Business results for the second quarter of the year ending March 31, 2015

Operating results

(Note) Comprehensive income
Second quarter of the year ended March 31, 2015: ¥1,507 million (-2.8%)
Second quarter of the year ended March 31, 2014: ¥1,551 million (-28.3%)

Financial position

(Reference) Shareholders’ equity
Second quarter of the year ended March 31, 2015: ¥32,932 million
Second quarter of the year ended March 31, 2014: ¥32,260 million

Dividends

Forecast earnings for the year ending March 31, 2015

Qualitative Information Regarding the Consolidated Results for the Second Quarter

Analytical Review of Operating Results

During the cumulative consolidated second (April-September) quarter, while the Japanese economy moved towards gradual recovery, buoyed by the ongoing trends of a weakening yen and higher stock prices, the outlook remains unpredictable due to concerns for a prolonged subsequent decline in consumption after a rush in demand ahead of the consumption tax hike as well as possible downside risks of overseas economies.

The pachinko business, a part of the amusement industry in which the Daikoku Denki Group (“the Group”) is engaged, has not yet experienced negative effects from the consumption tax hike. However, the operation of pachinko game machines with a playing cost of 4-yen per pachinko ball showed a slight downward trend, putting pachinko halls (our customers) in a tough business environment. In addition, it is unclear what impact the market will see from the “partial change in model tests for pachislot game machines regarding a rental ball discharge mechanism” that was adopted on September 16, 2014.

Under these market environments, the Information System Segment expanded sales of “BiGMO PREMIUM,” a high performance data display tool aiming to improve amusing aspects of games for players, and its new models “BiGMO Type IV”, “IL-X2” and “DESTIA”, along with sales promotion of “VEGASIA,” a CR unit. The Control System Segment strived to cultivate new customers and achieve orders for new development projects aiming to improve operating results.

As a result of the above, during the cumulative consolidated second quarter, net sales amounted to \27,892 million, up 7.8% from the same period last year. Consolidated operating income was \2,170 million (down 12.7% year on year), consolidated ordinary income was \2,235 million (down 12.7% year on year), and consolidated net income amounted to \1,472 million (down 4.6% year on year).

Business results by segment are as follows.

Information System Segment

During the cumulative consolidated second quarter, this segment achieved strong sales, especially for “VEGASIA” (a CR unit) and “BiGMO PREMIUM” (a data display tool) for installation at large-scale parlors newly opened or renovated, leveraging its strength of a total computing system to help efficient operations of pachinko halls. On the other hand, research and development expenses increased as a result of upfront investments.

As a result, net sales in the Information System Segment were \18,217 million (up 17.1% from the same period of the previous fiscal year), and segment operating income was \2,618 million (down 11.3% year on year).

Control System Segment

During the cumulative consolidated second quarter for this segment, sales volume of display units increased year on year, but the ratio of used goods increased, reflecting a cost reduction by game machine manufacturers.

As a result, net sales in the Control System Segment were \9,675 million (down 6.2% from the same period of the previous fiscal year), and segment operating income amounted to \369 million (down 27.2% year on year).

Analytical Review of Financial Position

Total assets as of September 30, 2014 were \52,545 million, a decrease of \1,384 million from the end of the previous consolidated fiscal year. The main factors for the decrease were a decrease in cash and deposits due to the settlement of accounts payable, payment of taxes and cash dividends as well as a decrease in non-current assets due to the posting of depreciation and amortization, although there was an increase in inventories to be sold in the third quarter or afterwards and an increase in net sales due to strong sales during the second quarter consolidated accounting period compared to the fourth quarter consolidated accounting period of the previous fiscal year.

Total liabilities as of September 30, 2014 were \19,613 million, a decrease of \2,055 million from those at the end of the previous consolidated fiscal year, due mainly to a decrease in accounts payable related to research and development expenses and repayment of long-term borrowings as well as a decrease in accounts payable-trade resulting from a smaller amount of purchases during September in the cumulative second quarter compared to last March in the previous consolidated fiscal year.

Total net assets as of September 30, 2014 were \32,932 million, an increase of \671 million from those at the end of the previous consolidated fiscal year, due mainly to an increase in retained earnings resulting from strong operating results. The Group’s equity ratio was 62.7% (a rise of 2.9 percentage point compared to that at the end of the previous consolidated fiscal year).

Explanation of Forward-looking Information, Including Outlook for Consolidated Operating Results

There is no change in the earnings forecast for the full year of FY2014, which were announced on May 12, 2014.