Business results for the third quarter of the year ending March 31, 2018

Operating results

(Note) Comprehensive income
Third quarter of the year ended March 31, 2018: ¥1,001 million (-21.4%)
Third quarter of the year ended March 31, 2017: ¥1,273 million (97.7%)

Financial position

(Reference) Shareholders’ equity
Third quarter of the year ended March 31, 2018: ¥29,414 million
Year ended March 31, 2017: ¥29,151 million

Dividends

Forecast earnings for the year ending March 31, 2018

Qualitative Information Regarding the Consolidated Results

1. Analytical Review of Operating Results

While there have been concerns that Japan’s economy in the consolidated third fiscal quarter would be impacted by the future of economies in China and other emerging Asian countries, etc., the political situation in Europe, and uncertainty about policies in the US, it has been trending toward a gradual recovery against a backdrop of an improved employment and income environment, and improved corporate earnings. With regard to the pachinko industry, in which our group is engaged, a cautious stance continues based on the uncertainty of the impact on hall business that will accompany the enactment of 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,” which went into effect on February 1st, 2018. In this market environment, the Information Systems Segment started selling the new product “BiGMO PREMIUM II,” which is a model that inherits the function of and greatly changes the outward appearance of the information publication terminal “BiGMO PREMIUM,” which is our main product, and the “IL-X3,” which is a successor of the “IL-X2” call lamp with sharper illumination. In addition, the business continues to make efforts to propose the industry’s first fan trend data publication service “Fan-SIS” and to expand sales of the CR unit “VEGASIA III” necessary for introducing this service. The Control Systems Segment, in anticipation of the enforcement of the revised regulations, is making efforts to create new gaming properties while curbing the passion for gambling, and to promote planning proposals for gaming machines that can be introduced to the market in a short period of time. Furthermore, to respond to changes in an unclear market environment, the business is making efforts to revise its development processes for the purpose of cutting costs, and toward activities for proposing new merchandise and content. As a result, business performance for the consolidated third fiscal quarter was, 27.984 billion yen in net sales (down 16.2% year-on-year), 1.448 billion yen in operating income (down 17.3% year-on-year), 1.650 billion yen in ordinary income (down 15.0% year-on-year), and 958 million yen in quarter net income attributable to parent company shareholders (down 21.2% year-on-year).

Business results by segment

Information System Segment

Despite the steady growth in the sales of a variety of information publication terminals due to the effects of proposals for replacing information publication terminals and the commencement of sales of the new products “BiGMO PREMIUM II” and “IL-X3,” unit sales of the CR, unit VEGASIA Series and premium customer systems, which require large-scale construction, were down from the same quarter last year due to a reduction in new store openings compared to the same quarter last year. As a result, the business achieved 20.371 billion yen in net sales (down 9.5% year-on-year), and 2.372 billion yen in segment income (down 25.9% year-on-year)

Control System Segment

Amidst a downward trend in new machine sales in the overall gaming machine market, the consolidated third fiscal quarter saw a significant reduction in unit sales of display units and control units due to extended sales cycles brought on by changes in sales strategies of gaming machine manufacturers caused by the impact of the revised regulations. Furthermore, R&D costs, the cost of sales, and selling, general & administrative expenses were down compared to the same quarter last year in conjunction with the business’s revision in sales strategy. As a result, the business achieved 7.653 billion yen in net sales (down 29.9% year-on-year), and 343 million yen in segment income (a segment loss of 114 million yen over the same quarter last year)

2. Analytical Review of Financial Position

Current assets at the end of the consolidated third fiscal quarter were 27.962 billion yen, down by 1.926 billion yen compared to the previous consolidated fiscal year due to a reduction in inventory due to sales of pachislot gaming machines, and decreases in cash and deposits, advance payments and accounts receivable, despite an increase in accounts receivable due to large sales in December 2017. Fixed assets at the end of the consolidated third fiscal quarter were 16.117 billion yen, down by 821 million yen compared to the previous consolidated fiscal year due to a reduction in fixed assets in conjunction with posting of depreciation expenses, despite a decrease in bankruptcy claims caused by termination of bankruptcy procedures at a business partner, and a reversal of allowance for doubtful accounts. As a result, total assets at the end of the consolidated third fiscal quarter were 44.079 billion yen, down by 2.748 billion yen compared to the previous consolidated fiscal year. Current liabilities were 13.622 billion yen, down by 2.880 billion yen compared to the previous consolidated fiscal year due to decreases in accounts payable and payments or purchases of tangible fixed assets due to the fact that postings of R&D costs and the acquisition of fixed assets were both down compared to the previous consolidated fiscal year. Fixed liabilities at the end of the consolidated third fiscal quarter were 1.043 billion yen, down by 130 million yen compared to the previous consolidated fiscal year due to decrease in provisions for director’s retirement benefits. As a result, total liabilities at the end of the consolidated third fiscal quarter were 14.665 billion yen, down by 3.010 billion yen compared to the previous consolidated fiscal year. Net assets at the end of the consolidated third fiscal quarter were 29.414 billion yen, up 262 million yen compared to the previous consolidated fiscal year as a result of an increase in earned surplus due to the fact that the amount of quarterly net income attributable to parent company shareholders recorded in the quarter was significant. As a result, the Equity Ratio was 66.7% (a 4.4 point rise compared to the end of the previous consolidated fiscal year)

3. Explanation of Earnings Forecast such as Consolidated Business Results Forecast

There is no change in the consolidated business performance forecast value through FY2017 from that announced on May 15, 2017. Although the tight market is forecast to persist, we will work to increase our proposal capacity and reduce costs in an effort to achieve our consolidated business performance forecast. We will immediately disclose any future revisions that need to be made.