Business results for the second quarter of the year ending March 31, 2021

Operating results

(Note) Comprehensive income
Second quarter of the year ended March 31, 2021: ¥-39 million (-%)
Second quarter of the year ended March 31, 2020: ¥911 million (47.0%)

Financial position

(Reference) Shareholders’ equity
Second quarter of the year ended March 31, 2021: ¥29,923 million
Year ended March 31, 2020: ¥30,406 million

Dividends

Forecast earnings for the year ending March 31, 2021

Qualitative Information Regarding the Consolidated Results for the second Quarter

Explanation of Operating Results

The Japanese economy to the end of the second quarter of the current fiscal year (April 1 to September 30, 2020) saw economic activity stagnate in Japan and overseas due to the impact of expanding COVID-19 infections. Although some personal consumption began to recover following the lifting of the emergency declaration, partly due to the effects of the government’s economic measures, the pace of economic recovery was slow due to concerns about the spread of COVID-19 infections, and the situation continued to be extremely difficult.

In the pachinko industry that our group is involved in, the state of operation of pachinko halls in September 2020 recovered to about 80% (our company’s “DK-SIS” data comparison) of that for the same month last year, but the recovery trend, which continued after the emergency declaration was lifted, also seems to have reached a plateau, and the trend of returning fans (gamers) has slowed.

Pachinko parlor management companies continue to be cautious with regard to the replacement of old pachislot machines with those produced under the new rules, due to the partial extension of the time limit for the removal of the old machines. However, with the revision of the “Criteria for Interpretation of Technological Standards” enforced in January 2020 and the associated enactment of internal regulations by the Japan Game Machine Industry Association, game machines with new game features (“play time,” etc.) have gradually been introduced into the market, and high-capacity pachinko machines have also begun to appear. The stimulation of future game machine replacement demand is expected as a result.

Given this market environment, in the information systems business we implemented proposals of the new “X (Kai)” AI hall computers released in June last year and promoted system upgrades for the replacement of the existing “CII” hall computers.

In July, we held a press conference to announce the publication of the 2020 edition of the “DK-SIS White Paper” (2019 data), which marked its 17th anniversary this year. In this report, we compile and analyze operating data from about 1.47 million machines sent daily from pachinko parlors, and present the annual results of analysis. It is used by industry stakeholders as an index in their efforts to perceive the future.
In addition, we held the industry’s first online format “MIRAIGATE 2020 Web Exhibition & Seminar,” with more than twice the number of pachinko parlor management company participants than the average year. During the seminar, we proposed improvement measures that will lead to the improvement of results, such as optimal data display for pachinko machines equipped with the “play time” feature and COVID-19 infection countermeasures that will provide fans with a sense of security.

In the control systems business, we promoted contract development of pachislot machines and activities to expand the business areas of the products we sell, and made efforts in research and study on technologies and parts aimed at reducing the cost of display units. Game machine manufacturers, our customers in this business, are gradually relaxing their COVID-19 infection countermeasures, including leave and telecommuting, and have begun the full-fledged development of pachinko machines with new game features such as “play time.” In line with this trend, we worked actively in this business to redistribute resources and review processes in order to minimize the impact on sales schedules.

As a result, cumulative results in the second quarter of the current fiscal year showed sales of ¥11.060 billion (40.7% down YoY), an operating loss of ¥224 million (compared with operating income of ¥1.302 billion in the same period of the previous year), an ordinary loss of ¥18 million (compared with ordinary income of ¥1.421 billion in the previous fiscal year) and a quarterly net loss attributable to parent company shareholders of ¥48 million (compared with quarterly net income attributable to parent company shareholders of ¥912 million in the same period of the previous year).

Segment results are as follows.

[Information System Segment]

During the period to the end of the second quarter of the current fiscal year in this business, in the midst of the COVID-19 pandemic, the environment for pachinko parlor management companies changed drastically due to the prolonged suspension of business and the deepening trend towards the loss of fans, and the willingness to engage in capital investment declined massively. In addition, the market environment was extremely difficult, as the timing of capital investment was postponed due to the partial extension of the time limit for the removal of old games machines. In such a market environment, segment profit in this business exceeded the initial forecast significantly because we held online exhibitions and seminars, utilized mobile devices and made other efforts to reduce expenses.

As a result, in this business field we recorded sales of ¥8.206 billion (45.0% down YoY) and a segment profit of ¥540 million (76.6% down YoY).

[Control System Segment]

During the period to the end of the second quarter of the current fiscal year in this business, sales of new titles by game machine manufacturers were postponed due to the suspension of business operations and shorter operating hours at pachinko halls to prevent the spread of COVID-19 infections, and the number of pachinko machines sold in the market as a whole declined greatly. In this business, sales of display units, control units and parts all fell below those for the same period last year.

As a result, in this business field we recorded sales of ¥2.858 billion (23.8% down YoY) and a segment loss of ¥5 million (compared with a segment loss of ¥66 million in the same period of the previous fiscal year).

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

Explanation of Financial Position

As for our total assets at the end of the second quarter of the current fiscal year, operating receivables such as accounts receivable decreased significantly due to our inability to conduct sales activities as before, even after the lifting of the emergency declaration associated with the spread of COVID-19 infections. In addition, based on the uncertain impact of new COVID-19 infections, we reviewed plans for capital investment, etc., and recorded a lot of depreciation expenses. The resulting decrease in tangible and intangible fixed assets meant that total assets were ¥40.285 billion, ¥2.416 billion less than at the end of the previous consolidated fiscal year.

Our liabilities at the end of the second quarter of the current fiscal year were ¥10.362 billion, ¥1.934 billion lower than at the end of the previous consolidated fiscal year because purchasing liabilities and other outgoings decreased due to a revision of purchasing plans and development plans in light of the uncertain impact of COVID-19 infections.

Our net assets at the end of the second quarter of the current fiscal year were ¥29.923 billion, ¥482 million lower than at the end of the previous consolidated fiscal year due to the payment of year-end dividends and other factors. Shareholders’ equity ratio was 74.3% (3.1 points up from the end of the previous consolidated fiscal year).

Explanation of Earnings Forecast such as Consolidated Business Results Forecast

Among our group’s results for the period to the end of the second quarter of the current fiscal year, sales were in line with the initial forecast, but as a result of holding online exhibitions and seminars, utilizing mobile devices and other efforts to reduce expenses, profit improved significantly over the initial forecast.

In the pachinko industry that our group is involved in, business resumed gradually in mid-May following voluntary suspensions of business to prevent the spread of new COVID-19 infections. In September, the state of operation of pachinko halls recovered to about 80% of that for the same month last year, but the recovery trend seems to have reached a plateau, and the trend of returning fans has slowed. Concerns about the spread of COVID-19 infections have continued into the third quarter too, and there is no prospect of an end to the pandemic at this time. The impact it will have on our group’s future business results remains uncertain.

Under these circumstances, we have not revised our full term consolidated earnings forecasts for the fiscal year ending March 2021 from the figures announced on May 21, 2020. We will promptly disclose any revisions that need to be made to the earnings forecasts based on future industry trends.