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

Operating results

(Note) Comprehensive income
Third quarter of the year ended March 31, 2021: ¥533 million (-58.4%)
Third quarter of the year ended March 31, 2020: ¥1,282 million (-2.6%)

Financial position

(Reference) Shareholders’ equity
Third quarter of the year ended March 31, 2021: ¥30,348 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

1. Analytical Review of Operating Results

The Japanese economy to the end of the third quarter of the current fiscal year (April 1 to December 31, 2020) deteriorated significantly due to the stagnation and shrinkage of economic activity in Japan in association with the spread of COVID-19 infections. After the lifting of the declaration of a state of emergency in May, social and economic activities resumed gradually, partly as a result of the government’s economic measures, and there were signs of a gradual recovery. However, there are still concerns of impacts on the economy due to the third wave of COVID-19 infections and the future remains uncertain.

In the pachinko industry that our group is involved in, operations at pachinko parlors fell sharply at the beginning of the fiscal year due to the spread of COVID-19 infections, but operations recovered from July to approximately 80% compared to the same month of the previous year. However, we have not reached the state of operations prior to the COVID-19 disaster and the return of fans (players) has been limited.

With regard to the state of operations by type from October onward, while the operation of pachinko parlors overall has declined due to the third wave of COVID-19 infections, the introduction of models equipped with “play time,” which have gained a new fan base due to a wider range of game characteristics, has advanced, and operations have been maintained at about 80% compared to the same month of the previous year. However, the removal of the popular old standard pachislot machines was largely completed around the year end-new year period, and operations from November on have tended to decline (company “DK-SIS” data comparison).

As for the state of capital investment in pachinko parlors, amid growing concerns over the spread of COVID-19 infections starting again, there is more caution over new store openings, large-scale renovation work and other capital investment.

Business operators continue to be cautious with regard to the replacement of pachislot machines, due to the partial extension of the time limit for the removal of the old machines and the resumed spread of COVID-19 infections. However, since pachinko machines equipped with “play time” are being introduced successively to the market as major titles by various manufacturers, it is expected that replacement demand for pachinko machines will be stimulated from now on.

Given this market environment, in the information systems business we released new functions for pachinko machines equipped with “play time,” whose introduction to pachinko halls is advancing, and endeavored to promote replacement by expanding sales of the “BiGMO PREMIUM” and “REVORA” information terminals for fans and “X (Kai)” AI hall computers, and system upgrades. In addition to adding a new function on information terminals for fans that provides information on the state of cleanliness and disinfection at a glance as a measure against infection at pachinko halls during the COVID-19 pandemic, we released new functions that contribute to the improvement of fan convenience in the POS systems at self-service counters, eliminating contact between fans and hall staff and leading to personnel and labor savings. We will continue to strengthen measures against infections at pachinko parlors.

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. The game machine manufacturers who are our customers in this business have begun the full-fledged development of pachinko game machines with new amusement features such as “play time,” but they have taken a cautious stance towards starting on the development of new titles. 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 third quarter of the current fiscal year showed sales of ¥17.907 billion (33.9% down YoY), an operating profit of ¥514 million (71.6% down YoY), an ordinary profit of ¥831 million (down 58.1% YoY) and a quarterly net profit attributable to parent company shareholders of ¥519 million (down 59.3% YoY).

Business results by segment

Information System Segment

During the period to the end of the third quarter of the current fiscal year in this business, in the midst of the COVID-19 pandemic, we received the support of many pachinko parlor management companies for proposals such as countermeasures against COVID-19 infections and optimum data display for pachinko machines equipped with “play time” at the “MIRAIGATE 2020 Web Exhibition & Seminar,” which was held in September in an industry-first online format, and system upgrades of “X (Kai)” AI hall computers and the introduction of information terminals for fans trended steadily from October onwards.

However, in the shopping battle at the end of the year, which is always a peak season every year, concerns over the renewed spread of COVID-19 infections expanded, and many new pachinko parlor plans and renovations were postponed or canceled. The capital investment of pachinko parlor management companies turned around and they took a cautious stance so sales of CR units and information terminals for fans were below those for the same period of last year.

As a result, in this business field we recorded sales of ¥13.756 billion (37.6% down YoY) and a segment profit of ¥1.698 billion (47.9% down YoY).

Control System Segment

During the period to the end of the third quarter of the current fiscal year in this business, sales of new titles by game machine manufacturers were postponed, partly because the recovery following the suspension of business operations and shorter operating hours at pachinko halls from April to May to prevent the spread of COVID-19 infections was sluggish, and the number of pachinko machines sold in the market as a whole declined greatly. In this business, sales of parts were at the same level as the previous year, but sales of display units and control units fell below those for the same period last year.

As a result, in this business field we recorded sales of ¥4.155 billion (18.0% down YoY) and a segment loss of ¥85 million (compared with a segment loss of ¥80 million in the same period of the previous fiscal year).

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

2. Analytical Review of Financial Position

With regard to total assets at the end of the third quarter of the current fiscal year, although there were impacts in association with the spread of COVID-19 infections, accounts receivables increased significantly during the period due to support for exhibitions and seminars held on the web in September, but partly because results were sluggish to the end of the second quarter of the current fiscal year, bills receivable and electronically recorded monetary claims decreased. In addition, because the recording of depreciation expenses was above last year due to refraining from large capital investment based on the state of concerns over the renewed spread of COVID-19 infections, total assets were ¥40.672 billion, ¥2.029 billion less than at the end of the previous consolidated fiscal year.

As for liabilities at the end of the third quarter of the current fiscal year, due to careful purchase planning based on concerns over the renewed spread of COVID-19 infections, accounts payable decreased significantly. In combination with this, due to efforts to reduce necessary expenses, other accrued payments also decreased. As a result, liabilities decreased ¥1.971 billion compared to the end of the previous consolidated fiscal year to ¥10.324 billion.

Net assets at the end of the third quarter of the current fiscal year decreased by ¥57 million from the end of the previous fiscal year to ¥30.348 billion, partly because of relatively good business results in the third quarter of the current fiscal year and despite the payment of interim dividends.
Shareholders’ equity ratio was 74.6% (3.4 points up from the end of the previous consolidated fiscal year).

3. Explanation of Earnings Forecast such as Consolidated Business Results Forecast

There are no changes to the full term results forecast for the fiscal year ending March 2021 from the figures disclosed on May 21, 2020.

While the third wave of COVID-19 infections continues to expand, the impact of infections on social and economic activities remains uncertain, as do trends in capital investment by pachinko parlor management companies and plans to replace game machines. We will promptly disclose any revisions that need to be made to the earnings forecasts based on future economic conditions as well as personal consumption and industry trends.