(Incorporated in Japan with limited liability 於日本註冊成立的有限公司)

Stock Code 股份代號 : 1245

2017

ANNUAL REPORT 年報
僅供識別Contents
Page

Corporate Profile

2

Corporate Information and Information for Investors

3

Financial and Operational Highlights

4

Chairman’s Statement

6

Management Discussion and Analysis

10

Corporate Governance Report

16

Profile of Directors and Senior Management

25

Report of the Directors

28

Independent Auditor’s Report

40

Consolidated Statement of Comprehensive Income

46

Consolidated Statement of Financial Position

47

Consolidated Statement of Changes in Equity

49

Consolidated Statement of Cash Flows

50

Notes to the Consolidated Financial Statements

51

Corporate Profile
株式会社ニラク▪ジー▪シー▪ホールディングス NIRAKU GC HOLDINGS, INC.* (“NIRAKU” or the “Company”, Hong
Kong stock code: 1245) is a leading pachinko hall operator in Fukushima Prefecture in Japan, and has over 60 years ofpachinko hall operation experience. The Company was listed on the Main Board of The Stock Exchange of Hong Kong
Limited (the “Stock Exchange”) on 8 April 2015 (the “Listing Date”).
Since the opening of the first pachinko hall in 1950, NIRAKU has been aiming in bringing enjoyable experience tocustomers, which forms our slogan of “Happy Time, Creation”.
NIRAKU has a strong pachinko hall network with 55 halls at present, stretching from Tokyo Metropolitan Area to
Northeast Honshu, equipped with over 28,000 pachinko and pachislot machines serving customers in ten prefectures inJapan.

*

2

For identification purpose only

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Corporate Information and Information for Investors
CORPORATION INFORMATION
Executive Director

Mr. Hisanori TANIGUCHI (Chairman)(also known as Mr. JEONG Seonggi)

Non-Executive Director

Mr. Hiroshi BANNAI

Independent Non-Executive Directors

Mr. Hiroaki MORITA
Mr. Norio NAKAYAMA
Mr. Masaharu TOGO
Mr. Michio MINAKATA
Mr. Yoshihiro KOIZUMIAudit Committee

Mr. Michio MINAKATA (Committee Chairman)
Mr. Hiroaki MORITA
Mr. Hiroshi BANNAI

Remuneration Committee

Mr. Norio NAKAYAMA (Committee Chairman)
Mr. Hiroaki MORITA
Mr. Hisanori TANIGUCHI

Nomination Committee

Mr. Hiroaki MORITA (Committee Chairman)
Mr. Yoshihiro KOIZUMIMr. Hisanori TANIGUCHIINFORMATION FOR INVESTORS
Principal Bankers

Mizuho Bank, Ltd
Sumitomo Mitsui Bank Corporation
The Toho Bank, Ltd.

AuditorPricewaterhouseCoopers

Compliance Adviser

Shenwan Hongyuan Capital (H.K.) Limited

Legal Adviser

Deacons

Share Registrar

Computershare Hong Kong Investor Services Limited
Shops 1712–1716,
17/F Hopewell Centre,
183 Queen’s Road East,
Wan Chai, Hong Kong

Principal Place of Business in Hong Kong

505, 5/F Hutchison House,
10 Harcourt Road,
Central, Hong Kong

Headquarter in Japan and Registered Office

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

Stock Code

1245

Investor and Media Relations Consultant

Strategic Financial Relations Limited

Websitewww.ngch.co.jp

Investor Relation Inquiry

e-mail: niraku@sprg.com.hk

NIRAKU GC HOLDINGS, INC.

Annual Report 20173

Financial and Operational Highlights
The following table summarises the results of the Company and its subsidiaries (collectively the “Group”) for the financial
years ended 31 March 2017, 2016, 2015, 2014 and 2013.

2017¥ million HK$ million

For the year ended 31 March
2016
2015
¥ million HK$ million¥ million

2014¥ million

2013¥ million

143,130(114,734)

9,625(7,716)

158,095(127,900)

10,881(8,803)

175,592(143,473)

236,449(203,455)

242,217(210,298)

28,396
784

1,909
53

30,195
800

2,078
55

32,119767

32,994853

31,919832

Revenue

29,1801,962

30,9952,133

32,88633,84732,751

Hall operating expenses
Administrative and otheroperating expenses
Profit before income tax
Profit attributable tothe shareholders of
the Company(24,110)(1,621)(25,207)(1,735)(22,982)(22,798)(21,909)(4,391)
902

(295)
61

(4,815)
633

(331)
44

(5,336)
4,994(4,636)
6,008(4,126)
6,485

492

33

181

12

3,030

3,698

3,765

0.41

0.028

0.15

0.01

3.38

4

967

Overall revenue margin

19.8%

–

19.1%

–

18.3%

14.0%

13.2%

Net profit margin

1.7%

–

0.6%

–

9.2%

10.9%

11.5%

Gross pay-ins
Gross pay-outs
Revenue from pachinko andpachislot business
Other revenue

Earnings per share(expressed in Japanese Yenor Hong Kong dollar)

4

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Annual Report 2017

Financial and Operational Highlights

2017¥ million HK$ million
Current assets
Current liabilities
Net current assets/(liabilities)
Total assets
Total assets less current liabilities
Gearing ratio

15,276
7,210
8,066
49,41342,203
59.1%

1,027
485
542
3,323
2,838
–

As at 31 March2016¥ million HK$ million

2015¥ million

2014¥ million

2013¥ million

15,5978,287
7,310
52,25743,97072.4%

14,734
11,1203,614
50,97739,85792.4%

11,9698,951
3,018
46,90537,95491.7%

9,860
10,737(877)
42,194
31,457100.3%

1,073
570
503
3,596
3,026
–

CURRENCY TRANSLATIONS
For the purpose of illustration only and unless otherwise specified in this Annual Report, certain amounts denominated inJapanese Yen (“¥”) are translated into Hong Kong dollar (“HK$”) at the rates (as the case may be) described below:
1.

¥14.87 to HK$1.00, the exchange rate prevailing on 31 March 2017 (i.e. the last business day in March 2017);2.

¥14.53 to HK$1.00, the exchange rate prevailing on 31 March 2016 (i.e. the last business day in March 2016).

No representation is made that the amounts in Japanese Yen could have been, or could be, converted into Hong Kong
dollar or vice versa, at such rates or at any other rates on such date or on any other dates.

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

5

Chairman’s Statement
To our shareholders

Business outlook
Pachinko Business
In April 2016, we opened our Fukushima Taiheiji hall inFukushima prefecture, where our company is based, with 1,280
machines being the largest pachinko hall in Tohoku area.
This mega hall, representing the 21st hall the Group has opened
in Fukushima prefecture, not only strengthens the leading
position of the Group in Fukushima prefecture, it also establishesa stable customer base since its opening.
On the other hand, due to the change in business environment in
Maebashi city, whereby the business conditions around the
Maebashi Ohsima hall revealed that this hall would not be
profitable, after careful consideration, the management decided
to close down this hall in September 2016. Nevertheless, we
regarded the closure as a ‘positive move to strengthen thebusiness’ and allows better resource allocation.
As at 31 March 2017 our sales outlets comprised 55 pachinkohalls, 1 hotel and 2 restaurants (excluding the Tomioka pachinko hall which is unlikely to resume business due to nuclear
accident in Fukushima).
For the year ended March 2017, the business environment of the Group’s mainstay pachinko business remained difficult,with few signs of improvement. According to the Japan Productivity Centre’s Leisure White Paper 2016, the number ofpachinko and pachislot participants decreased by 7.0% compared with the previous year to 10.7 million. The market size
(gross pay-ins) also decreased by 5.2% from previous year to ¥23.229 trillion, which this downturn of pachinko industry
sees little sign of turning around. Notwithstanding these circumstances, pachinko consumption expenditure per customer
increased. This is partly due to the fact that pachinko machines with high gambling property have been the main focus forpachinko operators; however, these high gambling property machines in turn increase customers’ playing cost, whichleads to the decrease in number of participants.
Against this backdrop, operators in the pachinko industry have implemented a voluntary replacement of high gamblingproperty machines by the end of December 2016. Future standards governing both pachinko and pachislot machines are
expected to move towards low gambling property machines. This trend will enable customers to play at a reduced cost;
and while machine development by machine manufacturers progresses, the range of customers is expected to bebroadened. Nevertheless, since the low gambling machines will generate lesser revenue (gross pay-ins) than the highgambling property machines, more effective management will be required to maintain financial performance.

6

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Annual Report 2017

Chairman’s Statement
Restaurant BusinessIn regard to the restaurant business, in September 2016, we opened our second Spanish restaurant ‘Lizarran NishiShinjuku Otakibashi-dori’ under the brand ‘LIZARRAN’, which is located in Shinjuku area in Tokyo. We schedule to open
the third Spanish restaurant in the coming financial year 2018, with further plans to increase the number of restaurants inthe future.
In May 2016, we entered into a sales and purchase agreement (the “Agreement”) with Coastal Heritage Limited (the“Seller”) to purchase 66.7% of equity interest in Nha Trang Holdings Limited (the “Acquisition”), a company engaged in
Vietnamese and pinot duck restaurants operation, at an aggregate consideration of HK$100 million. As certain conditions
precedents under the Agreement were not being satisfied, the Acquisition was eventually terminated. In spite of this, wewill continue to seek for opportunities in Asian countries for global business development.

Strengthening business through tying up with local regions
Given the decline in pachinko market, selection of hall location is crucial for us to remain sticky to customers.
Pachinko halls have the characteristic of “neighbourhood-type marketing”, in which the customers tend to visit pachinkohalls in their vicinity and relationship with customers in the business area is close. Rather than attracting customers
across a wide area, pachinko business aims to have neighbourhood-based customers paying frequent visits which form
part of their daily life pattern. To this end, we believe that the way we are being recognised and evaluated by local
residents, as well as how we coexist in harmony as a member of the regional community are important factors driving thebusiness.
At present, the Group is focusing on coexisting harmoniously with local regions for our pachinko halls. To achieve this,we have commenced an “active local engine” campaign as a branding activity.
Through this campaign, halls will become nexus points for various entertainment activities in the region, thus deepening
our connection with the region. In general, we gather and introduce fun and interesting topics to business areas near thehalls, creating common topics among the local residents, who will eventually become our customers, together sharing
things that are interesting and fun. Further, we will also concentrate on the CSR activities and charitable donations tolocal communities that we have been implementing for some time, promoting all these under a unified concept.
Although these activities may not directly attract customers to play at our halls, it promotes the market presence of theGroup, and eventually being recognised as a valued member of the community by local residents, and leads to indirect
positive impact on our business.

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Annual Report 2017

7

Chairman’s Statement
Toward globalisation
Our company was listed on the Stock Exchange in 2015, allowing us to gain a foothold into Asian market.
Looking at the Asian region, despite the lingering slowdown of economic growth in China, the growth is still persistent.
Furthermore, the influences of the Association of South East Asian Nations (the “ASEAN”) countries in the world
economy is increased year-by-year. The Asian region is expected to have a significant impact on the world’s economy in
the coming ten years. If member countries including Indonesia, Thailand, Malaysia, Philippines and Vietnam (the “ASEAN
5 countries”) continue to grow at the same level as their current potential growth rate, the size of their aggregate nominal
gross domestic product is expected to overtake Japan in the mid-2020s. With the (1) increase in the labour force; (2)expansion of trade accompanying the progress of economic integration; and (3) attraction of direct investment continues
to make steady progress, the ASEAN’s presence in the world will expand considerably approaching 2030.
Our business aim is creating happiness to people by making things “bright,” “fun,” and “interesting”. In these Asian
countries, the Group believes leisure industry will be developed that enhance people’s leisure time in the future. Throughthe pachinko business, we have been providing countless people with enjoyment of leisure activities for many years. As
future leisure activities in Asia continue to expand, we are convinced that our experience in the entertainment industry
will prove to be useful in meeting the needs of the regions.
To achieve this, it requires human resources with an international sense beyond simply fluency in foreign languages. Our
people require not only objective perspective about Japan, but also an awareness of diversity that allows recognition ofviews of others and see the world in different angles. As such, we will continue to focus on educating and nurturing ourpeople, building up an all-rounded business sense, enabling us to adapt to the world and uphold the merits of Japanesepractice.

Financial results of current year
Despite the opening of the Taiheiji hall in Fukushima Prefecture in April 2016, the largest pachinko hall in the Tohoku
area, accommodated with 1,280 machines, due to the impact of voluntary replacement of high gambling property
pachinko machines, gross pay-ins for the year ended 31 March 2017 amounted to ¥143,130 million (decreased by 9.5%
compared to last year). As a result of the decrease in gross pay-ins, the revenue declined to ¥29,180 million (decreased
by 5.9% as compared to last year). In addition, despite effective cost savings measures were implemented during theyear which resulted in decrease in administrative and operating expenses, the Group’s operating profit dropped to ¥1,433
million (decreased by 2.6% compared to last year), which was mainly due to the decrease in turnover of pachinkobusiness. On the other hand, profit before tax amounted to ¥902 million (increased by 42.5% compared to last year). The
increase in profit before tax is attributed to the significant decrease in interest expenses resulted from centralisation offinancing from individual subsidiaries level to the Company; netted with the provision for impairment loss for 1 closed halland 2 underperformed halls, and the loss on termination of opening of one hall. Net profit was recorded at ¥492 million(increased by 171.8% compared to prior year), the increase in net profit was benefited from the application of
consolidated taxation, reducing our effective tax rate.

8

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Chairman’s Statement
Challenges faced by the Group and future plans
In December 2016, the “Act on the Promotion of the Development of Integrated Resort Areas” (the “IR Promotion Act” or
the “Act”) was approved by the Japanese Diet. This Act obliges the government to take action within a year after its
enactment with the objective of submitting the necessary laws for establishing integrated resort areas, including casinos.
This law effectively permits the establishment of casinos in Japan, which has triggered a major discussion of “gambling
addiction problem.” For a long time, the pachinko industry has been actively considering this “gambling addiction
problem” as a “problem caused by excessive obsession.” Following the passage of the Act, there are strong calls for thepachinko industry to take initiatives and necessary actions to address these social issues, including arising from othergambling activities currently exist.
The pachinko operators have responded to the new standard by gradual replacement of pachinko machines from highgambling property to low gambling property machines. Low gambling property machines are generally viewed as
generating less gross pay-ins than high gambling property machines. As such, we foresee that the revenue generation in
coming years will be challenging.
With the passage of the “IR Promotion Act”, establishment of casinos resorts in Japan becomes legitimate, and which islikely to generate widespread discussion of the “gambling addiction problem”. Triggered by this Act, there will be strong
calls for the pachinko industry to take initiatives and actions to address the social issues, including other gambling
activities currently exist.
Given the circumstances, the Group intends to steadily promote the development of a gaming environment that meetsthe needs of diversified gaming fans by lowering the number of high playing cost machines in our halls. In addition, we
will further strengthen our existing halls. In particular, improve services by increasing service flexibility to meet theregional needs. Moreover, we continue to work on enhancing general prizes varieties, one of the major factors affecting
customers’ selection of halls, through expansion of online prize system which enables customers to select general prizes
from online shopping sites. Moreover, to maintain stable operating cash flow without being influenced by macroeconomy, we will strengthen the revenue driving capability of existing halls, streamline departments, and improve cost
efficiency. Our priority is to build a system capable of prompt responds to changes in the environment and efficientdecision making, enhancing authority delegation, and constructing an effective and efficient organisational structure.
Apart from securing business profits, we endeavour to create mechanisms and establish an organisation that uphold our
corporate value — not only in the medium- to long-term, but for the future as well.

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Annual Report 20179

Management Discussion and Analysis
FINANCIAL REVIEW
Gross pay-ins
Gross pay-ins recorded a decrease of ¥14,965 million, or 9.5%, from ¥158,095 million in 2016 to ¥143,130 million in 2017as a result of the decrease in customer visits which led to lower utilisation of pachinko and pachislot machines.

Gross pay-outs
Gross pay-outs, being the aggregate costs of G-prizes and general prizes exchanged by customers, dropped by ¥13,166
million, or 10.3%, from ¥127,900 million in 2016 to ¥114,734 million in 2017, which generally mirrored the decline in gross
pay-ins.

Revenue and revenue margin from pachinko and pachislot business
Revenue from pachinko and pachislot business declined from ¥30,195 million in 2016 to ¥28,396 million in 2017. The
decrease in revenue by ¥1,799 million, or 6.0%, was primarily due to the shrinkage of customer base which was thegeneral market trend in the pachinko and pachislot industry.
The revenue margin remained constant with a moderate improvement of 0.7% from 19.1% in 2016 to 19.8% in 2017.
Such increase was mainly attributable to the decrease in pay-out ratio which helped to improve the revenue frompachinko and pachislot hall operations.

Other revenue
Other revenue represents incomes from vending machines and hotel and restaurant operations.
Vending machine income amounted to ¥564 million in 2017. The slight decrease of ¥24 million as compared to ¥588
million in 2016 was resulted from the drop in customer visits.
Income from hotel operations decreased from ¥164 million in 2016 to ¥130 million in 2017 as a result of 2 months’
business suspension for hotel renovation work. As a result, the average occupancy rate dropped from 83.0% in 2016 to
70.3% in 2017 accordingly.
Following the opening of the second Spanish restaurant in Nishi-Shinjuku in September 2016, revenue from restaurant
operation under the brand “LIZARRAN” increased by ¥42 million from ¥48 million in 2016 to ¥90 million in 2017.

Hall operating expenses
Hall operating expenses decreased by ¥1,097 million, or 4.4%, from ¥25,207 million in 2016 to ¥24,110 million in 2017.
Major components of hall operating expenses are pachinko and pachislot machine expenses, staff cost for hall staff andrental expenses, amounting to ¥8,836 million, ¥5,110 million and ¥2,697 million, respectively, for the year ended 31
March 2017 (31 March 2016: ¥9,619 million, ¥5,081 million and ¥2,703 million, respectively).
The drop in hall operating expenses was mainly due to the reduction in pachinko and pachislot machine expenses asless pachinko and pachislot machines were replaced as compared to last year.

10

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Annual Report 2017

Management Discussion and Analysis
Administrative and other operating expenses
Administrative and other operating expenses decreased by ¥424 million, or 8.8%, from ¥4,815 million in 2016 to ¥4,391
million in 2017, primarily due to the decrease in provision for impairment loss by ¥46 million as compared to last year;
and implementation of various cost savings measures during the current year.

Finance costs, net
Finance costs, net recorded a notable decrease of ¥307 million, or 36.6%, from ¥838 million in 2016 to ¥531 million in2017. The plunge was attributable to the decrease in total loan balance and centralisation of borrowings from individual
subsidiaries level to the Company, allowing higher cost savings on borrowings.

Profit before income tax, profit attributable to shareholders of the Company, basic earnings per shareand dividend
Profit before income tax increased by 42.5%, from ¥633 million in 2016 to ¥902 million in 2017, with net profit marginincreased from 0.6% in 2016 to 1.7% in 2017.
Profit attributable to shareholders of the Company increased from ¥181 million in 2016 to ¥492 million in 2017,
representing a 171.8% increase over last year.
Basic earnings per share was ¥0.41 (2016: ¥0.15). The board of directors of the Company (the “Board”) has declared a
final dividend of ¥0.03 per share for the year ended 31 March 2017 (2016: ¥0.10 per share) on 19 May 2017.

CAPITAL STRUCTURE
The Group principally meets its working capital and other liquidity requirements through a combination of capital
contributions, including cash flow from operations and bank borrowings. The Group’s daily operation is mainly financedby operating cash flows, and relied 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 thepayment of expenses, loans and to fund any capital expenditure and commitment that the Group may have from time totime. The Group’s cash surpluses are placed in short-term and long-term fixed deposits to maintain liquidity. 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, the Group does not have any material foreign exchange exposure.

NIRAKU GC HOLDINGS, INC.

