Business results for the first quarter of the year ending March 31, 2022

Operating results

(Note) Comprehensive income
First quarter of the year ended March 31, 2022: ¥263 million (-%)
First quarter of the year ended March 31, 2021: ¥-204 million (-%)

(Note1) The Company has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020) and relevant ASBJ regulations from the beginning of the first quarter of the fiscal year ending March 31, 2022. Figures for the first quarter of the fiscal year ending March 31, 2022 are figures after the accounting standards, etc. have been applied.
(Note2) We changed the results presentation method from the first quarter of the current fiscal year, so net sales and operating income for consolidated operating results (cumulative) are recorded as figures after recombination reflecting the display method and the rate of change in the same quarter of the previous year.

Financial position

(Reference) Shareholders’ equity
First quarter of the year ended March 31, 2022: ¥30,548 million
Year ended March 31, 2021: ¥30,662 million

Dividends

Forecast earnings for the year ending March 31, 2022

Qualitative Information Regarding the Consolidated Results for the First Quarter

Explanation of Operating Results

The Japanese economy to the end of the first quarter of the current fiscal year (April 1 to June 30, 2021) saw the declaration of a state of emergency and other priority measures to prevent the spread of COVID-19 infections in certain areas following their renewed spread and the number of people infected with COVID-19 variants, and other measures to control flows of people. The outlook for the economy continues to be uncertain, with demand falling, centered on consumer spending.

In the pachinko industry that our group is involved in, pachinko parlors are continuing to operate while taking thorough measures against infections, and business has recovered to about 80% compared to two years ago (end of the first quarter of the fiscal year ended March 2020) prior to the pandemic (comparison using the company’s “DK-SIS” data). However, it seems that the full-scale recovery of operations will continue to take time due to the renewed spread of COVID-19 and because it cannot be foreseen when infections will be brought under control. In the game machine market, the gradual replacement of old rule machines with new rule machines is being advanced with an installation deadline of the end of January 2022. Many new rule pachinko machine models have been launched on the market by various game machine manufacturers, and hit models supported highly by fans have appeared. As a result, the rate of replacement with new rule machines as of the end of June 2021 was 72%, up seven percentage points from the end of the fiscal year ended March 2021. However, the rate of replacement of pachislot machines, whose operation is stagnating, remained sluggish, rising five percentage points, to 55% (in-house research). However, because a partial relaxation of the pachislot voluntary rules was announced in April 2021, future progress is expected.

In such a market environment, in addition to ongoing workstyle reform, business reform, a review of outsourcing costs and other thoroughgoing cost reductions, our group restructured its business framework to adapt to changes in the market environment as an effort aimed at structural reform.

In the information systems business, we promoted the spread of “Market-SIS,” a trade area analysis service that provides information on the state of customer attraction in the surrounding area, and proposed “a one-stop self-service counter” for actions ranging from balance settlement to prize exchanges using prepaid cards without going through parlor staff as an infection prevention measure and labor saving measure.

In the control systems business, we carried out a major reorganization at the beginning of the term and worked on cost reductions by strengthening development management and improving work efficiency in order to respond to game machine manufacturers who are developing new titles and reviewing sales schedules all the time due to changes in the market environment. Further, in addition to existing pachinko machines, we promoted the expansion of our business areas through the contract development and manufacture of pachislot machines.

Results in the first quarter of the current fiscal year showed sales of ¥5.363 billion (0.8% up YoY), operating income of ¥375 million (compared with an operating loss of ¥321 million in the same period of the previous year), ordinary income of ¥398 million (compared with an ordinary loss of ¥277 million in the same period of the previous fiscal year) and quarterly net income attributable to parent company shareholders of ¥264 million (compared with a quarterly net loss attributable to parent company shareholders of ¥211 million in the same period of the previous year).

It should be noted that we have changed the results presentation method from the first quarter of the current fiscal year so comparisons with the same quarter of the previous fiscal year have been made using the figures in the quarterly consolidated financial statements for the first quarter of the previous fiscal year after the rearrangement.

Business performance by segment is as follows.

[Information System Segment]

During the first quarter of the current fiscal year, pachinko parlor operators’ investment sentiment with regard to peripheral equipment declined due in part to the third declaration of a state of emergency in addition to the difficult market environment continuing from the previous fiscal year. In such a market environment, triggered by activities such as proposals of specific management methods for new rule pachinko machines in the “Web Seminars” for pachinko parlor operators implemented in March 2021, the number of system upgrades to “X (Kai)” AI hall computers and sales of “REVOLA” and “IL-X3” machines, information disclosure terminals that provide information on “play time” machines to fans in an easy-to-understand way, exceeded those for the same period of the previous term and trended steadily.

As a result, in this business field we recorded sales of ¥4.343 billion (5.5% up YoY) and a segment profit of ¥643 million (309.8% up YoY).

[Control System Segment]

During the first quarter of the current fiscal year, this business, the environment surrounding the game machine market was still unstable. Sales of control units for pachinko machines exceeded those for the same period of the previous year due to sales for large titles, but sales of display units and parts ended lower than those for the same period of the previous year.

As a result, in this business field we recorded sales of ¥1.022 billion (15.6% down YoY) and segment profit of ¥105 million (compared with a segment loss of ¥72 million in the same period of the previous year).

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

Explanation of Financial Position

At the end of the first quarter of the current fiscal year, total assets were ¥38.881 billion, ¥2.203 billion less than at the end of the previous consolidated fiscal year. This was because although electronically recorded claims increased under current assets, cash and deposits, and notes and accounts receivable decreased greatly, and tangible and intangible fixed assets decreased due to the recording of depreciation above their acquisition value.

Liabilities at the end of the first quarter of the current fiscal year were ¥8.333 billion, ¥2.089 billion less than at the end of the previous consolidated fiscal year, due to decreases in notes and accounts payable, the repayment of short-term loans, and decreases in accounts payable with regard to R&D expenses and software.

Our net assets at the end of the first quarter of the current fiscal year were ¥30.548 billion, ¥113 million lower than at the end of the previous consolidated fiscal year due to a decrease in retained earnings because of the recording of a quarterly net loss attributable to parent company shareholders. Shareholders’ equity ratio was 78.6% (4.0 points up from the end of the previous consolidated fiscal year).

Explanation of Earnings Forecast such as Consolidated Business Results Forecast

There will be no changes to the earnings forecasts for the second quarter of the current fiscal year and the full term that were disclosed in the earnings briefing for the term ending March 2022, dated May 13, 2021.

We will promptly disclose any revisions that need to be made to the earnings forecasts in future.

In addition, there have been no material changes to the content disclosed in the latest securities report (submitted on June 30, 2021) concerning risks that may have an impact on results.