Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong
Limited take no responsibility for the contents of this announcement, make norepresentation as to its accuracy or completeness and expressly disclaim any liability
whatsoever for any loss howsoever arising from or in reliance upon the whole or any
part of the contents of this announcement.

(Incorporated in Japan with limited liability)(Stock Code: 1245)

INTERIM RESULTS ANNOUNCEMENTFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
RESULTS HIGHLIGHTS

#

*

•

Gross pay-ins were ¥70,770 million (or HK$5,140 million#), recording a decreaseof 0.6% as compared with the same period last year;•

Revenue was ¥14,391 million (or HK$1,046 million #), recording a decrease of
0.3% as compared with the same period last year;•

Profit before income tax was ¥893 million (or HK$65 million # ), recording adecrease of ¥500 million (or HK$36 million) as compared with the same period
last year;•

Profit for the period attributable to shareholders of the Company was ¥496
million (or HK$36 million # ), recording a decrease of ¥382 million (or HK$28
million) as compared with the same period last year;•

Basic earnings per share of the Company was ¥0.41 (or HK$0.030 # ) (2018:¥0.73);•The Board has resolved to declare an interim dividend of ¥0.10 (or HK$0.007)
per share for the six months ended 30 September 2019 (Six months ended 30
September 2018: ¥0.08 per share); and•The Group operated 53 halls as at 30 September 2019.
Translated into Hong Kong dollar at the rate of ¥13.77 to HK$1.00, the exchange rate prevailingon 30 September 2019 (i.e. the last business day in September 2019).

For identification purpose only

–1–The board (the “Board”) of directors (the “Directors”) of NIRAKU GC HOLDINGS, INC.*(the “Company” or “NIRAKU”) is pleased to announce the unaudited condensed
consolidated results of the Company and its subsidiaries (the “Group”) for the six
months ended 30 September 2019 together with the comparative figures for the six
months ended 30 September 2018 as follows:
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Note

Six months ended
30 September
2019
2018
¥ million¥ million(Unaudited)(Unaudited)

Revenue

4

14,391

14,438Other income
Other (losses)/gains, net
Hall operating expenses
Administrative and other operating expenses

5
5
6
6

441
(52)
(10,850)(2,348)319
36(11,166)(2,011)

Operating profit

1,582

1,616

Finance income
Finance costs

31
(720)

24
(247)

Finance costs, net

7

(689)

(223)

Profit before income tax
Income tax expense

8

893
(516)

1,393
(538)

Profit for the period

377

855

Profit for the period attributable to:
Owners of the Company
Non-controlling interest

496
(119)

878
(23)

377

855

–2–

Note

Six months ended
30 September
2019
2018
¥ million¥ million(Unaudited)(Unaudited)

Other comprehensive income
Items that have been reclassified or may besubsequently reclassified to profit or loss
Currency translation differences
Items that will not be reclassified to profit or loss
Change in value of financial assets throughother comprehensive income

(20)

173

(124)

(5)

Total comprehensive income for the period

233

1,023

Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest

351
(118)

1,049
(26)

233

1,023

0.41

0.73

Earnings per share for profit attributable toowners of the Company— Basic and diluted (expressed in ¥ per share)–3–9CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Investment properties
Intangible assets
Prepayments, deposits and other receivables
Interest in an associate
Financial assets at fair value through profit or loss
Financial assets at fair value through othercomprehensive income
Deferred income tax assets

Current assets
Inventories
Trade receivables
Prepayments, deposits and other receivables
Financial assets at fair value through profit or loss
Bank deposits with maturity over 3 months
Cash and cash equivalents

Total assets–4–

30 September
Note
2019
¥ million(Unaudited)

31 March2019¥ million(Audited)

24,097
34,828
640
1,655
3,820
–
–

28,523
–
650
1,662
4,208
–
100

734
2,189

911
1,588

67,96337,642

300
89
1,404
103
515
14,129

109
53
1,020
–
43
15,176

16,54016,401

84,50354,043

11
3
11
11

12

30 September
2019¥ million(Unaudited)

31 March2019¥ million(Audited)

EQUITY
Equity attributable to shareholdersof the Company
Share capital
Reserves

3,000
23,7983,000
24,617

Non-controlling interest

26,798(224)

27,617(106)

Total equity

26,57427,511

10,941
32,6992,250
29

11,792
2,717
2,226
27

45,91916,762

178
4,440
2,787
4,220
5
380

294
4,290
703
4,353
4
126

12,0109,770

Total liabilities

57,92926,532

Total equity and liabilities

84,50354,043Note

LIABILITIES
Non-current liabilities
Borrowings
Lease liabilities
Provisions and other payables
Derivative financial instruments

143

Current liabilities
Trade payables
Borrowings
Lease liabilities
Accruals, provisions and other payables
Derivative financial instruments
Current income tax liabilities

13
14
3

–5–

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
1GENERAL INFORMATION
株式会社二ラク•ジー•シー•ホールディングスNIRAKU GC HOLDINGS, INC.* was incorporated inJapan under the Japan Companies Act with limited liability on 10 January 2013. The address of its
registered office is 1-39 Hohaccho 1-chome, Koriyama-shi, Fukushima, Japan.
The Company is an investment holding company. The Company and its subsidiaries comprising theGroup (together, the “Group”) are principally engaged in pachinko and pachislot hall operations,hotel and restaurant operations in Japan, and entertainment and amusement arcade operations inSoutheast Asian countries.
The Company has its primary listing on The Stock Exchange of Hong Kong Limited on 8 April 2015.
This condensed consolidated interim financial information is presented in millions of Japanese Yen(“¥”), unless otherwise stated.