Annual Report 201711

Management Discussion and Analysis
The table below sets forth the information regarding the cash and cash equivalents, bank deposits, bank borrowings,
obligations under finance leases, working capital, total equity and gearing ratio of the Group as at 31 March 2017 and2016, and operating cash flows before movements in working capital of the Group for the years ended 31 March 2017and 2016, respectively:
As at 31 March
2017
2016
¥ million¥ million
Cash and cash equivalents
Bank deposits

Bank loans
Syndicated loans
Bonds
Obligations under finance leases

Working capital
Total equity
Gearing ratio

13,404287

12,310482

13,691

12,792

2,860
8,190
–
5,208

3,627
9,123
277
6,600

16,258

19,627

8,066
27,49959.1%

7,310
27,09772.4%

For the year ended 31 March
2017
2016
¥ million¥ million
Operating cash flows before movements in working capital

4,156

4,242

Net current assets of the Group totalled ¥8,066 million as at 31 March 2017 (31 March 2016: ¥7,310 million), and current
ratio was 2.12 as at 31 March 2017 (31 March 2016: 1.88). As at 31 March 2017, there were cash and cash equivalentsof ¥13,404 million (31 March 2016: ¥12,310 million), in which ¥12,354 million was denominated in Japanese Yen, ¥345
million was denominated in United States dollar and ¥705 million was denominated in Hong Kong dollar. The Group had
total borrowings of ¥16,258 million as at 31 March 2017 (31 March 2016: ¥19,627 million). Current portion of borrowingsand current portion of obligations under finance leases amounted to ¥3,554 million as at 31 March 2017 (31 March 2016:¥4,825 million).
The Group’s bank borrowings during the current period comprised bank loans, syndicated loans and bonds. As at 31
March 2017, all bonds were repaid and the total bank borrowings amounted to ¥11,050 million (31 March 2016: ¥13,027
million). As at 31 March 2017, the average effective interest rates on bank borrowings ranged from 1.1% to 1.8% (31March 2016: 1.1% to 2.3%) per annum. Approximately 6.4% of bank borrowings as at 31 March 2017 were fixed rateborrowings.
Details of borrowings and obligations under finance leases are provided in Notes 27 and 28 to the consolidated financial
statements of this Annual Report.

12

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Annual Report 2017

Management Discussion and Analysis
HEDGING OF FLOATING RATE BORROWINGSAs at 31 March 2017, the Group had one floating to fixed interest rate swap contract with a bank in Japan (i.e. the Grouppays fixed interest rates and receive interests at floating rate). This interest rate swap contract was 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 areon a floating rate basis, the floating to fixed interest rate swap contracts enabled the Group to reduce the volatility in theamount of interest being paid. For the year ended 31 March 2017, the gain on fair value for interest rate swap contracts
amounted to ¥4 million.
The Group did not carry out any foreign currency investment and its debts were all denominated in Japanese Yen. As theGroup’s principal business activities are carried out in Japan, the Group does not have any material foreign exchange
exposure.

GEARING RATIOThe gearing ratio, defined as the aggregate of interest-bearing loans and obligations under finance leases, divided bytotal equity, was 59.1% as at 31 March 2017 (31 March 2016: 72.4%). The decrease of 13.3% as compared with that as
at 31 March 2016 was mainly due to the decrease in total borrowings of ¥3,369 million and increase in total equity of ¥402
million.

CAPITAL EXPENDITURE
Capital expenditure mainly comprises expenditure for (i) the purchase of property, plant and equipment mainly used forconstruction of buildings, and (ii) the purchase of equipment and tools for the expansion and maintenance of ourpachinko and pachislot hall operations. The table below shows a breakdown of the capital expenditure for the indicatedperiods:
As at 31 March
2017
2016
¥ million¥ million
Property, plant and equipment
Investment properties
OthersNIRAKU GC HOLDINGS, INC.

653
–
5

4,105
43
58

658

4,206

Annual Report 201713

Management Discussion and Analysis
CHARGES ON ASSETS
As at 31 March 2017 and 2016, the carrying values of charged assets were as below:

Property, plant and equipment
Investment properties
Deposits and other receivables

2017¥ million

2016¥ million

8,195
678
585

8,445
697
560

9,458

9,702

CONTINGENT LIABILITIESThe Group did not have any material contingent liabilities as at 31 March 2017 and 2016.

CAPITAL COMMITMENTS
Details of the Group’s capital commitments as at 31 March 2017 and 2016 are set out in Note 33 to the consolidated
financial statements.

SIGNIFICANT INVESTMENTS, MATERIAL ACQUISITIONS AND DISPOSALS OF
SUBSIDIARIES, AND FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS
During the year ended 31 March 2017, other than the event described in Note 21 to the consolidated financial
statements, the Group did not conduct any significant investments, material acquisitions or disposals. Save for those
disclosed in this annual report, the Group had no plan authorised by the Board for other material investments or additionsof capital assets as at the date of this annual report.
There is no important events affecting the Company that have occurred since the end of the financial year.

EMPLOYEES AND REMUNERATION POLICY
As at 31 March 2017, the Group had 1,435 employees. The remuneration policy of the Group (including those fordirectors and employees) is determined by the Remuneration Committee under the Board as per the performance,
qualifications and competence of the employees. Details of the key management remuneration of the Company are set
forth in Note 36 to the consolidated financial statements.

USE OF NET PROCEEDS FROM LISTING
The net proceeds from the initial public offering in April 2015 amounted to approximately HK$339 million, of which
HK$322 million was utilised for the year ended 31 March 2017. The remaining net proceeds of HK$17 million will be used
for the originally planned purposes as set out in the Company’s prospectus dated 24 March 2015.

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Management Discussion and Analysis
FINAL DIVIDENDThe Board has declared a final dividend of ¥0.03 per share for the year ended 31 March 2017 (31 March 2016: ¥0.10 per
share) on 19 May 2017, the final dividend will be payable on 7 July 2017 to the shareholders of the Company (the“Shareholders”) whose names appear on the register of members of the Company at close of business on 6 June 2017.
The exchange rate for the conversion of Japanese Yen to Hong Kong dollar for the dividend distributed to the
Shareholders in the currency other than Japanese Yen is based on the average currency rates prevailing five trading
days immediately prior to 19 May 2017 (being 12 May 2017 and 15 to 18 May 2017).

NIRAKU GC HOLDINGS, INC.

Annual Report 201715

Corporate Governance Report
CORPORATE GOVERNANCE
During the year ended 31 March 2017, the Company has adopted and complied with all the applicable principles andcode 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 of chairman and chief executive to be separated and shouldbe performed by different individuals.

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 leader 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 our Group’s operations as hedirectly 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 of the Company (the “Directors”)(including our independent non-executive Directors) consider our Chairman is the best candidate for both positions andthe present arrangements are beneficial to and in the interests of our Company and Shareholders as a whole.

DELEGATION BY THE BOARD
The Board reserves for its decision all major matters of the Company, including: approval and monitoring of all policy
matters, overall strategies and budgets, internal control and risk management systems, material transactions (in particular
those that may involve conflict of interests), financial information, appointment of Directors and other significant financial
and operational matters. The Board is accountable to the Shareholders. Directors could have recourse to seek
independent professional advice in performing their duties at the Company’s expense and are encouraged to access andto consult with the Company’s senior management independently.
The daily management, administration and operation of the Group are delegated to the senior management. The
delegated functions and responsibilities are periodically reviewed by the Board. Approval has to be obtained from theBoard prior to any significant transactions entered into by the management.

BOARD OF DIRECTORSThe Board oversees the management, businesses, strategic directions and financial performance of the Group. The
Board currently comprises a total of seven Directors, with one executive Director, namely Mr. Hisanori TANIGUCHI (alsoknown as JEONG Seonggi), one non-executive Director, namely Mr. Hiroshi BANNAI, and five independent nonexecutive Directors, namely Mr. Hiroaki MORITA, Mr. Norio NAKAYAMA, Mr. Masaharu TOGO, Mr. Michio MINAKATA
and Mr. Yoshihiro KOIZUMI. The biographies of the Directors are set out on pages 25 to 27 of this annual report.

16

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Corporate Governance Report
Pursuant to the code provision A.5.6 of the CG Code, listed issuers are required to adopt a board diversity policy. The
Board has adopted the board diversity policy with a view to achieve a sustainable and balanced development of theGroup. In designing the Boards composition, Board diversity has been considered from a number of aspects, including
but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge
and length of service. All Board appointments will be based on meritocracy, and candidates will be considered against
objective criteria, having due regard for the benefits of diversity on the Board. The Board’s composition (including gender,
ethnicity, age, length of service) will be disclosed in the Corporate Governance Report annually. This diversity policy isreviewed annually by the Nomination Committee, and where appropriate, revisions will be made with the approval fromthe Board.

Chairman and Chief Executive Officer
The Board has appointed a Chairman, Mr. Hisanori TANIGUCHI, who provides leadership for the Board and ensures thatthe Board works effectively and that all important issues are discussed in a timely manner. The Chairman also holds the
position of Chief Executive Officer. Since April 2010, our Chairman has been the key leadership figure of our Group who
has been primarily involved in the formulation of business strategies and determination of the overall direction of ourGroup. 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 implementationof our business plans, our Directors (including our independent non-executive Directors) consider our Chairman is thebest candidate for both positions and the present arrangements are beneficial and in the interests of our Company and
our Shareholders as a whole.

Independent Non-Executive Directors
The Company has received annual confirmations of independence from all the independent non-executive Directors inaccordance with Rule 3.13 of the Listing Rules. The Board is of the view that all the independent non-executive directors
are independent and have appropriate professional qualifications or accounting or related financial management
expertise in accordance with Rule 3.10 of the Listing Rules.

Audit Committee
The Company established the Audit Committee on 25 June 2014 with specific written terms of reference. The Audit
Committee is responsible for assisting the Board in providing an independent view of the financial information of theCompany, effectiveness of our risk management system, financial reporting system and internal control procedures,
overseeing the audit process, internal audit function and performing other duties and responsibilities as assigned by the
Board. The Audit Committee also oversees the corporate governance functions.
The Audit Committee held 14 meetings during the year ended 31 March 2017 to review reports on risk management
system, internal control system and internal audit function of the Group, and to discuss with the management and theexternal auditors the accounting policies and practices which may affect the Group and financial reporting matters. The
Audit Committee reviewed the system of internal control and the financial statements for the year ended 31 March 2017and interim financial statements for the six months ended 30 September 2016 and with recommendation to the Board forapproval. The audit plans from external auditors were also reviewed by the Audit Committee and recommendation wasmade on the reappointment of the external auditors.
The Audit Committee currently consists of three independent non-executive Directors, namely Mr. Michio MINAKATA (南方美千雄), Mr. Hiroaki MORITA (森田弘昭) and Mr. Hiroshi BANNAI (坂內弘). It is currently chaired by Mr. Michio
MINAKATA (南方美千雄), an independent non-executive Director.

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Corporate Governance Report
Remuneration Committee
Remuneration Committee is responsible for making recommendations to the Board on the Company’s policy andstructure for the remuneration of all the Directors and senior management of the Group and on the establishment of aformal and transparent procedure for developing remuneration policy for approval by the Board.
The Remuneration Committee currently consists of three members, including two independent non-executive Directors,
namely Mr. Norio NAKAYAMA (中山宣男) and Mr. Hiroaki MORITA (森田弘昭) and an executive Director, namely Mr.
Hisanori TANIGUCHI (谷口久徳) (also known as Mr. JEONG Seonggi). It is currently chaired by Mr. Norio NAKAYAMA(中山宣男), an independent non-executive Director. The Remuneration Committee held 2 meetings during the year
ended 31 March 2017 to review and approve the management’s remuneration proposals with reference to the Board’s
corporate goals and objectives; and to determine, with delegated responsibility, the remuneration packages of individual
executive Directors and senior management and making recommendations to the Board about the remuneration of nonexecutive Directors.
For the year ended 31 March 2017, the number of the senior management (including Directors) whose remuneration fellwithin the following bands is as follows:
Emolument bands

Number of individuals

Below ¥10,000,000¥10,000,001 to ¥20,000,000¥20,000,001 to ¥30,000,000¥30,000,001 to ¥100,000,000¥100,000,001 to ¥110,000,000

9
2
1
–
1

Nomination Committee
The Company established the Nomination Committee on 25 June 2014 with specific written terms of reference. The
Nomination Committee is responsible for reviewing the structure, size and composition of the Board, assessing theindependence of the independent non-executive Directors and making recommendations to the Board on theappointment and re-appointment of Directors. The Nomination Committee held one meeting during the year ended 31
March 2017.
The Nomination Committee currently consists of three members, including two independent non-executive Directors,
namely Mr. Hiroaki MORITA (森田弘昭) and Mr. Yoshihiro KOIZUMI, (小泉義広), and an executive Director, namely Mr.
Hisanori TANIGUCHI (谷口久徳) (also known as Mr. JEONG Seonggi). It is currently chaired by Mr. Hiroaki MORITA (森田弘昭), an independent non-executive Director. The Nomination Committee held 6 meeting during the year to review thestructure, size and composition of the Board, approve the renewal of the term of appointment for those Directors, assess
the independence of the independent non-executive Directors and review the measurable objective in implementing thediversity policy of the Board.
All Directors (including non-executive Directors) have formal letters of appointment with the Company for a term of one
year commencing from their respective dates of appointment, subject to retirement by rotation in accordance with the
Articles of Incorporation. At the Company’s 2016 annual general meeting (“AGM”), five of the Directors retired from officeby rotation in accordance with the Articles of Incorporation. All of them were re-elected by Shareholders to continue theiroffices as Director. The Nomination Committee has reviewed the Directors’ rotation plan to ensure that every Director will
retire by rotation at least once every year at an annual general meeting.

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Corporate Governance Report
Attendance at meetings of the General Meeting, the Board, the Audit Committee, the Remuneration Committee and theNomination Committee:
Number of meetings attended/Eligible to attend
for year ended 31 March 2017

Name of Directors
Mr. Hisanori TANIGUCHI (谷口久徳)
Mr. Hiroshi BANNAI (坂內弘) Note
Mr. Hiroaki MORITA (森田弘昭)
Mr. Norio NAKAYAMA (中山宣男)
Mr. Masaharu TOGO (東郷正春)
Mr. Michio MINAKATA (南方美千雄) Note
Mr. Yoshihiro KOIZUMI (小泉義広) Note
Mr. Hiroaki KUMAMOTO (熊本浩明) Note

GeneralMeeting

Board
Meeting

Audit
Committee
Meeting

Remuneration
Committee
MeetingNomination
Committee
Meeting

1/1
–
1/1
1/1
1/1
–
–
1/1

17/17
11/11
13/17
17/17
15/17
9/11
11/11
7/7

–
9/9
9/14
5/5
–
9/9
–
5/5

2/2
–
2/2
2/2
–
–
–
–

6/6
–
5/6
–
2/2
–
4/4
–

There were 17 meetings of the Board held during the year ended 31 March 2017.
Directors who are considered having conflict of interests or material interests in proposed transactions or contemplated
issues are required to abstain from voting on the relevant resolution.
Note: Mr. Hiroshi BANNAI, Mr. Michio MINAKATA and Mr. Yoshihiro KOIZUMI were appointed on 29 June 2016. Mr. Hiroaki KUMAMOTO resigned on 30
June 2016.

Induction and Continuous Professional Development
Each newly appointed Director is provided with necessary induction and information to ensure that he/she has a proper
understanding of the Company’s operations and businesses as well as his/her responsibilities under relevant statues,
laws, rules and regulations. The Company also arranges regular seminars to provide Directors with updates on latest
development and changes in the Listing Rules and other relevant legal and regulatory requirements from time to time.
The Directors are also provided with regular updates on the Company’s performance, position and prospects to enable
the Board as a whole and each Director to discharge their duties.
Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge
and skills. All Directors participated in continuous professional development to develop and refresh their knowledge andskills. The Company’s external lawyers had facilitated directors’ training by the provision of presentations, briefings andmaterials for the Directors primarily relating to the roles, functions and duties of a listed company director. Directors
including Mr. Hisanori TANIGUCHI, Mr. Hiroshi BANNAI, Mr. Hiroaki MORITA, Mr. Norio NAKAYAMA, Mr. Masaharu
TOGO, Mr. Michio MINAKATA and Mr. Yoshihiro KOIZUMI received this training. Ms. YIU Wai Man Karen, the jointcompany secretary of the Company, from time to time updates and provides written training material relating to the roles,
functions and duties of a Director and all the aforesaid Directors study such materials, and they are asked to submit asigned training record to the Company on an annual basis.

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Annual Report 201719

Corporate Governance Report
Corporate Governance Function
The Board recognises that corporate governance should be the collective responsibility of Directors which includes:(a)to review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements;(b)

to review and monitor the training and continuous professional development of Directors and senior management;(c)to develop, review and monitor the code of conduct and compliance manual applicable to employees and Directors;(d)to develop and review the Company’s policies and practices on corporate governance and making
recommendations to the Board and report to the Board on matters;(e)to review the Company’s compliance with the CG Code and disclosure in the corporate governance report; and(f)to review and monitor the Company’s compliance with the Company’s whistleblowing policy.

AUDITOR’S REMUNERATION
During the year ended 31 March 2017, the total fee in relation to the annual audit of the Group amounted to ¥96 million,
which was paid/payable to PricewaterhouseCoopers and its affiliated firm. The remuneration paid toPricewaterhouseCoopers and its affiliated firm for services rendered is listed as follows:2017¥ million
Types of services
Statutory audit
Non-audit services (Note)

62
34

Total

96

Note: Non-audit services comprise primarily tax advisory services provided to the Group.

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Corporate Governance Report
JOINT COMPANY SECRETARY
The joint company secretaries are Ms. YIU Wai Man Karen and Ms. NG Sau Mei. Ms. YIU Wai Man Karen is also thefinancial controller and is employed by the Company on a full-time basis.
In order to uphold good corporate governance and ensure compliance with the Listing Rules and applicable Hong Konglaws, the Company also engages Ms. NG Sau Mei, senior manager of KCS Hong Kong Limited (a company secretarial
service provider), as the other joint company secretary to assist Ms. YIU Wai Man Karen to discharge her duties ascompany secretary of the Company. The primary contact person of Ms. NG Sau Mei at the Company is Ms. YIU Wai Man
Karen.
For the year ended 31 March 2017, Ms. YIU Wai Man Karen and Ms. NG Sau Mei have undertaken not less than 15hours of relevant professional training respectively in compliance with Rule 3.29 of the Listing Rules.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Board, supported by the finance department, is responsible for the preparation of the financial statements of theCompany and the Group. The Board has prepared the financial statements in accordance with International Financial
Reporting Standards issued by International Accounting Standard Board. Appropriate accounting policies have also beenused and applied consistently. The Directors were not aware of any material uncertainties relating to events or conditions
which may cast significant doubt upon the Group’s ability to continue as a going concern.
The statement by the auditor of the Company and the Group regarding their reporting responsibilities on the financial
statements of the Company and the Group is set out in the Independent Auditor’s Report on pages 40 to 45 of thisannual report.

DIRECTORS’ SECURITIES TRANSACTIONSThe Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out inAppendix 10 to the Listing Rules (the “Model Code”) as its own code of conduct regarding securities transactions by
Directors. Having made specific enquiry with all Directors, the Directors confirmed that they had complied with therequired standard set out in the Model Code and the Company’s code of conduct during the year ended 31 March 2017.

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Corporate Governance Report
SHAREHOLDERS’ RIGHTS
Rights to demand Directors to call for a Shareholders’ meeting
Any one Shareholder holding no less than 3% of the voting rights in the Company for the last six consecutive months
may request the Directors to convene a general meeting. If the Directors do not send out a convocation notice for suchgeneral meeting to be held and such Shareholders’ meeting is not convened by the directors within eight weeks from thedate of such request, the relevant Shareholder who made the request may convene a general meeting with court
permission.

