the Global Offering”.
10. EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS
The application lists will not open if there is:•a tropical cyclone warning signal number 8 or above; or•a “black” rainstorm warning,in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, 27 March 2015.
Instead they will open between 11:45 a.m. and 12:00 noon on the next business day which does
not have either of those warnings in Hong Kong in force at any time between 9:00 a.m. and 12:00
noon.
If the application lists do not open and close on Friday, 27 March 2015 or if there is a tropical
cyclone warning signal number 8 or above or a “black” rainstorm warning signal in force in Hong
Kong that may affect the dates mentioned in “Expected Timetable”, an announcement will bemade in such event.
11. PUBLICATION OF RESULTS
Our Company expects to announce the final Offer Price, the level of indication of interest in
the International Offering, the level of applications in the Hong Kong Public Offering and the basisof allocation of the Hong Kong Offer Shares on Thursday, 2 April 2015 in the South China Morning
Post (in English) and the Hong Kong Economic Journal (in Chinese) on our website(www.ngch.co.jp) and the Stock Exchange’s website (www.hkexnews.hk).
The results of allocations and the Hong Kong identity card/passport/Hong Kong businessregistration numbers of successful applicants under the Hong Kong Public Offering will beavailable at the times and date and in the manner specified below:•

in the announcement to be posted on our website (www.ngch.co.jp) and the Stock
Exchange’s website (www.hkexnews.hk) by no later than 8:00 a.m. on Thursday, 2April 2015;•

from the designated results of allocations website (www.iporesults.com.hk) with a“search by ID” function on a 24-hour basis from 8:00 a.m. on Thursday, 2 April 2015
to 12:00 midnight on Wednesday, 8 April 2015;

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HOW TO APPLY FOR HONG KONG OFFER SHARES•

by telephone enquiry line by calling 2862 8669 between 9:00 a.m. and 10:00 p.m. fromThursday, 2 April 2015 to Sunday, 5 April 2015;•

in the special allocation results booklets which will be available for inspection duringopening hours from Thursday, 2 April 2015 and Wednesday, 8 April 2015 to Thursday,
9 April 2015 at all the receiving bank branches and sub-branches.

If our Company accepts your offer to purchase (in whole or in part), which it may do byannouncing the basis of allocations and/or making available the results of allocations publicly,
there will be a binding contract under which you will be required to purchase the Hong Kong Offer
Shares if the conditions of the Global Offering are satisfied and the Global Offering is nototherwise terminated. Further details are contained in “Structure of the Global Offering”.
You will not be entitled to exercise any remedy of rescission for innocent misrepresentation
at any time after acceptance of your application. This does not affect any other right you may
have.
12. CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED OFFER SHARESYou should note the following situations in which the Hong Kong Offer shares will not beallotted to you:(i)

If your application is revoked:

By completing and submitting an Application Form or giving electronic application
instructions to HKSCC or to White Form eIPO Service Provider, you agree that your applicationor the application made by HKSCC Nominees on your behalf cannot be revoked on or before thefifth day after the time of the opening of the application lists (excluding for this purpose any day
which is Saturday, Sunday or public holiday in Hong Kong). This agreement will take effect as acollateral contract with our Company.
Your application or the application made by HKSCC Nominees on your behalf may only be
revoked on or before such fifth day if a person responsible for this Prospectus under section 40of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (as applied by section
342E of the Companies (Winding Up and Miscellaneous Provisions) Ordinance) gives a public
notice under that section which excludes or limits that person’s responsibility for this Prospectus.
If any supplement to this Prospectus is issued, applicants who have already submitted an
application will be notified that they are required to confirm their applications. If applicants havebeen so notified but have not confirmed their applications in accordance with the procedure to
be notified, all unconfirmed applications will be deemed revoked.

443

HOW TO APPLY FOR HONG KONG OFFER SHARES
If your application or the application made by HKSCC Nominees on your behalf has been
accepted, it cannot be revoked. For this purpose, acceptance of applications which are notrejected will be constituted by notification in the press of the results of allocation, and where suchbasis of allocation is subject to certain conditions or provides for allocation by ballot, suchacceptance will be subject to the satisfaction of such conditions or results of the ballot
respectively.
(ii)

If our Company or its agents exercise their discretion to reject your application:

Our Company, the Sole Global Coordinator, the White Form eIPO Service Provider andtheir respective agents and nominees have full discretion to reject or accept any application, orto accept only part of any application, without giving any reasons.
(iii) If the allotment of Hong Kong Offer Shares is void:
The allotment of Hong Kong Offer Shares will be void if the Listing Committee of the Stock
Exchange does not grant permission to list the Shares either:•

within three weeks from the closing date of the application lists; or•within a longer period of up to six weeks if the Listing Committee notifies our Companyof that longer period within three weeks of the closing date of the application lists.

(iv) If:•

you make multiple applications or suspected multiple applications;•

you or the person for whose benefit you are applying have applied for or taken up, orindicated an interest for, or have been or will be placed or allocated (including
conditionally and/or provisionally) Hong Kong Offer Shares and International Offer
Shares;•your Application Form is not completed in accordance with the stated instructions;•

your electronic application instructions through the White Form eIPO are notcompleted in accordance with the instructions, terms and conditions on thedesignated website;•

your payment is not made correctly or the cheque or banker’s cashier order paid by you
is dishonoured upon its first presentation;•

the Underwriting Agreements do not become unconditional or are terminated;•

our Company or the Sole Global Coordinator believes that by accepting yourapplication, it or they would violate applicable securities or other laws, rules orregulations; or444

HOW TO APPLY FOR HONG KONG OFFER SHARES•

you apply for more than 50% Hong Kong Offer Shares initially offered under the Hong
Kong Public Offering.

13. REFUND OF APPLICATION MONIES
If an application is rejected, not accepted or accepted in part only, or if the Offer Price as
finally determined is less than the maximum offer price of HK$1.28 per Offer Share (excluding
brokerage, SFC transaction levy and the Stock Exchange trading fee thereon), or if the conditionsof the Hong Kong Public Offering are not fulfilled in accordance with “Structure of the Global
Offering — Conditions of the Global Offering” or if any application is revoked, the application
monies, or the appropriate portion thereof, together with the related brokerage, SFC transaction
levy and the Stock Exchange trading fee, will be refunded, without interest or the cheque orbanker’s cashier order will not be cleared.
Any refund of your application monies will be made on Thursday, 2 April 2015.
14. DESPATCH/COLLECTION OF SHARE CERTIFICATES AND REFUND MONIES
You will receive one share certificate for all Hong Kong Offer Shares allotted to you underthe Hong Kong Public Offering (except pursuant to applications made on YELLOW Application
Forms or by electronic application instructions to HKSCC via CCASS where the sharecertificates will be deposited into CCASS as described below).
No temporary document of title will be issued in respect of the Shares. No receipt will be
issued for sums paid on application. If you apply by WHITE or YELLOW Application Form,subject to personal collection as mentioned below, the following will be sent to you (or, in thecase of joint applicants, to the first-named applicant) by registered post, at your own risk, to theaddress specified on the Application Form:•share certificate(s) for all the Hong Kong Offer Shares allotted to you (for YELLOW
Application Forms, share certificates will be deposited into CCASS as described
below); and•refund cheque(s) crossed “Account Payee Only” in favour of the applicant (or, in thecase of joint applicants, the first-named applicant) for (i) all or the surplus application
monies for the Hong Kong Offer Shares, wholly or partially unsuccessfully applied for;
and/or (ii) the difference between the Offer Price and the maximum Offer Price per Offer
Share paid on application in the event that the Offer Price is less than the maximum
Offer Price (including brokerage, SFC transaction levy and the Stock Exchange trading
fee but without interest).

Part of the Hong Kong identity card number/passport number, provided by you or the firstnamed applicant (if you are joint applicants), may be printed on your refund cheque, if any. Yourbanker may require verification of your Hong Kong identity card number/passport number before
encashment of your refund cheque(s). Inaccurate completion of your Hong Kong identity card
number/passport number may invalidate or delay encashment of your refund cheque(s).

445HOW TO APPLY FOR HONG KONG OFFER SHARES
Subject to arrangement on dispatch/collection of share certificates and refund monies asmentioned below, any refund cheques and share certificates are expected to be posted on oraround Thursday, 2 April 2015. The right is reserved to retain any share certificate(s) and any
surplus application monies pending clearance of cheque(s) or banker’s cashier’s order(s).
Share certificates will only become valid at 8:00 a.m. on Wednesday, 8 April 2015 provided
that the Global Offering has become unconditional and the right of termination described in“Underwriting” has not been exercised. Investors who trade shares prior to the receipt of Sharecertificates or the Share certificates becoming valid do so at their own risk.
Personal Collection(i)

If you apply using a WHITE Application Form

If you apply for 1,000,000 or more Hong Kong Offer Shares and have provided all
information required by your Application Form, you may collect your refund cheque(s) and/or
share certificate(s) from the Hong Kong Share Registrar, Computershare Hong Kong Investor
Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East,
Wanchai, Hong Kong, from 9:00 a.m. to 1:00 p.m. on Thursday, 2 April 2015 or such other dateas notified by us in the newspapers.
If you are an individual who is eligible for personal collection, you must not authorise anyother person to collect for you. If you are a corporate applicant which is eligible for personalcollection, your authorised representative must bear a letter of authorisation from yourcorporation stamped with your corporation’s chop. Both individuals and authorised
representatives must produce, at the time of collection, evidence of identity acceptable to theHong Kong Share Registrar.
If you do not collect your refund cheque(s) and/or share certificate(s) personally within thetime specified for collection, they will be despatched promptly to the address specified in your
Application Form by registered post at your own risk.
If you apply for less than 1,000,000 Hong Kong Offer Shares, your refund cheque(s) and/or
share certificate(s) will be sent to the address on the relevant Application Form on or before
Thursday, 2 April 2015, by registered post and at your own risk.
(ii)

If you apply using a YELLOW Application Form

If you apply for 1,000,000 Hong Kong Offer Shares or more, please follow the same
instructions as described above. If you have applied for less than 1,000,000 Hong Kong Offer
Shares, your refund cheque(s) will be sent to the address on the relevant Application Form on or
before Thursday, 2 April 2015, by registered post and at your own risk.

446

HOW TO APPLY FOR HONG KONG OFFER SHARES
If you apply by using a YELLOW Application Form and your application is wholly or partiallysuccessful, your share certificate(s) will be issued in the name of HKSCC Nominees anddeposited into CCASS for credit to your or the designated CCASS Participants stock account asstated in your Application Form on Thursday, 2 April 2015, or upon contingency, on any otherdate determined by HKSCC or HKSCC Nominees.
•

If you apply through a designated CCASS participant (other than a CCASS investor
participant)

For Hong Kong Offer Shares credited to your designated CCASS participant’s stock
account (other than CCASS Investor Participant), you can check the number of Hong Kong
Offer Shares allotted to you with that CCASS participant.
•If you are applying as a CCASS investor participant

Our Company will publish the results of CCASS Investor Participants’ applications
together with the results of the Hong Kong Public Offering in the manner described in theparagraph “11. Publication of Results” in this section above. You should check theannouncement published by our Company and report any discrepancies to HKSCC before
5:00 p.m. on Thursday, 2 April 2015 or any other date as determined by HKSCC or HKSCC
Nominees. Immediately after the credit of the Hong Kong Offer Shares to your stock
account, you can check your new account balance via the CCASS Phone System and
CCASS Internet System.
(iii) If you apply through the White Form eIPO
If you apply for 1,000,000 Hong Kong Offer Shares or more and your application is whollyor partially successful, you may collect your Share certificate(s) from the Hong Kong Share
Registrar, Computershare Hong Kong Investor Services Limited at Shop 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, from 9:00 a.m. to 1:00 p.m. on
Thursday, 2 April 2015, or such other date as notified by our Company in the newspapers as thedate of despatch/collection of Share certificates/e-Refund payment instructions/refund cheques.
If you do not collect your Share certificate(s) personally within the time specified forcollection, they will be sent to the address specified in your application instructions by registered
post at your own risk.
If you apply for less than 1,000,000 Hong Kong Offer Shares, your Share certificate(s)(where applicable) will be sent to the address specified in your application instructions on or
before Thursday, 2 April 2015 by registered post at your own risk.
If you apply and pay the application monies from a single bank account, any refund monies
will be despatched to that bank account in the form of e-Refund payment instructions. If you
apply and pay the application monies from multiple bank accounts, any refund monies will be
despatched to the address as specified in your application instructions in the form of refund
cheque(s) by registered post at your own risk.

447

HOW TO APPLY FOR HONG KONG OFFER SHARES(iv) If you apply via Electronic Application Instructions to HKSCC
Allocation of Hong Kong Offer Shares
For the purposes of allocating Hong Kong Offer Shares, HKSCC Nominees will not betreated as an applicant. Instead, each CCASS Participant who gives electronic application
instructions or each person for whose benefit instructions are given will be treated as anapplicant.
Deposit of Share Certificates into CCASS and Refund of Application Monies•

If your application is wholly or partially successful, your share certificate(s) will be issued in
the name of HKSCC Nominees and deposited into CCASS for the credit of your designated
CCASS Participant’s stock account or your CCASS Investor Participant stock account on
Thursday, 2 April 2015, or, on any other date determined by HKSCC or HKSCC Nominees.

•

Our Company expects to publish the application results of CCASS Participants (and where
the CCASS Participant is a broker or custodian, our Company will include information
relating to the relevant beneficial owner), your Hong Kong identity card number/passportnumber or other identification code (Hong Kong business registration number for
corporations) and the basis of allotment of the Hong Kong Public Offering in the manner
specified in “Publication of Results” above on Thursday, 2 April 2015. You should check theannouncement published by our Company and report any discrepancies to HKSCC before
5:00 p.m. on Thursday, 2 April 2015 or such other date as determined by HKSCC or HKSCC
Nominees.

•

If you have instructed your broker or custodian to give electronic application instructions
on your behalf, you can also check the number of Hong Kong Offer Shares allotted to you
and the amount of refund monies (if any) payable to you with that broker or custodian.

•If you have applied as a CCASS Investor Participant, you can also check the number ofHong Kong Offer Shares allotted to you and the amount of refund monies (if any) payable
to you via the CCASS Phone System and the CCASS Internet System (under the procedures
contained in HKSCC’s “An Operating Guide for Investor Participants” in effect from time totime) on Thursday, 2 April 2015. Immediately following the credit of the Hong Kong Offer
Shares to your stock account and the credit of refund monies to your bank account, HKSCC
will also make available to you an activity statement showing the number of Hong Kong Offer
Shares credited to your CCASS Investor Participant stock account and the amount of refundmonies (if any) credited to your designated bank account.

•

Refund of your application monies (if any) in respect of wholly and partially unsuccessful
applications and/or difference between the Offer Price and the maximum Offer Price per
Offer Share initially paid on application (including brokerage, SFC transaction levy and theStock Exchange trading fee but without interest) will be credited to your designated bankaccount or the designated bank account of your broker or custodian on Thursday, 2 April
2015.

448

HOW TO APPLY FOR HONG KONG OFFER SHARES
15. ADMISSION OF THE SHARES INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the Shares and wecomply with the stock admission requirements of HKSCC, the Shares will be accepted as eligible
securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the dateof commencement of dealings in the Shares or any other date HKSCC chooses. Settlement oftransactions between Exchange Participants (as defined in the Listing Rules) is required to takeplace in CCASS on the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASSOperational Procedures in effect from time to time.
Investors should seek the advice of their stockbroker or other professional adviser for detailsof the settlement arrangement as such arrangements may affect their rights and interests.
All necessary arrangements have been made enabling the Shares to be admitted into
CCASS.

449

APPENDIX IACCOUNTANT’S REPORTThe following is the text of a report received from the Company’s reporting accountant,PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose ofincorporation in this Prospectus. It is prepared and addressed to the directors of the Company
and to the Sole Sponsor pursuant to the requirements of Auditing Guideline 3.340 “Prospectuses
and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public
Accountants.

24 March 2015
The Board of Directors
株式会社二ラク▪ジー▪シ—▪ホールディングス NIRAKU GC HOLDINGS, INC*
Shenyin Wanguo Capital (H.K.) Limited
Dear Sirs,
We report on the financial information of 株式会社二ラク▪ジー▪シ—▪ホールディングス
NIRAKU GC HOLDINGS, INC* (the “Company”) and its subsidiaries (together, the “Group”), which
comprises the consolidated statements of financial position as at 31 March 2012, 2013 and 2014
and 30 September 2014, the statements of financial position of the Company as at 31 March2013 and 2014 and 30 September 2014, and the consolidated statements of comprehensive
income, the consolidated statements of changes in equity and the consolidated statements ofcash flows for each of the years ended 31 March 2012, 2013 and 2014 and for the six months
ended 30 September 2014 (the “Relevant Periods”), and a summary of significant accounting
policies and other explanatory information. This financial information has been prepared by the
directors of the Company and is set out in Sections I to III below for inclusion in Appendix I to
the prospectus of the Company dated 24 March 2015 (the “Prospectus”) in connection with theinitial listing of shares of the Company on the Main Board of The Stock Exchange of Hong Kong
Limited.
The Company was incorporated in Japan under the Companies Act (会社法) of Japan (ActNo.86 of 2005), as amended, supplemented or otherwise modified from time to time (the “Japan
Companies Act”), with limited liability on 10 January 2013. Pursuant to a group reorganisation as
described in Note 1.2 of Section II headed “Reorganisation” below, which was completed on 30
September 2014, the Company became the holding company of the subsidiaries now comprising
the Group (the “Reorganisation”).

I-1

APPENDIX IACCOUNTANT’S REPORTAs at the date of this report, the Company has direct and indirect interests in thesubsidiaries as set out in Note 1.2 of Section II below. All of these companies are privatecompanies.
The directors of the Company have prepared the consolidated financial statements of theGroup for the year ended 31 March 2014 in accordance with Japanese General Acceptable
Accounting Principles (the “Japanese GAAP”) issued by Accounting Standards Board of Japan(the “Japanese GAAP Financial Statements”). The Japanese GAAP Financial Statements for theyear ended 31 March 2014 were audited by PricewaterhouseCoopers Aarata.
The audited financial statements of a subsidiary as at the date of this report for which there
are statutory audit requirements have been prepared in accordance with the relevant accounting
principles generally accepted in its place of incorporation. The details of the statutory auditors of
the company are set out in Note 1.2 of Section II.
The directors of the Company have prepared the consolidated financial statements of theCompany and its subsidiaries now comprising the Group for the Relevant Periods, in accordancewith International Financial Reporting Standards (“IFRS”) issued by the International AccountingStandards Board (the “IASB”) (the “Underlying Financial Statements”). The directors of theCompany are responsible for the preparation of the Underlying Financial Statements that gives
a true and fair view in accordance with IFRS. We have audited the Underlying Financial
Statements in accordance with International Standards on Auditing (the “ISA”) issued by theInternational Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms ofengagement with the Company.
The financial information has been prepared based on the Underlying Financial Statements,
with no adjustment made thereon.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION
The directors of the Company are responsible for the preparation of the financial informationthat gives a true and fair view in accordance with IFRS, and for such internal control as the
directors determine is necessary to enable the preparation of financial information that is freefrom material misstatement, whether due to fraud or error.
REPORTING ACCOUNTANT’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial information and to report our
opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340“Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified
Public Accountants (the “HKICPA”).

I-2

APPENDIX IACCOUNTANT’S REPORTOPINION
In our opinion, the financial information gives, for the purpose of this report, a true and fairview of the state of affairs of the Company as at 31 March 2013 and 2014 and 30 September
2014 and of the state of affairs of the Group as at 31 March 2012, 2013 and 2014 and 30
September 2014 and of the Group’s results and cash flows for the Relevant Periods then ended.
REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION
We have reviewed the stub period comparative financial information set out in Sections I to
II below included in Appendix I to the Prospectus, which comprises the consolidated statementof comprehensive income, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the six months ended 30 September 2013, and a summary ofsignificant accounting policies and other explanatory information (the “Stub Period Comparative
Financial Information”).
The directors of the Company are responsible for the preparation and fair presentation of the
Stub Period Comparative Financial Information in accordance with the accounting policies set out
in Note 2 of Section II below.
Our responsibility is to express a conclusion on the Stub Period Comparative Financial
Information based on our review. We conducted our review in accordance with International
Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by
the Independent Auditor of the Entity” issued by the IAASB. A review of the Stub Period
Comparative Financial Information consists of making inquiries, primarily of persons responsible
for financial and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with ISA andconsequently does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Based on our review, nothing has come to our attention that causes us to believe that the
Stub Period Comparative Financial Information, for the purpose of this report is not prepared, inall material respects, in accordance with the accounting policies set out in Note 2 of Section II
below.

I-3

APPENDIX II.

ACCOUNTANT’S REPORTFINANCIAL INFORMATION OF THE GROUP

The following is the financial information of the Group prepared by the directors of theCompany as at 31 March 2012, 2013 and 2014 and 30 September 2014, and for each of theyears ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2013 and2014 (the “Financial Information”):
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The Group
Six months ended
Year ended 31 March
Note

30 September

2012

2013

2014

¥ million¥ million¥ million

2013

2014

¥ million¥ million(unaudited)

Revenue . . . . . . . . . . . . . .

530,35232,751

33,847

16,42915,572Other income . . . . . . . . . . .
Other losses, net . . . . . . . .
Hall operating expenses . . .
Administrative and otheroperating expenses . . . . .

6
6
7

1,115
(504)
(20,609)446(20)(21,909)378(97)(22,798)

182(81)(11,494)801(25)(11,644)7(3,319)(4,126)(4,636)(2,013)(2,808)

7,035
66
(794)

7,142
63
(720)

6,694
58
(744)

3,023
28
(368)

1,896
88
(357)

9

(728)

(657)

(686)

(340)

(269)

10

6,307
(2,978)6,485(2,720)6,008(2,310)2,683(1,060)

1,627
(690)

3,329

3,765

3,698

1,623

937

855

967

949

417

241

Operating profit . . . . . . . .
Finance income . . . . . . . . .
Finance costs . . . . . . . . . . .
Finance costs, net . . . . . . .
Profit before income tax .
Income tax expense . . . . . .
Profit for the year/period
attributable toshareholders of theCompany . . . . . . . . . . . .
Earnings per share for
profit attributable toshareholders of theCompany- Basic and diluted(expressed inJapanese Yen per
share) (Note) . . . . . . . .

11

I-4

APPENDIX IACCOUNTANT’S REPORTThe Group
Six months ended
Year ended 31 March
Note

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Other comprehensive
income/(loss)
Item that may bereclassified to profit orloss
Change in value offinancial assets throughother comprehensive
income . . . . . . . . . . . . . . .

16

124

433

163

(39)

Total comprehensive
income for the year/
period attributable tothe shareholders of
the Company . . . . . . . . .

3,345

3,889

4,131

1,786

898

Note:

The earnings per share as presented above has not taken into account the proposed sub-division of issued sharespursuant to the approval from the board of directors on 16 March 2015 because the proposed sub-division ofissued shares has not become effective as of the date of this report.

I-5

APPENDIX IACCOUNTANT’S REPORTCONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at 30
As at 31 MarchNoteASSETS
Non-current assets
Property, plant and equipment . .
Investment properties . . . . . . . . .
Intangible assets. . . . . . . . . . . . .
Prepayments, deposits andother receivables . . . . . . . . . . .
Amounts due from directors anda shareholder . . . . . . . . . . . . .
Amounts due from relatedcompanies . . . . . . . . . . . . . . . .
Financial assets at fair value
through profit or loss . . . . . . .
Financial assets at fair value
through other comprehensive
income . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . .
Long-term bank deposits . . . . . .

Current assets
Inventories . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . .
Prepayments, deposits andother receivables . . . . . . . . . . .
Amounts due from directors anda shareholder . . . . . . . . . . . . .
Financial assets at fair value
through profit or loss . . . . . . .
Pledged bank deposits andbank deposits with maturity
over 3 months . . . . . . . . . . . . .
Cash and cash equivalents . . . .
Tax recoverable. . . . . . . . . . . . . .

September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

13
15
16

22,351
683
177

23,735669
161

25,817676
167

25,806
669
172

22

4,051

4,310

4,251

4,519

35

318

311

304

—

35

435

—

—

—

18

395

546

601

697

18
30
23

220
1,563
142

919
1,612
71

1,574
1,462
84

1,476
2,038
119

30,33532,33434,93635,496

20
21

412
60

86
64

21
54

40
52

22

989

1,035

1,546

1,487

35

10

12

12

—

18

34

—

100

—

23
23

758
12,585
—

1,754
6,909
—

1,706
8,409
121

1,639
10,002370

14,848

9,860

11,96913,59045,18342,19446,90549,086

Total assets . . . . . . . . . . . . . . .

I-6

APPENDIX IACCOUNTANT’S REPORTAs at 30
As at 31 MarchNote

EQUITY
Equity attributable toshareholders of theCompany
Share capital. . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . .

September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

24
25

10
18,63810
17,842

10
21,79010
20,86918,64817,85221,80020,879

28

5,026

7,991

9,270

9,968

29

4,135

4,158

5,366

4,090

35
27
19

45
1,280
37

—
1,430
26

—
1,485
33

—
1,501
23

10,523

13,605

16,154

15,582

26
28

347
7,203

382
3,082

201
3,109

145
4,073

29
35

2,392
100

2,394
—

2,253
—

2,808
—

35

—

—

—

24

27
19

3,577
18
2,375

3,584
18
1,277

2,344
15
1,029

4,325
15
1,235

16,012

10,737

8,951

12,625

Total liabilities . . . . . . . . . . . . .

26,53524,342

25,10528,207

Total equity and liabilities . . .

45,18342,19446,90549,086

Net current(liabilities)/assets . . . . . . . . .

(1,164)

(877)

3,018

965

Total assets less current
liabilities . . . . . . . . . . . . . . . .

29,171

31,457

37,95436,461

Total equity . . . . . . . . . . . . . . .
LIABILITIES
Non-current liabilities
Borrowings . . . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . . . . . .
Amount due to a relatedcompany . . . . . . . . . . . . . . . . .
Provisions and other payables . .
Derivative financial instruments .

Current liabilities
Trade payables . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . . . . . .
Amount due to a related party . .
Amount due to a relatedcompany . . . . . . . . . . . . . . . . .
Accruals, provisions and otherpayables . . . . . . . . . . . . . . . . .
Derivative financial instruments .
Current income tax liabilities . . .

I-7

APPENDIX IACCOUNTANT’S REPORTSTATEMENTS OF FINANCIAL POSITION
As at 30
As at 31 MarchNoteASSETS
Non-current assets
Investments in subsidiaries . . . . . . . . . .

September

2013

2014

2014

¥ million¥ million¥ million

14

16,286

16,286

16,286

22
23

—
62
—

—
93
121

9
670
370

62

214

1,049

16,34816,50017,335

10
12,83410
13,352

10
13,57912,844

13,362

13,589

3,114
8

2,779
7

2,608
7

3,122

2,786

2,615

174
201
—
7
—

350
—
—
1
1

351
701
24
55
—

382

352

1,131

Total liabilities . . . . . . . . . . . . . . . . . . .

3,504

3,138

3,746

Total equity and liabilities . . . . . . . . .

16,34816,50017,335

Net current liabilities . . . . . . . . . . . . .

(320)

(138)

(82)

Total assets less current liabilities . .

15,96616,148

16,204Current assets . . . . . . . . . . . . . . . . . .
Prepayment, deposits and otherreceivables . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . .
Current income tax recoverable . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . .
EQUITY
Share capital. . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . .

24
25

Total equity . . . . . . . . . . . . . . . . . . . . .
LIABILITIES
Non-current liabilities . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . .

Current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . .
Amount due to a subsidiary . . . . . . . . . .
Amount due to a related company. . . . .
Other payables . . . . . . . . . . . . . . . . . . . .
Current income tax liabilities . . . . . . . . .

28
27

28
31
35
27

I-8

APPENDIX IACCOUNTANT’S REPORTCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to shareholders of the Company
Investment
CapitalCapitalLegalrevaluation

Share

surplus(Notereserve(Note

reserve(Note

reserve(Note

Retained

capital25(a))

25(b))

25(c))

25(d))

earnings

Total¥ million¥ million¥ million¥ million¥ million¥ million¥ million

10

12,844(15,999)82(7)18,483

15,413

—

—

—

—

—

3,329

3,329

comprehensive income, netof tax . . . . . . . . . . . . . . .

—

—

—

—

16

—

16

Total comprehensive
income for the year . . . . .

—

—

—

—

16

3,329

3,345

Dividend . . . . . . . . . . . . . .

—

—

—

10

—

(120)

(110)

shareholders . . . . . . . . .

—

—

—

10

—

(120)

(110)

Balances at 31 March 2012
and 1 April 2012 . . . . . . .

1012,844(15,999)92

921,692

18,648

—

—

—

—

—

3,765

3,765

through othercomprehensive income, netof tax . . . . . . . . . . . . . . .

—

—

—

—

124

—

124

Total comprehensive
income . . . . . . . . . . . . .

—

—

—

—

124

3,765

3,889

Balance at 1 April 2011 . . . .
Comprehensive income
Profit for the year . . . . . . . . .
Other comprehensive
incomeFinancial assets at fair value
through otherTotal transactions with

Comprehensive income . . .
Profit for the year . . . . . . . . .
Other comprehensive
incomeFinancial assets at fair value

Dividend . . . . . . . . . . . . . .

—

—

—

11

—

(121)

(110)

Purchase of treasury shares(Note 25(e)) . . . . . . . . . . .

—

—

—

—

—

(4,575)(4,575)

Total transactions withshareholders . . . . . . . . .

—

—

—

11

—

(4,696)(4,685)

Balance at 31 March 201310

12,844(15,999)

103

133

20,761

17,852.

I-9

APPENDIX IACCOUNTANT’S REPORT
Attributable to shareholders of the Company
Investment
CapitalCapitalLegalrevaluation

Share

surplus(Notereserve(Note

reserve(Note

reserve(Note

Retained

capital25(a))

25(b))

25(c))

25(d))

earnings

Total¥ million¥ million¥ million¥ million¥ million¥ million¥ million

10

12,844(15,999)

103

133

20,761

17,852

—

—

—

—

—

3,698

3,698

comprehensive income, netof tax . . . . . . . . . . . . . . .

—

—

—

—

433

—

433

Total comprehensive
income for the year . . . . .

—

—

—

—

433

3,698

4,131

Dividend . . . . . . . . . . . . . .

—

—

—

4

—

(187)

(183)

Total transactions withshareholders . . . . . . . . .

—

—

—

4

—

(187)

(183)

Balances at 31 March 2014
and 1 April 2014 . . . . . . .

1012,844(15,999)107

566

24,27221,800

—

—

—

—

—

937

937

through othercomprehensive income, netof tax . . . . . . . . . . . . . . .

—

—

—

—

(39)

—

(39)

Total comprehensive(loss)/income for theperiod . . . . . . . . . . . . . .

—

—

—

—

(39)

937

898

Dividend . . . . . . . . . . . . . .

—

—

—

—

—

(183)

(183)

Purchase of treasury shares(Note 25(e)) . . . . . . . . . . .

—

—

(29)

—

—

(497)

(526)

Reduction in capital surplus
upon distribution in specie(Note 25(a)) . . . . . . . . . . .

—(1,110)

—

—

—

—

(1,110)Total transactions withshareholders . . . . . . . . .

—(1,110)

(29)

—

—

(680)

(1,819)Balance at 30 September
2014 . . . . . . . . . . . . . . .

10

11,734(16,028)107527

24,52920,879Balance at 1 April 2013 . . . .
Comprehensive income
Profit for the year . . . . . . . . .
Other comprehensive
incomeFinancial assets at fair value
through otherComprehensive income
Profit for the period . . . . . . .
Other comprehensive loss .
Financial assets at fair value

I-10

APPENDIX IACCOUNTANT’S REPORT
Attributable to shareholders of the Company
Investment
CapitalCapitalLegalrevaluation

Share

surplus(Notereserve(Note

reserve(Note

reserve(Note

Retained

capital25(a))

25(b))

25(c))

25(d))

earnings

Total¥ million¥ million¥ million¥ million¥ million¥ million¥ million

. . .

10

12,844(15,999)

103

133

20,761

17,852

Profit for the period . . . . . . .

—

—

—

—

—

1,623

1,623

—

—

—

—

163

—

163

163

1,623

1,786

Balance at 1 April 2013
Comprehensive income
Other comprehensive
incomeFinancial assets at fair value
through othercomprehensive income, netof tax . . . . . . . . . . . . . . .
Total comprehensive
income for the period . . .
Dividend . . . . . . . . . . . . . .

—

—

—

—

—

(183)

(183)

Total transactions withshareholders . . . . . . . . .

—

—

—

—

—

(183)

(183)

Balance at 30 September
2013 (unaudited) . . . . . . .

1012,844(15,999)103296

22,201

19,455

I-11

APPENDIX IACCOUNTANT’S REPORTCONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
Year ended 31 March
Note

30 September

2012

2013

2014

¥ million¥ million¥ million

2013

2014

¥ million¥ million(unaudited)

Cash flows fromoperating activities
Cash generated fromoperations . . . . . . . . . . . .
Interest paid . . . . . . . . . . . .
Income tax paid . . . . . . . . .

32

13,435(707)(1,264)

12,268(641)(3,943)

9,607
(692)
(2,635)

3,561
(344)
(1,293)

4,527
(331)
(1,032)

11,464

7,684

6,280

1,924

3,164

—

(646)

(150)

(53)

(100)

(225)

(1,042)(1,326)(859)(1,014)

15

(519)

—

(21)

—

—

16
36

(1)
—

(15)
(820)

(34)
—

(29)
—

(20)
—

—

435

—

—

—

25

—

—

—

—

42

69

33

2

195

5

13

5

13

139

421

192

316

48

137

(384)

(139)

(220)

(88)

(69)

Net cash generated fromoperating activities . . . . .
Cash flows frominvesting activities
Purchase of financial
assets at fair value . . . . .
Purchase of property, plantand equipment . . . . . . . .
Purchase of investment
properties . . . . . . . . . . . .
Purchase of intangible
assets . . . . . . . . . . . . . . .
Acquisition of a subsidiary .
Amounts due from relatedcompanies . . . . . . . . . . . .
Amounts due from relatedparties . . . . . . . . . . . . . . .
Proceeds from disposal ofproperty, plant andequipment . . . . . . . . . . . .
Proceeds from disposal of
financial assets at fairvalue . . . . . . . . . . . . . . . .
Proceeds from bankdeposits with maturity
over 3 months . . . . . . . . .
Placement of bankdeposits with maturity
over 3 months . . . . . . . . .

32

I-12

APPENDIX IACCOUNTANT’S REPORT
Six months ended
Year ended 31 March
Note

30 September

2012

2013

2014

¥ million¥ million¥ million

2013

2014

¥ million¥ million(unaudited)

Placement of long-termbank deposits . . . . . . . . .
Placement of pledged bankdeposits . . . . . . . . . . . . . .
Interest received . . . . . . . . .
Dividend received . . . . . . . .
Net cash used in investing
activities . . . . . . . . . . . . .
Cash flows fromfinancing activities
Purchase of shares . . . . . .
Distribution to theControlling Shareholders .
Repayment of obligations
under finance leases . . . .
Amount due to a related
party . . . . . . . . . . . . . . . .
Amount due to a relatedcompany . . . . . . . . . . . . .
Proceeds from bankborrowings. . . . . . . . . . . .
Repayment of bankborrowings. . . . . . . . . . . .
Dividends paid . . . . . . . . . .
Net cash (usedin)/generated fromfinancing activities . . . . . .
Net increase/(decrease)in cash and cash
equivalents . . . . . . . . . .
Cash and cash equivalents
at beginning of theyear/period . . . . . . . . . . .
Cash and cash equivalents
at end of theyear/period . . . . . . . . . . .

25(e)

(66)

(78)

(61)

(31)

(36)

—
3
4

(900)
—
29

—
1
67

—
—
35

—
—
34

(695)

(2,902)(1,390)

(962)

(734)

—

(4,575)

—

—

(526)

—

—

—

—

(988)

(4,086)(4,393)(4,461)(2,401)

(776)

100

(100)

—

—

—

—

(45)

—

—

—

9,172

11,921

8,897

6,057

4,564

(8,891)(110)(13,156)(110)(7,643)(183)(3,393)(183)(2,928)(183)(3,815)(10,458)(3,390)

80

(837)

6,954

(5,676)

1,500

1,042

1,593

5,631

12,585

6,909

6,909

8,409

12,585

6,909

8,409

7,951

10,002

I-13

APPENDIX IACCOUNTANT’S REPORTII.

NOTES TO THE FINANCIAL INFORMATION

1

General information, reorganisation and basis of presentation

1.1 General Information
NIRAKU GC HOLDINGS, INC.* (the “Company”) was incorporated in Japan under the Japan
Companies Act with limited liability on 10 January 2013. The registered address of the Company
is 1-39 Hohaccho 1-chome, Koriyama-shi, Fukushima, Japan.
The Company is an investment holding company. The Company and its subsidiaries
comprising the Group (together, the “Group”) are principally engaged in pachinko and pachislot
hall operations and hotel operations (the “Listing Business”) in Japan.
This Financial Information is presented in millions of Japanese Yen (“¥”), unless otherwise
stated.
1.2 Reorganisation
Prior to the incorporation of the Company and the completion of the reorganisation (the“Reorganisation”) as described below, the Listing Business was carried out by Niraku
Corporation, Nexia Inc. and Niraku Merrist Corporation (collectively the “Operating Companies”).
Before the completion of the Reorganisation, the Operating Companies were collectively
controlled by Mr. Hisanori Taniguchi (the “Chairman”) and (1) a group of natural persons, namely
Mr. Tatsuo Taniguchi, Mr. Masataka Taniguchi, Mr. Yoshihiro Tei, Mr. Mitsuhiro Tei (1) , Mr. Motohiro
Tei (1) , Ms. Eijun Tei (1) , Ms. Rika Tei (1) and Ms. Noriko Kaneshiro, each being a family member of
the Chairman; and (2) corporate entities, namely Jukki Limited, Densho Limited, Echo Limited,
Daiki Limited, Hokuyo Kanko Limited and KAWASHIMA Co., Ltd., each being an entity controlled
by the family members of the Chairman (collectively, the “Controlling Shareholders”) who owned
and controlled the Operating Companies throughout the Relevant Periods.
In preparation for listing of the Company’s shares on the Main Board of the Stock Exchange
of Hong Kong Limited, the following transactions were carried out:

(1)

(i)

On 10 August 2012, the board of directors of Niraku Corporation resolved torepurchase 250,000 issued shares from its non-controlling shareholders for cash
consideration of approximately ¥600 million (Note 25 (e)).

(ii)

On 10 January 2013, the Company was incorporated in Japan. Upon incorporation,
one class-A share and one common share were allotted and issued to the Chairman.

Mr. Mitsuhiro Tei, Mr. Motohiro Tei, Ms. Eijun Tei and Ms. Rika Tei inherited their interests in the Company from theestate of the late Mr. Tateo Taniguchi, their father and sibling of the Chairman in October 2014.

I-14

APPENDIX IACCOUNTANT’S REPORT(iii)

On 20 February 2013, the board of directors of Niraku Corporation resolved torepurchase 161,000 issued shares from the Densho Limited, Echo Limited, Daiki
Limited and Hokuyo Kanko Limited for a total cash consideration of approximately¥531 million (Note 25 (e)). On 24 May 2012, Nexia Inc. which was controlled by thecertain parties among the Controlling Shareholders, resolved to repurchase 300 issued
shares from one of its non-controlling shareholders for a cash consideration of
approximately ¥12 million (Note 25 (e)).

(iv)

On 1 February 2013, the Company purchased 1,040,000 issued shares of Niraku
Corporation from Mr. Tatsuo Taniguchi, Mr. Masataka Taniguchi, Mr. Yoshihiro Tei, Mr.
Tateo Taniguchi and Mrs. Kyoko Taniguchi for cash consideration of approximately¥3,432 million (Note 25 (e)). Since then, the Company held 21.1% equity interest in
Niraku Corporation.

(v)

On 31 March 2013, Niraku Corporation cancelled 411,000 issued shares repurchasedwith the board of directors’ approval on 10 August 2012 and 20 February 2013. On thesame date, Nexia Inc. cancelled 300 issued shares repurchased with the board of
directors’ approval on 24 May 2012.

(vi)

On 1 April 2013, the Company allotted and issued 3,895,000 shares to the thenshareholders of Niraku Corporation in exchange for 3,895,000 issued shares of Niraku
Corporation, representing 78.9% of total issued shares of Niraku Corporation, on a
one-to-one basis. Since then, Niraku Corporation became a wholly-owned subsidiaryof the Company and the Controlling Shareholders owned 93.2% equity interest in the
Company.

(vii) On 29 July 2014, Niraku USA Inc. was incorporated in the state of Nevada, the UnitedStates of America. The company was wholly owned by Niraku Corporation uponincorporation.
(viii) On 17 September 2014, Niraku Corporation transferred certain tangible assets totalling¥1,110 million, which, among others, included the entire issued stock of Niraku USA
Inc. to Niraku Investment Inc., a company wholly owned by the Company uponincorporation. On the same date, the Company then declared and distributed a
distribution in specie out of its capital surplus by way of distributing 3,895,002 sharesin Niraku Investment Inc., representing its entire number of issued shares to theControlling Shareholders. Since then, the businesses of Niraku Investment Inc. andNiraku USA Inc. that were not related to the core business of pachinko hall operations
under the Company were excluded from the Group.
(ix)

Immediately prior to 9 September 2014, a piece of land and its premises located in
Nakano-ku, Tokyo (“Nakano Property”) was jointly owned by the Chairman, Mr. Tatsuo
Taniguchi and Mr. Masataka Taniguchi (the “Taniguchi Family”). The Group operates
one of its pachinko halls on the Nakano Property. Since the Nakano Property is related
to the Group’s core business of pachinko and pachislot hall operations, the Company

I-15

APPENDIX IACCOUNTANT’S REPORT

had resolved to acquire the Nakano Property through Niraku Corporation in preparation
for the Listing. On 9 September 2014, Niraku Corporation acquired the Nakano
Property from the Taniguchi Family for cash consideration of approximately ¥382
million.
(x)

On 29 September 2014, Nexia Inc. repurchased 2,550 issued shares from Jukki
Limited, Densho Limited, Hokuyo Kanko Limited and KAWASHIMA Co., Ltd. for cash
consideration of approximately ¥497 million and Nexia Inc. cancelled all of theseshares on 30 September 2014. On 29 September 2014, Niraku Corporation purchased
150 issued shares of Nexia Inc. from Mr. Tatsuo Taniguchi for cash consideration of
approximately ¥29 million. Upon completion of these transactions, Nexia Inc. became
an indirectly wholly-owned subsidiary of the Company through Niraku Corporation.

(xi)

Upon the completion of the Reorganisation on 30 September 2014, the Company
became the holding company of the subsidiaries now comprising the Group.
Upon the completion of the Reorganisation, the Company has direct or indirectinterests in the following subsidiaries:
Effective
interest

Country andheld asat 30

as at 31 March

Septemberdate ofincorporation

Principal
activities

Type of legal
statusNiraku Corporation . Japan
27 August 1969

Pachinko andpachislot hall

Limited liability
company

257 million
Japanese Yen

100%

100%

100%

100%

Name

Issued and paid
up capital

Effective interest held

2012

2013

2014

2014

Directly held

operations
Indirectly held
Nexia Inc. . . . . . Japan
19 June 2009

Property
investment

Limited liability
company

30 million
Japanese Yen

100%

100%

100%

100%

Niraku MerristJapan
Corporation . . . 24 February 2010

Cleaning service
provision

Limited liability
company

5 million Japanese
Yen

100%

100%

100%

100%

JIN Corporation* . . Japan
15 June 2012

Pachinko andpachislot halloperations

Limited liability
company

10 million
Japanese Yen

0%

100%

0%

0%

*

The Group acquired all shares of JIN Corporation, a company operating pachinko and pachislot halls in Japan on
15 June 2012 (Note 36). JIN Corporation was merged into Niraku Corporation on 1 October 2013.

The statutory financial statements of Niraku Corporation for the years ended 31 March
2012, 2013 and 2014 were audited by PricewaterhouseCoopers, Aarata. No audited financial
statements were issued for Nexia Inc., Niraku Merrist Corporation and JIN Corporation as theirfinancial statements are not required to be audited under the Japan Companies Act.