2

BASIS OF PREPARATIONThis condensed consolidated interim financial report for the six months ended 30 September 2019
have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim
Financial Reporting” issued by the International Accounting Standards Board (“IASB”). The
condensed consolidated interim report does not include all the notes of the type normally included in
an annual financial report. Accordingly, this condensed consolidated interim financial report should
be read in conjunction with the annual financial statements for the year ended 31 March 2019, whichhave been prepared in accordance with International Financial Reporting Standards (“IFRSs”).

3

ACCOUNTING POLICIESExcept as described below, the accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 March 2019, as described in those annual financial
statements.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable toexpected total annual earnings.
New standards and amendments to standards adopted by the GroupThe following new standards and amendments have been issued and are effective for annual periods
beginning on 1 April 2019:
IAS 19 (Amendments)
IAS 28 (Amendments)
IFRS 9 (Amendments)
IFRS 16IFRIC 23
Annual Improvements to IFRS

Employee Benefits
Long-term interests in associates and joint ventures
Prepayment Features with Negative Compensation
Leases
Uncertainty over income tax treatments
Annual improvements 2015–2017 Cycle

A number of new or amended standards became applicable for the current reporting period, and theGroup had to change its accounting policies and make retrospective adjustments as a result of
adopting IFRS 16 Leases.
The impact of the adoption of IFRS 16 is disclosed below. The other new or amended standards did
not have any material impact on the Group’s accounting policies.

–6–Adoption of IFRS 16, “Leases”
The Group has adopted IFRS 16 retrospectively from 1 April 2019, but has not restated thecomparatives for the period ended 30 September 2018 and year ended 31 March 2019, as
permitted under the specific transitional provisions in the standard. The reclassifications and theadjustments arising from the new leasing rules are therefore recognised in the opening interim
condensed consolidated statement of financial position on 1 April 2019.
(a)

Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which havepreviously been classified as “operating leases” under the principles of IAS 17 “Leases”. Theseliabilities were measured at the present value of the remaining lease payments, discounted
using the lessee’s incremental borrowing rate as at 1 April 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on 1 April 2019 was 3.06%.
For leases previously classified as finance leases the entity recognised the carrying amount of
the lease assets and lease liabilities immediately before transition as the carrying amount of theright-of-use assets and the lease liabilities at the date of initial application. The measurement
principles of IFRS 16 are only applied after that date.
2019¥ million
Operating lease commitments disclosed as at 31 March 2019
Discounted using the lessee’s incremental borrowing rate ofat the date of initial application
Add: adjustments as a result of a different treatmentof extension and termination options
Less: short-term leases recognised on a straight-line basis as expense
Add: finance lease liabilities under IAS 17 as at 31 March 201910,176

Lease liability recognised as at 1 April 201935,625

Of which are:
Current lease liabilities
Non-current lease liabilities

3,993
31,632(3,352)
26,041(660)
3,420

35,625Right-of-use assets were measured at the amount equal to the lease liabilities, adjusted by theamount of any prepaid or accrued lease payments relating to that lease recognised in the
consolidated statement of financial position as at 31 March 2019.

–7–

The recognised right-of-use assets relate to the following types of assets:
30 September
2019¥ million

1 April2019¥ million

Buildings
Leasehold improvements
Equipment and tools

33,383
1,363
82

32,566
1,646
97

Total right-of-use assets

34,82834,309The following table shows the adjustment for change in accounting policy recognised for eachindividual line item. Line items that were not affected by the changes have not been included.
As at 1 April 2019
Condensed consolidated statement offinancial position (extracted)

As originallypresented¥ million

IFRS 16¥ million

Restated¥ million

Non-current assets
Property, plant and equipment
Right-of-use assets
Deferred income tax assets

28,523–
1,588(3,661)34,309471

24,86234,3092,059

Non-current liabilities
Lease liabilities
Obligations under finance leases

–
2,717

31,632(2,717)

31,632–Current liabilities
Lease liabilities
Obligations under finance leases

–
703

3,993
(703)

3,993
–

24,617(1,086)23,531EquityReserves

–8–

(i)

Impact on segment disclosures and earnings per share
Segment EBITDA for the six months ended 30 September 2019, segment assets andsegment liabilities as at ended 30 September 2019 changed as a result of the change inaccounting policy as follows:

Pachinko and pachislot hall operations
Amusement arcade operations
OthersSegment
EBITDA¥ million
Increase

Segment
assets¥ million
Increase

Segment
liabilities¥ million
Increase

1,465
124
46

29,720942
453

29,703
957
537

1,635

31,11531,197

There was no material impact on earnings per share for the six months ended 30
September 2019 as a result of the adoption of IFRS 16.
(ii)

Practical expedients applied
In applying IFRS 16 for the first time, the group has used the following practical expedients
permitted by the standard:•

the use of a single discount rate to a portfolio of leases with reasonably similar
characteristics•

reliance on previous assessments on whether leases are onerous•

the accounting for operating leases with a remaining lease term of less than 12
months as at 1 April 2019 as short-term leases•

the exclusion of initial direct costs for the measurement of the right-of-use asset atthe date of initial application, and•the use of hindsight in determining the lease term where the contract contains options
to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is, or contains a lease at
the date of initial application. Instead, for contracts entered into before the transition datethe Group relied on its assessment made applying IAS 17 and IFRIC 4 “Determining
whether an Arrangement contains a Lease”.