Right to put enquires to the Board
The Board and senior management maintain a continuing dialogue with the Shareholders and investors through various
channels including the Company’s AGM. The Chairman, chairmen of board committees (or respective designatedmember), Executive officers and external auditors will attend the AGM. The Directors will answer questions raised by the
Shareholders on the performance of the Group. Our corporate website which contains corporate information,
announcements as well as the recent developments of the Group enables Shareholders to have timely and updated
information of the Group.

Rights to demand Directors include a proposal in a Shareholders’ meeting
Shareholders continuously holding not less than 1% of the votes of all Shareholders or not less than 300 votes of all
Shareholders for the preceding six months may demand the Directors, no later than eight weeks prior to the date of the
Shareholders’ meeting, notify Shareholders of the summary of the proposals which the demanding Shareholders intend
to submit with respect to the matters that are the purpose of the Shareholders’ meeting and include a proposal in thenotices of the Shareholders’ meetings. The Company will notify the Shareholders of the date on which an annual
Shareholders’ meeting is to be held no less than ten weeks prior to the date of such meeting by making a voluntaryannouncement on the websites of the Company and the Stock Exchange.

INVESTOR RELATIONS
To manage its relationship with investment community and its Shareholders, the Company also communicates throughannouncements and annual and interim reports. All such reports and announcements can also be accessed via the
Company’s website. The Directors, company secretary or other appropriate members of the senior management also
respond to inquiries from Shareholders and investment community promptly. Shareholders who intend to put forward
their enquiries about the Company to the Board could send their enquiries via Strategic Financial Relations Limited at
niraku@sprg.com.hk.

RISK MANAGEMENT AND INTERNAL CONTROLSThe Company has formulated the risk management policy and processes which apply to all levels of the Company andits subsidiaries to ensure all material risks which the Company exposed to are properly identified, analysed, evaluated,
responded, monitored and communicated.
The Board acknowledges its responsibility to ensure that the Company establishes and maintains sound risk
management and internal control systems within the Group and to review the effectiveness of the systems. Such systems
are designed to manage and mitigate risks inherent in the Group to an acceptable level, rather than eliminate the risk offailure to achieve business objectives, and can only provide reasonable assurance against material misstatement or loss.
The structure of the Company’s risk management and internal control systems is to ensure (i) appropriate policies andcontrol procedures have been designed and established to safeguard the Group’s assets against improper use ordisposal; (ii) relevant laws and regulations are adhered to and complied with; and (iii) reliable financial and accounting
records are maintained in accordance with relevant accounting standards and regulatory reporting requirements. The
main structure of the systems are as follow:

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Corporate Governance Report
The Board•

ensures effective systems are maintained in order to safeguard the assets of the Group;•

defines management structure with clear lines of responsibility and limit of authority; and•determines the nature and extent of significant risk that the Company is willing to take in achieving the strategic
objectives and formulates the Group’s risk management strategies.

The Audit Committee•

oversees the systems of the Group;•

reviews and discusses with the management of the Company at least annually to ensure that the management of
the Company has performed its duty to have the effective systems; and•considers major findings on internal control matters and makes recommendations to the Board.

The Internal Audit Department•

analyses and appraises independently the adequacy and effectiveness of the Company’s risk management andinternal control systems;•

reports internal audit findings to Audit Committee; and•provides recommendations for improvement.

The Risk Management Office•assists the management of the Company in formulating risk management policies, tools and processes;•

gives advice on the design of the systems and action plans taken by the management of the Company inaddressing the identified risks;•

ensures appropriate actions are taken against major risks which affect the Group’s businesses and operations; and•monitors and reviews the systems and report to the Audit Committee.

The Management of the Company (includes heads of departments and business units)•

designs, implements and monitors the systems and ensures the systems are executed effectively;•

identifies risks and takes measures to mitigate risks in day-to-day operations;•gives prompt responses and conducts follow-up actions against internal control matters raised by internal auditors (ifany) or the independent auditor; and•provides confirmation to the Board on the effectiveness of the systems.

During the reporting period, the Company has carried out the following works in relation to risk management and internal
control:•

The management of the Company, through daily risk management activities, identified major risks that may impact
the Group’s performance; assessed and evaluated the likelihood of occurrence of the identified risks; formulated
and implemented measures, controls and action plans to manage and mitigate such risks;
NIRAKU GC HOLDINGS, INC.

Annual Report 201723

Corporate Governance Report•

Risk management office monitored and reviewed the risk management and internal control systems on an ongoingbasis and reported to the Audit Committee regarding the status of the systems;•

Risk management office periodically followed-up and reviewed the implementation of the measures against majorrisks identified and ensured appropriate actions were taken to address all major risks identified;•

Risk management office reviewed the risk management and internal control systems periodically to identify process
and control deficiencies, and designed and implemented remedial actions to address such deficiencies;•

Risk management office ensured appropriate procedures and measures are in place to safeguard assets against
unauthorised use or disposition, control capital expenditure, maintain proper accounting records and ensure
reliability of financial information used for business and publications;•Internal audit department carried out analysis and independent appraisal of the adequacy and effectiveness of therisk management and internal control systems; examinated of risk-related documentation prepared by the
management of the Company and conducted interviews with employees at all levels; and•The head of internal audit department attended meetings of the Audit Committee and reported on the internal audit
findings and responded to queries from members of the Audit Committee.

The Company has internal guidelines in place to ensure inside information is disseminated to the public in accordancewith the applicable laws and regulations. Executive officers and financial function of the Group are delegated withresponsibilities to control and monitor the proper procedures regarding inside information disclosures. Access to inside
information is restricted to relevant senior executives. Relevant personnel and other professional parties involved arereminded to preserve confidentiality of the inside information until it is publicly disclosed. Other procedures including preclearance on dealing in Company’s securities by Directors and designated members of the management, notification ofregular blackout period and securities dealing restrictions to Directors and employees, and identification of project bycode name have also been implemented by the Company against possible mishandling of inside information within theGroup.
In the year under review, the Board has reviewed, through the Audit Committee, the Group’s risk management andinternal control system and is not aware of any significant issues that would have an adverse impact on the effectivenessand adequacy of the risk management and internal control system throughout the year.

CHANGE IN CONSTITUTIONAL DOCUMENTS
There was no significant change in the Company’s constitutional documents made during the year.

24

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Profile of Directors and Senior Management
CHAIRMAN OF THE BOARD, EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER
Mr. Hisanori TANIGUCHI (谷口久徳) (also known as Mr. JEONG Seonggi), aged 54, is the primary leadership figureof the Group. He was appointed as the Representative Director and President* (代表取締役社長) of the Company on 10
January 2013, the date of incorporation of our Company, and was re-designated as a Director and Chief Executive
Officer on 25 June 2014. Mr. Taniguchi is responsible for the Group’s overall corporate strategies, management andbusiness development.
Mr. Taniguchi joined the Group in April 1983, deployed in a number of departments across our operations, from humanresources to hall development and sales. Throughout his 34 years of experience with the Group, he has acquired
extensive knowledge in a wide array of aspects in pachinko and pachislot hall operations.
Mr. Taniguchi 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 was subsequently elected as the vice president* (取締役副社長), president* (取締役社長) and representative director and president* (代表取締役社長) of Niraku Corporation in June
2008, June 2009 and April 2010, respectively. He is currently the representative director and president* (代表取締役社長)
of Niraku Corporation and Niraku Merrist Corporation (“Merrist”).

NON-EXECUTIVE DIRECTOR
Mr. Hiroshi BANNAI (坂內弘), aged 78, has served as a police officer in Fukushima Prefecture from 1962 to hisretirement from the police force in 1999, during which he was mainly responsible for handling matters related to antisocialorganisations. Mr. Bannai then served as an executive director* (専務理事) for the Fukushima Prefecture Amusement
Business Association* (福島県遊技業協同組合). Relying on his experience from the police force, Mr. Bannai has also
been an advisor for Fukushima Bank* (福島銀行) from 2002 to 2009. Mr. Bannai is currently an advisor for Xebio Co.,
Ltd.* (株式会社ゼビオ). Mr. Bannai received his education from the Fukushima Prefectural Wakamatsu Commercial HighSchool (福島県立若松商業高等学校). Mr. Bannai was appointed to the Board to supervise the Group’s compliance withapplicable laws and regulations relating to adult entertainment.

INDEPENDENT NON-EXECUTIVE DIRECTORS
Mr. Hiroaki MORITA (森田弘昭), aged 80, has been appointed as an independent non-executive Director since June
2014. Mr. Morita is also a director of IPO Research Institute, Ltd.* (IPO総合研究所株式会社) since April 2000. He also
worked for Nomura Securities Co., Ltd.* (野村證券株式会社) between April 1960 and June 1989 and served 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 hiscurrent and previous positions in these institutions in Japan and as a chartered member of the Securities Analysts
Association of Japan* (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.

NIRAKU GC HOLDINGS, INC.

Annual Report 201725

Profile of Directors and Senior Management
Mr. Norio NAKAYAMA (中山宣男), aged 70, has been appointed as an independent non-executive Director since June
2014. 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), 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 and corporate governance of a listed corporation in Japan. Until November
2006, Mr. Nakayama also served as an external corporate auditor for Asahi Homes Co. Ltd * (旭ホームズ株式会社). Mr.
Nakayama was 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) between December
2010 and April 2015.
Mr. Masaharu TOGO (東郷正春), aged 69, has been appointed as an independent non-executive Director since June
2014. Mr. Togo joined Sumitomo Corporation* (住友商事株式会社) in April 1973 and was a manager in charge of its
stainless steel 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. Michio MINAKATA (南方美千雄), aged 50, was appointed as an independent non-executive Director in June 2016.
He started his career at KPMG Century Audit Corporation* (KPMGセンチュリー監査法人). Mr. Minakata then worked forseveral companies and offices including NASDAQ Japan* (ナスダッックジャパン) based on his capability in theaccounting field. Mr. Minakata is currently serving as the representative director* (代表取締役) of IPO Bank* (株式会社IPOバンク). Further, Mr. Minakata is currently also an advisor* (監査役) for Showcase TV Inc.* (株式会社ショーケース•ティービー), the shares of which are listed on the Market of the High-Growth and Emerging Stocks on The Tokyo Stock
Exchange (3909:JP). Mr. Minakata received a bachelor’s degree in economics from the Keio University* (慶應義塾大学)
in March 1990. Mr. Minakata has also been a member of the Japanese Institute of Certified Public Accountants since
May 1996. Mr. Minakata was appointed to the Board to provide advice to the Company based on his accounting andmanagement background and expertise.
Mr. Yoshihiro KOIZUMI (小泉義広), aged 62, was appointed as an independent non-executive Director in June 2016.
He has worked for several leading Japanese and foreign companies over the years, including Toshiba Co., Ltd.* (株式会社東芝) from 1979 to 1986 and Daiwa Securities Co., Ltd.* (大和証券株式会社) from 1986 to 1992. Mr. Koizumi also has
experience in working for banks and financial institutions, including Deutsche Bank* (ドイツ銀行) from 1994 to 1997 andSociete General Bank* (ソシエテジェネラル銀行） from 1997 to 2002. Thereafter, Mr. Koizumi also served as therepresentative director* (代表取締役) of Mariner Financial Service Co., Ltd.* (株式会社マリナー•フィナンシャル•サービス) from 2002 to 2015 and has been serving as the representative director* (代表取締役) of Clear Markets Japan Co.,
Ltd* (Clear Markets Japan株式会社) since 2014. Mr. Koizumi graduated from the Department of Commerce Science at
Keio University* (慶応義塾大学商学部). Mr. Koizumi has also obtained his qualification as a certified public accountant in
the United States in 1991. Mr. Koizumi was appointed to the Board to provide advice to the Company based on his
financial and management background and expertise.

26

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Profile of Directors and Senior Management
EXECUTIVE OFFICERS
Mr. Akinori OHISHI (大石明徳), aged 52, has been appointed as Executive Officer since June 2014. He is a prominent
management figure in the Group and manages day-to-day operations. Mr. Ohishi joined the Group in April 2010 as anadvisor of Niraku Corporation. He was promoted to director and head of corporate planning of Niraku Corporation in June
2012, chiefly responsible for implementing the corporate and business strategies of pachinko and pachislot halloperations. Mr. Ohishi was elected as a Director of the Company upon incorporation in January 2013, and was redesignated as an Executive Officer on 25 June 2014. 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. Hidenori MOROTA (諸田英模), aged 51, has been appointed as Executive Officer since November 2014. He is alsoa director of Niraku Corporation since June 2012. He is the head of sales department and oversees the advertising,marketing, sales, machine selection and general prize offerings functions of the Group. Mr. Morota joined the Group in
October 1988 and was elected as a director of Niraku Corporation in June 2001 and was subsequently promoted to an
executive officer* (執行役) in June 2005. He served as a Director of the Company between January 2013 and June 2014,
and was designated as Executive Officer in November 2014.

SENIOR MANAGEMENT
Mr. Tatsuo TANIGUCHI (谷口龍雄), aged 63, was appointed as the representative director and president* (代表取締役社長) of Nexia Inc. in June 2009. His primary duties within the Group are the oversight of property activities, including theselection, acquisition and maintenance of the lands and premises of our pachinko halls. He also manages the officepremises and residential apartment building owned by the Group which were leased to third party customers as anancillary business. Mr. Taniguchi joined the Group in 1974 and resigned his office as Director of the Group in 2014. Mr.
Taniguchi remains as an advisory role within the Group, focusing on property activities. Mr. Taniguchi is the brother of
the Chairman and is therefore his associate under the Listing Rules. Mr. Taniguchi is also a controlling shareholder of theCompany and also a person acting in concert with the Chairman within the meanings of the Codes on Takeovers andMergers and Share Buy-backs.
Mr. Tadashi UCHIYAMA (内山忠), aged 65, joined the Group in 2011 as statutory auditor* (監査役) of Niraku
Corporation. Mr. Uchiyama has over 38 years of experience in banking, information system and business consultationand management. 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.
Mr. Tsuneo NAKAJIMA (中島常夫), aged 69, joined the Group in 2016 as statutory auditor* (監査役) of Niraku
Corporation. Mr. Nakajima has served as a police officer in Fukushima Prefecture from 1966 to his retirement from thepolice force in 2008, during which he successively filled various important posts, including head of police station and chiefof detective division.
* For identification purpose only

NIRAKU GC HOLDINGS, INC.

Annual Report 201727

Report of the Directors
The Directors are here to present the annual report of the Company together with the audited consolidated financial
statements of the Group for the year ended 31 March 2017.

PRINCIPAL ACTIVITIESThe principal activity of the Company is investment holding. The Company and its subsidiaries comprising the Group are
principally engaged in pachinko and pachislot hall operations, hotel operations and restaurant business in Japan. The
activities of the principal subsidiaries are set out in Note 1.1 to the consolidated financial statements. An analysis of theGroup’s performance for the year by operating segment is set out in Note 5 to the consolidated financial statements.

BUSINESS REVIEWThe financial year ended 31 March 2017 is another challenging year for the Group, which pachinko operators saw little
signs of improvement in the pachinko and pachislot industry. The prominent factor of the market downturn being thecontinuous decline in the number of pachinko players as a wide range of entertainment alternatives available in themarket. The downturn was further worsened with the effect of new standard which confined pachinko operators to
replace all high-gambling machines that were seen to be the traditional source of revenue for pachinko operators.
For the year ended 31 March 2017, the Group’s gross pay-ins from pachinko and pachislot business amounted to¥143,130 million, comprising revenue from suburban halls of ¥136,122 million and urban halls of ¥7,008 million,
representing a decrease of 9.4% and 9.8%, respectively, as compared to last year.
For the year ended 31 March
2017
2016
¥ million¥ million
Gross pay-ins— Suburban halls— Urban halls

Gross pay-outs— Suburban halls— Urban halls

Revenue from pachinko and pachislot business— Suburban halls— Urban halls

28

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

136,122
7,008

150,326
7,769

143,130

158,095(109,169)(5,565)(121,600)(6,300)(114,734)(127,900)

26,953
1,443

28,726
1,469

28,39630,195

Report of the Directors
STRATEGIESGrappling with the decline in pachinko and pachislot revenue, the Group has been persistent in expanding its market
share through revamping of existing halls, including interior renovation offering a more pleasant playing environment; aswell as launch of online prize redemption system allowing a wider variety of general prizes for customers. Opening newhalls is undoubtedly a means in driving additional income to the Group. During the year, a mega store equipped with
1,280 pachinko and pachislot machines was opened in Fukushima City. This mega store marked as the Group’s twentyfirst store in Fukushima prefecture, generating additional income and establishing a stable customer base. For the year
ended 31 March 2017, gross pay-ins and revenue generated from this new hall amounted to ¥8,214 million and ¥1,105
million, respectively.
The Group carried out frequent review on machine mix, ensuring types of machine offered met the customer preferences.
Seeing the increasing popularity in pachislot machines, the Group has adjusted the proportion of pachinko machines topachislot machines from 66% to 34% as at 31 March 2016 to 64% to 36% as at 31 March 2017. Further, the Group
continued to optimise the pay-out ratio, a key factor which has direct impact on customer visits, in order to drive higher
traffic. These measures were successful in increasing revenue margin and maintaining stable machine utilisation rate forthe year ended 31 March 2017.
For the year ended 31 March
2017
2016
Revenue margin— Suburban halls— Urban halls

19.8%
20.6%

19.1%
18.9%

Machine utilisation rate
— Pachinko— Pachislot

23.2%
23.2%

24.2%
23.2%

Number of machines— Pachinko— Pachislot

17,913
10,213

18,537
9,602

28,12628,139Annual Report 2017

29

NIRAKU GC HOLDINGS, INC.

Report of the Directors
To maximise the returns to Shareholders, the Group is determined to take every step to increase its profit. Apart from
opening new halls as mentioned, the Group frequently reviews the business performance of each existing hall. Necessary
steps will be taken for halls which are identified as underperformed. During the current year, the Group, after carefulconsideration of its future profitability, decided to close down a loss-making urban hall in Maebashi area. The Groupconsidered its closure would allow better resource allocation within the Group. Further, the Group reckoned that cost
control is an effective means to improve the net profit margin. With the tightened cost control implemented during theyear ended 31 March 2017, administrative and other operating expenses was decreased by ¥424 million as compared tolast year. In addition, the Group centralised its financing from individual subsidiaries level to the Company, allowing
higher bargaining power with financial institutions which leads to higher cost savings on borrowings. Following this new
arrangement, interest expense was drastically reduced by ¥306 million for the year ended 31 March 2017 as compared
to last year.
As at 31 March2017
Number of halls— Suburban halls— Urban halls

2016

49
6

48
7

55

55

For the year ended 31 March
2017
2016
1.7%
0.41

Net profit margin
Earnings per share (in ¥)

0.6%
0.15

RECENT DEVELOPMENT
Despite the severe market conditions, the management of the Group is confident in maintaining its returns from the corebusiness; and at the same time explores new opportunities to broaden the revenue source, especially in the hospitality
industry. On 26 September 2016, the second Spanish restaurant under the brand “LIZARRAN” was opened in NishiShinjuku, a popular shopping and entertainment area among the younger generation in Tokyo. This new outlet hasbrought in ¥15 million revenue to the Group. The management is planning to open its third restaurant in 2018.

