Fields / 2767 COVERAGE INITIATED ON: LAST UPDATE:

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1 COVEAGE INITIATED ON: Shared esearch Inc. has produced this report by request from the company discussed in the report. The aim is to provide an owner s manual to investors. We at Shared esearch Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg. esearch eport by Shared esearch Inc.

2 esearch eport by Shared esearch Inc. INDEX How to read a Shared esearch report: This report begins with the trends and outlook section, which discusses the company s most recent earnings. First-time readers should start at the business section later in the report. Executive summary Key financial data ecent updates Highlights Trends and outlook Full-year FY03/19 company forecasts Long-term outlook Business Summary Profitability snapshot and financial ratios Strengths and weaknesses Market and value chain Historical financial statements Income statement Balance sheet Cash flow statement Other information History News and topics Top management Employees Major shareholders Shareholder returns By the way /55

3 esearch eport by Shared esearch Inc. Executive summary Business overview The company s businesses are distribution of pachinko and pachislot machines, development of pachinko and pachislot machines, and a content and video business. Fluctuations in the company s results are mainly due to the planning, development and sales of amusement machines in the pachinko and pachislot distribution business. The company acquires merchandising rights to promising content. It then adds value through product planning, outsources development and manufacturing to its business partners, and sells finished pachinko and pachislot machines as a distributor to pachinko halls nationwide. It adds value by virtue of its ability to plan and develop amusement machines through purchasing and combining original content in product planning, and its product supply capabilities through alliances with eight amusement machine manufacturers. Fields is the largest independent distributor, with a Japan-wide network. It assesses the needs of pachinko halls across the country and is a useful ally in product planning. It utilizes nationwide pachinko hall operation data in marketing, enabling it to propose the ideal replacement machines to pachinko halls. Meanwhile, pachinko halls can purchase titles from various amusement machine manufacturers solely from the company. In the content and video business, the company plans, develops, and sells intellectual property (IP). Consolidated subsidiaries Tsuburaya Productions (TPC) and Digital Frontier play key roles. TPC plans and produces movies and TV programs such as Ultraman, and plans, produces, and sells character merchandise. Digital Frontier is involved in planning and producing computer graphics. Trends and outlook For FY03/18, Fields reported sales of JPY61.1bn (-20.4% YoY), operating loss of JPY5.7bn (operating loss of JPY5.4bn in FY03/17), recurring loss of JPY5.2bn (recurring loss of JPY9.1bn), and net loss attributable to parent company shareholders of JPY7.7bn (net loss of JPY12.5bn). For FY03/19, the company forecasts sales of JPY95.0bn (up 55.6% YoY), operating profit of JPY2.0bn (operating loss of JPY5.7bn in FY03/18), recurring profit of JPY2.5bn (recurring loss of JPY5.2bn), and net income attributable to parent company shareholders of JPY1.5bn (net loss of JPY7.7bn). From FY03/14 to FY03/18, sales declined from JPY114.9bn to JPY61.1bn and operating profit declined from JPY9.8bn to an operating loss of JPY5.7bn. According to the company, this downturn in performance was due to delayed responses to market changes, poor functioning of the business value chain, and struggles in monetizing its original IP. Strengths and weaknesses Shared esearch sees the company s strengths as its strong sales force, its game planning and development, its brand creativity, and alliances with top game makers. Weaknesses include its reliance on the amusement business, which is regulated. (See Strengths and weaknesses section for details.) 03/55

4 esearch eport by Shared esearch Inc. Key financial data Income statement FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 73,035 66, ,593 92, , ,904 99,554 94,476 76,668 61,055 95,000 YoY -28.3% -9.2% 56.1% -11.0% 17.3% 6.3% -13.4% -5.1% -18.8% -20.4% 55.6% Gross profit 24,024 26,889 35,129 31,330 33,279 33,812 28,468 25,480 17,641 13,400 GPM 32.9% 40.5% 33.9% 34.0% 30.8% 29.4% 28.6% 27.0% 23.0% 21.9% SG&A expenses 22,063 18,764 21,993 22,803 22,964 24,020 23,724 24,069 23,015 19,138 Operating profit 1,960 8,124 13,136 8,527 10,314 9,791 4,743 1,411-5,374-5,738 2,000 YoY -85.1% 314.5% 61.7% -35.1% 21.0% -5.1% -51.6% -70.3% OPM 2.7% 12.2% 12.7% 9.2% 9.5% 8.5% 4.8% 1.5% % ecurring profit 991 7,761 13,684 8,661 10,268 9,765 5,491 1,380-9,068-5,204 2,500 YoY -91.5% 683.1% 76.3% -36.7% 18.6% -4.9% -43.8% -74.9% PM 1.4% 11.7% 13.2% 9.4% 9.5% 8.5% 5.5% 1.5% % Net income -1,481 3,289 7,520 5,991 4,720 5,370 3, ,483-7,691 1,500 YoY % -20.3% -21.2% 13.8% -43.8% -96.1% Per share data (JPY, adjusted for stock splits) Shares issued (year end; '000) ,700 34,700 34,700 34,700 34,700 34,700 EPS Book value per share 1, , , , , , , , , ,055.0 Dividend per share Balance sheet (JPYmn) Cash and deposits 11,181 15,916 15,873 18,344 23,314 29,583 15,823 32,200 23,190 24,473 Accounts receivable 4,324 33,088 27,948 34,402 42,017 29,155 45,888 8,562 12,727 7,019 Inventories 963 1,519 1,357 3,134 2,343 3,133 1,736 3,020 1,423 4,093 Total current assets 25,135 56,694 51,051 62,811 72,709 66,921 71,014 52,934 45,856 42,651 Total assets 52,064 81,329 78,971 93, , , ,316 92,478 80,397 72,357 Accounts payable 1,981 26,610 17,939 29,100 36,604 33,105 33,850 12,749 12,792 11,358 Interest-bearing debt 3,011 2,230 1,834 1,507 1, ,064 11,422 15,488 16,158 Total liabilities 12,568 40,141 31,949 42,046 51,529 46,116 50,070 34,186 37,170 36,847 Shareholders' equity 40,420 41,741 47,601 51,895 54,957 58,670 60,171 58,298 44,156 34,391 Net debt -8,170-13,686-14,039-16,837-22,262-28,841-11,759-20,778-7,702-8,315 Working capital 3,306 7,997 11,366 8,436 7, ,774-1,167 1, Cash flow statement (JPYmn) Cash flows from operating activities 4,147 8,429 8,005 10,015 13,570 16,322-9,086 13,353-7,319-1,094 Cash flows from investing activities -6,182-1,011-4,356-4,798-6,263-8,018-6,297-2,191-3,927 4,399 Cash flows from financing activities 602-2,687-3,915-2,565-2,277-2,018 1,624 5,214 2,136-2,021 Financial ratios OA (P-based) 1.6% 11.6% 17.1% 10.0% 10.3% 9.2% 5.1% 1.4% -10.5% -6.8% OE -3.5% 8.2% 17.1% 12.2% 8.9% 9.5% 5.1% 0.2% -25.1% -19.9% Equity ratio 77.6% 51.3% 60.3% 55.4% 51.5% 55.9% 54.5% 63.0% 54.9% 47.5% Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting in FY03/16, business contract fee previously listed under other in non-operating profit is included in SG&A as a deduction. Note: Net Income from FY03/16 onward refers to net income attributable to parent company shareholders. 04/55

5 esearch eport by Shared esearch Inc. ecent updates Highlights On December 11, 2018, Fields Corporation announced the nationwide launch of Pachislot Evangelion AT777, a pachislot machine. This machine is scheduled to be installed in pachinko halls in February On November 9, 2018, the company announced the nationwide launch of Pachislot Sengoku BASAA HEOES PATY, a pachislot machine. This machine is scheduled to be installed in pachinko halls in January On November 7, 2018, the company announced earnings results for 1H FY03/19; see the results section for details. On October 17, 2018, the company announced the nationwide launch of Pachislot LOD of VEMILION e:, a pachislot machine. This machine is scheduled to be installed in pachinko halls from this winter. On October 9, 2018, the company announced a change to an equity-method affiliate, making it a consolidated subsidiary. The company decided that its consolidated subsidiary COSSALPHA would acquire shares of its equity-method affiliate NANASHOW Corporation (number of shares held by the company: 210 shares, ownership ratio: 38.89%). The share transfer date (planned) is October 9, After the acquisition, the company will hold 360 shares, or 66.67% of total shares of NANASHOW, making it a consolidated subsidiary. Furthermore, this share acquisition has been factored into company forecasts. Overview of the new subsidiary (NANASHOW) Business description: Planning, development, manufacturing, and sale of amusement machines elationship between Fields and NANASHOW (business relationship): Business partnership agreement regarding planning, development, sale, and others of amusement machines (including exclusive rights for the company to sell amusement machines manufactured by NANASHOW) NANASHOW s business results and financial condition for the past three years (JPYmn) FY03/16 FY03/17 FY03/18 Net assets 460-1,473-1,305 Total assets 10,111 8,046 11,843 Sales 4,978 3,379 9,540 Operating profit 361-1, ecurring profit 224-1, Net income 224-1, Number of acquired shares, acquisition price, and shares held before and after the acquisition Number of shares held before acquisition: 210 shares (ownership ratio: 38.89%) Number of shares acquired and acquisition price: 150 shares, JPY300mn Number of shares held after the acquisition: 360 shares (ownership ratio: 66.67%) On October 2, 2018, the company announced the nationwide launch of Pachislot Mach GoGoGo, a pachislot machine. This machine is scheduled to be installed in pachinko halls from December. 05/55

