Consolidated Operating Results for the year Ended March 31, 2020

RESULTS OF CONSOLIDATED OPERATIONS

	Net sales		Operating income		Ordinary income		Net income attributable to equities of parent
	Million yen	%	Million yen	%	Million yen	%	Million yen	%
Year ended March 31, 2020	32,922	5.6	1,431	-6.3	1,674	-4.2	1,061	-16.0
Year ended March 31, 2019	31,166	-8.6	1,527	28.1	1,748	25.8	1,263	60.9

(Note) Comprehensive income
Year ended March 31, 2020: ¥1,099 million (-11.2%)
Year ended March 31, 2019: ¥1,237 million (47.5%)

	Net income per share	Diluted net income per share	Net income to shareholders’ equity ratio	Ordinary income to total assets ratio	Operating income to net sales ratio
	Yen	Yen	%	%	%
Year ended March 31, 2020	71.79	－	3.5	3.9	4.3
Year ended March 31, 2019	85.46	－	4.3	4.0	4.9

(Reference) Equity in earnings of affiliates:
Year ended March 31, 2020: ¥－ million
Year ended March 31, 2019: ¥－ million

CONSOLIDATED FINANCIAL POSITION

	Total assets	Net assets	Shareholders’ equity ratio	Net assets per share
	Million yen	Million yen	%	Yen
Year ended March 31, 2020	42,702	30,406	71.2	2,056.84
Year ended March 31, 2019	43,729	29,898	68.4	2,022.46

(Reference) Shareholders’ equity
Year ended March 31, 2020: ¥30,406 million
Year ended March 31, 2019: ¥29,898 million

CONSOLIDATED CASH FLOWS

	Cash flows from operating activities	Cash flows from investing activities	Cash flows from financing activities	Cash and equivalents, end of period
	Million yen	Million yen	Million yen	Million yen
Year ended March 31, 2020	5,006	-1,688	-591	15,478
Year ended March 31, 2019	1,875	-2,364	-592	12,751

Dividends

	Annual dividends
	First quarter-end	Second quarter-end	Third quarter-end	Year-end	Annual
	Yen	Yen	Yen	Yen	Yen
Year ended March 31, 2019	－	10	－	30	40
Year ended March 31, 2020	－	10	－	30	40
Year ended March 31, 2021 (Forecast)	－	10	－	30	40

	Total dividends paid (annual)	Payout ratio (Consolidated)	Dividends paid to net assets (Consolidated)
	Million yen	%	%
Year ended March 31, 2019	591	46.8	2.0
Year ended March 31, 2020	591	55.7	2.0
Year ended March 31, 2021 (Forecast)		197.1

Forecast earnings for the year ending March 31, 2021

	Net sales		Operating income		Ordinary income		Net income attributable to owners of parent		Net income per share
	Million yen	%	Million yen	%	Million yen	%	Million yen	%	Yen
First half ending September, 2020	11,000	-41.0	-1,300	－	-1,250	－	-1,250	－	-84.56
Entire – year	28,000	-15.0	400	-72.1	500	-70.1	300	-71.7	20.29

Analysis of Operating Results

Operating results for this period

Although a slowing down in the improvement of corporate earnings and employment and income levels was apparent in the Japanese economy in the current consolidated fiscal year (April 1, 2019 to March 31, 2020), positive investment also continued in areas such as the production facilities of domestic companies and service infrastructure, and the economy remained on a modest upward trajectory.

However, the economic outlook continues to be unpredictable, with concerns over US-China trade friction, the impact of increased consumption taxes and economic stagnation in Japan and overseas due to the COVID-19 pandemic.

In the pachinko industry in which our Group is involved, the replacement of games machines not compliant with the new regulations and their replacement with games machines that are advanced due 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.” Although the large scale removal of games machines not compliant with the new regulations and their replacement with games machines that are advanced with the expiry of the approval for the old machines in December 2019, sales of new pachinko machines were sluggish. In addition, with the full enforcement of the revised Health Promotion Act (April 1, 2020) approaching, pachinko parlors prioritized the development of smoking rooms and were negative about investment in peripheral facilities.

According to National Police Agency statistics, the number of pachinko parlors as of the end of December 2019 was 9,639, down 421 from the previous year. The number of pachinko and pachislot machines installed was 4,195,930 in total, with reductions of 79,464 and 27,337 machines respectively. As a result, the number of installed machines per parlor increased by 7.6 to 435.3 machines. The number of parlors is still tending to decrease due to the difficult business environment, but one of the key factors in the decrease is the increasing size of the parlors themselves.