30

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Report of the Directors
CHALLENGES AHEAD AND FUTURE PLANS
With the advocation of new standards which promote reduction of gambling element of pachinko machines, operators inpachinko industry have implemented a voluntary replacement of high gambling property machines by the end of
December 2016. Future standards governing both pachinko and pachislot machines are expected to move toward low
gambling property machines. This trend will enable customers to play at a reduced cost; and while machine developmentby machine manufacturers progresses, the range of customers is expected to be broadened. Nevertheless, since the low
gambling machines will generate lesser revenue (gross pay-ins) than the high gambling property machines, the pachinkobusiness in the coming years continues to be challenging.
In December 2016, the IR Promotion Act was approved by the Japanese Diet. This Act obliges the government to takeaction within a year after its enactment with the objective of submitting the necessary laws for establishing integrated
resort areas, including casinos. This law effectively permits the establishment of casinos in Japan, which has triggered amajor discussion of “gambling addiction problem”. For a long time, the pachinko industry has been actively considering
this “gambling addiction problem” as a “problem caused by excessive obsession”. However, following the passage of thisAct, there are strong calls for the pachinko industry to take initiatives and necessary actions to address these social
issues, including issues arising from other gambling activities currently exists.
To tackle with the adverse market situation, the Group intends to develop a gaming environment that meets the needs ofdiversified gaming fans by lowering the number of high playing cost machines in the halls. In addition, the Group willfurther strengthen the existing halls. In particular, improve services by increasing service flexibility to meet regional
needs. To do this, the Group will continue to work on enhancing general prizes varieties, one of the major factors
affecting customers’ selection of halls, through expansion of online prize system which enables customers to selectgeneral prizes from online shopping sites.
The Group will promote its “active local engine” marketing campaign which was introduced earlier this year. Through thiscampaign, halls will become nexus points for various entertainment activities in the region, thus deepen the connection
with local community, enhance the market presence of the Group and eventually increase customer base, theirrecognition and loyalty.
Listing on the Stock Exchange in 2015 allows the Group to gain a foothold into Asian market. The continuous economic
growth in the Asian countries has increased the demand for leisure and entertainment activities. The Group will look forevery opportunity for business expansion in these countries. The management is convinced that its profound experience
will prove to be useful in meeting the needs in these regions. The Group may fund possible future expenditures byinternal or external funding as per the prevailing circumstances.
Details of future development of the Group can also be found under the “Chairman’s Statement”.

NIRAKU GC HOLDINGS, INC.

Annual Report 201731

Report of the Directors
Relationship with Suppliers
The Group’s major suppliers consist of machine suppliers, G-prize wholesalers, and general prize suppliers. These
suppliers are relatively large and reputable corporations with long-standing relationships with the Group. On average, theGroup has over ten years of business dealings with its major suppliers.

Relationship with Customers
The Group’s revenue comes from pachinko and pachislot business, and vending machines. As a pachinko hall operator,
the Group has a large and diverse customer base across Japan. Regarding vending machine business, revenue derived
from the Group’s top five largest customers accounted for less than 1% of total revenue for the year ended 31 March
2017.

Relationship with Employees
The Group’s success, to a considerable extent, depends upon its ability to attract, motivate and retain a sufficient numberof qualified employees, including area managers, hall managers, sales managers and staff. The Group offers competitive
wages, bonuses and other benefits to full time employees. Opportunity for advancement is also crucial in building
employee loyalty and work dedication. The Group provides clear career paths, job rotation and training to its full time
employees. As at 31 March 2017, the Group employed 1,435 staff, a 3.8% reduction compared to 2016.

Environmental Policy
Pursuant to Amusement Business Law and local ordinances, a pachinko license 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 ofoperating a business) in the area surrounding the place of business that exceed the limits specified by prefecturalordinances. To ensure compliance with such laws and regulations, the Group had appointed a manager to supervise andmonitor the compliance, formulate internal standards regarding such matters, and keep records of any relevant incidents.

Licenses, Regulatory Approvals and Compliance Record
The Group had complied with the Listing Rules and all relevant Japan laws and regulations in all material respects andhad obtained all material licenses, approvals and permits from relevant regulatory authorities for all of its pachinko halls
in 2017.

Principal Risks and Uncertainties
Principal risks and uncertainties the Group faces include:•risks related to continuous shrinkage of pachinko players in the industry;•risks related to natural disasters, such as earthquake and tsunami;•risks related to human resources and systems application;•

uncertainty as to the profitability of new halls;•

uncertainty as to the performance of the Group’s existing halls;•

uncertainty as to the expansion of hall network;•

uncertainty as to the change of Amusement Business Law and related laws and regulations; and•uncertainty as to the impact on pachinko industry after the passage of the IR Promotion Act.

32

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Report of the Directors
RESULTS AND APPROPRIATIONThe results of the Group for the year ended 31 March 2017 are set out in the consolidated statement of comprehensive
income on page 46.
The Directors have declared the payment of a final dividend of ¥0.03 per share totaling ¥36 million to the Shareholders.
Such payment of dividends will be payable to Shareholders whose names appear on the register of members of theCompany at the close of business on 6 June 2017.

FINANCIAL SUMMARY
A summary of the results and the assets and liabilities of the Group for the last five financial years are set out on page 4of this annual report.

SHARE CAPTIAL
Details of the share capital for the year ended 31 March 2017 are set out in Note 23 to the consolidated financial
statements.

EQUITY-LINKED AGREEMENTS
During the year ended 31 March 2017, the Group did not enter into any equity-linked agreements.

RESERVES AND DISTRIBUTABLE RESERVES
Movements in reserves during the year are set out in the consolidated statement of changes in equity on page 49.
Distributable reserves of the Company as at 31 March 2017 amounted to approximately ¥2,960 million.

BANK LOANS AND OTHER BORROWINGSParticulars of bank loans and other borrowings of the Company and the Group as at 31 March 2017 are set out in Note
27 to the consolidated financial statements.

PRE-EMPTIVE RIGHTS
There is no provision for pre-emptive rights under the Articles of Incorporation or the laws of Japan.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIESThe Company did not redeem any of its listed securities during the year ended 31 March 2017 and to the date of thisannual report. Neither the Company nor any of its subsidiaries purchased or sold any of the Company’s listed securities
during the year ended 31 March 2017 and up to the date of this annual report.

NIRAKU GC HOLDINGS, INC.

Annual Report 201733

Report of the Directors
DIRECTORSThe Directors during the year and up to the date of this annual report are:Executive Director
Mr. Hisanori TANIGUCHI (谷口久徳) (also known as Mr. JEONG Seonggi)

Non-Executive Director
Mr. Hiroshi BANNAI (坂內弘)Independent Non-Executive Directors
Mr. Hiroaki MORITA (森田弘昭)
Mr. Norio NAKAYAMA (中山宣男)
Mr. Masaharu TOGO (東郷正春)
Mr. Michio MINAKATA (南方美千雄)
Mr. Yoshihiro KOIZUMI (小泉義広)
Mr. Hiroaki KUMAMOTO (熊本浩明)Note
In accordance with articles 29 of the Articles of Incorporation, all directors will retire at the forthcoming AGM and, being
eligible, offered themselves for re-election. The Company has received from each of the independent non-executive
Directors an annual confirmation of independence pursuant to Rule 3.13 of the Listing Rules and the Company considers
that all of the independent non-executive Directors are independent.
Note: Mr. Hiroaki KUMAMOTO resigned on 30 June 2016.

DIRECTORS’ SERVICE CONTRACTS
None of the Directors has a service contract with the Company or any of its subsidiaries which is not determinable within
one year without payment of compensation, other than statutory compensation.

DIRECTORS’ MATERIAL INTERESTS IN TRANSACTIONS, ARRANGEMENTS AND
CONTRACTS THAT ARE SIGNIFICANT IN RELATION TO THE GROUP’S BUSINESS
Save as disclosed in this annual report, no transactions, arrangements and contracts of significance in relation to theGroup’s business to which the Company, any of its subsidiaries was a party and in which a Director and the Director’sconnected party had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time
during the year.

DIRECTORS’ INTEREST IN COMPETING BUSINESS
Save as disclosed in this annual report, as at the date of this annual report, none of the Directors or their respective
associates had engaged in or had any interest in any business which competes or may compete with the businesses of
the Group.

PERMITTED INDEMNITY PROVISION
The Articles of Incorporation provides that the Company may execute an agreement with its directors to limit their liability
under Article 423 of the Companies Act in Japan. The Company has taken out and maintained directors’ liability
insurance throughout the year and up to date of this annual report, which provides appropriate cover for the Directors of
the Group.

34

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Report of the Directors
REMUNERATION OF DIRECTORS AND FIVE INDIVIDUALS WITH HIGHEST EMOLUMENTS
No remuneration was paid to the Directors or the five highest paid individuals as an inducement to join or upon joining
the Group. Further, no compensation was paid to, or receivable by, the Directors or past Directors or the five highest paid
individuals during the years ended 31 March 2017 and 2016 for the loss of office as director of any member of the Groupor of any other office in connection with the management of the affairs of any member of the Group.
Details of the emoluments of the Directors and five highest paid individuals during the reporting period are set out in
Notes 8 and 36 to the consolidated financial statements.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND/OR SHORT POSITIONS IN THE
SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ANY
SPECIFIED UNDERTAKING OF THE COMPANY OR ANY OTHER ASSOCIATEDCORPORATIONAs at 31 March 2017, the interests and short positions of the Directors and the chief executives of the Company and theirassociates in the shares of the Company (the “Shares”), underlying Shares and debentures of the Company and its
associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) which havebeen notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or whichwere recorded in the register as required to be kept pursuant to Section 352 of the SFO or as otherwise notified to theCompany and the Stock Exchange pursuant to the Model Code set out in Appendix 10 to the Listing Rules were as
follows:

Hisanori TANIGUCHI (谷口久徳)*(also known as Mr. JEONG Seonggi)

Hiroshi Bannai

Capacity/Nature of interest

Total

Approximate %of shareholding

Beneficial owner; interest ofcontrolled corporation(1)224,480,460
common Shares

18.77%

Beneficial Owner

106,000
common Shares

0.00%

Notes:(1)

The interests held by Hisanori TANIGUCHI (谷口久徳)* (also known as Mr. JEONG Seonggi) shown above include the 212,980,460 Shares held in
his own name for his own benefit and the 11,500,000 Shares held by Densho Limited* (有限会社伝承), a company collectively wholly-owned by hischildren, the voting rights of which are exercisable by him.

(2)

All interests stated are long positions.

(3)

There were 1,195,850,460 Shares in issue as at 31 March 2017.

Save as disclosed above, as at 31 March 2017, none of the Directors and chief executive of the Company had or wasdeemed to have any interest or short position in the Shares, underlying Shares or debentures of the Company or its
associated corporations (within the meaning of Part XV of the SFO) that was required to be notified to the Company andthe Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which
they were taken or deemed to have taken under such provisions of the SFO), or required to be recorded in the register tobe kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange
pursuant to the Model Code.

NIRAKU GC HOLDINGS, INC.

Annual Report 201735

Report of the Directors
SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND/OR SHORT POSITIONS IN THE SHARESAND UNDERLYING SHARES OF THE COMPANY
As at 31 March 2017, to the best knowledge of the Directors, the following persons (not being a Director or chief
executive of the Company) had interests or short positions in the Shares or underlying Shares which fall to be disclosed
to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to
be kept by the Company pursuant to section 336 of the SFO:
Approximate %of shareholding

Capacity/Nature of interest

Total

Tatsuo TANIGUCHI (谷口龍雄)

Beneficial owner; interest ofcontrolled corporation;custodian(1)223,790,000
common shares

18.71%

Masataka TANIGUCHI (谷口晶貴)

Beneficial owner; interest ofcontrolled corporation;custodian(2)151,570,000
common shares

12.67%

Yoshihiro TEI (鄭義弘)*(also known as JEONG Jungwung)

Beneficial owner; interest ofcontrolled corporation;custodian(3)98,440,000
common shares

8.23%

Sumitomo Mitsui Financial Group,
Inc.* (株式会社三井住友フィナンシ
ャルグループ)Interest of controlled
corporation(4)229,137,500
common shares

19.16%

Sumitomo Mitsui Banking Corporation*(株式会社三井住友銀行)

Interest of controlled
corporation(4)229,137,500
common shares

19.16%SMBC Trust Bank Ltd.*(株式会社SMBC信託銀行)

Trustee(1), (2), (3), (4)229,137,500
common shares

19.16%CHOI Jung Ae (崔正愛)Interest of a spouse(5)224,480,460
common shares

18.77%

Hideko TANIGUCHI (谷口秀子)

Interest of a spouse(6)223,790,000
common shares

18.71%

Eiko TANIGUCHI (谷口栄子)

Interest of a spouse(7)151,570,000
common shares

12.67%JEONG Kyeonghae (鄭慶惠)Interest of a spouse(8)98,440,000
common shares

8.23%

Okada Holdings Limited

Beneficial owner(9)80,500,000
common shares

6.73%

36

Annual Report 2017

NIRAKU GC HOLDINGS, INC.

Report of the Directors

Capacity/Nature of interest

Total

Approximate %of shareholding

Universal Entertainment Corporation

Beneficial owner(9)80,500,000
common shares

6.73%

Tiger Resort Asia Limited

Beneficial owner(9)80,500,000
common shares

6.73%

Notes:(1)

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 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 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.

(2)

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* (有限会社北陽觀光), a company collectively wholly-owned by his children, the voting rights ofwhich 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 hischildren, 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 and assignee* (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 threebeneficiaries 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, thevoting 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 Trustand 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.

(4)

Sumitomo Mitsui Financial Group, Inc.* (株式会社三井住友フィナンシャルグループ) holds Sumitomo Mitsui Banking Corporation* (株式会社三井住友銀行), which holds SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行). Accordingly, each of Sumitomo Mitsui Banking Corporation* (株式会社三井住友銀行) and Sumitomo Mitsui Financial Group, Inc.* (株式会社三井住友フィナンシャルグループ) is deemed to be interested in such 229,137,500
Shares held by SMBC Trust Bank Ltd.* (株式会社SMBC信託銀行).

(5)

Ms. CHOI Jung Ae (崔正愛) is the spouse of our Chairman and is therefore deemed to be interested in the Shares that our Chairman is interested inunder 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)

Ms. JEONG Kyeonghae (鄭慶惠) is the spouse of Mr. Yoshihiro TEI (鄭義弘)* (also known as JEONG Jungwung) and is therefore deemed to beinterested in the Shares that Mr. Yoshihiro TEI (鄭義弘)* (also known as JEONG Jungwung) is interested in under the SFO.

(9)

Okada Holdings Limited indirectly holds 74.21% interest in Universal Entertainment Corporation, which directly holds Tiger Resort Asia Limited.
Accordingly, each of the Universal Entertainment Corporation and Okada Holdings Limited is deemed to be interested in such 80,500,000 Shares
held by Tiger Resort Asia Limited.

NIRAKU GC HOLDINGS, INC.

Annual Report 201737

Report of the Directors(10)

All interests stated are long positions.

(11)

There were 1,195,850,460 Shares in issue as at 31 March 2017.

Save as disclosed above, and as at 31 March 2017, the Directors were not aware of any persons (who were not Directors
or chief executive of the Company) who had an interest or short position in the Shares or underlying Shares which would
fall to be disclosed under Divisions 2 and 3 of Part XV of the SFO, or which would be required, pursuant to Section 336
of the SFO, to be entered in the register referred to therein.

ARRANGEMENTS TO PURCHASE SHARES OR DEBENTURES
Save as disclosed under the section headed “Directors’ and Chief Executives’ Interests and Short Positions in the
Shares, Underlying Shares and Debentures of the Company or Associated Corporation”, at no time during the year was
the Company, any subsidiary or its holding company or any fellow subsidiary, a party to any arrangement to enable the
Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body
corporate.

MANAGEMENT CONTRACTS
No contracts concerning the management and administration of the whole or any substantial part of the business of theCompany were entered into or existed during the year.

NON-COMPETITION UNDERTAKING
The Controlling Shareholders, including the members of the Taniguchi Consortium, have confirmed to the Company of
their compliance with the non-competition undertakings provided to the Company under a deed of non-competition dated
16 March 2015. The independent non-executive Directors have reviewed the status of compliance and confirmed that all
the undertakings under the deed of non-competition have been complied with by the Controlling Shareholders and duly
enforced since the Listing Date and up to the date of this annual report.

DONATIONS
Charitable and other donations made by the Group during the year amounted to approximately ¥1 million.

CONNECTED TRANSACTIONSThe Directors confirm that during the year ended 31 March 2017, the Group did not have any connected transactions andcontinuing connected transactions as defined under the Listing Rules. The significant related party transactions madeduring the year that did not constitute connected transactions under the Listing Rules were disclosed in Note 34 to theconsolidated financial statements. The Directors therefore confirm that the Company has complied with the disclosure
requirements in accordance with Chapter 14A of the Listing Rules.

MAJOR CUSTOMERS AND SUPPLIERS
During the year ended 31 March 2017, less than 1.0% of the Group’s revenue were attributed by the Group’s five largest
customers; while 66.2% and 84.3% of the Group’s total purchases were attributed by the Group’s largest and the fivelargest suppliers, respectively. The largest supplier of the Group supplies G-prize to the Group’s pachinko halls and has
a business relationship of more than 10 years with the Group. To the knowledge of the Directors, none of the Directors or
any Shareholders who owned 5.0% or more of the issued share capital of the Company as at 31 March 2017 or any of
their respective associates held any interest in any of the five largest suppliers of the Group.

38

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Report of the Directors
REMUNERATION POLICY AND PENSION SCHEME
Remuneration policy of the Group is reviewed regularly, making reference to legal framework, market condition andperformance of the Group and individual staff (including the directors). The remuneration policy and remuneration
packages of the executive Director and members of the senior management of the Group are reviewed by the
Remuneration Committee.
Particulars of the Group’s retirement benefit schemes are set out in Note 36 to the consolidated financial statements.

AUDIT COMMITTEE
The audit committee had reviewed, together with the management and external auditor, the accounting principles andpolicies adopted by the Group and the audited consolidated financial statements for the year ended 31 March 2017.

SUFFICIENCY OF PUBLIC FLOAT
Based on information publicly available to the Company and to the knowledge of the Directors, at least 25% of theCompany’s total issued share capital, the prescribed minimum percentage of public float approved by the Stock
Exchange and permitted under the Listing Rules, is held by the public at all times as of the date of this annual report.

AUDITOR
PricewaterhouseCoopers has acted as auditor of the Company for the year ended 31 March 2017.
The consolidated financial statements have been audited by PricewaterhouseCoopers who shall retire in the forthcoming
AGM and, being eligible, will offer itself for re-appointment. A resolution for the re-appointment ofPricewaterhouseCoopers as auditor of the Company will be proposed at the forthcoming AGM.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORTING
Effective from the current financial year ended 31 March 2017, the Group is required to publish an environmental, socialand governance report. The report will be published separately no longer than three months after the publication of thisannual report.

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
Chairman, Executive Director and Chief Executive Officer
Hisanori TANIGUCHI (also known as JEONG Seonggi)
Fukushima, Japan, 19 May 2017*

For identification purpose only

NIRAKU GC HOLDINGS, INC.

Annual Report 201739

Independent Auditor’s Report

TO THE SHAREHOLDERS OF 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)

OPINION
What we have audited
The consolidated financial statements 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 (the “Group”) set out on pages 46 to 106, which comprise:•the consolidated statement of financial position as at 31 March 2017;•

the consolidated statement of comprehensive income for the year then ended;•

the consolidated statement of changes in equity for the year then ended;•

the consolidated statement of cash flows for the year then ended; and•the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Our opinion
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of theGroup as at 31 March 2017, and of its consolidated financial performance and its consolidated cash flows for the year
then ended in accordance with International Financial Reporting Standards (“IFRSs”) and have been properly prepared incompliance with the disclosure requirements of the Hong Kong Companies Ordinance.

40

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Independent Auditor’s Report
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under thosestandards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for our opinion.

Independence
We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of
Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordancewith the IESBA Code.

KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of theconsolidated financial statements of the current year. These matters were addressed in the context of our audit of theconsolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Key audit matters identified in our audit are summarised as follows:•

Impairment assessment of property, plant and equipment•

Provision for deposit paid for potential acquisition

NIRAKU GC HOLDINGS, INC.

Annual Report 201741

Independent Auditor’s Report
Key Audit Matter

How our audit addressed the Key Audit Matter

Impairment assessment of property,
plant and equipment

In relation to the impairment assessment of property, plantand equipment performed by management, we assessed
the reasonableness of management’s assessment which is
to identify impairment indicators for the CGUs that had
performed below management’s expectation andcontinuously making losses. We challenged management’s
criteria for identification of impairment indication bycomparing to the historical performance and operational
development of the CGUs.

