Consolidated Operating Results for the year Ended March 31, 2021

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, 2021	23,228	-29.4	490	-65.7	986	-41.1	612	-42.3
Year ended March 31, 2020	32,922	5.6	1,431	-6.3	1,674	-4.2	1,061	-16.0

(Note) Comprehensive income
Year ended March 31, 2021: ¥847 million (-22.9%)
Year ended March 31, 2020: ¥1,099 million (-11.2%)

	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, 2021	41.44	－	2.0	2.4	2.1
Year ended March 31, 2020	71.79	－	3.5	3.9	4.3

(Reference) Equity in earnings of affiliates:
Year ended March 31, 2021: ¥－ million
Year ended March 31, 2020: ¥－ million

CONSOLIDATED FINANCIAL POSITION

	Total assets	Net assets	Shareholders’ equity ratio	Net assets per share
	Million yen	Million yen	%	Yen
Year ended March 31, 2021	41,084	30,662	74.6	2,074.16
Year ended March 31, 2020	42,702	30,406	71.2	2,056.84

(Reference) Shareholders’ equity
Year ended March 31, 2021: ¥30,662 million
Year ended March 31, 2020: ¥30,406 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, 2021	3,396	-2,242	-891	15,739
Year ended March 31, 2020	5,006	-1,688	-591	15,478

Dividends

	Annual dividends
	First quarter-end	Second quarter-end	Third quarter-end	Year-end	Annual
	Yen	Yen	Yen	Yen	Yen
Year ended March 31, 2020	－	10	－	30	40
Year ended March 31, 2021	－	10	－	30	40
Year ended March 31, 2022 (Forecast)	－	10	－	30	40

	Total dividends paid (annual)	Payout ratio (Consolidated)	Dividends paid to net assets (Consolidated)
	Million yen	%	%
Year ended March 31, 2020	591	55.7	2.0
Year ended March 31, 2021	591	96.5	1.9
Year ended March 31, 2022 (Forecast)		95.4

Forecast earnings for the year ending March 31, 2022

	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, 2021	12,000	8.5	200	－	270	－	175	－	11.84
Entire – year	26,000	11.9	850	73.2	1,000	1.3	650	6.1	43.97

Analysis of Operating Results

Operating results for this period

The Japanese economy during the current consolidated fiscal year (April 1, 2020 to March 31, 2021) deteriorated rapidly due to the stagnation and shrinkage of economic activity inside and outside Japan in association with the spread of COVID-19 infections. After the first declaration of a state of emergency was lifted in May 2020, the economy showed a gradual recovery trend, but the number of infected people increased again from November of the same year, and a second state of emergency was declared in January 2021. The recovery of economic and social activities has been slow and the future remains uncertain.

In the pachinko industry that our group is involved in, pachinko parlors were closed or opened for shorter hours in April 2020 to prevent the spread of COVID-19 infections and the operation of game machines fell sharply at the beginning of the fiscal year, but recovered from July to approximately 80% compared to the same month of the previous year (comparison using the company’s “DK-SIS” data). However, it seems that it the full-scale recovery of operations will take some time while concerns about the renewed spread of infections persist.

With regard to the replacement of old machines with those produced under the new rules in the game machine market, companies are taking a cautious stance over the purchase of new rule machines due to the partial extension of the installation deadline under the revised game machine regulations in May 2020. As of the end of March 2021, the rate of progress of replacement with new rule machines was 65% as several hit models appeared and “play time” machines, which have gained a new fan base, were also introduced. However, the rate of progress for pachislot machines, where the operation of new rule machines has grown slowly, was sluggish at 50% (in-house research). Systematic replacement is required from now on, partly because there is now less than one year until the time limit for the installation of old regular-type machines. With regard to the trend in capital investment in pachinko parlors, many capital investment plans for new stores and large-scale renovations were canceled or postponed because of concerns over the spread of infections, and conditions remained very difficult.

In such a difficult market environment, our group worked to strengthen its earnings base by thoroughly reducing costs through measures such as workstyle reform, work reform and reviews of outsourcing costs as part of structural reforms aimed at sustainable growth.