I-16

APPENDIX IACCOUNTANT’S REPORT

1.3 Basis of presentation
Immediately prior to and after the Reorganisation, the Listing Business is held by theControlling Shareholders. The Listing Business is mainly conducted through Niraku Corporation,
Nexia Inc. and Niraku Merrist Corporation which are the operating entities of the Group. Pursuant
to the Reorganisation, the Listing Business is transferred to and held by the Company. The
Company has not been involved in any other business prior to the Reorganisation and do notmeet the definition of a business. The transactions as described in Note 1.2 above are merely areorganisation of the Listing Business with no change in management of such business and theultimate owners of the Listing Business remain the same. Accordingly, the consolidated financial
information of the companies now comprising the Group is prepared in accordance with IFRS 10“Consolidated Financial Statements” issued by the International Accounting Standard Board (the“IASB”), using the carrying values of the Listing Business under the Controlling Shareholders for
all periods presented.
For companies acquired from during each of the years ended 31 March 2012, 2013 and2014 and the six months ended 30 September 2014, they are included in the Financial
Information of the Group from the date of the acquisition.
Inter-company transactions, balances and unrealised gains/losses on transactions between
group companies now comprising the Group are eliminated on consolidation.
2

Summary of significant accounting policies

The principal accounting policies applied in the preparation of the Financial Information are
set out below. These policies have been consistently applied throughout the Relevant Periods,
unless otherwise stated.
2.1 Basis of preparation
The Financial Information has been prepared in accordance with International Financial
Reporting Standards (“IFRS”) issued by the IASB and has been prepared under the historical costconvention, as modified by the revaluation of financial assets and financial liabilities (including
derivative instruments) which are carried at fair values.
The preparation of Financial Information in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgement in theprocess of applying the accounting policies. The areas involving a higher degree of judgement orcomplexity, or areas where assumptions and estimates are significant to the Financial
Information, are disclosed in Note 4.

I-17

APPENDIX I(a)

ACCOUNTANT’S REPORT

New and amended standards early adopted by the GroupThe following standard has been early adopted by the Group for the first time for thefinancial year beginning on or after 1 April 2011:
IFRS 9 (2014), “Financial instruments” replaces the whole of IAS 39. IFRS 9 has threefinancial asset classification categories for investments in debt instruments: amortised cost, fairvalue through other comprehensive income (“OCI”) and fair value through profit or loss.
Classification is driven by the entity’s business model for managing the debt instruments and theircontractual cash flow characteristics. Investments in equity instruments are always measured atfair value. However, management can make an irrevocable election to present changes in fairvalue in OCI, provided the instrument is not held for trading. If the equity instrument is held for
trading, changes in fair value are presented in profit or loss. For financial liabilities there are twoclassification categories: amortised cost and fair value through profit or loss. Where
non-derivative financial liabilities are designated at fair value through profit or loss, the changes
in the fair value due to changes in the liability’s own credit risk are recognised in OCI, unless suchchanges in fair value would create an accounting mismatch in profit or loss, in which case, all fairvalue movements are recognised in profit or loss. There is no subsequent recycling of theamounts in OCI to profit or loss. For financial liabilities held for trading (including derivative
financial liabilities), all changes in fair value are presented in profit or loss.
IFRS 9 introduces a new model for the recognition of impairment losses — the expectedcredit losses (ECL) model, which constitutes a change from the incurred loss model in IAS 39.
IFRS 9 contains a ‘three stage’ approach, which is based on the change in credit quality offinancial assets since initial recognition. Assets move through the three stages as credit qualitychanges and the stages dictate how an entity measures impairment losses and applies theeffective interest rate method. The new rules mean that on initial recognition of a non-credit
impaired financial asset carried at amortised cost a day-1 loss equal to the 12-month ECL isrecognised in profit or loss. In the case of accounts receivables this day-1 loss will be equal totheir lifetime ECL. Where there is a significant increase in credit risk, impairment is measured
using lifetime ECL rather than 12-month ECL.
IFRS 9 applies to all hedging relationships, with the exception of portfolio fair value hedges
of interest rate risk. The new guidance better aligns hedge accounting with the risk management
activities of an entity and provides relief from the more “rule-based” approach of IAS39.
The above standard is mandatory effective for annual periods beginning on or after 1
January 2018. The Group has decided to adopt IFRS 9 (2014) from 1 April 2011, being its dateof transition to IFRS.

I-18

APPENDIX I(b)

ACCOUNTANT’S REPORTNew standards and amendments to existing standards not yet adopted by the GroupThe following are standards and amendments to existing standards that have been
published and are relevant and mandatory for the Group’s accounting periods beginning on orafter 1 April 2015 or later periods, but have not been early adopted by the Group.
Effective foraccounting year
beginning on or after

IAS 1 (Amendment). . . . . . . . . . Presentation of financial statements
IAS 16 and IAS 38
Clarification of acceptable methods of(Amendment) . . . . . . . . . . . . .
depreciation and amortisation
IAS 19 (2011) (Amendment) . . . Defined benefit plans: Employee
contributions
IFRS 14 . . . . . . . . . . . . . . . . . . . Regulatory deferral accounts
IFRS 15 . . . . . . . . . . . . . . . . . . . Revenue from contracts with customers
Annual improvements 2012 to Improvements to IASs and IFRS
2013 . . . . . . . . . . . . . . . . . . .
Annual Improvements Project. . Annual Improvements 2012-2014 Cycle

1 January 2016
1 January 2016
1 July 2014
1 January 2016
1 January 2017
1 July 2014
1 January 2016

New Hong Kong Companies Ordinance (Cap.622)
In addition, the requirements of Part 9 “Accounts and Audit” of the new Hong Kong
Companies Ordinance (Cap. 622) come into operation as from the Company’s first financial year
commencing on or after 3 March 2014 in accordance with section 358 of that Ordinance. The
Group is in the process of making an assessment of expected impact of the changes in the
Companies Ordinance on the Financial Information in the period of initial application of Part 9 of
the new Hong Kong Companies Ordinance (Cap. 622). So far it has concluded that the impact
is unlikely to be significant and only the presentation and the disclosure of information in the
Financial Information will be affected.
Management is in the process of making an assessment on the impact of these standards
and amendments to existing IFRS and is not yet in a position to state whether they will have asignificant impact on the Group’s results of operations and financial position.
2.2 Subsidiaries
Consolidation
Subsidiaries are entities (including structured entities) over which the Group has control. The
Group controls entities when the Group is exposed to, or has rights to, variable returns from its
involvement with the entities and has the ability to affect those returns through its power over theentities. Subsidiaries are consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.

I-19

APPENDIX I(a)

ACCOUNTANT’S REPORTBusiness combination under common control

The Financial Information incorporates the financial statement items of the combining
entities in which the common control combination occurs as if they had been combined from thedate when the combining entities first came under the control of the controlling party.
The net assets of the combining entities are combined using the existing book values fromthe controlling party’s perspective. No amount is recognised in respect of goodwill or excess ofacquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent
liabilities over cost at the time of common control combination, to the extent of the continuationof the controlling party’s interest.
The consolidated statements of comprehensive income includes the results of each of the
combining entities from the earliest date presented or since the date when the combining entities
first came under the common control combination, where there is a shorter period, regardless ofthe date of the common control combination.
(b)

Business combination other than under common control

The Group applies the acquisition method to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is the fair values of the assets
transferred, the liabilities incurred to the former owners of the acquiree and the equity interests
issued by the Group. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are measured initially at their fairvalues at the acquisition date. The Group recognises any non-controlling interest in the acquiree
on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s
proportionate share of the recognised amounts of acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
The excess of the consideration transferred, the amount of any non-controlling interest in
the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree
over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of
consideration transferred, non-controlling interest recognised and previously held interest
measured is less than the fair value of the net assets of the subsidiary acquired in the case of abargain purchase, the difference is recognised directly in the consolidated statements ofcomprehensive income.
Intra-group transactions, balances and unrealised gains on transactions between groupcompanies are eliminated. Unrealised losses are also eliminated. When necessary, amounts
reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

I-20

APPENDIX I(c)

ACCOUNTANT’S REPORT

Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in a loss of control areaccounted for as equity transactions — that is, as transactions with the owners of the subsidiaryin their capacity as owners. The difference between fair value of any consideration paid and therelevant share acquired of the carrying amount of net assets of the subsidiary is recorded inequity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
(d)Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is re-measured
to its fair value at the date when control is lost, with the change in carrying amount recognised
in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or financial asset. In addition,
any amounts previously recognised in other comprehensive income in respect of that entity areaccounted for as if the Group had directly disposed of the related assets or liabilities. This may
mean that amounts previously recognised in other comprehensive income are reclassified to
profit or loss.
Separate financial statements
Investments in subsidiaries are accounted for at cost less impairment. Cost also includes
direct attributable costs of investment. The results of subsidiaries are accounted for by theCompany on the basis of dividend received and receivable.
Impairment testing of the investments in subsidiaries is required upon receiving a dividend
from these investments if the dividend exceeds the total comprehensive income of the subsidiaryin the period the dividend is declared or if the carrying amount of the investment in the separate
financial statements exceeds the carrying amount in the Financial Information of the investee’s
net assets including goodwill.
2.3 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided
to the chief operating decision-maker. The chief operating decision-maker, who is responsible forallocating resources and assessing performance of the operating segments, has been identified
as the executive director of the Company that makes strategic decisions.
2.4 Foreign currency translation(a)Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (the “functional
currency”). The Financial Information is presented in Japanese Yen, which is the Company’sfunctional currency and the Group’s presentation currency.

I-21

APPENDIX I(b)

ACCOUNTANT’S REPORTTransactions and balances

Foreign currency transactions are translated into the functional currency using the exchange
rates prevailing at the dates of the transactions or valuation where items are re-measured.
Foreign exchange gains and losses resulting from the settlement of such transactions and fromthe translation at year-end exchange rates of monetary assets and liabilities denominated inforeign currencies are recognised in the profit or loss.
2.5 Property, plant and equipment
Land and buildings comprise mainly pachinko and pachislot halls and offices. All property,
plant and equipment are stated at historical cost less depreciation, except freehold land which
is not subject to amortisation. Historical cost includes expenditure that is directly attributable tothe acquisition of the items.
Construction in progress is stated at cost less impairment loss. It is not depreciated until
completion of the construction and the relevant assets are available for use.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with theitem will flow to the Group and the cost of the item can be measured reliably. The carrying amountof the replaced part is derecognised. All other repairs and maintenance are charged to the profit
or loss during the financial period in which they are incurred.
Depreciation is calculated using the straight-line method to allocate their cost to theirresidual values over their estimated useful lives, as follows:- Buildings- Leasehold improvement- Equipment and tools- Motor vehicles

20 to 40 years
Shorter of lease term or useful lives
2 to 20 years
2 to 5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at theend of each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if theasset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with carrying
amount and are recognised within “Other losses, net” in the profit or loss.
2.6 Investment properties
Investment properties, principally comprising land and buildings, are held for long-term
rental yields or for capital appreciation or both, and that is not occupied by the Group. The Group
adopts the alternative treatment by using the cost model provided under the IAS 40 “Investment

I-22

APPENDIX IACCOUNTANT’S REPORT

Property”. Investment properties are initially measured at cost, including related transaction costs
and where applicable borrowing costs. After initial recognition, investment properties are statedat historical cost less accumulated depreciation and impairment losses. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Depreciation of investment properties, except for the freehold land which is not subject todepreciation, is calculated using the straight-line method to allocate their costs to their residual
values over their estimated useful lives of 27 to 31 years.
An asset’s carrying amount is written down immediately to its recoverable amount if theasset’s carrying amount is greater than its estimated recoverable amount.
2.7 Intangible assets(a)Goodwill

Goodwill arises on the acquisition of pachinko and pachislot halls represents the excess ofthe consideration transferred, the amount of any non-controlling interest in the acquiree and theacquisition-date fair value of any previous equity interest in the acquiree over the fair value of theidentified net assets acquired.
For the purpose of impairment testing, goodwill acquired in a business combination isallocated to each of the cash-generating units (“CGUs”), or groups of CGUs, that is expected tobenefit from the synergies of the combination. Each unit or group of units to which the goodwill
is allocated represents the lowest level within the entity at which the goodwill is monitored forinternal management purposes. Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events orchanges in circumstances indicate a potential impairment. The carrying value of goodwill iscompared to the recoverable amount, which is the higher of value in use and the fair value lesscosts of disposal. Any impairment is recognised immediately as an expense and is not
subsequently reversed.
(b)Computer software

Computer software is stated at cost less accumulated amortisation and impairment losses.
Amortisation is calculated using the straight-line method to allocate the cost over their estimateduseful lives of 5 years.
2.8 Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment. Assets that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair

I-23

APPENDIX IACCOUNTANT’S REPORT

value less costs to sell and value in use. For the purposes of assessing impairment, assets aregrouped at the lowest levels for which there are separately identifiable cash flows (CGUs).
Non-financial assets other than goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at each reporting date.
2.9 Financial assets(a)Classification

The Group classifies its financial assets in the following categories according to IFRS 9“Financial Instruments”: financial assets at amortised costs and financial assets at fair value.
Management determines the classification of its financial assets at initial recognition. This
classification depends on whether the financial asset is a debt or equity instrument.
Debt instruments
Financial assets at amortised costs are debt instruments that meet the Group’s businessmodel for holding the investments to collect contractual cash flows and the contractual terms of
the instrument give rise to cash flows that are solely payments of principal and interest on theprincipal amount outstanding. The nature of any derivatives embedded in the debt instrument areconsidered in determining whether the cash flows of the instrument are solely payment ofprincipal and interest on the principal outstanding and are not accounted for separately. Other
debt instruments are held-for-trading and classified as financial assets at fair value through profit
or loss.
Equity instruments
All the Group’s equity instruments are measured at fair value. Equity instruments that areheld for trading are measured at fair value through profit or loss. For all other equity instruments,
the Group has made an irrevocable election at initial recognition to recognise changes in their fairvalue through other comprehensive income.
Financial assets are included in current assets, except for the amounts that are settled or
expected to be settled more than 12 months after the end of the reporting periods. These areclassified as non-current assets.
(b)

Recognition, derecognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade-date - thedate on which the Group commits to purchase or sell the asset. Financial assets are
derecognised when the rights to receive cash flows from the investments have expired or havebeen transferred and the group has transferred substantially all risks and rewards of ownership.
Investments are initially recognised at fair value plus transaction costs for all financial assets not
carried at fair value through profit or loss. Financial assets carried at fair value through profit orloss are initially recognised at fair value, and transaction costs are expensed in the consolidated
statements of comprehensive income.

I-24

APPENDIX IACCOUNTANT’S REPORT

Debt instruments that fulfil both the business model and the cash flow characteristic
conditions are measured at amortised cost using the effective interest method. Other debt
instruments are held-for-trading and measured at fair value through profit or loss.
Equity instruments are measured at fair value through profit or loss, except where the equity
instruments are not held for trading and are irrevocably elected to measure at fair value throughother comprehensive income at initial recognition, in which case, those financial assets aremeasured at fair value through other comprehensive income and there is no subsequent recyclingof fair value gains and losses to profit or loss. Dividends from such investments continue to berecognised in profit or loss as long as they represent a return on investment.
The Group reclassifies its financial assets when and only when its business model for
managing those financial assets changes.
Gains or losses arising from changes in the fair value of the financial assets at fair value
through profit or loss are presented in the consolidated statements of comprehensive income
within ‘Other losses - net’ in the period in which they arise. Changes in the fair value of financial
assets through other comprehensive income are recognised in other comprehensive income
except for the impairment loss (if any) on debt instruments which are accounted for in profit or
loss.
Gain or loss (if any) on derecognition or impairment (if any) of debt instruments at amortised
cost is recognised in profit or loss.
Interest income from debt instruments at fair value through profit or loss are recognised in
the profit or loss. Dividend income from equity instruments included in financial assets at fairvalue and fair value through other comprehensive income are recognised in the profit or loss
when the Group’s right to receive payments is established.
2.10 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in consolidated
statements of financial position when there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis or realise the asset and settle the liability
simultaneously.
2.11 Impairment of financial assets
Impairment charges on the Group’s investment in debt instruments at amortised cost arecalculated based on an expected credit loss model. The Group considers these debt instruments
as trade receivables in nature and do not have a significant financing component. Therefore, theGroup elected to recognise lifetime expected credit losses of these debt instruments as provision
for impairment allowance at the end of each reporting period. The Group applies a provision

I-25

APPENDIX IACCOUNTANT’S REPORT

matrix, which is prepared by using historical loss experience on its trade receivables and adjusted
for information about current conditions and reasonable and supportable forecasts of future
economic conditions, to estimate the lifetime expected credit losses. Impairment charge/reversal
is recognised in the profit or loss.
2.12 Inventories
Inventories represent supplies, including uninstalled pachinko and pachislot machines with
useful life typically less than one year, and other consumables which are stated at the lower ofcost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method.
2.13 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services
performed in the ordinary course of business. If collection of trade and other receivables is
expected in one year or less (or in the normal operating cycle of the business if longer), they areclassified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method, less provision for impairment.
2.14 Cash and cash equivalents
In the consolidated statements of cash flows, cash and cash equivalents includes cash in
hand, deposits held at call with banks, other short-term highly liquid investments with original
maturities of three months or less.
2.15 Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as adeduction, net of tax, from the proceeds.
2.16 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in theordinary course of business from suppliers. Trade payables are classified as current liabilities if
payment is due within one year or less (or in the normal operating cycle of the business if longer).
If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised
cost using the effective interest method.

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APPENDIX IACCOUNTANT’S REPORT

2.17 Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred.
Borrowings are subsequently carried at amortised cost; any difference between the proceeds (netof transaction costs) and the redemption value is recognised in the consolidated statements ofcomprehensive income over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of theloan to the extent that it is probable that some or all of the facility will be drawn down. In this case,the fee is deferred until the draw-down occurs. To the extent there is no evidence that it isprobable that some or all of the facility will be drawn down, the fee is capitalised as apre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right todefer settlement of the liability for at least 12 months after the end of the reporting period.
General and specific borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a substantial period oftime to get ready for their intended use or sale, are added to the cost of those assets, until suchtime as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are
incurred.
2.18 Current and deferred income tax
The tax expense comprises current and deferred tax. Tax is recognised in the profit or loss,
except to the extent that it relates to items recognised in other comprehensive income or directlyin equity. In this case the tax is also recognised in other comprehensive income or directly inequity, respectively.
(a)Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or
substantively enacted at the statements of financial position date in the countries where theGroup operates and generates taxable income. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax regulation is subject tointerpretation. It establishes provisions where appropriate on the basis of amounts expected tobe paid to the tax authorities.

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APPENDIX I(b)

ACCOUNTANT’S REPORT

Deferred income tax
Inside basis differences
Deferred income tax is recognised, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
Financial Information. However, deferred income tax liabilities are not recognised if theyarise from the initial recognition of goodwill, the deferred income tax is not accounted for if
it arises from initial recognition of an asset or liability in a transaction other than a businesscombination that at the time of the transaction affects neither accounting nor taxable profit
or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted
or substantively enacted by the statements of financial position date and are expected toapply when the related deferred income tax asset is realised or the deferred income tax
liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that
future taxable profit will be available against which the temporary differences can be utilised.
Outside basis differences
Deferred income tax liabilities are provided on taxable temporary differences arisingfrom investments in subsidiaries, except for deferred income tax liability where the timing of
the reversal of the temporary difference is controlled by the Group and it is probable that thetemporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised on deductible temporary differences arisingfrom investments in subsidiaries only to the extent that it is probable the temporary
difference will reverse in the future and there is sufficient taxable profit available against
which the temporary difference can be utilised.

(c)Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable rightto offset current income tax assets against current income tax liabilities and when the deferredincome tax assets and liabilities relate to income taxes levied by the same taxation authority on
either the taxable entity or different taxable entities where there is an intention to settle thebalances on a net basis.
2.19 Employee benefits(a)Pension obligations

The Group operates a defined contribution plan under which the Group pays fixed
contributions into a separate entity. The Group has no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets to pay all employees the benefits
relating to employee service in the current and prior periods.

I-28

APPENDIX IACCOUNTANT’S REPORTThe Group has established a defined contribution plan for its eligible employees. The assetsof the plan are held in separate trustee-administered funds. Contributions to the plan by theGroup are calculated as a percentage of employees’ monthly basic salaries. The Group has nofurther payment obligations once the contributions have been paid. The contributions arerecognised as employee benefit expense when they are due. Prepaid contributions arerecognised as an asset to the extent that a cash refund or a reduction in the future payments isavailable.
(b)Profit-sharing and bonus plans

The Group recognises a liability and an expense for bonuses and profit-sharing, based ona formula that takes into consideration the profit attributable to the Company’s shareholders after
certain adjustments. The Group recognises a provision where contractually obliged or where
there is a past practice that has created a constructive obligation.
(c)

Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A
provision is made for the estimated liability for annual leave as a result of services rendered by
employees up to the statements of financial position date.
Employee entitlements to sick leave and maternity or paternity leave are not recognised until
the time of leave.
(d)Long service payments

Employees who have completed the required number of years of service to the Group are
eligible for long service payments.
A provision is recognised in respect of the probable future long service payments expected
to be made. The provision is based on the best estimate of the probable future payments whichhave been earned by the employees from their services to the Group to the reporting date.
2.20 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation asa result of past events, it is probable that an outflow of resources will be required to settle theobligation, and the amount has been reliably estimated. Provisions are not recognised for future
operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. A
provision is recognised even if the likelihood of an outflow with respect to any one item includedin the same class of obligations may be small.

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APPENDIX IACCOUNTANT’S REPORT

Provisions are measured at the present value of the expenditure expected to be required tosettle the obligation using a pre-tax rate that reflects current market assessments of the timevalue of money and the risks specific to the obligation. The increase in the provision due topassage of time is recognised as interest expense.
2.21 Revenue recognition
The Group recognises revenue when the amount of revenue can be reliably measured; when
it is probable that future economic benefits will flow to the entity; and when specific criteria havebeen met for each of the Group’s activities, as described below.
Revenue from pachinko and pachislot business represents the gross pay-ins, net of thegross payouts to customers. Gross pay-ins represents the amount received from customers forrental pachinko balls and pachislot tokens. Gross payouts represents the aggregate cost of
G-prizes and general prizes exchanged by customers. G-prizes are decorative cards with a small
embedded piece of gold or silver or coin-shaped pendants of gold or silver which can be sold bycustomers to a G-prize buyer for cash, and general prizes are generally the types of goods soldin convenience stores, such as snacks, drinks and cigarettes.
Customers rent pachinko balls and pachislot tokens to play the games, and the balls or
tokens won can be either exchanged for prizes or saved for subsequent visits. The Group offers
both general prizes and G-prizes. Customers who opt to claim G-prizes in exchange for thepachinko balls and pachislot tokens may sell their G-prizes to an independent prize buyer for
cash outside of the pachinko hall. Revenue is recognised at the end of each player’s visit to amachine.
Hotel income is recognised at the time of occupancy.
Vending machine income is recognised in on a straight line basis over the accounting
periods covered by the terms and conditions as stipulated in the agreement. Contingent vending
machine income is recognised in the accounting period in which they are earned.
Rental income from investment properties is recognised on a straight-line basis over theterm of the leases.
Interest income is recognised on a time-proportion basis using the effective interest method.
Income from expired prepaid integrated circuit (“IC”) and membership cards is recognised
upon the expiry of the usage period.
Dividend income is recognised when the right to receive payment is established.
Sundry income is recognised when the right to receive payment is established.

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APPENDIX IACCOUNTANT’S REPORT

2.22 Government grants
Grants from the government are recognised at their fair value where there is a reasonableassurance that the grant will be received and the group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in the consolidated
statements of comprehensive income over the period necessary to match them with the costs
that they are intended to compensate.
Government grants relating to property, plant and equipment are included in non-current
liabilities as deferred government grants and are credited to the consolidated statements ofcomprehensive income on a straight-line basis over the expected lives of the related assets.
2.23 Leases(a)As lessee

Leases in which a significant portion of the risks and rewards of ownership are retained by
the lessor are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the consolidated statements ofcomprehensive income on a straight-line basis over the period of the lease.
The Group leases certain property, plant and equipment. Leases of property, plant andequipment where the Group has substantially all the risks and rewards of ownership are classified
as finance leases. Finance leases are capitalised at the lease’s commencement at the lower ofthe fair value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges. The
corresponding rental obligations, net of finance charges, are included in other long-termpayables. The interest element of the finance cost is charged to the consolidated statements ofcomprehensive income over the lease period so as to produce a constant periodic rate of intereston the remaining balance of the liability for each period. Property, plant and equipment acquired
under finance leases is depreciated over the shorter of the useful life of the asset and the lease
term.
(b)

As lessor
When the Company leases out assets under operating leases, the assets are included in the

consolidated statements of financial position according to the nature of the assets. Revenue
arising from assets leased out under operating leases is recognised over the term of the lease on
a straight-line basis.

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APPENDIX IACCOUNTANT’S REPORT

2.24 Dividend distribution
Dividend distribution to the Company’s/certain subsidiaries’ shareholders is recognised as
a liability in the Group’s, the Company’s and certain subsidiaries’ financial statements in the
period in which the dividends are approved by the Company’s/certain subsidiaries’ shareholders
or directors, where appropriate.
3

Financial risk management

3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreignexchange risk, cash flow and fair value interest rate risk and price risk), credit risk and liquidity
risk. The Group’s overall risk management program focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group’s financial performance.
The Group does not use any derivative financial instruments for speculative purposes.
Risk management is carried out by management of the Group. Formal and informal
management meetings are held to identify significant risks and to develop procedures to deal
with any risks in relation to the Group’s businesses.
(a)Market risk(i)

Foreign exchange risk

The Group has no significant foreign exchange risk as its business transactions, recognised
assets and liabilities are principally denominated in Japanese Yen, its functional currency.
Accordingly, sensitivity analysis has not been disclosed. The Group currently does not have any
hedge instruments to hedge against other foreign currency transactions.
(ii)

Cash flow and fair value interest rate risk

The Group’s interest rate risk arises from bank balances and borrowings which are carriedat variable rates, which expose the Group to cash flow interest rate risk.
As at 31 March 2012, 2013 and 2014, and as at 30 September 2014, if interest rates wereincreased or decreased by 25 basis points and all other variables were held constant, the Group’s
pre-tax profit would decrease or increase by approximately ¥3 million, ¥6 million, ¥5 million and¥6 million respectively as a result of increase or decrease in net interest expense.
The Group manages its interest rate exposure with a focus on reducing the Group’s overall
cost of debt and exposure to changes in interest rates. When considered appropriate, the Group
uses derivatives such as interest rate swaps to manage its interest rate exposure. The Group’s
main interest rate exposure relates to Japanese Yen-denominated borrowings. In the opinion of
the directors, fair value interest rate risk is low as no significant interest rate swaps were enteredduring the Relevant Periods, and accordingly, sensitivity analysis has not been disclosed.

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APPENDIX I(iii)

ACCOUNTANT’S REPORT

Price risk

The Group is exposed to equity securities price risk because of investments in listed
securities held by the Group which are classified on the consolidated statements of financial
position as financial assets at fair value through other comprehensive income.
The table below summarises the impact of increases/decreases of the share prices ofunderlying financial instruments on the Group’s equity. The analysis is based on the assumptionthat the share prices of the underlying financial instruments had increased or decreased by 5%with all other variables held constant.
Six months
endedYear ended 31 March

Impact on other components ofequityShare prices:- increase by 5% . . . . . . . . . . . . . . . . .
- decrease by 5% . . . . . . . . . . . . . . . .

(b)

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

7
(7)

45
(45)

79
(79)

73
(73)

Credit risk

Credit risk arises mainly from cash deposited at banks, trade receivables, deposits andother receivables, financial assets at fair value through profit or loss and through othercomprehensive income.
In respect of cash deposited at banks and financial assets at fair value through profit or loss
and through other comprehensive income, the credit risk is considered to be low as thecounterparties are banks with high credit ratings assigned by international credit rating agencies.
Approximately 99% of the Groups revenue is received in cash. The Group’s credit risk mainly
arises from vending machine income receivable from vending machines providers.
As at 31 March 2012, 2013, 2014 and as at 30 September 2014, top 5 customers of theGroup accounted for approximately 58%, 53%, 56% and 60%, respectively, to the tradereceivables of the Group. The Group has set up long-term cooperative relationship with thesecustomers. In view of the history of business dealings with the customers and the soundcollection history of the receivables due from them, management believes that there is nomaterial credit risk inherent in the Group’s outstanding receivable balance due from thesecustomers. Management makes periodic assessment on the recoverability of trade and other

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APPENDIX IACCOUNTANT’S REPORT

receivables based on historical payment records, the length of the overdue period, the financial
strength of the debtors and whether there are any disputes with the debtors. The Group’s
historical experience in collection of trade and other receivables falls within the recorded
allowances and the directors are of the opinion that adequate provision for uncollectible
receivables has been made in the Financial Information.
(c)Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and bank balances,
the availability of funding from an adequate amount of committed credit facilities from leadingbanks and the ability to close out market position.
The Group maintains liquidity by a number of sources including orderly realisation ofshort-term financial assets and receivables; and long term financing including long-termborrowings. The Group aims to maintain flexibility in funding by keeping sufficient bank balances,committed credit lines available and interest bearing borrowings which enable the Group tocontinue its business for the foreseeable future.
The table below analyses the Group’s and the Company’s non-derivative financial liabilities
into relevant maturity groupings based on the remaining period at the statement of financial
position date to the contractual maturity date. The amounts disclosed in the table are thecontractual undiscounted cash flows. Balances due within 12 months equal to their carrying
balances as the impact of discounting is not significant.

The Group
As at 31 March 2012
Trade payables . . . . . . . . . . . . .
Other payables (excluding
accruals) . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . . . . . .
Amount due to a related party . .
Amount due to a relatedcompany . . . . . . . . . . . . . . . . .

BetweenBetweenWithin1 and 22 and 5

1 year

years

years

Over 5 years

Total¥ million¥ million¥ million¥ million¥ million

347

—

—

—

347

2,186
7,335

4
1,842

43
1,478

2,655
1,996

4,888
12,651

2,635
100

1,206
—

2,185
—

1,340
—

7,366
100

—

—

45

—

45

12,603

3,052

3,751

5,991

25,397

I-34

APPENDIX I

As at 31 March 2013
Trade payables . . . . . . . . . . . . .
Other payables (excluding
accruals) . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . . . . . .

As at 31 March 2014
Trade payables . . . . . . . . . . . . .
Other payables (excluding
accruals) . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . . . . . .

As at 30 September 2014
Trade payables . . . . . . . . . . . . .
Other payables (excluding
accruals) . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .
Obligations under financeleases . . . . . . . . . . . . . . . . . . .
Amount due to a relatedcompany . . . . . . . . . . . . . . . . .

The Company
As at 31 March 2013
Other payables (excluding
accruals) . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .
Amount due to a subsidiary . . . .

ACCOUNTANT’S REPORT
BetweenBetweenWithin1 and 22 and 5

1 year

years

years

Over 5 years

Total¥ million¥ million¥ million¥ million¥ million

382

—

—

—

382

2,096
3,232

4
1,577

45
3,109

2,885
3,681

5,030
11,599

2,624

1,331

2,142

1,192

7,289

8,334

2,912

5,296

7,758

24,300

201

—

—

—

201

1,123
3,281

4
2,395

45
4,061

2,911
3,178

4,083
12,915

2,536

1,521

2,383

2,449

8,889

7,141

3,920

6,489

8,538

26,088

145

—

—

—

145

2,718
4,288

4
2,902

41
4,466

2,948
3,053

5,711
14,709

3,065

1,357

1,835

1,754

8,011

24

—

—

—

24

10,240

4,263

6,342

7,755

28,600

7
195
201

8
367
—

—
1,089
—

—
1,749
—

15
3,400
201

403

375

1,089

1,749

3,616

I-35

APPENDIX I

As at 31 March 2014
Other payables (excluding
accruals) . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .

As at 30 September 2014
Other payables (excluding
accruals) . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . .
Amount due to a subsidiary . . . .
Amount due to a relatedcompany . . . . . . . . . . . . . . . . .

ACCOUNTANT’S REPORT
BetweenBetweenWithin1 and 22 and 5

1 year

years

years

Over 5 years

Total¥ million¥ million¥ million¥ million¥ million

1
369

7
367

—
1,088

—
1,396

8
3,220

370

374

1,088

1,396

3,228

55
415
701

7
404
—

—
1,191
—

—
1,287
—

62
3,297
701

24

—

—

—

24

1,195

411

1,191

1,287

4,084

3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability tocontinue as a going concern in order to provide returns for shareholders and benefits for otherstakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group
uses bank borrowings to finance its operations.
In order to maintain or adjust the capital structure, the Group may adjust the amount ofdividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to
reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing
ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as totalborrowings (include bank borrowings, amounts due to a related party, amounts due to relatedcompanies and obligations under finance leases) less cash and bank balances. Total capital iscalculated as ‘equity’ as shown in the consolidated statements of financial position, plus net
debt, where applicable.

I-36

APPENDIX IACCOUNTANT’S REPORTThe Group’s strategy was to maintain optimal gearing ratio which the gearing ratio is nothigher than 60% as at each statements of financial position date. The gearing ratios as at 31
March 2012, 2013, 2014 and as at 30 September 2014 were as follows:
As at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

Borrowings (including amounts
due to a related party andrelated companies) . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . .
Less: cash and bank balances(Note 23) . . . . . . . . . . . . . . . . . . . . . . .

12,374
6,527

11,073
6,552

12,3797,619

14,065
6,898(13,485)(8,734)(10,199)(11,760)

Net debt . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . .

5,416
18,648

8,891
17,852

9,799
21,8009,203
20,879Total capital . . . . . . . . . . . . . . . . . . . . . .

24,064

26,74331,59930,082

Gearing ratio . . . . . . . . . . . . . . . . . . . . . .

23%

33%

31%

31%

3.3 Fair value estimation
The table below analyses the Group’s financial instruments carried at fair value by level ofthe inputs to valuation techniques used to measure fair value. Such inputs are categorised into
three levels within a fair value hierarchy as follows:•

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

•

Inputs other than quoted prices included within level 1 that are observable for the asset
or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)(level 2).

•

Inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs) (level 3).

I-37

APPENDIX IACCOUNTANT’S REPORTAs at 31 March 2012
AssetsFinancial assets at fair value through profit orloss- Debt securities . . . . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through othercomprehensive income- Listed securities . . . . . . . . . . . . . . . . . . . . .
- Unlisted securities . . . . . . . . . . . . . . . . . . .

Liabilities
Derivative financial liabilities- Interest rate swaps . . . . . . . . . . . . . . . . . . .
As at 31 March 2013
AssetsFinancial assets at fair value through profit orloss- Debt securities . . . . . . . . . . . . . . . . . . . . . .
- Unlisted securities . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through othercomprehensive income- Listed securities . . . . . . . . . . . . . . . . . . . . .
- Unlisted securities . . . . . . . . . . . . . . . . . . .

Liabilities
Derivative financial liabilities- Interest rate swaps . . . . . . . . . . . . . . . . . . .
As at 31 March 2014
AssetsFinancial assets at fair value through profit orloss- Debt securities . . . . . . . . . . . . . . . . . . . . . .
- Unlisted securities . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through othercomprehensive income- Listed securities . . . . . . . . . . . . . . . . . . . . .

I-38

Level 1

Level 2Total

¥ million¥ million¥ million

—

429

429

134
—

—
86

134
86

134

515

649

—

55

55

—
—

496
50

496
50

909
—

—
10

909
10

909

556

1,465

—

44

44

—
—

601
100

601
100

1,574

—

1,574

1,574

701

2,275

APPENDIX IACCOUNTANT’S REPORT

Liabilities
Derivative financial liabilities- Interest rate swaps . . . . . . . . . . . . . . . . . . .
As at 30 September 2014
AssetsFinancial assets at fair value through profit orloss- Debt securities . . . . . . . . . . . . . . . . . . . . . .
- Unlisted securities . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through othercomprehensive income- Listed/unlisted securities . . . . . . . . . . . . . .

Liabilities
Derivative financial liabilities- Interest rate swaps . . . . . . . . . . . . . . . . . . .

(a)Level 1

Level 2Total

¥ million¥ million¥ million

—

48

48

—
—

597
100

597
100

1,474

2

1,476

1,474

699

2,173

—

38

38

Financial instruments in level 1

The fair value of financial instruments traded in active markets is based on quoted market
prices at the statements of financial position date. A market is regarded as active if quoted prices
are readily and regularly available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm’s length basis. The quoted market price used for financial assets held by
the Group is the current bid price. These instruments are included in level 1. Instruments includedin level 1 represent listed equity investments classified as fair value through other comprehensive
income which were not held for trading purpose.
(b)

Financial instruments in level 2

The fair value of financial instruments that are not traded in an active market is determinedby using valuation techniques. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific estimates. If all
significant inputs required to fair value an instrument are observable, the instrument is includedin level 2. As of 31 March 2012, 2013 and 2014 and 30 September 2014, instruments includedin level 2 comprise bonds, trust funds and interest rate swap issued by financial institution in
Japan which were classified as financial assets at fair value through profit or loss.
There were no transfers between levels 1 and 2 during the Relevant Periods.

I-39

APPENDIX IACCOUNTANT’S REPORT

3.4 Offsetting financial assets and financial liabilities
As at 31 March 2012, 2013 and 2014, and as at 30 September 2014, there were no financial
assets or financial liabilities which were subject to offsetting, enforceable master netting or similar
agreements.
4

Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experienceand other factors, including expectations of future events that are believed to be reasonable
under the circumstances. The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom equal the related actual results. The
estimates and assumptions that have a significant risk of causing a material adjustment to thecarrying amounts of assets and liabilities within the next financial year are addressed below.
(a)Income taxes

The Group is subject to income taxes in Japan. Significant judgement is required indetermining the provision for income taxes. There are many transactions and calculations forwhich the ultimate tax determination is uncertain. Where the final tax outcome of these matters
is different from the amounts that were initially recorded, such differences will impact the current
and deferred income tax assets and liabilities in the period in which such determination is made.
(b)

Fair value of financial instruments

The fair value of financial instruments that are not traded in an active market (for example,
unlisted securities) is determined by using valuation techniques. The Group uses its judgement
to select a variety of methods and make assumptions that are mainly based on market conditions
existing at the end of each reporting period.
(c)Impairment assessment of property, plant and equipment

The Group has substantial investments in property, plant and equipment. Judgement isrequired in the area of asset impairment, particularly in assessing: (1) whether an event has
occurred that may indicate that the related asset values may not be recoverable: (2) whether the
carrying value of an asset can be supported by the recoverable amount, being the higher of fairvalue less costs to sell or value-in-use, which is the net present value of future cash flows which
are estimated based upon the continued use of the asset in the business; and (3) the appropriate
key assumptions to be applied in preparing cash flow projections including whether these cash
flow projections are discounted using an appropriate rate. Changing the assumptions used todetermine the level, if any, of impairment, including the discount rates or the growth rate
assumptions in the cash flow projections, could materially affect the net present value used in the
impairment test and as a result affect the Group’s financial condition and results of operations.
If there is a significant adverse change in the projected performance and resulting future cash
flow projections, it may be necessary to take an impairment change to the profit or loss.

I-40

APPENDIX I(d)ACCOUNTANT’S REPORTClassification of leases

The Group classifies leases into finance leases or operating leases in accordance with theaccounting policies stated in Note 2.23. Classification as a finance lease or operating lease
determines whether the leased asset is capitalised and recognised in the consolidated statementof financial position or charged to the profit or loss. Determining whether a lease transaction isa finance lease or an operating lease is a complex issue and requires substantial judgement as
to whether the lease agreement transfers substantially all the risks and rewards of ownership toor from the Group. Careful and considered judgement is required on various complex aspects
that include, but are not limited to, the fair value of the leased asset, the economic life of theleased asset, whether renewal options are included in the lease term and determining anappropriate discount rate to calculate the present value of the minimum lease payments.
5

Revenue and segment information(a)

RevenueSix months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Revenue
Gross pay-ins . . . . . . . . . . . . . . .
Less: gross payouts . . . . . . . . . .

224,968(195,340)

242,217(210,298)

236,449(203,455)

120,674(104,682)

90,989(75,798)

Revenue from pachinko andpachislot hall business . . . . . .
Vending machine income . . . . . .
Revenue from hotel operations .

29,628724—

31,919748
84

32,994704
149

15,992362
75

15,191301
80

30,35232,751

33,847

16,42915,572(b)

Segment information
Management has determined the operating segments based on the reports reviewed by thechief operating decision maker that are used for making strategic decisions. The chief operating
decision-maker is identified as the executive director of the Company. The executive director
considers the business from a service perspective and assess the performance of the operating
segments based on a measure of adjusted profit before income tax before unallocated corporate
income/(expenses) for the purposes of allocating resources and assessing performance. These
reports are prepared on the same basis as this Financial Information.

I-41

APPENDIX IACCOUNTANT’S REPORTThe management has identified two reportable segments based on the types of services,namely (i) pachinko and pachislot hall operations; and (ii) others.
Segment assets consist primarily of property, plant and equipment, investment properties,
inventories, trade receivables, prepayments, deposits and other receivables, pledged deposits
and cash and bank balances. They exclude deferred income tax assets, amounts due fromdirectors and a shareholder, amounts due from related companies and assets used for corporate
functions including financial assets at fair value through profit or loss and financial assets at fairvalue through other comprehensive income.
Capital expenditure comprises additions to property, plant and equipment, investment
properties and intangible assets. Unallocated corporate expenses and income tax expenses are
not included in segment results.
The segment information provided to the executive director for the years ended 31 March
2012, 2013 and 2014, and for the six months ended 30 September 2013 and 2014 are as
follows:
Year ended 31 March 2012
Pachinko andpachislot hall

Segment revenue fromexternal customers . . . . . . . . . . . . . . . . . .
Segment results . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . .

operations

OthersTotal¥ million¥ million¥ million

30,352—30,352

6,445

(138)

6,307
—

Profit before income tax . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .

6,307(2,978)

Profit for the year . . . . . . . . . . . . . . . . . . . . .

3,329

Other segment items
Depreciation and amortisation expenses . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss on property, plant andequipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .

I-42(2,041)
66
(794)

(13)
—
—

(2,054)
66
(794)

(124)
2,584

—
1

(124)
2,585

APPENDIX IACCOUNTANT’S REPORT
Year ended 31 March 2013
Pachinko andpachislot hall

Segment revenue fromexternal customers . . . . . . . . . . . . . . . . . .
Segment results . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . .

operations

OthersTotal¥ million¥ million¥ million

32,66784

32,751

6,508

(12)

6,496
(11)

Profit before income tax . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .

6,485(2,720)

Profit for the year . . . . . . . . . . . . . . . . . . . . .

3,765

Other segment items
Depreciation and amortisation expenses . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .

(2,006)
63
(720)
3,261

(19)
—
—
211

(2,025)
63
(720)
3,472

Year ended 31 March 2014
Pachinko andpachislot hall

Segment revenue fromexternal customers . . . . . . . . . . . . . . . . . .
Segment results . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . .

operations

OthersTotal¥ million¥ million¥ million

33,698149

33,847

6,115

1

6,116
(108)

Profit before income tax . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .

6,008(2,310)

Profit for the year . . . . . . . . . . . . . . . . . . . . .

3,698

Other segment items
Depreciation and amortisation expenses . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss on property, plant andequipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .

I-43(2,233)
58
(744)

(22)
—
—

(2,255)
58
(744)

(620)
5,102

—
2

(620)
5,104

APPENDIX IACCOUNTANT’S REPORT
Six months ended 30 September 2013
Pachinko andpachislot hall

Segment revenue fromexternal customers . . . . . . . . . . . . . . . . . .
Segment results . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . .

operations

OthersTotal¥ million¥ million¥ million(unaudited)(unaudited)(unaudited)

16,35475

16,429

2,705

6

2,711
(28)

Profit before income tax . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .

2,683(1,060)

Profit for the period . . . . . . . . . . . . . . . . . . .

1,623

Other segment items
Depreciation and amortisation expenses . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .

(1,116)
28
(368)
3,706

(11)
—
—
—

(1,127)
28
(368)
3,706

Six months ended 30 September 2014
Pachinko andpachislot hall

Segment revenue fromexternal customers . . . . . . . . . . . . . . . . . .
Segment results . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . .

operations

OthersTotal¥ million¥ million¥ million

15,49280

15,572

1,950

(4)

1,946
(319)

Profit before income tax . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .

1,627
(690)

Profit for the period . . . . . . . . . . . . . . . . . . .

937

Other segment items
Depreciation and amortisation expenses . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .

I-44(1,006)
88
(357)
1,169

(12)
—
—
70

(1,018)
88
(357)
1,239

APPENDIX IACCOUNTANT’S REPORTThe segment assets as at 31 March 2012, 2013 and 2014 and at 30 September 2014 are
as follows:
Pachinko andpachislot hall

As at 31 March 2012
Segment assets . . . . . . . . . . . . . . . . . . . . . . .
Unallocated assets . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . .

operations

OthersTotal¥ million¥ million¥ million

41,672536

42,2081,412
1,563

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .

45,183As at 31 March 2013
Segment assets . . . . . . . . . . . . . . . . . . . . . . .
Unallocated assets . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . .

