Sega Sammy Holdings

INTEGRATED REPORT 2017 SEGA SAMMY HOLDINGS Our mission and reason for existence in a nutshell We aim to surpass the expectations of customers, shareholders, and society and grow corporate value continuously. We believe that continuing to provide customers with sat- isfaction—in other words, moving experiences—that exceed their expectations is the wellspring of our competitive strength as an entertainment company. Accordingly, each employee of the Group will tackle ambitious initia- tives focused on providing moving experiences. A to Z CONTENTS A to Z Get a picture of THE VALUE CREATION the Group as a whole This section outlines SYSTEM conditions in target markets and the positions and business We show how our value creation process translates moving models that the SEGA SAMMY Group experiences into corporate value. has established in them. 22 MOVING EXPERIENCES: THE ROLE OF THIS REPORT A HISTORY 04 Understand 24 ADVANTAGE① 06 A BIRD’S-EYE VIEW OF THE SEGA SAMMY GROUP the Group’s value 26 ADVANTAGE② creation process THE SEGA SAMMY GROUP 08 27 ADVANTAGE③ 10 THE MAIN BUSINESS MODELS OF 28 THE VALUE CREATION PROCESS BUSINESS SEGMENTS 30 FROM MANAGEMENT INTEGRATION TO THE PRESENT DAY THE MANAGEMENT THE NUMBERS TEAM This section summarizes trends in business results on a consolidated and business segment basis. The senior management team of SEGA SAMMY HOLDINGS explain how they see the future. 32 BUSINESS TRENDS 12 A MESSAGE FROM THE CEO 36 FINANCIAL DATA 16 A MESSAGE FROM THE COO 38 NON-FINANCIAL DATA 39 SHAREHOLDER VALUE Gain insight into Grasp the main points the management team’s of performance trends thinking and fiscal 2017 business results 02 SEGA SAMMY HOLDINGS STRATEGY ESG We introduce our medium-to-long-term This section reports on the Group’s ESG risk and corporate business strategies. governance system and includes statements from outside directors. 40 ROAD TO 2020 64 ESG RISKS AND RESPONSES IN THE VALUE CHAIN 44 A MESSAGE FROM THE CFO HUMAN CAPITAL 66 Gain 70 INTELLECTUAL PROPERTIES an understanding of the Group’s SOCIAL CAPITAL 72 ESG information 76 CORPORATE GOVERNANCE Understand DIRECTORS, AUDIT AND the Group’s strategies 84 SUPERVISORY BOARD MEMBERS, going forward AND EXECUTIVE OFFICERS OPERATIONAL THE FINANCIALS Access our financial SEGMENTS We analyze business results in light of information long-term trends and year-on-year comparisons. Here, we focus on each business segment’s business strategies and major tasks. 88 MANAGEMENT’S DISCUSSION AND ANALYSIS 94 CONSOLIDATED BALANCE SHEETS 48 PACHISLOT AND PACHINKO MACHINE BUSINESS 96 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ENTERTAINMENT CONTENTS BUSINESS 56 97 CONSOLIDATED STATEMENTS OF CHANGES 62 RESORT BUSINESS IN NET ASSETS 99 CONSOLIDATED STATEMENTS OF CASH FLOWS Learn about 101 NOTES TO CONSOLIDATED business strategies FINANCIAL STATEMENTS by business segment 136 INDEPENDENT AUDITOR’S REPORT DEFINITION OF TERMS “Fiscal 2017” refers to the fiscal year ended March 31, 2017, and other fiscal years are referred to in a corresponding manner in this integrated report. CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS Statements in this integrated report regarding the plans, estimates, beliefs, management strategies, perceptions, and other aspects of SEGA SAMMY HOLDINGS INC. (“the Company”) and SEGA SAMMY Group Companies (“the Group”), including SEGA CORPORATION and Sammy Corporation, are forward-looking statements based on the information currently available to the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “may,” and “might,” and words of similar meaning in connection with a discussion of future operations, financial performance, events, or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions and beliefs in light of the information currently available to management. The Company cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not assume that the Company has any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. The Company disclaims any such obligation. Actual results may vary significantly from the Company’s forecasts due to various factors. Factors that could influence actual results include, but are not limited to, economic conditions, especially trends in consumer spending, as well as currency exchange rate fluctuations, changes in laws and government systems, pressure from competitors’ pricing and product strategies, declines in the marketability of the Group’s existing and