6 esearch eport by Shared esearch Inc. On the same day, the company announced the nationwide launch of Pachinko Onimusha: Dawn of Dreams Super Souken, a pachinko machine. This machine is scheduled to be installed in pachinko halls from November. On September 28, 2018, Shared esearch updated the report following interviews with the company. For previous releases and developments, please refer to the News and topics section. 06/55

7 esearch eport by Shared esearch Inc. Trends and outlook Quarterly trends and results Cumulative FY03/18 FY03/19 FY03/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est. Sales 12,446 35,213 45,266 61,055 8,930 18, % 95,000 YoY -18.6% 32.1% 6.2% -20.4% -28.3% -48.8% 55.6% Gross profit 1,961 6,944 10,719 13,400 1,421 3, % 17,000 YoY -21.1% 33.9% 6.8% -24.0% -27.5% -44.5% 26.9% GPM 15.8% 19.7% 23.7% 21.9% 15.9% 21.4% SG&A expenses 4,864 9,724 14,332 19,138 4,155 7,759 YoY -11.3% -15.2% -17.8% -16.8% -14.6% -20.2% SG&A ratio 39.1% 27.6% 31.7% 31.3% 46.5% 43.0% Operating profit -2,902-2,780-3,612-5,738-2,733-3,906-2,000 YoY OPM ecurring profit -3,055-3,288-3,858-5,204-2,755-4,062-2,500 YoY PM Net income -2,752-3,289-4,133-7,691-2,957-3,251-1,500 YoY Net margin Quarterly FY03/18 FY03/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 12,446 22,767 10,053 15,789 8,930 9,111 YoY -18.6% 100.3% -37.0% -53.6% -28.3% -60.0% Gross profit 1,961 4,983 3,775 2,681 1,421 2,431 YoY -21.1% 84.6% -22.2% -64.7% -27.5% -51.2% GPM 15.8% 21.9% 37.6% 17.0% 15.9% 26.7% SG&A expenses 4,864 4,860 4,608 4,806 4,155 3,604 YoY -11.3% -18.7% -22.8% -13.9% -14.6% -25.8% SG&A ratio 39.1% 21.3% 45.8% 30.4% 46.5% 39.6% Operating profit -2, ,126-2,733-1,173 YoY OPM - 0.5% ecurring profit -3, ,346-2,755-1,307 YoY PM Net income -2, ,558-2, YoY Net margin Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Net Income refers to the net income attributable to parent company shareholders. SG&A expenses Cumulative FY03/18 FY03/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SG&A expenses 4,864 9,724 14,332 19,138 4,155 YoY -11.3% -15.2% -17.8% -16.8% -14.6% Advertising expenses 426 1,143 1,554 2, Salaries 1,468 2,882 4,266 5,639 1,392 Outsourcing expenses ,441 1, Depreciation , ents ,329 1, Goodwill amortization Other 1,652 3,129 4,710 6,414 1,471 Quarterly FY03/18 FY03/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SG&A expenses 4,864 4,860 4,608 4,806 4,155 YoY -11.3% -18.7% -22.8% -13.9% -14.6% Advertising expenses Salaries 1,468 1,414 1,384 1,373 1,392 Outsourcing expenses Depreciation ents Goodwill amortization Other 1,652 1,477 1,581 1,704 1,471 Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. 07/55

8 esearch eport by Shared esearch Inc. Pachinko and pachislot machine unit sales Pachinko and pachislot machine sales (Cumulative; units) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Pachinko and pachislot machines 27,102 99, , ,457 23,236 YoY -26.3% 36.2% 12.3% -21.4% -14.3% Total pachinko machines 14,531 30,254 69,425 95,778 19,895 YoY -41.1% -32.3% -11.0% -38.5% 36.9% Bisty 1,605 7,332 43,339 56,865 7,639 OK 9,207 15,317 15,327 19, Mizuho ,316 - Daiichi ,914 NANASHOW Others 3,054 6,940 10,094 12,822 3,126 Total pachislot machines 12,571 69,239 77,292 95,679 3,431 YoY 3.8% 144.3% 46.7% 8.8% -72.7% odeo Bisty 1,272 1,272 1,272 12, OK 1,755 7,039 7,039 7,039 - NANASHOW 2,087 3,558 10,983 18,053 1,865 Enterrise 4,171 22,326 22,326 22,326 1,088 Mizuho - 4,000 4,000 4,000 - D-light 2,316 3,357 3,357 3,357 - Others ,058 27,686 27, Titles Pachinko Pachislot Pachinko and pachislot machine sales (Quarterly; units) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Pachinko and pachislot machines 27,102 72,391 47,224 44,740 23,236 YoY -26.3% 99.6% -18.1% -60.4% -14.3% Total pachinko machines 14,531 15,723 39,171 26,353 19,895 YoY -41.1% -21.5% 17.7% -66.0% 36.9% Bisty 1,605 5,727 36,007 13,526 7,639 OK 9,207 6, , Mizuho ,316 - Daiichi ,914 NANASHOW Others 3,054 3,886 3,154 2,728 3,126 Total pachislot machines 12,571 56,668 8,053 18,387 3,431 YoY 3.8% 249.0% -66.9% -47.9% -72.7% odeo Bisty 1, , OK 1,755 5, NANASHOW 2,087 1,471 7,425 7,070 1,865 Enterrise 4,171 18, ,088 Mizuho - 4, D-light 2,316 1, Others , Titles Pachinko Pachislot Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. 08/55

9 esearch eport by Shared esearch Inc. Pachinko and pachislot market trends Market trends (cumulative) FY03/18 FY03/19 ('000 units) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total pachinko and pachislot machines 570 1,183 1,688 2, YoY 24.2% 6.2% -14.9% -16.4% -21.6% Pachinko ,124 1, YoY 45.7% 3.0% -13.5% -11.7% -12.1% Pachislot YoY -5.7% 11.3% -17.4% -25.2% -42.0% Market trends (quarterly) FY03/18 FY03/19 ('000 units) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total pachinko and pachislot machines YoY 24.2% -6.4% -41.9% -22.5% -21.6% Pachinko YoY 45.7% -23.8% -32.3% -4.4% -12.1% Pachislot YoY -5.7% 25.5% -64.2% -55.1% -42.0% Source: Shared esearch based on company data 1H FY03/19 results The company reported sales of JPY18.0bn (-48.8% YoY), operating loss of JPY3.9bn (operating loss of JPY2.8bn in 1H FY03/18), recurring loss of JPY4.1bn (recurring loss of JPY3.3bn in 1H FY03/18), and net loss attributable to parent company shareholders of JPY3.3bn (net loss of JPY3.3bn in 1H FY03/18). Sales fell due to a decrease in the number of amusement machine units sold. The company sold 43,000 new amusement machines (down 56,000 units YoY), comprising 33,000 pachinko machines (+3,000 units YoY) and 10,000 pachislot machines (-59,000 units YoY). Gross profit was down on lower sales, causing operating and recurring losses to widen despite a decline in SG&A expenses to JPY7.8bn (-20.2% YoY) on improved management efficiency. However, net loss attributable to parent company shareholders narrowed YoY even with the wider recurring loss, since extraordinary income grew more than extraordinary loss. Extraordinary income was JPY1.8bn (versus JPY557mn in 1H FY03/18), mostly from booking of JPY1.4bn from the sale of shares in affiliated companies. Extraordinary loss was JPY863mn (versus JPY263mn in 1H FY03/18) on a restructuring loss and other factors. Market environment Following several rounds of tightening regulations since 2014, the pachinko and pachislot industry regained some stability with the Amendment of the egulation for Enforcement of the Amusement Businesses Law, which came into effect in February The number of pachinko halls is falling as they become larger through a process of consolidation, merger, and reorganization, but the number of units per hall is trending upward. Amusement machine manufacturers are proceeding to launch new regulation-compliant machines with novel gaming functions into the market. Across the industry, seven models of pachinko machine compliant with the new regulations were released. These were mostly repurposed models in the amadeji class, but they got off to a good start, being installed at more than 6,000 pachinko halls within a month (according to research by Fields). In addition, pachislot machines compliant with the new regulations (egulation 6.0 machines) released since the start of Q3 have performed well in terms of number of units sold and those put into operation. Initiatives Fields shifted to a four company structure in May Each of these companies is currently formulating a new growth plan. They are also implementing cost reduction measures to achieve management with optimal cost effectiveness. Fields core PS distribution company has returned to its original focus of selling new amusement machines, but also works to establish new businesses in response to client needs. The PS developing company, centered on BOOOM Corp., conducts 09/55

