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

Operating results

(Note) Comprehensive income
Second quarter of the year ended March 31, 2019: ¥620 million (89.7%)
Second quarter of the year ended March 31, 2018: ¥326 million (-11.7%)

Financial position

(Reference) Shareholders’ equity
Second quarter of the year ended March 31, 2019: ¥29,428 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 second Quarter

Explanation of Operating Results

The Japanese economy remained on the track of moderate recovery during the consolidated second fiscal quarter, with continuing improvement in corporate earnings, and employment and income environments. On the other hand, the economic outlook still continues to be uncertain, due to a serious manpower shortage and concerns about intensifying trade frictions caused by US protectionist policy. In the pachinko industry, in which the Daikoku Denki Group (“the Group”) is engaged, a pressing task is to flexibly respond to changes in the business environments due to “the Basic Act on Countermeasures Against Gambling Addiction”(passed on July 6, 2018), and “the Revised Health Promotion Act to strengthen passive smoking prevention measures” (passed on July 18, 2018), etc. Game machine manufacturers released ”pachinko machines with fixed settings”, whose jackpot probability is set up to six levels as game machines under the new regulations that comply with “the 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”) that was enforced on February 1, 2018, and their market evaluation is attracting attention. In this market environment, the Information System Segment sought to expand sales of information publication devices including “BiGMO PREMIUM II” mounting data display, and various content corresponding to “pachinko machines with fixed settings”, and also undertook efforts to improve the frequency of use and increase popularity such as by releasing a new feature in the fan trend data publication service “Fan-SIS”. The Control System Segment continuously conducted spec analysis of game machines under the new regulations and a performance survey of “pachinko machines with fixed settings” whose launch onto the market began, and undertook efforts to create attractive gaming properties suitable for the market after the regulations were revised. As a result, for this consolidated second fiscal quarter, sales volume amounted to 14,230 million yen (down 20.9% from the same period last year), operating income was 872 million yen (up 132.6% from the same period last year), and ordinary income was 1,005 million yen (up 103.7% from the same period last year). The quarterly net income attributable to parent company shareholders amounted to 637 million yen (up 115.3% from the same period last year).Segment results are as follows.

[Information System Segment]

While the severe market environment continued, with significantly decreased new parlor openings and large-scale renovations during the consolidated second fiscal quarter, sales of the information publication terminal “BiGMO PREMIUM II”, whose introduction to leading companies is proceeding, and sales of hall computers exceeded levels in the same period last year. However, sales of other main products remained severe, at levels below those in the same period last year. Amid a serious manpower shortage in pachinko halls, demand for an individual counting system, which is an optional feature of the CR unit, is increasing, and switching to an individual counting type proceeded particularly in pachislot during the consolidated second fiscal quarter. In terms of profits, segment income exceeded the level in the same period last year due to a decrease in R&D cost, in addition to improvement of the gross profit margin. As a result, net sales in this segment were 11,077 million yen (down 5.8% from the same period last year) and segment income was 1,399 million yen (up 60.5% from the same period last year).

[Control System Segment]

Display units for pachinko machines sold well during the consolidated second fiscal quarter in this segment, but sales of control units and their parts were below levels in the same period last year, because sales plans of game machine manufacturers were reexamined due to the impact of revised regulations and because the reuse rate went up. As for pachislot game machines, approximately 5,500 units were brought to the market in the same period last year, but there was no sale during this consolidated second fiscal quarter. As a result, net sales in this segment were 3,173 million yen (down 49.3% from the same period last year) and segment income was 335 million yen (down 10.4% from the same period last year).

(Note) Above figures for each segment include the amounts of inter-segment transactions.

Explanation of Financial Position

Total assets at the end of this consolidated second fiscal quarter were 41,735 million yen, a decrease of 1,829 million yen from the end of the previous consolidated fiscal year. The main factor for this includes decreases in cash and deposits, and trade receivables, despite an increase in inventories, and decreases in tangible and intangible fixed assets resulting from the recording of depreciation cost. Liabilities at the end of the consolidated second fiscal quarter were 12,306 million yen, a decrease of 2,005 million yen from the end of the previous consolidated fiscal year due to decreases in R&D costs and software payment-related trade payables. Net assets at the end of the consolidated second fiscal quarter were 29,428 million yen, an increase of 176 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 70.5% (an increase of 3.4 points when compared to that at the end of the previous consolidated fiscal year).

Explanation of Earnings Forecast such as Consolidated Business Results Forecast

There is no change in the consolidated business performance forecasts for the full fiscal year ending March 2019, announced last time, since R&D costs which are carried over to the second half are expected. The Group will immediately disclose if the forecast must be revised.