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Consolidated business results for the Year Ended March 31, 2018 (April 1, 2017 to March 31, 2018)

Operating Results (Percentage figures denote YoY changes.)

(Unit: Millions of yen) Year ended March 31, 2017 Year ended March 31, 2018 YoY Change %
Net sales 76,668 61,055 (20.4)
Operating profit (5,374) (5,738) -
Ordinary profit (9,068) (5,204) -
Profit attributable to owners of parent (12,483) (7,691) -

Consolidated Balance Sheets (summary)

(Unit: Millions of yen) Fiscal year ended March 31, 2017
(March 31, 2017)
Fiscal year ended March 31, 2018
(March 31, 2018)
Increase /
Decrease
Assets
Total current assets 45,856 42,651 (3,205)
Total non-current assets 34,540 29,706 (4,834)
Total assets 80,397 72,357 (8,040)
Liabilities
Total current liabilities 20,475 22,480 2,005
Total non-current liabilities 16,694 14,367 (2,327)
Total liabilities 37,170 36,847 (322)
Net assets
Total net assets 43,227 35,509 (7,718)
Total liabilities and net assets 80,397 72,357 (8,040)

*"Increase/Decrease" is calculated as the other items deducted from the total figure on this sheet.

Consolidated Statement of Cash Flows (summary)

(Unit: Millions of yen) Fiscal year ended March 31, 2017
(April 1, 2016 – March 31, 2017)
Fiscal year ended March 31, 2018
(April 1, 2017 – March 31, 2018)
Increase /
Decrease
Cash flow from operating activities (7,319) (1,094) 6,224
Cash flow from investing activities (3,927) 4,399 8,326
Cash flow from financing activities 2,136 (2,021) (4,157)
Effect of exchange rate change on cash and cash equivalents 0 (0) (0)
Net increase (decrease) in cash and cash equivalents (9,109) 1,282 10,392
Cash and cash equivalents at beginning of period 32,200 23,090 (9,109)
Cash and cash equivalents at end of period 23,090 24,373 1,282

*"Increase/Decrease" is calculated as the other items deducted from the total figure on this sheet.



Overview of operating results

1. Overview of operating results for the year ended March 31, 2018 (April 1, 2017 to March 31, 2018)

(1) Overview

In the fiscal year under review, in the pachinko/pachislot (hereafter, PS) industry, manufacturers’ development and sales schedules and the appetite for purchasing PS machines for pachinko halls were greatly affected by the "Amendment of the Regulation for Enforcement of the Amusement Businesses Law,*" which came into effect on February 1, 2018. Consequently, in the PS machines market the total sales volume of PS machines for the fiscal year amounted to 2,080,000 machines (down 400,000 YoY), according to our research.
In that market environment, results proceeded generally according to plan by the nine months ended December 31, 2017. However, as indicated in the "Notification of Revisions to Performance Forecast" dated February 20, 2018, the Group did not receive the model certification results of several titles, including large titles, and it abandoned the sale of those titles in the fourth quarter (from January to March 2018). As a result, the sales of PS machines for the fiscal year under review amounted to 190,000 machines (down 50,000 YoY).
In terms of developing and strengthening the management foundation, the Group promoted the rebuilding of cross-media business included in the Group, and the establishment of sales bases. It also promoted cost reduction policies through improvement of management efficiency, greatly reducing SG&A expenses by approximately ¥4 billion from the same period of the previous year.

As a result of the above, the Group posted net sales in the fiscal year of ¥61,055 million (down 20.4% YoY), operating loss of ¥5,738 million (increased by ¥364 million from the same period of the previous year), due to recovery in the financial position of an equity method affiliate, ordinary loss of ¥5,204 million (an improvement of ¥3,863 million from the same period of the previous year), and as extraordinary losses including loss on valuation of investment securities occurred, the Group posted a net loss for the fiscal year attributable to owners of parent of ¥7,691 million (an improvement of ¥4,792 million from the same period of the previous year).


*"Regulation Partially Amending the Ordinance for Enforcement of the Act on Control and Improvement of Amusement Business, etc." and the "Regulations for the Verification of Licenses, Formats and Other Aspects of Pachinko and Pachislot Machines," coming into effect on February 1, 2018


(2) Forecast for the year ending March 31, 2019 is as follows:


FY
(Unit: Millions of yen)
3/2017 3/2018 Forecast of 3/2019
  Change %   Change %
Net sales 76,668 61,055 (20.4) 95,000 +55.6
Gross profit 17,641 13,400 (24.0) 17,000 +26.9
SG&A expenses 23,015 19,138 (16.8) 15,000 (21.6)
Operating profit (5,374) (5,738) - 2,000 -
Ordinary profit (9,068) (5,204) - 2,500 -
Profit attributable to owners of parent (12,483) (7,691) - 1,500 -

In the PS market, the successive tightening of regulations from 2014 calmed down with the commencement of the "Amendment of the Regulation for Enforcement of the Amusement Businesses Law" on February 1, 2018, leading to an environment in which manufacturers can focus on developing new PS machines. Going forward, it is expected that there will be a stable supply of PS machines with new game functions.
With regard to trends in pachinko halls, as shown in Figure 1, over a period of 20 years there has been a progressive reduction in small halls, and the number of halls has decreased by 40.4% from 17,773 in 1997 to 10,596 in 2017. At the same time, as shown in Figure 2, the number of installed PS machines has remained stable, decreasing by 6.9% from 4.763 million machines in 1997 to 4.436 million machines in 2017, according to research by the National Police Agency. This indicates that halls are increasing in size, and it is expected that the trend towards more comfortable PS spaces and environments will continue.