10 esearch eport by Shared esearch Inc. development under contract from a variety of manufacturers and works to develop new products in coordination with the PS distribution company. The IP&MD company, centered on Tsuburaya Productions Co., Ltd., is implementing a growth plan for the medium to long term that aims at expanding domestic business and making progress in the global market. The video production company, with Digital Frontier Inc. at its core, coordinates with the PS developing company to produce superior videos for pachinko and pachislot machines. It aims to expand business as a partner to Tsuburaya Productions. Progress toward company forecasts Fields has made no changes to its forecasts as announced at the beginning of the financial year. For full-year FY03/19, the company expects about JPY1.5bn in operating profit from the pachinko and pachislot business and about JPY500mn in operating profit from Tsuburaya Productions, for a total of about JPY2.0bn in operating profit as forecast at the beginning of FY03/19. In Q3 (October December 2018), the company expects five pachinko and pachislot models already on the market to produce sales according to plan. Primarily for this reason, it expects about JPY2.5bn in operating profit in Q3, narrowing the cumulative Q3 operating loss to about JPY1.4bn. In Q4 (January March 2019), it plans to sell seven pachinko models (including three in the amadeji class) and three pachislot models. Of these ten models, it has already begun selling three pachinko and pachislot models. In regard to main titles it expects to sell in February and March 2019, several have already passed model testing, and the rest have been submitted for model testing, so preparation for launch is proceeding apace. On the strength of these initiatives, Fields expects Q4 operating profit to reach about JPY3.5bn, meaning it will achieve its initial target of about JPY2.0bn for the full year. Other: NANASHOW becomes consolidated subsidiary Fields decided that its consolidated subsidiary K.K. COSSALPHA would acquire shares of its equity-method affiliate NANASHOW Corporation on October 9, 2018, and the acquisition occurred as planned. As a result, NANASHOW effectively became a consolidated subsidiary of Fields. eason for share acquisition Fields determined that consolidation of amusement machine development functions as part of its measures to improve management efficiency would help it reduce costs. Overview of company Name: NANASHOW Corporation Business description: Planning, development, manufacturing, and sale of amusement machines Capital: JPY40mn Number of acquired Number of shares held before acquisition: 210 (number of voting rights: 210; ownership ratio 38.9%) shares, acquisition price, Number of shares acquired: 150 (number of voting rights: 150) and shares held before Acquisition price: JPY300mn and after acquisition Number of shares held after acquisition: 360 (number of voting rights: 360; ownership ratio 66.7%) For details on previous quarterly and annual results, please refer to the Historical financial statements section. 10/55

11 esearch eport by Shared esearch Inc. Full-year FY03/19 company forecasts FY03/19 estimates (JPYmn) 1H Act. FY03/18 2H Act. FY Act. FY03/19 FY Est. Sales 35,213 25,842 61,055 95,000 YoY -54.1% -48.4% -20.4% 55.6% Cost of sales 28,269 19,386 47,655 78,000 Gross profit 6,944 6,456 13,400 17,000 YoY 33.9% -48.2% -24.0% 26.9% GPM 19.7% 25.0% 21.9% 17.9% SG&A expenses 9,724 9,414 19,138 15,000 SG&A ratio 27.6% 36.4% 31.3% 15.8% Operating profit -2,780-2,958-5,738 2,000 YoY OPM % ecurring profit -3,288-1,916-5,204 2,500 YoY PM % Net income -3,289-4,402-7,691 1,500 YoY Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Net income refers to net income attributable to parent company shareholders. The company s forecasts for FY03/19 are as follows: Sales: JPY95.0bn (+55.6% YoY) Operating profit: JPY2.0bn (operating loss of JPY5.7bn in FY03/18) ecurring profit: JPY2.5bn (recurring loss of JPY5.2bn) Net income: JPY1.5bn (loss of JPY7.7bn) *Net income refers to net income attributable to parent company shareholders. The company appears to be planning to release around 25 pachinko and pachislot machines (21 in FY03/18). This includes several major titles Fields had planned to release in FY03/18, but did not receive compliance testing results in time. Shared esearch estimates that company forecasts assume amusement machine sales of 200, ,000 units (191,457 in FY03/18). The company forecasts growth in gross profit due to higher unit sales. In addition, it expects a JPY4.1bn YoY decline in SG&A expenses due to continued progress on operational efficiencies. FY03/19 initiatives Fields said the climate of ever tighter regulations starting in 2015 has settled down following the egulations on the Partial evision of egulations egarding the Enforcement of the Act on Control and Improvement of Amusement Business coming into effect from February Manufacturers are thus able to once again focus on developing new machines. The company said it expected a steady supply of amusement machines with new playing characteristics. From FY03/19, founder and chairman Hidetoshi Yamamoto will also serve as president. The company s business model revolved around IP from FY03/13 to FY03/18. The plan is to return to the business model where the parent company s main business was in the pachinko and pachislot field and turn around its performance. In its effort to make the transition to the former business model, the company expanded the number of sales offices. In FY03/19, it launched a video distribution service for pachinko halls WE, began taking bulk orders for new machine installation and component inspections, and began offering solutions to pachinko halls through targeted online advertising and distribution of secondhand machines (see the Long-term outlook section for details). 11/55

12 esearch eport by Shared esearch Inc. Strengthening distribution capabilities Given the above-mentioned regulations coming into effect from February 2018, the regulatory landscape has settled down and Fields has expanded its existing network of 26 sales offices, with eight additional showrooms, for a total of 34. The company said this makes it well-placed for growth as the only amusement machine distributor with a Japan-wide network. In addition to moves to strengthen the distribution business, Fields also plans to grow group businesses including the pachinko and pachislot machine development business, primarily through BOOOM Corp., and the content and video business through Tsuburaya Productions and Digital Frontier. Dividend forecast In 1H FY03/18 Fields paid a dividend of JPY25 per share as progress was in line with initial forecasts, but revised down its earnings forecasts in 2H. It posted a net loss for the second consecutive year, so paid a dividend of JPY5 per share, for a full-year dividend of JPY30. For FY03/19, Fields forecasts a dividend of JPY10 per share (year-end dividend only) based on its EPS forecast of JPY45.2. At the FY03/18 results briefing, chairman and CEO Yamamoto said that the company would consider increasing the dividend if results exceeded its forecasts. 12/55

13 esearch eport by Shared esearch Inc. Long-term outlook At the FY03/18 results briefing, chairman and CEO Yamamoto outlined growth prospects for the company s businesses as follows. Company business model and profit growth Until the early 1990s, the typical machine gave a jackpot if a player lined up numbers for three drums in a row. From the early 1990s LCD screens started being incorporated in pachinko machines, followed by pachislot machines from the early 2000s. The adoption of LCD screens saw animations and similar content incorporated in the machines, and there was a strong element of storytelling, and models that featured on-screen performances when a player was near to or hit a jackpot. Amusement game machine manufacturers had second or even third brand subsidiaries under their company umbrella to grow unit sales and cope with the regulatory regime, but their performance was poor. With an eye on combinations of amusement machine content and the second brands of manufacturers, Fields developed sales of exclusive models in collaboration with the manufacturers. It would either acquire or develop commercial rights to promising content, plan products, and contract development and manufacturing to the second brands of its business partners. It grew earnings by selling completed amusement machines as the sole distributor. In 2000, Fields had just one alliance with an amusement machine manufacturer, Sammy Corporation (a subsidiary of Sega Sammy Holdings Inc., TSE1: 6460), but it gradually added partners, and had seven as of May 2018 as shown in the figure following, and is in discussions with another about finalizing an agreement. Key manufacturing partners Company Partner since Sega Sammy group Sammy/odeo 2000 SANKYO group Bisty 2003 KYOAKU SANGYO group OK 2008 Daiichi group D-light 2013 Capcom group Enterrise 2009 NANASHOW 2014 Universal Entertainment group Mizuho 2012 Shift to IP based business model and deteriorating performance As it grew the numbers of partner manufacturers and titles, Fields needed to obtain commercialization rights for content including machines under development. The company started to develop its own content in addition to leasing and acquiring merchandising rights to use existing content in gaming machines. To that end, it made Tsuburaya Productions a subsidiary in 2010, and in 2011 it launched a comic magazine Hero s Monthly with Shogakukan Creative, strengthening its efforts in content creation. From FY03/13 to FY03/18, Fields engineered a strategic shift from its business model since listing which focused on the fields of pachinko and pachislot to one that revolved around IP. The aim was growth via a cycle of business development centered on IP involving comics, animations, movies and television, and merchandising (including pachinko and pachislot machines). However, from 2014 until 2018, a series of regulations came into effect aimed at mitigating the gambling aspects of pachinko and pachislot machines (refer to Market and value chain section). The pachinko playing population declined and the market shrank as cheaper forms of play spread, exemplified by One-yen pachinko. The company s performance trended downward with declining sales and profit for four consecutive years from FY03/15, culminating in operating losses in FY03/17 and FY03/18. To respond to the series of new regulations, Fields said it had to rebuild machines under development or have them re-inspected, or develop products different from initial plans to conform to gambling properties required under new regulations. The company was particularly caught up in dealing with regulations as it was developing multiple of machines with its manufacturing partners, and unit sales fell as a result. 13/55

