Accumulating Expertise in Integrated Resort Development and Management

Japan is in the midst of a lively debate about integrated resorts that include casinos. If the integrated resort industry takes root in Japan, it promises to have an extremely benefi cial effect on the overall economy; growing revenues from international tourism, creating employment, and increasing tax revenues to improve the national fi scal position.

Viewing integrated resorts as a future mainstay business, we are advancing a range of preparations. After the legalization of integrated resorts, we believe expertise in integrated resort development and operations backed by a solid track record will be the most important factor determining the companies selected as integrated resort operators. Accordingly, we intend to accumulate expertise in all aspects of integrated resorts including casino operations and the development and management of hotels, entertainment facilities, retail stores, and restaurants. Many different companies are interested in participating in the industry, but we are confi dent of being several steps ahead of the pack in terms of accumulated expertise. Through PARADISE SEGASAMMY Co., Ltd.—a joint venture established with the Paradise Group of South Korea in which we have a 45% equity interest—we acquired the Paradise Casino Incheon, which the Paradise Group had operated independently. We have sent personnel to the casino to acquire expertise. Plans call for establishing South Korea's fi rst integrated resort in the International Business Center area next to Incheon International Airport in 2017. Other strategic initiatives aimed at acquiring expertise include the Phoenix Seagaia Resort, which subsidiary Phoenix Resort Co., Ltd., operates in Japan, and participation in a development project in Centum City, a multi-project urban development area in Busan, South Korea. Moreover, we are developing casino machines through SEGA SAMMY CREATION INC. At the same time, we will pay careful attention to other factors essential for selection as an integrated resort operator, such as fi nancial soundness, fund-raising capabilities, and compliance.

Because casinos have yet to become legalized in Japan, we cannot prepare concrete plans for establishing casinos at this stage. Nevertheless, we need to prepare in advance to ensure our selection as a casino operator. On the other hand, we will proceed cautiously with prior investments and continue to keep risk within appropriate limits.