38,097635

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .

38,732
1,850
1,612
42,194As at 31 March 2014
Segment assets . . . . . . . . . . . . . . . . . . . . . . .
Unallocated assets . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . .

42,020618

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .

42,6382,805
1,462
46,905

Pachinko andpachislot hall

As at 30 September 2014
Segment assets . . . . . . . . . . . . . . . . . . . . . . .
Unallocated assets . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .

operations

OthersTotal¥ million¥ million¥ million

43,143683

43,826
3,222
2,038
49,086

There is no single external customer contributed more than 10% revenue to the Group’s
revenue for the years ended 31 March 2012, 2013 and 2014, and for the six months ended 30
September 2013 and 2014.

I-45

APPENDIX IACCOUNTANT’S REPORTThe Group is domiciled in Japan and all non-current assets of the Group as at 31 March
2012, 2013 and 2014 and as at 30 September 2014 are located in Japan.
6

Other income and other losses, net
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Other income
Rental income . . . . . . . . . . . . . .
Income from expired IC andmembership cards. . . . . . . . . .
Dividend income . . . . . . . . . . . . .
Compensation and subsidies(Note 1) . . . . . . . . . . . . . . . . . .
Income from scrap sales ofused pachinko and pachislot
machines . . . . . . . . . . . . . . . . .
Recovery from insurancecompanies (Note 2) . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . .

Other losses, net(Loss)/gain on fair value forfinancial assets at fair value
through profit or loss . . . . . . .
(Loss)/gain on disposal of
financial assets at fair value
through profit or loss . . . . . . .
Gain/(loss) on fair value forinterest rate swaps . . . . . . . . .
Loss on disposal of property,
plant and equipment . . . . . . . .
Loss on fire incident (Note 2) . . .
Net exchange (loss)/gain . . . . . .

Note 1:

89

161

149

76

74

36
4

41
29

40
67

21
35

18
34

101

102

44

10

598

94

59

51

34

68

788
3

25
29

—
27

—
6

—
9

1,115

446

378

182

801

(8)

11

5

2

4

—

(28)

—

5

—

44

11

(4)

(3)

10

(69)
(468)
(3)

(24)
—
10

(101)
—
3

(85)
—
—

(39)
—
—

(504)

(20)

(97)

(81)

(25)

Compensation and subsidies were mainly received from the government and Tokyo Electric Power Company
for the massive earthquake and tsunami that occurred on 11 March 2011 (the “Great East Japan Earthquake”).
The disaster caused significant damages to certain property, plant and equipment and inventories in pachinko
and pachislot halls located principally in the north-eastern Japan.

I-46

APPENDIX I
Note 2:

ACCOUNTANT’S REPORT

On 3 May 2011, one of the Group’s pachinko and pachislot halls temporarily closed operations due to a fire
accident. This fire accident caused significant damage to certain property, plant and equipment and inventories
amounted to ¥468 million in the pachinko and pachislot hall. In addition, the fire accident impacted theoperation of the pachinko and pachislot hall.
The Group has insurance policies which cover certain damage directly caused by the fire accident. The
insurance policies cover the damage and costs associated with property, plant and equipment and inventories
and provide business interruption coverage, including loss of profits. For the year ended 31 March 2012,
insurance claim in the amounts of ¥788 million was agreed by the insurance carriers and were recorded asother income in the consolidated statements of comprehensive income.

7

Hall operating expenses and administrative and other operating expenses
Six months ended
Year ended 31 March
Note

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Auditors’ remuneration . . . . .
Employee benefits expenses- Hall operations. . . . . . . . .
- Administrative andothers . . . . . . . . . . . . . . .
Operating lease rental
expense in respect of landand buildings . . . . . . . . . . .
Depreciation of property,
plant and equipment . . . . .
Depreciation of investment
properties . . . . . . . . . . . . . .
Amortisation of intangible
assets . . . . . . . . . . . . . . . . .
Reinstatement expenses . . . .
Recruitment expenses . . . . . .
Travelling and transportation .
Other taxes and duties . . . . .
Repairs and maintenance . . .
Utilities expenses . . . . . . . . . .
Consumables and cleaning . .
Outsourcing service
expenses . . . . . . . . . . . . . .
G-Prize procurement
expenses to wholesalers . .
Pachinko and pachislot
machines expenses (Note) .
Advertising expenses. . . . . . .

26

29

30

14

15

4,818

4,594

4,626

2,362

2,417

1,331

1,891

1,318

654

1,331

2,295

2,362

2,483

1,219

1,399

1,995

1,980

2,213

1,106

996

14

14

14

7

7

45
38
47
96
389
296
834
1,247

31
21
258
124
389
326
979
1,471

28
21
278
138
403
335
1,081
1,561

14
11
78
68
39
205
543
864

15
11
71
71
75
118
574
754

1,002

1,181

1,223

630

530

755

774

804

401

399

7,161
939

7,948
1,231

8,216
1,362

4,163
733

4,482
680

8

I-47

APPENDIX IACCOUNTANT’S REPORT
Six months ended
Year ended 31 March
Note

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Impairment loss on property,
plant and equipment . . . . .
Write-off/(reversal) of
doubtful debts . . . . . . . . . .
Legal and professional fees. .
Others . . . . . . . . . . . . . . . . . .

Note:

124

—

620

—

—

116
9
351

(102)
16
518

2
23
655

—
13
383

—
261
246

23,92826,03527,434

13,507

14,452

Pachinko and pachislot machines are expensed off in the consolidated statements of comprehensive income
upon installation. The expected useful lives of these machines are less than one year.

8

Employee benefits expenses (including directors’ emoluments)
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million

4,994

4,737

4,772

2,385

2,505

62
1,093

61
1,687

61
1,111

31
600

33
1,210

6,149

6,485

5,944

3,016

3,748

(unaudited)

Salaries, bonuses and allowances . . .
Pension costs - defined contribution
plan . . . . . . . . . . . . . . . . . . . . . . . . . .
Other employee benefits . . . . . . . . . . .

(a)Pension costs — defined contribution plan

The Company and its subsidiaries operate a defined contribution plan which covers all
full-time employees and directors. No forfeited contribution was incurred during the Relevant
Periods.

I-48

APPENDIX I(b)

ACCOUNTANT’S REPORT

Directors’ emoluments

The remuneration of every director of the Company paid/payable by the Group for the years
ended 31 March 2012, 2013 and 2014 and the six months ended 30 September 2013 and 2014is set out below:
Year ended 31 March 2012

Name

Director
Hisanori Taniguchi . . . . . . . . . .

Salaries,

Definedallowances

contribution

and other

Discretionary

pensionFeebenefits

bonuses

costs

Total

¥ million¥ million¥ million¥ million¥ million

42

—

3

1

46

Year ended 31 March 2013

Name

Directors
Hisanori Taniguchi . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . .
Hidenori Morota . . . . . . . . . . . .
Akinori Ohishi . . . . . . . . . . . . . .
Independent non-executive
director
Hiroaki Morita . . . . . . . . . . . . . .

Salaries,

Definedallowances

contribution

and other

Discretionary

pensionFeebenefits

bonuses

costs

Total

¥ million¥ million¥ million¥ million¥ million

44
36
17
12

—
—
—
—

—
—
—
—

1

—

—

—

1

110

—

—

2

110

I-49

*
*
*
*

44
36
17
13

APPENDIX IACCOUNTANT’S REPORT

Year ended 31 March 2014
Salaries,

Definedallowances

Name

Directors
Hisanori Taniguchi . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . .
Hidenori Morota . . . . . . . . . . . .
Akinori Ohishi . . . . . . . . . . . . . .
Independent non-executive
director
Hiroaki Morita . . . . . . . . . . . . . .

contribution

and other

Discretionary

pensionFeebenefits

bonuses

costs

Total

¥ million¥ million¥ million¥ million¥ million

44
36
22
17

—
—
—
—

—
—
—
—

1
1
1
1

45
37
23
18

4

—

—

—

4

123

—

—

4

127

Six months ended 30 September 2013

Name

Directors
Hisanori Taniguchi . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . .
Hidenori Morota . . . . . . . . . . . .
Akinori Ohishi . . . . . . . . . . . . . .
Independent non-executive
director
Hiroaki Morita . . . . . . . . . . . . . .

Salaries,

Definedallowances

contribution

and other

Discretionary

pensionFeebenefits

bonuses

costs

Total

¥ million¥ million¥ million¥ million¥ million(unaudited)(unaudited)(unaudited)(unaudited)(unaudited)

22
18
11
8

—
—
—
—

—
—
—
—

*
*
*
*

22
18
11
8

2

—

—

—

2

61

—

—

1

61

I-50

APPENDIX IACCOUNTANT’S REPORT

Six months ended 30 September 2014
Salaries,

Definedallowances

Name

Discretionary

pensionFeebenefits

bonuses

costs

Total

¥ million¥ million¥ million¥ million¥ million

36
21
12
11

—
600
—
—

—
—
—
—

*
*
*
*

36
621
12
11

2
1
1

—
—
—

—
—
—

—
—
—

2
1
1

1

—

—

—

1

85

600

—

1

685

Directors
Hisanori Taniguchi . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . .
Hidenori Morota . . . . . . . . . . . .
Akinori Ohishi . . . . . . . . . . . . . .
Independent non-executive
directors
Hiroaki Morita . . . . . . . . . . . . . .
Norio Nakayama . . . . . . . . . . . .
Masaharu Togo . . . . . . . . . . . . .
External director
Hiroshi Bannai . . . . . . . . . . . . .

*contribution

and other

Insignificant amount less than ¥1 million

Directors’ dates of appointment and resignation are as follows:
Name

Appointed on

Executive directors
Hisanori Taniguchi . . . . . . . . . . . . . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . . . . . . . . . . . . . .
Hidenori Morota . . . . . . . . . . . . . . . . . . . . . . . .
Akinori Ohishi . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent non-executive directors
Hiroaki Morita . . . . . . . . . . . . . . . . . . . . . . . . . .
Norio Nakayama . . . . . . . . . . . . . . . . . . . . . . . .
Masaharu Togo . . . . . . . . . . . . . . . . . . . . . . . . .
Hiroaki Kumamoto . . . . . . . . . . . . . . . . . . . . . .
External director (Note)
Hiroshi Bannai . . . . . . . . . . . . . . . . . . . . . . . . .

Note:Resigned on

28 February 1987
10 January 201310 January 201310 January 2013—25 June 2014
25 June 2014
25 June 201410 January 201325 June 2014
25 June 2014
28 November 2014

—
—
—
—

25 June 2014

31 October 2014

Mr. Hiroshi Bannai was an external director in accordance with the requirements under the Japan Companies Actof the Company prior to his retirement on 31 October 2014.

I-51

APPENDIX IACCOUNTANT’S REPORTThe remuneration shown above represents remuneration received from the Group by these
directors in their capacity as employees to the Group and/or their capacity as directors of theCompany during the Relevant Periods.
There was no arrangement under which a director waived or agreed to waive any
emoluments during the Relevant Periods.
(c)Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the years ended
31 March 2012, 2013 and 2014 and the six months ended 30 September 2013 and 2014 include
1, 4, 4, 4 and 4 directors whose emoluments are reflected in the analysis presented above. The
emoluments payable to the remaining 4, 1, 1, 1 and 1 individuals during the Relevant Periods are
as follows:
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Salaries allowances and otherbenefits . . . . . . . . . . . . . . . . . . . . . . .
Bonuses . . . . . . . . . . . . . . . . . . . . . . . .
Pension cost - defined contribution
plan . . . . . . . . . . . . . . . . . . . . . . . . . .

113
4

618
—

10
2

5
1

5
1

2

ⳮ

ⳮ

ⳮ

ⳮ

119

618

12

6

6

I-52

APPENDIX IACCOUNTANT’S REPORT

Save as disclosed in the directors’ emoluments, the number of highest paid individuals
whose remuneration fell within the following band is as follows:
Number of individuals
Six months ended
Year ended 31 March
Emolument bands

HK$500,001 to HK$1,000,000(equivalent to approximately¥5,000,001 to ¥10,000,000) . . . . . . .
HK$1,000,001 to HK$1,500,000(equivalent to approximately¥10,000,001 to ¥15,000,000) . . . . . .
HK$1,500,001 to HK$2,000,000(equivalent to approximately¥15,000,001 to ¥20,000,000) . . . . . .
HK$2,000,001 to HK$2,500,000(equivalent to approximately¥20,000,001 to ¥25,000,000) . . . . .
HK$3,500,001 to HK$4,000,000(equivalent to approximately¥35,000,001 to ¥40,000,000) . . . . . .
HK$61,500,001 to HK$62,000,000(equivalent to approximately¥615,000,001 to ¥620,000,000) . . . .

2012

2013

30 September
2014

2013

2014

—

—

—

1

1

—

ⳮ

1

ⳮ

ⳮ

1

ⳮ

ⳮ

ⳮ

ⳮ

1

ⳮ

ⳮ

ⳮ

ⳮ

2

—

—

—

—

—

1

—

—

—

4

1

1

1

1

I-53

APPENDIX IACCOUNTANT’S REPORTNo inducement for joining the Group or compensation for loss of office was paid or payable
to any five highest paid individuals during the Relevant Periods.
9

Finance costs, net
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Finance income
Bank interest income . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . .

Finance costs
Bank borrowings- wholly repayable within 5 years . . .
- Not wholly repayable within 5
years . . . . . . . . . . . . . . . . . . . . . . .
Bond interest expense . . . . . . . . . . . . .
Obligations under finance leases . . . . .
Provision for unwinding discount . . . . .

Finance costs, net . . . . . . . . . . . . . . .

10

3
63

—
63

1
57

—
28

—
88

66

63

58

28

88

(337)

(212)

(249)

(121)

(127)

(54)
(9)
(307)
(87)

(86)
(5)
(338)
(79)

(74)
(5)
(364)
(52)

(36)
(3)
(184)
(24)

(30)
(1)
(173)
(26)

(794)

(720)

(744)

(368)

(357)

(728)

(657)

(686)

(340)

(269)

Income tax expense
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Current tax- Japan corporate income tax forthe year/period. . . . . . . . . . . . . . . .
Deferred income tax (Note 30) . . . . . . .

3,146
(168)

2,845
(125)

2,387
(77)

1,001
59

1,238
(548)

2,978

2,720

2,310

1,060

690

Japan corporate income tax has been calculated on the estimated assessable profit for the
Relevant Periods at the rates of taxation prevailing in Japan in which the Group operates.

I-54

APPENDIX IACCOUNTANT’S REPORTNo provision for Hong Kong Profits Tax has been made for the Relevant Periods as theGroup did not generate any assessable profits arising in Hong Kong during the Relevant Periods.
The tax on the Group’s profit before income tax differs from the theoretical amount thatwould arise using the income tax rate of Japan as follows:
Six months ended
Year ended 31 March

30 September

2012

2013

2014

¥ million¥ million¥ million

2013

2014

¥ million¥ million(unaudited)

Profit before income tax . . . . . . . . . . . .
Tax calculated at applicable Japan
corporate income tax rate . . . . . . . .
Income not subject to tax . . . . . . . . . .
Expenses not deductible for tax
purpose . . . . . . . . . . . . . . . . . . . . . . .
Unrecognised tax losses . . . . . . . . . . .
Family corporation tax . . . . . . . . . . . . .
Utilisation of previously unrecognised
tax losses . . . . . . . . . . . . . . . . . . . . .
Effect of change in tax rate . . . . . . . . .

6,307

6,485

6,008

2,683

1,627

2,537
(2)

2,439
(47)

2,259
(25)

1,010
(13)

573
(12)

12
—
318

8
226
94

38
31
111

16
13
34

18
111
—

—
113

—
—

(223)
119

—
—

—
—

2,978

2,720

2,310

1,060

690

The Group is subject to national corporate income tax, inhabitants tax, and enterprise tax
in Japan, which, in aggregate, resulted in effective statutory income tax rates of approximately
40.2%, 37.6%, 37.6%, 37.6% and 35.2% for the years ended 31 March 2012, 2013 and 2014
and the six months ended 30 September 2013 and 2014, respectively.
As a result of the 2011 Reform Amendment Tax Law and the Special Restoration Tax Law
that were promulgated on 2 December 2011, the national corporate income tax rate of Japan
reduced from 30% to 25.5% from fiscal years beginning on or after 1 April 2012 and 10%
temporary restoration corporation surtax was introduced on the corporate income tax applicablefor 3 years period from fiscal years beginning on or after 1 April 2012.
The Group measured the current income tax for the year ended 31 March 2012 based onrevised applicable income tax rates. The relevant deferred tax assets and liabilities have beenremeasured at the tax rates that are expected to apply to the period when the related assets andliabilities are realised or settled.

I-55

APPENDIX IACCOUNTANT’S REPORT

Under The Act on Partial Revision of the Income Tax Act, etc.* (所得税法等の一部を改正する法律) of Japan (Act No. 10 of 2014) (the “2014 Tax Reform”) that was promulgated on 31 March
2014, 10% temporary restoration corporation surtax ceased one year ahead of schedule and do
not apply for the fiscal year beginning on or after 1 April 2014. The Group measured the current
income tax for the six months ended 30 September 2014 based on revised applicable income tax
rates. The relevant deferred tax assets and liabilities as at 31 March 2014 have been remeasured
at the tax rates that are expected to apply to the period when the related assets and liabilities
are realised or settled.
11

Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to shareholders of
the Company by the weighted average number of ordinary shares in issue during the Relevant
Periods. In determining the weighted average number of ordinary shares in issue during theRelevant Periods, 3,895,002 shares of the Company, which were resulted from the issue andallotment of 3,895,002 shares by the Company in connection with the Reorganisation, had beentreated as if those shares were in issue since 1 April 2011.
Six months ended
Year ended 31 March
2012

2013

30 September
2014

2013

2014

(unaudited)

Profit attributable to shareholders of
the Company (¥ million) . . . . . . . . . .

3,329

3,765

3,698

1,623

937

Weighted average number of ordinary
shares in issue (thousands). . . . . . . .

3,895

3,895

3,895

3,895

3,895

Basic and diluted earnings per share(Japanese Yen) . . . . . . . . . . . . . . . . .

855

967

949

417

241

No diluted earnings per share is presented as there was no potential dilutive share during
the Relevant Periods. Diluted earnings per share is equal to the basic earnings per share.
The earnings per share as presented on the consolidated statements of comprehensive
income has not taken into account the proposed sub-division of issued shares as described in
Note 37.

I-56

APPENDIX I
12ACCOUNTANT’S REPORTDividends

The Company and certain of its subsidiaries distributed final dividends to theirshareholders/then shareholders for the years ended 31 March 2012, 2013 and 2014 and the six
months ended 30 September 2013 and 2014.
Year ended 31 March2012

Six months ended 30 September

2013

Dividend

2014

Dividend

2013

Dividend

2014

Dividend

Dividend

per

Total

per

Total

per

Total

per

Total

per

Total

share

dividend

share

dividend

share

dividend

share

dividend

share

dividend¥¥ million¥¥ million¥¥ million¥¥ million¥¥ million(unaudited)
The Company . . . . .

—

—

—

—

—

—

—

—

40

Niraku Corporation . .

20

107

40

107

40

156

40

156

—

—

Nexia Inc. . . . . . . .

1,000

3

1,000

3

10,00027

10,00027

10,000

27

110

13

110

183

183

156

183

Property, plant and equipment - Group
Freehold
land

Leasehold
Equipment
Buildings improvements and tools

MotorvehiclesConstructionin progressTotal¥ million¥ million¥ million¥ million¥ million¥ million¥ million

At 1 April 2011
Cost . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and

7,353

11,668

8,770

7,151

141

461

35,544

provision for impairment . . . . . .

—(4,241)(4,424)(4,115)(70)—(12,850)

7,353

7,427

4,346

3,036

71

461

22,694

7,353
—
—
(20)

7,427
390
—
—

4,346
557
—
(44)

3,036
—
1,445
(47)

71
—
29
—

461
(947)
591
—

22,694
—
2,065
(111)

(80)
—
—

(98)
(11)
(437)

—
(14)
(544)

—
(99)
(984)

—
—
(30)

—
—
—

(178)
(124)
(1,995)

7,253

7,271

4,301

3,351

70

105

22,351

Net book amount. . . . . . . . . .

Year ended 31 March 2012
Opening net book amount . . . . . . .
Transfer . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . .
Transferred to investment properties(Note 15) . . . . . . . . . . . . . . .
Impairment (Note 7) . . . . . . . . . .
Depreciation (Note 7) . . . . . . . . . .
Closing net book amount . . . . . .

I-57

APPENDIX IACCOUNTANT’S REPORTFreehold

Equipment

Motor

Construction

Buildings improvements

and tools

vehiclesin progressTotal¥ million¥ million¥ million¥ million¥ million¥ million¥ million

7,253

11,888

9,276

8,064

170

105

36,756—(4,617)(4,975)(4,713)(100)—(14,405). . . . . . . . . .

7,253

7,271

4,301

3,351

70

105

22,351

Year ended 31 March 2013
Opening net book amount . . . . . . .
Transfer . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . .
Acquisition of a subsidiary (Note 36) .
Disposals . . . . . . . . . . . . . . . .
Depreciation (Note 7) . . . . . . . . . .

7,253
—
115
32
—
—

7,271
335
190
397
(12)
(490)

4,301
491
62
198
(8)
(562)

3,351
—
1,471
145
(73)
(896)

70
—
65
—
—
(32)

105
(826)
782
—
—
—

22,351
—
2,685
772
(93)
(1,980)

Closing net book amount . . . . . .

7,400

7,691

4,482

3,998

103

61

23,735

At 1 April 2013
Cost . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and

7,400

12,786

9,950

9,582

236

61

40,015provision for impairment . . . . . .

—(5,095)(5,468)(5,584)(133)—(16,280). . . . . . . . . .

7,400

7,691

4,482

3,998

103

61

23,735

Year ended 31 March 2014
Opening net book amount . . . . . . .
Transfer . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . .
Impairment (Note 7) . . . . . . . . . .
Depreciation (Note 7) . . . . . . . . . .

7,400
—
—
(11)
—
—

7,691
467
2,109
(56)
(284)
(576)

4,482
912
—
(42)
(201)
(583)

3,998
—
1,555
(25)
(134)
(1,020)

103
—
15
—
(1)
(34)

61
(1,379)
1,370
—
—
—

23,735
—
5,049
(134)
(620)
(2,213)

Closing net book amount . . . . . .

7,389

9,351

4,568

4,374

83

52

25,817

7,389

15,261

10,476

10,719250

52

44,147—(5,910)(5,908)(6,345)(167)—(18,330)

Net book amount . . . . . . . . . . .

7,389

9,351

4,568

4,374

83

52

25,817Six months ended
30 September 2014
Opening net book amount . . . . . . .
Transfer . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . .
Depreciation (Note 7) . . . . . . . . . .

7,389
—
363
—
—

9,351
69
19
(162)
(272)

4,568
99
—
(15)
(277)

4,374
—
144
(57)
(432)

83
—
—
—
(15)

52
(168)
693
—
—

25,817
—
1,219
(234)
(996)

Closing net book amount . . . . . .

7,752

9,005

4,375

4,029

68

577

25,806

7,752

15,015

10,53010,794250

577

44,918—(6,010)(6,155)(6,765)(182)—(19,112)

7,752

9,005

4,375

4,029

68

577

25,806land
At 1 April 2012
Cost . . . . . . . . . . . . . . . . . . .
Accumulated depreciation andprovision for impairment . . . . . .
Net book amountNet book amountAt 1 April 2014
Cost . . . . . . . . . . . . . . . . . . .
Accumulated depreciation andprovision for impairment . . . . . .

At 30 September 2014
Cost . . . . . . . . . . . . . . . . . . .
Accumulated depreciation andprovision for impairment . . . . . .
Net book amount . . . . . . . . . . .

Leasehold

I-58

APPENDIX IACCOUNTANT’S REPORT

Depreciation expenses of ¥1,848 million, ¥1,941 million, ¥2,117 million and ¥1,059 million(unaudited) and ¥948 million has been charged in “hall operating expenses” and ¥147 million,¥39 million, ¥96 million and ¥34 million (unaudited) and ¥48 million has been charged in“administrative and other operating expenses” for the years ended 31 March 2012, 2013 and2014 and the six months ended 30 September 2013 and 2014, respectively.
Construction in progress as at 31 March 2012, 2013 and 2014 and 30 September 2014
represents pachinko and pachislot halls being constructed in Japan.
The net carrying amount of the Group’s property, plant and machinery that were pledged forthe banking facilities granted to the Group for the years ended 31 March 2012, 2013 and 2014
and the six months ended 30 September 2014 has been disclosed in Note 28.
The Group’s property, plant and equipment held under finance leases included in the total
amount of buildings were as follows:
As at
30 September

As at 31 March

Buildings
Cost — capitalised finance leases . . . . .
Accumulated depreciation . . . . . . . . . . .

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

3,559(1,340)3,748(1,560)5,859(1,844)

5,534(1,837)

2,219

2,188

4,015

3,697

The Group carried out reviews of the recoverable amounts of each cash-generating unit(“CGU”), which is determined as each individual pachinko and pachislot hall and a pachinko andpachislot hall with hotel business.
In view that some of the CGUs in Japan are performing below management’s expectationsof their initial budget and continuously making operating losses, and are projected tocontinuously incur losses in the future periods, the directors have reviewed the recoverability of
the relevant carrying amounts of these loss-making CGUs.

I-59

APPENDIX IACCOUNTANT’S REPORTThe recoverable amount of a CGU is determined based on the value-in-use of calculation.
These calculations use pre-tax cash flow projections based on financial budgets approved bymanagement covering a three-year period. Cash flows beyond the three-year period are
extrapolated using the estimated growth rates stated below. The key assumptions used in thevalue-in-use calculation for the Relevant Periods.
As at
As at 31 March

Revenue growth rate . . . . . . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

0%
7.3%

0%
7.5%

0%
8.7%

0%
9.4%

The discount rates applied by the Group are rates that reflect current market assessment of
the time value of money and the risk specific to the CGU. Revenue growth rate is based on pastpractices and expectations on market and operational development.
As a result of the impairment review, the carrying amounts of certain CGUs exceeded theirrecoverable amounts. Accordingly, impairment loss of approximately ¥124 million, nil, ¥620
million, nil (unaudited) and nil has been recognised in respect of buildings and leasehold
improvements of the pachinko halls for the years ended 31 March 2012, 2013 and 2014 and thesix months ended 30 September 2013 and 2014, respectively.
14

Investments in subsidiaries - Company
As at
As at 31 March

Unlisted equity investments, at cost . . . . . . . .

30 September

2013

2014

2014

¥ million¥ million¥ million

16,286

16,286

16,286

Details of the Company’s directly and indirectly held subsidiaries as at 31 March 2012, 2013
and 2014 and 30 September 2014 are explained in Note 1.2.

I-60

APPENDIX I
15

ACCOUNTANT’S REPORT

Investment properties - GroupAs at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

—
519

683
—

669
21

676
—

178
(14)

—
(14)

—
(14)

—
(7)

At end of year/period . . . . . . . . . . . . .

683

669

676

669

At end of year/period
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . .

770
(87)

770
(101)

791
(115)

791
(122)

683

669

676

669

At costAt beginning of year/period . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . .
Transferred from property, plant andequipment (Note 13) . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . .

The investment properties have been pledged to secure general facilities granted to theCompany (Note 28).
The Group had no unprovided contractual obligations for future repairs and maintenance as
at 31 March 2012, 2013 and 2014 and 30 September 2014.
Investment properties are situated in Japan and rented out under operating lease. Amounts
recognised in profit and loss for investment properties are as follows:
Six months ended
Year ended 31 March

30 September

2012

2013

2014

¥ million¥ million¥ million

2013

2014

¥ million¥ million(unaudited)

Rental income . . . . . . . . . . . . . . . . . . .
Direct operating expenses from theproperties that generated rental
income . . . . . . . . . . . . . . . . . . . . . . . .

29

95

95

47

48

(7)

(18)

(21)

(8)

(8)

22

77

74

39

40

I-61

APPENDIX IACCOUNTANT’S REPORTThe Group’s investment properties were valued as at 31 March 2012, 2013 and 2014 andas at 30 September 2014 by an independent professionally qualified valuer, DTZ Debenham Tie
Leung Limited (‘‘DTZ’’), who hold a recognised relevant professional qualification and has recent
experience in the locations and segments of the investment properties valued. The valuation wasdetermined using the investment approach which largely used observable and unobservable
inputs, including market rent, capitalisation rate and estimation in vacancy rate after expiry of
current lease. The investment properties are recognised under Level 3 of fair value hierarchy.
The Group’s finance department includes a team that review the valuations performed by the
independent valuers for financial reporting purposes. This team reports directly to the chief
financial officer (CFO) and the audit committee (AC). Discussions of valuation processes andresults are held between the CFO, AC, the valuation team and valuers at least annually.
At each financial year end the finance department:•

Verifies all major inputs to the independent valuation report;•

Assesses property valuations movements when compared to the prior year valuation
report;•Holds discussions with the independent valuer.

Where the valuation results indicate that the carrying amount of the investment properties
exceed its recoverable amount, impairment loss will be recognised by the Group.
The fair value of the investment properties at 31 March 2012, 2013 and 2014 and 30
September 2014 is ¥586 million, ¥643 million, ¥708 million and ¥724 million, respectively. No
impairment loss was recognised.

I-62

APPENDIX I
16

ACCOUNTANT’S REPORT

Intangible assets — Group
Computer
Goodwill

softwareTotal¥ million¥ million¥ million

At 1 April 2011
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . .

104
—

555
(438)

659
(438)

Net book amount . . . . . . . . . . . . . . . . . . . . . . .

104

117

221

Year ended 31 March 2012
Opening net book amount . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation (Note 7) . . . . . . . . . . . . . . . . . . . .

104
—
—

117
1
(45)

221
1
(45)

Closing net book amount . . . . . . . . . . . . . . .

104

73

177

At 1 April 2012
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . .

104
—

556
(483)

660
(483)

Net book amount . . . . . . . . . . . . . . . . . . . . . . .

104

73

177

Year ended 31 March 2013
Opening net book amount . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation (Note 7) . . . . . . . . . . . . . . . . . . . .

104
—
—

73
15
(31)

177
15
(31)

Closing net book amount . . . . . . . . . . . . . . .

104

57

161

At 1 April 2013
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . .

104
—

571
(514)

675
(514)

Net book amount . . . . . . . . . . . . . . . . . . . . . . .

104

57

161

Year ended 31 March 2014
Opening net book amount . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation (Note 7) . . . . . . . . . . . . . . . . . . . .

104
—
—

57
34
(28)

161
34
(28)

Closing net book amount . . . . . . . . . . . . . . .

104

63

167

At 1 April 2014
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . .

104
—

605
(542)

709
(542)

Net book amount . . . . . . . . . . . . . . . . . . . . . . .

104

63

167

I-63

APPENDIX IACCOUNTANT’S REPORT
Computer
Goodwill

softwareTotal¥ million¥ million¥ million

Six months ended 30 September 2014
Opening net book amount . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation (Note 7) . . . . . . . . . . . . . . . . . . . .

104
—
—

63
20
(15)

167
20
(15)

Closing net book amount . . . . . . . . . . . . . . . . .

104

68

172

At 30 September 2014
Cost
Accumulated amortisation . . . . . . . . . . . . . . . .

104
—

625
(557)

729
(557)

Net book amount . . . . . . . . . . . . . . . . . . . . . . .

104

68

172

Intangible assets represent computer software and goodwill arising from purchase of 2
pachinko and pachislot halls from certain third parties. Amortisation expenses relating tocomputer software of ¥45 million, ¥31 million, ¥28 million and ¥14 million (unaudited) and ¥15
million have been charged in “hall operating expenses” for the years ended 31 March 2012, 2013
and 2014 and six months ended 30 September 2013 and 2014, respectively.
Goodwill is allocated to each CGU, which is determined as each individual pachinko andpachislot hall. Management reviews annually whether the carrying amount of a CGU is higher
than the recoverable amount which results in impairment of goodwill. The recoverable amount ofa CGU is determined based on value-in-use calculation. The calculation use pre-tax cash flow
projections based on financial budget approved by management covering a three-year period.
Cash flows beyond the three-year period are extrapolated using the estimated growth rates
stated in Note 13. As a result of the impairment review, the recoverable amounts of the CGUs in
which goodwill has been allocated are higher than their carrying amounts as at 31 March 2012,2013 and 2014 and at 30 September 2014. As a result, no impairment loss was charged during
the Relevant Periods.

I-64

APPENDIX I
17

ACCOUNTANT’S REPORT

Financial instruments by category - Group and Company
Group
As at
As at 31 March

Financial assets
Financial assets at fair value
Fair value through profit or loss . . . . . . .
Fair value through othercomprehensive income . . . . . . . . . . . .

Financial assets at amortised cost
Trade receivables . . . . . . . . . . . . . . . . . .
Deposits and other receivables(including amounts due fromdirectors and a shareholder andamounts due from relatedcompanies) . . . . . . . . . . . . . . . . . . . . .
Cash and bank balances . . . . . . . . . . . .

Financial liabilities
Financial liabilities at fair value
Derivative financial instruments . . . . . . .
Other financial liabilities at amortised
cost . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . .
Borrowings (including amounts
due to a shareholder andrelated companies) . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

429

546

701

697

220

919

1,574

1,476

649

1,465

2,275

2,173

60

64

54

52

3,467
13,485

3,256
8,734

3,023
10,1993,130
11,76017,012

12,054

13,276

14,942

17,661

13,51915,551

17,115

55

44

48

38

347
3,456

382
3,510

201
2,586

145
4,195

12,374
6,527

11,073
6,552

12,3797,619

14,041
6,898

22,704

21,51722,78525,27922,75921,561

22,83325,317

I-65

APPENDIX IACCOUNTANT’S REPORT
Company
As at
As at 31 March

30 September

2013

2014

2014

¥ million¥ million¥ million

—
62

121
93

379
670

62

214

1,049

15
201
—
3,288

8
—
—
3,129

62
701
24
2,959

3,504

3,137

3,746

Financial assets
Financial assets at amortised cost
Deposits and other receivables . . . . . . . . . . . .
Cash and bank balances . . . . . . . . . . . . . . . . .

Financial liabilities
Financial liabilities at amortised cost
Other payables . . . . . . . . . . . . . . . . . . . . . . . .
Amount due to a subsidiary . . . . . . . . . . . . . . .
Amount due to a related company. . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18

Financial assets at fair value — Group(a)Financial assets at fair value through profit or loss
Group
As at
As at 31 March
2012

2013

30 September
2014

2014

Unlisted securities- Debt securities . . . . . . . . . . . . . . . . .
- Less non-current portion . . . . . . . . .

429
(395)

546
(546)

701
(601)

697
(697)

Current portion . . . . . . . . . . . . . . . . . . . .

34

—

100

—

Change in fair value of financial assets at fair value through profit or loss are recorded in“other losses, net” in the consolidated statements of comprehensive income (Note 6).
The fair values of these debt and equity securities are determined by discounted cash flow
approach and the information available from recent transactions price.

I-66

APPENDIX I(b)

ACCOUNTANT’S REPORT

Financial assets at fair value through other comprehensive income
As at 30
As at 31 March

Listed securities- Equity securities . . . . . . . . . . . . . . . .
Unlisted securities- Equity securities . . . . . . . . . . . . . . . .

September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

134

909

1,574

1,474

86

10

—

2

220

919

1,574

1,476

Changes in fair values of financial assets at fair value through other comprehensive income
are recorded in “investment revaluation reserves” in the consolidated statements of change inequity.
The fair value of all equity securities is based on the current bid prices and recent
transaction prices in an active market.
19

Derivative financial instruments - GroupAs at 31 March2012

As at 30 September

2013

2014

2014

AssetsLiabilities

AssetsLiabilities

AssetsLiabilities

AssetsLiabilities¥ million¥ million¥ million¥ million¥ million¥ million¥ million¥ million

Interest rate swaps . . . . . . .

—

55

—

44

—

48

—

38

Less non-current portion . . . .

—

(37)

—

(26)

—

(33)

—

(23)

Current portion . . . . . . . . .

—

18

—

18

—

15

—

15

Derivative financial instruments are utilised by the Group in the management of its interest
rate exposures. The Group’s policy is not to utilise derivative financial instruments for trading or
speculative purposes. The Group has entered into interest rate swaps agreement with banks
mainly to swap floating interest rate borrowings to fixed interest rate borrowings to manage thefixed and floating interest rate mix of the Group’s total debt portfolio. As at 31 March 2012, 2013
and 2014 and at 30 September 2014, the notional amount of the outstanding interest rate swap
agreement with the banks amounted to ¥2,562 million, ¥1,213 million, ¥2,052 million and ¥2,378
million, respectively.

I-67

APPENDIX I
20

ACCOUNTANT’S REPORT

Inventories - GroupAs at
As at 31 March

Supplies . . . . . . . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

412

86

21

40

The cost of inventories recognised as expenses and included in “hall operating expense”
amounted to ¥7,161 million, ¥7,948 million, ¥8,216 million, ¥4,163 million (unaudited) and¥4,482 and “administration and other operating expenses” amounted to ¥1 million, ¥2 million,¥18 million, ¥18 million (unaudited) and ¥1 million for the years ended 31 March 2012, 2013 and2014 and six months ended 30 September 2013 and 2014, respectively.
21

Trade receivables - GroupAs at
30 September

As at 31 March

Trade receivables . . . . . . . . . . . . . . . . . .
Less: provision for impairment of tradereceivables . . . . . . . . . . . . . . . . . . . . .

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

65

69

59

57

(5)

(5)

(5)

(5)

60

64

54

52

Trade receivable represents income receivable from vending machines. The credit terms
granted by the Group generally ranged from 0 to 30 days.
The creation and release of provision for impaired receivables have been included in“administrative and other operating expenses” in the consolidated statements of comprehensive
income. Amounts charged to the allowance account are generally written off, when there is no
expectation of recovering additional cash.

I-68

APPENDIX IACCOUNTANT’S REPORTAs at 31 March 2012, 2013, 2014 and as at 30 September 2014, the ageing analysis of the
trade receivables, based on invoice date, is as follows:
As at
As at 31 MarchLess than 30 days . . . . . . . . . . . . . . . . .
31 - 90 days . . . . . . . . . . . . . . . . . . . . . .
Over 90 days . . . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

57
—
8

61
—
8

51
—
8

49
—
8

65

69

59

57

As at 31 March 2012, 2013 and 2014 and as at 30 September 2014, trade receivables of¥3 million were past due but not impaired. These relate to a number of independent customers
for whom there is no significant financial difficulty and based on past experience, the overdue
amounts can be recovered. The ageing analysis of these trade receivables, based on due date,is as follows:
As at
30 September

As at 31 March
2012

2013

2014

2014

¥ million¥ million¥ million¥ million

3

3

3

3

Overdue but not impaired
Over 90 days . . . . . . . . . . . . . . . . . . . . .

The maximum exposure to credit risk at the reporting date is the carrying value of each classof receivable mentioned above. The Group and the Company do not hold any collateral as
security.
The carrying amounts of trade receivables approximate their fair values as at 31 March
2012, 2013 and 2014, and as at 30 September 2014; and are denominated in the Japanese Yen.

I-69

APPENDIX I
22

ACCOUNTANT’S REPORT

Prepayments, deposits and other receivables - Group and Company
Group
As at
As at 31 March

Non-current portion
Rental and other deposits . . . . . . . . . . .
Rental prepayments . . . . . . . . . . . . . . . .
Loans receivables . . . . . . . . . . . . . . . . . .
Other prepayments and receivables. . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

2,567
1,410
21
53

2,781
1,443
21
65

2,597
1,540
2
112

3,022
1,386
2
109

4,051

4,310

4,251

4,519

Group
As at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

380
362
1
246

405
363
1
266

689
510
1
346

716
519
1
251

989

1,035

1,546

1,487

Current portion
Prepayment for prizes in operation for
pachinko and pachislot halls. . . . . . . .
Rental prepayments . . . . . . . . . . . . . . . .
Loans receivables . . . . . . . . . . . . . . . . . .
Other prepayments and receivables. . . .

Company
As at
As at 31 March

Current portion
Other receivables . . . . . . . . . . . . . . . . . . . . . . .

30 September

2013

2014

2014

¥ million¥ million¥ million——

9

The carrying amounts of prepayment, deposits and other receivables of the Group and theCompany approximate their fair values as at 31 March 2012, 2013 and 2014, and as at 30
September 2014; and are denominated in Japanese Yen.

I-70

APPENDIX IACCOUNTANT’S REPORT

Certain deposits and other receivables have been pledged to secure general facilities
granted to the Company (Note 28).
23

Cash and bank balances - Group and Company
Group
As at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

Non-current portion
Bank deposits with maturity
over 1 year . . . . . . . . . . . . . . . . . . . . .

142

71

84

119

Current portion
Bank deposits with maturity over 3
months . . . . . . . . . . . . . . . . . . . . . . . .
Pledged bank deposits (Note a) . . . . . . .

558
200

654
1,100

606
1,100

539
1,100

758

1,754

1,706

1,639

Cash on hand . . . . . . . . . . . . . . . . . . . . .
Cash at banks . . . . . . . . . . . . . . . . . . . .

1,424
11,161

1,772
5,137

1,017
7,392

918
9,084

Cash and cash equivalents . . . . . . . . . .

12,585

6,909

8,409

10,002

Total cash and bank balances . . . . . . . .

13,485

8,734

10,19911,760Company
As at
As at 31 March

Cash at banks and on hand . . . . . . . . . . . . . . .

30 September

2013

2014

2014

¥ million¥ million¥ million

62

93

670

Notes:(a)

The pledged bank deposits are held in designated bank accounts mainly for the Group’s banking facilities (Note
28).

(b)

The carrying amounts of bank deposits with maturity over 3 months, cash and bank balances and pledged deposits
are denominated in the following currencies:

I-71

APPENDIX IACCOUNTANT’S REPORT
Group
As at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

Japanese Yen . . . . . . . . . . . . . . . . . . . . . . .

13,393

8,714

10,195

11,713

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92

20

4

47

13,485

8,734

10,19911,760Company
As at
As at 31 March
2013

2014

2014

¥ million¥ million¥ million

62

93

670

Ordinary

Veto

Total

Japanese Yen . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

30 September

Share capital - Company

Authorised . . . . . . . . . . . No. of shares

20,000,000

1

20,000,001

Issued and paid up. . . . . No. of shares

3,895,001

1

3,895,002

9,996,700

3,300

10,000,000

Total amount (in Japanese
Yen)

25

Reserves - Group and Company(a)Capital surplus

Under the Japan Companies Act, certain portion of the consideration from the issuance ofshare capital shall be credited to the share capital and the remaining of the consideration shallbe credited to capital surplus.
On 17 September 2014, Niraku Corporation transferred certain tangible assets totalling¥1,110 million, which, among others, included the entire issued stock of Niraku USA Inc. to
Niraku Investment Inc.

I-72

APPENDIX IACCOUNTANT’S REPORTOn the same date, the Company then declared and distributed a distribution in specie outof its capital surplus by way of distributing 3,895,002 shares in Niraku Investment Inc.,
representing its entire number of issued shares, to the Controlling Shareholders. Since then, thebusinesses of Niraku Investment Inc. and Niraku USA Inc. that were not related to the corebusiness of pachinko hall operations under the Company were excluded from the Group.
(b)

Capital reserve

Capital reserve represents the difference between the value of net assets of the subsidiaries
acquired by the Company and the share capitals in acquired subsidiaries under common control.
(c)Legal reserve

The Japan Companies Act provides that a 10% dividend paid during the year shall beappropriated as legal reserve (a component of either capital surplus or retained earnings) until anaggregate amount of legal capital reserve and legal retained earnings equals 25% of sharecapital. The legal reserve may be used to reduce a deficit or transfer to share capital upon
approval of the general meeting of shareholders.
(d)Investment revaluation reserve

The investment revaluation reserve comprises the cumulative net change in the fair value offinancial assets through other comprehensive income held at the end of the reporting period.
(e)Purchase of treasury shares

On 10 August 2012 and 20 February 2013, the board of directors of Niraku Corporation
resolved to repurchase 250,000 and 161,000 issued shares for cash consideration of
approximately ¥600 million and ¥531 million, respectively. The repurchase of shares resulted in
reduction in retained earnings of ¥1,131 million during the year ended 31 March 2013. On 31
March 2013, Niraku Corporation cancelled all of these shares.
On 1 February 2013, the Company purchased 1,040,000 issued shares of Niraku
Corporation from Mr. Tatsuo Taniguchi, Mr. Masataka Taniguchi, Mr. Yoshinno Tei, Mr. Tateo
Taniguchi and Mrs. Kyoko Taniguchi for cash consideration of approximately ¥3,432 million upon
the approval at the general meeting of shareholders. The purchase of shares resulted in reduction
in retained earnings of ¥3,432 million during the year ended 31 March 2013.
On 24 May 2012 and 29 September 2014, Nexia Inc. resolved to repurchase 300 and 2,550
issued shares for cash consideration of approximately ¥12 million and ¥497 million, respectively,
upon the approval by the board of directors of Nexia Inc. The repurchase of shares resulted in
reduction in retained earnings of ¥12 million and ¥497 million during the year ended 31 March2013 and the six months ended 30 September 2014, respectively. On 31 March 2013 and 30
September 2014, Nexia Inc. cancelled all of these shares.