Given this market environment, in the information systems business we focused on the proposal of the new “X (Kai)” AI hall computers and promoted system upgrades for the replacement of the existing “CII” hall computers. In addition, we made efforts to expand sales, including proposing the FACE security function that combines face authentication and security in the “VEGASIA III” CR unit, and the additional mounting of a safety function on the “BiGMO PREMIUM II” and “REVOLA” information disclosure devices for cases where players (fans) leave their seats. In the control systems business, in a market environment where sales of pachinko and pachislot machines were sluggish, we worked on planning and proposal activities for pachinko machines with new pachinko features in response to the revision of the “Criteria for Interpretation of Technological Standards” enforced in January 2020, and the associated enactment of internal regulations by the Japan Pachinko Machine Industry Association. In addition, we tried to shorten development periods by streamlining development processes and promoted research on technologies and parts aimed at reducing the cost of display units and activities to extend planning and product proposals using new technologies to all pachinko machines.

Results for the current consolidated fiscal year showed sales of ¥32.922 billion (5.6% up year-on-year), operating income of ¥1.431 billion (6.3% YoY), ordinary income of ¥1.674 billion (4.2% down YoY) and quarterly net income attributable to parent company shareholders of ¥1.061 billion (16.0% down YoY).

Business results by segment are as follows.

Information System Segment

During the current consolidated fiscal year, sales of the “REVOLA” information disclosure device, which is strengthening our proposals for pachinko machines, were significantly higher than the previous fiscal year due to its strong market evaluation for sophisticated and stylish form and various contents. Although sales of the “VEGASIA” series trended strongly in the first half of the year, they fell slightly below results for the last fiscal year due to the impact of reductions in new parlors and major renovations in the second half, but they were above the sales plan. With the new “X (Kai)” AI hall computers, we promoted proposals for system upgrades from existing hall computers and also mounted a succession of new functions, but the cooling down of the market environment was severe and results fell slightly below the sales plan.

As a result, in this business field we recorded sales of ¥26.354 billion (7.7% up YoY) and a segment profit of ¥3.104 billion (13.9% up YoY).

Control System Segment

In the current consolidated fiscal year, sales of parts for pachinko machines were favorable, but we ended with very tough results, below those for the last consolidated fiscal year, in sales of display units and control units. This was due to factors such as the revision of sales plans at pachinko machine manufacturers in association with the decline in new unit sales in the market overall and an increase in the rate of reuse.

As a result, in this business field we recorded sales of ¥6.598 billion (2.1% down YoY) and a segment profit of ¥78 million (83.9% down YoY).

(Note) Business segment results include intersegment transactions.

Overview of Financial Position

Our current assets at the end of the current fiscal year were ¥26.247 billion, ¥150 million less than at the end of the previous consolidated fiscal year, due to reduced trade receivables and inventory assets despite increased cash and deposits compared to the previous consolidated fiscal year.

Fixed assets at the end of the current consolidated fiscal year were ¥16.455 billion, a decrease of ¥876 million from the end of the previous consolidated fiscal year. This was mainly due, in terms of buildings, to the replacement of aging elevators at Kasugai Division Office and the change to LED lights at Sakashita Division Office, and, in terms of software, although we acquired fixed assets through the construction of internal systems and software for products in information systems business, the recording of depreciation expenses was greater.

As a result, our total assets at the end of the current consolidated fiscal year were ¥42.702 billion, a decrease of ¥1.026 billion from the previous consolidated fiscal year.

Our liabilities at the end of the current consolidated fiscal year were ¥12.296 billion, ¥1.535 billion less than at the end of the previous consolidated fiscal year. Although accrued corporation taxes and accrued consumption taxes went up compared to the previous consolidated fiscal year, this was due to accounts payable falling because purchasing liabilities decreased greatly and the recording of R&D expenditure was low at the end of the current consolidated fiscal year.

Our net assets at the end of the current consolidated fiscal year were ¥30.406 billion, ¥508 million higher than at the end of the previous consolidated fiscal year. Earned surplus increased because the appropriated current net income attributable to parent company shareholders was large.

Based on the above, the shareholders’ equity ratio was 71.2% (2.8 points up from the end of the previous consolidated fiscal year).

Overview of Cash Flows

Cash and cash equivalents (hereinafter referred to as “cash”) at the end of the consolidated fiscal year amounted to 12.751 billion yen, a decrease of 1,080 million yen from the end of the previous consolidated fiscal year.

The situation of each cash flow for the consolidated fiscal year is as follows:

(Cash flows in operating activities)
Funds obtained from operating activities were ¥5.006 billion (income of ¥1.875 billion in the same period of the previous year). The main factors on the revenue side included net income before taxes and other adjustments of ¥1.570 billion, depreciation of ¥2.212 billion and a decrease in accounts receivable of ¥1.814 billion, although on the expenditure side there was a decrease of ¥1.475 billion in purchasing liabilities and the payment of ¥342 million in corporation tax, etc.