–9–

(b)

The Group’s leasing activities and how these are accounted for
The Group leases various offices, pachinko and pachislot halls and amusement arcades
centres, equipment and motor vehicles. Rental contracts are typically made for fixed periods of
5 to 20 years but may have extension options as described below. Lease terms are negotiatedon an individual basis and contain a wide range of different terms and conditions.
Until the financial year ended 31 March 2019, leases of property, plant and equipment wereclassified as either finance or operating leases. Payments made under operating leases (net ofany incentives received from the lessor) were charged to profit or loss on a straight-line basis
over the period of the lease.
From 1 April 2019, leases are recognised as a right-of-use asset and a corresponding liability at
the date at which the leased asset is available for use by the Group. Each lease payment isallocated between the liability and finance cost. The finance cost is charged to profit or loss
over the lease period so as to produce a constant periodic rate of interest on the remainingbalance of the liability for each period. The right-of-use asset is depreciated over the shorter of
the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Leaseliabilities include the net present value of the following lease payments:•

fixed payments (including in-substance fixed payments), less any lease incentives
receivable•variable lease payment that are based on a rate•

amounts expected to be payable by the lessee under residual value guarantees•

the exercise price of a purchase option if the lessee is reasonably certain to exercise that
option, and•payments of penalties for terminating the lease, if the lease term reflects the lessee
exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that ratecannot be determined, the lessee’s incremental borrowing rate is used, being the rate that thelessee would have to pay to borrow the funds necessary to obtain an asset of similar value in asimilar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:•

the amount of the initial measurement of lease liability•

any lease payments made at or before the commencement date less any lease incentives
received•

any initial direct costs, and•restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised ona straight-line basis as an expense in profit or loss. Short-term leases are leases with a leaseterm of 12 months or less. Low-value assets comprise computer equipment and small items ofoffice furniture.

– 10 –

Extension and termination options
Extension and termination options are included in a number of property leases across theGroup. These terms are used to maximise operational flexibility in terms of managing contracts.
The majority of extension and termination options held are exercisable under mutual agreementby the Group and the respective lessor.
In determining the lease term, management considers all facts and circumstances that create
an economic incentive to exercise an extension option, or not exercise a termination option.
Extension options (or periods after termination options) are only included in the lease term if thelease is reasonably certain to be extended (or not terminated).
4

REVENUE AND SEGMENT INFORMATION(a)

RevenueSix months ended
30 September
2019
2018
¥ million¥ million(Unaudited)(Unaudited)(b)

Revenue
Gross pay-ins
Less: gross pay-outs

70,770(57,993)

71,189(57,972)

Revenue from pachinko and pachislot hall business
Revenue from amusement arcades
Vending machine income
Revenue from hotel operation
Revenue from restaurant operations

12,777
901
245
82
386

13,217
768
258
77
118

14,391

14,438Segment 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 directors of the Company. The executive directors
consider 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 unallocatedcorporate expenses for the purposes of allocating resources and assessing performance. These
reports are prepared on the same basis as this condensed consolidated interim financial
information.
Management has identified three reportable segments based on the types of services, namely (i)pachinko and pachislot hall operations, (ii) amusement arcade operations and (iii) others,
representing hotel and restaurant operations.
Segment assets consist primarily of property, plant and equipment, investment properties,
inventories, trade receivables, prepayments, deposits and other receivables and cash and bankbalances. They exclude deferred income tax assets, and assets used for corporate functions
including financial assets at fair value through profit or loss and financial assets at fair value
through other comprehensive income.

– 11 –

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 directors for the six months ended 30
September 2019 and 2018 are as follows:
Six months ended 30 September 2019
Amusement
Pachinko andarcadepachislot halloperations
Othersoperations
Southeast
Japan
Japan
Asia
and China
Total¥ million¥ million¥ million¥ million(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Segment revenue from externalcustomers recognised over time
Segment results
Corporate expenses

13,022901

468

14,391

1,350

77

(235)

1,192
(299)

Profit before income tax
Income tax expense

893
(516)

Profit for the period

377

Other segment items
Depreciation and amortisation expenses
Finance income
Finance costs (Note)
Capital expenditures(2,448)
31
(674)
334

(207)
–
(45)
241

(43)
–
(1)
125

(2,698)
31
(720)
700

Note: Finance costs included interest expenses arisen from lease liabilities of ¥483 million (Note7).

– 12 –Six months ended 30 September 2018
Amusement
Pachinko andarcadepachislot halloperations
Othersoperations
Southeast
Japan
Japan
Asia
and China¥ million¥ million¥ million
Segment revenue from externalcustomers recognised over time
Segment results
Corporate expenses

13,475768

195

14,438

1,586

79

(49)

1,616
(223)

Profit before income tax
Income tax expense

1,393
(538)
855

Profit for the year
Other segment items
Depreciation and amortisation expenses
Finance income
Finance costs
Capital expenditures

Total¥ million(1,139)
22
(243)
304

(126)
2
(4)
62

(26)
–
–
76

(1,291)
24
(247)
442

The segment assets as at 30 September 2019 and 31 March 2019 are as follows:

As at 30 September 2019
Segment assets (Unaudited)
Unallocated assets
Deferred income tax assets

Pachinko andpachislot halloperations
Japan¥ million

Amusement
arcadeoperations
SoutheastAsia¥ million

OthersJapan
and China¥ million

71,836

2,046

2,270

Total assets
As at 31 March 2019
Segment assets (Audited)
Unallocated assets
Deferred income tax assets

Total¥ million
76,1526,162
2,189
84,50342,933

1,003

1,821

45,7576,698
1.588
54,043

Total assets– 13 –

The total non-current assets other than financial instruments and deferred tax assets, analysedby location of the assets, is as follows:

Japan, country of domicile
Southeast Asia and China

As at
30 September
2019¥ million(Unaudited)

As at
31 March2019¥ million(Audited)

62,5092,531

34,0161,027

65,04035,043No single external customer contributed more than 10% revenue to the Group’s revenue for thesix months ended 30 September 2019 and 2018.
5