14 esearch eport by Shared esearch Inc. According to Fields, the climate of ever tighter regulations starting in 2014 has settled down following the egulations on the Partial evision of egulations egarding the Enforcement of the Act on Control and Improvement of Amusement Business coming into effect from February Manufacturers are thus able to once again focus on developing new amusement machines. It said it expected a steady supply of amusement machines with new playing characteristics. Strengthening pachinko and pachislot distribution From FY03/19, founder and chairman Hidetoshi Yamamoto has also served as president. The company s business model revolved around IP from FY03/13 to FY03/18. The plan is to return to the company s main business in the pachinko and pachislot field and turn around its performance. Starting in FY03/19, the parent company has been responsible for the pachinko and pachislot distribution business, and BOOOM Corp. is in charge of the pachinko and pachislot development business. In the content and video production business Tsuburaya Productions Co., Ltd. handles content planning and production and Digital Frontier Inc. is the key company involved in video production. eorganization into four companies Source: Company materials Pachinko and pachislot distribution business In addition to its traditional pachinko and pachislot machine development and sales, from FY03/19 the parent company has returned to its position as distributor for machines between the pachinko halls and the amusement machine manufacturers. It aims to supply everything necessary for a pachinko hall operation. Under its alliances with amusement machine manufacturers, its main business is the provision of content, product planning, and acting as the sole distributor for finished amusement machines. Furthermore in FY03/19, it launched a video distribution service for pachinko halls WE, began taking bulk orders for new machine installation and component inspections, and begin offering solutions to pachinko halls through targeted online advertising and distribution of secondhand machines. The company hopes these initiatives will expand its profit opportunities and strengthen relationships with pachinko halls. Video distribution service WE In February 2018, Fields established Japan Premium Broadcast Inc. with major pachinko industry publisher Greenbelt and entertainment magazine Amusement Japan. Japan Premium Broadcast plans to launch a video distribution service WE that provides information on amusement machines and other topics of interest starting from Q3. In collaboration with manufacturers, the service will give extensive information on new machines (the main focus), the history of their development, targets, ways to improve utilization rates, and how to attract customers to pachinko hall operators. Work efficiency systems: Bulk ordering and integration of new machine installation and component inspections New machine installation and component replacement in pachinko halls requires qualified personnel from the machine maker or distributor to check on installations and inspect components. This is a cost for the pachinko hall operator. It is a cost-push factor 14/55

15 esearch eport by Shared esearch Inc. for the maker as it has to send an employee to the pachinko hall to carry out the work or outsource it to an installer. Further, amid a shrinking market, pachinko hall owners are reducing the number of new machines they install at any one time to mitigate machine replacement risk, so installation and component replacement costs per machine are in an uptrend for the machine manufacturers. Fields has qualified personnel in its offices throughout the country, and plans to carry out new machine installation and component replacement under contract to several amusement machine manufacturers starting in FY03/19. The company will receive revenues from manufacturers for this work. It said it was also considering bundling this with extended warranty services to improve convenience for its clients. Targeted online advertising, Fields AD Network The company developed a product that bundles advertising and marketing analysis tools, Fields AD Network, and began offering the product in July Fields AD Network is a packaged integrated marketing product that utilizes big data on smartphone users interests and location. With an aim of attracting customers to pachinko halls, it provides a targeted online advertising tool Fields AD Network GPS x Wi-Fi (FAN GPS x Wi-Fi) and a customer information analysis tool Customer Attraction Master Tool. FAN GPS x Wi-Fi is an online advertising tool that utilizes big data on users interests and location. Based on smartphone location data of roughly 40mn users (total number of detectable users), it delivers advertisements to ideal target audience. It can deliver advertisements to potential customers who have a history of visiting the hall as well as its competing halls (setting can be changed to include nearby racecourses and commercial facilities other than competing halls) or to potential customers in pachinko/pachislot halls located within 1km radius from the hall. Further, FAN GPS x Wi-Fi allows hall operators to assess effectiveness of these advertisements by providing information on whether smartphone users who have seen the advertisements have actually visited the hall. Customer Attraction Master Tool analyzes customer information based on location data. With smartphone location data of roughly 25mn users, it can analyze the number of customers who have visited the hall that has adopted the tool and its nearby competing halls. It can also analyze areas of customer activity. Based on these analyses, pachinko/pachislot hall operators can predict where existing and potential customers live and work, and use the data to improve various measures to attract customers. FAN GPS X Wi-Fi charges JPY200,000 per month (maximum advertising price; customers are charged based on advertisements actually delivered), and Customer Attraction Master Tool costs JPY39,800 per month. The company stated that Fields AD Network will be installed at roughly 700 halls as of Q1 FY03/19, and that it aims to win contracts from 2,000 halls by the end of FY03/19. Used amusement machine distribution The company says that around 40% of the replacement machines in pachinko halls are secondhand. Half of these are transferred from within the same pachinko hall chain, but the remaining half are sold from one hall to another. The company plans to start providing information on used pachinko hall machine transactions online during FY03/19. It plans to receive commissions from both the buyer and the seller of used pachinko machines in this business. Other solutions Other solutions include providing digital signage and proposals for effective land utilization to pachinko halls. The latter involves proposals to convenience store chains to set up shops in pachinko hall parking lots, for which it would receive brokerage commissions. Pachinko and pachislot machine development business The company s amusement machine development subsidiaries include primarily BOOOM Corp., involved in planning and development, amusement machine software planner and developer Microcabin Inc., and machine developer Shin-Nichi Technology Co. 15/55

16 esearch eport by Shared esearch Inc. Content planning and production: Tsuburaya Productions Tsuburaya Productions (TPC) plans and produces movies and TV programs such as Ultraman, and plans, produces, and sells character merchandise. TPC has traditionally produced and sold merchandise based on the Ultraman franchise aimed at males. It said from FY03/19 it would broaden its character-based lineup to target females and infants. TPC was engaged in a lawsuit regarding the rights to use the Ultraman franchise outside Japan, so was unable to aggressively roll out the business overseas. In April 2018, a US court ruled that TPC had all rights to use creative works and products based on Ultraman characters outside Japan. Shared esearch understands this will enable the company to aggressively roll out the business overseas, starting with the United States. The company also said that in the long term it planned to develop TPC as a studio producing a variety of movies. Video production: Digital Frontier Digital Frontier is involved in planning and producing computer graphics. It handles a range of activities from planning and producing live-action and computer graphics animation through the final product, as well as movies, games, anime, and live video, and has won numerous prizes. Shared esearch thinks Digital Frontier will be responsible for producing the group s video content in the long term. 16/55

17 esearch eport by Shared esearch Inc. Business Summary Business overview The company s businesses are distribution of pachinko and pachislot machines, development of pachinko and pachislot machines, and a content and video business. Fluctuations in the company s results are mainly due to the planning, development and sales of amusement machines in the pachinko and pachislot distribution business. The company acquires merchandising rights to promising content. It then adds value through product planning, outsources development and manufacturing to its business partners, and sells finished pachinko and pachislot machines as a distributor to pachinko halls nationwide. It adds value by virtue of its ability to plan and develop amusement machines through purchasing and combining original content in product planning, and its product supply capabilities through alliances with eight amusement machine manufacturers. Fields is the largest independent distributor, with a Japan-wide network. It assesses the needs of pachinko halls across the country and is a useful ally in product planning. It utilizes nationwide pachinko hall operation data in marketing, enabling it to propose the ideal replacement machines to pachinko halls. Meanwhile, pachinko halls can purchase titles from various amusement machine manufacturers solely from the company. In the content and video business, the company plans, develops, and sells intellectual property (IP). Consolidated subsidiaries Tsuburaya Productions (TPC) and Digital Frontier play key roles. TPC plans and produces movies and TV programs such as Ultraman, and plans, produces, and sells character merchandise. Digital Frontier is involved in planning and producing computer graphics. Earnings since 2000 Since 2000, Fields has acquired or developed commercial rights to promising content from Japan or overseas, planned products, and outsourced the development and manufacturing of pachinko and pachislot amusement machines to the second brands of its business partners. It sold finished amusement machines to pachinko halls across Japan as the exclusive distributor. While it grew the number of partner manufacturers and increased the number of models it sold, from FY03/13 to FY03/18, the company engineered a strategic shift from the business model it had since listing which focused on the fields of pachinko and pachislot to one that revolved around IP. The aim was growth through a cycle of business development centered on IP involving comics, animations, movies and television, and merchandising (including pachinko and pachislot machines). However, from 2015 until 2018, there was a series of regulatory changes aimed at mitigating the gambling aspects of pachinko and pachislot machines (refer to Market and value chain section). The pachinko playing population declined and the pachinko market shrank. The company s performance trended downward for four consecutive years from FY03/15, with declining sales and profit, culminating in operating losses in FY03/17 and FY03/18. From FY03/19, founder and chairman Hidetoshi Yamamoto has also served as president. The company s business model revolved around IP from FY03/13 to FY03/18. The plan is to return to the company s main business in the pachinko and pachislot field and turn around its performance. 17/55

