Chairman’s Statement

BUSINESS ACTIVITIES AND VISION

In the current fiscal year, the domestic economy saw further normalisation of economic activities due to factors such as the reclassification of Novel Coronavirus (COVID-19)’s category to Class 5 under the Act on the Prevention of Infectious Diseases, and an improvement in the employment and income environment, including the highest rate of wage increase in 30 years in the annual spring wage negotiations, and at the same time, there were signs of a pick-up in personal consumption. On the other hand, growth in personal consumption remained subdued due to the effects of rising prices and monetary tightening, but service consumption showed a relatively steady recovery. Under these circumstances, in our mainstay pachinko business, the Group focused on grasping customer needs and profit opportunities accurately and improving our pachinko halls management capabilities. In addition, we increased the number of amusement machines installed by 1.6% compared to the previous fiscal year, expanding our revenue base by equivalent amount as opening one new hall. As a result, total revenue (gross pay-ins) increased by 10.0% year-on-year to ¥131,835 million and we believe we were able to firmly meet customer demand without falling behind the recovery trend in domestic economic activity. In the overseas business, the Gross Domestic Product (“GDP”) growth rates of Vietnam and Cambodia slowed as their economies were affected by the slowdown in the Chinese economy. Consequently, revenue from Dream Games, which operates amusement arcades in both countries, decreased by 1.3% year-on-year to ¥1,687 million.

In the mainstay pachinko business, Smart Slots, the next-generation of new amusement machines introduced in November 2022, continue to receive high support from customers. To grasp the trend of the market need, we had made full use of the strong network we had built up with amusement machine manufacturers and distributors, and strategically purchased the most effective number of machines in a competitive environment, and focused on creating a hall that could meet the customers’ needs. In particular, in order to enable more customers to enjoy Smart Slots machines, which are popular in the market, hall layouts were revamped, and the machine footprint was quickly expanded.

Therefore, the number of slot machines increased significantly by 5.3% compared to previous year. In the installation of existing machines, we have also made steady efforts to analyse the trends of customers and competitors and reflected them in appropriate hall development. As a result, we were able to attract more customers than the market’s rate of customer recovery and increase our market share in the areas where we operate. We believe that we were able to achieve solid results as a year of post-pandemic.

In the current fiscal year, we continued to review our hall operations and accumulated a variety of know-how, such as promoting labour saving in hall management while retaining services that provide a high level of customer satisfaction. Since the self-service counters that we introduced last year, which made the prize exchange process contactless, has been well received by our customers, we have further increased the number of halls that have introduced them during the year, and have completed the introduction of self-service POS at 37 halls, representing 75% hall coverage.

In addition, given the competitive environment of existing halls, we had carried out various measures and experiments with the aim of further increasing our sales capabilities, we believed that we had achieved certain level of success. We consider that this will also lead to more options for corporate restructuring methods in the event of mergers and acquisitions.

In the domestic food and beverage business, we opened a new “LIZARRAN” outlet in Tachikawa City, Tokyo in April 2023. As a result of the Spanish restaurant brand gaining some penetration in the Tokyo metropolitan area, we have begun to receive inquiries from major developers to open new outlets, and the business environment is improving with more opportunities for opening new outlets in favorable locations.

Nexia Inc., a subsidiary that operates real estate business, invested a total of ¥880 million in March 2024 to acquire a property in a prime location in Koriyama City. We will continue to consider acquiring prime properties while maintaining our investment standards.

In terms of business in Southeast Asia, the economies of Vietnam and Cambodia were ahead of Japan in the recovery from the damage caused by COVID-19, but economic growth in both countries has declined due to factors such as a slowdown in exports and slump in the real estate industry. Vietnam’s GDP growth rate slowed from 8.0% in previous year to 5.1% in current year, and Cambodia’s GDP growth rate also decreased slightly from 5.2% to 5.0%, indicating that the post-pandemic economic recovery has hit a plateau in 2023.

Consequently, operating revenue of Dream Games, a subsidiary that operates amusement arcades in Vietnam and Cambodia, decreased slightly by 1.3% year-on-year to ¥1,687 million. Particularly in the second half of the year, customer sentiment declined and the overall number of customers in the malls where we operated our outlets declined, with a strong negative impact on the leisure industry. From the beginning, we did not plan to open any new outlets in this fiscal year, and as a result of closing down one outlet, as of the end of March 2024, we have a total of 11 operating outlets, 8 in Vietnam and 3 in Cambodia.