OTHER INCOME AND OTHER (LOSSES)/GAINS, NET
Six months ended
30 September
2019
2018
¥ million¥ million(Unaudited)(Unaudited)
Other income
Rental income
Income from expired IC and membership cards
Dividend income
Income from scrap sales of used pachinko and pachislot machines
OthersOther (losses)/gains, net
Loss on disposal of financial assets at fair value through profit or loss
Gain on fair value of financial assets through profit or loss
(Loss)/gain on fair value for interest rate swaps
Loss on disposal of property, plant and equipment
Loss on disposal of investment properties
Net exchange gain

– 14 –

230
15
28
153
15

82
15
27
179
16

441

319

–
2
(1)
(54)
–
1

(2)
–
3
(9)
(7)
51

(52)

36

6

OPERATING PROFIT
Operating profit is stated after charging the following:
Six months ended
30 September
2019
2018
¥ million¥ million(Unaudited)(Unaudited)
Employee benefits expenses— Hall operations— Administrative and others
Operating lease rental expense in respect of land and buildings
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Depreciation of investment properties
Amortisation of intangible assets
Pachinko and pachislot machines expenses (Note)

2,785
896
150
1,325
1,329
10
34
3,222

2,716
823
1,523
1,248
–
10
33
3,374

Note: Pachinko and pachislot machines are expensed off in the condensed consolidated statementof comprehensive income upon installation. The expected useful lives of these machines areless than one year.
7

FINANCE COSTS, NET
Six months ended
30 September
2019
2018
¥ million¥ million(Unaudited)(Unaudited)
Finance income
Bank interest income
Other interest income

Finance costs
Bank borrowings
Lease liabilities
Provision for unwinding discountFinance costs, net– 15 –

3
28

2
22

31

24

(105)
(566)
(49)

(96)
(98)
(53)

(720)

(247)

(689)

(223)

8

INCOME TAX EXPENSE
Six months ended
30 September
2019
2018
¥ million¥ million(Unaudited)(Unaudited)
Current tax— Japan— Other Asian countries

551
39

507
27

Deferred income tax

590
(74)

534
4

516

538

Taxation has been provided at the appropriate rates prevailing in the countries in which the Group
operates. The Group is subject to national corporate income tax, inhabitant tax and enterprise tax inJapan, which, in aggregate, resulted in effective statutory income tax rates of approximately 29.9%(30 September 2018: 30.2%) for the period ended 30 September 2019. For taxation on Asian
countries in which the Group operates, the rates range from 17.0% to 20.0% (30 September 2018:same).
No provision for Hong Kong profits tax has been made for the six months ended 30 September 2019and 2018 as the Group did not generate any assessable profits arising in Hong Kong during both
periods.
9

EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit attributable to shareholders of theCompany by the weighted average number of ordinary shares in issue during the six months ended
30 September 2019 and 2018.
Six months ended
30 September
2019
2018
(Unaudited)(Unaudited)
Profit attributable to shareholders of the Company (¥ million)
Weighted average number of shares for the purpose of
calculating basic earnings per share (thousands)
Basic and diluted earnings per share (¥)

496

878

1,195,850

1,195,850

0.41

0.73

Diluted earnings per share is the same as basic earnings per share as there was no potential dilutive
shares during the six months ended 30 September 2019 and 2018.

– 16 –

10

DIVIDENDS
During the six months ended 30 September 2019, the Company paid dividend of ¥84 million (¥0.07
per common share) to their shareholders in respect of the year ended 31 March 2019.
The Board proposes the payment of an interim dividend of ¥0.10 per common share totalling ¥120
million in respect of the six months ended 30 September 2019 (30 September 2018: ¥96 million).
This condensed consolidated interim financial information does not reflect this dividend payable.

11

PROPERTY, PLANT AND EQUIPMENT, INVESTMENT PROPERTIES AND INTANGIBLE ASSETS
During the six months ended 30 September 2019, the Group incurred expenditures of approximately¥650 million and ¥50 million for property, plant and equipment and intangible assets, respectively(Six months ended 30 September 2018: ¥426 million, ¥15 million and ¥1 million for property, plantand equipment, investment properties and intangible assets, respectively).
No impairment loss for property, plant and equipment was incurred by the Group for the six months
ended 30 September 2019 (Six months ended 30 September 2018: Nil).
During the six months ended 30 September 2019, the net book amounts of disposed property, plantand equipment amounted to approximately ¥73 million (Six months ended 30 September 2018: ¥9million and ¥7 million, respectively for properties, plant and equipment and investment properties).
During the six months ended 30 September 2019, there was no disposal of intangible asset (Sixmonths ended 30 September 2018: Nil).
Please also refer to Note 3 on the impact of adoption of IFRS 16.

12

TRADE RECEIVABLES
30 September
2019¥ million(Unaudited)

31 March2019¥ million(Audited)

89

53

Trade receivables

Trade receivables represent income receivable from vending machines. The credit terms granted by
the Group generally ranged from 0 to 30 days.
The ageing analysis of the trade receivables, based on invoice date, is as follows:

Less than 30 days
31 days to 90 days

– 17 –

30 September
2019¥ million(Unaudited)

31 March2019¥ million(Audited)

89
–

52
1

89

53

13

TRADE PAYABLES
The ageing analysis of the trade payables, based on invoice dates, were as follows:

Less than 30 days
31–90 days
Over 90 days

14

30 September
2019¥ million(Unaudited)

31 March2019¥ million(Audited)

166
12
–

47
242
5

178

294

30 September
2019¥ million(Unaudited)

31 March2019¥ million(Audited)

2,813
8,128

3,247
8,545

10,941

11,792

1,048
3,392

1,047
3,243

4,440

4,290

15,381

16,082

BORROWINGS

Non-current portion
Bank loans
Syndicated loans

Current portion
Bank loans
Syndicated loans

Total borrowings– 18 –

15

SUBSEQUENT EVENTS(i)

