Okura : INTERIM REPORT 2018/2019

(Incorporated in Hong Kong with limited liability)

Stock Code : 1655

CONTENTS

Corporate Information 2

Management Discussion and Analysis 4

Other Information 15

Report on Review of Interim Financial Information 18

Interim Condensed Consolidated Statement

of Comprehensive Income 20

Interim Condensed Consolidated Statement

of Financial Position 21

Interim Condensed Consolidated Statement

of Changes in Equity 23

Interim Condensed Consolidated Statement

of Cash Flows 25

Notes to the Condensed Consolidated

Interim Financial Information 26

Corporate Information

BOARD OF DIRECTORS

Executive Directors

Mr. Katsuya Yamamoto (Chairman) Mr. Fumihide Hamada

Mr. Yutaka Kagawa Mr. Toshiro Oe

Independent Non-executive Directors

Mr. Mitsuru Ishii

Mr. Yuji Matsuzaki Mr. Kazuyuki Yoshida

COMPANY SECRETARY

Mr. Man Yun Wah ACIS, ACS, MCG

AUDIT COMMITTEE

Mr. Kazuyuki Yoshida (Chairman) Mr. Mitsuru Ishii

Mr. Yuji Matsuzaki

REMUNERATION COMMITTEE

Mr. Kazuyuki Yoshida (Chairman)

Mr. Mitsuru Ishii

Mr. Yuji Matsuzaki

Mr. Katsuya Yamamoto Mr. Yutaka Kagawa

NOMINATION COMMITTEE

Mr. Katsuya Yamamoto (Chairman) Mr. Kazuyuki Yoshida

Mr. Mitsuru Ishii

Mr. Yuji Matsuzaki Mr. Yutaka Kagawa

RISK MANAGEMENT COMMITTEE

Mr. Fumihide Hamada (Chairman)

Mr. Yutaka Kagawa

Mr. Toshiro Oe Mr. Satoshi Maeda Mr. Koji Nakao

Mr. Hayato Tobisawa Mr. Junichi Hitomi Mr. Shota Miyano Mr. Seiji Otofuji

Mr. Masayuki Sakata Mr. Fumihiko Tanaka Mr. Shuntaro Honda

AUTHORISED REPRESENTATIVES

Mr. Kazuyuki Yoshida

Mr. Man Yun Wah ACIS, ACS, MCG

HEADQUARTERS IN JAPAN

7/F, 13-10 Motofuna-machi Nagasaki City

Nagasaki Prefecture Japan 850-0035

REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

11/F, Admiralty Centre Tower II

18 Harcourt Road

Admiralty, Hong Kong

Corporate Information

PRINCIPAL BANKERS

Sumitomo Mitsui Banking Corporation, Saga Branch 2-3, Hachimankoji

Saga City, Saga Prefecture Japan 840-0834

Shinwa Bank, Sumiyoshi Branch 2-22, Sumiyoshimachi

Nagasaki City, Nagasaki Prefecture Japan 852-8154

The Eighteenth Bank, Ltd., Sumiyoshi Branch 1-6 Nakazonomachi

Nagasaki City, Nagasaki Prefecture Japan 852-8155

HONG KONG SHARE REGISTRAR

Tricor Investor Services Limited

Level 22, Hopewell Centre

183 Queen's Road East Hong Kong

INDEPENDENT AUDITOR

PricewaterhouseCoopers Certified Public Accountants 22/F, Prince's Building Central, Hong Kong

HONG KONG LEGAL ADVISOR

H.M. Chan & Co in association with Taylor Wessing 21/F, 8 Queen's Road Central Hong Kong

PLACE OF LISTING

The Stock Exchange of Hong Kong Limited

STOCK CODE

1655

COMPANY'S WEBSITE

www.okura-holdings.com

Management Discussion and Analysis

INDUSTRY AND BUSINESS REVIEW

We, Okura Holdings Limited (the "Company", together with its subsidiaries, the "Group"), are a pachinko hall operator in Japan, operating mainly pachinko and pachislot machines. As at 31 December 2018, we operated 17 pachinko halls under the trading names "Big Apple.", "K's Plaza", "Big Apple. YOUPARK" and "Monaco".

The pachinko and pachislot industry has continued to be affected by the continuous decline in pachinko and pachislot players during 6M2018. As disclosed in the Group's annual report for the year ended 30 June 2018 ("FY2018"), the "Regulations to Partially Amend Regulations on the Entertainment and Amusement Trades Rationalising Act and Regulations on Certifying Machines and Conducting Type Test on Machines" issued by the National Public Safety of Japan on 1 February 2018 (the "2018 Regulations"), which limited the gaming element of both pachinko and pachislot machines, reduced the attractiveness of the game and hence reduced customer traffic.

As a result of the 2018 Regulations and the general decline in the gaming atmosphere of the industry, pachinko manufacturers were reluctant to release new machines and pachinko hall operators' selection of machines were limited by the machines available in the market. Faced with the rising regulatory pressure and tough operating landscape, the overall pachinko industry is expected to shrink further. According to an independent market research report relating to the latest pachinko industry movement issued in January 2019 by Yano Research Institute Limited, a private market research and consulting firm independent of the Company, the number of pachinko hall operators have been decreasing at an accelerated rate since 2015.

Focusing our resources in maintaining customer attractiveness of our pachinko and pachislot halls

Against such background, the Group had been streamlining its corporate structure and its operations by closing the loss-making BA. Kamata Hall in April 2018, which contributed an operating loss in 6M2017, and dissolving inefficient operating subsidiaries in the Group structure in January 2018 and January 2019. In addition, despite the 2018 Regulations and the general market reluctance in replacing pachinko and pachislot machines, we continued our efforts to keep our pachinko and pachislot machines up-to-date, albeit at a slower turnover rate. Following all these initiatives, our hall operating expenses decreased from approximately ¥4,881 million for 6M2017 to approximately ¥3,613 million for 6M2018. As mentioned in the Group's annual results for FY2018, to maintain our customer base, we temporarily closed three pachinko halls for renovation, facilities upgrade and changing of machine mix in July 2017, which resulted in an improvement in customer traffic and revenue in those halls. Our recently opened halls have also performed better in 6M2018. In particular, our BA. Dejima Hall in Nagasaki which commenced operations in September 2017 contributed approximately ¥206 million to our revenue in 6M2018. Our management believes its well-equipped facilities and prime location have attracted satisfactory customer traffic and we will continue to monitor the performance of our pachinko halls and decide on the renovation and upgrade plans for our pachinko halls as appropriate.