Business results for the first quarter of the year ending March 31, 2016

Operating results

(Note) Comprehensive income
First quarter of the year ended March 31, 2016: ¥352 million (-63.8%)
First quarter of the year ended March 31, 2015: ¥974 million (23.0%)

Financial position

(Reference) Shareholders’ equity
First quarter of the year ended March 31, 2016: ¥31,604 million
First quarter of the year ended March 31, 2015: ¥32,138 million

Dividends

Forecast earnings for the year ending March 31, 2016

Qualitative Information Regarding the Consolidated Results for the First Quarter

1. Analytical Review of Operating Results

During the cumulative consolidated first quarter, the Japanese economy showed a gradual recovery trend in general supported by an improvement in corporate earnings and employment conditions situation due in part to the effects of the government’s economic measures, while mixed with uncertain prospects for the future, attributable mainly to the downturn in the overseas economy.

In our pachinko industry, in which the Daikoku Denki Group (“the Group”) is engaged, the operation of pachinko game machines for 4-yen pachinko remains in a slight downward trend. In addition, our customers, pachinko halls are taking a cautious stance toward capital expenditure due to the planned self-imposed regulations on pachinko game machines (scheduled for November 2015) and pachislot game machines (scheduled for December 2015).

Under these market environments, the Information System Segment held an exhibition & seminar titled “MIRAIGATE 2015” in major cities in Japan, which received a record number of visitors involved in pachinko halls, as a result of the approaches aiming to offer presentations and proposals solving the issues, and to bring vitality to the industry. In this seminar, we gave a presentation on measures to address the challenges the pachinko industry faces, such as “Analyzing New Industry Rules and Regulations” and “Recipe to Improve the Pachislot Operations,” which were well received by a number of visitors involved in pachinko halls.

The Control System Segment reviewed its framework for effective planning and development, and the methodology for the improvement of business operations for the enhancement of project management capabilities. In addition, the segment also promoted the development and proposals of new products to improve business performance.

As a result of the above, during the cumulative consolidated first quarter, net sales amounted to \11,595 million, down 10.2% from the same period last year. Consolidated operating income was \609 million (down 59.2% year on year), consolidated ordinary income was \662 million (down 56.9% year on year), and consolidated net income attributable to owners of the parent amounted to \344 million (down 64.0% year on year).

Business results by segment

Information System Segment

During the cumulative consolidated first quarter, the “VEGASIA” (CR unit) was continuously highly evaluated by customers, especially for its convenience, and large volumes of them were installed in many pachinko halls. In addition, while the segment also achieved solid sales for “BiGMO PREMIUM” (data display tools highlighting the amusing and thrilling features of a diversified pachislot game for fans) and “IL-X2” (a call-out lamp), they fell short of the record of a year ago. Meanwhile, the research and development cost increased due to the active investment for next-generation product development.

As a result, net sales in the Information System Segment were \7,876 million (down 19.7% from the same period of the previous fiscal year), and segment-operating income was \789 million (down 55.3% year on year).

Control System Segment

During the cumulative consolidated first quarter, a number of sold display units exceeded the number in the same period of the previous fiscal year. In addition, the segment also experienced strong sales of peripheral components, such as motors and switches.

As a result, net sales in the Control System Segment were \3,720 million (up 20.0% from the same period of the previous fiscal year), and segment-operating income amounted to \252 million (up 73.3% year on year).

2. Analytical Review of Financial Position

Total assets as of June 30, 2015 were \51,677 million, a decrease of \1,850 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 settlement of accounts payable – other, income taxes paid and cash dividends paid as well as a decrease in notes and accounts receivable-trade, although there was an increase in inventories to be sold in the second quarter or afterward.

Total liabilities as of June 30, 2015 were \20,073 million, a decrease of \1,315 million from those at the end of the previous consolidated fiscal year. The main factors for the decrease were a decrease in outstanding corporate tax and accounts payable due to a smaller allocated amount compared to the end of the previous consolidated account period for R&D costs and software, although there was an increase in trade payables due to an increase in inventories.

Total net assets as of June 30, 2015 were \31,604 million, a decrease of \534 million from those at the end of the previous consolidated fiscal year, due mainly to a decrease in retained earnings resulting from a larger payment of dividends than consolidated net income attributable to owners of the parent.

The Group’s equity ratio was 61.2% (a rise of 1.2 percentage point compared to that at the end of the previous consolidated fiscal year).

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

There is no change in earnings forecast for the second quarter and the full year of FY2015, which were announced on May 11, 2015.