Figure [1]
Figure 1

Figure [2]
Figure 2
As can be seen from the above, in the PS industry, in order to develop and expand the PS business, the time has arrived when revolutionary change to unite pachinko halls and manufacturers is needed.
Under such circumstances, the Company has decided to strengthen its functioning by returning to an intermediary role between pachinko halls and manufacturers. It will seek to expand its sales bases and strengthen its functioning to provide smoother services to halls and a more stable supply of PS machines. In addition, as shown in Figure 3, through Japan Premium Broadcast Inc., which was formed by collaboration between the Company and two major industry publishing companies, we plan to commence provision of a service distributing video information on PS machines, etc. from the third quarter. We view this time, when revolutionary change is needed in the PS business, as a business opportunity and will contribute to shareholder returns through a variety of new initiatives as a distribution company.

Figure [3]
Figure 3

In addition to strengthening this distribution business, as Group business, the Group will promote the PS machines development business centered on BOOOM Corporation and the contents and visuals business centered on Tsuburaya Productions Co., Ltd. and Digital Frontier Inc. It will also continue to promote greater management efficiency.

Through the above initiatives, in the next fiscal year the Company plans to achieve net sales of ¥95,000 million (up 55.6% YoY), operating profit of ¥2,000 million (increase of ¥7,738 million YoY), ordinary profit of ¥2,500 million (increase of ¥7,704 million YoY and profit attributable to owners of parent of ¥1,500 million (increase of ¥9,191 million YoY).



(3) Fundamental corporate policy for distributing profits and dividends for the current and next fiscal years

The Company regards the enhancement of corporate value as a principal management issue, and its fundamental policy is to pay dividends at an appropriate level that corresponds with profits.
However, due to the rapid changes that have occurred recently in the internal and external business environments, it has decided that seeking to stabilize its financial base from the medium- to long-term perspective and giving priority to securing investment funds for the expansion of profits will contribute to the maximization of general shareholder returns, including future increases in corporate value.
With respect to dividends, it is with regret that we have revised down our year-end dividend forecast for the fiscal year ended March 31, 2018 from ¥25 per share to ¥5. Similarly, the planned year-end dividend for the next fiscal year will be ¥10 per share.

1) Year ended March 31, 2018: Interim dividend of ¥25 (implemented)/ Year-end dividend of ¥5 (planned)/ Annual dividend of ¥30 (planned)

2) Year ending March 31, 2019: Year-end dividend of ¥10 (planned)

2. Overview of financial position for the year ended March 31, 2018

  1. Assets
    Current assets amounted to ¥42,651 million, down ¥3,205 million YoY. The principal factor behind this was a decrease in notes and accounts receivable - trade.
    Property, plant and equipment amounted to ¥5,2a79 million, down ¥5,086 million YoY. The principal factors behind this was a decreases in idle assets (land).
    Intangible assets amounted to ¥1,385 million, down ¥1,084 million YoY. The principal factors behind this was a decreases in software.
    Investments and other assets amounted to ¥23,041 million, up ¥1,336 million YoY. This was mainly due to an increases in long-term loans receivable.
    As a result of the above, total assets amounted to ¥72,357 million, down ¥8,040 million YoY.

  2. Liabilities
    Current liabilities amounted to ¥22,480 million, up ¥2,005 million YoY. This was mainly due to an increase in short-term payable.
    Non-current liabilities amounted to ¥14,367 million, down ¥2,327 million YoY. The principal factor behind this was a decrease in long-term payable.
    As a result of the above, total liabilities amounted to ¥36,847 million, down ¥322 million YoY.

  3. Net assets
    Net assets amounted to ¥35,509 million, down ¥7,718 million YoY. This primarily reflected a decrease in retained earnings.

3. Cash flows

During the fiscal year under review, cash and cash equivalents (hereinafter referred to as “cash”) increased by ¥1,282 million YoY, amounting to ¥24,373 million at the end of the year ended March 31, 2018.
Cash flow for the year ended March 31, 2018 and contributing factors are as follows:
  1. Cash flows from operating activities
    Net cash used in operating activities amounted to ¥1,094 million (¥7,319 million of expenditure for the same period of the previous fiscal year). This was mainly due to a loss before income taxes of ¥7,386 million, a decrease in notes and accounts receivable - trade of ¥6,715 million, a decrease in notes and accounts payable - trade of ¥1,640 million, an increase in inventories of ¥3,393 million, and a loss on valuation of investment securities of ¥2,185 million.

  2. Cash flows from investing activities
    Net cash used in investing activities amounted to ¥4,399 million (¥3,927 million of expenditure for the same period of the previous fiscal year). This was mainly due to proceeds from sales of property, plant and equipment totaling ¥6,250 million, payments of loans receivable totaling ¥4,520 million, collection of loans receivable totaling ¥2,574, and proceeds from sales of shares of subsidiaries and associates totaling ¥2,202 million.

  3. Cash flows from financing activities
    Net cash provided by financing activities amounted to ¥2,021 million (¥2,136 million of revenue for the same period of the previous fiscal year). This was mainly attributable to an increase in short-term loans payable totaling ¥3,869 million, repayments of long-term loans payable totaling ¥3,200 million, dividends paid totaling ¥1,659 million, and payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation totaling ¥955 million.