In the information systems business, in addition to proposal-based sales of major products to pachinko parlor management companies, we held a “Web Exhibition & Seminar” for those companies in September 2020 in an industry-first online format. More than double the number of pachinko parlor management companies participated than the average year. At the second “Web Seminar” held in March 2021, we explained the checkpoints that lead to improved results for pachinko parlor management companies and proposed specific management methods.

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, the customers of this business, have been cautious about starting on the development of new titles due to the stagnation of the market environment in association with the spread of infections, and have reviewed their schedules or reduced the scale of development. In line with this trend, we undertook small-scale contract development positively and worked on the redistribution of resources and reviews of processes.

As a result, cumulative results for the current consolidated fiscal year showed sales of ¥23.228 billion (29.4% down YoY), an operating profit of ¥490 million (65.7% down YoY), an ordinary profit of ¥986 million (41.1% down YoY) and a quarterly net profit attributable to parent company shareholders of ¥612 million (42.3% down YoY).

Business results by segment are as follows.

Information System Segment

In the current consolidated fiscal year under review, the capital investment plans of pachinko parlor management companies were reviewed under the impact of the spread of COVID-19 infections and the market environment became difficult, with many new stores and renovations being postponed or canceled, resulting in a significant drop in sales of the core products of this business compared to the previous consolidated fiscal year. In such circumstances, multiple hit models of pachinko machines appeared and the introduction of “play time” machines, which have gained a new fan base, also advanced so there was increased capital investment in pachinko machines at pachinko parlors, and sales of the “REVOLA” and “IL-X3” information disclosure terminals, which provide information on “play time” machines to fans in an easy-to-understand way, have been steady since the year-end shopping season, with various proposals in “Web Exhibition & Seminar” also a success. In conjunction with this move, the number of system upgrades to the “X (Kai)” AI hall computers for the purpose of “play time” machine data management progressed to about 90% compared to the same period of the previous year. We made thoroughgoing efforts to reduce expenses, such as reducing travel and transportation expenses by using the internet, reviewing the details of development, and compressing outsourcing costs.

As a result, in this business field we recorded sales of ¥17.462 billion (33.7% down YoY) and a segment profit of ¥1.939 billion (37.5% down YoY).

Control System Segment

In the current consolidated fiscal year under review, game machine manufacturers postponed sales of new titles, partly because the recovery of pachinko parlor operations was slow, and pachinko machine sales in the market as a whole decreased greatly. In this business, sales of parts exceeded the previous consolidated fiscal year, but sales of display units and control units fell below those for the previous consolidated fiscal year.

As a result, in this business field we recorded sales of ¥5.775 billion (12.5% down YoY) and a segment loss of ¥15 million (compared with a segment profit of ¥78 million in the same period of the previous year).

(Note) Business segment results include intersegment transactions.

Overview of Financial Position

With regard to total assets as of the end of the current consolidated fiscal year under review, trade receivables and other operating receivables decreased significantly compared to the end of the previous consolidated fiscal year, partly because the impacts associated with the spread of COVID-19 infections were so great. In addition, because we made efforts to refrain from large capital investments in consideration of the fact that the impact of COVID-19 infections is uncertain, the recording of depreciation expenses was greater than investment, resulting in total assets decreasing to ¥41.084 billion, ¥1.617 billion less than at the end of the previous consolidated fiscal year.

With regard to liabilities as of the end of the current consolidated fiscal year under review, because the group made efforts to reduce various costs, including work reforms and reviews of outsourcing costs based on the point that there are concerns over the renewed spread of COVID-19 infections, accounts payable, etc., decreased. Further, income taxes payable, etc., decreased in association with the decline in business results. As a result, liabilities decreased to ¥10.422 billion, ¥1.873 billion less than at the end of the previous consolidated fiscal year.

Net assets as of the end of the current consolidated fiscal year under review were ¥30.662 billion, ¥255 million more than at the end of the previous consolidated fiscal year, because it was possible to record net income attributable to owners of the parent 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).

