To Our Shareholders and Investors

We have begun a full-scale process for developing new businesses that will support our growth in the next generation.

Our efforts to strengthen our revenue base in the existing businesses and expand new businesses

In the existing business (audiovisual equipment business segment), our group has established a system to manufacture products in the most suitable locations so that we can cope with a change in business environment. Accordingly, we have strengthened our revenue base by implementing a business strategy under which we intensively put business resources according to market's needs—i.e. expanding a lineup of large-sized TVs with 4K tuners and Android TVs in North America; and strengthening our brand in Japan by launching a variety of products including TVs with 4K tuners.

In addition, we have actively cultivated new business areas that will be a new pillar of our business in the future.

In the printing solution business, we aim to create a new growth market using our original technology. In June 2019, we began offering "nail art printers" under Funai brand in Japan, with which users easily enjoy printing various images onto their nails at home. In the future, we plan to market the printers overseas. Furthermore, we have been developing decorative coating devices and applications employing printing technology that enable users to color and decorate foods.

In the vehicle-borne equipment business based on electronics technology, we are scheduled to start a mass production of direct-type backlight units in December 2019 and plan to exhibit meter cluster panels under development at the Consumer Electronics Show (CES)* in 2020. Furthermore, we aim to commercialize scanner mirrors and FOMM's inverter units for the next generation vehicles at an early stage.

Our group's management policy is "Promote business alliance while defining the position of business." As part of this policy, we concluded a business alliance agreement with ROKI Co., Ltd., a company that holds the leading market share in the field of automotive air filters, in October 2019. We also signed a business alliance contract with NTT Plala Inc. in June 2019 with the aim of creating new products and services that connect people and contents with the coming 5G age in view.

* CES: a trade fair for electronic equipment held in Las Vegas, Nevada, the United States

Summary of business performance in the first half of the fiscal year ending March 31, 2020 (April 1, 2019 to September 30, 2019)

In the overseas audiovisual equipment business, imports of LCD TVs from China increased sharply, since Chinese manufacturers frontloaded shipments of LCD TVs to the U.S. ahead of the imposition of additional tariffs on Chinese imports by the U.S. government and Chinese producers increased exports to the U.S. due to the deterioration of the Chinese economy. These factors resulted in the pile-up of inventories in the U.S. TV market, leading to a plunge in sales prices of LCD TVs. Furthermore, the increase in the supply of LCD panels by Chinese makers caused the product prices to decrease every month, pushing down TV prices.

Under these circumstances, we saw our sales decline sharply in the North American market due to a decrease in sales of new products caused by a sharp rise in inventories in the distribution channel and a fall in revenue caused by the drop of product prices. Our operating income also decreased since expenses, such as sales cooperation money to cope with excessive inventory, increased.

In the Japanese market, we completely shook up the product line of TVs and BD recorders in July 2029. To meet diversified customers' needs, we added the following products to our product lineup, including high-end products, such as organic electroluminescent display (OELD) TVs with 4K tuners and HDD recorders, BD recorders that enables consumers to enjoy 4K/HDR broadcasting, and affordable products, such as TVs with or without 4K tuners and TVs with 2K tuners. As a result, we succeeded in maintaining a stable market share in the Japanese market and saw our sales in Japan grow almost in line with our plan.

Consequently, our group posted net sales of ¥42,109 million (versus ¥46,731 million in the previous year), an operating loss of ¥1,905 million (versus an operating loss of ¥1,645 million in the previous year), an ordinary loss of ¥1,811 million (versus an ordinary loss of ¥181 million in the previous year) and a ¥1,866 million loss attributable to owners of the parent (versus a ¥650 million profit attributable to owners of the parent in the previous year).

With our business environment deteriorating, we regrettably revised downward our forecast for consolidated financial results for the fiscal year ending March 31, 3030 on August 5, 2019. In the future, we will strive to maintain our competitive edge and return our inventory to a normal level by boosting sales in the audiovisual equipment business segment. In addition, we will make a concerted effort to achieve the revised plan by trying to restore business performance, including turning new businesses to profitable soon as possible.

I hope you shareholders will deepen the understanding of our group's businesses and growth strategy and give continuous supports to our group.

Hideaki Funakoshi Representative Director and President and CEO