On 29 October 2019, Nexia Inc. (“Nexia”), a wholly-owned subsidiary of the Group entered intoa sale and purchase agreement with an independent third party (the “Purchaser”), pursuant towhich Nexia will sell and the Purchaser will purchase properties located in Fukushima (the“Properties”) at a cash consideration of ¥1,985 million (the “Disposal”). The Disposal is expected
to be completed on 27 November 2019 and the proceeds are intended to be used for repaying
bank loans of the Group and to improve the financial position and increase general working
capital for the Group. Upon completion of the Disposal, the Group and the Purchaser will enter
into a lease agreement for continuous operation of pachinko hall at the Properties after the
Disposal.

(ii)

In April 2019, Niraku Corporation (“Niraku”), a wholly-owned subsidiary of the Group enteredinto a 20-year lease agreement with an independent third party to lease properties located in
Fukushima (the “Properties”) (the “Head Lease”). Subsequent to the period end date in October
2019, a separate agreement between the Group and another independent third-party (the“Lessee”) to sub-lease the Properties to the Lessee for a period of 19 years (“Sub-lease”) has
been effected. Such arrangement is intended to prevent competitors from occupying theProperties for pachinko and pachislot hall operations as the Properties are located near to apachinko and pachislot hall of the Group. The rental payments under the Head Lease and theSub-lease amounted to approximately ¥84 million and ¥96 million per year, respectively. The
right-of-use assets arising from the Head Lease will be derecognised upon the recognition of
the lease receivables from the Sub-lease, with the resulting gains or losses to be recorded in
the consolidated statements of profit or loss for the year ending 31 March 2020.

– 19 –

MANAGEMENT DISCUSSION AND ANALYSIS
BUSINESS OVERVIEW
Pachinko business
The pachinko industry remains severe with markets shrinking across the entire industry.
More pachinko hall operators are experiencing management difficulties, such as
attracting new young players and retaining existing customers, and a trend towards
closing of pachinko halls.
Furthermore, the pachinko industry is likely to be confronted with other issues whichfurther deter its profitability, such as revision of gaming machine regulations, increase in
consumption tax, and constitutional measures to protect against gambling dependency
following the passing of the “IR Promotion Act”.
Given this industry environment, the Group, in compliance with various regulations, had
implemented various sales policies to achieve continuous profitable growth and cost
efficiency, while at the same time striving to provide a gaming environment that meetsthe needs of diverse fans. These measures included opening of new halls, seeking
opportunity for acquisitions of other halls and allying with business partners. The Group
has also continuously configured products to accommodate the characteristics of eachregion, improve the gaming environment and customer service, as well as implement
cost efficiency plans and work in unity to create halls that win the support of customers.
These measures are proven to be successful as the Group has seen that the sales scaleis stable with improvement in customer visits.
Amusement arcade business
Operating mainly in shopping malls, like Aeon Mall, with strong ability to attract
customers, Dream Games currently operates a total of ten amusement arcades
including three small scaled arcades for kids, of which eight are in Vietnam and two in
Cambodia. Vietnam and Cambodia are undergoing rapid economic expansion, both theaverage age and the overall proportion of young people are on an increasing trend,
while facilities designed for people to enjoy leisure time are still limited, it is then
expected that use of amusement facilities will further expand within the leisure market.
In addition, this amusement arcade business is extremely compatible with the pachinko
hall business we have cultivated over the years. Through this acquisition, we havesucceeded in enhancing synergy for the Group including human resources efficiency.
We plan to further invest in management resources, to achieve further business growthin the future.

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Restaurant businessIn the domestic restaurant business, as a franchisee of the “Lizarran” Spanish
restaurant, developed by the Spain-based Comess Group, which principally operates
restaurants in Europe, we are currently operating three restaurants in three locations —Shinbashi, Nishi-Shinjuku and a newly opened restaurant in Takadanobaba.
In mid-2019, we opened the Shenzhen Upper Hills YOKOCHO which is located inside
an urban complex centre named Shenzhen Upper Hills. The Shenzhen Upper Hills
YOKOCHO comprises a food court of approximately 3,000 square meters in area, withthe participation of 16 diversified well-known Japanese restaurants, cafés, and sakebars. By fusing and coordinating these various aspects in a cross-cutting and innovative
manner, the Group is confident that this investment will enhance the market presence of
the Group in food and beverage industry.
STRATEGIES AND FUTURE DEVELOPMENT
During the six months ended 30 September 2019, the Group had taken several moves
over both restaurant and gaming businesses. In respect of food and beverage business,in June 2019, the Group opened a Japanese food court in Shenzhen Upper Hills
commercial building under the concept of YOKOCHO, accommodating 16 diversified
well-known Japanese restaurants, café and sake bar. The Group also launched 2 cafés
inside the vicinity of pachinko hall named “Komeda Café”. “Komeda Café” provides acosy place for both pachinko and non-pachinko players to enjoy drinks and light meals,
and the Group plans to continue rolling out more cafés inside the hall vicinity. Further, atthe end of March 2019, a restaurant under the brand “Lizarran” was opened. The Groupis confident that moving ahead, in developing a larger number of restaurants, it will beable to fully utilize all of the efficient store operation, service, and quality maintenanceand management systems we have cultivated through our pachinko business. The
Group plans to continue expanding these restaurants in Japan’s major urban areas.
Grasping the economic growth of Asian countries and the expansion of leisure market inthese countries, the Group will continue to open new outlets in Asia to develop a wide
variety of amusement businesses.
Further, with the 40% equity investment in Yes! E-Sports Asia Holdings Limited(“YEAH”), a company with its principal activity being eSports business, the Group has
opened up a new business stream in Asia. YEAH is established to be a hub fordeveloping and expanding the eSports business. Through allying with strategic partners,
it allows the Group to popularize eSports business in Japan as well as other Asian
countries, increasing the Group’s market and business diversification.