I-73

APPENDIX IACCOUNTANT’S REPORTOn 29 September 2014, Niraku Corporation purchased 150 issued shares of Nexia Inc. from
Mr. Tatsuo Taniguchi at cash consideration of approximately ¥29 million.
(f)

Reserves - the Company
Capital surplus

Retained(Note 25(a))

earnings

Total¥ million¥ million¥ million

Balance at 1 April 2012 . . . . . . . . . . . . . . . . .
Profit for the year . . . . . . . . . . . . . . . . . . . . . . .

12,844——(10)

12,844(10)

Balances at 31 March 2013 and1 April 2013 . . . . . . . . . . . . . . . . . . . . . . . . .
Profit for the year . . . . . . . . . . . . . . . . . . . . . . .

12,844—(10)
518

12,834
518

Balance at 31 March 2014 and1 April 2014 . . . . . . . . . . . . . . . . . . . . . . . . .

12,844508

13,352

Profit for the period . . . . . . . . . . . . . . . . . . . . .

—

1,493

1,493

Total comprehensive income
for the period . . . . . . . . . . . . . . . . . . . . . . .

—

1,493

1,493

—

(156)

(156)

(1,110)—(1,110)(1,110)(156)(1,266)

11,734

1,845

13,579Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction in surplus capital upon distribution
in specie (Note 25(a)) . . . . . . . . . . . . . . . . . .

Balance at 30 September 2014 . . . . . . . . . .

26

Trade payables - GroupThe ageing analysis of the trade payables based on invoice dates as at 31 March 2012,2013, and 2014 and as at 30 September 2014 were as follows:
As at
30 September

As at 31 MarchLess than 30 days . . . . . . . . . . . . . . . . .
31 - 90 days . . . . . . . . . . . . . . . . . . . . .

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

164
183

213
169

112
89

62
83

347

382

201

145

The carrying amounts of trade payables approximate their fair values as at 31 March 2012,2013 and 2014, and as at 30 September 2014; and are denominated in Japanese Yen.

I-74

APPENDIX I
27

ACCOUNTANT’S REPORT

Accruals, provisions and other payables - Group and Company
Group
As at
As at 31 March

Non-current portion
Provision for reinstatement costs . . . . . .
Provision for long service payment . . . .
Vending machine rental deposit andrental receipt in advance. . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

1,141
10

1,267
16

1,320
22

1,337
24

96
33

111
36

105
38

105
35

1,280

1,430

1,485

1,501

715

153

162

708

141
634

32
1,265

16
659

334
1,327

280
342
459
739
103
34
130

261
360
515
777
100
35
86

276
215
386
490
56
36
48

230
511
532
581
53
31
18

3,577

3,584

2,344

4,325

Current portion
Accrued purchases for pachinko andpachislot machines . . . . . . . . . . . . . . .
Accrued purchases for property, plantand equipment . . . . . . . . . . . . . . . . . .
Accrued staff costs . . . . . . . . . . . . . . . .
Vending machine rental receipt inadvance . . . . . . . . . . . . . . . . . . . . . . . .
Unutilised balls and tokens . . . . . . . . . .
Other tax payable . . . . . . . . . . . . . . . . . .
Office expenses and consumables. . . . .
Insurance premium payable . . . . . . . . . .
Utilities payable . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . .

Company
As at
As at 31 March

30 September

2013

2014

2014

¥ million¥ million¥ million

Non-current portion
Other payables . . . . . . . . . . . . . . . . . . . . . . . . .

8

7

7

Current portion
Other payables . . . . . . . . . . . . . . . . . . . . . . . . .

7

1

55

I-75

APPENDIX IACCOUNTANT’S REPORTThe carrying amounts of other payables approximate their fair values as at 31 March 2012,2013 and 2014, and as at 30 September 2014; and are denominated in Japanese Yen.
28

Borrowings - Group and Company
Group
As at
As at 31 March

Non-current portion
Bank loans . . . . . . . . . . . . . . . . . . . . . . .
Syndicated loans . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

Current portion
Bank loans . . . . . . . . . . . . . . . . . . . . . . .
Syndicated loans . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total borrowings . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

2,149
2,854
23

2,617
5,155
219

3,469
5,606
195

3,627
5,772
569

5,026

7,991

9,270

9,968

1,689
5,319
195

2,034
1,001
47

2,233
851
25

3,048
903
122

7,203

3,082

3,109

4,073

12,22911,073

12,37914,041Company
As at
As at 31 March

30 September

2013

2014

2014

¥ million¥ million¥ million

Bank loans
Current portion . . . . . . . . . . . . . . . . . . . . . . .
Non-current portion. . . . . . . . . . . . . . . . . . . .

174
3,114

350
2,779

351
2,608

Total borrowings . . . . . . . . . . . . . . . . . . . . . . . .

3,288

3,129

2,959

I-76

APPENDIX IACCOUNTANT’S REPORTAs at 31 March 2012, 2013 and 2014, and at 30 September 2014, the Group’s borrowings
were repayable as follows:
Group
As at
As at 31 MarchWithin 1 year . . . . . . . . . . . . . . . . . . . . .
Between 1 and 2 years . . . . . . . . . . . . .
Between 2 and 5 years . . . . . . . . . . . . .
Over 5 years . . . . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

7,203
1,765
1,357
1,904

3,082
1,479
2,936
3,576

3,109
2,278
3,884
3,108

4,073
2,761
4,238
2,969

12,22911,073

12,37914,041Company
As at
As at 31 March

30 September

2013

2014

2014

¥ million¥ million¥ million

Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . .
Between 1 and 2 years . . . . . . . . . . . . . . . . . .
Between 2 and 5 years . . . . . . . . . . . . . . . . . .
Over 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . .

174
349
1,046
1,719

350
350
1,051
1,378

350
351
1,052
1,206

Total borrowings . . . . . . . . . . . . . . . . . . . . . . . .

3,288

3,129

2,959

The average effective interest rates (per annum) at end of each reporting period were set out
as follows:
Group
As at
30 September

As at 31 March

Bank loans . . . . . . . . . . . . . . . . . . . . . . .
Syndicated loans . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

2012

2013

2014

2014

2.9%
2.8%
2.1%

2.8%
2.2%
1.5%

2.7%
2.3%
1.4%

2.7%
2.3%
2.0%

I-77

APPENDIX IACCOUNTANT’S REPORT
Company
As at
As at 31 March

Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 September

2013

2014

2014

2.0%

2.0%

2.0%

The Group, as a lessee, has entered into a finance lease arrangement on 31 July 2014 which
the Group agreed to sell certain leasehold improvements to a third party lessor at an aggregate
consideration of ¥500 million and the lessor agreed to lease-back the leasehold improvements to
the Group for a total lease payments of ¥559 million covering a period of 84 months commencing
from 1 October 2014. The Group has an option to renew for a further term of 1 year on the 20thof the preceding month before the end of lease term at no cost. During the lease period, theGroup cannot transfer or pledge to any party the relevant leasehold improvements.
At the end of each reporting period, the total borrowings are pledged by certain assets andtheir carrying values are shown as below:
Group
As at
As at 31 March

Property, plant and equipment . . . . . . . .
Investment properties . . . . . . . . . . . . . . .
Bank deposits . . . . . . . . . . . . . . . . . . . . .
Deposits and other receivables . . . . . . .
Other long term assets. . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

10,405
683
200
185
28

10,439
669
1,100
180
35

7,902
676
1,100
339
37

8,975
669
1,100
335
67

11,501

12,423

10,054

11,146

The Group’s borrowings and obligations under finance leases (Note 29) of ¥8,231 million,¥2,477 million, ¥3,316 million and ¥1,807 million as at 31 March 2012, 2013, 2014, and as at 30
September 2014, respectively were guaranteed by the directors, namely Mr. Hisanori Taniguchi,
Mr. Masataka Taniguchi and Mr. Tatsuo Taniguchi. These personal guarantees will be replaced by
the corporate guarantee before the Listing.

I-78

APPENDIX IACCOUNTANT’S REPORTThe undrawn borrowing facilities of the Group at each reporting period as follows:
Group
As at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

—

—

1,000

—

Floating rate
- Expiring over 1 year . . . . . . . . . . . . .

The carrying amounts of borrowings of the Group and the Company approximate their fairvalues as at 31 March 2012, 2013 and 2014, and as at 30 September 2014.
During the Relevant Periods, the principal amounts of bonds issued by the Group carried atfixed interest rate per annum are as follows:
Issue datePrincipal amountInterest rate

Due date¥ million

30 March 2004 . . . . . . . . . . . . . . . . .
13 July 2006. . . . . . . . . . . . . . . . . . .
28 December 2009. . . . . . . . . . . . . .
18 June 2010 . . . . . . . . . . . . . . . . . .
28 December 2010. . . . . . . . . . . . . .
28 August 2012 . . . . . . . . . . . . . . . .
30 November 2012. . . . . . . . . . . . . .
28 August 2014 . . . . . . . . . . . . . . . .
19 September 2014 . . . . . . . . . . . . .

250
300
200
200
200
160
100
400
100

I-79

1.20%
1.61%
0.70%
0.63%
0.62%
0.70%
0.60%
0.31%
1.00%

28 February 201412 July 201228 December 201128 June 201228 December 2012
26 August 2022
30 November 2022
26 August 201619 September 2019

APPENDIX I
29

ACCOUNTANT’S REPORT

Obligations under finance leases - Group
Group
As at
As at 31 March

Gross finance lease liabilities minimum lease payments
No later than 1 year . . . . . . . . . . . . . . . .
Later than 1 year and no later than
2 years . . . . . . . . . . . . . . . . . . . . . . . .
Later than 2 year and no later than
5 years . . . . . . . . . . . . . . . . . . . . . . . .
Later than 5 years . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

2,635

2,624

2,536

3,065

1,206

1,331

1,521

1,357

2,185
1,340

2,142
1,192

2,383
2,449

1,835
1,754

7,366

7,289

8,889

8,011

Future finance charges on financeleases . . . . . . . . . . . . . . . . . . . . . . . . .

(839)

(737)

(1,270)(1,113)Present values of finance leaseliabilities . . . . . . . . . . . . . . . . . . . . . . . .

6,527

6,552

7,619

6,898

The present values of finance lease liabilities are as follows:
No later than 1 year . . . . . . . . . . . . . . . .
Later than 1 year and no later than
2 years . . . . . . . . . . . . . . . . . . . . . . . .
Later than 2 year and no later than
5 years . . . . . . . . . . . . . . . . . . . . . . . .
Later than 5 years . . . . . . . . . . . . . . . . .

2,392

2,394

2,253

2,808

1,035

1,173

1,312

1,179

1,917
1,183

1,910
1,075

2,009
2,045

1,512
1,399

Total finance lease liabilities . . . . . . . . . .
Less: Amount included in current
liabilities . . . . . . . . . . . . . . . . . . . . . . . .

6,527

6,552

7,619

6,898

(2,392)(2,394)(2,253)(2,808)

4,135

4,158

5,366

4,090

Assets arranged under finance leases represent buildings for pachinko and pachislot halls
and pachinko and pachislot machines. The average lease term is 20 years with effective interest
rate ranged from 4.56% to 4.86% per annum as at 31 March 2012, 2013, 2014 and as at 30
September 2014. No arrangements have been entered into for contingent rental payments during
the reporting periods.

I-80

APPENDIX I
30

ACCOUNTANT’S REPORT

Deferred income tax - GroupThe analysis of deferred income tax assets is as follows:
Group
As at
As at 31 March

Deferred income tax assets- to be recovered after more than
12 months . . . . . . . . . . . . . . . . . . . .
- to be recovered within 12 months . .

Deferred income tax liabilities- to be recovered after more than
12 months . . . . . . . . . . . . . . . . . . . .
- to be recovered within 12 months . .

Deferred income tax assets, net . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

1,394
1,577

1,382
1,750

1,657
1,511

1,430
1,935

2,971

3,132

3,168

3,365

(1,408)—(1,520)—(1,706)—(1,327)—(1,408)(1,520)(1,706)(1,327)

1,563

1,612

1,462

2,038

The net movement on the deferred income tax account is as follows:
Group
As at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

At 1 April . . . . . . . . . . . . . . . . . . . . . . . .
(Charged)/credited to othercomprehensive income . . . . . . . . . . .
Credited to profit or loss . . . . . . . . . . . .

1,404

1,563

1,612

1,462

(9)
168

(76)
125

(227)
77

28
548

Deferred income tax assets . . . . . . . . . .

1,563

1,612

1,462

2,038

I-81

APPENDIX IACCOUNTANT’S REPORTThe movement in deferred income tax assets and liabilities during the Relevant Periods,
without taking into consideration the offsetting of balances within the same tax jurisdiction, is asfollows:
Deferred income tax assets
Group
Fair value
through
Property,Assetprofit andloss

Fair value
through otherplant andretirement

financial

comprehensive

Otherequipment

obligation

assetsincomeprovisions

Total¥ million¥ million¥ million¥ million¥ million¥ million

1,942

463

55

15

345

2,820

—

—

—

(9)

—

(9)

39

(26)

(15)

—

162

160

1,981

437

40

6

507

2,971

—

—

—

(6)

—

(6)

(104)

6

(2)

—

267

167

Balances at 31 March2013 and 1 April
2013 . . . . . . . . . . . . . .
Credited/(charged) to
profit or loss. . . . . . . .

1,877

443

38

—

774

3,132

275

45

(10)

—

(274)

36

Balances at 31 March2014 and 1 April
2014 . . . . . . . . . . . . . .
(Charged)/credited to
profit or loss . . . . . . .

2,152

488

28

—

500

3,168

(52)

2

3

—

244

197

2,100

490

31

—

744

3,365

Balance at 1 April
2011 . . . . . . . . . . . . . .
Charged to othercomprehensive
income . . . . . . . . . . .
Credited/(charged) to
profit or loss . . . . . . .
Balances at 31 March2012 and 1 April
2012 . . . . . . . . . . . . . .
Charged to othercomprehensive
income . . . . . . . . . . .
(Charged)/credited to
profit or loss. . . . . . . .

Balance at 30
September 2014 . . . .

I-82

APPENDIX IACCOUNTANT’S REPORT

Deferred income tax liabilities
Group
Fair value
through other
Property, plantcomprehensive

and equipment

incomeTotal¥ million¥ million¥ million

Balance at 1 April 2011 . . . . . . . . . . . . . . . . . .
Credited to profit or loss . . . . . . . . . . . . . . . . .

(1,416)
8——(1,416)
8

Balances at 31 March 2012 and 1 April 2012
Charged to other comprehensive income . . . .
Charged to profit or loss . . . . . . . . . . . . . . . . .

(1,408)
—
(42)

—
(70)
—

(1,408)(70)(42)

Balance at 31 March 2013 and 1 April 2013 .
Charged to other comprehensive income . . . .
Credited to profit or loss . . . . . . . . . . . . . . . . .

(1,450)
—
41

(70)
(227)
—

(1,520)(227)
41

Balances at 31 March 2014 and 1 April 2014
Credited to other comprehensive income . . . .
Credited to profit or loss . . . . . . . . . . . . . . . . .

(1,409)
—
351

(297)
28
—

(1,706)28
351

Balance at 30 September 2014 . . . . . . . . . . .

(1,058)(269)(1,327)

Deferred income tax assets are recognised for tax losses carry-forwards to the extent thatthe realisation of the related tax benefits through the future taxable profits is probable. The Group
did not recognise deferred income tax assets of approximately ¥226 million, ¥31 million and ¥142
million in respect of losses amounting to approximately ¥601 million, ¥81 million and ¥395 million
that can be carried forward against future taxable income as at 31 March 2013, 31 March 2014
and 30 September 2014 respectively. Losses can be carried forward for 7 years.
Other than the above, there was no material unprovided deferred income tax as at 31 March
2012, 2013 and 2014 and at 30 September 2014.

I-83

APPENDIX I
31

ACCOUNTANT’S REPORT

Amount due to a subsidiary - Company

Loan payables to a subsidiary as at 31 March 2013 and as at 30 September 2014 arenon-trade nature, unsecured, interest bearing at 2.5% per annum and repayable on demand.
Other amounts due to a subsidiary as at 31 March 2013 and as at 30 September 2014 arenon-trade nature, unsecured, interest free and repayable on demand.
The carrying amount of the amount due to a subsidiary approximates its fair value as at theRelevant Periods and is denominated in Japanese Yen.
As at
As at 31 March

Amounts due to Niraku Corporation
Loan payables to Niraku Corporation . . . . . . .
Interest payables to Niraku Corporation . . . . .
Balance due to Niraku Corporation . . . . . . . .

I-84

30 September

2013

2014

2014

¥ million¥ million¥ million

200
1
—

—
—
—

600
3
98

201

—

701

APPENDIX I
32

ACCOUNTANT’S REPORT

Cash generated from operations
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Profit before income tax . . . . . . .
Adjustments for:
Depreciation of property, plantand equipment . . . . . . . . . . . .
Depreciation of investment
properties . . . . . . . . . . . . . . . .
Amortisation of intangible
assets . . . . . . . . . . . . . . . . . . .
Loss on disposal of property,
plant and equipment . . . . . . . .
Impairment loss of property,
plant and equipment . . . . . . . .
Write-off/(reversal) of doubtful
debts . . . . . . . . . . . . . . . . . . . .
Finance costs, net . . . . . . . . . . .
Dividend income . . . . . . . . . . . . .
(Gain)/loss on fair value forderivative financial
instruments . . . . . . . . . . . . . . .
Loss/(gain) on fair value forfinancial assets at fair value
through profit or loss . . . . . . .
Loss/(gain) on disposal of
financial assets at fair value
through profit or loss . . . . . . .
Changes in working capital:
Inventories . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . .
Prepayments, deposits andother receivables . . . . . . . . . . .
Amounts due from directors anda shareholder . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . .
Accruals, provisions and otherpayables . . . . . . . . . . . . . . . . .
Cash generated fromoperations . . . . . . . . . . . . . . . .

6,307

6,485

6,008

2,683

1,627

1,995

1,980

2,213

1,106

996

14

14

14

7

7

45

31

28

14

15

69

24

101

85

39

124

—

620

—

—

116
728
(4)

(102)
657
(29)

2
686
(67)

—
340
(35)

—
269
(34)

(44)

(11)

4

3

(10)

8

(11)

(5)

(2)

(4)

—

28

—

(5)

—

2,365
(20)

3,081
(4)

2,535
10

1,772
—

591
2

561

25

(1,151)

(979)

(857)

—
237

10
35

12
(181)

6
(214)

378
(56)

934

55

(1,222)(1,220)1,564

13,435

12,268

9,607

3,561

4,527

I-85

APPENDIX IACCOUNTANT’S REPORTIn the consolidated statements of cash flows, proceeds from disposal of property, plant andequipment comprise:
As at
As at 31 March2012

Net book amount . . . . . . . . . . . .
Loss on disposal of property,
plant and equipment . . . . . . . .
Proceeds from disposal ofproperty, plant andequipment . . . . . . . . . . . . . . . .

2013

30 September
2014

2013

2014

111

93

134

87

234

(69)

(24)

(101)

(85)

(39)

42

69

33

2

195

Non-cash transactions:(a)

For the years ended 31 March 2012, 2013 and 2014 and for the six months ended 30
September 2013 and 2014, certain property, plant and equipment and pachinko andpachislot machines amounting to ¥4,499 million, ¥4,381 million, ¥6,156 million, ¥4,400
million (unaudited) and ¥681 million were purchased under finance leases.

(b)

For the years ended 31 March 2012, 2013 and 2014 and for the six months ended 30
September 2013 and 2014, certain finance lease obligations amounting to ¥36 million, ¥37
million, ¥628 million, ¥662 million (unaudited) and ¥425 million were settled throughreduction of rental prepayments.

(c)

The issue of shares as consideration for acquisition of Niraku Corporation and distribution
in specie as discussed in Note 1.2 are non-cash transactions.

33

Contingencies - Group and Company
As at 31 March 2012, 2013 and 2014, and as at 30 September 2014, the Group and theCompany did not have any significant contingent liabilities.

I-86

APPENDIX I
34Commitments(a)Capital commitments

ACCOUNTANT’S REPORTThe outstanding capital commitments of the Group not provided for in the Financial
Information as at 31 March 2012, 2013, 2014 and as at 30 September 2014 are as follows:
Group
As at
As at 31 March

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

—

407

—

866

Contracted but not provided
for purchase of property,
plant and equipment . . . . . . . . . . . . . .

(b)Operating lease commitments - Group(i)

As a lessee
As at 31 March 2012, 2013, 2014 and at 30 September 2014, the Group had future

aggregate minimum lease payments under non-cancellable operating leases in respect of officepremises and pachinko and pachislot halls as follows:
Group
As at
As at 31 March

No later than one year . . . . . . . . . . . . .
Later than one year and no later than
five years . . . . . . . . . . . . . . . . . . . . . .
Over five years . . . . . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

595

611

737

848

2,378
4,239

2,445
3,714

3,089
5,247

3,412
5,424

7,212

6,770

9,073

9,684

I-87

APPENDIX I(ii)

ACCOUNTANT’S REPORTAs a lessor

As at 31 March 2012, 2013, 2014 and at 30 September 2013 and 2014, the Group’s future
aggregate minimum lease receipts under non-cancellable operating leases in respect ofinvestment properties are as follows:
Group
As at
30 September

As at 31 March

No later than one year . . . . . . . . . . . . . .

35

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

42

15

44

44

Related party transactions

For the purposes of this Financial Information, parties are considered to be related to theGroup if the party has the ability, directly or indirectly, to exercise significant influence over theGroup in making financial and operating decisions. Related parties may be individuals (being
members of key management personnel, significant shareholders and/or their close family
members) or other entities and include entities which are under the significant influence of relatedparties of the Group where those parties are individuals. Parties are also considered to be related
if they are subject to common control.
The directors are of the view that the following individuals and companies were relatedparties that had transactions or balances with the Group during the years ended 31 March 2012,2013 and 2014 and for the six months ended 30 September 2013 and 2014:
Name of related party

Relationship with the Group

Hisanori Taniguchi . . . . . . Director of the Company, one of the Controlling Shareholders
Tatsuo Taniguchi . . . . . . . Director of the Company, one of the Controlling Shareholders
Masataka Taniguchi . . . . . One of the Controlling Shareholders
Tateo Taniguchi (Note) . . . One of the Controlling Shareholders
Yoshihiro Tei . . . . . . . . . . . One of the Controlling Shareholders
Noriko Kaneshiro . . . . . . . One of the Controlling Shareholders
Kyoko Taniguchi . . . . . . . . Close family member of certain parties among the Controlling
Shareholders
Jukki Limited . . . . . . . . . . One of the Controlling Shareholders
Densho Limited. . . . . . . . . One of the Controlling Shareholders
Echo Limited . . . . . . . . . . . One of the Controlling Shareholders
Daiki Limited . . . . . . . . . . . One of the Controlling Shareholders
Hokuyo Kanko Limited . . . One of the Controlling Shareholders
KAWASHIMA Co., Ltd. . . . One of the Controlling Shareholders
Niraku Investment Inc. . . . Controlled by certain parties among the Controlling Shareholders
Niraku USA Inc. . . . . . . . . Controlled by certain parties among the Controlling Shareholders

Note:

Mr. Tateo Taniguchi deceased on 17 April 2014. Mr. Mitsuhiro Tei, Mr. Motohiro Tei, Ms. Eijun Tei and Ms. Rika
Tei became successors of his shareholding since then.

I-88

APPENDIX IACCOUNTANT’S REPORT

Other than those transactions and balances disclosed elsewhere in the Financial
Information, the following transactions were carried out with related parties during the Relevant
Periods:
Related party transactions(a)Transactions with related parties

The following transactions were undertaken by the Group with related parties during theRelevant Periods and all of them are discontinued transactions:
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Discontinued transactions:
Rental expenses
Hisanori Taniguchi . . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . . .
Masataka Taniguchi . . . . . . . . . .

18
18
24

18
18
24

18
18
24

9
9
12

8
8
11

60

60

60

30

27

The rental expenses were related to the operating lease expense of a pachinko hall ownedby the Taniguchi Family. During the six months ended 30 September 2014, the Group acquired
the related property from the Taniguchi Family as part of the Reorganisation (Note 1.2(ix)).
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Interest expenses
Kyoko Taniguchi . . . . . . . . . . . . .
KAWASHIMA Co., Ltd. . . . . . . .

Interest income
Jukki Limited . . . . . . . . . . . . . . .
Densho Limited. . . . . . . . . . . . . .
Echo Limited . . . . . . . . . . . . . . . .
Daiki Limited . . . . . . . . . . . . . . . .
Hokuyo Kanko Limited . . . . . . . .

1
1

3
—

—
—

—
—

—
—

2

3

—

—

—

2
2
2
2
5

2
2
2
2
4

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

13

12

—

—

—

I-89

APPENDIX IACCOUNTANT’S REPORTAll of the above transactions with related parties were conducted in the ordinary course of
the business of the Group based on the terms mutually agreed between the relevant parties.
(b)

Key management compensation

Key management includes directors (executive, non-executive and external directors) andthe senior management of the Group. The compensation paid or payable to key management for
employee services is shown below:
Six months ended
Year ended 31 March

30 September

2012

2013

2014

2013

2014

¥ million¥ million¥ million¥ million¥ million(unaudited)

Directors’ fees . . . . . . . . . . . . . .
Basic salaries, allowances andother benefits in kind . . . . . . .
Discretionary bonus . . . . . . . . . .
Employee’s contribution topension scheme . . . . . . . . . . .

(c)

130

137

135

67

92

—
10

600
2

—
—

—
—

600
—

5

2

5

2

2

145

741

140

69

694

Guarantees by directors and shareholders

As at 31 March 2012, 2013 and 2014 and 30 September 2014, the Group’s banking facilities
were secured by personal guarantees provided by the directors, namely: Mr. Hisanori Taniguchi,
and Mr. Tatsuo Taniguchi and shareholders of the Company. These personal guarantees will be
replaced by corporate guarantees upon the Listing.

I-90

APPENDIX IACCOUNTANT’S REPORT

Amounts due from directors and shareholders
The amounts represented prepaid rental deposits to directors and shareholders. The
amounts were unsecured, interest free and refundable upon the termination of lease agreements.
As at 31 March 2012, 2013 and 2014, there was no impairment for the amounts due fromdirectors and shareholders, as the amounts have not past due and they have no history of default
in payment. As at 30 September 2014, the rental deposits were fully refunded.
As at
As at 31 March

Non-current portion
Hisanori Taniguchi . . . . . . . . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . . . . . . . . .
Masataka Taniguchi . . . . . . . . . . . . . . . .

30 September

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

95
95
128

93
93
125

91
91
122

—
—
—

318

311

304

—

3
3
4

4
4
4

4
4
4

—
—
—

10

12

12

—

Current portion
Hisanori Taniguchi . . . . . . . . . . . . . . . . .
Tatsuo Taniguchi . . . . . . . . . . . . . . . . . . .
Masataka Taniguchi . . . . . . . . . . . . . . . .

The maximum receivable balances during the Relevant Periods were:Six months
ended 30
SeptemberYear ended 31 March

Hisanori Taniguchi . . . . . . . . . . . . . . . . .

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

98

98

97

96

98

97

96

196

194

192

Tatsuo Taniguchi . . . . . . . . . . . . . . . . . . .

I-91

APPENDIX IACCOUNTANT’S REPORT

Amounts due from related companies
The amounts represented loans due from related companies which were unsecured,interest-bearing at 3.2% per annum and repayable on 28 February 2013. The amounts were fully
repaid on 28 February 2013.
As at 31 March
2012

2013

¥ million¥ million

70
70
70
70
155

—
—
—
—
—

435

—

Jukki Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Densho Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Echo Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daiki Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hokuyo Kanko Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount due to a related party
The amount represented loan due to Kyoko Taniguchi which was unsecured,interest-bearing at 3.0% per annum and repayable on 1 February 2012. The amount was fully
repaid on 31 January 2013.
As at 31 March
2012

2013

¥ million¥ million

100—

Kyoko Taniguchi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amounts due to related companies
Amount due to KAWASHIMA Co., Ltd. was unsecured, interest-bearing at 3.0% per annum
and repayable on 29 September 2014. The amount was fully repaid on 28 June 2012.
Amount due to Niraku Investment Inc. was unsecured, interest-free and repayable on
demand. The amount was fully repaid on 14 October 2014.
As at
30 September

As at 31 MarchKAWASHIMA Co., Ltd. . . . . . . . . . . . . . .
Niraku Investment Inc. . . . . . . . . . . . . .

2012

2013

2014

2014

¥ million¥ million¥ million¥ million

45
—

—
—

—
—

—
24

45

—

—

24

I-92

APPENDIX I
36

ACCOUNTANT’S REPORTBusiness combination

On 15 June 2012, the Group acquired all shares of JIN Corporation (“JIN”), a company
operating pachinko and pachislot halls in Japan, from a third party with a total consideration of
approximately ¥820 million. On the date of acquisition, the fair value of the net identifiable assets
in JIN in aggregate amounted to ¥820 million and represented property, plant and equipment,
other deposits and asset retirement obligation amounted to ¥772 million, ¥133 million and ¥85
million respectively. The acquisition was expected to increase the Group’s operation scale andthus benefit the Group’s business expansion plan.
Acquisition-related costs of ¥6 million have been charged to “administrative and otheroperating expenses” in the consolidated statements of comprehensive income for the year ended
31 March 2013. The revenue and net loss for year ended 31 March 2013 as though theacquisition date for the business combination had been 1 April 2012, are ¥222 million and ¥529
million, respectively. JIN was subsequently merged into Niraku Corporation on 30 September
2013.
37

Subsequent events

Save as disclosed elsewhere in this report, the following significant events took place
subsequent to 30 September 2014:

III.

(a)

The Group entered into a master franchisee arrangement with a holder of the rights ofoperation and use of trademark LIZARRAN and of its know-how on 16 December 2013.
According to the agreement, the Group is committed to open, as a minimum, 1
restaurant within the years from 2014 to 2028 and at the end of the year 2028, theGroup must have 20 LIZARRAN establishments opened in Japan.

(b)

On 16 March 2015, the shareholders approved that (i) every issued share of nil parvalue will be sub-divided into 230 shares of nil par value with effect from 31 March
2015; and (ii) for the purpose of such sub-division, the number of shares authorised to
be issued by the Company be increased from 20,000,000 shares to 2,000,000,000
shares with effect from 31 March 2015.

SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of thecompanies comprising the Group in respect of any period subsequent to 30 September 2014 andup to the date of this report. No dividend or distribution has been declared or paid by theCompany or any of the companies comprising the Group in respect of any period subsequent to
30 September 2014.
Yours faithfully,
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong*

For identification purpose only

I-93

APPENDIX IIUNAUDITED PRO FORMA FINANCIAL INFORMATION

The information set out in this Appendix II to this properties does not form part of the
Accountant’s Report from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong,the reporting accountant of the Company, as set out in Appendix I to this Prospectus, and isincluded herein for illustrative purpose only. The unaudited pro forma financial information should
be read in conjunction with “Financial Information” and Appendix I to this Prospectus.
A.

UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS

The following unaudited pro forma adjusted net tangible assets prepared in accordance with
Rule 4.29 of the Listing Rules are set out below to illustrate the effect of the Global Offering on
the consolidated net tangible assets of the Group attributable to the shareholders of theCompany as of 30 September 2014 as if the Global Offering had taken place on that date.
The unaudited pro forma adjusted net tangible assets have been prepared for illustrative
purposes only and, because of its hypothetical nature, it may not give a true picture of theconsolidated net tangible assets of the Group had the Global Offering been completed as at 30
September 2014 or at any future dates.
Auditedconsolidated
net tangible
assets of

Unaudited

the Group

pro forma

attributableadjusted net

to theEstimatedtangibleshareholders

net

assetsproceeds

attributablefrom theto theUnaudited pro forma

September

Globalshareholders

adjusted net tangible

2014

Offeringof theassets per Share(Note 1)

(Note 2)Company(Notes 3, 5)¥ million¥ million¥ million¥HK$

Based on an Offer Price of
HK$1.10 per Share . . . . . . . . .

20,707

4,087

24,79420.7

1.37

Based on an Offer Price of
HK$1.28 per Share . . . . . . . .

20,707

4,884

25,59121.4

1.41

of the Company
as at 30

II-1

APPENDIX IIUNAUDITED PRO FORMA FINANCIAL INFORMATION

Notes:(1)

The unadjusted audited consolidated net tangible assets of the Group attributable to the shareholders of theCompany as at 30 September 2014 is extracted from the accountant’s report set out in Appendix I to thisProspectus, which is based on the audited consolidated net assets of the Group attributable to the shareholdersof the Company as at 30 September 2014 of ¥20,879 million with an adjustment for the intangible assets as at 30
September 2014 of ¥172 million.

(2)

The estimated net proceeds from the Global Offering are based on the indicative Offer Price of HK$1.10 and
HK$1.28 per Share, respectively, after deduction of the underwriting fees and other related expenses borne by theCompany (excluding approximately ¥226 million listing expenses which have been incurred as of 30 September2014) and takes no account of any Shares which may fall to be issued upon the exercise of the Over-allotment
Option or any Shares which may be granted and issued or repurchased by the Company pursuant to the Issuing
Mandate and the Repurchase Mandate.

(3)

The unaudited pro forma net tangible assets per Share is arrived at after the adjustments referred to in thepreceding paragraphs and on the basis that 1,195,850,460 Shares were in issue assuming that the Global Offering
have been completed on 30 September 2014 but takes no account of any Shares which may fall to be issued upon
the exercise of the Over-allotment Option or any Shares which may be granted and issued or repurchased by theCompany pursuant to the Issuing Mandate and the Repurchase Mandate.

(4)

No adjustment has been made to reflect any trading result or other transactions of the Group entered into
subsequent to 30 September 2014.

(5)

For the purpose of this unaudited pro forma adjusted net tangible assets, the balances stated in Japanese Yen areconverted into Hong Kong dollars at the rate of HK$1.00 to ¥15.15.

II-2

APPENDIX IIB.

UNAUDITED PRO FORMA FINANCIAL INFORMATIONREPORT FROM THE REPORTING ACCOUNTANT ON UNAUDITED PRO FORMA
FINANCIAL INFORMATION

The following is the text of a report received from our Company’s reporting accountant,PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, prepared for the purpose ofincorporation in this Prospectus.

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE
COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION INCLUDED IN A
PROSPECTUS
TO THE DIRECTORS OF 株式会社ニラク▪ジー▪シー▪ホールディングス “NIRAKU GC HOLDINGS,
INC.*”We have completed our assurance engagement to report on the compilation of unaudited
pro forma financial information of 株式会社ニラク▪ジー▪シー▪ホールディングス “NIRAKU GC
HOLDINGS, INC.*” (the “Company”) and its subsidiaries (collectively the “Group”) by the directors
for illustrative purposes only. The unaudited pro forma financial information consists of theunaudited pro forma statement of adjusted net tangible assets of the Group as at 30 September
2014, and related notes (the “Unaudited Pro Forma Financial Information”) as set out on pages
II-1 to II-2 of the Company’s prospectus dated 24 March 2015, in connection with the proposed
initial public offering of the shares of the Company. The applicable criteria on the basis of which
the directors have compiled the Unaudited Pro Forma Financial Information are described on
pages II-1 to II-2.
The Unaudited Pro Forma Financial Information has been compiled by the directors toillustrate the impact of the proposed initial public offering on the Group’s financial position as at
30 September 2014 as if the proposed initial public offering had taken place at 30 September
2014. As part of this process, information about the Group’s financial position has been
extracted by the directors from the Group’s financial information for the period ended 30
September 2014, on which an accountant’s report has been published.
Directors’ Responsibility for the Unaudited Pro Forma Financial Information
The directors are responsible for compiling the Unaudited Pro Forma Financial Informationin accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline
7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”)
issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

II-3

APPENDIX IIUNAUDITED PRO FORMA FINANCIAL INFORMATION

Reporting Accountant’s Responsibilities
Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing
Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do
not accept any responsibility for any reports previously given by us on any financial information
used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed tothose to whom those reports were addressed by us at the dates of their issue.
We conducted our engagement in accordance with Hong Kong Standard on Assurance
Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma
Financial Information Included in a Prospectus”, issued by the HKICPA. This standard requiresthat the reporting accountant complies with ethical requirements and plans and performs
procedures to obtain reasonable assurance about whether the directors have compiled theUnaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing
Rules and with reference to AG 7 issued by the HKICPA.
For purposes of this engagement, we are not responsible for updating or reissuing any
reports or opinions on any historical financial information used in compiling the Unaudited Pro
Forma Financial Information, nor have we, in the course of this engagement, performed an audit
or review of the financial information used in compiling the Unaudited Pro Forma Financial
Information.
The purpose of Unaudited Pro Forma Financial Information included in a prospectus is solely
to illustrate the impact of a significant event or transaction on unadjusted financial information of
the entity as if the event had occurred or the transaction had been undertaken at an earlier dateselected for purposes of the illustration. Accordingly, we do not provide any assurance that theactual outcome of the proposed initial public offering at 30 September 2014 would have been as
presented.
A reasonable assurance engagement to report on whether the Unaudited Pro Forma
Financial Information has been properly compiled on the basis of the applicable criteria involves
performing procedures to assess whether the applicable criteria used by the directors in thecompilation of the Unaudited Pro Forma Financial Information provide a reasonable basis forpresenting the significant effects directly attributable to the event or transaction, and to obtainsufficient appropriate evidence about whether:•

The related pro forma adjustments give appropriate effect to those criteria; and•The Unaudited Pro Forma Financial Information reflects the proper application of thoseadjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to
the reporting accountant’s understanding of the nature of the company, the event or transaction
in respect of which the Unaudited Pro Forma Financial Information has been compiled, and otherrelevant engagement circumstances.

II-4

APPENDIX IIUNAUDITED PRO FORMA FINANCIAL INFORMATIONThe engagement also involves evaluating the overall presentation of the Unaudited Pro
Forma Financial Information.
We believe that the evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.
OpinionIn our opinion:(a)the Unaudited Pro Forma Financial Information has been properly compiled by the
directors of the Company on the basis stated;(b)such basis is consistent with the accounting policies of the Group; and(c)the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial
Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 24 March 2015*

For identification purpose only

II-5

APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTS

The following is the text of a letter, summary of valuations and valuation certificates
prepared for the purpose of incorporation in this Prospectus received from DTZ Debenham Tie
Leung Limited, an independent property valuer, commissioned by our Company, in connection
with its opinion of value of the selected property interests of our Company as at 31 January 2015.

16th Floor
Jardine House
1 Connaught PlaceCentralHong Kong
24 March 2015
The Board of Directors
NIRAKU GC HOLDINGS, INC.*(株式會社ニラク • ジー • シー • ホールディングス)1-39 Hohaccho 1-chome, Koriyama-shi,
Fukushima, Japan*for identification purpose only

Dear Sirs,
Instructions, Purpose and Date of Valuation
In accordance with your instructions for us to value selected properties in which NIRAKU GC
HOLDINGS, INC.* (株式會社ニラク • ジー • シー • ホールディングス) (referred to as the “Company”)
and its subsidiaries (together referred to as the “Group”) have interests in Japan (as moreparticularly described in the attached valuation certificates), we confirm that we have inspected
the properties, made relevant enquiries and obtained such further information as we consider
necessary for the purpose of providing you with our opinion of the values of such properties as
at 31 January 2015.
Definition of Market Value
Our valuation of the each of the properties represents its market value which in accordance withThe HKIS Valuation Standards (2012 Edition) issued by The Hong Kong Institute of Surveyors isdefined as “the estimated amount for which an asset or liability should exchange on the date ofvaluation between a willing buyer and a willing seller in an arm’s-length transaction after propermarketing and where the parties had each acted knowledgeably, prudently and without
compulsion”.

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APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTSValuation Basis and Assumption
In valuing the properties, we have complied with the requirements set out in Chapter 5 of theRules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Stock
Exchange”) published by the Stock Exchange and The HKIS Valuation Standards (2012 Edition)
published by the Hong Kong Institute of Surveyors.
Our valuations exclude any estimated price inflated or deflated by special terms or circumstancessuch as atypical financing, sale and leaseback arrangement, special considerations orconcessions granted by anyone associated with the sale, or any element of special value.
In the course of our valuation of the properties in Japan, we have assumed that, unless otherwise
stated, the transferable land use rights of the properties for their respective terms at nominal
annual land use fees have been granted and that any premium payable has already been fully
paid. We have relied on the information and advice given by the Group regarding the title to eachof the properties and the interests of the Group in the properties. In valuing the properties, wehave assumed that the Group has an enforceable title to each of the properties and has free anduninterrupted rights to use, occupy or assign the properties for the whole of the respective
unexpired land use term as granted.
In respect of the properties situated in Japan, the status of titles and grant of major certificatesapprovals and licenses, in accordance with the information provided by the Group are set out inthe notes of the respective valuation certificate.
No allowance has been made in our valuations for any charges, mortgages or amounts owing on
the properties nor for any expenses or taxation which may be incurred in effecting a sale. Unlessotherwise stated, it is assumed that the properties are free from encumbrances, restrictions andoutgoings of an onerous nature which could affect their values.
Method of Valuation
We have used investment approach by capitalising the current rent passing derived from theexisting tenancies with due provision for reversionary rental income potential or the net earnings
that would be generated from the property.
Source of Information
We have been provided by the Group with extracts of documents in relation to the titles to theproperties. However, we have not inspected the original documents to ascertain any
amendments which may not appear on the copies handed to us.

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APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTSIn the course of our valuation, we have relied on a very considerable extent on the information
given to us by the Group regarding the title to each of the properties and the interests of theGroup in the properties. We have also accepted advice given to us on such matters as planningapprovals or statutory notices, easements, tenure, identification of land and buildings,
completion date of buildings, number of car parking spaces, particulars of occupancy, site andfloor areas, interest attributable to the Group and all other relevant matters.
Dimensions, measurements and areas included in the valuation certificates are based on theinformation provided to us and are therefore only approximations. We have had no reason to
doubt the truth and accuracy of the information provided to us by the Group which is material tothe valuations. We were also advised by the Group that no material facts have been omitted fromthe information provided.
Title investigation
We have been provided with extracts of documents relating to the titles of the properties inJapan, but no searches have been made in respect of the properties. We have not searched theoriginal documents to verify ownership or to ascertain any amendment which may not appear on
the copies handed to us. We are also unable to ascertain the title of the properties in Japan andwe have therefore relied on the advice given by the Group regarding the Group’s interests inJapan properties.
Site Inspection
We inspected the exterior and, wherever possible, the interior of each of the properties between
28 and 31 October in 2014. However, no structural survey has been made, but in the course of
our valuation, we did not note any serious defects. We are, however, not able to report that theproperties are free of rot, infestation or any other structural defects. No tests were carried out toany of the services.
We have not made any investigations into past or present uses, either of the property interests
or any neighbouring land to establish whether there is any contamination or potential forcontamination or buried cultural treasures to the property interests. We have assumed that nocontamination or other adverse environment matters or buried cultural treasures exist in relation
to the property interests that are sufficient to affect their values. Commensurate with ourcomments set out above, we have made no allowance in these valuations for any effect in respectof actual or potential contamination of land or buildings or buried cultural treasures. However, apurchaser in the market would, in practice, undertake further investigations than thoseundertaken by us. If it is subsequently established that contamination or buried cultural treasuresexist at any of the properties or on any neighbouring land or that any of the premises have been,or are being, put to any contaminative use, then this might reduce the values now reported.
Unless otherwise stated, we have not been able to carry out detailed on-site measurements toverify the site and floor areas of the properties and we have assumed that the areas shown on
the documents handed to us are correct.

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APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTS

Currency
Unless otherwise stated, all sums stated in our valuations are in Japanese Yen, the official
currency of Japan.
We enclose herewith a summary of our valuations and our valuation certificates.

Yours faithfully,
for and on behalf of
DTZ Debenham Tie Leung Limited

Andrew K.F. Chan
Registered Professional Surveyor (General Practice)
Registered China Real Estate Appraiser
MSc, MHKIS
Senior Director, Valuation & Advisory Services

Note:

Mr. Andrew K.F. Chan is a Registered Professional Surveyor who has extensive experience in Asian countries
including Japan.

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APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTSSUMMARY OF VALUATIONSMarket value inexisting state as at

Property

Market value inAttributable

31 January 2015

existing state as atinterest to

attributable to

31 January 2015

the Group

the Group

(¥)

(%)

(¥)

Group I — Properties held by the Group for investment in Japan
1.