Refer to Note 4 (Critical accounting estimates andjudgements) and 13 (Property, plant and equipment) tothe consolidated financial statements for the related
disclosures.
As at 31 March 2017, the Group has property, plant andequipment of ¥26,406 million related to the cashgenerating units (“CGUs”) of each individual pachinko
and pachislot hall, a pachinko and pachislot hall withhotel business, and each individual restaurants.

Our procedures in relation to management’s value-in-use
calculations include:•

The performance of the Group’s pachinko and pachislot
hall operations were impacted by keen competition
among the pachinko and pachislot hall operators inJapan. Management reviews for impairment whenever
events or changes in circumstances indicate thatcarrying amount of a CGU may not be recoverable. In
the view that some of the CGUs had performed below
management’s expectation and continuously making
losses, management considered there was impairment
indicators for these CGUs. Management performed
impairment assessment to assess the recoverable
amounts of these CGUs, which were determined as thefair value less cost to sell or value-in-use, whichever was
higher. The value-in-use calculations were based on
future cash flow forecasts of the CGUs. Based on
management’s assessment, a provision for impairment
loss of ¥271 million was recorded for the year ended 31
March 2017.
We focused on this area due to the significant judgments
and estimates involved in the determination of value-inuse calculations, including the revenue growth rate anddiscount rate.

42

NIRAKU GC HOLDINGS, INC.

•

•

•

•

Challenged management’s assumption of revenue
growth rate by comparing the rate to industry trends,
the Group’s historical performance and operational
development;
Assessed management’s assumption of discount rateby comparing to the cost of capital and cost of debt ofcomparable organisations in the industry;
Compared the current year actual results with the prioryear forecasts to consider the reasonableness ofmanagement’s forecasts; including that the relevant
factors such as the Group’s business development etc,
had been taken into account in the current year
forecasts;
Reconciled the data input to supporting evidence, suchas approved budgets and considered thereasonableness of these budgets based on our
knowledge to the business; andEvaluated the sensitivity analysis performed bymanagement around the revenue growth rate toascertain the extent and likelihood of such changes
have been appropriately considered.

Based on the procedures performed, we found thejudgements and estimates made by management in relation
to the value-in-use calculations were supportable byavailable evidence.

Annual Report 2017

Independent Auditor’s Report
Key Audit Matter

How our audit addressed the Key Audit Matter

Provision for deposit paid for a potential acquisition

We discussed with management and examined the terms of
the Agreement for terminating the Agreement and refund of
the Deposit.

Refer to Note 4 (Critical accounting estimates andjudgements) and Note 21 (Prepayments, deposits andother receivables) to the consolidated financial
statements for the related disclosures.
On 19 May 2016, the Group entered into an agreement(the “Agreement”) with Coastal Heritage Limited(“Coastal Heritage”) to acquire 66.7% of the equity
interest in Nha Trang Holdings Limited (“Nha Trang”), a
company engaged in the Vietnamese and pinot duckrestaurants operation in Hong Kong. The Group had paid
¥149 million (equivalent to approximately HK$10 million)
to Coastal Heritage as an acquisition deposit (the“Deposit”). Pursuant to the Group’s announcement dated
15 June 2016, the Group decided not to proceed with theacquisition on the ground of certain conditions
precedents under the Agreement not being satisfied, andhad formally served written notice to Coastal Heritage toterminate the Agreement and demanded for refund of
the Deposit in full. A writ of summon was filed by theGroup in November 2016. As at 31 March 2017, theGroup was undergoing legal process to claim for therefund of the Deposit. Management considered the
Deposit was collectible based on advice from theexternal lawyer that the Company has reasonablegrounds to obtain refund of the Deposit and did not makeany provision as at 31 March 2017.

We conducted discussions with management and theexternal lawyer to understand the rationale for terminating
the Agreement and assessed management’s grounds basedon the terms of the Agreement. We also understood actions
they have taken to claim for the refund of the Deposit
including obtaining supporting documents such ascorrespondence with Coastal Heritage and the writ ofsummon served with the High Court, and latest developmentof the legal proceeding. In particular whether there was any
significant delay from the initially expected timetable of thelegal proceeding and whether there was any significant
change in circumstance that may heighten the risk of not
being able to recover the Deposit.
We have also discussed the merits of the case with theexternal lawyer, obtained the legal opinion and considered
the Group’s grounds and arguments in assessing the
likelihood of collecting the full amount of the Deposit basedon the current circumstance.
Based upon the procedures performed above, we
considered that the judgement made by management inassessing the provision for the Deposit was supportable by
the available evidence.

We focused on this area due to the judgement involvedin assessing the provision for the Deposit based on theviews and arguments presented by the management andthe external lawyer.

OTHER INFORMATION
The directors of the Company are responsible for the other information. The other information comprises all of theinformation included in the annual report other than the consolidated financial statements and our auditor’s report
thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

NIRAKU GC HOLDINGS, INC.

Annual Report 201743

Independent Auditor’s ReportIf, based on the work we have performed, we conclude that there is a material misstatement of this other information, weare required to report that fact. We have nothing to report in this regard.

RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE
CONSOLIDATED FINANCIAL STATEMENTS
The directors of the Company are responsible for the preparation of the consolidated financial statements that give a trueand fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, andfor such internal control as the directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL
STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards oraccept liability to any other person for the contents of this report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:•

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due tofraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentionalomissions, misrepresentations, or the override of internal control.

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theGroup’s internal control.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by the directors.

44

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Independent Auditor’s Report•

Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on theaudit evidence obtained, whether a material uncertainty exists related to events or conditions that may castsignificant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on theaudit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause theGroup to cease to continue as a going concern.

•

Evaluate the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions and events ina manner that achieves fair presentation.

•

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we have complied with relevant ethicalrequirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of mostsignificance in the audit of the consolidated financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about thematter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our reportbecause the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits ofsuch communication.
The engagement partner on the audit resulting in this independent auditor’s report is Ng Ka Ho.

PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 19 May 2017

NIRAKU GC HOLDINGS, INC.

Annual Report 201745

Consolidated Statement of Comprehensive Income
For the year ended 31 March 2017

Note

2017
¥ million

2016¥ million

Revenue

529,18030,995

Other income
Other losses, net
Hall operating expenses
Administrative and other operating expenses

6
6
7
7

801
(47)
(24,110)(4,391)

770(272)(25,207)(4,815)

Operating profit

1,433

1,471

Finance income
Finance costs

55
(586)

54
(892)

9

(531)

(838)

10

902
(410)

633
(452)

Profit for the year attributable to shareholders of the Company

492

181

Other comprehensive gain/(loss)
Change in value of financial assets through othercomprehensive income

138

(241)

Total comprehensive income/(loss) for the year
attributable to shareholders of the Company

630

(60)

0.41

0.15

Finance costs, net
Profit before income tax
Income tax expense

Earnings per share for profit attributable to shareholders of
the Company— Basic and diluted (expressed in Japanese Yen per share)

46

NIRAKU GC HOLDINGS, INC.

Annual Report 201711

Consolidated Statement of Financial Position
As at 31 March 2017

ASSETS
Non-current assets
Property, plant and equipment
Investment properties
Intangible assets
Prepayments, deposits and other receivables
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 and other receivables
Financial assets at fair value through profit or loss
Bank deposits and bank deposits with maturity over 3 months
Cash and cash equivalents
Current income tax recoverable

Note

2017
¥ million

2016¥ million

13
14
15
21
17
17
29
22

26,406
678
182
3,866
104
1,210
1,656
35

28,470
697
210
4,198
106
1,013
1,781
185

34,13736,660

20
88
1,457
–
252
13,404
55

413
64
1,456
100
297
12,310957

15,276

15,59749,41352,257

Annual Report 2017

47

19
20
21
17
22
22

Total assets

NIRAKU GC HOLDINGS, INC.

Consolidated Statement of Financial Position
As at 31 March 2017

Note

2017
¥ million

2016¥ million

23
24

3,000
24,4993,000
24,09727,49927,097

8,656
4,048
1,989
11

9,732
5,070
2,057
14

14,704

16,873

123
2,394
1,160
3,532
1
–

132
3,295
1,530
3,326
2
2

7,210

8,287

Total liabilities

21,91425,160Total equity and liabilities

49,41352,257

EQUITY
Equity attributable to shareholders of the Company
Share capital
Reserves
Total equity
LIABILITIES
Non-current liabilities
Borrowings
Obligations under finance leases
Provisions and other payables
Derivative financial instruments

27
28
26
18

Current liabilities
Trade payables
Borrowings
Obligations under finance leases
Accruals, provisions and other payables
Derivative financial instruments
Current income tax liabilities

25
27
28
26
18

The notes on pages 51 to 106 are an integral part of these consolidated financial statements.
The financial statements on pages 46 to 106 were approved by the Board of Directors on 19 May 2017 and were signed
on its behalf

Hisanori Taniguchi
Director

48

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Consolidated Statement of Changes in Equity
For the Year ended 31 March 2017

Attributable to owners of the Company
Investment
CapitalCapitalLegalrevaluation

Share

surplusreserve

reserve

reserve

Retained

capital(Note 24(a))(Note 24(b))(Note 24(c))(Note 24(d))

earnings

Total¥ million¥ million¥ million¥ million¥ million¥ million¥ million

10

11,734(16,028)107

411

26,62222,856

–

–

–

–

–

181

181

–

–

–

–

(277)

36

(241)

–

–

–

–

(277)

217

(60)

2,990

2,497

–

–

–

–

5,487

–

(277)

–

–

–

–

(277)

–

–

–

–

–

(909)

(909)

2,990

2,220

–

–

–

(909)

4,301

3,000

13,954(16,028)107

134

25,93027,097

–

–

–

–

–

492

492

–

–

–

–

138

–

138

Total comprehensive loss for the year

–

–

–

–

138

492

630

Final dividend relating to 2016 (Note 30)

–

–

–

–

–

(120)

(120)

Interim dividend relating to 2017 (Note 30)

–

–

–

–

–

(108)

(108)

Total transactions with shareholders

–

–

–

–

–

(228)

(228)

3,000

13,954(16,028)107

272

26,19427,499Balance at 1 April 2015
Comprehensive income
Profit for the year
Other comprehensive (loss)/income
Financial assets at fair value throughother comprehensive income,net of tax
Total comprehensive (loss)/income
for the year
Issue of shares (Note 23)
Transaction costs attributable toissuance of shares
Dividend
Total transaction with shareholders

Balances at 31 March 2016 and1 April 2016
Comprehensive income
Profit for the year
Other comprehensive income
Financial assets at fair value throughother comprehensive income,net of tax

Balance at 31 March 2017

The notes on pages 51 to 106 are an integral part of these consolidated financial statements.

NIRAKU GC HOLDINGS, INC.

Annual Report 201749

Consolidated Statement of Cash Flows
For the Year ended 31 March 20172017
¥ million

2016¥ million

5,257
(493)
556

4,715
(821)
(1,736)

5,320

2,158

(478)
–
(5)
100
3,300
(3,255)
–
150
(149)
3
61

(2,117)
(43)
(58)
101
3,585
(1,596)
(60)
–
–
2
64

(273)

(122)

–
–
(1,655)2,640(4,710)
(228)

5,487
(277)
(1,215)15,018(17,310)(909)

Net cash (used in)/generated from financing activities(3,953)794

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year

1,094
12,310

2,830
9,480

Cash and cash equivalents at end of the year

13,404

12,310Note
Cash flows from operating activities
Cash generated from operations
Interest paid
Income tax refund/(paid)

31

Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of investment properties
Purchase of intangible assets
Proceeds from disposal of financial assets at fair value
Proceeds from bank deposits with maturity over 3 months
Placement of bank deposits with maturity over 3 months
Placement of long-term bank deposits
Proceeds from long-term bank deposits
Deposit for acquisition of a restaurant operation
Interest received
Dividend received

14
15

21

Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of new shares
Transaction costs directly attributable to issue of new shares
Repayment of obligations under finance leases
Proceeds from bank borrowings
Repayment of bank borrowings
Dividends paid

23
23

The notes on pages 51 to 106 are an integral part of these consolidated financial statements.

50

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
1

GENERAL INFORMATION, REORGANISATION AND BASIS OF PRESENTATION
1.1 General 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 in Japan
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 the Group(together, the “Group”) are principally engaged in pachinko and pachislot hall operations and hotel operationsin Japan. The Group is also engaged in restaurant operation and other business in Japan.
The Company’s shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited on 8
April 2015.
These consolidated financial statements are presented in millions of Japanese Yen (“¥”), unless otherwise
stated.

2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of the consolidated financial statements are set out
below. These policies have been consistently applied to all years presented, unless otherwise stated.

2.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with all applicable International
Financial Reporting Standards (“IFRS”) issued by the IASB and requirements of the Hong Kong Companies
Ordinance Cap. 622. The consolidated financial statements have been prepared under the historical costconvention, as modified by the revaluation of financial assets and financial liabilities (including derivative
financial instruments) which are carried at fair values.
The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgement in the process of applying
the accounting policies. The areas involving a higher degree of judgement or complexity, or areas whereassumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4.

NIRAKU GC HOLDINGS, INC.

Annual Report 201751

Notes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.1 Basis of preparation (Continued)(a)

New and amended standards adopted by the GroupThe following amendments to standards are mandatory for accounting periods beginning on or after 1
April 2016:
IFRSs (Amendment)
IFRS 10, IFRS 12 and IAS 28
IFRS 11 (Amendment)
IFRS 14
IAS 1
IAS 16 and IAS 38 (Amendment)
IAS 16 and IAS 41 (Amendment)
IAS 27 (Amendment)

Annual improvements 2012 to 2014 cycle
Investment entities: Applying the consolidation exception
Accounting for acquisitions of interests in joint operations
Regulatory deferral accounts
Disclosure initiative
Clarification of acceptable methods of depreciation andamortisation
Agriculture: Bearer plants
Equity method in separate financial statements

The adoption of these amendments did not have any impact on the current period or only prior period.
(b)

New 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 or after 1 April 2017 or later
periods, but have not been early adopted by the Group.
Effective foraccounting year
beginning on
or after
IFRS 12 (Amendment)
IFRS 7 (Amendment)
IFRS 2 (Amendment)
IFRS 15IFRS 16IFRS 10 and IFRS 28 (Amendment)

52

NIRAKU GC HOLDINGS, INC.

Income taxes
Statement of cash flows
Classification and measurement of share-based
payment transactions
Revenue from contracts with customers
LeasesSale or contribution of assets between an investor
and its associate or joint venture

Annual Report 2017

1 January 2017
1 January 2017
1 January 2018
1 January 2018
1 January 2019
To be determinedNotes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.1 Basis of preparation (Continued)(b)

New standards and amendments to existing standards not yet adopted by the Group (Continued)
A number of new standards and amendments to standards are effective for annual periods beginning on
or after 1 January 2017 and have not been applied in preparing these consolidated financial statements.
None of these is expected to have a significant effect on the consolidated financial statements of theGroup, except the following set out below:
IFRS 15, “Revenue from contracts with customers”
IFRS 15 will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers
construction contracts. The new standard is based on the principle that revenue is recognised whencontrol of a good or service transfers to a customer. The standard permits either a full retrospective or amodified retrospective approach for the adoption.
Management is currently assessing the effects of applying the new standard on the Group’s
consolidated financial statements and is not able to estimate the impact of the new rules on the Group’s
financial statements at this stage. The Group will make more detailed assessments of the impact overthe next twelve months.
IFRS 15 is mandatory for financial years commencing on or after 1 January 2018. At this stage, theGroup does not intend to adopt the standard before its effective date.
IFRS 16, “Leases”
IFRS 16 will result in almost all leases being recognised on the consolidated balance sheet, as thedistinction between operating and finance leases is removed. Under the new standard, an asset (theright to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions
are short-term and low-value leases.
The standard will affect primarily the accounting for Group’s operating leases. As at the reporting date,the Group has non-cancellable operating lease commitments of ¥9,777 million (Note 33(b)). However,the Group has not yet determined to what extent these commitments will result in the recognition of anasset and a liability for future payments and how this will affect the Group’s profit and classification of
cash flows.
Some of the commitments may be covered by the exception for short-term and low value leases andsome commitments may relate to arrangements that will not qualify as leases under IFRS 16.
The new standard is mandatory for financial years commencing on or after 1 January 2019. At thisstage, the Group does not intend to adopt the standard before its effective date.

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Annual Report 201753

Notes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the entities. Subsidiaries are consolidated
from the date on which control is transferred to the Group. They are deconsolidated from the date that control
ceases.
(a)Business combination under common control
The consolidated financial statements incorporate the financial statement items of the combining entities
in which the common control combination occurs as if they had been combined from the date 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 from thecontrolling party’s perspective. No amount is recognised in respect of goodwill or excess of acquirers’interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over costat the time of common control combination, to the extent of the continuation of the controlling party’s
interest.
The consolidated statement 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 of the 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 considerationtransferred 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 fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either atfair 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 ofthe identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, noncontrolling 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 a bargain purchase, the difference is recognised
directly in the consolidated statement of comprehensive income.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.2 Subsidiaries (Continued)(b)Business combination other than under common controls (Continued)
Intra-group transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the transferred asset. When necessary, amounts reported by subsidiaries have beenadjusted to conform with the Group’s accounting policies.

(c)Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in a loss of control are accounted for as
equity transactions — that is, as transactions with the owners of the subsidiary in their capacity as
owners. The difference between fair value of any consideration paid and the relevant share acquired of
the carrying amount of net assets of the subsidiary is recorded in equity. 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 fairvalue 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 retainedinterest as an associate, joint venture or financial asset. In addition, any amounts previously recognisedin other comprehensive income in respect of that entity are accounted for as if the Group had directly
disposed of the related assets or liabilities. This may mean that amounts previously recognised in othercomprehensive income are reclassified to profit or loss.

(e)

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 the Company on thebasis of dividend received and receivable.
Impairment testing of the investments in subsidiaries is required upon receiving a dividend from theseinvestments if the dividend exceeds the total comprehensive income of the subsidiary in the period thedividend is declared or if the carrying amount of the investment in the separate financial statements
exceeds the carrying amount in the consolidated financial statements 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 for allocating resources
and assessing performance of the operating segments, has been identified as the executive directors of theCompany that makes strategic decisions.

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Notes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 thecurrency of the primary economic environment in which the entity operates (the “functional currency”).
The consolidated financial statements is presented in Japanese Yen (“¥”), which is the Company’sfunctional currency and the Group’s presentation currency.

(b)Transactions 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 from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign 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 andequipment are stated at historical cost less depreciation, except freehold land which is not subject toamortisation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Construction in progress is stated at cost less impairment loss. It is not depreciated until completion of theconstruction 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 the item will flow to theGroup and the cost of the item can be measured reliably. The carrying amount of the replaced part isderecognised. All other repairs and maintenance are charged to the profit or loss during the financial period inwhich they are incurred.
Depreciation is calculated using the straight-line method to allocate their cost to their residual values overtheir estimated useful lives, as follows:— Buildings— Leasehold improvements— 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 the end of eachreporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’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 arerecognised within “Other losses, net” in the consolidated statement of comprehensive income.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.6 Investment properties
Investment properties, principally comprising land and buildings, are held for long-term rental yields or forcapital 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 Property”. Investment properties
are initially measured at cost, including related transaction costs and where applicable borrowing costs. Afterinitial recognition, investment properties are stated at historical cost less accumulated depreciation andimpairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of theitems.
Depreciation of investment properties, except for the freehold land which is not subject to depreciation, iscalculated using the straight-line method to allocate their costs to their residual values over their estimateduseful lives of 27 to 31 years.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’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 of theconsideration transferred, the amount of any non-controlling interest in the acquiree and the acquisitiondate fair value of any previous equity interest in the acquiree over the fair value of the identified net
assets acquired.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to eachof the cash-generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergiesof 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 for internal management purposes. Goodwill ismonitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes incircumstances indicate a potential impairment. The carrying value of goodwill is compared to therecoverable amount, which is the higher of value in use and the fair value less costs 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 estimated useful lives of 5
years.