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As for management strategies, the Group will make bold strategic investments in thedomestic Japanese amusement industry, centering on the pachinko hall business, andat the same time, solidify each overseas business in order to secure a stable earnings
an d g r o w th pat h . Th es e s t rat egies includ e activ ely and intensiv ely inv estin g
management resources in the domestic pachinko business, building a solid foundation
for businesses with potential growth, and improving the corporate value and establishinga stable earnings structure.
FINANCIAL REVIEW
Gross pay-ins
Gross pay-ins recorded a slight decrease of ¥419 million, or 0.6%, from ¥71,189 million
for the six months ended 30 September 2018 to ¥70,770 million for the same period incurrent year. The decline was mainly attributable to the (i) closure of two loss-making
halls during the year ended 31 March 2019 and (ii) introduction of gaming regulation
which all pachinko hall operators are required to replace the old regulated pachinko andpachislot machines with new standard machines (machines with lower jackpot size tode-emphasize the gaming element). The change of regulation in return chased away thehall traffic as these new machines are less popular among the players.
Gross pay-outs
Gross pay-outs, being the aggregate cost of G-prizes and general prizes exchanged bycustomers, increased by ¥21 million, or 0.04%, from ¥57,972 million for the six months
ended 30 September 2018 to ¥57,993 million for the same period in 2019. The slightincrease mainly due to adjustment on pay-out ratio to improve revenue.
Revenue and revenue margin from pachinko and pachislot business
Revenue from pachinko and pachislot business declined from ¥13,217 million for the six
months ended 30 September 2018 to ¥12,777 million for the same period in current
year. The drop in revenue by ¥440 million or 3.3% was primarily due to shrinkage ofcustomer base as discussed above.
The revenue margin decreased by 0.5% from 18.6% for the six months ended 30
September 2018 to 18.1% for the same period in current year. The decline in revenue
margin was due to increase in pay-out ratio to boost up customer visits which, in the
short term, lowered the profit margin.

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Revenue from amusement arcade business
Revenue from amusement arcade business increased from ¥768 million for the six
months ended 30 September 2018 to ¥901 million for the same period in 2019. The
amount comprised revenue derived from Vietnam and Cambodia amounting to ¥707
million and ¥194 million, respectively (30 September 2018: ¥655 million and ¥113
million, respectively). The increase in revenue was attributable to opening of new
amusement centres in January 2019 and June 2019 which generated additional incomeof ¥25 million and ¥6 million, respectively, together with continuous growth in eachgame centre.
Other revenue
Other revenue represents incomes from vending machines, hotel and restaurant
operations.
Vending machine income amounted to ¥245 million for the six months ended 30
September 2019. The slight decrease of ¥13 million as compared to ¥258 million for thesame period in 2018 was resulted from the drop in customer visits.
Income from hotel operations amounted to ¥82 million for the six months ended 30
September 2019 with the average occupancy rate of 75%. Income derived from hotel
operation increased as a result of rise in occupancy rate.
Revenue from restaurants amounted to ¥386 million for the six months ended 30
September 2019. The surge of ¥268 million as compared to the same period in 2018was mainly attributable to the opening of one Lizarran restaurant, two Komeda Cafés inpachinko halls close to the 2019 financial year end and commencement of YOKOCHO
business in July 2019 which generated addition revenue of ¥53 million, ¥53 million and¥162 million, respectively.
Hall operating expenses
Hall operating expenses decreased by ¥316 million, or 2.8%, from ¥11,166 million forthe six months ended 30 September 2018 to ¥10,850 million for the same period incurrent year. Major components of hall operating expenses are pachinko and pachislot
machine expenses, staff cost for hall staff and depreciation expenses, amounting to¥3,222 million, ¥2,785 million and ¥2,265 million, respectively, for the six months ended
30 September 2019 (30 September 2018: ¥3,374 million, ¥2,716 million and ¥1,230
million, respectively).
The decline in hall operating expenses was mainly resulted from drop in pachinko andpachislot machine expenses netted with the effect of adoption of IFRS 16 Leases which
led to an increase in depreciation expense and corresponding drop in rental expenses.

– 23 –

Administrative and other operating expenses
Administrative and other operating expenses increased by ¥337 million, or 16.8% from
¥2,011 million for the six months ended 30 September 2018 to ¥2,348 million for thesame period in 2019. The increase in expenses was due to (i) increase in staff costs
subsequent to opening of YOKOCHO restaurants in China which requires employees tofill up different posts; and (ii) increase in depreciation expense and corresponding dropin rental expenses as a result of adoption of IFRS 16 Leases.
Finance costs
Finance costs, net recorded a surge of ¥466 million, or 209.0%, from ¥223 million forthe six months ended 30 September 2018 to ¥689 million for the same period in 2019.
The drastic increase was resulted from the adoption of IFRS 16 Leases which caused asignificant amount of interest expenses from lease liabilities being recognised in current
period.
Profit attributable to shareholders of the Company, basic earnings per share anddividend
Profit attributable to shareholders of the Company of ¥496 million was recorded for thesix months ended 30 September 2019, as compared to ¥878 million for the six months
ended 30 September 2018. Apart from decrease in pachinko revenue, the fall in profit
was mainly due to the effect of adoption of IFRS 16 Leases which increased total
expenses of ¥178 million.
Basic earnings per share was ¥0.41 (30 September 2018: ¥0.73). The Board has
resolved to declare an interim dividend of ¥0.10 (or HK$0.007) per share for the six
months ended 30 September 2019 (30 September 2018: ¥0.08 per share).
CAPITAL STRUCTURE
The Group principally meets its working capital and other liquidity requirements througha combination of capital contributions, including cash flow from operations and bankborrowings. The Group’s daily operation is mainly financed by operating cash flows, andrelies on short- and long-term borrowings for financing working capital, future expansion
plans and unexpected needs. The Group’s treasury objective is mainly to ensure there
is sufficient cash flow to meet the payment of expenses, loans and to fund any capital
expenditure and commitment that the Group may have from time to time. The Group’s
cash surpluses are placed in short-term and long-term fixed deposits to maintainliquidity. The Group has not experienced any difficulty in repaying its borrowings.
The Group’s principal business activities are carried out in Japan, with income,expenditure, assets and liabilities mainly denominated in Japanese Yen, as such, theGroup does not have any material foreign exchange exposure.