Nomurasyoken Building,
104 and other tracts,
Ekimae 2-chome, Koriyama-shi,
Fukushima-ken, Japan
野村證券ビル
福島県郡山市駅前二丁目104番外

627,000,000

100

627,000,000

2.

Nikku Club Omori,217-6 and other tracts,
Omori-nishi 3-chome, Ota-ku,
Tokyo-to, Japanニック倶楽部大森
東京都大田区大森西
三丁目217番6外97,200,000

100

97,200,000

Sub-total of Group I:

724,200,000

724,200,000

Group II — Property owned and operated by the Group in Japan
3.

Koriyama City Hotel,
90 and other tracts,
Ekimae 2-chome, Koriyama-shi,
Fukushima-ken, Japan
郡山シティホテル
福島県郡山市駅前二丁目90番外

728,000,000

Sub-total of Group II:

728,000,000

728,000,000

1,452,200,000

1,452,200,000

Total:

III-5

100

728,000,000

APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTSVALUATION CERTIFICATEGroup I — Properties held by the Group for investment in Japan
Market value inParticulars of1.

Property

Description and tenure

occupancy

Nomurasyoken

The property is situated on a site of

As at the date of

Building,

456.40 sq m.

valuation, the104 and other tracts,
Ekimae 2-chome,
Koriyama-shi,

The subject building consists of an

Fukushima-ken,building of gross floor area and net
rentable area of 2,699.35 sq m andJapan
野村證券ビル8-storey plus 1 basement office

existing state as at
31 January 2015
¥627,000,000

commercial portions(100% interestof the property were
subject to various

attributable to
the Group:

tenancies for terms¥627,000,000)

2,008.13 sq m respectively. The

of 2 years at acurrent total

福島県郡山市駅前

property is constructed of steel

monthly rent of

二丁目104番外framed reinforced concrete and was¥6,931,855.

completed in 1987.
The property is in the centre of
Koriyama city in front of Koriyama
station on the JR Tohokuhonsen.
The property is held freehold.

Notes:(1)

The owner of the land with an area of 456.40 sq m is NEXIA Inc.* (株式会社ネクシア).

(2)

The owner of the building with an area of 2,699.35 sq m is NEXIA Inc.* (株式会社ネクシア).

(3)

The property is subject to a revolving mortgage with the maximum amount of ¥0.5 billion.

(4)

Inspection of the property was carried out by our valuer, Mr. Yasuhiro Takebe on 30 October 2014. Yasuhiro
Takebe is a Registered Japanese Licensed Real Property Appraiser and a member of the Royal Institutionof Chartered Surveyors.

(5)

Our key assumptions of the valuation are:PortionMarket Rent per month

Capitalisation Rate

Aboveground office . . . . . .

¥3,025 per sq m

7.8%

Basement office . . . . . . . .

¥1,512 per sq m

7.8%

Retail . . . . . . . . . . . . . . .

¥4,537 per sq m

7.8%

In undertaking our valuation, we have made reference to lettings within the subject property as well as othersimilar properties within the same district. The monthly rental levels of major office on aboveground floor
premises range from approximately ¥2,873 to ¥3,176 per sq m, the monthly rental levels of major office on
basement floor premises range from approximately ¥1,436 to ¥1,588 per sq m, the monthly rental levels ofmajor retail premises range from approximately ¥4,310 to ¥4,764 per sq m.
We have gathered and analysed the rates of return of relevant market segment which indicate yields ofapproximately 7.5% to 8.0% for this type of property.
The above market rents assumed by us are consistent with the relevant comparables after due adjustments.
The capitalisation rates adopted are reasonable having regard to the analysed yields.

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APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTSVALUATION CERTIFICATE
Market value inexisting state as at

Particulars of2.

Property

Description and tenure

occupancy

Nikku Club Omori,217-6 and other

The property is situated on a site of
156.71 sq m.

As at the date ofvaluation, thetracts, Omori-nishi
3-chome, Ota-ku,
Tokyo-to, Japanニック倶楽部大森
東京都大田区大森西
三丁目217番6外31 January 2015
¥97,200,000

property was subject(100% interest

to various tenancies

attributable tofloor area and net rentable area

for terms of 2 years
at a current total

the Group:¥97,200,000)

263.58 sq m and 243.33 sq m
respectively. The property ismonthly rent of

The subject building consists of a
3-storey residential building of gross¥713,000.

constructed of reinforced concrete
and was completed in 1991.
The property is in the residential area
consisting of apartments anddetached houses. It is about 3
minutes’ walk from the nearest
station, “Omori” station on the
Keikyu Honsen.
The property is held freehold.

Notes:(1)

The owner of the land with an area of 156.71 sq m is NEXIA Inc.* (株式会社ネクシア).

(2)

The owner of the building with an area of 263.58 sq m is NEXIA Inc.* (株式会社ネクシア).

(3)

The property is subject to a revolving mortgage with the maximum amount of ¥80 million.

(4)

Inspection of the property was carried out by our valuer, Mr. Hiroaki Honda on 28 October 2014. Hiroaki
Honda is a Registered Japanese Licensed Real Property Appraiser.

(5)

Our key assumptions of the valuation are:PortionResidential . . . . . . . . . . .

Market Rent per month

Capitalisation Rate

¥2,917 per sq m

6.5%

In undertaking our valuation, we have made reference to lettings within the subject property as well as othersimilar properties within the same district. The monthly rental levels of major residence premises range fromapproximately ¥2,069 to ¥3,906 per sq m.
We have gathered and analysed the rates of return of relevant market segment which indicate yields ofapproximately 6.0% to 6.5% for this type of property.
The above market rents assumed by us are consistent with the relevant comparables after due adjustments.
The capitalisation rates adopted are reasonable having regard to the analysed yields.

III-7

APPENDIX III

VALUATION REPORT ON SELECTED PROPERTY INTERESTSVALUATION CERTIFICATEGroup II — Property owned and operated by the Group in Japan
Market value inParticulars of3.

existing state as at

Property

Description and tenure

occupancy

Koriyama City Hotel,

The property is situated on a site of

As at the date of¥728,000,000

90 and other tracts,

1,014.24 sq m.

valuation, the(100% interest

property was

attributable to
the Group:¥728,000,000)

Ekimae 2-chome,
Koriyama-shi,
Fukushima-ken,

The subject building consists of an
11-storey plus 1 basement economy

occupied andoperated by theJapanhotel of gross floor area of 2,994.38
sq m. The property, having 84 guest

Group as an

郡山シティホテル
福島県郡山市駅前
二丁目90番外

31 January 2015

rooms, is constructed of a steel

economy hotel withancillary retailframed reinforced concrete and was

facilities.

completed in 1979.
The property is in the centre of
Koriyama city in front of Koriyama
station on the JR Tohokuhonsen.
The property is held freehold.

Notes:(1)

The owner of the land with an area of 1,014.24 sq m is Niraku Corporation* (株式会社ニラク).

(2)

The owner of the building with an area of 2,994.38 sq m is Niraku Corporation* (株式会社ニラク).

(3)

The property is subject to a revolving mortgage with the maximum amount of ¥1.3 billion.

(4)

Inspection of the property was carried out by our valuer, Mr. Yasunobu Uehara on 30 October 2014.
Yasunobu Uehara is a Registered Japanese Licensed Real Property Appraiser.

(5)

Our key assumptions of the valuation are:PortionMarket Rent per month

Capitalisation Rate

Hotel . . . . . . . . . . . . . . .

¥1,512 per sq m

8.0%

Retail (Pachinko hall) . . . . .

¥5,293 per sq m

8.0%

In undertaking our valuation, we have made reference to lettings within the subject property as well as othersimilar properties within the same district. The monthly rental levels of major hotel premises range fromapproximately ¥1,436 to ¥1,588 per sq m, the monthly rental levels of major retail premises range fromapproximately ¥5,029 to ¥5,558 per sq m.

We have gathered and analysed the rates of return of relevant market segment which indicate yields ofapproximately 7.5% to 8.0% for this type of property.

The above market rents assumed by us are consistent with the relevant comparables after due adjustments.
The capitalisation rates adopted are reasonable having regard to the analysed yields.

III-8

APPENDIX IV

SUMMARY OF THE REVIEW OF ANTI-MONEY
LAUNDERING PROCEDURES, SYSTEMS AND CONTROLSThe Board of Directors
株式会社二ラク▪ジー▪シ—▪ホールディングス
NIRAKU GC HOLDINGS, INC.*
1-39 Hohaccho 1-chome
Kooriyama-shi, Fukushima
Japan* for identification purpose only

24 March 2015
INDEPENDENT ASSURANCE REPORT
To: The Directors of 株式会社二ラク▪ジー▪シ—▪ホールディングス NIRAKU GC HOLDINGS,
INC.*
We have been engaged to perform a limited assurance engagement on the design andoperation of certain anti-money laundering (“AML”) controls of 株式会社二ラク▪ジー▪シ—▪ホールディングス NIRAKU GC HOLDINGS, INC.* (“the Company”, and, together with its
subsidiaries, the “Group”) which have been put in place for the period 1 October 2014 to 28
February 2015 to achieve selected internal control objectives that have been adopted by the
directors of the Company (the “Directors”). These selected internal control objectives have been
determined by the Directors of the Company with reference to relevant principles or requirementsof the guidance paper entitled “International Standards on Combating Money Laundering and the
Financing of Terrorism and Proliferation” (the “FATF Guidance Paper”) issued by the Financial
Action Task Force (“FATF”) in 2012 and relevant principles or requirements of the Act on Control
and Improvement of Amusement Business etc.* (風俗営業等の規制及び業務の適正化等に関する法律) of Japan (Act No. 122 of 1948) (“the Amusement Business Law”). The AML controls whichhave been put in place by the Directors of the Company are designed to achieve theaforementioned internal control objectives.
Internal Control Objectives
The following internal control objectives (the “Internal Control Objectives”) have been
adopted by Directors of the Company with reference to relevant principles or requirements of the
FATF Guidance Paper and the Amusement Business Law mentioned above.

IV-1

APPENDIX IV

SUMMARY OF THE REVIEW OF ANTI-MONEY
LAUNDERING PROCEDURES, SYSTEMS AND CONTROLS

Governance•Appropriate management oversight to be in place with a focus on the mechanism fordetermining and assigning general and specific responsibilities to different levels ofmanagement to ensure the effective maintenance of AML controls and mitigation of risks.

•Appropriate AML risk assessment and classification processes to be in place to ensure thatrisks are assessed and mitigated on a periodic basis.

•

Contracts between the Group and G-prize wholesalers to be periodically reviewed,
particularly in relation to how the G-prize wholesalers are paid by the Group in exchange for
the G-prizes.

Policies and procedures•

AML policies and procedures to be in place commensurate with the money laundering riskspresent which are to be regularly updated and effectively circulated for awareness purposes.

Due Diligence•

Appropriate due diligence procedures to be conducted (including but not limited tobackground checks with respect to criminal records, employment history and financial
information) and documented on the Group’s senior management, potential incoming
management, shareholders and pachinko hall operators to amongst other things, identify
and avoid connections to anti-social forces (as defined in the Amusement Business Law)and ensure high standards of integrity. Such procedures to include screening of individuals
against external search engines such as SP Networks Co., Ltd.* (株式会社エス▪ピー▪ネットワーク) to identify high risk individuals.

•

Appropriate due diligence to be conducted on the Group, G-prize wholesalers and G-prize
buyers to ensure (i) neither party has the ability to exercise control (indirectly or directly) over
the other, (ii) G-prizes are purchased at market value and are not directly returned from theG-prize buyer to the pachinko halls and (iii) none of the Company, G-prize wholesaler orG-prize buyer are connected with anti-social forces (as defined under to relevant Japan law).

•

Written representations to be obtained on a periodic basis from the G-prize wholesalersconfirming (i) their independence from the Group (ii) their independence from the G-prize
buyers with whom they conduct business and (iii) their shareholders, directors and G-prize
buyers with which they conduct business with do not have any connections with anti-social
forces (as defined under to relevant Japan law).

•

Written representations to be obtained on a periodic basis from G-prize buyers confirming
their independence from the Group and G-prize wholesalers and that G-prizes are only paid
for using cash and not bank transfers, cheques or equivalents.

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APPENDIX IV•

SUMMARY OF THE REVIEW OF ANTI-MONEY
LAUNDERING PROCEDURES, SYSTEMS AND CONTROLS

External reputable corporate data research agencies to be engaged to provide enhanced
due diligence information for any potentially suspicious customers or those customers withwhom there is an intention to conduct transactions exceeding a predefined transaction
threshold of ¥500,000.

Transaction Monitoring•

For any pachinko hall IC members and other customers the nature of transactions to bemonitored on an on-going basis to help identify any suspicious or unusual behaviour.

•

In pachinko halls, there is to be continuous monitoring of the automated systems in place,including but not limited to the Company’s G-prize management system, information
technology system and pachinko hall computers, as well as analysis of financial andoperating data, to monitor and detect unusual fluctuations that may indicate suspicious
activity.

•

The adequacy and appropriateness of automated system parameters and thresholds of
relevant systems to be reviewed periodically.

•

Each pachinko hall to be required to compare the number of balls/tokens played, with thoseexchanged into G-prizes to detect any balls/tokens that were exchanged into G-prizes
without being played.

•

Pachinko hall operators to be required to conduct periodic checks of machines throughout
operating hours to detect any balls/tokens used for any purpose other than play inmachines.

•

Pachinko halls to have in place surveillance cameras to record play or attempted tamperingof pachinko/pachislot machines•

Pachinko hall managers to be rotated on a periodic basis amongst different pachinko halls
to help prevent collusion amongst staff•

Recording of customer identification information and notification of the Company’s
management to be in place for any transaction in which pachinko balls totalling ¥ 500,000
or more are exchanged for G-Prizes (per transaction).

Suspicious Transaction Reporting•

Sufficient customer information to be retained and assessed by the Company to enableeffective evaluation of suspicious transactions or behaviour.

•

Appropriate guidance to be in place to ensure the timeliness, appropriateness and qualityof both internal reporting to the Company’s headquarters and external disclosure to relevant
authorities

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APPENDIX IV•

SUMMARY OF THE REVIEW OF ANTI-MONEY
LAUNDERING PROCEDURES, SYSTEMS AND CONTROLS

Whistleblowing procedures to be established to receive and assess internal reports ofsuspicious activities.

Record Keeping•

Customer and transactions information to be appropriately documented and maintained.

Internal audit functions•

Internal audit to exercise adequate oversight of key aspects relating to the prevention anddetection of money laundering with respect to the pachinko operations. This should include(i) an inspection of each pachinko hall at least once every two months, (ii) periodic reviewsof the Company’s compliance framework and effectiveness of its AML measures, (iii)verification and testing of the Company’s compliance with AML measures and (iv) reporting
any findings to the Company’s Audit Committee.

Staff awareness and training•

Mandatory and regular AML training programs to be conducted to provide staff with
sufficient knowledge of AML policies and procedures to help facilitate the detection of
suspicious or unusual transactions and behaviour.

Directors’ Responsibility for the AML controls
The Directors of the Company are responsible for determining the Internal Control
Objectives and designing, implementing, effectively operating and maintaining AML controls toachieve the Internal Control Objectives related to the FATF Guidance Paper and the Amusement
Business Law.
Practitioner’s Responsibility
It is our responsibility to express a conclusion on the design and operation of the Company’s
AML controls to achieve the Internal Control Objectives for the period 1 October 2014 to 28
February 2015 based on our work performed and to report our conclusion solely to you, as abody and for no other purpose. We do not assume responsibility towards or accept liability to any
other person for the contents of this report. Within the scope of the engagement we did notprovide any assurance of the Company’s compliance with the FATF Guidance Paper and theAmusement Business Law.
We conducted our work in accordance with the Hong Kong Standard on Assurance
Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical
Financial Information”. This Standard requires that we comply with ethical requirements and planand perform the assurance engagement to obtain limited assurance as to whether any matterscome to our attention that causes us to believe that the AML controls were not designed andoperating in all material respects, to achieve the Internal Control l Objectives for the period 1
October 2014 to 28 February 2015.

IV-4

APPENDIX IV

SUMMARY OF THE REVIEW OF ANTI-MONEY
LAUNDERING PROCEDURES, SYSTEMS AND CONTROLSIn a limited assurance engagement the evidence-gathering procedures are more limited thanfor a reasonable assurance engagement, and therefore less assurance is obtained than in areasonable assurance engagement. The procedures selected depend on the practitioner’s
judgment, including the assessment of the risks as to whether the AML controls were designed
and operating in all material respects, to achieve the Internal Control Objectives. Within the scopeof our work we performed amongst others the following procedures:•

Conducted interviews with key management personnel for corroborative enquiry
purposes and to gain an understanding of the governance around AML and how
training on AML has been implemented by the Company ;•Reviewed policies and procedures to obtain an understanding of the design of AML
controls in place;•

Reviewed other relevant documentation pertaining to the above mentioned control
objectives to the extent that it was relevant to the design of AML controls in place; and•Tested internal controls through a combination of inspection and observation of control
procedures on a sample basis as deemed appropriate.

Inherent Limitation
We draw attention to the fact that the procedures performed, and the report, includes
certain inherent limitations that can influence the reliability of the information. Accordingly, errors
or irregularities may occur and may not be detected. Such procedures cannot guarantee
protection against fraudulent collusion. It should be noted that we cannot guarantee that any
regulatory authority would not reach an alternative conclusion (based upon its own interpretationof the legislation, regulations and prevailing industry practices), nor can our findings be
considered legal advice. Furthermore, our conclusion is based on historical information and the
projection of any information or conclusions contained in this report to any future period would
be inappropriate.
Conclusion
Based on our limited assurance engagement, nothing has come to our attention that causes
us to believe that the AML controls put in place by the Company were not designed and operated
in all material respects, to achieve the Internal Control Objectives for the period 1 October 2014
to 28 February 2015.

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APPENDIX IV

SUMMARY OF THE REVIEW OF ANTI-MONEY
LAUNDERING PROCEDURES, SYSTEMS AND CONTROLS

Restriction on Use and Distribution
Our Report is intended solely for the use of the Company in connection with the submission
to The Stock Exchange of Hong Kong Limited and to the Securities and Futures Commission andfor inclusion in the prospectus of the Company in connection with its proposed listing. This report
may not be suitable for other purposes. This report is not intended to be, and should not be
distributed to or used for any other purpose.

Yours faithfully
For and on behalf of PricewaterhouseCoopers Limited
Duncan Fitzgerald
Director

IV-6

APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAWThis Appendix sets out a summary of certain provisions of our Articles, the Japan
Companies Act and certain other Japan laws and policies that may be relevant to our Company
and investors. As the information contained below is in summary form, it does not purport tocontain all of the information that may be important to our potential investors. This Appendix
should be read in conjunction with “Key Japan Legal and Regulatory Matters”, which summarises
the Japan legal and regulatory provisions which, in our Directors’ opinion, are considered morematerial to our Shareholders and investors.
Certain provisions under the Japan Companies Act have been amended in June 2014 andthese amendments (the “JCA Amendments”) will take effect on 1 May 2015.
1.

BACKGROUND

Our Company was incorporated in Japan as a stock company* (株式会社) on 10 January
2013. Our Articles of Incorporation comprise our Company’s constitution. The provisions
normally set out in the articles of association of a Hong Kong-incorporated company are generally
either contained in a Japanese company’s articles of incorporation or stipulated in the Japan
Companies Act.
Our Articles were executed by the incorporator of our Company and certified by a notary
public on the date of our incorporation. Our Articles have been amended from time to time. The
current Articles were last amended on 16 March 2015 and will become effective on the Listing
Date. An English translation of our Articles is available for inspection at the location specified in“Appendix VII — Documents Delivered to the Registrar of Companies and Available forInspection”.
2.

OUR CORPORATE MATTERS(a)

Objects of our Company

Under our Articles:
Our Articles set out detailed and extensive, though non-exhaustive, lists of the purposes forwhich our Company was formed. Our Articles also allow our Company to undertake otherbusiness activities that are not explicitly stated in our Articles, provided that such activities areancillary to the purposes of our Company stated in our Articles.
(b)Form of Company

Under our Articles:
Our Company is a stock company* (株式会社) with three committees, being our Audit
Committee, Remuneration Committee and Nomination Committee.

V-1

APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

Under the Japan Companies Act:
Companies are categorised into stock companies* (株式会社) and partnership-typecompanies* (持分会社). A partnership-type company is a generic concept that embraces
so-called personal companies* (人的会社) (that is, companies where there are strong personalconnections between its members and where a high degree of flexibility in structuring corporate
governance within the organisation is recognised), such as a general partnership company*(合名会社), a limited partnership company* (合資会社) and a limited liability company* (合同会社).
Companies are also categorised into public or non-public companies, and large or othercompanies. A public company* (公開会社) is defined as a company whose articles ofincorporation do not require the approval of the company for the transfer of any share of one ormore classes of the company’s stock. On the other hand, a non-public company* (株式譲渡制限会社) is a company where regarding each class of stock issued by it, transfer of any
share is restricted under the articles of incorporation. Under our Articles, transfer of our Sharesare free from restriction or limitation and do not require the approval of our Directors andShareholders. Our Company is therefore categorised as a public company. Companies whosebalance sheet for the most recent fiscal year shows a capital of ¥500 million or more, or total
liabilities of ¥20 billion or more are defined as large companies* (大会社). There are certain
differences in governance between large companies and other companies. Our Company is nota large company* (大会社).
Under the Japan Companies Act, a company may select several types of corporate
governance structures. Our Company is a company with three committees* (委員会設置会社).
Under the JCA Amendments, companies with three committees* (委員会設置会社) will berenamed to companies with nomination committee etc.* (指名委員会等設置会社). There is nochange to the provisions governing this type of companies under the JCA Amendments ingeneral.
(c)

Share capital, share certificates and SARs

Under our Articles:
The total number of Shares authorised by our Shareholders to be issued of our Company
under our Articles is 2,000,000,000 Shares. Our Company has abolished the unit share system(as described below). Our Company issues share certificates and has only one class of Shares(being common Shares* (普通株式)). Our Company is a share certificate issuing company*(株券発行会社).
Under our Articles, transfers of our Shares are free from restriction or limitation and do not
require the approval of our Directors and Shareholders. Transfers of Shares are subject to certain
procedures and requirements set out in our Articles. See “Key Japan Legal and Regulatory
Matters — A. Bearer Shares” for details. Our Articles provide that the Terms of SARs (as defined
below) must be determined by an ordinary resolution in a general meeting, subject to certain
exceptions summarised in “— SARs” in this section below.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

Under the Japan Companies Act:
Share capital
The share capital of a company is divided into shares. The amount of core capital* (資本金)is the amount paid in by those who are to become shareholders at the time of the establishmentof the company, or the issue of shares. Up to half of this amount is not required to be capitalised,
but this amount has to be kept as share premium* (資本準備金). The amount of the share capitalis required to be registered with the relevant authorities in Japan.
Share certificates
The Japan Companies Act defines a “share certificate issuing company” as a company thearticles of incorporation of which have provisions to the effect that a share certificate representing
its shares (or, in the case of a company with class shares, shares of all classes) shall be issued.
Our Company is categorised as a share certificate issuing company* (株券発行会社).
A company which does not have provisions in its articles of incorporation to issue sharecertificates is a non-share certificate issuing company* (株券不発行会社).
Transfer of Shares
In principle, shares are freely transferable, but companies may place a restriction on transferof shares, for example, by subjecting such transfer to shareholders or board approval. Transfer
can be restricted to all the shares, or to a specific class of shares. Under our Articles, there is
no restriction on the transfer of our Shares.
Transfer of shares in a share certificate issuing company shall not become effective unlessthe share certificates representing such shares are physically delivered; however, this shall not
apply to the transfer of shares arising out of the disposal of treasury stock* (自己株式). The
subscriber for treasury stock* (自己株式) in a share certificate issuing company* (株券発行会社)
shall become the shareholder of such shares on the day when the subscriber has paid
consideration for such shares. Transfer of shares in a share certificate issuing company* (株券発行会社) shall not be perfected against the company unless the name and address of the person
who acquires those shares is stated or recorded in the share register.
There is no limitation on the ownership of our Shares under our Articles and the Japan
Companies Act.
Classes of Shares
The Japan Companies Act permits a company to issue shares with specified rights that are
not associated with all shares. In order to issue classes of shares, the details and the number ofsuch shares as can be issued need to be specified in the articles of incorporation. Our Company
is permitted to issue only one class of Shares, being common Shares* (普通株式).

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

Unit share system
Shareholders have, in principle, one vote per share. However, if a company adopts a unit
share system, a vote is given not to each share, but to a unit of shares specified under its articles
of incorporation. Under the Japan Companies Act, one unit of shares cannot exceed (i) 1,000
shares; and (ii) two-hundredth of the total number of issued shares of the relevant company.
Shareholders who hold shares below a unit are entitled to require the company to repurchasethese odd unit shares. Our Company does not adopt a unit share system.
SARs
The Japan Companies Act defines a SAR as a right by the exercise of which the holder isentitled to receive shares of the issuing company. SARs do not need to be combined with bonds.
It is possible to grant SARs on their own as well as in combination with other financial products.
Japanese companies do not issue share options. Instead, under the Japan Companies Act,
they are allowed to issue Share Acquisition Rights, or SARs, which entitle the holders to acquire
shares against a company by exercising such right against it.
Unlike in other jurisdictions, Japanese companies conventionally do not have underlying
share option scheme plans established for the purposes of setting out the basic terms of SARs
(such as the maximum number of SARs that the directors or administrators are authorised toissue and the scope of the persons to whom the SARs may be issued) that will apply to all issues
made under that plan. Instead, a Japanese company that issues SARs resolves the exact termsof the SARs by a resolution of the board of directors or shareholders each time it intends to issue
SARs in accordance with the Japan Companies Act.
The terms of SARs to be determined by a shareholder resolution or board resolution (the“Terms of SARs”) include the matters such as (i) the number of the SARs to be issued and thecontents of the SARs (e.g., the number of shares to be granted upon the exercise of the SARs
or the method for calculating such number, the exercise price of the SARs or the method for
calculating such price, the exercise period and any restriction on the transfer of the SARs); (ii) theamount to be paid for subscribing for the SARs or the method for calculating such amount; (iii)the date on which the SARs are to be allotted; and (iv) the date of payment for the subscription,
if any). Depending on the situation of the issue of SARs, the Japan Companies Act determines
whether such resolution is to be made at a board meeting or at a shareholders’ general meeting.
In general, for a public company* (公開会社) (which our Company is one), the board of directors
may, in general, authorise the issue of SARs subject to the following exceptions (which are morecommon but non-exhaustive):(i)

if SARs are issued in a gratuitous manner and they comprise an especially favourable
term to the subscriber, or if the SARs are issued at a price especially favourable to thesubscriber, a special resolution in a general meeting is required and the board of
directors must explain why the SARs need to be issued in such a manner in suchgeneral meeting. According to a case decided by the Tokyo District Court on 30 June

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2006, whether or not the issue of SARs is made at an “especially favourable price/especially favourable conditions” is determined based on the price of the SARs at thetime of issue, calculated pursuant to the option pricing theory and considering factors
such as the market price of the shares, exercise price of the SARs, exercise period of
the SARs, interest rate, and volatility of the price of the shares (the “Fair Option Price”).
When the amount to be paid in upon issuance (or substantive consideration for SARs
when they are issued without consideration) is significantly below the Fair Option Price,then in principle, the price or condition of the SARs is interpreted to be “especiallyfavourable” SARs which may be issued to the existing shareholders with or without
consideration. In such cases, shareholders are entitled to subscribe to the SARs in
proportion to their shareholding; and(ii)

our Articles provide that the remuneration of our Directors and Executive Officers must
be determined by our Remuneration Committee. Therefore, if SARs are being issued to
our Directors or Executive Officers as part of their remuneration, a resolution of ourRemuneration Committee is required in addition to the Board or Shareholders’
resolution that determines the Terms of SARs.

In the case of our Company, our Articles provide that the Terms of SARs must be determinedby an ordinary resolution in a general meeting, subject to exceptions (i) and (ii) above.
Since our incorporation, our Company has neither issued any SAR nor authorised or
resolved to issue any SAR. There is no scheme or arrangement in respect of our Company or our
subsidiaries that would otherwise be regulated by Chapter 17 of the Listing Rules upon Listing.
Our Company has no current intention to issue SARs. If we choose to do so upon Listing,
we will comply with all applicable laws and regulations including Chapter 17 of the Listing Rules.
(d)Directors(i)General power

Under our Articles and the Japan Companies Act:
Our Board of Directors shall (i) make decisions relating to important matters in connection
with the execution of business operations; (ii) supervise our Directors and Executive Officers in
the performance of their duties; and (iii) perform other duties as prescribed under our Articles andthe Japan Companies Act.
It is mandatory for each stock company* (株式会社) to have a director. In companies withthree committees* (委員会設置会社), there must be a board of directors consisting of at least
three directors. Certain persons such as a juridical person may not become a director of acompany. However, a public company* (公開会社) (which our Company is one) may not limit thequalifications of directors by requiring such directors to be one of its shareholders.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

In companies with three committees* (委員会設置会社), directors, as a rule, do not executethe business of the company. The board of directors in those companies is intended to performa supervisory role. The board of directors of a company with three committees* (委員会設置会社)
has the power to, amongst others:•

determine the execution of the business of the company;•

supervise the carrying out of duties by executive officers; and•appoint and dismiss executive officers.

Matters which fall within exclusive jurisdiction of the board of directors (decision-making incertain significant matters involving the execution of business) include the following:

(ii)

•

basic management policy;•

appointment and dismissal of executive officers;•

matters regarding interrelationship between executive officers including divisions ofduties between executive officers, hierarchy of commands of executive officers;•

introduction of a system to ensure compliance of executive officers carrying out duties
with the law and the articles of incorporation;•

matters related to general meetings such as the convocation thereof;•

matters related to corporate reorganisations such as mergers, business transfers,
demergers and statutory share exchanges;•

approval of transactions that the directors or executive officers may have a conflict ofinterests in; and•discharge of liabilities of managements, including directors, in accordance with theJapan Companies Act and its articles of incorporation.

Power to issue and allot Shares

Under our Articles and the Japan Companies Act:
Under the Japan Companies Act, when a Japanese company issues new shares and SARs
(including convertible bonds), certain subscription requirements (the “Subscription
Requirements”) shall be determined. The Subscription Requirements include the number ofshares or SARs (including convertible bonds) to be issued, price, payment due date and othermatters prescribed under the Japan Companies Act.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

Under our Articles, the Subscription Requirements of any new issue of Shares or SARs
(including convertible bonds) must be determined by an ordinary resolution in a general meeting,provided however that the Subscription Requirements of the issue and allotment of Shares or
SARs (including convertible bonds) at a price or term especially favourable to the allottees must
be determined by a special resolution in a general meeting. Our Board may issue and allot the
Shares or SARs once the Subscription Requirements have been determined and approved by an
ordinary or special resolution (as the case may be) in a general meeting.
Our Articles further provide that (a) the total number of Shares authorised by our
Shareholders to be issued is 2,000,000,000 Shares; and (b) our Shareholders may entrust thepower to determine the Subscription Requirements of any new issue of Shares or SARs (including
convertible bonds) to our Board by way of a general mandate. The authority of the said generalmandate must be approved with an ordinary resolution (or a special resolution, if such mandate
specifically provides for an allotment at a price or term especially favourable) in a general
meeting, which resolution shall prescribe, among others, the maximum number of Shares andSARs to be issued and allotted under the general mandate and the minimum price to be paid by
the allottees. Under our Articles, the general mandate shall not be effective for more than one
year from the date of the resolution approving the same. As advised by our Japan Legal Adviser,
our Issuing Mandate was duly approved by our Shareholders at our extraordinary general meeting
held on 16 March 2015.
The Articles and Japan Companies Act provisions described above apply equally to thedisposal of our treasury stock* (自己株式), if any.
Issuing mandate
On 16 March 2015, our Board has been granted with the Issuing Mandate to issue, allot anddeal in our Shares, the details of which are set out in “Appendix VI — Statutory and General
Information — A. Further Information about our Company — 5. Extraordinary General Meeting
held on 16 March 2015”. Under our Articles and the Japan Companies Act, the Issuing Mandateis only enforceable when:(i)

our total number of issued Shares will not exceed 2,000,000,000 Shares, which is thetotal number of Shares authorised to be issued by our Company, as a result of the issue
and allotment made under the Issuing Mandate; and(ii)

the allotments under the Issuing Mandate are not made at a price or term especiallyfavourable to the allottees, in which case a special resolution in a general meeting isrequired.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

For the avoidance of doubt, the Issuing Mandate grants power to our Board to issue, allot
and deal with Shares only and does not grant authority to issue SARs and dispose of treasury
stock* (自己株式). Our Japan Legal Adviser has confirmed that the Shareholders’ resolution in our
extraordinary general meeting held on 16 March 2015 approving the Issuing Mandate contained
all the required information prescribed under our Articles. Our Directors have undertaken to the
Stock Exchange that they will not exercise the Issuing Mandate if any of conditions (i) to (ii) set
out above has not been fulfilled, in which case they will seek specific approval from ourShareholders in order to issue and allot new Shares.
As to the term “especially favourable” referred to in (ii) above, our Japan Legal Adviser has
confirmed that there is no clear definition under Japan law as to the circumstances where theterms of an allotment may be deemed as especially favourable to the proposed allottees. Under
the internal rules of The Japan Securities Dealers Association, an allotment may be taken as
especially favourable to the proposed allottees when less than 90% of the market value of the
Shares so allotted is set as consideration from the proposed allottees. Our Board may from time
to time appoint an independent expert to determine whether an allotment is especiallyfavourable.
(iii) Power to dispose of the assets of our Company or any subsidiary
Under the Japan Companies Act:
An Executive Officer may be authorised by our Board of Directors to determine and executethe disposal of our Company’s assets unless such disposal constitutes transfer of material
business for which Shareholders’ approval is required. Neither our Directors nor our Board of the
Directors of our Company have the power to dispose of any assets of any subsidiary of ourCompany. In addition, our Board of Directors (or an Executive Officer authorised by our Board)
has the power to dispose of the shares of any subsidiary of our Company.
Under the JCA Amendments, Shareholders’ approval is required if a company disposessuch number of shares in its subsidiary provided that (i) the book value of such shares constitutes
more than 20% of the total asset value of the company; and (ii) as a result of such disposal, thecompany is no longer entitled to exercise over 50% of the voting rights in such subsidiary.
(iv) Compensation or payment to Directors for loss of office
Under the Japan Companies Act:A Director dismissed by an ordinary resolution of our Shareholders shall be entitled todemand damages arising from the dismissal from our Company, except in cases where there are
justifiable grounds for such dismissal.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

Loans and the giving of security for loans to Directors

Under our Articles:
There are provisions in our Articles of Incorporation prohibiting the making of loans orprovision of security for loans to our Directors unless such loans or security for loans are
permitted under the Japan Companies Act and the Companies Ordinance (as if our Company
were a public company incorporated in Hong Kong).
Under the Japan Companies Act:
Under the Japan Companies Act, loans and the giving of securities for loans to directors are
not prohibited so long as the material information regarding the relevant transaction is disclosed
to the board of directors to consider and, if thought fit, approve the transaction.
(vi) Financial assistance to purchase Shares of our Company
Under our Articles:
Our Company may not provide financial assistance to another person for the purpose of, orin connection with, a purchase made or to be made by any person of any Shares in our Company,
unless permitted under the Japan Companies Act and the Companies Ordinance (as if ourCompany were a listed company incorporated in Hong Kong).
Under the Japan Companies Act:
There is no specific restriction under the Japan Companies Act on the provision of financial
assistance by a company to another person for the purchase of, or subscription for, its own or
its holding company’s shares. However, the following general provisions apply:(i)if a company’s act of financial assistance is deemed to be a provisions of benefit inconnection with the exercise of shareholders’ right, the directors and executive officers
involved in such transaction may be subject to criminal liability and jointly and severally
liable to the company for an amount equivalent to the value of such benefit;(ii)

if a company’s act of financial assistance is deemed to be a fake payment ofsubscription monies, the relevant issue and allotment of new shares may be deemed
as invalid and the subscribers (and the directors, under the JCA Amendments) involvedin such transaction may be jointly and severally liable to the company for an amountequivalent to the subscription monies involved;

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if a company’s act of financial assistance is deemed to be an acquisition of treasury
stock* (自己株式) by the company for the account of the company, the regulations
concerning the repurchase of its shares (as described in “Key Japan Legal andRegulatory Matters — D. Capital Structure — Share Repurchases”) apply to that act.
Although there are no established rules as to what constitutes an “acquisition for theaccount of the company” and it totally depends on the situation, an example for thecase where a company’s financial assistance to another person is likely to be deemed
as “acquisition for the account of the company” is the case where all of the followings
are applicable:(a)the company is aware that the financial assistance is provided for the purpose of
the receiver’s purchase of, or subscription for, its own or its holding company’s
shares;(b)

the company has no good reason to donate such financial assistance to suchreceiver;(c)even though such financial assistance is provided in a form of “loan”, there is no
actual plan for the company to recover such loaned money; and(d)any profit or loss accrued from purchase and sale of the shares purchased by thesaid receiver or dividend from such share belongs to the company (not thereceiver).

(vii) Disclosure of interests in contracts with our Company or any subsidiary
Under our Articles:
A Director shall not vote on any resolution of our Board of Directors approving any contract
or arrangement or any other proposal in which he/she or any of his/her close associates (asdefined under the Listing Rules) has a special interest (as interpreted under the Japan CompaniesAct) or material interest (as explained under the Listing Rules) nor shall he/she be counted
towards to quorum present at the meeting, unless otherwise permitted under the Japan
Companies Act and the Listing Rules.
Under the Japan Companies Act:
If a Director has a conflict of interest in any contract to be entered into by our Company, theDirector must disclose all material information regarding the relevant transaction to our Board of
Directors to consider and, if thought fit, approve the transaction. However, there are no specificprovisions concerning the disclosure of any interest by a Director in a contract to be entered into
by a subsidiary of our Company.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(viii) Remuneration
Under our Articles:
Financial benefits of our Directors received from our Company as consideration for the
execution of duties, including remuneration and bonuses shall be determined by our
Remuneration Committee.
(ix) Composition of the Board of Directors
Under our Articles:
Our Company must have no more than ten Directors. The number and composition of theBoard of Directors shall at all times comply with the requirements under the Japan Companies
Act and the Listing Rules (including the requirements for Independent Non-executive Directors).
Under the Japan Companies Act:
It is mandatory for each company to have a director. Public companies* (公開会社) (which
our Company is one), companies with three committees* (委員会設置会社) (which our Company
is one), and companies with a board of statutory auditors* (監査役) must have a board of
directors. In these companies, there must be at least three directors.
(x)Appointment of Directors

Under our Articles:
Our Directors must be elected in a general meeting. Resolutions for the election of Directors
shall be passed by majority vote of Shareholders present at the general meeting where theShareholders holding one-third or more of the votes of the Shareholders entitled to vote arepresent. Directors shall not be voted by cumulative voting.
Under the Japan Companies Act:For companies with three committees* (委員会設置会社) (which our Company is one),
directors must be appointed in the general meetings. A majority vote of the shareholders present
in a general meeting where shareholders representing over one-third or more of the votes need
to be present is required. When the appointment of two or more directors is on the agenda,
shareholders may propose resorting to the cumulative voting system, but this can be prohibited
under the articles of incorporation. We have prohibited the cumulative voting system in our
Articles.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(xi) Term of office
Under our Articles:
The term of office of each Director shall expire at the close of the AGM relating to the mostrecent business year ending within one year following the election of such Director. The term ofoffice of a Director elected to fill a casual vacancy shall conclude simultaneously with theconclusion of the term of office of the other current Directors.
Under the Japan Companies Act:For companies with three committees* (委員会設置会社) (which our Company is one), theterm of office of a director terminates at the close of the general meeting of shareholders relating
to the last fiscal year ending within one year from the election of the director. However, such term
may be shortened by the articles of incorporation or a resolution of a general meeting ofshareholders. We have not shortened such term in our Articles.
Under the Japan Companies Act, a causal vacancy of directors must, unless under certain
limited circumstances, be filled with shareholders’ approval. See “Waivers - B. Additional Waivers- Articles of Incorporation - Casual Vacancy” for details.
(xii) Removal of Directors
Under our Articles:
Resolutions for the dismissal of Director(s) shall be passed by an ordinary resolution of ageneral meeting before the expiration of the period of duty of such dismissed Director(s),regardless of the duty and capacity of such Director(s) in our Company.
Under the Japan Companies Act:
Directors can be dismissed any time in the general meeting by the majority votes of theshareholders (or a stricter resolution requirement prescribed under the articles of incorporation)
present in a general meeting where shareholders holding the majority of all voting rights of theshareholders are present (or a quorum requirement prescribed under articles of incorporation
provided that the quorum requirement shall at all times be more than one-third of all voting rightsof the shareholders).
There is no specific provision under our Articles and the Japan Companies Act as to theretirement or non-retirement of our Directors under an age limit.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(xiii) Written service contracts
Under our Articles:
Our Company must enter into a written service contract with each Director. Any claim undersuch service contract shall not be affected whatsoever by the dismissal of the Director by the
Shareholders.
(xiv) Qualification Shares
Under our Articles:
There is no specific provision in our Articles relating to qualification Shares. In order to beappointed as a Director, our Directors are not required to hold any Share in our Company.
Under the Japan Companies Act:
Public companies* (公開会社) (which our Company is one) are prohibited to havequalification shares.
(xv) Proceedings of a Directors’ meeting
Under our Articles:
The Chairman of our Board of Directors (elected in advance by our Board of Directors) shallconvene a meeting of our Board of Directors and shall act as the chairperson of the meeting.
Notice of the convocation of a meeting of our Board of Directors shall be sent to each Director
at least three days prior to the scheduled date of such meeting. However, the notice requirement
can be waived with the unanimous consent of all Directors or shortened in case of emergency.
A resolution of our Board of Directors shall be made by a majority of Directors present at a
meeting where the majority of Directors entitled to vote are present. A Director shall not vote on
any resolution of our Board of Directors approving any contract or arrangement or any otherproposal in which he/she or any of his/her close associates (as defined under the Listing Rules)
has a special interest (as interpreted under the Japan Companies Act) or material interest (asexplained under the Listing Rules) nor shall he/she be counted towards to quorum present at themeeting, unless otherwise permitted under the Japan Companies Act and the Listing Rules.
(xvi) Exemption of Directors from liabilities
Under our Articles and the Japan Companies Act:To the extent allowed under all applicable laws and regulations, our Company may discharge
our Directors from liabilities owed to our Company by way of a resolution passed in a meeting of
our Board of Directors, or our Company may enter into an agreement with an external Director*

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(社外取締役) to the effect that his or her liability for damages shall be limited except where they
have been grossly negligent or have acted intentionally. If our Company enters into an indemnitywith an external Director* (社外取締役) (being a director who has never been a representative
director* (代表取締役), an executive director, an executive officer or an employee of our Group)
then the maximum cap on his liability must be the amount provided under the prevailing
applicable laws and regulations (which is currently two times of his annual remuneration).
(xvii) Directors’ duties
Under the Japan Companies Act:
There is a mandate relationship between our Company and our Directors. As such, Directors
have a duty to act as good managers. Directors owe a fiduciary duty vis-a-vis the company: i.e.,the duty to comply with the law, our Articles, and the resolutions of our Shareholders, and loyally
carry out their duties.
(xviii) Retirement of Directors
There is no specific provision under our Articles and the Japan Companies Act as to theretirement or non-retirement of our Directors under an age limit.
(e)

Executive Officers(i)GeneralUnder the Japan Companies Act:
In companies with three committees* (委員会設置会社), instead of a representative director*(代表取締役), there are executive officers who are appointed by the board of directors, but notnecessarily from among the directors, and chief executive officers who are appointed by theboard of directors from among executive officers to represent the company. There is a mandate
relationship between the company and executive officers. Executive officers make decisions on
the matters delegated to them by the decision of the board of directors, and execute the businessof the company.
(ii)

Number of composition

Under our Articles:
Our Company must not appoint more than ten Executive Officers.

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Under the Japan Companies Act:
A company with three committees* (委員会設置会社) must appoint at least one executive
officer.
(iii) Duties of Executive Officers
Under the Japan Companies Act:
Our Executive Officers shall perform the following duties:(a)

deciding on the execution of the operations of our Company that were delegated to our
Executive Officers by our Board of Directors pursuant to the Japan Companies Act;
and

(b)

the execution of the operations of our Company.