new products, disruptions to production, violations of the Group’s intellectual property rights, rapid advances in technology, and unfavorable verdicts in major litigation. [This integrated report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.] INTEGRATED REPORT 2017 03 A to Z THE ROLE OF THIS REPORT Outline Quick Access to Points of Interest In response to structural changes in the entertainment industry, To give readers quick access to themes about which they are in fiscal 2015 the SEGA SAMMY Group implemented cost struc- particularly interested, we have prepared a quick-access ture reform to improve profitability. In the following fiscal year, we contents list. laid the foundations for business portfolio management. Since fiscal 2017, the Group has been transitioning toward the implementation of strategies focused on improving profit margins. Market position................................. These strategies are based on the Road to 2020 initiative, target- P.06 ing fiscal 2020. This report explains how the Group is returning to a growth trajectory and the roadmap that it has established for Main business models ....................... P.10 increasing long-term corporate value. In addition, the report explains the priority tasks of each business. Top management’s approach. ............. P.12~ Competitive advantages ..................... P.24 Value creation process ...................... P.28 Road to 2020 Fiscal 2020 Medium-Term Issues and countermeasures Performance Targets since management integration ............ P.30 Operating margin Time series data ............................... P.32 At least15% Returns to shareholders ..................... P.39 ROA* Structure reform (Road to 2020) ........ P.40~ At least 5% * ROA = Profit attributable to A message from the CFO ................... P.4 4 owners of parent ÷ Total assets Business strategy ............................. P.47 Strategy implementation ESG risks and responses ................... P.64 Fiscal 2016 Business Management resources...................... P.66~ structure reform Messages from outside directors ........ P.76 Compensation of directors ................. P.81 Fiscal 2015 Cost structure reform 04 SEGA SAMMY HOLDINGS Higher Corporate Value through Our Approach to ESG Communication with Stakeholders Regarding non-financial information,CSR Report 2017 compre- We view this report as an important communication tool for fur- hensively covers environmental, social, and governance (ESG) thering understanding of our management policies among a information, which is an area of particular interest for institutional range of stakeholders, including shareholders, other investors, investors and information vendors. Meanwhile, this report focuses and employees. Currently, the Group is building “mission pyra- on aspects of ESG that could directly impinge upon management mids” and promoting awareness of them among employees strategy. Further, viewing the qualitative information of integrated throughout its organization to change mindsets. One of the rea- reports as, in a broad sense, non-financial information, we have sons for issuing this report is to ensure that employees have a endeavored to tell a clear growth story in accordance with the clear understanding of the SEGA SAMMY Group’s management “guiding principles” and “connectivity of information” stipulations direction so that they can implement growth strategies in their of the International Integrated Reporting Council’s International respective positions and contribute to an accumulation of efforts Integrated Reporting Framework. that will heighten corporate competitiveness. With this in mind, CSR Report 2017 INTEGRATED REPORT 2017 we have also issued an introductory booklet, Our Strategic SEGA SAMMY HOLDINGS SAMMY SEGA Direction, summarizing this report. Further, as well as reflecting feedback from constructive dialogue with shareholders and other investors in our management policy, we want to use this feedback to heighten the information value of this report. We would be happy to receive any opinions in this regard. INTEGRATED REPORT 2017 INTEGRATED REPORT 2017 REPORT INTEGRATED SEGA SAMMY HOLDINGS For institutional investors and For shareholders and information vendors other investors Provides comprehensive Focuses on ESG information directly Through Dialogue disclosure of information related to corporate value and explains

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