18 esearch eport by Shared esearch Inc. Pachinko and pachislot distribution Planning, development, and distribution of pachinko and pachislot machines This is the main source of company revenues. As a fabless entity, the company creates content or acquires merchandising rights to promising content in Japan and overseas. It then adds value through product planning, outsources development and manufacture to its business partners, and sells finished pachinko and pachislot machines as the sole distributor. Although it does sell machines made by non-partners, most machines are made by partners. Fields added value comes from its ability to obtain and combine proprietary content to plan and develop pachinko/pachislot machines. Because the company is the largest independent distributor with a national sales network of 34 offices, its clients enjoy the benefit of purchasing titles from several different manufacturers through a single sales contact. Its sales force has compiled a database about market trends and best practices. The company shares this accumulated knowledge with pachinko halls, fostering client loyalty. Pachinko/pachislot machines require roughly two to three years from content search, study, and acquisition to finished product delivery. Usual flow of merchandising rights in product planning and development and how sales are booked Source: Company data Note: MG (minimum guarantee) is minimum guaranteed usage fee paid by the licensee to the licensor when concluding a license business agreement Note: O (over royalty) payments are variable royalty payments (sliding scale usage fee) for rights such as copyright or industrial property rights when a specific sales volume is exceeded Distribution and agent sales The company sells pachinko/pachislot machines in two ways. In distribution sales, the company sells directly to pachinko halls via its regional and branch offices. It uses this sales method for most of the pachislot machines and some of pachinko machines it sells. In the agency sales method used for pachinko machines, the company serves as sales broker. In distribution sales the company purchases machines from machine makers and sells them to pachinko halls. In agency sales, acting as a sales broker for machine makers, the company creates transaction agreements between machine makers and pachinko halls, collects payments from pachinko halls, prepares for pachinko hall openings, and provides after-sales services. By doing so, the company receives commissions from machine makers. Sales are booked differently in the two methods. This means that the company s sales are a function of the composition of distribution and agency sales. Distribution sales Machine sales to pachinko halls are booked as sales in the month of sales. Payments for machines purchased are booked as CoGS. 18/55

19 esearch eport by Shared esearch Inc. Distribution sales (revenue and profit based on purchase) Source: Company data Hiroya Oku, Shueisha. Hiroya Oku, Shueisha, GANTZ: O Production Committee, OK Co., Ltd. Capcom Co., Ltd. All rights reserved. Spiky Agency sales Commissions received from machine makers upon machine sales are booked as sales in the following month of sales. Agent sales (revenue and profit based on commissions) Source: Company data Khara, Inc. 19/55

20 esearch eport by Shared esearch Inc. Sales structure As of March 31, 2018, the company had around 300 sales staff at 34 offices nationwide. The company s salespeople cover approximately 30 accounts each. Salespeople employ a consulting sales approach where they contribute to efficient pachinko hall management. The company has machine showrooms in all of its branch offices. Fields utilizes two distribution channels. The first is a direct channel (selling directly to hall operators); around 70% of machines are sold using the direct channel. The second is sales through resellers; this channel is lower margin than the direct channel, but sometimes makes economic sense due to the small size or geographic location of end customers. The company has been expanding its distribution channels since FY03/13. From FY03/15, Fields grew its sales force, and from FY03/18 expanded its sales network. The number of pachinko and pachislot halls under a salesperson s coverage will be reduced, and access time to such hall operators shortened. The company aims to strengthen its sale support to affiliated pachinko and pachislot machine manufacturers. Machine units installed and the company s earnings Machine volumes are the main swing-factor for earnings (see chart below). Operating profit vs. unit sales (JPYmn) FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Operating profit 12,348 8,944 13,158 1,960 8,124 13,136 8,527 10,314 9,791 4,743 1,411-5,374-5,738 Pachinko/Pachislot sales ('000 units) Source: Shared esearch based on company data Strategic partnerships The company partners with key machine manufacturers to jointly promote wide-ranging machine brands. For these manufacturers, the company acts as the sole distribution agent. Sammy Inc.: Group company of Sega Sammy Holdings Inc. (TSE1: 6460). Fields concluded a basic agreement on sales transactions with Sammy Inc. in 2017 to become an exclusive distributor to sell certain amusement machines developed and manufactured by Sammy Group companies as specified in the agreement. Bisty Co., Ltd.: Subsidiary of SANKYO Co., Ltd. (TSE1: 6417), Fields partner pachinko/pachislot machine manufacturer. Since its tie-up in 2003, Bisty has developed a variety of titles including the Evangelion series. 20/55

21 esearch eport by Shared esearch Inc. OK Co., Ltd.: Tie-up with KYOAKU SANGYO (unlisted) in February Fields and KYOAKU SANGYO jointly launched new brand OK to create a new pachinko market and expand the pachinko fan base. It owns hit titles such as Pachinko GANTZ. Enterrise Co.: Subsidiary of Capcom Co., Ltd. (TSE1: 9697), a leading video game company, Fields partner. Fields began sales of Enterrise pachislot machines in 2010, as the exclusive retailer. Hit titles include the Pachislot Biohazard series and Pachislot Monster Hunter series. D-light Co., Ltd.: Founded in 2000 as a second brand for Daiichi Shokai Co., Ltd. (unlisted). Business alliance agreed upon with Fields in In 2015, D-light began producing and selling pachislot and pachinko machines. NANASHOW Corp.: Established in Fields bought a stake in NANASHOW in 2014 (38.9%). Business alliance agreed upon with Fields in It launched sales of Pachislot BESEK, a top title in /55

22 esearch eport by Shared esearch Inc. Main strategic partners and group companies Source: Company data Note: Spiky Corporation (wholly owned subsidiary of COSSALPHA (formerly Aristocrat Technologies) became a subsidiary when the company made COSSALPHA a subsidiary. SUNISE, POJECT GEASS Character Design 2006 CLAMP/ST SUNISE, POJECT GEASS Character Design CLAMP/ST BANDAI NAMCO Entertainment Inc. Khara, Project Eva. Hiroya Oku, Shueisha Hiroya Oku, Shueisha, GANTZ:O Production Committee OK Co., Ltd. Tsuburaya Productions OK Co., Ltd. umiko Takahashi, Shogakukan, Yomiuri Telecasting, Sunrise 2000 & Mikage Kasuga, SB Creative, The Ambition of Oda Nobuna Production Committee CAPCOM CO., LTD. ALL IGHTS ESEVED. Tatsunoko Production NANASHOW 2006, 2010 ei Hiroe, Shogakukan, BLACK LAGOON Production Committee NANASHOW SQUAE ENIX CO., LTD. All ights eserved. UNIVESAL ENTETAINMENT MIZUHO SQUAE ENIX CO., LTD. All ights eserved. UNIVESAL ENTETAINMENT MIZUHO Nihon Falcom Corporation Sammy GAINAX, Kazuki Nakashima, Aniplex, KONAMI, TV TOKYO, Dentsu GAINAX, Kazuki Nakashima, Gurren Lagann Theatrical Version Production Committee Spiky NANASHOW 22/55

23 esearch eport by Shared esearch Inc. Machine sales by brand Sales by brand FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (Units) Total 331, , , , , , , , , ,457 YoY -31.6% 35.8% 6.8% -14.1% -20.4% 19.8% 1.7% -27.6% -15.8% -21.4% odeo 41,536 28, ,691 81, ,549 26,505 42,566-4, YoY -67.5% -30.8% 323.1% -32.8% 27.8% -74.6% 60.6% % % of sales 12.5% 6.4% 25.3% 19.8% 31.9% 6.7% 10.6% % Bisty 262, , , , , , , , ,647 69,159 YoY -20.6% 38.5% -15.6% -14.0% -56.7% 52.2% -8.0% -9.2% -23.7% -37.5% % of sales 79.1% 80.7% 63.8% 63.9% 34.8% 44.2% 40.0% 50.1% 45.4% 36.1% Enterrise - 2,498 16,119 7,264 47,889 72,085 24,467 42,825 57,848 22,326 YoY % -54.9% 559.3% 50.5% -66.1% 75.0% 35.1% -61.4% % of sales - 0.6% 3.4% 1.8% 14.6% 18.3% 6.1% 14.8% 23.7% 11.7% OK ,437 28, ,597 5,010 22,897 26,149 YoY % 298.0% -95.6% 357.0% 14.2% % of sales % 7.3% 28.7% 1.7% 9.4% 13.7% Mizuho ,127 4,964 39, ,316 YoY % 698.2% -99.8% % % of sales % 1.2% 13.7% 0.0% 5.4% NANASHOW ,084 14,990 10,052 18,718 YoY % -32.9% 86.2% % of sales % 5.2% 4.1% 9.8% Daiichi/D-light ,767 17,200 3,357 YoY % -80.5% % of sales % 7.1% 1.8% Others 27,582 55,564 35,878 59,776 29,143 37,845 33,235 24,175 20,436 40,803 YoY 2.5% 101.5% -35.4% 66.6% -51.2% 29.9% -12.2% -27.3% -15.5% 99.7% % of sales 8.3% 12.4% 7.5% 14.5% 8.9% 9.6% 8.3% 8.4% 8.4% 21.3% Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. Major hit titles, such as the Evangelion series developed jointly with SANKYO subsidiary Bisty, are significant earnings drivers for Fields. By the end of FY03/17, Fields had sold more than 2.2mn machines based on Evangelion-related IP. Evangelion is a hit animation franchise that has gained further popularity since the release of a four-part movie series, ebuild of Evangelion in The series rose to popularity in when 26 episodes of the show were broadcast on TV Tokyo. As of May 2018, the first three series have been produced and released. 23/55

