To Our Shareholders and Investors
I would like to sincerely thank all of our shareholders for their support and patronage.
I am pleased to report the financial results for the fiscal year ended March 31, 2020.
During the fiscal year, the Japanese economy remained on a moderate recovery track, supported by an improving employment and income environment and a gradual recovery in consumer spending. However, the economy slowed following the consumption tax hike in October 2019, and continues to lack strength. In addition, the outlook for the new fiscal year has been made extremely unpredictable due to the impact of US-China trade frictions on the global economy, the global novel coronavirus pandemic, and other uncertainties.
Companies in the pachinko parlor industry, the Group’s primary clients, continue to face a difficult business environment in terms of revenue, as the frequency of utilization by users and user spending have declined. The number of parlor operators who are concerned about their future has been increasing given the recent measures to prevent dependence and the tightening of industry restrictions curbing the gambling properties of pachinko. Interest of the industry as a whole in making investments such as opening new parlors, refurbishing existing parlors, and purchasing new gaming machines is also showing a significant decline compared with the past.
In addition, the outbreak of the novel coronavirus pandemic since March 2020 has led pachinko parlors nationwide to refrain from advertising to attract customers, and as a result advertisement placements have sharply decreased.
In such a difficult business environment, the Group’s mainstay advertising business has been actively pursuing clients other than pachinko parlors as it seeks to diversify its revenue sources and avoid excessive dependence on any particular industry. In the year under review, the Group continued its initiatives to raise overall revenue levels, including expanding its business in the fitness industry advertising field, strengthening its contract-based design business, and handling Internet job advertisements.
As a result, net sales for the fiscal year ended March 31, 2020, came to 11,115 million yen (down 7.9% year on year), operating income totaled 460 million yen (down 34.7% year on year), ordinary income was 434 million yen (down 38.0% year on year) and net income attributable to parent company shareholders was 31 million yen (down 92.9% year on year). The decline in net income mainly reflects the posting of extraordinary losses, including a 116 million yen impairment loss related to an overseas subsidiary and a 144 million yen loss on the sale of stock due to divestment in the same subsidiary.
We look forward to the continued support and encouragement of our shareholders and investors.
Breakdown by Business Segment
In the fiscal year under review, advertising demand in the pachinko parlor industry deteriorated significantly, as pachinko parlor operators continued to trim advertising budgets due to worsening profitability and demand for advertising new machines fell due to a decline in frequency of new machine replacements. Further, demand for large-scale parlor opening advertisements fell due to the extreme decline in new parlor openings compared with regular years reflecting the loss of motivation to open new parlors.
At the end of February 2020, the All Japan Pachinko Association, an association of pachinko parlors, called on pachinko parlors throughout the nation to practice self-restraint and implement other appropriate measures regarding the use of media to advertise new pachinko machine installations for the purpose of attracting customers until the novel coronavirus pandemic has been brought under control. As a result, advertising demand has fallen sharply since March 2020.
Under such circumstances, the Group continued its effort to transform the earnings structure of its pachinko parlor advertising business through an incremental shift from traditional print media to Internet media using its own "Pachi 7" media and DSP advertising tool "Pachi Ad". At the same time, the Group began shifting staff to advertising fields other than pachinko in order to optimize the Group’s sales system by bringing it more in line with demand.
In the advertising field targeting clients other than pachinko parlors, the Group strengthened its marketing efforts in the fitness industry advertising field, bolstered sales in the contract-based design business centered on the contract-based online design site “Adluck!”, and strengthened sales of Internet job advertisements.
With the development of new markets in the advertising field targeting clients other than pachinko parlors expected to take a considerable amount of time, segment results are being strongly impacted by the decline in demand from the pachinko parlor field. As a result, segment sales in the fiscal year ended March 31, 2020, totaled 10,930 million yen (down 8.0% year on year) and segment income came to 878 million (down 22.1%).
Real Estate Business
During the fiscal year under review, consolidated subsidiary Land Support Inc. concluded a pachinko parlor M&A deal and entered into a new lease property intermediary project (69 million yen) in addition to continuing the land leasing project it acquired in February 2017 in Kashiwa City, Chiba Prefecture.
As a result, net sales of the Real Estate Business totaled 120 million yen (up 33.8% year on year) and segment income came to 68 million yen (up 21.3% year on year).
During the fiscal year under review, GDLH Pte. Ltd. (“GDLH”), a Singaporean consolidated subsidiary of Gendai Agency, which engages in electronic casino operations management business in Southeast Asia, managed slot machine operations at casinos in the Pailin and Poi Pet Districts in Cambodia. GDLH’s earnings during the fiscal year were sluggish owing to the impact of a decline in the ability of casino facilities under its management to attract customers.
As a result, GDLH’s net sales came to 64 million yen (down 35.5% year-on-year), and it posted a loss of 154 million yen (compared with a year-earlier loss of 149 million yen) owing to such factors as sluggish revenues and depreciation of initial investments.
With the electronic casino management business in Southeast Asia continuing to post losses and unlikely to see any significant improvement in business performance in the foreseeable future, and with used casino machine resale prices declining, the Group decided to post an impairment loss on machines owned by GDLH. Considering these points, the Group’s Board of Directors decided at a meeting on October 18, 2019, to completely withdraw from this business.
In line with this decision, on March 23, 2020, the Group transferred its entire equity holdings in GDLH to a third-party investor. As a result, GDLH is excluded from the scope of consolidation as of the end of the fiscal year ended March 31, 2020.
Medium to Long-term Management Strategies
The Group will ceaselessly pursue enhancement of the added value and productivity of its advertising services in the pachinko parlor advertising field and work to secure stable profitability despite the difficult business environment. At the same time, the Group will continuously seek out new business opportunities and proactively work on business development to achieve sustained growth for the entire Group.
The main strategic issues to be addressed in order to achieve sustained growth are as follows.
- Develop markets in fields other than pachinko parlor advertising
- Penetrate the Internet media market in the pachinko parlor advertising field
- Expand business domain
As we work to maximize our corporate value, we will disclose information to all of our shareholders and investors in a proactive and timely manner and follow a policy of providing returns to shareholders that reflect our business performance.
We look forward to your continued understanding and support.