Universal Entertainment Corporation

There is a possibility that the technical standards for gaming machine model testing and certification could be significantly changed due to the abolition or revision of National Public Safety Commission regulations under the "Act on Control and Improvement of Amusement Business, etc.," administrative guidance, or industry self-regulation. The Group implements applications in a planned and strategic manner based on analysis of industry trends and other companies' application status; however, if a major standard change occurs, it could have a material impact on business performance.

There is a risk that demand for gaming machines may decline due to changes in industry preferences or deterioration in domestic economic conditions, including income levels. In addition, manufacturing and sales plans may be changed due to a shortage of supply of components, particularly semiconductors, which could have a direct impact on sales and profit.

Okada Manila is exposed to international competition within the Philippines and across the Asia region, and there is a risk that competition will further intensify due to the additional issuance of gaming licenses by the Philippine government. Intensified competition may make it difficult to maintain relationships with high-quality gaming promoters and secure high-revenue-contributing VIP players, which could affect the profitability of the IR Business.

The IR Business operates under a license issued by PAGCOR, and if license maintenance provisions are tightened or the registration agreement regarding PEZA tax incentives is not complied with, a material risk to business continuity could arise. Furthermore, there is a risk that revisions to PAGCOR's tax privileges by the Philippine Congress could result in separate corporate income tax being imposed, which could significantly affect the revenue structure.

There is a risk of exposure to economic factors such as a slowdown in the Philippine domestic economy or a decline in credit ratings, political factors such as political instability, terrorism, and territorial disputes in the South China Sea, and external factors such as typhoons, volcanic activity, and epidemics. These factors directly affect the customer traffic and operations of Okada Manila and could significantly influence the performance of the IR Business.

If a security breach or leakage of personal information relating to hotel guests, gaming players, employees, and others occurs, administrative penalties (fines and sanctions) may be imposed, along with a risk of losing customer trust. Unauthorized access to or malfunction of IT systems could also adversely affect business operations, reputation, and license maintenance, posing a risk that could undermine the foundation of the IR Business.

The Group is currently involved in several ongoing legal disputes, and depending on the outcome of the rulings, business performance could be affected. The risk of new lawsuits being filed by third parties cannot be ruled out, and although the Group continues to work to avoid litigation risk, depending on the outcome, it could have a material impact on the financial condition.

Since the foreign currency-denominated profits and losses, as well as assets and liabilities, of overseas affiliated companies are translated into yen and incorporated into the consolidated financial statements, fluctuations in exchange rates directly affect business performance. In particular, fluctuations in the exchange rate of foreign currencies against the yen, including the Philippine peso, could significantly affect the yen-translated revenue of the IR Business.

If future cash flows deteriorate due to a decline in profitability or a change in the intended use of assets, impairment of fixed assets may be required. In addition, if the substantial value of investment securities declines, impairment may also be required, either of which could have a material impact on income for the period and the financial condition.

There is a risk that natural disasters such as earthquakes, tsunamis, and typhoons, or the outbreak of large-scale infectious diseases such as COVID-19, could paralyze head office and administrative functions, making it difficult for major operating companies to continue their business. The Group has implemented measures such as establishing a disaster response headquarters and adopting remote work and staggered commuting to prevent infection; however, if such situations become prolonged, they could have a material impact on business performance and financial condition.