(iv) Appointment of Executive Officers
Under our Articles:
Our Executive Officers shall be elected by a resolution of our Board of Directors.
Under the Japan Companies Act:Same as above.
(v)

Term of office

Under our Articles:
The term of office of our Executive Officers shall expire at the close of the first meeting of
our Board of Directors convened following the close of our AGM relating to the most recent
business year within one year following their appointment. The term of office of an Executive
Officer elected in order to fill a casual vacancy of an Executive Officer shall conclude
simultaneously with the conclusion of the term of office of the other current Executive Officers.
Under the Japan Companies Act:Same as above, unless shortened by the articles of incorporation.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(vi) Chief Executive Officer
Under our Articles:
Our Chief Executive Officer shall be appointed by the resolution of our Board of Directors.
Our Company may also have, but not required to have, through resolution by our Board of
Directors, one president Executive Officer, several members of vice president Executive
Officer(s), senior managing Executive Officer(s) and managing Executive Officer(s). The division ofduties, command system and other matters concerning relationships among Executive Officers
shall be determined by our Board of Directors.
Under the Japan Companies Act:
Under the Japan Companies Act, our Chief Executive Officer is the legal representative of
our Company with the authority to sign and effect agreements for and on behalf of our Company.
(vii) Remuneration
Under our Articles:
The remuneration of our Executive Officers shall be determined by our Remuneration
Committee. If an Executive Officer concurrently serves as an employee of our Company, including
as a manager, remuneration arising out of such concurrent post shall be determined by our
Remuneration Committee as well.
(viii) Borrowing power
Under the Japan Companies Act:
An Executive Officer may be authorised by our Board of Directors to determine and executeborrowings, including borrowings of a large amount.
(ix) Exemption of Executive Officers from liabilities
Under our Articles and the Japan Companies Act:
Our Company may exempt current or past Executive Officers from their liabilities fornegligence in their duties under the Japan Companies Act by way of resolution of our Board of
Directors to the extent allowed under the Japan Companies Act, except where they have beengrossly negligent or have acted intentionally.

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Alternation of our Articles

Under our Articles and the Japan Companies Act:
Our Company may amend our Articles by a special resolution (or a stricter resolution forcertain items) of our Shareholders in a general meeting.
(g)

Alternation of capital

Under our Articles and the Japan Companies Act:
Increase and reduction of share capital
The issued capital may be increased at the time of the issuance of shares and may be
reduced by a special resolution of Shareholders in a general meeting. However, where the sharecapital is reduced in order to cover the deficit, an ordinary resolution at the AGM will suffice.
When reducing the share capital, a procedure to protect the interests of creditors needs to befollowed. The company must publicise the proposed reduction and inform creditors of theirentitlement to an objection within a fixed period of no less than one month in the official gazette.
The company also must individually notify known creditors, but this can be exempted undercertain circumstances.
Splits, gratuitous allocations and consolidations
A company may at any time split shares on issue into a greater number by a resolution of
the board of directors. Under the Japan Companies Act, a company may also allot any class ofshares to the company’s existing shareholders without any additional contribution by resolutionof the board of directors (i.e. gratuitous allocation); provided that any such gratuitous allocation
will not accrue to any treasury stock* (自己株式). A company may at any time also consolidate its
shares into a smaller number of shares by a special resolution in a general meeting ofshareholders.
(h)Variation of rights of existing shares or classes of shares

Under our Articles and the Japan Companies Act:
Our Company is required to amend our Articles by way of special resolution in order tochange the rights of our existing common Shares* (普通株式) or to issue new classes of shares.

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Voting / quorum requirements

Under our Articles:
Ordinary resolutions
Unless otherwise provided under applicable laws and regulations or by our Articles, ordinary
resolutions in a general meeting shall be passed by a majority of the voting rights of the
Shareholders present and entitled to vote at the relevant meeting, where the Shareholders
holding majority of the votes of Shareholders entitled to vote are present.
Special resolutions
Unless otherwise provided under applicable laws and regulations or by our Articles, special
resolutions at a general meeting shall be passed by two-third of the voting rights of the
Shareholders present and entitled to vote at the relevant meeting, where the Shareholders
holding one-third of the votes of Shareholders entitled to vote are present.
Under the Japan Companies Act:In an ordinary resolution, the resolution shall, unless otherwise provided in the articles ofincorporation, be passed by a majority of the voting rights of the shareholders present andentitled to vote at the relevant meeting, where the shareholders holding majority of the votes ofshareholders entitled to vote are present. Quorum can be set by the articles of incorporation. In
a resolution to appoint or dismiss directors or statutory auditors* (監査役), among others, evenby the articles of incorporation, the quorum cannot be set below one-third. In a special resolution,
the resolution shall be made by a majority of two-third (where a higher proportion is provided forin the articles of incorporation, that proportion) or more of the votes of the shareholders present
at the meeting where the shareholders holding a majority (where a proportion of one third or moreis provided for in the articles of incorporation, that proportion or more) of the votes of theshareholders entitled to exercise their votes at the shareholders’ meeting are present. Quorum
can be set by the articles of incorporation but cannot be set below one-third.
The requirements under the Japan Companies Act in respect of the requirements relating toordinary and special resolutions have been modified by operation of our Articles as describedabove. Certain matters require a resolution requirement stricter than special resolutions. See “ 4. Transactions Requiring Shareholder Approval” in this Appendix below for details.

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Voting rights, right to demand a poll and right to speak

Under our Articles:
Our Company has not adopted the unit share system so that each Share, in general, entitles
its registered owner one vote in our general meetings. Our Articles provide that our Company
must count the number of voting rights actually voted by each Shareholder (or their respective
proxy and/or representative) attending the general meeting. As such, voting at our general
meetings is effectively conducted by way of poll and voting by show of hand is not possible under
our Articles.
Our Company has only one class of Share and does not issue Shares which do not carryvoting rights.
Under the Japan Companies Act:
Shareholders (excluding (i) a shareholder who is prescribed as an entity in a relationship that
may allow the company to have substantial control of such entity through the holding of one
quarter or more of the votes of all shareholders of such entity or other reasons; (ii) the company
itself in respect of the treasury stock* (自己株式); (iii) a shareholder who has less than one shareunit; (iv) a class shareholder whose class shares do not carry voting rights and (v) a shareholder
whose shares are to be repurchased pursuant to Paragraph 3 of article 140, paragraph 4 ofarticle 160 and paragraph 2 of article 175 of the Japan Companies Act) have one vote per shareor one vote per unit (for those who have adopted the unit share system). The method of voting
is not restricted, and the chairperson of a general meeting generally may decide the voting
method, which may include a vote by a show of hands or a standing or a poll, unless a resolution
to adopt another voting method is made at the general meeting.
Under the Japan Companies Act, shareholders of a Japanese company who are entitled toat least one vote at a general meeting have the right to speak at such general meeting. If any
inquiries are made by the shareholders at a general meeting, the directors must answer suchinquiries except where: (i) such inquiries are not relevant to any agenda items for such general
meeting; (ii) the common interests of the shareholders and/or personal interests of othershareholders may be jeopardised by the answering of such inquiries (e.g. where the inquiries are
related to confidential information of the company or personal information of the othershareholders); (iii) any research or investigation is required to answer such inquiries (provided thatthe directors may not decline answering such inquiries if such research or investigation can be
conducted easily or the shareholders have given prior notice of such inquiries to the company
which gives a reasonable period of time for the company to conduct such research orinvestigation); (iv) such inquiries are substantially the same inquiries as those which have alreadybeen made at such general meeting; or (v) the directors have other valid reasons for not
answering to such inquiries (e.g. such inquiries are likely made for the purpose of sabotaging
such general meeting).

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Shareholders’ meetings

Under our Articles:
AGMs
Under our Articles, we are required to convene our AGM within three months after the day
following 31 March, which is the last day of each financial year and despatch the convocation
notice of our AGM (together with its accompanying documents) at least 21 days prior to the datethereof.
Extraordinary general meetings
An extraordinary general meeting can be convened wherever necessary. Convocation noticeof an extraordinary general meeting must be despatched to the Shareholders at least 14 days
prior to the date thereof.
Our Company will announce the date on which an AGM or extraordinary general meeting is
intended to be held at least ten weeks prior to such date. Such announcement will be made at
our Company’s website at www.ngch.co.jp and the Stock Exchange’s website atwww.hkexnews.hk.
Under the Japan Companies Act:
There are two types of the shareholders’ meeting: extraordinary general meeting and annual
general meeting.
A company is required to convene an annual general meeting within three months after theend of each financial year and must despatch a convocation of the AGM at least 14 days before
the meeting. Notice of convocation of a general meeting setting forth the time, place, purpose
thereof and certain other matters set forth in the Japan Companies Act and relevant ordinances,
together with business report* (事業報告) and financial results must be mailed to eachshareholder having voting rights at least two weeks prior to the date set for such meeting. Suchnotice may be given to shareholders by electronic means, subject to the consent of the relevant
shareholders. Further, certain items to be included in the business report* (事業報告) and notes
to financial results may be provided on the company’s website, rather than mailed directly toindividual shareholders pursuant to the provisions of its articles of incorporation. Upon Listing,
we will despatch our AGM convocation notice at least 21 days prior to the date thereof incompliance after Rule 13.46(2)(a) of the Listing Rules.
(l)Transfer of Shares

Under our Articles and the Japan Companies Act:
See “Key Japan Legal and Regulatory Matters - A. Bearer Shares”.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(m) Power for our Company to purchase our own Shares
Under our Articles and the Japan Companies Act:
See “Key Japan Legal and Regulatory Matters - D. Capital Structure - Share Repurchases”.
(n)Shares held by subsidiaries

Under the Japan Companies Act:
Subsidiaries may not acquire shares of their parent company, subject to certain exceptions
such as acquisition through certain mergers and acquisitions transactions, acquisitions without
consideration, and acquisitions as distribution of surplus from a company other than the parent
company. When a subsidiary acquires shares of its parent company pursuant to such exceptions,
it is not entitled to vote at any general meeting and is required to dispose of them at an
appropriate time.
(o)Proxies

Under our Articles and the Japan Companies Act:
See “Key Japan Legal and Regulatory Matters - B. Shareholders’ Meetings - Proxies andCorporate Representatives”.
(p)Call of Shares and forfeiture of Shares

Under the Japan Companies Act:
Our Company cannot issue partly-paid Shares, and therefore, our Company cannot make acall upon the Shareholders to pay any money unpaid on the Shares held by them. A special
resolution in a general meeting is required if our Company wishes to merge or conduct otherstructural changes to our Company that may entail the forfeiture of any Shares in our Company.
In order to protect minority shareholders, the Japan Companies Act provides that in general,
shareholders who object to such a special resolution are entitled to receive the fair market valueof such forfeited Shares from the relevant company.
(q)

Inspection of Share Register

Under our Articles and the Japan Companies Act:
See “Key Japan Legal and Regulatory Matters - C. Shareholders’ Rights - Inspection of our
Share Register”.

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Inspection of register of Directors

Under the Japan Companies Act:
There is no concept of a “register of directors” under Japan law. However, the name of each
Director and Executive Officer are registered in the commercial register in accordance with theJapan Companies Act.
(s)

Inspection of other corporate records

Accounting documents
Shareholders who have 3% (or, where a lesser proportion is prescribed in the articles ofincorporation, that proportion) or more of the voting rights in the company, or of the issued sharesof the company are entitled to inspect and make a copy of the accounting documents by giving
reasons. The company is not entitled to refuse the request unless (i) the shareholder makes thisrequest to pursue goals other than the investigation for the protection or exercise of his or her
rights, (ii) the shareholder makes this request to obstruct the company’s execution of businessand to harm the common interests of shareholders, (iii) the shareholder is in a businesssubstantially in competition with the company, or is involved in the business, (iv) the shareholder
makes the request in order to report facts which he/she learns by inspecting or copying theaccount books or materials relating thereto to third parties for profit, or (v) the shareholder is aperson who has reported facts which he/she has come to learn by inspecting or copying theaccount books or materials relating thereto to third parties for profit during the last two years.
If it is necessary in order to exercise the rights of a member of the parent company of acompany , he/she (who has 3% or more of voting rights in the shares of such parent company)
may, with the court’s permission, make the request stated above with respect to account books
or materials relating thereto of such company. In those cases, the reasons for the request shallbe disclosed.
Commercial register
A company is required to register certain matters such as (i) the purpose of the company,(ii) its trade name; (iii) the location of the principal office of the company; (iv) its share capital; (v)the total number of shares authorised to be issued; (vi) the details of shares; (vii) the number ofshare unit (if any); (viii) the total number of issued shares; (ix) the name, address and businessoffice of the administrator of the share register (if any), (x) the matters regarding SARs; (xi) thenames of directors and executive officers; (xii) members of the audit, remuneration andnomination committees; (xiii) if the company is a company with a board of directors, a company
with accounting advisors, a company with an accounting auditor, a company with statutory
auditors, a company with a board of statutory auditors and/or a company with three committees,
a statement to that effect and other relevant information , (xiv) if there are provisions in the articles
of incorporation with regard to exemptions from liability of directors, accounting advisers,
statutory auditors, executive officers or accounting auditors, such provisions of the articles of

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incorporation, (xv) there are provisions in the articles of incorporation with regard to theagreements for the limitation of liabilities assumed by external directors, accounting advisers,
outside statutory auditors or accounting auditors, such provisions of the articles of incorporation,(xvi) the URL for disclosure of certain information to be included in financial statements, and (xvii)
the matters regarding public notice. In addition to the above, certain corporate actions such as
mergers* (合併) are also registered.
Anyone may inspect the commercial register at the legal affairs bureau having jurisdiction
over the company.
(t)

Dissolution and liquidation

Under the Japan Companies Act:
Dissolution
A company may dissolve itself by adopting a special resolution in a general meeting. Upondissolution of the company, its director(s) will cease to serve in such directorial capacity and theformer director(s) will become the liquidator(s) of the company by default, unless otherwise
provided for in its articles of incorporation or determined by a resolution in a general meeting.
After the company is dissolved, it will continue to exist as a corporate entity. However, its sole
purpose will be to liquidate itself. In other words, the dissolved company is not able to operate
its business in the same manner as it did prior to the dissolution.
Liquidation
Once the company is dissolved, it will then proceed to liquidate itself. Liquidation is aprocedure for the company to wind-up its affairs and eventually cease to be a corporate entity.
During this process, liquidators will act as representatives of the company, replacing such
representatives who were the company’s representative director* (代表取締役) or chief executive
officer before the dissolution.
(u)

Untraceable members

Under our Articles:
Where power is exercised to sell the Shares of a Shareholder who is untraceable under theJapan Companies Act, our Company shall not exercise such power unless (a) during a period of
12 years, at least three dividends in respect of the shares in question have become payable andno dividend during the period has been received; and (b) on expiry of the 12 years, our Company
notifies the Stock Exchange of such intention and gives notice of its intention to sell the Sharesby way of an advertisement published in a newspaper in both Japan and Hong Kong.
The provisions in our Articles in respect of untraceable members are in compliance withparagraph 13(2) of Appendix 3 to the Listing Rules.

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Under the Japan Companies Act:In cases where notices have not reached a shareholder for five consecutive years and theshareholder of such shares has not received dividends of surplus for five consecutive years, acompany shall be entitled to sell or auction the shares of such a shareholder. In exercising thisright, a company is required to make a public notice and make a demand to a shareholder or aregistered pledgee of shares seeking no objection to such action at least three months before
such sale or auction. We have implemented more restrictive provisions in our Articles as
described in the immediately preceding paragraph.
(v)

Public notice

Under our Articles:
Our Company is entitled to distribute our public notices electronically, though our Company
must publish an announcement in the Nihon Keizai Shimbun newspaper, the South China
Morning Post and Hong Kong Economic Journal in the event that such electronic distribution is
impossible.
(w) Three Committees
Under our Articles:
Our Company is a company with three committees* (委員会設置会社) and has establishedthe Audit Committee, Remuneration Committee and Nomination Committee. Each suchcommittee shall be composed of three or more Directors and the majority thereof shall be
external Directors* (社外取締役). The members of each such committee shall be appointed anddismissed by the resolution of our Board of Directors and the composition of each suchcommittee shall, from time to time, comply with the requirements under the Japan Companies
Act and the Listing Rules.
We have amended the rules of our Audit Committee, Remuneration Committee andNomination Committee to comply with the content requirements under Chapter 3 of, andAppendix 14 to, the Listing Rules. See “Directors and Senior Management - Board Committees”
for details.
Under the Japan Companies Act:
Under the Japan Companies Act, each of the three committees shall comprise three or more
Directors and the majority of them shall be external Directors* (社外取締役).
The nomination committee shall determine the contents of proposals regarding the election
and dismissal of directors to be submitted to a general meeting.

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The audit committee shall audit the execution of duties by executive officers and directors
and preparing audit reports and determine the contents of proposals regarding the election anddismissal of accounting auditors and the refusal to re-elect accounting auditors to be submitted
to a shareholders meeting.
The remuneration committee shall determine the remunerations for individual executive
officers and directors.
(x)

Accounting auditors

Under our Articles and the Japan Companies Act:
Accounting auditors shall audit the financial statements and the supplementary schedules
thereof, the temporary financial statements as well as the consolidated financial statements of acompany. The accounting auditor shall be elected in a general meeting. The term of office ofaccounting auditor shall expire at the close of the annual general meeting for the most recent
financial year ending within one year following their election.
Our Company may exempt accounting auditors from their liabilities for negligence in theirduties under the Japan Companies Act by way of resolution of our Board of Directors to theextent allowed under the Japan Companies Act, except where they have been grossly negligent
or have acted intentionally. Our Company may enter into contracts with accounting auditor to theeffect that the liabilities for negligence in its duties under the Japan Companies Act shall belimited to the amount provided for in applicable laws and regulations, except where its has beengrossly negligent or have acted intentionally.
(y)

Quorum for meetings and separate class meetings

Under our Articles:
Under our Articles, a quorum for an ordinary resolution shall be present where Shareholders
holding a majority of the voting rights in our Company are present whereas a quorum for a special
resolution shall be present where Shareholders holding one-third or more of the voting rights in
our Company are present.
Further, our Company is not allowed to issue any class of shares other than our common
Shares* (普通株式). Our Articles therefore do not contain provision as to the circumstances wherea separate class meeting is required.

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Conflict of interests

Under the Japan Companies Act:In the following cases, the relevant directors and executive officers must disclose all thematerial facts regarding the transactions to the board of directors and seek its approval:•

where a director or executive officer effects a transaction within the area of businessof the company for himself or for the benefit of a third party.

•

where a director or executive officer effects a transaction with the company for himself
or for the benefit of a third party.

•

where the company effects a transaction with a third party involving a conflict ofinterests between the company and the director, such as in cases where the company
guarantees the debt of the director to a lender.

Upon execution of the transaction, the director and executive officers executing thetransaction shall also report promptly the material information regarding such transaction to theboard of directors.
(aa) Indemnification
Under the Japan Companies Act:
If the officers (the directors, the executive officers and the accounting auditors) of acompany shall be liable to such company for damages arising as a result of negligence of theirduties, there are some indemnity provisions applicable to them under the Japan Companies Act.
3.

PROTECTION OF MINORITY SHAREHOLDERS

Under our Articles and the Japan Companies Act:
Request for a general meeting
A Shareholder who has no less than 3% of the voting rights in our Company may request
our Directors to convene a general meeting. If our Directors do not send out a convocation noticefor such general meeting to be held and such general meeting is not convened by our Directors
within eight weeks from the date of such request, the relevant Shareholder who made the request
may convene a general meeting with court permission.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

Request for additional matters in a meeting agenda
Any Shareholder who has either (i) no less than 1% of the voting rights in our Company; or(ii) no less than 300 Shares may request our Directors to include certain additional matter(s) or
amend certain existing matter(s) in the meeting agenda of a general meeting. Such request must
be made to our Directors no less than eight weeks prior to the general meeting of our Company.
If the request is made to our Directors less than eight weeks prior to the general meeting, therequested additional matter(s) or amendment(s) may be included or made in the next general
meeting of our Company.
Our Articles provide that we must announce (as a voluntary announcement on the Stock
Exchange’s website and our Company’s website) the date of a general meeting no less than 10
weeks prior to the date of that meeting so that our Shareholders, if eligible, will have a two-weekperiod to exercise the rights set out above.
Request for last-minute amendments to a meeting agenda
After the convocation notice of a general meeting has been despatched, a Shareholder ispermitted to propose a last-minute amendment to the matters included in an existing meeting
agenda of a general meeting of our Company without any prior notice if a matter of similar nature
is included in the original meeting agenda. For example, a Shareholders may propose last-minuteamendments to an existing meeting agenda and nominates a person for election as a director at
any time before the relevant general meeting or even at the meeting, if the original meeting
agenda includes a proposal of the appointment of a new Director, or Directors, to our Board of
Directors. These last-minute amendments are a theoretical mechanism which, according to our
Directors’ knowledge, is exceptionally rarely put into actual practice in Japan.
If any agenda in a general meeting is rejected without receiving 10% of the votes cast in thatgeneral meeting, last-minute amendments of substantially the same nature will not be treated as
an official agenda in the forthcoming general meetings within the following three years. For
example, Shareholders may not be able to propose a person for election as a proposed Director
as a last-minute amendment in the following three years if a last-minute nomination of the same
person as a Director fails to receive 10% favourable votes in a general meeting in the past three
years (so long as the background and conditions of both proposals are similar).
Due to these Japan law provisions, we are unable to comply with Rule 13.70 of the Listing
Rules and paragraph 4(4) of Appendix 3 to the Listing Rules, which provide that (i) an issuer shall
publish an announcement or issue a supplementary circular upon receipt of a notice from ashareholder to propose a person for election as a director at the general meeting where such
notice is received by the issuer after publication of the notice of meeting; and (ii) the minimum
length of the period for notice to propose a person for election as a director and that person to
notify the issuer of his willingness to be elected, must be at least seven days. We have applied

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

for, and the Stock Exchange has granted us, a waiver from strict compliance with theserequirements on the basis of the voluntary measures we put in place, the details of which are set
out in “Waivers - B. Additional Waivers - Announcement of Nomination of Director(s)” and“Waivers - B. Additional Waivers - Articles of Incorporation - Nomination of Director(s).
Shareholders and potential investors (in particular, CCASS Beneficial Owners, who
customarily do not attend general meetings in person) should note that you may lose the chance
to vote on a last-minute amendment if you do not attend a general meeting in person, or if you
have not appointed a proxy to attend and vote on your behalf. Under our Articles, where a
Shareholder (including CCASS Beneficial Owners, who cast their votes by giving instructions to
HKSCC Nominees) has casted a written vote on the original matter (regardless of whether such
vote was for, against or abstained from the relevant matter), his/her vote will be counted asabstention from any last-minute amendment thereof. If a Shareholder has not casted a written
vote on the original matter, they will lose the right to vote on any last-minute amendment thereof
unless they attend the relevant general meeting in person or through their proxies. CCASS
Beneficial Owners who are unable to give instructions to HKSCC Nominees on the original matter
prior to the specified deadline will lose their right to vote on any last-minute amendment thereof.
In both circumstances, the voting rights of the relevant Shareholder / CCASS Beneficial Owner
will not form the quorum of the original matter and any last-minute amendment thereof.
Casting your votes in different ways
Under the Japan Companies Act, a Shareholder (including a nominee such as HKSCC
Nominees) is permitted to divide his/her Shares and cast his/her votes corresponding to these
Shares in different ways, casting his/her votes partly for and partly against a resolution. A
Shareholder who wishes to cast his/her votes in different ways is required to notify our Companyof his/her intention and the reasons therefor at least three days prior to the date of the relevant
general meeting. Our Company may object to a Shareholder casting his/her votes in different
ways if the Shareholder holds our Shares on his/her own behalf rather than as a nominee on
behalf of others. Upon Listing, we will enclose a notification form with the convocation notice ofeach general meeting. Shareholders who wish to cast their votes in different ways should notify
our Company by completing and returning the prescribed notification form to our Hong Kong
Share Registrar. Shareholders (including nominee companies such as HKSCC Nominees) may
also make a permanent election to cast their votes in different ways at all forthcoming general
meeting, which may be withdrawn by writing to our Hong Kong Share Registrar.
Derivative Actions
In a derivative action, shareholders are allowed to pursue the liability of directors vis-a-vis
the company on its behalf. In addition to the recovery of the loss to the company, this system alsofunctions as a deterrent against neglect of duties and wrongdoing by directors and other officersof the company. Shareholders who have held a share for six months or more (or, where a shorter
period is prescribed in the articles of incorporation, that period or more) before taking action areentitled to require the company, in writing, to initiate an action to pursue the liability of directors,
executive officers, accounting auditors, accounting advisors, statutory auditors* (監査役)

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

incorporators, directors and statutory auditors* (監査役) in the establishment procedure, andliquidators. However, if the action is intended for the unjust benefit of the plaintiff shareholder, ora third party, or to cause damage to the company, this does not apply. If the company does nottake any action within 60 days of the request, the shareholder who made the request is entitled
to initiate an action in pursuit of liability of the directors, executive officers, accounting auditors,
accounting adviser, statutory auditors* (監査役), incorporators, directors and statutory auditors*(監査役) in the establishment procedure and liquidators. If, by waiting sixty days, there is alikelihood of irrecoverable loss caused to the company, the shareholder may initiate an action
straight away. Liability of directors can be capped (i) by a resolution of the general meeting after
the incident, or (ii) by a board resolution under the provisions of the articles of incorporation inadvance. However, if shareholders holding not less than three hundredths (or, where a lesser
proportion is prescribed in the articles of incorporation, that proportion) of the votes of allshareholders (excluding officers subject to the liability) state objections to such a cap during a
specified period of time, the company is not permitted to give effect to the cap pursuant to therelevant provisions of the articles of incorporation.
4.

TRANSACTIONS REQUIRING SHAREHOLDERS APPROVAL

Under our Articles and the Japan Companies Act:
Ordinary resolutions* ( 普通決議 )Certain corporate acts and transactions must be, in general, approved by way of an ordinary
resolution in a general meeting (i.e. a majority of the voting rights of the Shareholders present andentitled to vote at the relevant meeting, where the Shareholders holding majority of the votes ofShareholders entitled to vote are present). These corporate acts and transactions are, amongst
others:•distribution of surplus* (剰余金);•

repurchase of shares;•

reduction of the amount of reserves;•increase of the amount of core capital* (資本金) by way of reduction of the amount of
surplus;•increase of the amount of reserves* (法定準備金) by way of reduction of the amount of
surplus* (剰余金); and•appropriation of its surplus* (剰余金), including disposition of loss and funding ofvoluntary reserves.

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Special resolutions* ( 特別決議 )Certain corporate acts and transactions must be, in general, approved by way of a special
resolution at a general meeting (i.e., two-third of the voting rights of the Shareholders present andentitled to vote at the relevant meeting, where the Shareholders holding a majority (or one third,
if our Articles so provide) of the votes of Shareholders entitled to vote are present). These
corporate acts and transactions are, amongst others:•

reverse stock split;•

issue and allotment to a third party (other than our Company and our existing
Shareholders) at an especially favourable subscription price as described in paragraph(d)(ii) above;•

issuance of SARs at an especially favourable subscription price or especiallyfavourable conditions as described in paragraph (c) above;•

distribution of dividend in kind without giving shareholders the rights to demand
distribution in cash;•

acquisition at any time within two years after the incorporation of the company ofassets that existed prior to such incorporation and which continue to be used for its
business;•merger;•corporate split;•

share exchange* (株式交換) and share transfer* (株式移転);•

assignment of the entire business or a significant part of the business; and•dissolution of the company.

Qualified special resolutions ( 特殊決議 )With respect to resolutions for matters described below, the approval of both (i) 50% ormore of the shareholders who are entitled to exercise their voting rights at a general meeting; and(ii) two thirds or more of the votes of such shareholders is required:•amendment to the articles of Incorporation, as a result of which any or all of the Sharesof the company is subject to transfer restriction and requires the approval of the boardof directors;

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approval of an absorption-type merger* (吸収合併) by which the company would be
dissolved or of a statutory share exchange by which the company would become awholly-owned subsidiary, where the Company does not restrict transfer of its shares
and all or part of the consideration paid to the shareholders consist of shares withtransfer restrictions; and•approval of an incorporation-type merger* (新設合併) by which the company would be
dissolved or of a statutory share transfer by which the company would become awholly-owned subsidiary, where the company does not restrict transfer of its shares
and all or part of the consideration paid to the shareholders consist of Shares withtransfer restrictions.

Absorption-type mergers* (吸収合併) and incorporation-type mergers* (新設合併) are thetwo types of mergers allowed under the Japan Companies Act. An absorption-type merger* (吸収合併) is a merger whereby an existing company absorbs one or more other existing companies,
while an incorporation-type merger* (新設合併) is a merger whereby a new company isincorporated to absorb one or more existing companies.
As a general rule, a special resolution is sufficient for approving an absorption-type merger
or an incorporation-type merger. However, as exceptions to the general rule, Japan law requiresa more stringent approval requirement for the two types of transactions above as holders ofshares without transfer restrictions in the pre- merger entity would, as a result of the two typesof transactions above, become holders of shares with transfer restrictions in the post-merger
entity, thereby limiting their equity interests.
With respect to resolutions for matters described below, the approval of both (i) 50% ormore of all shareholders; and (ii) 75% or more of the votes of such shareholders is required:•amendment to the Articles of Incorporation that would result in unequal treatment to
any Shareholder.

Unanimous approvals
Corporate acts and transactions that must be unanimously approved by the Shareholders
are, amongst others:•

Amendments to the articles of incorporation reclassifying all of the shares of theCompany into shares subject to a statutory call option of the company (similar toredeemable shares);•conversion to general partnership company, limited partnership company or limited
liability company (Article 776(1) of the Companies Act); and•merger or share transfers in which all or part of consideration to the shareholders of acompany to be absorbed or wholly acquired is the equity of a general partnershipcompany, limited partnership company or limited liability company (Article 783(2) of theCompanies Act);

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW•

incorporation type merger in which each of general partnership company, limited
partnership company or limited liability company will be established;•full exemption from certain types of liability of a director, accounting auditor andexecutive officers;•

convocation of a general meeting without sending a convocation notice; and•passing a written resolution without convening a general meeting.

ACCOUNTING AND AUDITING REQUIREMENTS

Under our Articles and the Japan Companies Act:
Financial year
Under our Articles, the financial year of our Company commences on 1 April of each year
and ends on 31 March of each year.
Accounting documents
Under Japan law and our Articles, we are required to convene our AGM within three months
after the day following 31 March, which is the last day of each financial year. Under our Articles
and the Listing Rules, we are required to despatch the convocation notice of our AGM at least
21 days prior to the date thereof. Upon Listing, we will, as required under the Listing Rules andthe Japan Companies Act, prepare and despatch the following documents together with our
AGM convocation notice:(a)a business report* (事業報告), which would include overview of our key businessstatus, such as, the progress and results of the business, capital expenditures andfund-raising, trends in assets and profit/loss in the most recent three financial years,
corporate reorganisations, status of major subsidiaries, shares outstanding and major
shareholders, SARs, operation systems, and a status update of other important
aspects of our business. Our business report* (事業報告) will be prepared in Japanese,
English and Chinese upon Listing;(b)

an audited financial report, which would include material annual financial informationsuch as the auditor’s report and opinion, the consolidated statement of income,consolidated balance sheet, consolidated statement of changes in net assets, andnotes to the consolidated financial statements, and the same for the statements of ourCompany and of our Group on a consolidated basis, respectively. Our audited financial
report will be prepared in accordance with the JGAAP as required under the Japan
Companies Act in Japanese, English and Chinese; andV-32

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either (i) an annual report including our Group’s annual accounts, which will be incompliance with the contents requirements under Appendix 16 to the Listing Rules; or(ii) a summary financial report, which will be in compliance with the contents
requirements under Rule 13.46(2)(a) of the Listing Rules. Our annual report or summary
financial report, as the case may be, will be prepared in accordance with the IFRS.

All documents above will be approved and authorised by our Board of Directors before they
are despatched to our Shareholders. Once approved by our Board of Directors, our Company
would despatch such financial statements and business reports* (事業報告) to all registered
Shareholders entitled to receive the convocation notices of the general meetings of our Company
along with the convocation notice of an AGM at which statements are presented for reporting by
the Chief Executive Officer of our Company or, in the limited instances set forth below, for theapproval of Shareholders.
Upon Listing, our Company will hold a single AGM that fulfils both the requirements under
the Companies Act and the Listing Rules.
Approval of financial statements
In cases where the financial statements prepared in accordance with JGAAP having been
approved by our Board satisfy the requirements prescribed by the ordinance of the Ministry ofJustice as statements that accurately indicated the status of the assets and profits and losses
of our Company in compliance with the Japan Companies Act and our Articles, our Chief
Executive Officer must report the contents of such financial statements to our Shareholders at theAGM. This reporting requirement will be satisfied (and approval of the Shareholders will not be
required) provided that the following requirements provided in the applicable ordinance of the
Ministry of Justice are met:(1)

the audit report prepared by the accounting auditor includes an unqualified opinion thatthe financial statements appropriately reflects in all material respects the assets andliabilities and the profit and loss of the Company in accordance with JGAAP;(2)

the audit report prepared by our Audit Committee does not express the opinion that themethod and result of the audit carried out by the accounting auditor is inappropriate;(3)

there is no dissenting opinion submitted to our Audit Committee that the method andresult of the audit carried out by the accounting auditor is inappropriate;

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the audit report prepared by our Audit Committee has been delivered to the relevant
Director designated to receive such report or, if no such designation has been made,the Director overseeing the preparation of the financial statements (the ‘‘DesignatedDirector’’), and the accounting auditor, prior to the later of:
(i)

(ii)

one week after delivery of the audit report prepared by the accounting auditor to
our Audit Committee, which shall be delivered on the later of the following dates:(a)four weeks after the accounting auditor receives the financial statementsfrom our Company;(b)

one week after the accounting auditor receives attachments* (附屬明細書) tothe financial statements; or(c)a date separately agreed upon by the Designated Director, members of our
Audit Committee and the accounting auditor as the deadline for the deliveryof the audit report by the accounting auditor;

a date separately agreed upon by the Designated Director and our Audit
Committee as the deadline for delivery of the audit report by our Audit Committee.

After the conclusion of the AGM convened, our Company must either, pursuant to theapplicable ordinance of Ministry of Justice, (i) provide public notice of our balance sheet andprofit and loss statements prepared in accordance with JGAAP of our Company or the digest
thereof; or (ii) disclose the balance sheet and profit and loss statements prepared in accordancewith JGAAP of our Company on the internet for a period of five years. If the financial statements
prepared in accordance with JGAAP fail to meet the requirements of the applicable ordinance ofthe Ministry of Justice, Shareholders’ approval of such financials will be required to finalise them.
If such Shareholders’ approval cannot be obtained, in order to finalise the JGAAP financial
statements, our Board of Directors may revise such financial statements so that they meet therequirements of the applicable ordinance of the Ministry of Justice, in which case Shareholders’approval will no longer be necessary. Alternatively, our Board of Directors may convene another
Shareholders’ meeting to obtain Shareholders’ approval after amending the JGAAP financial
statements in the event such amended financial statements still fail to meet the requirements of
the applicable Ordinance of the Ministry of Justice. Since the requirement to present financial
statements in accordance with JGAAP and financial statements in accordance with IFRS are
independent of one another, in the event that Shareholders’ approval is required in connection
with the JGAAP financial statements and our Company is unable to obtain such approval, thepresentation of the financial statements in accordance with IFRS to Shareholders will not beaffected. With regard to financial statements prepared in accordance with IFRS, although it may
do so voluntarily, our Company is not required under the applicable ordinance of the Ministry ofJustice and the Companies Act to obtain Shareholders’ approval of such financial statements at
a Shareholders’ meeting. Our Company, in practice, will seek to obtain Shareholders’ approvalof the IFRS financial statements at a Shareholders’ meeting, and if our Company is unable toobtain such Shareholders’ approval, our Company will revise our IFRS financials and conveneanother Shareholders’ meeting as soon as practicable to obtain Shareholders’ approval of theamended IFRS financials.

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Our Company will procure our accounting auditors to prepare reconciliation between our
financial statements under JGAAP and IFRS for each of our financial years upon the Listing anddespatch such reconciliation documents to our Shareholders together with our annual report.
6.

DIVIDENDS AND DISTRIBUTIONS

Under our Articles and the Japan Companies Act:
Under the Japan Companies Act, a company may stipulate in its articles of incorporationthat its board of directors may determine dividend distribution unless such dividend is proposed
to be paid in kind (other than shares, bonds (including convertible bonds) and SARs issued bysuch company, which the Japan Companies Act prohibits) without giving shareholders the rightto demand distribution in cash (in which case a special resolution in a general meeting would be
required). Accordingly, under our Articles, our Company may distribute dividend by a resolutionof our Board of Directors unless such dividend is be paid in kind (other than Shares, bonds(including convertible bonds) and SARs issued by our Company, which the Japan Companies Act
prohibits) without giving Shareholders the right to demand distribution in cash. A resolution of our
Board of Directors authorising a distribution of dividends must specify the kind and aggregate
book value of the assets to be distributed, the manner of allocation of the assets to Shareholders
and the effective date of the distribution.
Under the Japan Companies Act, Shares, bonds (including convertible bonds) and SARs
issued by our Company are prohibited from being distributed as dividend and interim dividend
can only be distributed as cash. Scrip dividends in the form of Shares, bonds (including
convertible bonds) or SARs issued by our Company are prohibited under the Japan Companies
Act. The Japan Companies Act provides that a company with a board of directors may distributeinterim dividends every financial year if a company provides in its articles of incorporation that it
may do so by a resolution of the board of directors. Our Articles contain such provision.
According to the Civil Code, claims, including shareholders’ rights to receive distributions ofdividends and residual assets, are extinguished if they had not been exercised for ten years,
unless there is a Japanese court precedent permitting a provision to be included in the articles
of incorporation of a Japanese company allowing shareholders’ rights to receive distributions ofdividends to be extinguished if it has not been exercised for five years. On 3 August 1927, theSupreme Court of Japan ruled that a Japanese company may, in its articles of incorporation,
allow Shareholders’ rights to receive dividends to be extinguished if it has not been exercised fora period less than ten years. Accordingly, under our Articles of Incorporation, all dividends
unclaimed for six years after having been declared may be forfeited by, and reverted to, ourCompany.

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAWDistributable Amounts
When we distribute dividends, the smaller amount of (i) 10% of the surplus so distributed,or (ii) an amount equal to one quarter of our share capital less the aggregate amount of our sharepremium* (資本準備金) and legal reserve* (利益準備金) as at the date of such distribution needs
to be set aside either as share premium* (資本準備金) or legal reserve* (利益準備金) until theaggregate amount of our share premium* (資本準備金) or legal reserve* (利益準備金) reaches one
quarter of our core capital* (資本金).
Under the Japan Companies Act, a company may distribute dividends up to the excess of
the aggregate of (a) and (b) below, less the aggregate of (c) through (f) below, as at the effective
date of the distribution (the ‘‘Distributable Amount’’), if net assets are not less than ¥3,000,000:(a)

the amount of retained earnings* (剰余金), as described below;(b)in the event that extraordinary financial statements as at, or for a period from the
beginning of the financial year to, the specified date are approved, the aggregate
amount of (i) the aggregate amount as provided for by an ordinance of the Ministry ofJustice as the net income for such period described in the statement of operations
constituting the extraordinary financial statements, and (ii) the amount of consideration
received for treasury stock* (自己株式) disposed of during such period;(c)the book value of treasury stock* (自己株式);(d)in the event that a company disposes of treasury stock* (自己株式) after the end of thelatest financial year, the amount of consideration received for such treasury stock*(自己株式);(e)in the event described in (b) above, the amount of net loss for such period describedin the statement of operations constituting the extraordinary financial statements; and(f)certain other amounts set forth in ordinances of the Ministry of Justice, including (if thesum of one-half of our goodwill and deferred assets exceeds the total of our sharecapital, share premium* (資本準備金) and legal reserve* (利益準備金), each suchamount as it appears on the balance sheet as at the end of the latest financial year) allor a certain part of such excess amount as calculated in accordance with theordinances of the Ministry of Justice.

For the purpose of (b) above, an extraordinary financial statement of a company is (aa) abalance sheet of such company as at the extraordinary account closing date, which is a particulardate in the current financial year designated at the discretion of such company; and (bb) a profit
and loss statement of such company for the period commencing from the first date of the current

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financial year and ending on the extraordinary account closing date. Under Japan law, a company
may opt to, but is not required under any circumstances to, prepare extraordinary financial
statements, especially when such company wishes to know its financial status at a particularpoint of the current financial year.
For indicative purposes, our Company’s annual report incorporating financial statements (ora summary financial report) prepared in accordance with IFRS will include the Distributable
Amount as at the end of the fiscal year.
For the purposes of this Appendix, the amount of retained earnings* (剰余金) is the excessof the aggregate of I. through IV. below, less the aggregate of V. through VII. below:I.

the aggregate of other capital surplus* (その他資本剰余金) and other retained earnings*(その他剰余金) at the end of the last financial year;II.

in the event that a company disposes treasury stock* (自己株式) after the end of thelast financial year, the difference between the book value of such treasury stock*(自己株式)and the consideration received for such treasury stock* (自己株式);III.

in the event that core capital* (資本金) is reduced after the end of the last financial year,
the amount of such reduction less the portion thereof that has been transferred toshare premium* (資本準備金) and/or legal reserve* (利益準備金) (if any);IV.

in the event that share premium* (資本準備金) and/or legal reserve* (利益準備金) werereduced after the end of the last financial year, the amount of such reduction less the
portion thereof that has been transferred to share capital (if any);V.

in the event that a company cancels treasury stock* (自己株式) after the end of the last
financial year, the book value of such treasury stock* (自己株式);VI.

in the event that a company distributes dividends after the end of the last financial year,
the aggregate of the following amounts:a.

the aggregate amount of the book value of the distributed assets, excluding thebook value of such assets that would be distributed to shareholders as a result of
their exercise of the right to receive dividends in cash instead of dividends in kind;b.

the aggregate amount of cash distributed to shareholders who exercised the rightto receive a distribution in cash instead of a distribution in kind; andc.

the aggregate amount of cash paid to shareholders holding fewer shares than theshares that were required in order to receive a distribution in kind;

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VII. the aggregate amounts of a. through d. below, less e. and f. below:a.

in the event that the amount of retained earnings* (剰余金) was reduced andtransferred to share premium* (資本準備金), legal reserve* (利益準備金) and/or
core capital* (資本金) after the end of the last financial year, the amount sotransferred;b.

in the event that a company distributes dividends after the end of the last financial
year, the amount set aside in the reserve* (準備金);

c.

in the event that a company disposes treasury stock* (自己株式) through (x) amerger in which a company acquires all rights and obligations of anothercompany, (y) a corporate split in which a company acquires all or a part of therights and obligations of the split-off company or (z) a share exchange in which acompany acquires all shares of another company after the end of the last financial
year, the difference between the book value of such treasury stock and theconsideration that the company received for such treasury stock;d.

in the event that the amount of retained earnings* (剰余金) was reduced in theprocess of a corporate split in which a company transferred all or a part of its
rights and obligations after the end of the last financial year, the amount so
reduced;e.

in the event of (x) a merger in which a company acquires all rights and obligationsof another company, (y) a corporate split in which a company acquires all or a partof the rights and obligations of the split- off or (z) a share exchange in which acompany acquires all shares of another company after the end of the last fiscal
year, the aggregate amount of (i) the amount of other capital surplus* (その他資本
剰余金) after such merger, corporate split or share exchange, less the amount ofother capital surplus* (その他資本剰余金) before such merger, corporate split orshare exchange, and (ii) the amount of other retained earnings* (その他剰余金)
after such merger, corporate split or share exchange, less the amount of otherretained earnings* (その他剰余金) before such merger, corporate split or shareexchange; andf.

in the event that an obligation to cover a deficiency, such as the obligation owed
by a person who subscribed to newly issued shares with an unfair amount to be
paid in, was fulfilled after the end of the last fiscal year, the amount of other capitalsurplus increased by such payment.

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7.

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAWMERGERS AND ACQUISITIONS

Under the Japan Companies Act:(i)

Mergers* (合併)Absorption-type mergers* (吸収合併) and incorporation-type mergers* (新設合併) are thetwo types of mergers allowed under the Japan Companies Act. An absorption-type merger*(吸収合併) is a merger whereby an existing company absorbs one or more other existing
companies, while an incorporation-type merger* (新設合併) is a merger whereby a new company
is incorporated to absorb one or more existing companies.
The company must seek a special resolution under the Japan Companies Act and thearticles of incorporation of the company at the a general meeting if it conducts a merger, unless:(i)the company is the surviving entity in relation to the merger and the consideration to
be paid to the shareholders of the counterparty (absorbed entity) is 20% or less of the
net asset of the company; or(ii)

the counterparty has 90% or more of the outstanding shares of the company.