Although GDP growth rates of Vietnam and Cambodia in 2023 have slowed compared to the previous year, according to the data from the International Monetary Fund, strong economic growth is expected to continue at over 5% in these two countries. We believe that both countries are still in the process of economic development, and that consumption and leisure markets will continue to expand. The amusement arcade business in both Vietnam and Cambodia is based on the strategy of opening outlets in leading shopping malls. In particular, a lot of new AEON malls are scheduled to open in Vietnam from 2025, but the competitive environment is gradually becoming more severe. While continuing to develop the operating structure of the organisation, we are also planning to work on building a steady earnings base by developing multiple types of standard business formats depending on location and area, opening a new speciality business format of arcade prize game and planning to open small and medium-sized outlets outside of AEON malls.

The joint business operating a Japanese restaurant food court, YOKOCHO, in Shenzhen, Guangdong Province, China, opened in July 2019, was indefinitely suspended in February 2020 due to the spread of COVID-19 in China. The business was subsequently resumed in August 2021, as the COVID-19 situation in China seemed to have calmed down. However, the business environment did not improve and the situation remained unstable, so we ceased the business in August 2023.

As a medium-term strategy, the Group’s priority is to increase the number of amusement machines installed and to secure sales in pachinko business as the core business, and will actively invest in new hall openings and merger and acquisition with the aim of establishing a structure that can ensure stable earnings. At the same time, investments will be made to refurbish existing halls and to promote digitalisation with the aim of further increasing operational efficiency. Furthermore, from a long-term perspective, we plan to expand into new businesses and build business models domestically based on the premise of an aging, mature society and a declining population.

Outside Japan, we will also seek to grow existing businesses and create new business opportunities while responding to changes in the business environment in each country.

In 2021, the Group resolved the Environmental, Social and Governance (“ESG”) Management Declaration, which is the basic concept for conducting sustainable business, “The Group prioritises the public interest and considers its employees, customers, business partners, local communities, and the entire earth as a whole to be stakeholders. We aim for management that can achieve sustainable growth together with all”. The concept of ESG, which is the benchmark for sustainable growth, is becoming increasingly important in business, as it serves as an index for selecting investment targets worldwide. In addition, Sustainable Development Goals established for the purpose of achieving a sustainable world are having a positive impact on corporate management. The ESG Management Declaration sets out the following three specific points to be focused on:

1. Properly appropriate the profits generated to employees, customers, local communities, environment, the entire earth, vendors and shareholders.
2. Conduct management that can contribute to society with sustainability from a medium- to long-term perspective, rather than from a short-term perspective.
3. Constantly make efforts in new areas boldly and manage our business with entrepreneurial spirit for the sustainable development of the Company.

These three objectives will also be important in shaping a new corporate culture for the next era of the Group.

The history of the Group’s pachinko hall business is over 70 years. The reason we have been able to continue our business for more than 70 years is that we always place emphasis on our relationship with the community and have always been aware of harmonious coexistence with the community. Entities cannot continue their businesses on their own, and there is a greater need than ever for them to not only pursue profits for themselves but also develop together with society. Especially in Fukushima Prefecture, which is our key location in Japan, it is still halfway through reconstruction from the Great East Japan Earthquake, but as a longer-term issue, increasing the production and labor force population is regarded as a major challenge. If this long-term declining trend continues, we cannot expect the revitalization of the local economy. On the other hand, if the revitalization of the local economy cannot be realised, the production and labor force population will not increase, and we cannot expect to retain or increase customers in the pachinko hall business, which is the core business of the Group. Resolving the local issues in each region where our Group operates, will create new business opportunities and lead to the mitigation of future business risks simultaneously. We regard the pursuit of regional development through our business activities as an important task for future operations.

The Group aims to realise our corporate philosophy of “Providing happy times for people by making the world cheerful, fun and entertaining”, and will continue to take on the challenges of constantly responding to social changes, aiming to be a company that will continue for more than 100 years ahead of us. Under the ESG Management Declaration, which is the basic concept for conducting sustainable business, we will continue to strive to become a company that is indispensable to society and can meet the expectations of all stakeholders, considering the development and ideal form of our business.