24 esearch eport by Shared esearch Inc. Group companies The company s main subsidiaries and affiliates are shown following. 1) Contents and video HEO S Inc. (April 2010; 49.00%): Plans, produces, and manages comic magazines and character content No. 9 Inc. (September 2017; 24.88%): Develops and operates manga boutique Manga Trigger Lucent Pictures Entertainment, Inc. (October 2007; 99.89%): Plans and produces animation films Digital Frontier Inc. (April 2010; 86.95%): Plans and produces computer graphics SPO Inc. (March 2008; 31.81%): Plans, produces, and distributes movies FutureScope Corp. (October 2006; 94.40%): Provides mobile content-related and online shopping services. Tsuburaya Productions Co., Ltd. (April 2010; 51.00%): Plans and produces movies and TV shows. Plans, produces, and sells character merchandise Total Workout Premium Management Inc. (May 2011; 95.00%): uns fitness clubs 2) Pachinko and pachislot Fields Jr. Corp. (March 2002; %): Provides maintenance services Shin-Nichi Technology Co. (January 2008; %): Develops machines BOOOM Corp. (May 2009; %): Plans and develops machines Sogo Media Inc. (March 2010, 35.00%): Advertising agency business Microcabin Inc. (January 2011; %): Plans and develops software NANASHOW Corp. (January 2014, 38.89%): Develops and manufactures pachinko/pachislot machines COSSALPHA (May 2015, %): Develops and manufactures pachislot machines Spiky Corporation: (May 2015, %): Develops and manufactures pachislot machines 24/55

25 esearch eport by Shared esearch Inc. Profitability snapshot and financial ratios Profit margin FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. GPM 32.9% 40.5% 33.9% 34.0% 30.8% 29.4% 28.6% 27.0% 23.0% 21.9% OPM 2.7% 12.2% 12.7% 9.2% 9.5% 8.5% 4.8% 1.5% -7.0% -9.4% PM 1.4% 11.7% 13.2% 9.4% 9.5% 8.5% 5.5% 1.5% -11.8% -8.5% Net margin -2.0% 5.0% 7.3% 6.5% 4.4% 4.7% 3.0% 0.1% -16.3% -12.6% Financial ratios FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. OA (P-based) 1.6% 11.6% 17.1% 10.0% 10.3% 9.2% 5.1% 1.4% -10.5% -6.8% OE -3.5% 8.2% 17.1% 12.2% 8.9% 9.5% 5.1% 0.2% -25.1% -19.9% Total asset turnover Inventory turnover Days of inventory Quick ratio 205.4% 136.7% 158.8% 139.1% 137.9% 140.8% 134.8% 136.7% 175.4% 140.1% Current ratio 333.0% 158.2% 185.1% 165.6% 153.5% 160.4% 155.1% 177.6% 224.0% 189.7% Equity ratio 77.6% 51.3% 60.3% 55.4% 51.5% 55.9% 54.5% 63.0% 54.9% 47.5% Net debt / Equity -20.2% -32.8% -29.5% -32.4% -40.5% -49.2% -19.5% -35.6% -17.4% -24.2% OCF / Current liabilities OCF / Total liabilities Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. While true peer analysis is not possible due to the company s unique business model, the company had high profitability, with its OE exceeding 10% in FY03/08, FY03/11, and FY03/12. 25/55

26 esearch eport by Shared esearch Inc. Strengths and weaknesses Strengths Strong sales force: Game makers use Fields to take advantage of the company s large and skilled sales force, enabling them to extend geographic reach and accelerate getting games on the market. Game planning and development: The company develops games not dependent on a sense of gambling, but on strong content. Brand creativity: The ability to create new, distinct brands gives the company's partners more bandwidth to sell product while defraying their marketing costs. (Operators tend to allocate hall-space per brand; distinct labels enable manufacturers to backdoor additional machines into one venue.) Alliances with top game makers: The company s partners include game makers with notable technology and development capabilities, as well as leading entertainment companies Weaknesses Dependency on pachinko/pachislot business in a regulated industry: Earnings are highly dependent on the pachinko/pachislot business, which is easily affected by legal and voluntary restrictions. Main facilities Fields Corporation s operational backbone is based on its national sales network. This includes 7 regional offices, and 26 branch offices (as of end March 2018) located in Hokkaido-Tohoku (3), North Kanto (3), Tokyo (6), Nagoya (4), Osaka (3), Chugoku-Shikoku (3) and Kyushu (4). The company also has eight showrooms nationwide in Morioka, Akita, Utsunomiya, Nagano, Takamatsu, Okayama, Oita, and Miyazaki. 26/55

27 esearch eport by Shared esearch Inc. Market and value chain This section focuses on the pachinko/pachislot machine market. Market overview The Japan Productivity Center estimated the total domestic leisure market at JPY69.9tn (-2.0% YoY) in fiscal 2017 (source: White Paper on Leisure 2018). Pachinko/pachislot market (total lending charge of pachinko balls) was estimated at JPY19.5tn (-4.3% YoY). The pachinko/pachislot market has created a large presence to account for 27.9% of the overall leisure market. In fiscal 2016, the market as measured by sales for pachinko halls was JPY21.6tn (total lending charge of pachinko balls). Of that amount, JPY18.5tn was returned to players in prizes. The remaining JPY3.1tn became gross profit for pachinko halls. Operators invested about JPY0.9tn into the purchase of new machines and replacements. Industry trend Shared esearch focuses on the following indicators to gauge the state of the pachinko/pachislot industry. Key indicators for pachinko/pachislot industry Indicator Key figures Growth rate eference Player base 9.0mn (2017) -5.5% annual average (past 10 years) Long-term downtrend Pachinko/pachislot market JPY19.5tn Declining since 2005 along with game-playing -4.3% annual average (past 10 years) size (2017) population Pachinko hall numbers 10,596 Shrinking with pachinko/pachislot market -2.5% annual average (past 10 years) (2017) Average number of machines installed per hall rising Number of machines 4.43mn installed (2017) -0.4% annual average (past 10 years) In a downtrend Number of machines sold 2.44mn (2016) -7.8% annual average (past 10 years) Declining along with replacement rates Value of machines sold JPY882.1bn Declining more slowly than number of machines as -4.4% annual average (past 10 years) (2016) average prices rise eplacement rates 0.54x (2016) Half of 2006 levels Declining tendency Source: Shared esearch based on various sources Note: replacement rate = number of machines sold number of machines installed Downward trend in player population and declining number of pachinko halls As of August 2018, the pachinko industry has been experiencing a gradual long-term decline in the player base and market size. The player base fell to 9.0mn in 2017 compared to 29.0mn in Until 2005, the market size grew despite a shrinking player population as average annual spend per player was growing. The market size (total lending charge of pachinko balls) peaked in 2005 at JPY34.8tn, and fell to JPY19.5tn in /55

28 esearch eport by Shared esearch Inc. Pachinko players and market size Market size (JPYtn) 23.1 Player population (mn people) Player population (mn people) Market size (JPYtn) Source: Shared esearch based on White Paper on Leisure Diverging trends among halls The number of pachinko halls declined to 10,596 in 2017 from 17,773 in 1997 (source: National Police Agency). However, despite the growing downward trend in the number of pachinko halls, the number of installed machines has remained generally unchanged at 4.43mn in 2017 and 4.73mn in On the other hand, hall sizes have become larger, increasing to an average of 419 installed machines per hall in 2017 from 268 machines in A decrease in the amount of cash flow available for new investments has forced some smaller operators to sell or shut operations, while larger chains appear to be gaining scale, highlighting continued polarization of the market. Number of pachinko halls and installed pachinko machines per hall Number of pachinko halls Installed machines per hall ,773 17,426 17,173 16,988 16,801 16,504 16,076 15,617 15,165 14,674 13,585 12,937 12,652 12,479 12,323 12,149 11,893 11,627 11,310 10,986 10, Number of pachinko halls 17,773 17,426 17,173 16,988 16,801 16,504 16,076 15,617 15,165 14,674 13,585 12,937 12,652 12,479 12,323 12,149 11,893 11,627 11,310 10,986 10,596 Installed machines per hall Source: Shared esearch based on National Police Agency Players turnover Order trends for Fields are tied to the financial health of its pachinko hall clients. Logically, the higher the cash flows of pachinko halls, the more funds they can spend on new equipment. Industry new machine investment is broadly defined by the average number of times halls turn their machine lineup per year. After peaking in 2005, turnover rates (aggregate for pachislot and pachinko) entered a downtrend. In 2016, turnover was 0.55 times for pachinko, 0.52 times for pachislot, and 0.54 for game machines overall (source: Yano esearch Institute, National Police Agency). 28/55