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Notes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 be recoverable. 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 value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped 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 onwhether the financial asset is a debt or equity instrument.
Debt instruments
Financial assets at amortised costs are debt instruments that meet the Group’s business model forholding 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 the principal amountoutstanding. The nature of any derivatives embedded in the debt instrument are considered indetermining whether the cash flows of the instrument are solely payment of principal and interest on theprincipal 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 are held 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 fair value through othercomprehensive 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 are classified as noncurrent assets.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.9 Financial assets (Continued)(b)

Recognition, derecognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date — the date on
which the Group commits to purchase or sell the asset. Financial assets are derecognised when therights to receive cash flows from the investments have expired or have been transferred and the group
has transferred substantially all risks and rewards of ownership. Investments are initially recognised atfair 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 or loss are initially recognised at fair value, andtransaction costs are expensed in the consolidated statement of comprehensive income.
Debt instruments that fulfil both the business model and the cash flow characteristic conditions aremeasured at amortised cost using the effective interest method. Other debt instruments are held-fortrading 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 through othercomprehensive income at initial recognition, in which case, those financial assets are measured at fairvalue through other comprehensive income and there is no subsequent recycling of fair value gains andlosses to profit or loss. Dividends from such investments continue to be recognised in profit or loss aslong as they represent a return on investment.
The Group reclassifies its financial assets when and only when its business model for managing thosefinancial 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 statement of comprehensive income within ‘Other losses, net’in the period in which they arise. Changes in the fair value of financial assets through othercomprehensive income are recognised in other comprehensive income except for the impairment loss (ifany) 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 isrecognised in profit or loss.
Interest income from debt instruments at fair value through profit or loss are recognised in the profit orloss. Dividend income from equity instruments included in financial assets at fair value and fair value
through other comprehensive income are recognised in the profit or loss when the Group’s right toreceive payments is established.

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Annual Report 201759

Notes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.10 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in consolidated statement of financial
position when there is a legally enforceable right to offset the recognised amounts and there is an intention tosettle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable rightmust be contingent on future events and must be enforceable in the normal course of business and in theevent of default, insolvency or bankruptcy of the Company or the counterparty.

2.11 Impairment of financial assets
Impairment charges on the Group’s investment in debt instruments at amortised cost are calculated based on
an expected credit loss model. The Group considers these debt instruments as trade and other receivables innature and do not have a significant financing component. Therefore, the Group elected to recognise lifetime
expected credit losses of these debt instruments as provision for impairment allowance at the end of eachreporting period. The Group applies a provision matrix, which is prepared by using historical loss experienceon its trade and other receivables and adjusted for information about current conditions and reasonable andsupportable 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 typicallyless than one year, and other consumables which are stated at the lower of cost 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 theordinary 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 are classified as current assets. If not, they arepresented 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 statement of cash flows, cash and cash equivalents includes cash in hand, deposits heldat 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 a deduction, net oftax, from the proceeds.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.16 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course ofbusiness 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 theeffective interest method.

2.17 Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings aresubsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) andthe redemption value is recognised in the consolidated statement of comprehensive 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 the loan 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 thedraw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will bedrawn down, the fee is capitalised as a pre-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 to defer settlementof 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 ofqualifying assets, which are assets that necessarily take a substantial period of time to get ready for theirintended use or sale, are added to the cost of those assets, until such time 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 theextent that it relates to items recognised in other comprehensive income or directly in equity. In this case thetax is also recognised in other comprehensive income or directly in equity, 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 statement of financial position date in the countries where the Group operates andgenerates taxable income. Management periodically evaluates positions taken in tax returns withrespect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

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Annual Report 201761

Notes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.18 Current and deferred income tax (Continued)(b)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 consolidated financial
statements. However, deferred income tax liabilities are not recognised if they arise from the initialrecognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition ofan asset or liability in a transaction other than a business combination 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 statement of financial position date
and are expected to apply 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 arising from 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 the temporary difference will not reverse in
the foreseeable future.
Deferred income tax assets are recognised on deductible temporary differences arising frominvestments 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 beutilised.

(c)62

Offsetting
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current income tax assets against current income tax liabilities and when the deferred income 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 the balances on a net basis.

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Annual Report 2017

Notes to the Consolidated Financial Statements
2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.19 Employee benefits(a)Pension obligations
The Group operates a defined contribution plan under which the Group pays fixed contributions into aseparate entity. The Group has no legal or constructive obligations to pay further contributions if thefund does not hold sufficient assets to pay all employees the benefits relating to employee service in thecurrent and prior periods.
The Group has established a defined contribution plan for its eligible employees. The assets of the plan
are held in separate trustee-administered funds. Contributions to the plan by the Group are calculated
as a percentage of employees’ monthly basic salaries. The Group has no further payment obligations
once the contributions have been paid. The contributions are recognised as employee benefit expense
when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund ora reduction in the future payments is available.

(b)Profit-sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula thattakes 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 hascreated a constructive obligation.

(c)

Employee leave entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A provision ismade for the estimated liability for annual leave as a result of services rendered by employees up to thestatement of financial position date.
Employee entitlements to sick leave and maternity or paternity leave are not recognised until the time ofleave.

(d)Long service payments
Employees who have completed the required number of years of service to the Group are eligible forlong 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 which have been earned
by the employees from their services to the Group to the reporting date.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.20 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past
events, it is probable that an outflow of resources will be required to settle the obligation, 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 isdetermined by considering the class of obligations as a whole. A provision is recognised even if the likelihoodof an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditure expected to be required to settle theobligation using a pre-tax rate that reflects current market assessments of the time value of money and therisks specific to the obligation. The increase in the provision due to passage 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 probablethat future economic benefits will flow to the entity; and when specific criteria have been met for each of theGroup’s activities, as described below.
Revenue from pachinko and pachislot business represents the gross pay-ins, net of the gross payouts tocustomers. Gross pay-ins represents the amount received from customers for rental pachinko balls andpachislot tokens. Gross payouts represents the aggregate cost of G-prizes and general prizes exchanged bycustomers. 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 by customers to a G-prize buyer for cash, and general prizes are
generally the types of goods sold in 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 beeither exchanged for prizes or saved for subsequent visits. The Group offers both general prizes andG-prizes. Customers who opt to claim G-prizes in exchange for the pachinko balls and pachislot tokens maysell their G-prizes to an independent G-prize buyer for cash outside of the pachinko hall. Revenue isrecognised at the end of each player’s visit to a machine.
Hotel income is recognised at the time of occupancy.
Vending machine income is recognised on a straight-line basis over the accounting periods covered by theterms and conditions as stipulated in the agreement. Contingent vending machine income is recognised when
the Group sells a product to the customer.
Restaurant income is recognised when catering services have been provided to customers.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.21 Revenue recognition (Continued)
Rental income from investment properties is recognised on a straight-line basis over the term 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.

2.22 Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance 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 statement ofcomprehensive income over the period necessary to match them with the costs that they are intended tocompensate.
Government grants relating to property, plant and equipment are included in non-current liabilities as deferred
government grants and are credited to the consolidated statement of comprehensive income on a straightline 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 statement of comprehensive income on astraight-line basis over the period of the lease.
The Group leases certain property, plant and equipment. Leases of property, plant and equipment
where the Group has substantially all the risks and rewards of ownership are classified as financeleases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of theleased 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-term payables. The interest element of thefinance cost is charged to the consolidated statement of comprehensive income over the lease period
so as to produce a constant periodic rate of interest on the remaining balance of the liability for eachperiod. Property, plant and equipment acquired under finance leases is depreciated over the shorter ofthe useful life of the asset and the lease term.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.23 Leases (Continued)(b)

As lessor
When the Company leases out assets under operating leases, the assets are included in the
consolidated statement of financial position according to the nature of the assets. Revenue arising fromassets leased out under operating leases is recognised over the term of the lease on a straight-line
basis.

2.24 Dividend distribution
Dividend distribution to the Company’s/certain subsidiaries’ shareholders is recognised as a liability in theGroup’s, the Company’s and certain subsidiaries’ financial statements in the period in which the dividends areapproved 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 foreign exchange 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 to hedge its financial risks.
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’sbusinesses.
(a)Market risk(i)
Foreign exchange risk
The Group operates principally in Japan. It is exposed to foreign exchange risk primarily withrespect to cash and cash equivalents denominated in Hong Kong dollar (“HK$”) and US dollar(“US$”).
At 31 March 2017, if HK$ had strengthened/weakened by 5% against the ¥, with all other variables
held constant, post-tax profit for the year would have been approximately ¥25 million higher orlower (for the year ended 31 March 2016: ¥5 million), mainly as a result of foreign exchange
differences on translation of HK$ denominated cash at bank balance.
At 31 March 2017, if US$ had strengthened/weakened by 5% against the US$, with all othervariables held constant, post-tax profit for the year would have been approximately ¥12 million,
higher or lower (for the year ended 31 March 2016: ¥10 million), mainly as a result of foreignexchange differences on translation of US$ denominated cash at bank balance.

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FINANCIAL RISK MANAGEMENT (CONTINUED)
3.1 Financial risk factors (Continued)(a)Market risk (Continued)(ii) Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from bank balances and borrowings which are carried atvariable rates, which expose the Group to cash flow interest rate risk.
As at 31 March 2017, if interest rates were increased or decreased by 25 basis points and all othervariables were held constant, the Group’s pre-tax profit would decrease or increase byapproximately ¥6 million (2016: ¥1 million) 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 ofdebt 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 maininterest rate exposure relates to Japanese Yen-denominated borrowings. In the opinion of thedirectors, fair value interest rate risk is low as the amounts of interest rate swaps are insignificant
during the year ended 31 March 2017 (2016: Same), and accordingly, sensitivity analysis has notbeen disclosed.
(iii)

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 statement 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 of underlying
financial instruments on the Group’s equity. The analysis is based on the assumption that theshare prices of the underlying financial instruments had increased or decreased by 5% with allother variables held constant.

Impact on other components of equity
Share prices:— increase by 5%— decrease by 5%

NIRAKU GC HOLDINGS, INC.

2017
¥ million

2016¥ million

54
(54)

44
(44)

Annual Report 201767

Notes to the Consolidated Financial Statements
3

FINANCIAL RISK MANAGEMENT (CONTINUED)
3.1 Financial risk factors (Continued)(b)Credit risk
Credit risk arises mainly from cash deposited at banks, trade receivables, deposits and otherreceivables, financial assets at fair value through profit or loss and through other comprehensive
income.
In respect of cash deposited at banks and financial assets at fair value through profit or loss and throughother comprehensive income, the credit risk is considered to be low as the counterparties are bankswith high credit ratings assigned by international credit rating agencies.
Approximately 99% (2016: 98%) of the Group’s 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 2017, top 5 customers of the Group accounted for approximately 85% (2016: 74%) to
the trade receivables 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 sound collection
history of the receivables due from them, management believes that there is no material credit risk
inherent in the Group’s outstanding receivable balance due from these customers. Management makes
periodic assessment on the recoverability of trade and other receivables based on historical payment
records, the length of the overdue period, the financial strength of the debtors and whether there areany disputes with the debtors. The Group’s historical experience in collection of trade and otherreceivables falls within the recorded allowances and the directors are of the opinion that adequate
provision for uncollectible receivables has been made in the consolidated financial statements.

(c)Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and bank balances, the availabilityof funding from an adequate amount of committed credit facilities from leading banks and the ability toclose out market position.
The Group maintains liquidity by a number of sources including orderly realisation of short-term financial
assets and receivables; and long term financing including long-term borrowings. The Group aims tomaintain flexibility in funding by keeping sufficient bank balances, committed credit lines available andinterest bearing borrowings which enable the Group to continue its business for the foreseeable future.
The table below analyses the Group’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 the contractual undiscounted cash flows. Balances due
within 12 months equal to their carrying balances as the impact of discounting is not significant.

68

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
3

FINANCIAL RISK MANAGEMENT (CONTINUED)
3.1 Financial risk factors (Continued)(c)Liquidity risk (Continued)

As at 31 March 2017
Trade payables
Other payables(excluding accruals)
Borrowings
Obligations under finance leases

As at 31 March 2016
Trade payables
Other payables(excluding accruals)
Borrowings
Obligations under finance leases

Within1 year¥ million

Between
1 and
2 years¥ million

Between
2 and
5 years¥ millionOver
5 years¥ million

Total¥ million

123

–

–

–

123

1,589
2,544
1,364

1
2,060
999

12
4,790
1,709

2,792
2,229
2,264

4,394
11,623
6,336

5,620

3,060

6,511

7,285

22,476

132

–

–

–

132

1,702
3,451
1,784

2
2,289
1,336

17
5,170
2,271

3,711
2,680
2,579

5,432
13,590
7,970

7,069

3,627

7,458

8,970

27,124

3.2 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders 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 of dividends paid toshareholders, 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 total debt divided by equity. Total debt is calculated as total borrowings (include bankborrowings and obligations under finance leases). Equity is calculated as ‘equity’ as shown in the consolidated
statement of financial position.

NIRAKU GC HOLDINGS, INC.

Annual Report 201769

Notes to the Consolidated Financial Statements
3

FINANCIAL RISK MANAGEMENT (CONTINUED)
3.2 Capital management (Continued)
The Group’s strategy is to maintain optimal gearing ratio where the gearing ratio is not higher than 100% as
at each statement of financial position date. The gearing ratios as at 31 March 2017 and 2016 were as
follows:
2017¥ million

2016¥ million

Borrowings
Obligations under finance leases

11,0505,208

13,027
6,600

Total debt
Equity16,25827,49919,62727,097

Gearing ratio

59.1%

72%

3.3 Fair value estimation
The table below analyses the Group’s financial instruments carried at fair value by level of the inputs tovaluation techniques used to measure fair value. Such inputs are categorised into three levels within a fairvalue hierarchy as follows:

70•

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).

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
3

FINANCIAL RISK MANAGEMENT (CONTINUED)
3.3 Fair value estimation (Continued)
Level 1¥ million

Level 2¥ million

Level 3¥ million

Total¥ million

–

104

–

104

1,080
–

–
–

–
130

1,080
130

1,080

104

130

1,314

Liabilities
Derivative financial liabilities— Interest rate swaps

–

12

–

12

As at 31 March 2016
AssetsFinancial assets at fair value through profit or loss
— Debt securities— Unlisted securities

–
–

100
106

–
–

100
106

883
–

–
–

–
130

883
130

883

206

130

1,219

–

16

–

16

As at 31 March 2017
AssetsFinancial assets at fair value through profit or loss
— Unlisted securities
Financial assets at fair value through othercomprehensive income— Listed securities— Unlisted securities

Financial assets at fair value through othercomprehensive income— Listed securities— Unlisted securities

Liabilities
Derivative financial liabilities— Interest rate swaps

NIRAKU GC HOLDINGS, INC.

Annual Report 201771

Notes to the Consolidated Financial Statements
3

FINANCIAL RISK MANAGEMENT (CONTINUED)
3.3 Fair value estimation (Continued)(a)Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on quoted market prices at thestatement of financial position date. A market is regarded as active if quoted prices are readily andregularly 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 included in level 1 represent Tokyo Stock
Exchange and the Stock Exchange of Hong Kong equity investments classified as fair value throughother 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 determined by 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 tofair value an instrument are observable, the instrument is included in level 2. As at 31 March 2017,
instruments included in level 2 comprise trust funds and interest rate swaps issued by a financial
institution in Japan which were classified as financial assets at fair value through profit or loss.

(c)

Financial instruments in level 3
The following table presents the changes in level 3 instruments for the year ended 31 March 2017.
Financial assets
at fair value
through othercomprehensive
income¥ million
Opening balance as at 1 April 2015
Transfer into level 3
Loss recognised in other comprehensive income

–
140
(10)

Balance as at 31 March 2016, 1 April 2016 and 31 March 2017130

As at 31 March 2017, the Group valued its investment in the unlisted private company’s equity sharesbased on its net asset value as the Group has determined that the reported net asset value represents
fair value at the end of the reporting period.
There were no transfers between levels 1, 2 and 3 during the year ended 31 March 2017.

3.4 Offsetting financial assets and financial liabilities
As at 31 March 2017 and 2016, there were no financial assets or financial liabilities which were subject tooffsetting, enforceable master netting or similar agreements.

72

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
4

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. The Groupmakes 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 amaterial adjustment to the carrying 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 in determining the provision
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 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) Impairment assessment of property, plant and equipment
The Group has substantial investments in property, plant and equipment. Judgement is required in the area ofasset impairment, particularly in assessing: (1) whether an event has occurred that may indicate that therelated 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 fair value less costs to sell or value-in-use, which is the netpresent value of future cash flows which are estimated based upon the continued use of the asset in thebusiness; 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 to determine the level, if any, of impairment, including the discount rates or the growth rate assumptionsin the cash flow projections, could materially affect the net present value used in the impairment test and as aresult 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.

(c)

Provision for impairment of other receivables
Significant judgement is exercised in the assessment of the collectability of receivables including the deposit
paid for acquisition of a restaurant (“Deposit”) (Note 21). In making its judgement, management considers awide range of factors such as results of follow-up procedures performed, payment trend including subsequent
payments, financial positions of the debtors and status of legal process in claiming the amount of Deposit.

NIRAKU GC HOLDINGS, INC.

Annual Report 201773

Notes to the Consolidated Financial Statements
4

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)(d) Classification of leases
The Group has numerous buildings for pachinko and pachislot machines arranged under finance leases. The
Group classifies leases into finance leases or operating leases in accordance with the accounting policies
stated in Note 2.23. Classification as a finance lease or operating lease determines whether the leased asset
is capitalised and recognised on the statement of financial position or charged to the profit or loss.
Determining whether a lease transaction is a finance lease or an operating lease is a complex issue andrequires substantial judgement as to whether the lease agreement transfers substantially all the risks andrewards of ownership to or 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 the leased
asset, whether renewal options are included in the lease term and determining an appropriate discount rate tocalculate the present value of the minimum lease payments.

5

REVENUE AND SEGMENT INFORMATION(a)

Revenue

Revenue
Gross pay-ins
Less: gross pay-outs
Revenue from pachinko and pachislot hall business
Vending machine income
Revenue from hotel operations
Revenue from restaurant operations

2017¥ million

2016¥ million

143,130(114,734)

158,095(127,900)

28,396564
130
9030,195588
164
48

29,18030,995(b) Segment information
Management has determined the operating segments based on the reports reviewed by the chief 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 tax before unallocated corporate expenses for the purposes of allocating resources and assessing
performance. These reports are prepared on the same basis as this consolidated financial statements.
Management has identified two reportable segments based on the types of services, namely (i) pachinko andpachislot hall operations and (ii) others, representing hotel and restaurant operations.

74

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
5

REVENUE AND SEGMENT INFORMATION (CONTINUED)(b) Segment information (Continued)
Segment assets consist primarily of property, plant and equipment, investment properties, inventories, tradereceivables, prepayments, deposits and other receivables, bank deposits and cash and bank balances. They
exclude deferred income tax assets, and assets used for corporate functions including financial assets at fairvalue through profit or loss and financial assets at fair value through other comprehensive income.
Capital expenditure comprises additions to property, plant and equipment, investment properties andintangible assets. Unallocated corporate expenses and income tax expenses are not included in segment
results.
The segment information provided to the executive directors for the years ended 31 March 2017 and 2016 are
as follows:Year ended 31 March 2017
Pachinko andpachislot halloperations
OthersTotal¥ million¥ million¥ million
Segment revenue from external customers

28,960220

29,180

Segment results
Corporate expenses

1,576

(118)

1,458
(556)

Profit before income tax
Income tax expense

902
(410)

Profit for the year

492

Other segment items
Depreciation and amortisation expenses
Finance income
Finance costs
Capital expenditures(2,392)
55
(586)
524

NIRAKU GC HOLDINGS, INC.

