Business results for the first quarter of the year ending March 31, 2019

Operating results

(Note) Comprehensive income
First quarter of the year ended March 31, 2019: ¥532 million (-%)
First quarter of the year ended March 31, 2018: ¥-179 million (-%)

Financial position

(Reference) Shareholders’ equity
First quarter of the year ended March 31, 2019: ¥29,340 million
Year ended March 31, 2018: ¥29,251 million

Dividends

Forecast earnings for the year ending March 31, 2019

Qualitative Information Regarding the Consolidated Results for the First Quarter

Explanation of Operating Results

The Japanese economy remained on the track of moderate recovery during the consolidated first fiscal quarter, with continuing improvement in employment and income environments. On the other hand, the economic outlook still continues to be uncertain, due to a serious manpower shortage and heightened concerns about trade frictions caused by US protectionist policy. Along with the continuing impact of “Regulations on the Partial Revision of Regulations Regarding the Enforcement of the Act on Control and Improvement of Amusement Business, etc. and Regulations Regarding the Certification of Game Machines and Examination of Model” (hereinafter referred to as “new regulations”) enforced on February 1, 2018, the pachinko industry, in which the Daikoku Denki Group (“the Group”) is engaged, faced a severe business environment with a decrease in new parlor openings and renovated parlors. It is also necessary to flexibly respond to changes in the business environments, such as responses to addiction measures by the Basic Bill on Gambling Addiction Countermeasures, and the Bill to amend the Health Promotion Act to strengthen passive smoking measures. In this market environment, the Information System Segment convened a seminar entitled “Vision for the Future – to survive in the era of reform” in Japan’s major cities. In the seminar, they explained points to focus on towards 2021, when transitional arrangements for handling of game machines before revision of the regulations will expire, advantages offered by game machines that comply with the new regulations, and delivered a lecture about measures to improve performance as seen through a fan trend data publication service, “Fan-SIS”. Many people came to the seminar, with high expectations about soon to be launched pachinko machines with fixed settings. Since there has been growing interest in an individual counting system, which is an optional function of the CR unit, amid a serious manpower shortage in pachinko halls, the proposal for the CR unit, “VEGASIA III”, combined with utilization of “Fan-SIS”, was strengthened. The Control System Segment worked on collection of market needs and spec simulation analysis, in order to create attractive gaming properties that comply with new regulations, and also reorganized the sales structure to obtain new entrusted projects. The Group also promoted activities to propose content and new technology, in order to acquire new clients. As a result, during the consolidated first fiscal quarter, net sales amounted to 6.872 billion yen (down 5.7% year-on-year). Operating income was 718 million yen (operating loss of 330 million yen in the same period last year), and ordinary income was 812 million yen (ordinary loss of 266 million yen in the same period last year). The quarterly net income attributable to parent company shareholders amounted to 553 million yen (quarterly net loss attributable to parent company shareholders of 195 million yen in the same period last year). Business performance by segment is as follows.

[Information System Segment]

While the severe market environment continued in this segment, with few new parlor openings and large-scale renovations during the consolidated first fiscal quarter, sales of the information publication terminal “BiGMO PREMIUM II” remained favorable due to the new product effect, and demand for an individual counting system increased, to deal with the manpower shortage, but business performance of the other main products fell below that in the same period last year. In terms of expenses, R&D costs, which temporarily increased in the same period last year, decreased substantially. As a result, net sales in this segment were 5.089 billion yen (down 8.3% year-on-year), and segment income was 736 million yen (up 482.3% year-on-year).

[Control System Segment]

Although sales of parts performed below that in the same period last year, which had been favorable, the gross profit margin improved significantly in this segment during the consolidated first fiscal quarter, because models were steadily marketed, and the number of display units sold increased compared to the same period last year. As a result, net sales in this segment were 1.793 billion yen (up 2.8% year-on-year), and segment income was 385 million yen (segment loss in the same period last year, 26 million yen).　

(Note) Intersegment transactions are included in the amounts for the segment business performance.

Explanation of Financial Position

Total assets at the end of the consolidated first fiscal quarter were 42.247 billion yen, a decrease of 1.316 billion yen from the end of the previous consolidated fiscal year due to decreases in cash and deposits, and trade receivables, despite an increase in inventories due to scheduled sales after the second quarter. Liabilities at the end of the consolidated first fiscal quarter were 12.906 billion yen, a decrease of 1.405 billion yen from the end of the previous consolidated fiscal year due to decreases in R&D costs and software-related trade payables. Net assets at the end of the consolidated first fiscal quarter were 29.340 billion yen, an increase of 88 million yen from the end of the previous consolidated fiscal year, due to an increase in retained earnings resulting from the fact that the recorded amount of quarterly net income attributable to parent company shareholders exceeded the dividend payment. The equity ratio was 69.4% (an increase of 2.3 points when compared to that at the end of the previous consolidated fiscal year).

Explanation of Earnings Forecast such as Consolidated Business Results Forecast

Although the severe business environment is forecast to continue, with not many large projects such as new parlor openings, business performance during the consolidated first fiscal quarter has been almost as originally planned. There are no changes in the consolidated business performance forecasts for the second quarter, and for the full fiscal year ending March 2019, which were announced on May 14, 2018. There are no significant changes in the business risks, etc., that could impact business performance, etc., already disclosed in the recent securities report (submitted on June 29, 2018).