29 esearch eport by Shared esearch Inc. Machines sales and players turnover 12,000 10,000 8,000 Installed pachinko machine ('000 units) Installed pachislot machine ('000 units) Pachislot machine turnover (right axis; times) Pachinko machine turnover (right axis; times) Total machine turnover (right axis; times) , , , ('000) Total machines Installed ('000 units) 4,730 4,690 4,690 4,740 4,780 4,850 4,880 4,960 4,890 4,930 4,590 4,520 4,500 4,550 4,580 4,590 4,610 4,590 4,580 4,520 4,430 Installed pachislot machine ('000 units) 880 1,000 1,130 1,320 1,450 1,600 1,660 1,880 1,930 2,000 1,630 1,440 1,340 1,390 1,470 1,540 1,600 1,640 1,660 1,690 1,680 Installed pachinko machine ('000 units) 3,850 3,680 3,550 3,420 3,320 3,250 3,220 3,070 2,960 2,930 2,950 3,070 3,150 3,160 3,100 3,040 3,000 2,950 2,910 2,830 2,740 Total machine turnover (right axis; times) Pachislot machine turnover (right axis; times) Pachinko machine turnover (right axis; times) Source: Shared esearch based on data from Yano esearch Institute and National Police Agency Machines sales The number of machines sold is in a downtrend. eplacement rates are declining as pachinko halls earnings and cash flows decline accompanying the shrinking of the pachinko market. In terms of the machine market, pachinko machine sales rose from 3.9mn machines in 1996 to a peak of 4.0mn machines in But since then, pachinko machine sales have been declining. Pachislot machine sales expanded five-fold to 1.8mn in 2005 off a low base of 420,000 machines in Following the introduction of stricter regulation in 2007, demand for pachislot machines fell before recovering from the second half of However, it dived in 2015 and 2016 under the impact of a series of regulations since Machines sales; units and value 12,000 10,000 8,000 Pachislot machine sales units ('000 units) Pachinko machine sales units ('000 units) Pachinko market size (right axis; JPYbn) Pachislot market size (right axis; JPYbn) 1, , , , Total Pachislot machine sales units ('000 units) ,130 1,290 1,500 1,840 1,670 1,780 1,640 1, ,250 1,320 1,390 1, Pachinko machine sales units ('000 units) 3,930 2,840 2,350 3,120 3,360 3,230 3,170 3,680 4,010 4,040 3,830 3,170 3,330 3,330 2,900 2,600 2,490 2,060 2,010 1,880 1,560 Total , , , , , , , , , , , , Pachislot market size (right axis; JPYbn) Pachinko market size (right axis; JPYbn) Source: Shared esearch based on company data Note: Figures may differ from company materials due to differences in rounding methods. 29/55

30 esearch eport by Shared esearch Inc. Manufacturer share As the size of the market has changed, competition between manufacturers has intensified. Well-known manufacturers that have worked their way into the top ranks tend to generate repeat sales by developing a series of machines based on a popular theme, but smaller manufacturers have been struggling. Today, while top-selling blockbusters may still garner over 100,000 machines in sales, less popular titles may not even sell 10,000 machines. The chart below illustrates market share per manufacturer on a machine basis (source: Yano esearch Institute, Trends of Pachinko elated Manufacturers and Market Share 2012). As of May 2018, there were a total of 37 pachinko machine manufacturers versus 50 manufacturers of pachislot machines, an indication that there is less competition in the pachinko industry than in the pachislot industry. Across both segments, Shared esearch believes the success of the company is partly due to its ability to partner with key players at the development stage. Manufacturers, in turn, have reason to partner with Fields as it enables the creation of secondary brands and higher penetration per account resulting in a higher market share. Pachinko market share (sales unit basis) FY2012 FY2013 FY2014 FY2015 FY2016 ank Company Share Company Share Company Share Company Share Company Share 1 Sanyo 21.8% Kyoraku Sangyo 16.9% Sanyo 16.3% Sansei &D 15.9% Sanyo 19.5% 2 Kyoraku Sangyo 20.3% Sanyo 15.3% SANKYO 16.3% SANKYO 15.7% Sansei &D 13.3% 3 Heiwa/Olympia 10.1% SANKYO 14.1% Kyoraku Sangyo 15.3% Sanyo 14.6% Heiwa/Olympia 12.3% 4 newgin 10.0% Sammy 9.7% Heiwa/Olympia 12.5% Heiwa/Olympia 12.4% SANKYO 11.0% 5 Sammy 8.7% Heiwa/Olympia 9.5% Sammy 12.0% newgin 11.7% newgin 10.2% Pachislot market share (sales unit basis) FY2012 FY2013 FY2014 FY2015 FY2016 ank Company Share Company Share Company Share Company Share Company Share 1 Universal 17.8% Sammy 21.7% Sammy 16.8% Universal 17.0% Sammy 24.3% 2 Sammy 15.3% Universal 15.4% Universal 16.6% Sammy 14.7% Universal 22.9% 3 Yamasa 14.6% Heiwa/Olympia 8.6% Daito Giken 10.4% Heiwa/Olympia 11.8% Kita Denshi 10.2% 4 Daito Giken 14.0% SANKYO 8.4% Yamasa 8.8% Kita Denshi 10.3% Heiwa/Olympia 9.1% 5 Kita Denshi 8.3% Daito Giken 7.3% Heiwa/Olympia 7.5% SANKYO 8.3% Enterrise 6.4% Source: Yano esearch Institute, Trends of Pachinko elated Manufacturers and Market Share Note: For pachinko machines, SANKYO includes Bisty. Sammy includes Ginza and Taiyo Elec. Note: For pachislot machines, Sammy includes odeo, IGT, TIVY, and Taiyo Elec. SANKYO includes Bisty. Universal includes Eleco, Mizuho, and Macy. Olympia includes machines sold by Heiwa; total all Olympia and Heiwa brands. The company believes a recent move away from dependency on high gambling nature machines toward healthier and more entertainment-oriented machines should resume growth for the pachinko industry in the near future. While it is difficult to provide solid proof of this view, consumers average leisure time has been increasing and the company believes the evolution and growth of the pachinko industry into one of the choices of entertainment to fill this increased leisure time is a likely scenario. In addition, the pachinko and pachislot market appears to be relatively impervious to the economic cycle. The company thinks that the decline of the playing population is related more to the peculiarities of the pachinko and pachislot markets themselves. Market growth potential and cyclicality Subject to change due to regulations The pachinko and pachislot market is mature and arguably in secular decline due to Japan's declining population and emerging forms of passive entertainment. However, industry innovation could reverse or slow what has been a gradual decline. The key cyclical drivers are government regulation and the industry's growth as a distinct type of popular entertainment. The industry is regulated by the National Public Safety Commission. ules on the approval and certification of machines are set in accordance with the Entertainment Business Control Law per each prefecture. Historically, regulators have tended to change the technical specifications regarding gambling nature limits every several years. The goal has been to prevent excessive gambling and trends in high-gambling nature machines have been easing. For instance, a change in regulations in July 2004 led to a de-emphasis in the gambling aspect of pachislot machines, and to a big wave of replacement sales (shift from egulation 4 to egulation 5 pachislot machines) from 2006 through 2007 as the machines that met 30/55

31 esearch eport by Shared esearch Inc. the previous criteria were removed. Pachislot machine sales then declined as some players gravitated to pachinko. However, as manufacturers compete to develop amusement machines compliant with the newest regulations and increase the entertainment aspect of new machines there has been an acceleration in both hardware and software innovation. In the early 2000s under egulation 4, pachislot machines emerged with a jackpot that could result in a payout of more than 700 medals at a time, so a single player could acquire tens of thousands of medals in a day (worth JPY20 each in exchange). There was a boom in machines with a strong gambling element. In order to curb excessive gambling, in July 2004 there were changes to pachislot machine testing methods (egulation 5) and the first egulation 5 pachislot machines went on sale in October Machines that met egulation 4 standards were sold until December However, in June 2006, pachislot machines that passed egulation 4 tests whose installation period had expired (three years from inspection date for pachislot machines) were removed. By September 2007, all of the egulation 4 pachislot machines were out of date. According to Fields, the gambling aspect has an influence on players and thus potentially on market growth. Since the late 2000s, many pachinko manufacturers have focused on so-called "max-type" machines where average spend per player tends to be higher when compared with other types of machines, but the expected return is also likely to be higher (which can be appealing to serious players). This means on average a player loses money faster on these types of machines. Although max-type machines could mean higher cash flow for pachinko halls in the short run, Fields was concerned this trend might alienate casual players and could be an unhealthy trend for the overall market. However, from November 2015, max-type machines will no longer be sold due to voluntary restrictions adopted by the pachinko manufacturers union. Classification of pachinko specifications (i.e., jackpot-probabilities) is based on explanations from the company. Probabilities: max-type is 1/370 1/399; middle-high is 1/320 1/369; middle-low is 1/280 1/319; light-middle is 1/150 1/279; amadeji class is between 1/40 and 1/149+. Shared esearch thinks Fields could be a long-term beneficiary from the rise and fall in popularity of different machines. egulatory revisions can upstage market leaders and give manufacturers a short window when they need to scramble for new innovative products. The company helps manufacturers plan and develop new product lines to sell to halls that could be otherwise reluctant to increase dependence on a particular maker. Industry regulations Looking over the last five years, as discussed following, the industry association implemented voluntary regulations for pachinko machines in November 2015 and for pachislot machines in December New voluntary pachislot regulations were adopted in October Furthermore, in February 2018, the Law on Control and Improvement of Amusement and Entertainment Businesses and the revisions to sections of the egulations Concerning Authorization and Model Approval for Amusement Machines to reduce the gambling aspect came into effect. On the other hand, in January 2018 the pachislot machine manufacturers industry association announced voluntary restrictions on regulation 6.0 machines, which are considered as the rules for the development of machines under the egulations on the Partial evision of egulations egarding the Enforcement of the Act on Control and Improvement of Amusement Business. Compared to regulation 5.9 machine, regulation 6.0 machines have lower limit of ball payout and the output ratios while they have higher flexibility in developing machines by easing certain rules for regulation 5.9 machines as a result of changes of internal regulation. Measures to curb gambling nature of pachinko machines (changes to lower limit of jackpot probability and probability fluctuation rate) In an effort to reduce the attraction of pachinko as a form of gambling and restore its popularly as a form of entertainment, Nikkoso, the pachinko machine manufacturers association (the Japan Game Machine Industry Association) agreed to change the lower limit of the pachinko machine jackpot probability range from the previous level of 1/400 to 1/320 (from 1/400 as of May 2015). Effective November 2015, this self-imposed regulatory change means that game machine manufacturers are longer able to sell max-type machines (jackpot probability of 1/370 1/399) that were the mainstay at pachinko halls prior to October /55