Shareholders who are opposed to the planned merger are entitled to require the respective
company to purchase their shares at a fair price. Shareholders who have voting rights and haveinformed the company of their objection before the general shareholders’ meeting and have voted
against the merger, or shareholders who do not have voting rights, may exercise these rights. The
appraisal right must be exercised within twenty days before the date the merger takes effect andthe day before this date.
Since creditors may be affected by the merger, there is a procedure for the protection of
creditors. The merging companies are under an obligation to publicly announce the merger in theofficial gazette and also to invite known creditors to come forward, if they object to the merger.
By the articles of incorporation, companies may decide not to notify known creditors individually,
but instead make an announcement in the daily papers, or notify the creditors by electronicmeans, in addition to the announcement in the official gazette.
If a creditor objects to the merger, the company needs to either (i) repay the debt even if it
is not due, (ii) instead, provide collateral, or (iii) deposit an appropriate amount with a trust
company or banks involved in trust business. However, the novelty since the 1997 amendments
is that if there is no likelihood of the merger harming the creditors, these measures are notrequired.

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Under the Japan Companies Act, it has become permissible to use the stock of the parentof the surviving company as consideration in an acquisition or disposal, thereby enabling
triangular mergers.
In mergers by setting up a new company, the merger takes effect by registration. In mergers
by absorption, the rights and obligations of the extinguishing company are transferred to thesurviving company in a comprehensive manner on the agreed date on which the merger takes
effect.
Japan law requires that certain general information is included in a convocation notice foran extraordinary general meeting (“EGM”), as well as certain other information, the content of
which depends on the transaction(s) that is (or are) being contemplated. Regardless of the natureof the transaction any convocation notice must include (i) the date of the EGM; (ii) the place of
the EGM and (iii) a list of matters to be resolved at the EGM.
In addition to the general content requirements for convocation notices noted above, forconvocation notices which relate to gaining consent for merger contracts, the convocation noticemust include the following key content requirements: (i) the reason for the proposed merger; (ii)the terms and conditions of the merger contract, (iii) the appropriateness of the consideration to
be paid or received; (iv) the counterparty’s financial documents (balance sheet / profit and loss
statement / business report / auditor’s report) of the latest financial year and (v) the
counterparty’s material subsequent events after the end of the latest financial year.
(ii)

Company splits* (会社分割)
A company split is a process whereby a stock company or a limited liability company(合同会社) transfers all or part of the rights and obligations pertaining to a certain division of thecompany to another existing company or a newly established company. The separation of rights
and obligations pertaining to a division of such a company to an existing company is calledabsorption type company split* (吸収分割), while the separation of rights and obligations
pertaining to a division of such a company to a newly established company is called newincorporation type company split* (新設分割). In each type of company split, as consideration forthe separation of rights and obligations, the separating company will issue or pay shares, bonds,
SARs, cash or other assets to the other company.
In a new incorporation type company split or an absorption type company split, theprocedure is (i) the preparation of a plan for the split, or a contract of split; (ii) the making availableof relevant documents for inspection; (iii) the approval by a general meeting, (iv) the procedure
for the protection of creditors; and (v) registration.

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The plan or the contract of a split must be made available for inspection by shareholders andcreditors in the same manner as mergers. The plan or the contract is subject to approval at thegeneral shareholders’ meeting of the splitting company and, in cases of spin-off to anotherexisting company, also by shareholders of that company by a special resolution of ashareholders’ meeting. Shareholders who are opposed to the split are granted an appraisal rightas with a merger. The procedure for the protection of creditors of those companies is alsoavailable.
The company must seek a special resolution at a general meeting if it conducts a company
split unless:(i)the company split results in an establishment of a new company, and the company is
the splitting entity in relation to the corporate split, and the assets to be transferred are
20% or less of the total assets of the company;(ii)

the company split results in a consolidation with an existing company, and thecompany is the splitting entity in relation to the corporate split, and the net assets tobe transferred is 20% or less of the total asset of the company;(iii)

the company split results in a consolidation with an existing company (the ”Merging
Entity”), and the company is the Merging Entity, and the consideration to be paid to thecounterparty (splitting entity) in relation to the corporate split is 20% or less of the net
asset of the company; or(v)

the company split results in a consolidation with an existing company, and thecounterparty has 90% or more of the outstanding shares of the company.

As a rule, rights and obligations of the spitting company are transferred either to the newly
established company or to the absorbing company. This also applies to employment contracts.
Japan law requires that certain general information is included in a convocation notice for
an EGM, as well as certain other information, the content of which depends on the transaction(s)that is (or are) being contemplated. Regardless of the nature of the transaction any convocation
notice must include (i) the date of the EGM; (ii) the place of the EGM and (iii) a list of matters to
be resolved at the EGM.
In addition to the general content requirements for convocation notices noted above, forconvocation notices which relate to gaining consent for company splits, the convocation noticemust include the following key content requirements: (i) the reason for the proposed company
split; (ii) the terms and conditions of the company split contract or plan; (iii) the appropriatenessof the consideration to be paid or received, (iv) the counterparty’s financial documents (balance
sheet / profit and loss statement / business report / auditor’s report) of the latest financial year;(v) the counterparty’s material subsequent events after the end of the latest financial year and (vi)the articles of incorporation, directors, statutory auditors and accounting auditors of the
newly-established corporation.

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(iii) Share exchange* (株式交換) and share transfer* (株式移転)
A share transfer (株式移転) is a transaction whereby one or more companies create a newcompany and transfer all of their outstanding shares to that new company (i.e., creation of a
newly incorporated company as their 100% parent) in return for shares, bonds, SARs, bonds with
SARs (i.e. convertible bonds) or other assets of the new company.
A share exchange* (株式交換) is a transaction whereby a company transfers all of its
outstanding shares to an existing company (i.e., conversion of an existing company to awholly-owned subsidiary of another existing company) in return for shares, bonds, SARs, bonds
with SARs (i.e. convertible bonds) or other assets of the company that will become a new parentof such company.
The company must seek a special resolution at a general meeting if it conducts a shareexchange unless:(i)the company is the squeezing entity in relation to the share exchange and theconsideration to be paid to the shareholder of the counterparty (target entity) is 20%
or less of the net assets of the company; or(ii)

the counterparty has 90% or more of the outstanding shares of the company.

The company must seek a special resolution at a general meeting if it conducts a sharetransfer.
Japan law requires that certain general information is included in a convocation notice for
an EGM, as well as certain other information, the content of which depends on the transaction(s)that is (or are) being contemplated. Regardless of the nature of the transaction any convocation
notice must include (i) the date of the EGM; (ii) the place of the EGM and (iii) a list of matters to
be resolved at the EGM.
In addition to the general content requirements for convocation notices noted above, forconvocation notices which relate to gaining consent for share exchange contracts, theconvocation notice must include the following key content requirements: (i) the reason for the
proposed share exchange; (ii) the terms and conditions of the share exchange contract; (iii) the
appropriateness of the consideration to be paid or received, (iv) the counterparty’s financial
documents (balance sheet / profit and loss statement / business report / auditor’s report) of thelatest financial year and (v) the counterparty’s material subsequent events after the end of thelatest financial year.

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Further, in addition to the general content requirements for convocation notices noted
above, for convocation notices which relate to gaining consent for share transfer plans, theconvocation notice must also include the following key content requirements: (i) the reason forthe proposed share transfer plan; (ii) the terms and conditions of the share transfer; (iii) thecompany’s financial documents (balance sheet / profit and loss statement / business report /auditor’s report) of the latest financial year; (iv) the company’s material subsequent events after
the end of the latest financial year and (v) the articles of incorporation, directors, statutory
auditors and accounting auditors of the newly-established corporation.
(iv) Business transfer* (事業譲渡) and transfer of shares in a subsidiary
A business transfer* (事業譲渡) is a transaction whereby a company transfers all or a portionof its business* (事業) to another entity. According to the judicial precedents, the term business*(事業) is regarded to mean “a combination of assets and liabilities organised for a certain
commercial purpose including a contractual relationship with its customers.” Based on thisstandard, bare assets which do not by themselves constitute business operations are notregarded as business* (事業). In addition, under the JCA Amendments, transfers of shares in a
subsidiary is generally subject to the same regulation as a business transfer* (事業譲渡) if as aresult of a transfer, the company no longer keeps the majority of voting rights of such subsidiary.
The contract by a company to transfer all of or a significant portion of its “business” (事業)
(and, under the JCA Amendments, transfers of shares in a subsidiary if as a result of a transfer,the company no longer keeps the majority of voting rights of such subsidiary) to another entity
is subject to the special resolution of a shareholders’ meeting unless:(i)the consideration to be paid by the transferee to the stock company (or, under the JCA
Amendments, the book value of the shares in a subsidiary to be transferred) is 20 %or less of the total assets of the stock company; or(ii)

the transferee has 90% or more of the outstanding shares of the company.

Shareholders who opposed to the business transfer* (事業再編) are given appraisal rights.
Japan law requires that certain general information is included in a convocation notice for
an EGM, as well as certain other information, the content of which depends on the transaction(s)that is (or are) being contemplated. Regardless of the nature of the transaction any convocation
notice must include (i) the date of the EGM; (ii) the place of the EGM and (iii) a list of matters to
be resolved at the EGM.

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SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

In addition to the general content requirements for convocation notices noted above, forconvocation notices which relate to gaining consent for business transfers* (事業譲渡) (or transferof shares in a subsidiary), the convocation notice must include the following key content
requirements: (i) the reason for the proposed business transfer* (事業譲渡) (or transfer of sharesin a subsidiary); (ii) the terms and conditions of the business transfer* (事業譲渡) (or transfer ofshares in a subsidiary) contract and (iii) the appropriateness of the consideration to be received.
(v)

Business assumption* (事業譲受)

A business assumption* (事業譲受) is a transaction whereby a company assumes all or a
portion of its business* (事業) from another entity. According to the judicial precedents, the termbusiness* (事業) is regarded to mean “a combination of assets and liabilities organised for acertain commercial purpose including a contractual relationship with its customers.” Based on
this standard, bare assets which do not by themselves constitute business operations are notregarded as business* (事業).
The contract by a company to assume all of the business* (事業) from another entity is
subject to the special resolution of a general meeting unless:(i)the consideration to be paid by the stock company to the transferor is 20 % or less ofthe net assets of the company; or(ii)

the transferor has 90% or more of the outstanding shares of the company.

Shareholders who opposed to the business assumption* (事業譲受) are given appraisal
rights.
Japan law requires that certain general information is included in a convocation notice for
an EGM, as well as certain other information, the content of which depends on the transaction(s)that is (or are) being contemplated. Regardless of the nature of the transaction any convocation
notice must include (i) the date of the EGM; (ii) the place of the EGM and (iii) a list of matters to
be resolved at the EGM.
In addition to the general content requirements for convocation notices noted above, forconvocation notices which relate to gaining consent for business assumptions, the convocation
notice must include the following key content requirements: (i) the reason for the proposedbusiness assumption; (ii) the terms and conditions of the business assumption contract and (iii)
the appropriateness of the consideration to be paid.

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APPENDIX V

8.

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAWCOMPULSORY ACQUISITIONS

Under the Japan Companies Act and our Articles:
General provisions
Under the Companies Ordinance, the minority shareholders of a Hong Kong-incorporated
company may be compulsorily brought out or may require an offeror to buy out their interests if
the offeror acquires 90% of the issued shares in a successful takeover without shareholders’approval. Under the relevant Japan laws and regulations, compulsory acquisitions can beachieved without shareholders’ approval by the following transactions:(i)

An offeror (which must be a Japan-incorporated company) having acquired 90% ormore of the voting rights in a stock company* (株式会社) (which our Company is one)may (aa) acquire the remaining interests of the minority shareholders by way of a shareexchange* (株式交換) arrangement; or (bb) cash out the remaining interests of theminority shareholders by way of a merger* (合併) arrangement (the “JCA Compulsory
Acquisitions”) only with the approval of the board of directors of the said company. In
case of a share exchange* (株式交換) arrangement, the offeror must be a stockcompany* (株式会社) or a limited liability company* (合同会社).

(ii)

Under the JCA Amendments, which will come into effect at a later date to beannounced by the relevant Japanese authority, an offeror having acquired 90% or moreof the voting rights in a stock company* (株式会社) (which our Company is one) may
compulsorily acquire the interests of all remaining shareholders only with the approvalof the board of directors of the said company (the “JCA Amendment Compulsory
Acquisition”).

Other than the transactions above, there is currently no provision under Japan laws andregulations similar to the compulsory acquisition regime under the Companies Ordinance thatwould otherwise allow an offeror in a successful takeover to buy out the minority shareholders
without shareholders’ approval, regardless of the shareholding percentage acquired by suchofferor.
Alternative Share Transactions subject to Shareholders’ approval
Apart from the JCA Compulsory Acquisitions and the JCA Amendment Compulsory
Acquisition, under Japan laws, an offeor of a successful takeover or the minority shareholders ofa Japan-incorporated company may also achieve a similar outcome of compulsory acquisitions
by proposing the following transactions (the “Share Transactions”) to the subject company, all ofwhich are subject to shareholders’ approval:(1)

conversion of the interests held by the minority shareholders into callable shares,
pursuant to which holders of such shares may only receive fractional shares upon
exercise of the relevant call option (as a result, minority shareholders may only receive
cash in consideration) (the “Issue of Callable Shares”). Our current Articles do not allow
the issue of callable shares;

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(2)a merger* (合併) arrangement, whereby the subject company is merged with anothercompany to form a new merged entity. The minority shareholders, in consideration for
their interests in the subject company being extinguished upon merger, do not receive
any shares of the merged entity or only receive fractional shares of the subject
company (as a result, minority shareholders may only receive cash in consideration)(the “Merger”);(3)

a share exchange* (株式交換) arrangement, whereby the entire issued shares of thesubject company is acquired by an existing acquiror company (being a stock company*(株式会社) or limited liability company* (合同会社). The minority shareholders, inconsideration for transferring their interests in the subject company to the acquiror
company, do not receive any shares of the acquiror company or only receive fractional
shares of the acquiror company (as a result, minority shareholders may only receive
cash in consideration) (the “Share Exchange”);(4)

a share transfer* (株式移転) arrangement, whereby the entire issued shares of thesubject company is acquired by a newly incorporated stock company* (株式会社). The
minority shareholders, in consideration for transferring their interests in the subject
company to the newly incorporated company, do not receive any shares of the newly
incorporated company or only receive fractional shares of the newly incorporated
company (as a result, minority shareholders may only receive cash in consideration)(the “Share Transfer”);(5)

a consolidation of the shares of the subject company, whereby the minority
shareholders only receive fractional shares in the subject company upon consolidation(as a result, minority shareholders may only receive cash in consideration) (the “Share
Consolidation”).

To initiate the Share Transactions above, an offeror in a successful takeover or minority
shareholders may either (i) request for the convocation of a general meeting; or (ii) request for
additional matter(s) to be included in the agenda of a general meeting. See “Key Japan Legal andRegulatory Matters - B. Shareholders’ Meetings” for the detailed procedures.
Under the Japan Companies Act, the approval threshold of the Share Transactions above is
two-third of the votes of shareholders present at a general meeting, which is significantly lower
than the 90% threshold of the compulsory acquisition regime under the Companies Ordinance.
As an enhanced measure of shareholders’ protections, our Articles provide that at least 90% of
the votes of Shareholders present at a general meeting are required to (i) approve a Merger, Share
Exchange, Share Transfer or Share Consolidation; and (ii) amend our current Article provision
allowing our Company to issue callable shares. Our Japan Legal Adviser has confirmed that these
Articles provisions are legal and enforceable under the relevant Japan laws and must be abided
by any Shareholder (including an offeror in a successful takeover or minority Shareholders) who
seeks to initiate the Share Transactions above.

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAWOur Directors are of the view that, in relation to compulsory acquisitions, the level ofprotections under our Articles and the relevant Japan laws and regulations taken as a whole islargely commensurate to the shareholders’ protections provided under the Companies Ordinance(given the Articles provisions put in place by us).
Acquisition price
Under the Companies Ordinance, compulsory acquisitions must be made at a priceequivalent to the original offer price of the relevant takeover transaction. Under the relevant Japanlaws and our Articles, there is no restriction on the acquisition price of the transactions set out
above. However, minority shareholders may resort to the following court procedures:(a)

In respect of an Issue of Callable Shares, minority Shareholders who (aa) have objectedto these Share Transactions prior to the convocation of the relevant general meeting
considering the same and have actually voted against these Share Transactions in suchgeneral meeting; or (bb) do not have voting right in such general meeting have a rightto receive monetary compensation calculated based on the fair value of the sharesacquired from them.

(b)

In respect of the Share Transactions, minority shareholders may, within three months
from date of the shareholders’ resolution approving the relevant Share Transactions,claim revocation of the said resolution as grossly improper under certain prescribedcircumstances if the acquisition price is too low.

(c)

In respect of a JCA Compulsory Acquisition, Share Exchange, Share Transfer or
Merger, minority Shareholders who (aa) have objected to these transactions prior to the
convocation of the relevant general meeting considering the same and have actually
voted against these transactions in such general meeting; or (bb) do not have voting
right in such general meeting, may request the subject company to repurchase theirshares at a fair price. If the subject company and the minority shareholders cannot
agree on a fair price within 30 days from the effective date of such transactions, theminority shareholders may petition a court in Japan to determine the fair price within
30 days from the expiry date of the 30-day discussion period with the subject
company.

(d)Under JCA Amendments, dissenting minority shareholders of a Share Consolidation
who hold fractional shares in the subject company are also entitled to an appraisal rightsimilar to (c) above.

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW(e)

In respect of a JCA Compulsory Acquisition, apart from the right to request for a
repurchase set out in (c) above, any minority shareholder who may suffer disadvantage
in such JCA Compulsory Acquisition may also file a petition to a court in Japan tocease the JCA Compulsory Acquisition on the ground that it violates the law and/or thearticles of incorporation* (定款) of the subject company or that the acquisition price issignificantly unfair.

(f)

In respect of a JCA Amendment Compulsory Acquisition, a minority shareholder may
petition a court in Japan to determine the fair price or to cease JCA Amendment
Compulsory Acquisition under certain prescribed circumstances.

Investors should however note that there may be significant delays and costs involved in theinitiation of the aforementioned court procedures.
Additional rights of minority shareholders to request for a share repurchase
A Shareholder may, in addition to the above circumstance, require our Company torepurchase his/her Shares if he/she has informed our Company of his/her objection to thefollowing transactions prior to the general meeting, and has voted against the special resolution
in the general meeting in respect of the following transactions:(a)the introduction of restrictions on share transfers;(b)

the introduction of a condition that permits our Company to force Shareholders to sell
their Shares to our Company;(c)in case the following transactions are determined for a certain class of Shares without
resolution of corresponding class Shareholders’ meeting:(1)

consolidation of Shares or splitting of Shares;(2)

allotment of Shares without contribution;(3)

amendment to the Articles on the share unit;(4)

certain solicitation of persons to subscribe for the Shares of our Company;(5)certain solicitation of persons to subscribe for the share options; and(6)allotment of SARs without contribution.

In the above circumstances, a Shareholder must inform our Company of his/ her objection
prior to the Shareholders’ meeting and must vote against the special resolution at the general
meeting. The Shareholder must specify the number of shares he/she wishes to have ourCompany purchase within 20 days prior to the effective date of the relevant transactions.

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APPENDIX V

9.

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAWFINANCING

Under the Japan Companies Act:
Other than borrowing, companies may take measures to finance themselves as follows:(i)

Issue of new shares

See “— B. Our Corporate Matters — (d) Directors — (ii) Power to issue and allot shares” inthis Appendix above.
(ii)

Issue of bonds

The Japan Companies Act defines a bond as any monetary claim owed by a company byallotment under the provisions of the Japan Companies Act and which will be redeemed inaccordance with the provisions on the matters listed in the items of the Japan Companies Act.
There are straight bonds and bonds with SARs (i.e. convertible bonds). The latter are bonds
with SARs which are inseparable from the bond itself.
In cases where a company will issue bonds, the company must specify a bond manager andentrust the receipt of payments, the preservation of rights of a claim on behalf of thebondholders, and other administration of the bonds to that manager, unless the value of eachbond is ¥100 million or more, or the total amount of the bonds divided by the minimum price ofthe bond is less than 50.
10. FOREIGN EXCHANGE CONTROLThe Foreign Exchange and Foreign Trade Act of Japan (Act No. 228 of 1949, as amended)and the cabinet orders and ministerial ordinances (collectively, the ‘‘Foreign Exchange
Regulations’’) thereunder govern certain matters relating to the issue of equity-related securities
by us and the acquisition, holding and disposal of Shares by Foreign Investors (defined below).
For the purpose of this sub-section, an ‘‘Exchange Resident’’ is defined under the Foreign
Exchange Regulations as:(i)an individual who resides within Japan; or(ii)a corporation whose principal offices are located within Japan;An ‘‘Exchange Non-Resident’’ is defined under the Foreign Exchange Regulations as:(i)an individual who does not reside in Japan; or

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APPENDIX V(ii)

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

a corporation whose principal offices are located outside Japan.

As confirmed by our Japan Legal Adviser, branches and other offices located within Japanof non-resident corporations are regarded as Exchange Residents. Conversely, branches andother offices of Japanese corporations located outside Japan are regarded as Exchange NonResidents.
A ‘‘Foreign Investor’’ is defined under the Foreign Exchange Regulations as:(i)an individual who is an Exchange Non-Resident;(ii)

a corporation that is organised under the laws of a foreign country other than Japan orwhose principal office is located outside Japan; or(iii)

a corporation (a) 50% of more of the total voting rights of which are directly or indirectly
held by individuals who are Exchange Non-Residents and/or corporations that areeither organised under the laws of foreign countries other than Japan or whose
principal office is located outside Japan; or (b) a majority of whose directors or officers,
or directors or officers having the power of representation, are individuals who are
Exchange Non-Residents.

Subscription for, or acquisition or disposal of, our Shares are generally not subject to filing
requirements under the Foreign Exchange Regulations. However, investors may be required, inthe following limited circumstances, to notify the Minister of Finance, Minister of Economy, Tradeand Industry and the prime minister through The Bank of Japan prior to, or following, subscribing
for, or acquiring or disposing of, the Shares.
(i)

Prior Notification

In certain limited circumstances, Foreign Investors must submit prior notification (the ‘‘Prior
Notification’’) to The Bank of Japan within six months preceding (i) in case of subscription, thedate of payment for subscription, (ii) in case of acquisition, the acquisition date or (iii) in case of
disposal, the disposal date. Such Foreign Investor must wait for 30 days from the date on which
the Prior Notification is received by The Bank of Japan before paying subscription monies for,acquiring, or diposing of, our Shares. Such period may be shortened to two weeks if theinvestment is not related to the safety of Japan.

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

There is a general exemption from the Prior Notification requirement if the Foreign Investor
is a resident of, or a corporation organised under the laws of, the following exempted jurisdictions(the ‘‘Exempted Jurisdictions’’), of which Hong Kong is one:
Albania
Algeria
AngolaAntigua and Barbuda
Argentina
Armenia
Australia
Austria
BahamasBahrain
Bangladesh
Barbados
Belgium
BelizeBenin
BhutanBolivia
Botswana
BrazilBrunei
Bulgaria
Burkina Faso
BurundiCambodia
Cameroon
CanadaCentral Africa
Chad
Chile
Colombia
Costa Rica
Côte d’Ivoire
Croatia
Cuba
CyprusCzech Republic
Democratic Republicof Congo
DenmarkDjibouti
Dominica
Dominican Republic
EcuadorEgypt
El Salvador
Estonia
Ethiopia
Fiji

FinlandFormer Yugoslav
Republic ofMacedonia
FranceGabon
GambiaGermany
Ghana
GreeceGrenadaGuatemalaGuineaGuinea-Bissau
GuyanaHaiti
HondurasHong Kong
Hungary
Iceland
India
Indonesia
Iran
IrelandIsraelItaly
Jamaica
JordanKenya
KuwaitKyrgyzstan
Laos
LatviaLebanonLesotho
Liechtenstein
Lithuania
Luxembourg
Macau
Madagascar
MalawiMalaysia
Maldives
Mali
Malta
Marshall
Mauritania
Mauritius

MexicoMicronesia
Moldova
MonacoMongolia
MoroccoMozambique
MyanmarNamibia
Nauru
Nepal
Netherlands
New Zealand
Nicaragua
Niger
Nigeria
NorwayOman
Pakistan
PanamaPapua New Guinea
Paraguay
Peru
Philippines
PolandPortugal
PRC
Qatar
Republic of Congo
Republic of Georgia
Republic of Korea
Republic of South
AfricaRomania
RussiaRwandaSamoa
Saudi Arabia
SenegalSierra Leone
Singapore
Slovakia
Slovenia
SolomonSpain
Sri Lanka
St. Christopher and
Nevis

V-51

St. Lucia
St. Vincent
Sudan
Suriname
Swaziland
SwedenSwitzerland
Syria
TaiwanTanzania
Thailand
Togo
Tonga
Trinidad and Tobago
Tunisia
TurkeyUgandaUkraineUnited Arab Emirates
United Kingdom
Uruguay
USA
Vanuatu
Venezuela
Vietnam
ZambiaZimbabwe

APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

A Foreign Investor who is required to submit the Prior Notification and does not do so or who
submits a Prior Notification containing a misstatement and who subscribes for or acquires our
Shares shall have committed an offence punishable by imprisonment for not more than three
years or by a fine of not more than ¥1 million, or both. Where a Foreign Investor is a corporation,
the representative person of such Foreign Investor such as a director, agent or employee, may
be imprisoned for not more than three years or fined not more than ¥1 million, or both.
Where necessary, the Prior Notification will be filed by our Company on behalf of each
Foreign Investor, except where the Foreign Investors acquire our Shares from an Exchange
Resident, in which case such Exchange Resident should file the Prior Notification on behalf of theForeign Investors. The obligations of the Foreign Investors are limited to the duty of providing
certain information to our Company or the relevant Exchange Resident (as the case may be) as
prescribed under the Foreign Exchange Regulations.
(ii)

Post Reporting and Post-disposal Notification

Where we have or a Foreign Investor has made a Prior Notification, such Foreign Investor
is also required to make a post notification (the ‘‘Post Reporting’’) to The Bank of Japan, within
30 days of the date of subscription or acquisition. Upon disposal of our Shares, such Foreign
Investor is also required to make a post notification (the ‘‘Post-disposal Notification’’) to The Bankof Japan within 30 days of the disposal date.
If a Foreign Investor fails to make the Post Reporting or the Post-disposal Notification, or
if the Post Reporting or the Post-disposal Notification contains a misstatement, it shall be an
offence punishable by imprisonment for not more than six months or by a fine of not more than
¥500,000, or both.
Where necessary, the Post Reporting will be filed by our Company on behalf of each Foreign
Investor, except where a Foreign Investor acquires our Shares from an Exchange Resident, inwhich case such Exchange Resident should file the Post Reporting on behalf of the Foreign
Investor. The Post-disposal Notification will be filed by our Company on behalf of the Foreign
Investor. The obligations of the Foreign Investors are limited to the duty of providing certain
information to our Company or the relevant Exchange Resident (as the case may be) as
prescribed under the Foreign Exchange Regulations.
(iii) Post Notification
If (i) a Foreign Investor subscribes for, or acquires our Shares (whether from an Exchange
Resident, Exchange Non-Resident, another Foreign Investor or through a designated security
company) or (ii) a Foreign Investor (who is an Exchange Non-Resident having acquired our Shares
when he/she was an Exchange Resident) disposes of our Shares, the Foreign Investor would
need to make a subsequent report (the ‘‘Post Notification’’) to The Bank of Japan by the 15th dayof the month following the month in which the date of such subscription, acquisition or disposal
occurs.

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

For subscriptions or acquisitions, there is an exemption from the Post Notification
requirement if, as a result of the subscription for, or acquisition of, our Shares, the number of
Shares held by that Foreign Investor would be less than 10% of our entire issued share capital.
In other words, potential investors who are Foreign Investors are exempted from all notification
requirements under the Foreign Exchange Regulations if they are (i) residents of, or corporationsorganised under the laws of, the Exempted Jurisdictions, which include Hong Kong, and (ii)holders of such number of Shares representing less than 10% of our entire issued share capital.
If a Foreign Investor failed to make the Post Notification, or if the Post Notification contains
a misstatement, it shall be an offence punishable by imprisonment for not more than six months
or by a fine of not more than ¥500,000, or both. Where a Foreign Investor is a corporation, therepresentative person of such Foreign Investor such as a director, agent or employee, may be
imprisoned for not more than six months or fined not more than ¥500,000, or both.
Where necessary, the Post Notification will be filed by our Company on behalf of each
Foreign Investor, except where a Foreign Investor acquires our Shares from an Exchange
Resident, in which case such Exchange Resident should file the Post Notification on behalf of theForeign Investors. The obligations of the Foreign Investors are limited to the duty of providing
certain information to our Company or the relevant Exchange Resident (as the case may be) as
prescribed under the Foreign Exchange Regulations.
Where a Foreign Investor has made the Post Notification, such Foreign Investor is not
required to notify The Bank of Japan upon disposal of our Shares, except under thecircumstances (i) where the Foreign Investor acquires our Shares when he/she is an individual
Exchange Resident and disposes of our Shares after he/she becomes an Exchange
Non-Resident or (ii) as described in the paragraphs headed ‘‘— Foreign Exchange Report’’ below.
(iv) Foreign Exchange Report
Where an Exchange Resident acquires our Shares from an Exchange Non-Resident, or
where an Exchange Resident transfers our Shares to an Exchange Non-Resident, such Exchange
Resident must make a subsequent report (the ‘‘Foreign Exchange Report’’) to The Bank of Japan
within 20 days from the acquisition date or payment date, whichever comes later. There is an
exemption from the requirement if:(i)the purchase price of the relevant Shares is no more than ¥1 million; or(ii)

the acquisition or transfer is effected through any securities firm/bank or other entityprescribed under the Foreign Exchange Regulations as an agent or intermediary.

If an Exchange Resident fails to make the Foreign Exchange Report, or if the Foreign
Exchange Report contains a misstatement, such Exchange Resident will be punishable by

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

imprisonment for not more than six months or by a fine of not more than ¥500,000, or both.
Where an Exchange Resident is a corporation, the representative person of such Exchange
Resident such as a director, agent or employee, may be imprisoned for not more than six months
or fined not more than ¥500,000, or both.
The Foreign Exchange Report is filed by the Exchange Resident. Under the Foreign
Exchange Regulations, the Exchange Non-Resident is not under a duty or obligation to file
Foreign Exchange Report and will not be subject to any penalties for failure to file the Foreign
Exchange Report.
CCASS Beneficial Owners
Due to the inherent characteristics of CCASS, our Company is not able to ascertain theidentity, and consequently the citizenship, of the CCASS Beneficial Owners. In addition, ourCompany does not have the capacity to ascertain the individual shareholding percentage of the
CCASS Beneficial Owners. Consequently, Foreign Investors looking to hold their investments
through CCASS are requested to notify our Company by writing to our headquarters in Japan or
our principal place of business in Hong Kong prior to making their investment if (i) they are notcitizens of an Exempted Jurisdiction (which includes Hong Kong); or (ii) their prospective
shareholding interest in our Company exceeds 10% of our entire issued share capital.
Our Japan Legal Adviser has confirmed that the responsibility and obligation (where
relevant) for filing the Post Notification, the Prior Notification, the Post Reporting and Postdisposal Notification is on the CCASS Beneficial Owners, instead of HKSCC Nominees. Under nocircumstances would HKSCC Nominees accept any responsibility or liability for failure, on thepart of the Foreign Investors, to file the Post Notification and the Prior Notification.
Foreign Investors are advised to consult their professional advisers before subscribing for,or acquiring or disposing of, our Shares as to the applicability of the Prior Notification, Post
Notification, and Foreign Exchange Report requirements.
11. ANTI-MONOPOLY DISCLOSURE REQUIREMENTS
When a corporate investor that fulfils certain criteria, such as domestic turnover prescribedby the Anti-Monopoly Act* (独占禁止法) (Act No. 54 of 1947), acquires shares exceeding 20% or
50% of voting rights, the corporate investor is required to file a report to Japan Fair Trade
Commission prior to such acquisition.
12. FINANCIAL INSTRUMENTS AND EXCHANGE ACT
Although our Shares are not listed on a securities exchange in Japan or traded through theover-the-counter market in Japan, under Japan law, if our Company (i) has at least 1,000
registered Shareholders as at the end of any financial year or (ii) files a securities registration
statement pursuant to the Financial Instruments and Exchange Act* (金融商品取引法) (Act No. 25
of 1948) (the ‘‘FIEA’’) in relation to a public offering* (募集) or a secondary offering* (売出) of

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APPENDIX V

SUMMARY OF OUR ARTICLES OFINCORPORATION AND JAPAN CORPORATION LAW

Shares in Japan, the ongoing disclosure requirements (mainly, periodic filing requirements,
including the requirement to file an annual report, and filing of a current report* (臨時報告書)
whenever any unscheduled material event occurs that may be important to Shareholders) andtender offer* (公開買付) rules under the FIEA will generally be applicable to our Company and/or
our Shareholders.
Our Company currently has no current plan to file a securities registration statement under
the FIEA and the requirements under the FIEA are expected to continue to be non-applicable to
our Company and our Shareholders.
13. GENERAL
Soga Law Office, our Japan Legal Adviser, has sent to our Company a letter of advice
summarising certain aspects of our Articles, the Japan Companies Act and certain Japan laws,
regulations and legislations. This letter is available for inspection as referred to in “Appendix VII- Documents Delivered to the Registrar of Companies and Available for Inspection”. Any person
wishing to have a detailed summary of the Japan Companies Act or advice on the differences
between it and the laws of any jurisdiction which such person believes may be applicable to such
person is recommended to seek independent legal advice.

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APPENDIX VI

STATUTORY AND GENERAL INFORMATIONA.

FURTHER INFORMATION ABOUT OUR COMPANY

1.

Incorporation of our Company

Our Company was incorporated as a stock company (株式会社)* with limited liability inJapan under the Japan Companies Act on 10 January 2013. Accordingly, we operate subject toJapan law and our constitution comprises our Articles. A summary of various provisions of our
Articles and the relevant aspects of Japan corporation law are set out in Appendix V to thisProspectus.
Our registered office in Japan is 1-1-39, Hohaccho, Koriyama-shi, Fukushima, Japan
963-8811 and we have established a principal place of business in Hong Kong at Room 505, 5thFloor, Hutchison House, 10 Harcourt Road, Hong Kong. Our Company was registered as a
non-Hong Kong company under Part 16 of the Companies Ordinance on 10 December 2014. Ms.
YIU Wai Man Karen (姚慧敏) has been appointed as our agent for the acceptance of service ofprocess in Hong Kong. The address for service of process on our Company in Hong Kong is thesame as our registered place of business in Hong Kong (as set out above).
2.

Changes in the capital structure of our Company

Our Company does not have any specific value of authorised and issued share capital as theconcept of shares with par value has been abolished under the Japan Companies Act. As at thedate of incorporation (i.e. 10 January 2013), our Company had a core capital* (資本金) of ¥6,600.
The number of Shares authorised to be issued by our Company was 20,000,000 Shares, of which
one class-A share and one common Share* (普通株式) were issued and allotted to our Chairman.
Since the date of incorporation, the following changes have been made to our Company’s
share capital:(a)

On 1 April 2013, our Board approved the Niraku Share Swap whereby Niraku
Corporation became a wholly-owned subsidiary of our Company. As a result of the
Niraku Share Swap, our core capital* (資本金) was increased to ¥10 million and our
total number of issued Shares was increased to one class-A share and 3,895,001
common Shares (普通株式). See “History and Corporate Development — Corporate
Structure and Development — Group Companies — Our Company” for details.

(b)

On 9 December 2014, our Board resolved to cancel the one class-A share and convert
it into one newly issued common Share* (普通株式), which was allotted to our Chairman
on the same day. As a result, our total number of issued Shares became 3,895,002
common Shares* (普通株式).

VI-1

APPENDIX VI(c)

STATUTORY AND GENERAL INFORMATIONOn 16 March 2015, our Board resolved that: (i) each issued Share of nil par value be
sub-divided into 230 Shares of nil par value with effect from 31 March 2015 so that our
total number of issued Shares will increase from 3,895,002 Shares to 895,850,460
Shares; and (ii) for the purpose of such sub-division, the number of Shares authorised
to be issued by our Company be increased from 20,000,000 Shares to 2,000,000,000
Shares with effect from 31 March 2015.

Assuming that the Global Offering becomes unconditional and the Offer Shares are issued
but the Over-allotment Option is not exercised, the total number of Shares issued by us will be
1,195,850,460 Shares, with 804,149,540 Shares remaining unissued.
Assuming that the Over-allotment Option is exercised in full, a total of 1,240,850,460 Shares
will have been issued and allotted as fully-paid and 759,149,540 Shares will remain unissued.
3.

Changes in capital structure of our subsidiaries

Our subsidiaries are Niraku Corporation, Nexia and Merrist, all of which are directly or
indirectly wholly-owned by us. Set out below are the changes to the capital structure of our
subsidiaries within the two years immediately prior to the issue of this Prospectus:
(a)

(b)

Niraku Corporation(i)

Niraku Corporation was incorporated on 27 August 1969. As at 1 April 2011, thecommencement date of the Track Record Period, Niraku Corporation had a core
capital* (資本金) of ¥257 million. The number of shares authorised to be issued by
Niraku Corporation was 20,000,000 shares and the total number of issued shares was
5,346,000 shares at that time.

(ii)

On 1 April 2013, our Board approved the Niraku Share Swap. As a result of the Niraku
Share Swap, the total number of shares issued by Niraku Corporation was reduced to4,935,000 shares. See “History and Corporate Development — Corporate Structure
and Development — Group Companies — Niraku Corporation” for details.

Nexia
(i)

Nexia was incorporated on 19 June 2009 in Japan with a core capital* (資本金) of ¥30
million. On incorporation, the number of shares authorised to be issued by Nexia was
20,000 shares. As at 1 April 2011, the commencement date of the Track Record
Period, a total of 3,000 shares were issued by Nexia.

(ii)

On 30 September 2014, as part of our Reorganisation, Nexia cancelled the 2,550
treasury stock* (自己株式) in its capital, as a result of which the total number of sharesissued by Nexia was reduced to 150 shares, all of which were wholly-owned by Niraku
Corporation. See “History and Corporate Development — Corporate Structure andDevelopment — Reorganisation” for details.

VI-2

APPENDIX VI(c)

4.

STATUTORY AND GENERAL INFORMATION

Merrist(i)

Merrist was incorporated on 24 February 2010 with a core capital* (資本金) of ¥5
million. On incorporation, the number of shares authorised to be issued by Merrist was
2,500 shares, of which 500 shares were issued and allotted to Niraku Corporation.

(ii)

There has been no change to the capital structure of Merrist within the two years
immediately preceding the date of this Prospectus.

Reorganisation

In preparation for the Listing, the companies comprising our Group underwent the
Reorganisation and our Company became the holding company of our Group. Our
Reorganisation involved the following steps:(1)

On 17 September 2014, our Company effected the Company Split. The primary aim of
the Company Split was: (i) the consolidation the business and assets of, and incidental
to, our Group’s pachinko hall operations under our Company; and (ii) the establishmentof the Excluded Group as the holding entities of the future private business venturesof, our Controlling Shareholders.
The Company Split was effected as follows:(i)

Incorporation of NI: NI was incorporated in Japan on 17 September 2014 toserve as the holding entity of the Excluded Group and the prospective private
business ventures of the Taniguchi Consortium that are unrelated to our corebusiness of pachinko and pachislot hall operations.

(ii)

Transfer of tangible assets to NI: as part of the Company Split, we on 17
September 2014 transferred certain tangible assets totalling ¥1,110 million which,among others, included the entire issued stock of NUSA. No fixed asset, liability,
contractual obligation and employee was transferred to NI as part of the Company
Split.

(iii)

Distribution of the shares in NI to our Shareholders: as part of the Company
Split, our Company on 17 September 2014 declared and distributed a distribution
in specie* (配当) out of its surplus* (剰余金) by way of distributing 3,895,002
shares in NI, representing its entire number of issued shares, to our Shareholders
whose names appear on our Share Register of the Company on 11 September
2014.
Each holder of the common Shares* (普通株式) of our Company received shares
in NI in an amount equivalent to the number of common Shares* (普通株式) theyheld as at 11 September 2014. Given that there was only one class of shares inthe share capital of NI, our Chairman, who held one class-A share in our Company

VI-3

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

as at 11 September 2014, received one share in NI. As a result, all existing
Shareholders as at 11 September 2014 became the shareholders of NI in
proportion to the number of Shares they held in our Company as at 11 September
2014.
(2)

On 9 September 2014, Niraku Corporation acquired the Nakano Property from ourChairman, Mr. Tatsuo TANIGUCHI (谷口龍雄) and Mr. Masataka TANIGUCHI (谷口晶貴)
in consideration for ¥382 million in cash. The consideration was based on the valuationof the Nakano Property conducted by an independent property valuer.

(3)

On 29 September 2014, Nexia acquired an aggregate of 2,550 shares in Nexia from
Jukki Limited* (有限会社十起), Densho Limited* (有限会社伝承), Hokuyo Kanko Limited*(有限会社北陽観光) and KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA) in
consideration for ¥497,344,350 in aggregate. The consideration was calculated basedon the valuation of Nexia conducted by an independent property valuer. The 2,550
shares became treasury stock* (自己株式) in the capital of Nexia.
On 29 September 2014, Niraku Corporation acquired 150 shares in Nexia from Mr.
Tatsuo TANIGUCHI (谷口龍雄) in consideration for ¥29,255,550. The consideration was
calculated based on the valuation of Nexia conducted by an independent property
valuer.
On 30 September 2014, Nexia cancelled the 2,550 treasury stock* (自己株式) in its
capital, as a result of which Nexia became an indirectly wholly-owned subsidiary of ourCompany.

5.

Extraordinary general meeting held on 16 March 2015

At an extraordinary general meeting of our Company held on 16 March 2015, ourShareholders resolved that, in summary:
1.

conditional upon (1) the Listing having been duly approved by our Board in accordancewith the provisions under the existing articles of incorporation* (定款) of our Company;(2) the Listing Committee of the Stock Exchange granting the approval of the listing of,and permission to deal in, the Shares in issue and to be issued pursuant to the Global
Offering (including any additional Shares which may be issued pursuant to the exerciseof the Over-allotment Option) and such listing and permission not subsequently having
been revoked prior to the commencement of dealing in the Shares on the Stock
Exchange; (3) the Offer Price having been duly agreed between the Sole Global
Coordinator (for itself and on behalf of the Underwriters) and our Company; and (4) the
obligations of the Underwriters under the Underwriting Agreements becoming
unconditional (including, if relevant, as a result of the waiver of any condition(s) by the

VI-4

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

Sole Global Coordinator acting for itself and on behalf of the Underwriters) and not
being terminated in accordance with the terms therein or otherwise, in each case on
or before such dates as may be specified in the Underwriting Agreements:(i)

the Global Offering at the Offer Price was approved and our Board was authorised
to effect the same and approve the issue and allotment of the Shares, as the casemay be, pursuant to the Global Offering on and subject to the terms andconditions thereof as set out in this Prospectus and the Application Forms and allapplicable laws and regulations in Japan and Hong Kong;(ii)

the Over-allotment Option at the Offer Price was approved and our Board was
authorised and directed to do all such things and execute all such documents toeffect the same and approve the issue and allotment of the Over-allotment Shares
upon exercise of the Over-allotment Option;(iii)

the issue and allotment at the Offer Price of 300,000,000 Shares under the Global
Offering and up to 345,000,000 Shares upon exercise of the Over-allotment
Option were approved; and(iv)

for the purpose of paragraphs (i), (ii) and (iii) above, (a) the “minimum amount of
payment”* (払込金額) (as referred to under the Japan Companies Act) shall be
HK$0.01 per Share; and (b) our Board was authorised to determine the allocationof the Shares under the Hong Kong Public Offering and International Offering; andthe requisite items under article 199 of the Japan Companies Act;2.

the Issuing Mandate, which is a general unconditional mandate was given to our Board
to allot, issue and deal with, otherwise than pursuant to (i) a rights issue; or (ii) any
specific authority granted by our Shareholders in general meeting(s), an aggregate
number of Shares of not exceeding 20% of the total number of Shares issued by ourCompany immediately upon completion of the Global Offering, such mandate to remainin effect until whichever is the earliest of the conclusion of our next AGM unless byordinary resolution passed at that meeting, the authority is renewed, either
unconditionally or subject to conditions, or the expiration of the period within which ournext AGM is required by our Articles or any applicable Japan laws to be held, or whenvaried, revoked or renewed by a resolution of our Shareholders in a general meeting.
The Issuing Mandate is subject to our Articles, the Listing Rules and all applicable laws
and regulations in Japan and Hong Kong and the allottees under the Issuing Mandate
shall pay a minimal per Share subscription price of no less than 90% of the averageclosing market price for the five preceding trading days on which our Shares weretraded on the Stock Exchange prior to the issue and allotments of Shares thereunder;

VI-5

APPENDIX VI

B.