(28)
–
–
134

(2,420)
55
(586)
658

Annual Report 201775

Notes to the Consolidated Financial Statements
5

REVENUE AND SEGMENT INFORMATION (CONTINUED)(b) Segment information (Continued)
Year ended 31 March 2016
Pachinko andpachislot halloperations
Others¥ million¥ million

Total¥ million

Segment revenue from external customers

30,783212

30,995

Segment results
Corporate expenses

1,703

(121)

1,582
(949)

Profit before income tax
Income tax expense

633
(452)

Profit for the year

181

Other segment items
Depreciation and amortisation expenses
Finance income
Finance costs
Capital expenditures(2,360)
54
(892)
4,197

(91)
–
–
9

(2,451)
54
(892)
4,206

Pachinkoand pachislot
hall operations¥ million

Others¥ million

Total¥ million

40,437636

41,0736,684
1,656

The segment assets as at 31 March 2017 and 2016 are as follows:

As at 31 March 2017
Segment assets
Unallocated assets
Deferred income tax assets
Total assets

49,413As at 31 March 2016
Segment assets
Unallocated assets
Deferred income tax assets

44,166

Total assets

76

NIRAKU GC HOLDINGS, INC.

532

44,698
5,778
1,781
52,257

Annual Report 2017

Notes to the Consolidated Financial Statements
5

REVENUE AND SEGMENT INFORMATION (CONTINUED)(b) Segment information (Continued)
No single external customer contributed more than 10% revenue to the Group’s revenue for the year ended
31 March 2017 and 2016.
The Group is domiciled in Japan and all non-current assets of the Group as at 31 March 2017 and 2016 arelocated in Japan.

6

OTHER INCOME AND OTHER LOSSES, NET

Other income
Rental income
Income from expired IC and membership cards
Dividend income
Compensation and subsidies (Note)
Income from scrap sales of used pachinko and pachislot machines
OthersOther losses, net(Loss)/gain on fair value for financial assets at fair value throughprofit or loss
Gain/(loss) on fair value for derivative financial instruments
Gain on disposal of derivative financial instruments
Loss on disposal of property, plant and equipment
Net exchange gain/(loss)

2017¥ million

2016¥ million

148
33
61
13
500
46

152
35
64
308
192
19

801

770

(2)
4
–
(64)
15

6
(16)
6
(57)
(211)

(47)

(272)

Note: Compensation received for the year ended 31 March 2016 was mainly from the government for closure of a hall due to city planning.

NIRAKU GC HOLDINGS, INC.

Annual Report 201777

Notes to the Consolidated Financial Statements
7

HALL OPERATING EXPENSES AND ADMINISTRATIVE AND OTHER OPERATING
EXPENSES

Auditors’ remuneration— Audit fees
— Other services
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 investment properties
Write off of other receivables
Amortisation of intangible assets
Reinstatement expenses
Recruitment expenses
Travelling and transportation
Other taxes and duties
Repairs and maintenanceUtilities expenses
Consumables and cleaning
Outsourcing service expenses
G-Prize procurement expenses to wholesalers
Pachinko and pachislot machines expenses (Note i)Advertising expenses
Service fee (Note 34)
Impairment loss on property, plant and equipment
Legal and professional fees
Loss on termination of opening of a hall (Note ii)
Professional expenses incurred in connection with the Company’s listing
Others2017¥ million

2016¥ million

62
34

60
24

5,110
1,576
2,816
2,368
19
17
33
25
78
134
385
183
971
1,741
1,008
778
8,836
1,264
35
271
66
72
–
619

5,081
1,556
2,841
2,387
27
–
37
26
218
169
481
240
1,133
1,735
1,065
802
9,619
1,450
33
317
35
–
84
602

28,50130,022

Notes:(i)

Pachinko and pachislot machines are expensed off in the consolidated statement of comprehensive income upon installation. The expected
useful lives of these machines are less than one year.

(ii)

During the year ended 31 March 2017, the Group has decided to abandon the plan of opening a new hall. As a result, a loss of ¥72 million
was charged to the consolidated statement of comprehensive income, including forfeiture of rental deposit of ¥39 million, write off ofconstruction in progress of ¥14 million (Note 13) and penalty charge for early termination of the rental contract of ¥19 million.

78

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
8

EMPLOYEE BENEFITS EXPENSES (INCLUDING DIRECTORS’ EMOLUMENTS)

Salaries, bonuses and allowances
Pension costs — defined contribution plan
Other employee benefits

(a)

2017
¥ million

2016¥ million

5,430
76
1,180

5,378
72
1,187

6,686

6,637

Pension costs — defined contribution plans
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 year (2016: Nil).

(b) Five highest paid individuals
The five individuals whose emoluments were the highest in the Group for the year ended 31 March 2017
include 1 director (2016: 1 director) whose emoluments are reflected in the analysis shown in Note 36. The
emoluments payable to the remaining 4 (2016: 4) individuals during the year ended 31 March 2017 are as
follows:

Salaries, allowances and other benefits
BonusesPension cost — defined contribution plan2017
¥ million

2016¥ million

82
–
3

80
1
3

85

84

The number of highest paid individuals whose remuneration fell within the following band is as follows:
Number of individuals
2017
2016
Emolument bands¥7,143,000 to ¥14,286,000 (equivalent toapproximately HK$500,000 to HK$1,000,000)

1

1¥14,286,001 to ¥21,429,000 (equivalent toapproximately HK$1,000,001 to HK$1,500,000)

1

1¥21,429,001 to ¥28,571,000 (equivalent toapproximately HK$1,500,001 to HK$2,000,000)22Annual Report 2017

79

NIRAKU GC HOLDINGS, INC.

Notes to the Consolidated Financial Statements
9

FINANCE COSTS, NET

Finance income
Bank interest income
Other interest income

Finance costs
Bank borrowings
Bond interest expense
Obligations under finance leases
Provision for unwinding discountFinance costs, net2017¥ million

2016¥ million

3
52

2
52

55

54

(213)
–
(280)
(93)

(523)
(2)
(296)
(71)

(586)

(892)

(531)

(838)

2017
¥ million

2016¥ million

344
66

302
150

410

452

10 INCOME TAX EXPENSE

Current tax— Japan corporate income tax
Deferred income tax (Note 29)

Japan corporate income tax has been calculated on the estimated assessable profit for the years ended 31 March2017 and 2016 at the rates of taxation prevailing in Japan in which the Group operates.
No provision for Hong Kong profits tax has been made for the years ended 31 March 2016 and 2017 as the Group
did not generate any assessable profits arising in Hong Kong during the years ended 31 March 2017 and 2016.

80

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
10 INCOME TAX EXPENSE (CONTINUED)
The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the profits
tax rate of Japan as follows:2017¥ million

2016¥ million

Profit before income tax

902

633

Tax calculated at applicable Japan corporate income tax rate
Income not subject to tax
Expenses not deductible for tax purpose
Unrecognised tax losses
Effect of change in tax rate
Tax deduction

272
(4)
94
32
24
(8)

204
(4)
32
76
163
(19)

410

452

The Group is subject to national corporate income tax, inhabitants tax, and enterprise tax in Japan, which, inaggregate, resulted in effective statutory income tax rates of approximately 30.2% (2016: 32.5%) for the year ended
31 March 2017.
As a result of the 2016 Tax Reform that was approved on 29 March 2016, the national corporate income tax rate ofJapan will be reduced from 23.9% to 23.4% from fiscal years beginning on or after 1 April 2016, followed by afurther rate reduction from 1 April 2018 to 23.3%.

11 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit attributable to shareholders of the Company by theweighted average number of ordinary shares in issue during the years ended 31 March 2017 and 2016.
2017

2016

492

181

Weighted average number of ordinary shares in issue (thousands)
Weighted average number of new shares in issue (thousands)

1,195,850–

895,850
294,262

Weighted average number of shares for the purpose of
calculating basic earnings per share (thousands)

1,195,850

1,190,112

0.41

0.15

Profit attributable to shareholders of the Company (¥million)

Basic and diluted earnings per share (¥)

No diluted earnings per share is presented as there was no potential dilutive shares during the years ended 31
March 2017 and 2016. Diluted earnings per share is equal to the basic earnings per share.

NIRAKU GC HOLDINGS, INC.

Annual Report 201781

Notes to the Consolidated Financial Statements
12 SUBSIDIARIESThe following is a list of the principal subsidiaries at 31 March 2017 and 2016:

Name

Directly held
Niraku Corporation

Indirectly held
Nexia Inc.

Niraku Merrist Corporation

82

Country and dateof incorporation

Principal activities

Type oflegal status

Issued andpaid up capital

Effective interest held
as at 31 March
2017
2016

Japan
27 August 1969

Pachinko andpachislot halloperations

Limited liability
company

257 million
Japanese Yen

100%

100%

Japan
19 June 2009

Property investment

Limited liability
company

30 million
Japanese Yen

100%

100%

Japan
24 February 2010

Provision ofcleaning service

Limited liability
company

5 million
Japanese Yen

100%

100%

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
13 PROPERTY, PLANT AND EQUIPMENT
Freeholdland¥ million

Buildings¥ million

Leaseholdimprovements¥ million

Equipment
and tools¥ million

Motorvehicles¥ million

Constructionin progress¥ million

Total¥ million

7,752

15,46011,608

11,896167

23

46,906–(6,019)(6,434)(7,224)(103)–(19,780)

7,752

9,441

5,174

4,672

64

23

27,126

At 1 April 2015
Cost
Accumulated depreciationand provision for impairment
Net book amountYear ended 31 March 2016
Opening net book amount

7,752

9,441

5,174

4,672

64

23

27,126

Additions

–

1,887

455

919

33

811

4,106

Transfer

–

289

516

–

–

(805)

–

Disposals

–

(1)

(41)

(15)

–

–

(57)

Impairment (Note 7)

(189)

(51)

(46)

(31)

–

–

(317)

Depreciation (Note 7)

–

(704)

(703)

(950)

(30)

–

(2,387)

7,563

10,861

5,355

4,595

67

29

28,4707,752

17,515

12,346

12,433165

2950,240(189)(6,654)(6,991)(7,838)(98)–(21,770)

7,563

10,861

5,355

4,595

67

29

28,470

Closing net book amountAt 1 April 2016
Cost
Accumulated depreciationand provision for impairment
Net book amountYear ended 31 March 2017
7,563

10,861

5,355

4,595

67

29

28,470Additions

–

16

164

138

11

324

653

Transfer

–

44

238

28

–

(310)

–

Disposals

–

–

(62)

(2)

–

–

(64)

Impairment (Note 7)

–

(83)

(120)

(68)

–

–

(271)

Write off (Note 7)

–

–

–

–

–

(14)

(14)

Depreciation (Note 7)

–

(748)

(662)

(930)

(28)

–

(2,368)

7,563

10,090

4,913

3,761

50

29

26,406

7,752

17,51012,33012,202152

29

49,975(189)(7,420)(7,417)(8,441)(102)–(23,569)

7,563

10,090

4,913

3,761

50

29

26,406

Opening net book amount

Closing net book amountAt 31 March 2017
Cost
Accumulated depreciationand provision for impairment
Net book amount

NIRAKU GC HOLDINGS, INC.

Annual Report 201783

Notes to the Consolidated Financial Statements
13 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation expenses of ¥2,312 million (2016: ¥2,320 million) has been charged in “hall operating expenses” and¥56 million (2016: ¥67 million) has been charged in “administrative and other operating expenses” for the year
ended 31 March 2017.
Construction in progress as at 31 March 2017 represents pachinko and pachislot halls being constructed in Japan.
The net carrying amount of the Group’s property, plant and machinery that were pledged for the banking facilities
granted to the Group for the year ended 31 March 2017 and 2016 has been disclosed in Note 27.
The Group’s property, plant and equipment held under finance leases included in the total amount of buildings wereas follows:

Buildings
Cost — capitalised finance leases
Accumulated depreciation2017¥ million

2016¥ million

6,864(2,773)6,864(2,442)

4,091

4,422

The Group carried out reviews of the recoverable amounts of each cash-generating unit (“CGU”), which isdetermined as each individual pachinko and pachislot hall, a pachinko and pachislot hall with hotel business andrestaurants.
For the year ended 31 March 2017, in view that some of the CGUs in Japan are performing below management’s
expectation and continuously making operating losses, the directors have reviewed the recoverability of the relevant
carrying amounts of these loss-making CGUs.
The recoverable amount of a CGU is determined based on the fair value less cost to sell or value-in-use of
calculation, whichever is higher. Fair value less cost to sell is measured using the market approach measured withreference to resale values of similar properties and is categorised under level 2 of the fair value hierarchy. Value-inuse calculations use pre-tax cash flow projections based on financial budgets approved by management covering athree-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rates
stated below. The key assumptions used in the value-in-use calculation for the years ended 31 March 2017 and2016.

Revenue growth rate
Discount rate

2017

2016

0%
8.5%

0%
9.3%

The discount rates applied by the Group are rates that reflect current market assessment of the time value ofmoney and the risk specific to the CGUs. Revenue growth rate is based on past practices and expectations onmarket and operational development.
Impairment loss recognised for the year ended 31 March 2017 amounted to ¥271 million (2016: ¥317 million).
If the forecast revenue was lower by 5%, with all other variable held constant, the recoverable amount of the CGUs
would have recognised further impairment against property, pant and equipment of ¥8 million.

84

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
14 INVESTMENT PROPERTIES
2017¥ million

2016¥ million

854
(157)

811
(130)

697

681

At costAt beginning of year
Additions
Depreciation

697
–
(19)

681
43
(27)

At end of year

678

697

At 31 March
Cost
Accumulated depreciation

854
(176)

854
(157)

678

697

At 1 April
Cost
Accumulated depreciation

The investment properties have been pledged to secure general facilities granted to the Company (Note 27).
The Group had no unprovided contractual obligations for future repairs and maintenance as at 31 March 2017 and2016.
Investment properties are situated in Japan and rented out under operating lease. Amounts recognised inconsolidated statement of comprehensive income for investment properties are as follows:
As at 31 March
2017
2016
¥ million¥ million
Rental income
Direct operating expenses from property that generated rental income

NIRAKU GC HOLDINGS, INC.

87
(16)

96
(27)

71

69

Annual Report 201785

Notes to the Consolidated Financial Statements
14 INVESTMENT PROPERTIES (CONTINUED)The Group’s investment properties were valued as at 31 March 2017 and 2016 by independent professionallyqualified valuer, Cushman & Wakefield K.K. who holds recognised relevant professional qualifications and has
recent experience in the locations and segments of the investment properties valued. The valuations were
determined using the income capitalisation approach (term and reversionary method) which largely used
observable and unobservable inputs, including market rent, yield and estimation in vacancy rate after expiry of
current lease. Such fair values estimation of investment properties are categorised under level 3 of the 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 and results are held between the CFO, AC, the valuation teamand 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 2017 is ¥803 million (2016: ¥763 million). No impairment
loss was recognised.

86

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
15 INTANGIBLE ASSETS

Goodwill¥ million

Computersoftware¥ million

Total¥ million

At 1 April 2015
Cost
Accumulated amortisation

104
–

634
(549)

738
(549)

Net book amount

104

85

189

Year ended 31 March 2016
Opening net book amount
Additions
Amortisation (Note 7)

104
–
–

85
58
(37)

189
58
(37)

Closing net book amount

104

106

210

At 1 April 2016
Cost
Accumulated amortisation

104
–

608
(502)

712
(502)

Net book amount

104

106

210

Year ended 31 March 2017
Opening net book amount
Additions
Amortisation (Note 7)

104
–
–

106
5
(33)

210
5
(33)

Closing net book amount

104

78

182

At 31 March 2017
Cost
Accumulated amortisation

104
–

506
(428)

610
(428)

Net book amount

104

78

182

Intangible assets represent computer software and goodwill arising from purchase of 2 pachinko and pachislot halls
from certain third parties. Amortisation expenses relating to computer software of ¥33 million (2016: ¥37 million)
has been charged in “hall operating expenses” for the year ended 31 March 2017.

NIRAKU GC HOLDINGS, INC.

Annual Report 201787

Notes to the Consolidated Financial Statements
15 INTANGIBLE ASSETS (CONTINUED)
Goodwill is allocated to each CGU, which is determined as each individual pachinko and pachislot 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 of a 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 2017 and 2016. As a result, no
impairment loss was charged during the years ended 31 March 2017 and 2016.

16 FINANCIAL INSTRUMENTS BY CATEGORY

Financial assets
Financial assets at fair value
Fair value through profit or loss
Fair value through other comprehensive income

Financial assets at amortised cost
Trade receivables
Deposits and other receivables
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
Obligations under finance leases

88

NIRAKU GC HOLDINGS, INC.

Annual Report 20172017
¥ million

2016¥ million

104
1,210

206
1,013

1,314

1,219

88
3,159
13,69164
3,208
12,792

16,93816,064

18,252

17,283

12

16

123
3,540
11,050
5,208

132
3,728
13,0276,600

19,921

23,487

19,93323,503

Notes to the Consolidated Financial Statements
17 FINANCIAL ASSETS AT FAIR VALUE(a)

Financial assets at fair value through profit or loss
2017
¥ million

2016¥ million

Debt securities
Unlisted securities

–
104

100
106

Less: non-current portion

104
(104)

206
(106)

–

100

Current portion

Change in fair value of financial assets at fair value through profit or loss are recorded in “other losses, net” inthe consolidated statement of comprehensive income (Note 6).
The fair values of these debt and equity securities are determined by discounted cash flow approach.

(b) Financial assets at fair value through other comprehensive income
2017¥ million

2016¥ million

Listed securities— Equity securities

1,080

883

Unlisted securities— Equity securities

130

130

1,210

1,013

Changes in fair values of financial assets at fair value through other comprehensive income are recorded in“investment revaluation reserve” in the consolidated statement of changes in equity.
The fair value of all equity securities is based on the current bid prices.

NIRAKU GC HOLDINGS, INC.

Annual Report 201789

Notes to the Consolidated Financial Statements
18 DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swaps
Less: non-current portion
Current portion2017¥ million

2016¥ million

12
(11)

16
(14)

1

2

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 hasentered into interest rate swaps agreement with banks mainly to swap floating interest rate borrowings to fixedinterest rate borrowings to manage the fixed and floating interest rate mix of the Group’s total debt portfolio. As at
31 March 2017, the notional amount of the outstanding interest rate swaps agreement with the banks amounted to¥1,200 million (2016: ¥2,400 million).

19 INVENTORIES

Supplies

2017¥ million

2016¥ million

20

413

The cost of inventories recognised as expenses and included in “hall operating expenses” amounted to ¥8,836
million (2016: ¥9,619 million) and “administration and other operating expenses” amounted to ¥1 million (2016: ¥1
million) for the year ended 31 March 2016.

20 TRADE RECEIVABLES

Trade receivables
Less: provision for impairment of trade receivables

2017¥ million

2016¥ million

88
–

64
–

88

64

Trade receivables represent income receivable from vending machines. The credit terms granted by the Groupgenerally ranged from 0 to 30 days.

90

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
20 TRADE RECEIVABLES (CONTINUED)
As at 31 March 2017 and 2016, the ageing analysis of the trade receivables, based on invoice date, is as follows:

Less than 30 days2017
¥ million

2016¥ million

88

64

As at 31 March 2017 and 2016, no trade receivables was past due or impaired.
The maximum exposure to credit risk at the reporting date is the carrying value of the receivable mentioned above.
The Group does not hold any collateral as security.
The carrying amounts of trade receivables approximate their fair values as at 31 March 2017 and 2016; and aredenominated in Japanese Yen.