32 esearch eport by Shared esearch Inc. From May 2016, Nikkoso is also likely to voluntary introduce a lower maximum occurrence of a game feature called probability fluctuation (the jackpot rate after a successful a jackpot) from around 80% to 65%.This latest self-regulatory move was precipitated by the growing demand for max-type machines (jackpot probability of 1/370 1/399) among hard-core pachinko players, which had led pachinko halls to install more and more of these machines to the point that max-type machines now account for more than 40% of all machines in pachinko halls. As this pushed up the average cost of playing pachinko, the number of people playing game machines declined and the industry sought to tighten industry standards to reduce the appeal of pachinko as a form of gambling with the hope of bringing back more players into pachinko halls. Impact of voluntary industry restrictions on pachislot machines (egulation 5.5 machines) In September 2014, the Security Communication Association changed its testing methodology for pachislot machines. Previously, pachislot machines had to register a ball put-out ratio of 55% (11 out of 20) or better during a random test run. The new standard called for the same minimum ball put-out ratio to be scored during testing for the lowest possible ball put-out ratio. That same month, the pachinko machine manufacturers association (the Japan Game Machine Industry Association) adopted a new standard that would prohibit penalty features in machines and also mandated that machine makers switch to motherboards with AT/AT functionality. Prior to this change, pachislot machines incorporated a main circuit board and a sub board, both of which controlled the payout rate of game tokens. Effective December 2015, the new industry standard requires the sub-board program that controls ball discharge to be incorporated into the main circuit board. AT Machine: An abbreviation of Assist Time, an AT Machine is a type of pachislot machine. During regular play, even if the user selects the winning icons, they do not match up on the screen because of the push-order rule. However, when the AT function is installed, if the machine selects the AT mode, a display screen on the pachislot machine will indicate the order of the buttons to press to match up the icons on the screen, allowing the user to increase their coins. AT Machine: An abbreviation of Assist eplay Time, an AT Machine is a type of pachislot machine. When this function is installed, if the machine enters AT mode, the odds of a replay increase, allowing the user to continue playing without using up coins. Impact of voluntary industry restrictions on pachislot machines (egulation 5.9 machines) In June 2016, Liaison Conference of Pachislot Machine Manufacturers explained that they would implement voluntary regulations, which limit AT functions for pachislot machines installed after October 2017, and classified pachislot machines that comply with these voluntary regulations as 5.9 models. New units of 5.5 machine models could only be installed until the end of September There are two sections related to indicated functions (navigation function, such as the push-order) for 5.9 models: a regular section, which will prohibit the AT mode, and a section in which AT mode is enabled. Machines randomly select the transition from the regular to the AT mode per play, and the AT mode section will limit the total amount of balls released to 3,000 by ending the game after a maximum of 1,500 games. The chance of the AT mode being selected is limited to under 70% of the total. Inviting public comments on proposed amendment including changes to number of game balls released In February 2018, a partial amendment to the Law on Control and Improvement of Amusement and Entertainment Businesses and the egulations Concerning Authorization and Model Approval for Amusement Machines came into effect. The amendment includes a change in the number of pachinko balls released per play. The amendment, which aims to reduce the addiction of pachinko as a form of gambling, limits the game ball-releasing capacity of amusement machines as well as the maximum number of game balls released per jackpot. It also introduced a settings feature for pachinko machines. Tightening regulations on the number of balls released: The proposed amendment newly stipulates a rule, which curbs the ball-releasing capacity of amusement machines over a set playing span of four hours. Under this rule, the total number of game balls released during a four-hour play must be less than 1.5 times the total number of game balls shot by the player. Existing 32/55

33 esearch eport by Shared esearch Inc. technical specifications and standards for one hour and 10 hours will also be tightened to the same degree so that the total number of game balls released may be reduced to about 2/3 of the current level. For pachislot machines, a new regulation similar to that of pachinko machines also for a four-hour playing span (1,600 shots in the case of pachislot machines) will be put in place. egulations on the number of game balls released per jackpot: For pachinko machines, the maximum number of game balls released per jackpot will be reduced from the current upper limit of 2,400 to 1,500. For pachislot machines, the maximum number of game tokens will be reduced from 480 to 300. Changes to regulations on the number of balls released by pachinko machines (test values) Play duration Current limit on balls released evised limit on balls released One hour Under 300% Over 33% and under 220% Four hours - Over 40% and under 150% 10 hours Over 50% and under 200% Over 50% and under 133% Changes to regulations on the number of balls released per jackpot Current evised Pachinko 2,400 (equivalent to JPY9,600) 1,500 (JPY6,000) Changes to the number of rounds permitted in pachislot Current evised Number of rounds Up to 16 Up to 10 Changes to regulations on the number of medals released by pachislot machines (test values) Test Current limit on medals released evised limit on medals released 400 games Under 300% Over 33% and under 220% 1,600 games - Over 40% and under 150% 6,000 games Under 150% Over 50% and under 126% 17,500 games Over 55% and under 120% Over 60% and less than 115% Changes to regulations on the number of medals released per jackpot Current evised Pachislot 480 (equivalent to JPY9,600) 300 (equivalent to JPY6,000) Addition of a standard for amusement machines to facilitate the checking of ball/medal release information to prevent machines from becoming too gambling-oriented Addition of management requirement: A new regulation to require managers of pachinko halls, etc., to provide information to customers and take other necessary action to prevent excessive play Introduction of a settings feature to pachinko machines: Allows up to six pachinko machine settings defining jackpot probabilities for more operational flexibility as in the case with pachislot machines As a transitional measure, amusement machines certified under the pre-revision regulations and those belonging to the same model type as the tested and approved models can remain in operation at pachinko halls for a period of three years from the initial date launched as outlined in the supplementary provisions. Impact of voluntary industry restrictions on pachislot machines (egulation 6.0 machines) In January 2018 the Liaison Conference of Pachislot Machine Manufacturers, organized by pachislot machine manufacturers, announced voluntary restrictions (on regulation 6.0 machines), which are considered as the rules for the development of pachislot machines corresponding to the egulations on the Partial evision of egulations egarding the Enforcement of the Act on Control and Improvement of Amusement Business. 33/55

34 esearch eport by Shared esearch Inc. Voluntary restrictions on regulation 6.0 machines are based on the intent of the revised regulations, and while they lower the maximum output of balls and the payout rate than standard for regulation 5.9 machines, they give more flexibility in pachislot machine development by removing regulations on the net increase of medals per game: for egulation 5.9 machines the net increase of balls per game must stay below two) and AT function regulations. Further, with egulation 6.9 machines the section with AT mode enabled limited games at 1,500 plays; with egulation 6.0 machines the enabled section will limit games at 1,500 plays or a maximum ball differential of 2,400. According to the company the payout rate for egulation 6.0 pachislot machines is lower than that or egulation 5.9 machines, but game types will diversify due to the heightened flexibility in development. Timeline of regulation revisions For pachislot, the sale of egulation 5.5 machines came to an end in September egulation 5.9 pachislot machines went on sale in October The rules limiting the number of medals issued to 300 (down from 480) went into force in February 2018, but egulation 5.9 machines which passed model testing from before January 2018 can be sold until January The company expects egulation 5.9 models to be sold in total based on the certification testing schedule. Applications will open in April 2018 for model testing for egulation 6.0 pachislot machines based on the rules of the egulations on the Partial evision of egulations egarding the Enforcement of the Act on Control and Improvement of Amusement Business, and it is expected that egulation 6.0 pachislot machines will enter the market in autumn For pachinko, previous regulation machines that passed model testing from before January 2018 (which can release up to 2,400 balls) can be sold until January The company expects around 80 models to be sold between August 2017 and January Timeline of regulation revisions Source: Company data Pachinko machine regulation timeline Payout limit 2,400 2,400 2,400 2,400 1,500 Payout test Lowering upper limit / setting lower limit Minimum jackpot 1/400 1/320 1/320 1/320 1/320 probability Probability fluctuation Up to 65% Up to 65% Up to 65% Source: Shared esearch based on company data 34/55