STATUTORY AND GENERAL INFORMATION

3.

the Repurchase Mandate, which is a general unconditional mandate was given to our
Board authorising it to exercise all powers to repurchase on the Stock Exchange or on
any other approved stock exchange on which our securities may be listed and whichis recognised by the SFC and Stock Exchange for this purpose, subject to and inaccordance with our Articles, all applicable laws and regulation in Japan and Hong
Kong, and the requirements of the Listing Rules or of any other stock exchange on
which our securities may be listed, as amended from time to time. The aggregate
number of Shares that could be repurchased under the Repurchase Mandate shall not
exceed 10% of the total number of Shares issued by our Company immediately uponcompletion of the Global Offering, and the Repurchase Mandate shall remain in effectuntil whichever is the earliest of the conclusion of our next AGM unless by a resolution
passed at that meeting, the authority is renewed, either unconditionally or subject toconditions, or the expiration of the period within which our next AGM is required by our
Articles or any applicable Japan laws to be held, or until varied, revoked or renewedby a resolution of our Shareholders in a general meeting;4.

the Issuing Mandate in paragraph (v) above be extended by the addition to theaggregate number of Shares which may be allotted or agreed conditionally or
unconditionally to be allotted by our Board pursuant to the Issuing Mandate of anamount representing the aggregate number of Shares repurchased by our Board
pursuant to the Repurchase Mandate referred in paragraph (vi) above; and5.

our Articles were adopted in substitution of and to the exclusion of the existing articles
of incorporation* (定款) of our Company with effect from the Listing Date.

REPURCHASE OF OUR SHARESThis sub-section sets out information required by the Stock Exchange to be included in thisProspectus concerning the repurchase by us of our own securities.
1.

Provisions under the Listing Rules

The Listing Rules permit companies with a primary listing on the Stock Exchange torepurchase their own securities on the Stock Exchange subject to certain restrictions, the more
important of which are summarised below:(a)Shareholders’ approval

Under the Listing Rules, all proposed repurchase of securities (which, under the Listing
Rules and the Companies Ordinance, must be fully paid-up in the case of shares) by a company
with a primary listing on the Stock Exchange must be approved in advance by an ordinary
resolution of the shareholders, either by way of general mandate or by specific approval of aparticular transaction.

VI-6

APPENDIX VI(b)

STATUTORY AND GENERAL INFORMATION

Source of funds

Repurchases must be funded out of funds legally available for the purpose in accordancewith our Articles and the Listing Rules and the applicable laws of the place of incorporation of therelevant listed company. A listed company may not repurchase its own securities on the Stock
Exchange for a consideration other than cash or for settlement otherwise than in accordance withthe trading rules of the Stock Exchange. Subject to the foregoing, any repurchases by us may bemade out of our funds which would otherwise be available for dividend or distribution or out ofthe proceeds of a new issue of shares made for the purpose of the repurchase.
(c)Trading Restrictions
The total number of shares which a listed company may repurchase on the Stock Exchange

is the number of shares representing up to a maximum of 10% of the aggregate number of sharesin issue. A company may not issue or announce a proposed issue of new securities for a periodof 30 days immediately following a repurchase (other than an issue of securities pursuant to an
exercise of warrants, share options or similar instruments requiring the company to issue
securities which were outstanding prior to such repurchase) without the prior approval of theStock Exchange. In addition, a listed company is prohibited from repurchasing its shares on the
Stock Exchange if the purchase price is 5% or more than the average closing market price forthe five preceding trading days on which its shares were traded on the Stock Exchange. The
Listing Rules also prohibit a listed company from repurchasing its securities which are in thehands of the public falling below the relevant prescribed minimum percentage as required by the
Stock Exchange. A company is required to procure that the broker appointed by it to effect a
repurchase of securities discloses to the Stock Exchange such information with respect to therepurchase as the Stock Exchange may require.
(d)Suspension of Repurchase
A listed company may not make any repurchase of securities after inside information has

come to its knowledge until the inside information has been made publicly available. In particular,
during the period of one month immediately preceding the earlier of: (i) the date of the board
meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules)
for the approval of a listed company’s results for any year, half-year, quarterly or any other interim
period (whether or not required under the Listing Rules) and (ii) the deadline for publication of anannouncement of a listed company’s results for any year or half-year under the Listing Rules, orquarterly or any other interim period (whether or not required under the Listing Rules) and endingon the date of the results announcement, the listed company may not repurchase its shares on
the Stock Exchange other than in exceptional circumstances. In addition, the Stock Exchange
may prohibit a repurchase of securities on the Stock Exchange if a listed company has breached
the Listing Rules.

VI-7

APPENDIX VI(e)

STATUTORY AND GENERAL INFORMATION

Reporting Requirements

Certain information relating to repurchases of securities on the Stock Exchange or otherwise
must be reported to the Stock Exchange no later than 30 minutes before the earlier of thecommencement of the morning trading session or any pre-opening session on the following
business day. In addition, a listed company’s annual report is required to disclose details
regarding repurchases of securities made during the year, including a monthly analysis of thenumber of securities repurchased, the purchase price per share or the highest and lowest pricepaid for all such purchase, where relevant, and the aggregate prices paid.
(f)Core Connected Persons

A listed company is prohibited from knowingly repurchasing securities on the Stock
Exchange from a “core connected person”, that is, a director, chief executive or substantial
shareholder of the company or any of its subsidiaries or their close associates and a coreconnected person is prohibited from knowingly selling his securities to the company.
2.

Provisions under the Japan Companies Act(a)

Source of funds

Under the Japan Companies Act, the aggregate amount of money to be paid (or any otherassets to be provided) in exchange for the repurchased shares must not exceed the Distributable
Amount on the date that the repurchase comes into effect and such amount is to be calculated
in accordance with the Japan Companies Act. In addition, if there is a possibility that theDistributable Amount on the last date of a financial year on which the repurchase is to be
conducted may be a negative amount, the company may not repurchase it shares.
If a company acquires shares of its own under certain limited circumstances stipulated by
the Japan Companies Act (for example, the company acquires its own shares from anothercompany as a result of merger* (合併)), the above restrictions on source of funds are notnecessarily applied and the company must follow the applicable respective restrictions on
funding stipulated by the Japan Companies Act.
(b)

Shareholders’ approval

Under the Japan Companies Act, a company may in general repurchase its shares throughthe following ways:(i)a company may repurchase its own shares upon agreement with one or more particularshareholder(s) with a special resolution in a general meeting approving (a) the number
and class of the shares to be repurchased; (b) the contents and the aggregate amountof consideration to be paid in exchange for the repurchased shares (c) the period
during which the company may repurchase its shares (which shall not be more than
one year); and (d) the name of such particular shareholder(s). Once approved, thecompany may repurchase the shares within the scope of the special resolution

VI-8

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

following certain prescribed procedures under the Japan Companies Act, provided
however that, where the repurchase price exceeds the market price of the shares, thecompany shall give a notice to other shareholders to provide them with theopportunities to participate in the share repurchase prior to the general meeting
approving the share repurchase;(ii)

a company may repurchase its own shares through an offer to all shareholder with an
ordinary resolution in a general meeting approving items (a) to (c) set out in (i) above.
Once approved, the company may repurchase the shares within the scope of theordinary resolution following certain prescribed procedures under the Japan
Companies Act; and(iii)

a company may repurchase its own shares through a market transaction etc.*(市場取引等) as defined under the Japan Companies Act with an ordinary resolution ina general meeting or, where allowed under its articles, a resolution of its board of
directors, approving items (a) to (c) set out in (i) above. Once approved, the company
may repurchase the shares within the scope of the said resolution.

Upon Listing, we will effect repurchases of our Shares outside the Stock Exchange inaccordance (i) and (ii) above, subject to compliance with all applicable Listing Rules and/or the
Takeovers Code. Repurchases on the Stock Exchange will be effected under the Repurchase
Mandate granted to our Board by our Shareholders on 16 March 2015 in compliance with Rule
10.06 of the Listing Rules and in accordance with (iii) above as market transactions etc.*(市場取引等). Our Articles provide that repurchases of our own Shares can be effected througha market transaction etc.* (市場取引等) as defined under the Japan Companies Act with aresolution of our Board (so long as such repurchases comply with the applicable requirements
under the Listing Rules), allowing our Directors to effect repurchases under the Repurchase
Mandate without Shareholders’ specific approval.
(c)Repurchase Mandate
Based on the foregoing Articles and Japan law provisions, repurchases under the

Repurchase Mandate must be market transactions etc.* (市場取引等) as defined under the Japan
Companies Act. There is no judicial precedent or interpretation confirming that a repurchasethrough the Stock Exchange, which is not a securities exchange in Japan, is a market transaction
etc.* (市場取引等). Given the lack of judicial precedent, our Directors have undertaken to the
Stock Exchange that they will not exercise the Repurchase Mandate to repurchase our Shares on
the Stock Exchange unless there is clear judicial authority allowing us to make repurchases on
the Stock Exchange thereunder.

VI-9

APPENDIX VI
3.

STATUTORY AND GENERAL INFORMATION

Reasons for repurchases

Our Directors believe that it is in the best interest of our Company and our Shareholders asa whole to have general authority from our Shareholders to repurchase Shares in the market.
Such repurchases may, depending on market conditions and funding arrangements at the time,lead to an enhancement of the net value and the assets of our Company and/or the earnings per
Share and will only be made when our Directors believe that such repurchases will benefit our
Company and our Shareholders as a whole.
4.

Funding of repurchases

In repurchasing securities, we may only apply funds legally available for such purpose inaccordance with our Articles, the Listing Rules and the applicable laws of Japan. On the basisof our current financial position as disclosed in this Prospectus and taking into account ourcurrent working capital position, our Directors consider that, if the Repurchase Mandate were to
be exercised in full, it might have a material adverse effect on our working capital and/or our
gearing position as compared with the position disclosed in this Prospectus. However, ourDirectors do not propose to exercise the Repurchase Mandate to such an extent as would, in thecircumstances, have a material adverse effect on our working capital requirements or the gearing
levels which in the opinion of our Directors are from time to time appropriate for us.
5.

GeneralExercise in full of the Repurchase Mandate, on the basis of 1,195,850,460 Shares in issue
upon completion of the Global Offering (assuming the Over-allotment Option is not exercised),
could accordingly result in up to 119,585,046 Shares being repurchased by us during the periodprior to the earliest of:(a)the conclusion of our Company’s next AGM unless by ordinary resolution at thatmeeting, the authority is renewed, either unconditionally or subject to conditions; or(b)the expiration of the period within which our Company is required by the applicable
Japan law or our Articles to hold our next AGM; or(c)when varied, revoked or renewed by a resolution of our Shareholders in a general
meeting.

None of our Directors nor, to the best of their knowledge having made all reasonableenquiries, any of their close associates currently intends to sell any Shares to us or our
subsidiaries. Our Directors have undertaken to the Stock Exchange that, so far as the same may
be applicable, they will exercise the Repurchase Mandate in accordance with the Listing Rules,
our Articles, the Japan Companies Act and the applicable laws and regulations of Japan fromtime to time in force.

VI-10

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

If, as a result of a repurchase of Shares, a Shareholder’s proportionate interest in the voting
rights of us increased, such increase will be treated as an acquisition for the purpose of the
Takeovers Code. Accordingly, a Shareholder or a group of Shareholders acting in concert could
obtain or consolidate control of us and become obliged to make a mandatory offer in accordancewith Rule 26 of the Takeovers Code. Save as aforesaid, our Directors are not aware of any
consequences which would arise under the Takeovers Code as a consequence of any
repurchases pursuant to the Repurchase Mandate.
No core connected person has notified us that he or she has a present intention to sell
Shares to us, or has undertaken not to do so, if the Repurchase Mandate is exercised.
6.

Status of repurchases securities

Under our Articles, our Company shall without delay cancel any treasury stock* (自己株式)
acquired by us through the resolution of our Board of Directors or decision of Executive Officer(s)authorised by our Board, if such cancellation is required under the Listing Rules. Hence, incompliance with Rule 10.06(5) of the Listing Rules, the listing of all repurchased securities(whether effected on Stock Exchange or otherwise) will be cancelled without undue delay and thecertificates for those securities will be cancelled and destroyed. The number of Shares issued by
our Company shall also be reduced accordingly.
C.

FURTHER INFORMATION ABOUT OUR BUSINESS

1.

Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course of business)were entered into by members of our Group within the two years immediately preceding the dateof this Prospectus and are or may be material:(a)the share acquisition agreement dated 29 September 2014 entered into between
Niraku Corporation (as transferee) and Mr. Tatsuo TANIGUCHI (谷口龍雄) (astransferor), pursuant to which Niraku Corporation acquired 150 common shares*(普通株式) in Nexia, in consideration for an aggregate of ¥29,255,550;(b)

the share acquisition agreement dated 29 September 2014 entered into between Nexia(as transferee) and Hokuyo Kanko Limited* (有限会社北陽観光) (as transferor), pursuant
to which Nexia re-purchased 750 common shares* (普通株式) in Nexia, at an agreed
consideration of ¥146,277,750 and an actual settlement amount of ¥117,939,333
upon deduction of withholding tax;

VI-11

APPENDIX VI

STATUTORY AND GENERAL INFORMATION(c)the share acquisition agreement dated 29 September 2014 entered into between Nexia(as transferee) and Densho Limited* (有限会社伝承) (as transferor), pursuant to which
Nexia re-purchased 750 common shares* (普通株式) in Nexia, at an agreed
consideration of ¥146,277,750 and an actual settlement amount of ¥117,939,333
upon deduction of the applicable withholding tax;(d)the share acquisition agreement dated 29 September 2014 entered into between Nexia(as transferee) and Jukki Limited* (有限会社十起) (as transferor), pursuant to which
Nexia re-purchased 750 common shares* (普通株式) in Nexia, at an agreed
consideration of ¥146,277,750 and an actual settlement amount of ¥117,939,333
upon deduction of the applicable withholding tax;(e)the share acquisition agreement dated 29 September 2014 entered into between Nexia(as transferee) and KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA) (as transferor),pursuant to which Nexia re-purchased 300 common shares* (普通株式) in Nexia, at anagreed consideration of ¥58,511,100 and an actual settlement amount of ¥47,175,733
upon deduction of the applicable withholding tax;(f)

the Deed of Non-Competition;(g)

the Deed of Indemnity; and(h)the Hong Kong Underwriting Agreement.

2.

Our material intellectual property rights(a)TrademarkAs at the Latest Practicable Date, we were the registered owner of the following trademarks
which we believe are material to our business:

TrademarkPlace ofRegistration

Class

Registration
numberRegistration
date

Expiry date

Japan

41

4667124

25 April 2003

25 April 2023

Japan

41

5516181

17 August 201217 August 2022

Japan

41

5516180

17 August 201217 August 2022

Japan

41

4770832

14 May 2004

14 May 2024

VI-12

APPENDIX VI

STATUTORY AND GENERAL INFORMATION
Place ofTrademarkRegistration

Registration

RegistrationClass

numberdate

Expiry date

Japan

41

4770833

14 May 2004

14 May 2024

Japan

41

4770834

14 May 2004

14 May 2024

Japan

41

4728949

28 November

28 November

2003

2023

Japan

41

5162142

29 August 2008

29 August 2018

N I RAK U

Japan

41

4686994

27 June 2003

27 June 2023

二ラク

Japan

41

468699327 June 2003

27 June 2023

As at the Latest Practicable Date, we had applied for the registration of the following
trademarks which we believe are material to our business:

Trademark(b)

Place ofregistration

Class

Application
numberFiling date

Hong Kong

16, 28, 41, 42

303136743

16 September 2014

Hong Kong

16, 28, 41, 42

303136734

16 September 2014

Hong Kong

16, 28, 35, 41, 42

303136725

16 September 2014

Hong Kong

16, 28, 35, 41, 42

303198259

12 November 2014

Domain names

As at the Latest Practicable Date, we were the registered owner of two domain names,
www.ngch.co.jp and www.niraku.co.jp, which we believe are material to our business.

VI-13

APPENDIX VI

STATUTORY AND GENERAL INFORMATIOND.

FURTHER INFORMATION ABOUT OUR DIRECTORS, CHIEF EXECUTIVE OFFICER
AND SUBSTANTIAL SHAREHOLDERS

1.

Disclosure of interests(a)Interests of the Directors and the Chief Executive Officer in our share capitaland our associated corporations following the Global Offering

The table below sets out the interests of our Directors and Chief Executive Officer
immediately following the completion of the Global Offering (assuming the Over-allotment Option
is not exercised) in the Shares, underlying Shares or debentures of us or any of our associatedcorporations (within the meaning of Part XV of the SFO) which will have to be notified to us andthe Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests andshort positions in which they are taken or deemed to have under such provisions of the SFO), or
which will be required, pursuant to section 352 of the SFO, to be entered in the register referredto therein, or which will be required to be notified to us and the Stock Exchange pursuant to theModel Code for Securities Transactions by Directors of Listed Issuers contained in the Listing
Rules, once the Shares are listed:
Approximate
Number andclass ofpercentage ofshareholding in
the total issued

Relevant
company

Sharesimmediately

share capital of
the relevant

Capacity/natureof interest(including
associatedcorporation)

after theGlobalOffering

company after
the Global
Offering

Our Chairman . . . . . . . . . . . . . Beneficial interest (1)Our Company

224,480,460
common Shares

18.8%

Name of Director(s)/Chief Executive Officer

Notes:(b)(1)

The interests held by our Chairman shown above include the 212,980,460 Shares held in his own name forhis own benefit and the 11,500,000 Shares held by Densho Limited* (有限会社伝承), a company collectively
wholly-owned by his children, the voting rights of which are exercisable by our Chairman.

(2)

Shareholding percentages are approximate and subject to rounding.

Interests of the substantial shareholders in the Shares which are discloseable
under Division 2 and 3 of Part XV of the SFO

Immediately following the completion of the Global Offering (assuming the Over-allotment
Option is not exercised), so far as our Directors are aware, the following persons (not being a
Director or a Chief Executive Officer of ours) will have an interests or short position in the Sharesor underlying Shares which would fall to be disclosed to us and the Stock Exchange under theprovisions of Divisions 2 and 3 of Part XV of the SFO, or who will, directly or indirectly, be

VI-14

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

interested in 10% or more of the nominal value of any class of share capital carrying rights to votein all circumstances at general meetings of any other member of our Group:
Approximate
percentage ofshareholding in
the total issued

Name

Relevant

Number andcompanyclass of Shares

the relevant

Capacity/nature(including
associatedimmediately
after the Global

company after
the Globalof interest

corporation)

Offering

Offering

223,790,000

18.5%

Tatsuo TANIGUCHI (谷口龍雄) . . Beneficial interest;

Our Company

custodian (1)Masataka TANIGUCHI

share capital ofcommon Shares

Beneficial interest;

Our Company(谷口晶貴) . . . . . . . . . . . . . custodian (2)151,570,000

12.7%

common Shares

Yoshihiro TEI (鄭義弘) # (also

Our Company

98,440,000
common Shares

8.3%

SMBC Trust Bank Ltd.*
Trustee (1), (2), (3)(株式会社SMBC信託銀行) . . .

Our Company

229,137,500
common Shares

19.1%

ESOA . . . . . . . . . . . . . . . . . Custodian (4)Our Company

61,870,000
common Shares

5.2%

Seiai HATOYAMA (鳩山正愛) . . . Interest of a spouse (5) Our Company

224,480,460
common Shares

18.8%

Hideko TANIGUCHI (谷口秀子) . . Interest of a spouse (6) Our Company

223,790,000
common Shares

18.5%

Eiko TANIGUCHI (谷口栄子) . . . . Interest of a spouse (7) Our Company

151,570,000
common Shares

12.7%

Keie TEI (鄭慶恵) . . . . . . . . . . Interest of a spouse (8) Our Company

98,440,000
common Shares

8.3%

Hidenori TANIGUCHI (谷口秀憲) . Interest of a child (9)Our Company

224,480,460
common Shares

18.8%

Yuryon TANIGUCHI (谷口有鈴) . . Interest of a child (9)Our Company

224,480,460
common Shares

18.8%

Hirohide TANIGUCHI (谷口博秀) . Interest of a child (9)Our Company

224,480,460
common Shares

18.8%

Yuri TANIGUCHI (谷口裕里) . . . . Interest of a child (9)Our Company

224,480,460
common Shares

18.8%

Masahide TEI (鄭將英)# (alsoInterest of a child;
known as JEONG Jangyeong) beneficial interest (10)Our Company

98,440,000
common Shares

8.3%

Akinori TEI (鄭敬憲)# (alsoInterest of a child;
known as JEONG
beneficial interest (10)Kyeongheon) . . . . . . . . . . .

Our Company

98,440,000
common Shares

8.3%

Beneficial interest;
known as JEONG Jungwung) . custodian (3)VI-15

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

Notes:(1)

The interests held by Mr. Tatsuo TANIGUCHI (谷口龍雄) shown above include: (i) 161,690,000 Shares heldin his own name for his own benefit, (ii) 19,320,000 Shares held by Jukki Limited* (有限会社十起), a company
collectively wholly-owned by his children, the voting rights of which are exercisable by Mr. Tatsuo TANIGUCHI(谷口龍雄); (iii) 1,380,000 Shares held by KAWASHIMA Co., Ltd.* (株式会社KAWASHIMA), a company
collectively wholly-owned by our Chairman, Mr. Tatsuo TANIGUCHI (谷口龍雄) and Mr. Masataka TANIGUCHI(谷口晶貴), the voting rights of which are exercisable by Mr. Tatsuo TANIGUCHI (谷口龍雄); and (iv)
41,400,000 Shares held by the TT Family Trust for the benefit of his children, namely Ms. Yoshika TEI(鄭淑佳) # (also known as Ms. JEONG Sukka), Mr. Kousei TEI (鄭光誠) # (also known as Mr. CHONG Gangsong)and Mr. Kiyokazu TANIGUCHI (谷口清和). SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行) is the trustee andassignee* (受託者) of the TT Family Trust and Mr. Tatsuo TANIGUCHI (谷口龍雄) is entitled to exercise thevoting rights attached to the Shares under the TT Family Trust. The interests under the TT Family Trust are
equally distributed among the three beneficiaries under the TT Family Trust.

(2)

The interests held by Mr. Masataka TANIGUCHI (谷口晶貴) shown above include: (i) 11,442,500 Shares heldin his own name for his own benefit; (ii) 5,750,000 Shares held by Hokuyo Kanko Limited* (有限会社北陽観光), a company collectively wholly-owned by his children, the voting rights of which are exercisable by Mr.
Masataka TANIGUCHI (谷口晶貴); and (iii) 134,377,500 Shares held by the MT Family Trust for the benefit of
his children, namely Mr. Tatsunari TANIGUCHI (谷口辰成) # (also known as Mr. CHONG Jinsong), Mr. Takanari
TANIGUCHI (谷口喆成) # (also known as Mr. JEONG Cheolseong) and Mr. Toshinari TANIGUCHI (谷口才成) #(also known as Mr. CHUNG Jaeseong). SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行) is the trustee andassignee* (受託者) of the MT Family Trust and Mr. Masataka TANIGUCHI (谷口晶貴) is entitled to exercise thevoting rights attached to the Shares under the MT Family Trust. The interests under the MT Family Trust are
equally distributed among the three beneficiaries under the MT Family Trust.

(3)

The interests held by Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) shown above include:(i) 33,580,000 Shares held in his own name for his own benefit; (ii) 11,500,000 Shares held by Daiki Limited*(有限会社大喜), a company collectively wholly-owned by his children, the voting rights of which are
exercisable by Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung); and (iii) 53,360,000 Shares
held by the YT Family Trust for the benefit of his children, namely Mr. Akinori TEI (鄭敬憲) # (also known as
JEONG Kyeongheon) and Mr. Masahide TEI (鄭將英) # (also known as JEONG Jangyeong). SMBC Trust Bank
Ltd.* (株式会社SMBC信託銀行) is the trustee and assignee* (受託者) of the YT Family Trust and Mr. Yoshihiro
TEI (鄭義弘) # (also known as JEONG Jungwung) is entitled to exercise the voting rights attached to the
Shares under the YT Family Trust. The interests under the YT Family Trust are equally distributed among thetwo beneficiaries under the YT Family Trust.

(4)

The ESOA is the registered owner of 61,870,000 Shares held for the benefit of the members of the ESOA,
who are current employees of our Group. The voting rights attached to the Shares held by the ESOA are
exercisable by its president* (理事長), currently Mr. Takashi ENDO (遠藤孝), who is not a core connected
person of our Company.

(5)

Mrs. Seiai HATOYAMA (鳩山正愛) is the spouse of our Chairman and is therefore deemed to be interested
in the Shares that our Chairman is interested in under the SFO.

(6)

Mrs. Hideko TANIGUCHI (谷口秀子) is the spouse of Mr. Tatsuo TANIGUCHI (谷口龍雄) and is therefore
deemed to be interested in the Shares that Mr. Tatsuo TANIGUCHI (谷口龍雄) is interested in under the SFO.

(7)

Mrs. Eiko TANIGUCHI (谷口栄子) is the spouse of Mr. Masataka TANIGUCHI (谷口晶貴) and is therefore
deemed to be interested in the Shares that Mr. Masataka TANIGUCHI (谷口晶貴) is interested in under the
SFO.

(8)

Mrs. Keie TEI (鄭慶恵) is the spouse of Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG Jungwung) and istherefore deemed to be interested in the Shares that Mr. Yoshihiro TEI (鄭義弘) # (also known as JEONG
Jungwung) is interested in under the SFO.

VI-16

APPENDIX VI(9)STATUTORY AND GENERAL INFORMATION

Mr. Hidenori TANIGUCHI (谷口秀憲), Ms. Yuryon TANIGUCHI (谷口有鈴), Mr. Hirohide TANIGUCHI (谷口博秀)
and Ms. Yuri TANIGUCHI (谷口裕里) are the children of our Chairman under the age of 18 and are therefore
deemed to be interested in the Shares that our Chairman is interested in under the SFO.

(10)

Ms. Masahide TEI (鄭將英) # (also known as JEONG Jangyeong) and Mr. Akinori TEI (鄭敬憲) # (also known as
JEONG Kyeongheon) are the children of Mr. Yoshihiro TEI (鄭義弘) # (also known as Mr. JEONG Jungwung)
under the age of 18 and are therefore deemed to be interested in the Shares that Mr. Yoshihiro TEI (鄭義弘) #(also known as Mr. JEONG Jungwung) is interested in under the SFO. In addition, they are the beneficiaries
under the YT Family Trust.

(11)

Shareholding percentages are approximate and subject to rounding.

Save as disclosed in this Prospectus, our Directors are not aware of any persons who will,
immediately following completion of the Global Offering (assuming the Over-allotment Option is
not exercised), have an interest or a short position in the Shares or underlying Shares which
would fall to be disclosed to our Company under the provisions of Divisions 2 and 3 of Part XVof the SFO, or, will be, directly or indirectly, interested in 10% or more of the nominal value of any
class of share capital carrying rights to vote in all circumstances in the general meetings of ourCompany. Our Directors are not aware of any arrangement which may at a subsequent date resultin a change of control of our Company.
(c)

Negative statement regarding interests in securities

None of our Directors or our Chief Executive Officer will immediately following thecompletion of the Global Offering (assuming the Over-allotment Option is not exercised) have any
disclosure interests (as referred to in (a) above), other than as disclosed at (a) above.
Without taking into account Shares which may be taken up under the Global Offering, noneof our Directors know of any persons who will immediately following the completion of the Global
Offering (assuming the Over-allotment Option is not exercised) have a notifiable interest (for the
purposes of the SFO) in the Shares or, having such a notifiable interest, have any short positions(within the meaning of the SFO) in the Shares, other than as disclosed at (b) above.
2.

Particulars of Directors’ service agreement and letters of appointment

Our Executive Director has signed a service agreement with us for a term commencing on
16 March 2015 and expiring at the close of the annual general meeting relating to the most recent
financial year ending within one year (subject to termination in certain circumstances as
stipulated in the service agreement).
The annual remuneration payable to our Executive Director by our Group (excluding
discretionary bonus) is ¥30,480,000.
Each of our Independent Non-executive Directors has signed a letter of appointment with us
for a term commencing on 16 March 2015 and expiring at the close of the annual general meeting
relating to the most recent financial year ending within one year (subject to termination in certain
circumstances as stipulated in the relevant letters of appointment).

VI-17

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

The annual remuneration payable to each of our Independent Non-executive Directors under
the relevant letters of appointment is as follows:
Director

Remuneration (per annum)

Hiroaki MORITA 森田弘昭 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norio NAKAYAMA 中山宣男 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Masaharu TOGO 東郷正春 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hiroaki KUMAMOTO 熊本浩明 . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.

¥3,600,000¥3,600,000¥3,600,000¥4,800,000

Agency fees or commission

Save as disclosed in this Prospectus, within the two years immediately preceding the dateof this Prospectus, no commissions, discounts, brokerage or other special terms have been
granted in connection with the issue or sale of any share or loan capital of us or any of our
subsidiaries.
4.

Related party transactions

For details of our related party transactions, see Note 35 to the Accountant’s Report set out
in Appendix I to this Prospectus.
E.

DISCLAIMERS
Save as disclosed herein:(a)None of our Directors or our Chief Executive Officer has any interest or short positionin the shares, underlying shares or debentures of us or any of our associatedcorporation (within the meaning of the SFO) which will have to be notified to us and theStock Exchange pursuant to Division 7 and 8 of Part XV of the SFO of which will be
required, pursuant to section 352 of the SFO, to be entered in the register referred totherein, or which will be required to be notified to us and the Stock Exchange pursuant
to Model Code for Securities Transactions by Directors of Listed Companies once theShares are listed;(b)None of our Directors or experts referred to in “— F. Other Information — 7.
Qualifications of Experts” in this Appendix has any direct or indirect interest in the
promotion of us, or in any assets which have within the two years immediately
preceding the date of this Prospectus been acquired or disposed of by or leased to any
member of our Group, or are proposed to be acquired or disposed of by or leased toany members of our Group;(c)None of our Directors or experts referred to in “— F. Other Information — 7.
Qualifications of Experts” in this Appendix is materially interested in any contract orarrangement subsisting at the date of this Prospectus which is significant in relation to
the business of our Group taken as a whole;

VI-18

APPENDIX VI

STATUTORY AND GENERAL INFORMATION(d)

None of our Directors has any existing or proposed service contracts with any memberof our Group (excluding contracts expiring or determinable by the employer within one
year without payment of compensation (other than statutory compensation));(e)

Taking into account Shares which may be taken up under the Global Offering or upon
exercise of the Over-allotment Option, none of our Directors knows of any person (notbeing a Director or Chief Executive Officer of us) who will, immediately following thecompletion of the Global Offering, have an interest of short position in the shares orunderlying shares of us which would fall to be disclosed to us under the provisions ofDivision of 2 and 3 of Part XV of the SFO or to be interested, directly or indirectly, in
10% or more of the nominal value of any class of share capital carrying rights to votein all circumstances at general meetings of any members of our Group;(f)None of the experts referred to in “— F. Other Information — 7. Qualifications ofExperts” in this Appendix has any shareholding in any member of our member of ourGroup or the right (whether legally enforceable or not) to subscribe for or to nominate
persons to subscribe for securities in any member of our Group;(g)

So far as is known to the Directors, none of our Directors, their respective close
associates (as defined under the Listing Rules) or shareholders who are interested in
more than 5% of our share capital have any interests in the give largest customers or
the five largest suppliers of our Group.

F.

OTHER INFORMATION

1.

Litigation

As at the Latest Practicable Date, we were not engaged in any litigation, arbitration or claimof material importance and no litigation, arbitration or claim of material importance is known to
our Directors to be pending or threatened by or against us, that would have a material adverse
effect on our results of operations or financial condition.
2.

Preliminary expenses and the Sole Sponsor’s fees
Our preliminary expenses were approximately ¥457,699 and were paid by us.

The Sole Sponsor will be paid by our Company an aggregate fee of US$800,000 to act as
the sponsor to the Listing.
3.

Promoter

Our Company has no promoter for the purpose of the Listing Rules. Within the two years
immediately preceding the date of this Prospectus, no cash, securities or other benefit has been
paid, allotted or given or is proposed to be paid, allotted or given to any promoter in connection
with the Global Offering and the related transactions described in this Prospectus.

VI-19

APPENDIX VI
4.

STATUTORY AND GENERAL INFORMATION

Application for Listing

The Sole Sponsor has made an application on behalf of our Company to the Listing
Committee of the Stock Exchange for the listing of, and permission to deal in, the Shares: (i) in
issue; (ii) to be issued pursuant to the Global Offering; and (iii) to be issued upon exercise of theOver-allotment Option. All necessary arrangements have been made to enable the securities tobe admitted into CCASS.
5.

No material adverse change

Our Directors confirm that save as disclosed in this Prospectus, there has been no material
adverse change in our financial or trading position, indebtedness, mortgage, contingent
liabilities, guarantees or prospects of our Group since 30 September 2014 (the date of the latest
audited consolidated financial statements of our Group) and up to the date of this Prospectus.
6.

Agency fees and commissions received

The Underwriters will receive an underwriting commission as referred to in “Underwriting —Underwriting Arrangements and Expenses — Commissions and Expenses”.
7.

Qualifications of experts

The qualifications of the experts (as defined under the Listing Rules and the Companies(Winding Up and Miscellaneous Provisions) Ordinance) who have given their opinion and/or
advice in this Prospectus are as follows:
Name

Qualifications

Shenyin Wanguo Capital (H.K.) Limited . . Licensed under the SFO to conduct type 1(dealing in securities), type 4 (advising on
securities), type 6 (advising on corporate
finance) regulated activities as defined under
the SFO
Soga Law Office . . . . . . . . . . . . . . . . . . . . Qualified lawyers in Japan
PricewaterhouseCoopers . . . . . . . . . . . . . Certified public accountants
PricewaterhouseCoopers Limited . . . . . . . Independent anti-money laundering consultant
Zeirishi-Hojin PricewaterhouseCoopers* Qualified tax accountants in Japan(税理士法人プライスウォーターハウス
クーパース ) . . . . . . . . . . . . . . . . . . . . .
Entertainment Business Institute* (株式会 Research and analysis services provider
社エンタテインメントビジネス総合研究所) . . . . . . . . . . . . . . . . . . . . . . . . . . .
DTZ Debenham Tie Leung Limited . . . . . . Chartered surveyors and valuers

VI-20

APPENDIX VI
8.

STATUTORY AND GENERAL INFORMATION

Consents

Each of the experts listed in the preceding paragraph has given and has not withdrawn theirrespective written consents to the issue of this Prospectus with the inclusion of their reports
and/or letters and/or the references to their names included herein in the form and context inwhich they are respectively included.
9.

Binding effectThis Prospectus shall have the effect, if an application is made in pursuance of it, ofrendering all persons concerned bound by all of the provisions (other than the penal provisions)of sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provisions) Ordinanceso far as applicable.
10. Taxation of holders of our Shares
See “Key Japan Legal and Regulatory Matters — E. Taxation” for details.
Our Controlling Shareholders (as indemnifiers) have entered into the Deed of Indemnity infavour of our Company (for itself and as trustee for each of our subsidiaries) on 16 March 2015,
pursuant to which they have, amongst others, agreed and undertaken, jointly and severally, with
our Company to indemnify our Company (on its own behalf and as a trustee for our subsidiaries)
and at all times keep the same fully indemnified on demand from and against any tax liability
falling on any member of our Group resulting from, or by reference to any income, profit or gains,earned, accrued or received and/or assets acquired on or before the date on which the Global
Offering becomes unconditional.
11. Miscellaneous
Save as otherwise disclosed in this Prospectus:(i)

within the two years immediately preceding the date of this Prospectus, no share orloan capital of our Company or of any of our principal operating subsidiaries has been
issued agreed to be issued or is proposed to be issued fully or partly paid either for
cash or for a consideration other than cash;(ii)

within the two years immediately preceding the date of this Prospectus, nocommissions, discounts, brokerages or other special terms have been granted inconnection with the issue or sale of any share or loan capital of our Company or anyof our principal subsidiaries;(iii)

within the two years preceding the date of this Prospectus, no commission has been
paid or is payable (except commissions to underwriters) for subscribing or agreeing to
subscribe, or procuring or agreeing to procure the subscriptions, for any Shares in our
Company;

VI-21

APPENDIX VI

STATUTORY AND GENERAL INFORMATION(iv)

neither our Company nor any of our subsidiaries have issued or agreed to issue any
founder shares, management shares or deferred shares;(v)

no share or loan capital of our Company or any of our consolidated subsidiaries isunder option or is agreed conditionally or unconditionally to be put under option;(vi)none of the parties (save in connection with the Underwriting Agreement) listed in “—
F. Other Information — 7. Qualification of experts” in this Appendix:(a)is interested legally or beneficially in any securities of any member of our Group;or(b)

has any right or option (whether legally enforceable or not) to subscribe for or tonominate persons to subscribe for securities in any member of our Group;(vii) no company within our Group is presently listed on any stock exchange or traded on
any trading system;(viii) there is no arrangement under which future dividends are waived or agreed to be
waived;(ix)

our Directors confirm that our Company has no outstanding convertible debt securities
or debentures; and(x)there has not been any interruption in the business of our Group which may have or
have had a significant effect on the financial position of our Group in the 12 months
immediately preceding the date of this Prospectus.

12. Estate duty
Our Directors have been advised that no material liability for estate duty is likely to fall on
our Company or any of our subsidiaries.
13. Bilingual Prospectus
The English language and Chinese language versions of this Prospectus are being publishedseparately, in reliance upon the exemption provided under section 4 of the Companies Ordinance(Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter
32L of the Laws of Hong Kong).
14. Independence of the Sole Sponsor
Shenyin Wanguo Capital (H.K.) Limited satisfies the independence criteria applicable tosponsors set out in Rule 3A.07 of the Listing Rules.

VI-22

APPENDIX VI

STATUTORY AND GENERAL INFORMATION

15. Disclosure required under the Japan Companies Act
Under the Japan Companies Act, we are required to inform you, as potential investors:(A)

that in respect of both the Global Offering and the Over-allotment Option: (i) the“issuance period”* (払込期間) (as referred to under the Japan Companies Act) shall be
8 April 2015 (being the currently expected Listing Date) to 26 April 2015 (being the last
day on which the Over-allotment Option may be exercised); (ii) the “minimum amountof payment”* (払込金額) (as referred to under the Japan Companies Act) shall be
HK$0.01 per Share; (iii) 50% (subject to rounding as prescribed under the Japan
Companies Act) of the “minimum amount of payment”* (払込金額) (as referred to under
the Japan Companies Act) (being HK$0.01 per Share) received under the Global
Offering and the Over-allotment Option shall be capitalised and allocated to our core
capital* (資本金) and capital reserve* (資本準備金) (as referred to under the Japan
Companies Act); and (iv) the “payment handling financial institution”* (払込取扱金融機関) (as referred to under the Japan Companies Act and to which the “minimum amountof payment”* (払込金額) of the Global Offering shall be delivered before the Offer
Shares are issued or, in case of the Over-allotment Option, the issue date of theOver-allotment Shares) shall be the Hong Kong branch of Mizuho Bank, Ltd.* (株式会社みずほ銀行香港支店). In addition, the number of Offer Shares initially available under
the Global Offering (being 300,000,000 Shares) and the number of Over-allotment
Shares (being 45,000,000 Shares) shall, respectively, constitute the “number of shares
to be issued”* (募集株式の数) (as referred to under the Japan Companies Act) for the
Global Offering and the Over-allotment Option;(B)

that our current share registrar / transfer agent in Japan is Tokyo Securities Transfer
Agent Co., Ltd.* (東京証券代行株式会社), the address of whom is 2-6-2 Otemachi,
Chiyoda-ku, Tokyo 100-0004, Japan. We will discontinue our relationship with ourcurrent Japan share registrar / transfer agent prior to the Listing and our Hong Kong
Share Registrar will become our sole share registrar / transfer agent, maintaining oursole Share Register in Hong Kong. See “Key Japan Legal and Regulatory Matters — A.
Bearer Shares — Voluntary measures adopted by our Company — 2. Single Share
Register maintained in Hong Kong” for further details; and(C)about the existence of: (i) one class-A share* (A種株式) that was previously issued by
us and cancelled by our Board on 9 December 2014 as referred to in paragraph (b)under “— A. Further Information about our Company — 2. Changes in the Capital
Structure of our Company” in this section above; and (ii) our class-B shares/common
Shares* (B種株式/普通株式), which as of the date of this Prospectus comprises
895,850,460 Shares and would be converted to common Shares* (普通株式) upon
Listing. For further information about our current capital structure, you may refer to ourcurrent articles of incorporation* (定款) (which will be replaced by our Articles upon
Listing), a copy of which is available for inspection as mentioned in “Appendix VII —Documents Delivered to the Registrar of Companies and Available for Inspection —Documents Available for Inspection”. Our only class-A share has been cancelled and
we are bound by our Articles not to issue any class of shares other than our common
Shares* (普通株式) after the Listing.

VI-23

APPENDIX VII

DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND AVAILABLE FOR INSPECTION

DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIESThe documents attached to a copy of this Prospectus and delivered to the Registrar ofCompanies in Hong Kong for registration were: (i) copies of the WHITE, YELLOW and GREEN
Application Forms; (ii) copies of each of the material contracts referred to in paragraph (n) of thisAppendix; and (iii) the consent letters referred to in paragraph (p) of this Appendix.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the office of Deacons,
5/F Alexandra House, 18 Chater Road, Central, Hong Kong during normal business hours up to
and including the date which is 14 days from the date of this Prospectus:(a)our Articles and a certified English translation of the same;(b)

our current articles of incorporation* (定款) (which will be replaced by our Articles upon
Listing) together with a certified English translation of the same;(c)an English translation of the Japan Companies Act;(d)the accountant’s report from PricewaterhouseCoopers, the text of which is set out inAppendix I to this Prospectus;(e)the report from PricewaterhouseCoopers on our unaudited pro forma financial
information, the text of which is set out in Appendix II to this Prospectus;(f)the audited financial statements as have been prepared for the companies comprising
our Group for the three financial years ended March 31, 2012, 2013 and 2014 and thesix months ended 30 September 2014;(g)the letter of advice issued by Soga Law Office, our Japan Legal Adviser, summarisingcertain aspects of our Articles, the Japan Companies Act and certain Japan laws,
regulations and legislations, as referred to in Appendix V to this Prospectus;(h)the Japan legal opinion prepared by Soga Law Office, our Japan Legal Adviser, inrespect of our general matters, our property interests in Japan and our Articles;(i)the Japan legal opinion prepared by Soga Law Office, our Japan Legal Adviser, inrespect of our operations under the Three Party System in Japan;(j)the commissioned report prepared by EBI on, among others, the Japanese economy
and the pachinko industry in Japan, as referred to in “Industry Overview”;

VII-1

APPENDIX VII

DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND AVAILABLE FOR INSPECTION(k)the letter, summary of valuations and valuation certificates prepared by DTZ Debenham
Tie Leung Limited, our independent Property Valuer, the text of which is set out inAppendix III to this Prospectus;(l)the independent assurance report dated 24 March 2015 issued byPricewaterhousecoopers Limited, our AML Consultant, in respect of the design andoperation of certain anti-money laundering controls of our Group which have been put
in place for the period from 1 October 2014 to 28 February 2015 to achieve selectedinternal control objectives that have been adopted by our Directors, the text of which
is set out in Appendix IV to this Prospectus;(m) the Japanese tax opinion letter dated 24 March 2015 issued by Zeirishi-Hojin
PricewaterhouseCoopers* (税理士法人プライスウォーターハウスクーパース), our Tax
Adviser, in respect of (1) our potential investor’s exposure to (i) Japanese withholding
tax on dividend payments from our Company; (ii) Japanese capital gains tax fromdealing in the Shares of our Company; (iii) Japanese stamp duty on issue of sharecertificates; (iv) Japanese inheritance tax and gift tax from the acquisition of the Sharesof our Company as legatee, donee and heir; (2) our Company’s exposure to Japanese
withholding tax on dividend payments from our subsidiaries; and (3) the Japanese
corporate income tax rates applicable to our Group during the Track Record Period, as
referred to in “Key Japan Legal and Regulatory Matters — E. Taxation”;(n)the material contracts referred to in “Appendix VI — Statutory and General Information— C. Further information about our business — 1. Summary of material contracts”;(o)the service agreement and letters of appointment referred to in “Appendix VI —Statutory and General Information — D. Further information about our Directors, Chief
Executive Officer and Substantial Shareholders — 2. Particulars of Directors’ service
agreement and letters of appointment”;(p)

the consent letters referred to in “Appendix VI — Statutory and General Information —F. Other information — 8. Consents”; and(q)this Prospectus.

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