Overview of Cash Flows

Cash and cash equivalents (hereinafter referred to as “funds”) at the end of the current consolidated fiscal year under review increased by ¥261 million to ¥15.739 billion compared to 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 ¥3.396 billion (revenue of ¥5.006 billion in the same period last year). The main factors in expenditures included a decrease in accounts payable of ¥229 million yen and corporate tax payments of ¥412 million yen, and in income included net income before taxes and minority interests of ¥977 million yen, depreciation costs of ¥1.967 billion yen, and a decrease in accounts receivable of ¥1.457 billion yen.

(Cash flows in investment activities)
Funds used due to investment activities were ¥2.242 billion (expenditure of ¥1.688 billion in the same period last year). In breakdown, the main elements were expenditures due to the acquisition of fixed assets such as software for version upgrades related to existing products, and expenditures due to the acquisition of investment securities for purposes of fund management.

(Cash Flows in financing activities)
Funds used due to financing activities were ¥891 million (expenditure of ¥591 million in the same period last year). In breakdown, the main elements were payments due to the repayment of long-term borrowings and the payment of dividends.

Future outlook

The impact of COVID-19 infections has been prolonged and due to various regulations being implemented as measures to prevent infection, the impact on business due to the restriction of economic activities continues to be large and there is a risk that forecasts of that impact will be difficult. In the pachinko industry that our group is involved in, the operation of pachinko parlors, which fell due to the spread of infections, is expected to increase slowly, and the number of pachinko machines sold is also expected to head towards recovery. But, the situation is still unstable. However, it is expected that the game machine market will be revitalized due to the gradual replacement of old rule machines with new rule machines by the installation deadline of the end of January 2022 alongside the declining spread of COVID-19 infections and the decline in anxiety over infections due to the strengthening of infection countermeasures. In addition, it seems that the environment for pachinko parlor management companies from February 2022 on will make it easier for them to engage in capital investments in new stores and large-scale renovations because differences in results between stores due to their model composition will disappear.

In such circumstances, in addition to various ongoing measures, the company is reorganizing its structure to adapt to changes in the market environment as part of its efforts aimed at structural reform during the next term (term ending March 2022).

In the information systems business, we will support an environment in which fans who have not visited stores so much in association with the expansion of COVID-19 infections can play with peace of mind through our group’s facilities and services, and, grasping the ability of pachinko parlor results to recover to their pre-pandemic levels as a priority issue, we will aim for the promotion of the diffusion of “X (Kai)” AI hall computers that will realize improvements in the results of pachinko parlor management companies, and the realization of management support services that enable floor operations with few parlor staff. As our forecast for the next term, we expect sales of ¥19.5 billion (11.7% up YoY) and a segment profit of ¥1.85 billion (4.6% down YoY). The main reason for the expected decrease in profits is investment in development for the future.

In the control systems business, we implemented a significant reorganization to improve profitability from next term. From now on, we will strive to reduce development costs by further strengthening development management and improving business efficiency, and promote the expansion of business areas through the contract development and manufacture of pachislot machines in addition to existing pachinko machines. As our forecast for the next term, we expect sales of ¥6.5 billion (12.5% up YoY) and a segment profit of ¥600 million (segment loss of ¥15 million in the same period of the previous year).

In addition to the above, due to thoroughgoing expense management by the group overall, as our forecast of our full-term consolidated results for next term, we expect sales of ¥26.0 billion yen (11.9% up YoY), operating income of ¥850 million yen (73.2% up YoY), ordinary income of ¥1 billion yen (1.3% up YoY) and net income attributable to owners of the parent of ¥650 million yen (6.1% up YoY).

With regard to the above results forecast, the future remains uncertain with the declaration of a state of emergency for the third time in April 2021, but we will respond flexibly to changes in the situation and make every effort in anticipation of the containment of COVID-19 infections. Fluctuations may occur in the future due to various factors such as the timing of containment of infections, but we will disclose any matters that should be disclosed promptly as they arise.

* 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 2021), 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 2022), 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.