21 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Non-current portion
Rental and other deposits
Rental prepayments
Loans to other employees
Other prepayments and receivables

Current portion
Prepayment for prizes in operation for pachinko and pachislot halls
Rental prepayments
Loans to other employees
Deposit for acquisition of a restaurant (Note)
Other prepayments and receivables

2017¥ million

2016¥ million

2,586
1,173
1
106

2,748
1,298
1
151

3,866

4,198

500
363
1
149
444

604
448
1
–
403

1,457

1,456

The carrying amounts of prepayment, deposits and other receivables approximate their fair values as at 31 March2017 and 2016; and are denominated in Japanese Yen.
Certain deposits and other receivables have been pledged to secure general facilities granted to the Company(Note 27).
Note: On 19 May 2016, the Company entered into the sales and purchase agreement (the “Agreement”) with Coastal Heritage Limited (the “Seller”)
to purchase 66.7% of equity interest in Nha Trang Holdings Limited, a company engaged in Vietnamese and pinot duck restaurants
operation, at an aggregate consideration of HK$100 million. During the year ended 31 March 2017, the Group paid a deposit of HK$10
million (equivalent to approximately ¥149 million) to the Seller. Pursuant to the announcement dated 15 June 2016, the Group terminated theAgreement with the Seller. As at 31 March 2017, the Group engaged an external lawyer and is undergoing legal process of claiming the fullamount of the deposit.

NIRAKU GC HOLDINGS, INC.

Annual Report 201791

Notes to the Consolidated Financial Statements
22 CASH AND BANK BALANCES
2017¥ million

2016¥ million

35

185

Current portion
Cash on hand
Cash at banks
Short term bank deposits

911
11,397
1,096

909
10,194
1,207

Cash and cash equivalents
Bank deposits with maturity over 3 months

13,404
252

12,310297

13,656

12,607

13,691

12,792

Non-current portion
Bank deposits with maturity over 1 year

Total cash and bank balances

The carrying amounts of bank deposits with maturity over 3 months, short term bank deposits and cash and bankbalances are denominated in the following currencies:

Japanese Yen
United States dollar
Hong Kong dollar

92

NIRAKU GC HOLDINGS, INC.

Annual Report 20172017
¥ million

2016¥ million

12,641
345
705

12,309325
158

13,691

12,792

Notes to the Consolidated Financial Statements
23 SHARE CAPITAL
Numberof shares

Share
Capital¥ million

895,850,460
300,000,000

10
2,990

1,195,850,460

3,000

Ordinary shares, issued and fully paid:
Opening balance 1 April 2015
Issue of new shares (Note)
At 31 March 2016, 1 April 2016 and 31 March 2017
Note
In connection with the Company’s initial public offering on 8 April 2015, 300,000,000 shares were issued at a price of HK$1.18 per share for a total
cash consideration, before listing expenses, of HK$354 million (equivalent to approximately ¥5,487 million). The directors resolved that ¥2,990
million and ¥2,497 million were allocated to share capital and capital surplus respectively.

24 RESERVES(a)Capital surplus
Under the Japan Companies Act, certain portion of the consideration from the issuance of share capital shallbe credited to the share capital and the remaining of the consideration shall be credited to capital surplus.

(b) Capital reserve
Capital reserve represents the difference between the value of net assets of the subsidiary acquired by theCompany 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 be appropriated as legal
reserve (a component of either capital surplus or retained earnings) until an aggregate amount of legal capitalreserve and retained earnings equals 25% of share capital. 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 of financial assets
through other comprehensive income held at the end of the reporting period.

NIRAKU GC HOLDINGS, INC.

Annual Report 201793

Notes to the Consolidated Financial Statements
25 TRADE PAYABLES
The ageing analysis of the trade payables based on invoice dates as at 31 March 2017 and 2016 were as follows:

Less than 30 days
31 – 90 days2017
¥ million

2016¥ million

42
81

49
83

123

132

The carrying amounts of trade payables approximate their fair values as at 31 March 2017 and 2016; and aredenominated in Japanese Yen.

26 ACCRUALS, PROVISIONS AND OTHER PAYABLES

Non-current portion
Provision for reinstatement costs
Provision for long service payment
Vending machine rental deposit and rental receipt in advance
Other payables

Current portion
Accrued purchases for pachinko and pachislot machines
Accrued purchases for property, plant and equipment
Accrued staff costs
Vending machine rental receipt in advance
Unutilised balls and tokens
Other tax payable
Office expenses and consumables
Utilities payable
Other payables

2017¥ million

2016¥ million

1,868
38
72
11

1,932
32
78
15

1,989

2,057

366
128
823
125
721
718
494
82
75

654
11
807
203
628
415
497
83
28

3,532

3,326

The carrying amounts of other payables approximate their fair values as at 31 March 2017 and 2016; and aredenominated in Japanese Yen.

94

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
27 BORROWINGS

Non-current portion
Bank loans
Syndicated loans

Current portion
Bank loans
Syndicated loans
Bonds

Total borrowings

2017¥ million

2016¥ million

1,922
6,734

1,945
7,787

8,656

9,732

939
1,455
–

1,682
1,336
277

2,394

3,295

11,05013,0272017¥ million

2016¥ million

2,394
1,944
4,560
2,152

3,295
2,178
4,933
2,621

11,05013,027As at 31 March 2017 and 2016, the Group’s borrowings were repayable as follows:

Within 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years

The average effective interest rates (per annum) at the end of each reporting period were set out as follows:

Bank loans
Syndicated loans
Bonds

NIRAKU GC HOLDINGS, INC.

2017

2016

1.8%
1.1%
–

2.3%
1.1%
2.3%

Annual Report 201795

Notes to the Consolidated Financial Statements
27 BORROWINGS (CONTINUED)
As at 31 March 2017, the borrowings under sales and leaseback arrangements with a third party lessor amounted
to ¥1,472 million (2016: ¥2,275 million). These sales and leaseback arrangements included sell of certain leasehold
improvements and pachislot machines at an aggregate consideration of ¥2,801 million and lease-back to the Groupfor a total lease payment of ¥2,979 million covering the periods ranged between 24 months to 84 months. During
the lease period, the Group cannot transfer or pledge to any party the relevant leasehold improvements andpachislot machines. For leasehold improvements, the Group has an option to renew for a further term of 1 year on
the 20th of the preceding month before the end of each lease term at no cost.
At the end of each reporting period, the total borrowings are pledged by certain assets and their carrying values areshown as below:
2017¥ million

2016¥ million

8,195
678
585

8,445
697
560

9,458

9,702

2017
¥ million

2016¥ million

2,000

1,400

Property, plant and equipment
Investment properties
Deposits and other receivables

The undrawn borrowing facilities of the Group at each reporting period are as follows:

Floating rate
— Expiring over 1 year

The carrying amounts of borrowings of the Group approximate their fair values as at 31 March 2017 and 2016.
During the years ended 31 March 2017 and 2016, the principal amounts of bonds issued by the Group carried atfixed interest rate per annum are as follows:
Issue date

28 August 2012 (Note i)
30 November 2012 (Note i)
28 August 2014 (Note ii)
19 September 2014 (Note i)

Principal amount¥ million

Interest rate

160
100
280
100

0.70%
0.60%
0.31%
1.00%

Notes:

96i.

As at 31 March 2016, these bonds had been fully repaid by the Group.

ii.

As at 31 March 2017, this bond had been fully repaid by the Group.

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Due date

26 August 2022
30 November 2022
26 August 201619 September 2019

Notes to the Consolidated Financial Statements
28 OBLIGATIONS UNDER FINANCE LEASES
2017¥ million

2016¥ million

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

1,364
999
1,709
2,264

1,784
1,336
2,271
2,579

Future finance charges on finance leases

6,336(1,128)7,970(1,370)Present values of finance lease liabilities

5,208

6,600

2017
¥ million

2016¥ million

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

1,160
835
1,371
1,842

1,530
1,135
1,867
2,068

Total obligations under finance leases
Less: Amount included in current liabilities

5,208(1,160)6,600(1,530)Non-current obligations under finance leases

4,048

5,070

The present values of finance lease liabilities are as follows:

Assets arranged under finance leases represent buildings for pachinko and pachislot halls and pachinko andpachislot machines. The average lease term range from 1 to 20 years with effective interest rate range from 3.22%
to 4.42% per annum as at 31 March 2017 (2016: 3.22% to 4.42% per annum). No arrangements have been enteredinto for contingent rental payments during the reporting periods.

NIRAKU GC HOLDINGS, INC.

Annual Report 201797

Notes to the Consolidated Financial Statements
29 DEFERRED INCOME TAX
The analysis of deferred income tax assets is as follows:2017¥ million

2016¥ million

1,024
1,897

1,738
1,249

2,921

2,987

Deferred income tax liabilities— to be recovered after more than 12 months(1,265)(1,206)

Deferred income tax assets, net

1,656

1,781

2017
¥ million

2016¥ million

At 1 April(Charged)/credit to the consolidated statement of othercomprehensive income
Charged to profit or loss

1,781

1,771

(59)
(66)

160
(150)

Deferred income tax assets

1,656

1,781

Deferred income tax assets— to be recovered after more than 12 months— to be recovered within 12 months

The net movement on the deferred income tax account is as follows:

98

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
29 DEFERRED INCOME TAX (CONTINUED)
The movement in deferred income tax assets and liabilities during the years ended 31 March 2017 and 2016,
without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred income tax assets

Property,plant andequipment¥ million

Assetretirement
obligation¥ million

Fair value
through
profit andloss
financialassets¥ million

Balances at 1 April 2015
Credited/(charged) to profit or loss

1,808
74

512
(66)

31
(19)

819
(172)

3,170
(183)

Balances at 31 March 2016 and 1 April 2016
(Charged)/credited to profit or loss

1,882
(25)

446
48

12
1

647
(90)

2,987
(66)

Balance at 31 March 2017

1,857

494

13

557

2,921

Property,plant andequipment¥ million

Fair value
through othercomprehensive
income¥ million

Total¥ million

Balance at 1 April 2015
Credited to other comprehensive income
Credited to profit or loss

(1,220)
–
33

(179)
160
–

(1,399)160
33

Balances at 31 March 2016 and 1 April 2016
Charged to other comprehensive income(1,187)
–

(19)
(59)

(1,206)(59)

Balance at 31 March 2017

(1,187)

(78)

1,265

Other
provisions¥ million

Total¥ million

Deferred income tax liabilities

Deferred income tax assets are recognised for tax losses carry-forwards to the extent that the realisation of therelated tax benefits through the future taxable profits is probable. As at 31 March 2017 and 2016, the Group did nothave any unrecognised tax losses. The unrecognise deferred income tax assets of approximately ¥31 million in
respect of losses for the year ended 31 March 2014 amounting to approximately ¥81 million can be carried forward
for 7 years against future taxable income.
Other than the above, there was no material unprovided deferred income tax as at 31 March 2017 and 2016.

NIRAKU GC HOLDINGS, INC.

Annual Report 201799

Notes to the Consolidated Financial Statements
30 DIVIDENDS
During the year ended 31 March 2017, the Company paid final dividend of ¥120 million (¥0.10 per ordinary share)and interim dividend of ¥108 million (¥0.09 per ordinary share) to their shareholders in respect of the years ended
31 March 2016 and 31 March 2017, respectively.
The board of directors of the Company proposes the payment of a final dividend of ¥0.03 per ordinary sharetotalling ¥36 million in respect of the year ended 31 March 2017. These consolidated financial statements do notreflect this dividend payable.

31 CASH GENERATED FROM OPERATIONSProfit before income tax
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of investment properties
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Write off of property plant and equipment
Impairment loss of property, plant and equipment
Write off of other receivables
Finance costs, net
Dividend income(Gain)/loss on fair value for derivative financial instruments
Loss/(gain) on fair value for financial assets at fair value through profit or loss
Changes in working capital:
Inventories
Trade receivables
Prepayments, deposits and other receivables
Trade payables
Accruals, provisions and other payables
Cash generated from operations

100

NIRAKU GC HOLDINGS, INC.

Annual Report 20172017
¥ million

2016¥ million

902

633

2,368
19
33
64
14
271
17
531
(61)
(4)
2

2,387
27
37
57
–
317
–
838
(64)
16
(6)

393
(24)
656
(9)
85

139
(12)
580
26
(260)

5,257

4,715

Notes to the Consolidated Financial Statements
31 CASH GENERATED FROM OPERATIONS (CONTINUED)
In the consolidated statement of cash flows, proceeds from disposal of property, plant and equipment andcomprise:Net book amount
Loss on disposal of property, plant and equipment

2017¥ million

2016¥ million

64
(64)

57
(57)

–

–

Proceeds from disposal of property, plant and equipment

Major non-cash transactions:
For the year ended 31 March 2017, certain finance lease obligations amounting to ¥141 million (2016: ¥160 million)
were settled through reduction of rental prepayments.
For the year ended 31 March 2017, certain property, plant and equipment amounting to ¥122 million (2016: ¥Nil
million) were settled through finance lease obligations.

32 CONTINGENCIES
As at 31 March 2017, the Group did not have any significant contingent liabilities (2016: Same).

33 COMMITMENTS(a)Capital commitments
The outstanding commitments not provided for in the consolidated financial statements as at 31 March 2017and 2016 are as follows:

Contracted but not provided forPurchase of property, plant and equipment

NIRAKU GC HOLDINGS, INC.

2017
¥ million

2016¥ million

20

40

Annual Report 2017101

Notes to the Consolidated Financial Statements
33 COMMITMENTS (CONTINUED)(b) Operating lease commitments(i)

As a lessee
As at 31 March 2017, the Group had future aggregate minimum lease payments under non-cancellable
operating leases in respect of office premises and pachinko and pachislot halls as follows:

No later than one year
Later than one year and no later than five years
Over five years

(ii)

2016
¥ million

1,058
3,569
5,150

1,083
3,771
6,016

9,777

10,870As a lessor
As at 31 March 2017 and 2016, the Group’s future aggregate minimum lease receipts under noncancellable operating leases in respect of investment properties are as follows:

No later than one year

102

2017
¥ million

NIRAKU GC HOLDINGS, INC.

Annual Report 20172017
¥ million

2016¥ million

40

38

Notes to the Consolidated Financial Statements
34 RELATED PARTY TRANSACTIONS
For the purposes of these consolidated financial statements, parties are considered to be related to the Group if theparty has the ability, directly or indirectly, to exercise significant influence over the Group in making financial andoperating 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 related parties of the Group where those parties are individuals. Parties are also considered to berelated if they are subject to common control.
Other than those transactions and balances disclosed elsewhere in the condensed consolidated interim financial
information, the following transactions were carried out with related parties:(a)Transactions with related parties
The following transactions were undertaken by the Group with related parties during the years ended 31
March 2017 and 2016:

Service fee expenses
Niraku USA, Inc.

2017
¥ million

2016¥ million

35

33

The service fee paid was related to provision of gaming research services carried out by Niraku USA, Inc. andprovision of training to employees of the Group in the United States of America. Niraku USA, Inc. is a firm
controlled by certain parties among the controlling shareholders of the Company. The transactions withrelated parties were conducted in the ordinary course of the business based on terms mutually agreed
between the relevant parties.

(b) Key management compensation
Key management includes directors (executive, non-executive and external directors) and the senior
management of the Group. The compensation paid or payable to key management for employee services isshown below:

Directors’ fees
Basic salaries, allowances and other benefits in kind
Employee’s contribution to pension scheme

NIRAKU GC HOLDINGS, INC.

2017
¥ million

2016¥ million

194
–
3

192
–
3

197

195

Annual Report 2017103

Notes to the Consolidated Financial Statements
35 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY
2017¥ million

At 31 March2016¥ million

4
18
6
4,782
16,286
15

4
23
7
5,927
16,286
188

21,111

22,435

250
1,145
470
4,012
610

16
1,145
536
3,126
847

6,487

5,670

27,59828,1053,000
17,0663,000
16,182

Total equity

20,06619,182

LIABILITIES
Non-current liabilities
Borrowings
Other payables
Derivative financial instruments

6,153
7
11

7,275
9
14

6,171

7,298

1,335
25
1
–

1,289
299
2
35

1,361

1,625

Total liabilities

7,532

8,923

Total equity and liabilities

27,59828,105Note
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Deposits and other receivables
Loans to subsidiaries
Investments in subsidiaries
Deferred income tax assets

Current assets
Prepayments, deposits and other receivables
Loans to subsidiaries
Bank deposits with maturity over 3 months
Cash and cash equivalents
Current income tax recoverable

Total assets
EQUITY
Share capital
Reserves(a)Current liabilities
Borrowings
Other payables
Derivative financial instruments
Current income tax liabilities

104

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

Notes to the Consolidated Financial Statements
35 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (CONTINUED)
Note (a) Reserves movement of the Company
Share capital

Capital surplus

Retained earnings

Total¥ million¥ million¥ million¥ million

Balances at 1 April 201510

11,7342,840

14,584

Profit for the year

–

–

297

297

2,990

2,497

–

5,487

Transaction costs attributable to issuance of shares

–

(277)

–

(277)

Dividend

–

–

(909)

(909)

Issue of shares

Balance at 31 March 2016 and 1 April 2016

3,000

13,954

2,228

19,182

Profit for the year

–

–

1,112

1,112

Final dividend related to 2016

–

–

(120)

(120)

Interim dividend related to 2017

–

–

(108)

(108)

3,000

13,954

3,112

20,066

Balances at 31 March 201736 BENEFITS AND INTERESTS OF DIRECTORS(a)

Directors and chief executive’s emoluments
The remuneration of every director of the Company paid/payable by the Group for the year ended 31 March2017 and 2016 is set out below:
For the year ended 31 March 2017Fee¥ million

Salaries,
allowancesand otherbenefits¥ million

Definedcontribution
pension costs¥ million

Total¥ million

Directors
Hisanori Taniguchi(also the Chief Executive)

100

–

1

101

Non-executive directors
Hiroshi Bannai

3

–

–

3

Independent non-executive
directors
Hiroaki Morita
Norio Nakayama
Masaharu Togo
Michio Minakata (Note a)
Yoshihiro Koizumi (Note a)
Hiroaki Kumamoto (Note b)

4
4
4
5
3
2

–
–
–
–
–
–

–
–
–
–
–
–

4
4
4
5
3
2

125

–

1

126

Name

Note a:Mr. Michio Minakata and Mr. Yoshihiro Koizumi were appointed as independent non-executive directors on 29 May 2016.

Note b:Mr. Hiroaki Kumamoto resigned as an independent non-executive director on 30 June 2016.

NIRAKU GC HOLDINGS, INC.

Annual Report 2017105

Notes to the Consolidated Financial Statements
36 BENEFITS AND INTERESTS OF DIRECTORS (CONTINUED)(a)

Directors and chief executive’s emoluments (Continued)
For the year ended 31 March 2016Fee¥ million

Salaries,
allowancesand otherbenefits¥ million

Definedcontribution
pension costs¥ million

Total¥ million

Directors
Hisanori Taniguchi(also the Chief Executive)

100

–

1

101

Independent non-executive
directors
Hiroaki Morita
Norio Nakayama
Masaharu Togo
Hiroaki Kumamoto

4
4
4
6

–
–
–
–

–
–
–
–

4
4
4
6

118

–

1

119

Name

*

Insignificant amount less than ¥1 million

The remuneration shown above represents remuneration received from the Group by these directors in theircapacity as employees to the Group and/or their capacity as directors of the Company during the years ended 31
March 2017 and 2016.
There was no arrangement under which a director waived or agreed to waive any emoluments during the years
ended 31 March 2017 and 2016.
During the year ended 31 March 2017, the Group does not pay consideration to any third parties for making
available directors’ services (2016: Nil).
As at 31 March 2017, there is no loans, quasi-loans and other dealing arrangements in favour of directors,
controlled bodies corporate by and connected entities with such directors (2016: Nil).
Save as disclosed in Note 34, no significant transactions, arrangements and contracts in relation to the Group’sbusiness to which the Group was a party and in which a director of the Group had a material interest, whether
directly or indirectly, subsisted at the end of the year or at any time during the year (2016: Nil).

106

NIRAKU GC HOLDINGS, INC.

Annual Report 2017

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