SEGA SAMMY HOLDINGS INC.

There is a risk of leakage of important information or customers' confidential and personal information due to external attacks such as hacking or computer viruses. If an information leak occurs, unexpected costs such as damages compensation may arise, potentially affecting business activities and financial results. Measures being taken include strengthening security monitoring tools, conducting vulnerability assessments, and establishing the Group Privacy Promotion Office.

The sale of gaming machines requires certification based on the Act on Control and Improvement of Amusement Business, and restrictions on excessive gambling elements were strengthened following a regulatory revision effective February 2018. If significant changes are made to laws and regulations, or if a sales restraint period is established due to international events, this could have a major impact on business performance. The company addresses this through expression restrictions by an internal ethics committee and the establishment of a department dedicated to countering fraud in gaming machines.

In the Gaming Business, there is a risk that the Nevada gaming license could be revoked if compliance violations or legal violations occur. Loss of the license would directly damage the continuity of the Gaming Business and could fundamentally undermine the business foundation. The company addresses this through the establishment of a dedicated department, harassment and compliance training, establishment of internal reporting channels, and background checks on business partners.

In the consumer field, competition is intensifying due to the emergence of competing titles using high-quality, popular IP, while in the Amusement Machines field, there is a risk that facility operators' willingness to invest in equipment may decline due to changes in personal consumption trends and user needs. If new products cannot be launched during peak sales seasons, excess inventory may arise and put pressure on business performance. The company addresses this through enhancing IP value via a transmedia strategy, concentrating resources on prize machines, and strengthening inventory management and digital sales.

In the Gaming Machines Business, if changes occur in user preferences, sales of existing products may stagnate, potentially affecting business performance. There is also a risk that growing social concern about gambling addiction issues could lead to stricter industry-wide regulations or market contraction. The company addresses this by building a development structure for products with innovative gameplay that meet market needs and through industry-wide efforts to address problem gambling.

There is a risk that stable procurement of raw materials could become difficult due to supply chain disruptions caused by conflicts or the spread of infectious diseases. Rising raw material prices could lead to price pass-through, discouraging purchases and reducing sales volume and profitability. The company aims to reduce procurement risk through product development using alternative parts.

In business expansion through M&A, there is a risk that the initially expected synergy effects may not be achieved, as well as a risk of impaired business performance due to underperformance following M&A. In addition, a decline in future cash flows may necessitate impairment of capital expenditures or recorded goodwill. Disclosure of specific countermeasures in the securities report is limited, and ongoing monitoring remains a challenge.

The company is exposed to foreign exchange rate fluctuation risk in overseas sales activities and material procurement, and in a yen appreciation phase, the yen-denominated value of overseas sales may decrease, potentially affecting business performance. There is also a risk that exchange rate fluctuations at overseas subsidiaries and affiliates could impair net assets through the foreign currency translation adjustment account. The securities report does not describe specific hedging measures, and this is recognized and disclosed as a risk.

There is a risk that a decline in the market value or substantial value of held investment securities could necessitate impairment, impairing business performance. In addition, if the expected recoverability of tax loss carryforwards or deductible temporary differences decreases, the write-down of deferred tax assets could increase tax expenses and put pressure on net income. These risks materialize in connection with market conditions and business performance trends.

If appropriate actions are not taken from a sustainability perspective, there is a risk of customers discontinuing transactions or damage to the brand. There are also concerns that failure to meet ESG requirements could lead to lower evaluations from institutional investors and higher fundraising costs. The Group Sustainability Subcommittee has been established within the Group Management Committee to formulate group-wide policies, set targets, and monitor progress.