Business results for the second quarter of the year ending March 31, 2017

Operating results

(Note) Comprehensive income
Second quarter of the year ended March 31, 2017: ¥370 million (-11.0%)
Second quarter of the year ended March 31, 2016: ¥415 million (72.4%)

Financial position

(Reference) Shareholders’ equity
Second quarter of the year ended March 31, 2017: ¥29,070 million
Second quarter of the year ended March 31, 2016: ¥29,291 million

Dividends

Forecast earnings for the year ending March 31, 2017

Qualitative Information Regarding the Consolidated Results for the Second Quarter

1. Analytical Review of Operating Results

The Japanese economy has been slowly recovering during this consolidated second fiscal quarter, as recovery is seen in employment and income environments. However, economic climate continues to remain uncertain due to declining corporate earnings caused by rapid yen appreciation, sluggish capital investment and a slowdown of the economy of China and other emerging countries.

In the pachinko industry, in which the Daikoku Denki Group (“the Group”) is engaged, the environment surrounding these businesses remains challenging. The number of newly opened pachinko halls has declined, and Pachinko halls continue to take a negative stance toward capital investment before removal/callback of the “pachinko machines where performance may differ from that of inspected units” by the end of December 2016.

Under such circumstances, the Information System Segment enhanced convenience for fans and functions by strengthening the display contents of a new data display terminal, “REVOLA,” which was officially released in May 2016, and also by conducting a large renewal of the application “Pachi Robo” for pachinko fans.

The Control System Segment addressed efforts to differentiate their products in terms of game elements and review the development process for the purpose of cost reduction. They also strived to improve business performance by promoting planning proposals in order to acquire development of new machines.

As a result, for this consolidated second fiscal quarter, sales volume amounted to 20,187 million yen (down 16.7% from the same period last year), operating income was 605 million yen (down 25.7% from the same period last year), and ordinary income was 706 million yen (down 22.0% from the same period last year). Net income for the quarter attributable to shareholders of the parent company amounted to 329 million yen (down 21.9% from the same period last year).

Business results by segment

Information System Segment

During the second consolidated quarter, sales volume of product sale in this segment has decreased compared to the same period last year in the severe market conditions that resulted in a decline in newly opened and renovated halls. However, segment income has increased, since a new product, new data display terminal “REVOLA,” has been selling relatively well, and R&D costs have decreased from the same period last year.

As a result, net sales in this segment were 13,126 million yen (down 18.4% from the same period last year) and segment income was 1,414 million yen (up 7.1% from th

Control System Segment

During the second consolidated quarter, the number of machines sold in which our company was involved in development remained good, but the number of pachinko display units sold fell below the same period last year. This was because sales plans of pachinko machine manufacturers have changed and the sale of several machines has been postponed to the second half or later under the existing circumstances that pachinko halls have restricted themselves from renewal of game machines in the wake of the 42nd G7 Summit and issuance of result report of machine model tests takes time.

As a result, net sales in this segment were 7,093 million yen (down 12.9% from the same period last year) and segment income was 95 million yen (down 72.9% from the same period last year).

2. Analytical Review of Financial Position

Total assets at the end of this second consolidated fiscal quarter were 46,167 million yen, a decrease of 972 million yen from the end of the previous consolidated fiscal year. The main factors for this were a decrease in trade receivables due to continued sluggish sales during this second consolidated fiscal quarter compared to the second half of the previous consolidated fiscal year, a decrease in products due to slot selling, and a decrease in accounts receivable by refund of taxes, despite an increase in cash and deposits.

Total liabilities at the end of this second consolidated fiscal quarter amounted to 17,097 million yen, a decrease of 751 million yen from the end of the previous consolidated fiscal year. The main factors for this include a decrease in the amount payable for R&D costs at the end of this second consolidated fiscal quarter from the amount at the end of the previous fiscal year, and payment of short-term debt, despite an increase in trade payables.

Net assets at the end of this second consolidated fiscal quarter were 29,070 million yen, a decrease of 221 million yen from the end of the previous consolidated fiscal year. The main factor for this was that the amount of paid dividends was larger than the allocated profit. Consequently, the Group’s equity ratio was 63.0% (a rise of 0.9 points when compared to that at the end of the previous consolidated fiscal year).

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

Earnings forecast for the full fiscal year ending March 2017 remains the same as the forecast announced on May 13, 2016. The business risks which may have an impact on performance remains the same as what is stated in the most recent securities report (submitted on June 29, 2016).