– 24 –

The table below sets forth the information regarding the cash and bank balances, bankborrowings, lease liabilities, working capital, total equity and gearing ratio of the Groupas at 30 September 2019 and 31 March 2019, and operating cash flows before
movements in working capital of the Group for the six months ended 30 September
2019 and 2018, respectively:
As at
30 September
2019¥ million

As at
31 March2019¥ million

14,129515

15,17643

14,644

15,2193,861
11,520
3,006

4,294
11,7883,420

18,387

19,502

4,530
26,57469.2%

6,631
27,511
70.9%

Cash and cash equivalents
Bank deposits

Bank loans
Syndicated loans
Lease liabilities (Note)

Working capital
Total equity
Gearing ratio
Note:

The balances only include leases under hire purchase arrangement.

For the six months ended
30 September
2019
2018
¥ million¥ million
Operating cash flows before movements
in working capital

4,345– 25 –

2,955

Net current assets of the Group totalled ¥4,530 million as at 30 September 2019 (31March 2019: ¥6,631 million), and current ratio was 1.38 as at 30 September 2019 (31March 2019: 1.68). As at 30 September 2019, there were cash and cash equivalents of¥14,129 million (31 March 2019: ¥15,176 million), in which ¥12,974 million was
denominated in Japanese Yen, ¥847 million was denominated in United States dollar,¥221 million was denominated in Hong Kong dollar and ¥87 million was denominated inother currencies. Excluding the impact on adoption of IFRS 16 Leases, the Group had
total borrowings of ¥18,387 million as at 30 September 2019 (31 March 2019: ¥19,502
million). Current portion of borrowings and current portion of lease liabilities amounted
to ¥4,999 million as at 30 September 2019 (31 March 2019: ¥4,993 million).
The Group’s bank borrowings during the current period comprised bank loans andsyndicated loans. As at 30 September 2019, the total bank borrowings amounted to¥15,381 million (31 March 2019: ¥16,082 million), with average effective interest rates
on bank borrowings ranged from 0.92% to 1.80% (31 March 2019: 0.99% to 1.91%)
per annum. Approximately 9.1% of bank borrowings as at 30 September 2019 were
fixed rate borrowings.
HEDGING OF FLOATING RATE BORROWINGS AND FOREIGN EXCHANGE
As at 30 September 2019, the Group had three floating to fixed interest rate swap
contracts with a bank in Japan (i.e. the Group pays fixed interest rates and receives
interests at floating rate). These interest rate swap contracts were entered into as ameasure to manage interest rate risk in relation to loans of the Group. As interest rates
of some of the Group’s loans are on a floating rate basis, the floating to fixed interest
rate swap contracts enabled the Group to reduce the volatility in the amount of interest
being paid. For the six months ended 30 September 2019, the loss on fair value forinterest rate swap contracts amounted to ¥1 million.
The Group did not carry out any foreign currency investment and its debts were all
denominated in Japanese Yen as at 30 September 2019. As the functional currencies ofcertain subsidiaries are different from the Company, the Group will be exposed toforeign exchange risk arising from such exposure, namely in Singapore Dollar,
Vietnamese Dong, Cambodian Riel and Renminbi against Japanese Yen. The
management is assessing the significance of the foreign currency exposures faced by
the Group and will consider adopting appropriate measures to mitigate the risk,
including but not limited to entering into currency hedges.
GEARING RATIOThe gearing ratio, defined as the aggregate of interest-bearing loans and obligations
under finance leases, divided by total equity, was 69.2% as at 30 September 2019 (31March 2019: 70.9%).

– 26 –CAPITAL EXPENDITURE
Capital expenditure mainly comprised of expenditure for (i) the purchase of property,
plant and equipment mainly used for construction of buildings, and (ii) the purchase of
equipment and tools for the expansion and maintenance of our pachinko and pachislot
hall and amusement arcade operations. The table below shows a breakdown of thecapital expenditure for the indicated periods:

Property, plant and equipment
Investment properties
Intangible assets

As at
30 September
2019¥ million

As at
31 March2019¥ million

650
–
50

5,084
14
83

700

5,181

CHARGES ON ASSETS
As at 30 September 2019 and 31 March 2019, the carrying values of charged assets
were as below:

Property, plant and equipment
Investment properties
Deposits and other receivables

As at
30 September
2019¥ million

As at
31 March2019¥ million

10,803640
179

11,050650
18011,622

11,880CONTINGENT LIABILITIESThe Group did not have any material contingent liabilities as at 30 September 2019 and
31 March 2019.
CAPITAL COMMITMENTS
The outstanding commitments not provided for as at 30 September 2019 and 31 March
2019 are as follows:

