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

Operating results

(Note) Comprehensive income
Second quarter of the year ended March 31, 2016: ¥415 million (-72.4%)
Second quarter of the year ended March 31, 2015: ¥1,507 million (-2.8%)

Financial position

(Reference) Shareholders’ equity
Second quarter of the year ended March 31, 2016: ¥31,667 million
Second 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 Second Quarter

1. Analytical Review of Operating Results

During the cumulative consolidated second (July-September) quarter, while the Japanese economy showed an improving trend in corporate earnings and employment mainly driven by the government’s economic stimulus measures, the outlook remains unpredictable due to possible downside risks of overseas economies mainly due to the slowdown of the Chinese economy.

The pachinko business, a part of the amusement industry in which the Daikoku Denki Group (“the Group”), faces a significant challenge as the overall market due to the planned self-imposed regulations on pachinko and pachislot game machines that are scheduled for the second half of this consolidated fiscal year 2015.

Under such market environment, the Information System Segment improved the added value of “BiGMO PREMIUM” (data display tools) through the enhancement of the display contents.

In addition, the follow-up exhibition & seminar was held in major cities in Japan successively from the first quarter, with the aim of promoting the sales of “VEGASIA” (CR unit) and data display tools.

The Control System Segment was committed to the development and proposal on new products aiming for the improvement of business performance and enhanced its framework with a desire to contribute to improving the operation rate of game machines installed in pachinko halls. In addition, the development and sales schedule were reviewed due to the changes in specifications by the planned self-imposed regulations.

As a result of the above, during the cumulative consolidated second quarter, net sales amounted to 24,225 million, down 13.1% from the same period last year. Consolidated operating income was 815 million (down 62.4% year on year), consolidated ordinary income was 905 million (down 59.5% year on year), and consolidated net income amounted to 435 million (down 70.4% year on year).

Business results by segment

Information System Segment

During the cumulative consolidated second quarter, this segment achieved strong sales from the products, especially for “VEGASIA” (CR unit) with good reputation for its strength of a total computing system, which fell short of the highest-ever sales in the segment recorded for the same period of the previous consolidated fiscal year. In terms of investments and expenditures, research and development expenses increased significantly as a result of active investments in the next generation key product development group.

As a result, net sales in the Information System Segment were 16,089 million (down 11.7% from the same period of the previous fiscal year), and segment operating income was 1,320 million (down 49.6% year on year).

Control System Segment

During the cumulative consolidated second quarter for this segment, out of the two models that had been scheduled to be released in the second quarter of the consolidated fiscal year under review, one was postponed to the second half thereof, and the other to the next consolidated fiscal year or later. Such negative effects could not be offset by favorable sales of pachinko-related components and peripheral equipment.

As a result, net sales in the Control System Segment were 8,135 million (down 15.9% from the same period of the previous fiscal year), and segment operating income amounted to 350 million (down 5.3% year on year).

2. Analytical Review of Financial Position

Total assets as of September 30, 2015 were 51,092 million, a decrease of 2,435 million from the end of the previous consolidated fiscal year. The main factors for the decrease were a significant decrease in cash and deposits due to the settlement of accounts payable, payment of taxes and cash dividends as well as a decrease in notes and accounts receivable- trade due to weak operating of net sales during the second quarter consolidated accounting period from the preceding six months, although there was an increase in inventories to be sold in the third quarter or afterwards and an increase in non-current assets due to improvement in the facilities and equipment at Logistics Center of Kasugai Division Office.

Total liabilities as of September 30, 2015 were 19,411 million, a decrease of 1,978 million from those at the end of the previous consolidated fiscal year, due mainly to a decrease in accounts payable related to research and development expenses and repayment of long-term borrowings as well as a decrease in income taxes payable during September in the cumulative second quarter compared to last March in the previous consolidated fiscal year.

Total net assets as of September 30, 2015 were 31,680 million, a decrease of 457 million from those at the end of the previous consolidated fiscal year, due mainly to cash dividends paid exceeding net income resulting from weak operating results. The Group’s equity ratio was 62.0% (a rise of 2.0 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.