(Cash flows in investment activities)
Funds used in investing activities were ¥1.688 billion (expenditure of ¥2.364 billion in the same period of the previous year). This was mainly due to expenditures for the acquisition of equipment for the construction of internal systems and fixed assets such as software and product software.

(Cash Flows in financing activities)
Funds used in financing activities were ¥591 million (expenditure of ¥592 million in the same period of the previous year). This was mainly due to the payment of dividends.

Future outlook

The future outlook is increasingly uncertain because of the existence of risks whose impacts are difficult to predict, such as the stagnation of economic activity due to the global spread of COVID-19 infections and trends in personal consumption resulting from self-restraint on going out, as well as the impact on personal consumption of the consumption tax hike last year.

In the pachinko industry that our group is involved in too, requests have been made to close pachinko parlors and some have shortened operating hours to prevent the spread of COVID-19 infections, so the outlook continues to be uncertain, including when the pandemic will end. In addition, we planned to remove all of the pachinko and pachislot machines on the market approved under the old regulations by the end of January 2021, but it was decided to extend the deadline for the removal of those machines from the perspective of preventing the spread of COVID-19 infections in association with machine replacement. Meanwhile, in association with the revision of the “Criteria for Interpretation of Technological Standards” enforced in January 2020, the emergence of game machines with various gameplay characteristics is hoped for. In particular, the stimulation of demand for the replacement of game machines is expected because game machines with new game features (“play time,” etc.) will be released as a consequence of the internal regulations of the Japan Pachinko Machine Industry Association.

Given this situation, in the information systems business we will focus on the proposal of the new “X (Kai)” AI hall computers and promote system upgrades for the replacement of existing hall computers. In addition, we will strive to contribute to the results of pachinko parlor operators by bringing to the market products incorporating various, hitherto unseen content corresponding to amusement characteristics, such as “play time,” and will promote the widespread use of the “Market-SIS” commercial area analysis service. However, partly due to the impacts of the requests to close pachinko parlors, our customers, and shorter business hours, we are expecting sales of ¥21.0 billion (20.3% down YoY) and segment profit of ¥1.7 billion (45.2% down YoY).

In control systems business, we will review our development structure and further improve business efficiency. We will also utilize the hardware and software technologies we have cultivated to date to undertake the contract development of pachislot machines and expand the business areas of products sold, and promote anticipatory planning and proposal activities in the market, which will see a complete transition to machines compliant with the new regulations. By doing this, we are expecting sales of ¥7.0 billion (6.1% up YoY) and segment profit of ¥600 million (664.4% up YoY).

Based on the above, as the consolidated results forecast for the full term ending March 2021, we are expecting sales of ¥28.0 billion (15% down YoY), operating income of ¥400 million (72.1% down YoY), ordinary income of ¥500 million (70.1% down YoY) and net income attributable to parent company shareholders of ¥300 million (71.7% down YoY). Although there is a very strong sense of uncertainty over the future, the company wants to make complete, anticipatory efforts even after the COVID-19 pandemic has come to an end while responding flexibly to changes in the situation.

With regard to the forecast above, we are expecting a large decrease in sales and profits until the second quarter due to requests to close pachinko parlors and other factors that will exert a major impact on our group. Although it is still unclear at this time, we have prepared the full-term results forecasts for the third quarter and beyond assuming that the pachinko industry market environment will return gradually to normal.

These forecasts may change in the future depending on various factors such as when COVID-19 infections will settle down, but if there are any matters that we should disclose from now on, we will do so promptly.

* Important notice concerning forecasts Forecasts in this report are determined on the basis of information available at the time the report was prepared, and may thus contain potential risks and uncertainties. As for business performance, the Group will continuously collect and analyze data. If the earnings forecast must be revised, the Group will immediately announce the revision.

Basic Approach to Selection of Accounting Standards

The company considers the return of profits to shareholders while increasing corporate value to be the most important management issue and our basic policy is to pay a stable dividend, taking comprehensive account of matters such as the business environment, profit situation and dividend payout ratio. Our basic policy on dividends of the company’s surplus is to pay interim and year-end dividends twice a year and the decision-making body for both is the Board of Directors.

With regard to dividends for the current term (term ended March 2020), we paid a year-end dividend of ¥30 for a total dividend in combination with the interim dividend (¥10) of ¥40 per share in order to return profits to shareholders

With regard to dividends for the next term (term ending March 2021), we are planning to pay an interim dividend of ¥10 and a year-end dividend of ¥30, the same as the current term, for a full-year dividend of ¥40 per share under the basic policy described above.

In the pachinko industry that our group is involved in, the outlook is uncertain, including the impacts of COVID-19 infections and the extension of the deadline for the removal of pachinko and pachislot machines approved under the old regulations. The company wants to emphasize dividends as a means of distributing profits to shareholders and so is continuing to work to reduce costs and considering a review of the shareholder benefit program implemented since September 2015.