Contracted but not provided forPurchase of property, plant and equipment– 27 –

30 September
2019¥ million

31 March2019¥ million

188

19

SIGNIFICANT INVESTMENTS, MATERIAL ACQUISITIONS AND DISPOSALS OF
SUBSIDIARIES, AND FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITALASSETS
During the six months ended 30 September 2019, the Group did not conduct any
significant investments, material acquisitions or disposals. Save for those disclosed inthis interim report, the Group had no plan authorised by the Board for other material
investments or additions of capital assets as at the date of this interim report.
EMPLOYEES AND REMUNERATION POLICY
As at 30 September 2019, the Group had 2,110 employees. The remuneration policy of
the Group (including those for directors and employees) is determined by the
Remuneration Committee under the Board as per the performance, qualifications andcompetence of the employees.
CORPORATE GOVERNANCE
During the six month ended 30 September 2019, the Company has adopted andcomplied with all the applicable principles and code provisions of the Corporate
Governance Code and Corporate Governance Report (the “CG Code”) contained inAppendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the“Listing Rules”), with the exception for code provision A.2.1, which requires the roles ofchairman and chief executive to be separate and should be performed by different
individuals, and code provision E.1.3, which requires that notice for an annual general
meeting should be sent to the shareholders at least 20 clear business days before themeeting.
Code Provision A.2.1
Under code provision A.2.1 of the CG Code, the roles of chairman and chief executive
should be separate and should not be performed by the same individual. Our Chairman
currently holds both positions. Since April 2010, our Chairman has been the key
leadership figure of our Group who has been primarily involved in the formulation ofbusiness strategies and determination of the overall direction of our Group. He has also
been chiefly responsible for our Group’s operations as he directly supervises our
Executive Officers (other than himself) and members of our senior management. Taking
into account the continuation of the implementation of our business plans, the Directors(including our Independent Non-executive Directors) consider our Chairman is the best
candidate for both positions and the present arrangements are beneficial to and in theinterests of our Company and our shareholders as a whole.

– 28 –

Code Provision E.1.3
Code provision E.1.3 stipulates that notice for an annual general meeting (the “AGM”)
should be sent to its shareholders by the issuer at least 20 clear business days before
the meeting. The AGM of the Company for the year ended 31 March 2019 was held on
27 June 2019 (“2019 AGM”), while the notice for the 2019 AGM was despatched on 5
June 2019. The above arrangement complied with the articles of incorporation of theCompany (the “Articles of Incorporation”) prepared pursuant to the Companies Act inrespect of the minimum notice period of 21 calendar days (the date of sending and thedate of the meeting shall not be included within this period) for AGM but the notice
period for the 2019 AGM was less than 20 clear business days before the 2019 AGM.
Under the Companies Act and the Articles of Incorporation, the Company is required tohold an AGM within three months after the expiration of each financial year (i.e. on or
before 30 June 2019 for the financial year ended 31 March 2019).
The Companies Act also requires the notice for the AGM to be despatched together
with the audited financial statements under the Japanese Generally Accepted
Accounting Principles, which must be approved by the Board. On the other hand, theannual report must contain audited financial statements prepared under the IFRS as
required under the Listing Rules. As a result, more time was required to finalise theannual report which accompanied the AGM notice despatched to the shareholders of
the Company.
DIRECTORS’ SECURITIES TRANSACTIONSThe Company has adopted the Model Code for Securities Transactions by Directors of
Listed Issuers as set out in Appendix 10 to the Listing Rules (the “Model Code”) as its
own code of conduct regarding securities transactions by Directors. Having madespecific enquiry with all Directors, the Directors confirmed that they had complied withthe required standard set out in the Model Code and the Company’s code of conduct
during the six months ended 30 September 2019.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIESThe Company did not redeem any of its listed securities during the six months ended 30
September 2019. Neither the Company nor any of its subsidiaries purchased or sold
any of the Company’s listed securities during the six months ended 30 September
2019.

– 29 –

INTERIM DIVIDENDThe Board has resolved to declare an interim dividend of ¥0.10 (or HK$0.007) per sharefor the six months ended 30 September 2019 (30 September 2018: ¥0.08 per share).
REVIEW OF INTERIM RESULTS
The Audit Committee has reviewed the unaudited condensed consolidated interim
financial information and the interim results for the six months ended 30 September
2019 and discussed the financial related matters with the management. The unauditedcondensed consolidated interim financial information of the Group for the six months
ended 30 September 2019 has been reviewed by the Company’s auditor,
PricewaterhouseCoopers, in accordance with International Standard on Review
Engagements 2410 “Review of Interim Financial Information Performed by the
Independent Auditor of the Entity”.
PUBLICATION OF INTERIM RESULTS ANNOUNCEMENT AND INTERIM REPORTThis interim results announcement is published on the websites of the Stock Exchange(www.hkexnews.hk) and the Company (www.ngch.co.jp), and the interim report of theCompany for the six months ended 30 September 2019 will be dispatched to theshareholders of the Company and will be published on the respective websites of theStock Exchange and the Company in due course.
On behalf of the BoardNIRAKU GC HOLDINGS, INC.*
株式会社ニラク ジー シー ホールディングス
Hisanori TANIGUCHI
Chairman, Executive Director and Chief Executive Officer
Fukushima, Japan, 22 November 2019
As at the date of this announcement, the executive Directors are Hisanori TANIGUCHI,
Akinori OHISHI and Masataka WATANABE; the non-executive Director is Hiroshi
BANNAI; and the independent non-executive Directors are Hiroaki MORITA, Michio
MINAKATA, Yoshihiro KOIZUMI and Kuraji KUTSUWATA.
*

for identification purpose only

– 30 –