Business results for the second quarter of the year ending March 31, 2020

Operating results

(Note) Comprehensive income
Second quarter of the year ended March 31, 2020: ¥911 million (47.0%)
Second quarter of the year ended March 31, 2019: ¥620 million (89.7%)

Financial position

(Reference) Shareholders’ equity
Second quarter of the year ended March 31, 2020: ¥30,366 million
Year ended March 31, 2019: ¥29,898 million

Dividends

Forecast earnings for the year ending March 31, 2020

Qualitative Information Regarding the Consolidated Results for the second Quarter

Explanation of Operating Results

The Japanese economy in the second quarter of the current fiscal year remained on a modest upward trajectory amid continually improving employment and income levels.

However, the economic outlook remains unpredictable due to economic uncertainty abroad, including fears of trade friction resulting from US protectionist policies, prospects for the Chinese economy, and so on.

In the pachinko industry in which our Group is involved, conditions remain challenging due to the increasing trend to limit capital investment in new stores, major renovations etc. This trend is in response to the “Partial Revision of the Regulations Enforcing the Act on Control and Proper Operation of Businesses Affecting Public Morals and the Regulations Concerning Certification and Model Approval for Amusement Machines”, the “Basic Act on Measures Against Gambling Addition”, and the “Revised Health Promotion Act” which strengthens measures against passive smoking.

Given this market environment, in the information systems business we promoted system upgrades, proposing the replacement of the existing “CII” hall computers with the new “X (Kai)” AI hall computers released in June.

While promoting sales of “VEGASIA III” CR units with FACE security functions combining face recognition and security, and continuing to offer “BiGMO PREMIUM II” information terminals for fans with special content compatible with the hit model No.6 type pachislot machines, we also promoted the spread of our “Market-SiS” trading area analysis service showing the customer status in the surrounding area.

In July, we announced the 2019 edition of the “DK-SIS White Paper” (2018 data), which is in its 16th year this year. The paper is a collection and analysis of business data from about 1.47 million units transmitted daily from pachinko halls. It is therefore used by people in the industry as an index showing the state of the ever-changing pachinko industry and future behavior predictions.

In the control systems business, we promoted activities to extend planning and product proposals using new technologies to all pachinko machines. For example, we kept trying to make quality improvements alongside development cost cuts by streamlining the development process, and tried to form alliances with companies that have technical expertise.

Results in the second quarter of the current fiscal year showed sales of ¥18.643 billion (31.0% up year-on-year), operating income of ¥1.302 billion (49.3% up YoY), ordinary income of ¥1.421 billion (41.4% up YoY) and quarterly net income attributable to parent company shareholders of ¥912 million (43.1% up YoY).

Segment results are as follows.

[Information System Segment]

In the second quarter in this business field, “VEGASIA III” CR units, whose security functions continue to be highly rated, and “BiGMO PREMIUM II” and “REVOLA” information terminals for fans, which continue to be installed in major companies, performed much better year-on-year. This was in spite of fewer new store openings and major renovations, the limiting of withdrawal deadlines to the end of the year due to certification expiration of the main pachislot models, and difficult market conditions that continue to suppress the appetite for capital investment.

The replace to “X (Kai)” AI hall computers also progressed steadily.

As a result, in this business field we recorded sales of ¥14.908 billion (34.6% up YoY) and a segment profit of ¥2.309 billion (65.0% up YoY).

[Control System Segment]

In the second quarter in this business field, conditions were difficult as profits fell significantly. While sales of control units and parts for pachinko machines used with major titles were favorable, sales of display units declined year-on-year.

As a result, in this business field we recorded sales of ¥3.75 billion (18.2% up YoY) but a segment loss of ¥66 million (compared with a segment profit of ¥335 million in the previous fiscal year).

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

Explanation of Financial Position

Regarding our total assets at the end of the second quarter, tangible fixed assets and intangible fixed assets fell due to reduced inventory assets and reduced accounts receivable accompanying the collection of proceeds from development, and substantial depreciation costs of fixed assets. However, cash and deposits were up due to favorable sales. As a result, our total assets were ¥43.888 billion, an increase of ¥159 million from the previous consolidated fiscal year.

Our liabilities at the end of the second quarter were ¥13.522 billion, ¥309 million less than at the end of the previous fiscal year. Accrued corporation taxes went up due to positive operating results, but R&D expenditure and software related accounts payable went down.

Our net assets at the end of the second quarter were ¥30.366 billion, ¥468 million higher than at the end of the previous fiscal year. Earned surplus increased because appropriated quarterly net income attributable to parent company shareholders was greater than dividend payments. Shareholders’ equity ratio was 69.2% (0.8 points up from the end of the previous fiscal year).

Explanation of Earnings Forecast such as Consolidated Business Results Forecast

Results in the second quarter of the current fiscal year were favorable compared with initial forecasts, but the full-year results forecast figures remain as they were at the start of the fiscal year.

The information systems business is expected to remain strong in the second half of the year, but in the control systems business the outlook remains unpredictable. For example, sales of display units for our company’s pachinko machines will be impacted by the replacement of old-regulation pachislot machines, whose certification will expire, with new-regulation models. Taking these circumstances into account, there has been no revision of our full-year results forecast announced on May 14, 2019.

If a revision is required in future, it will be released promptly.