Operational Risks｜Management Policy｜Investor Relations

Risks that could affect the performance or operations of SEGA SAMMY Group are given below.

The following business risks may impact the Group’s management results. The Group’s management results may also be affected by the emergence of risks beyond the risks below explicitly anticipated by the Group. In addition, forward-looking statements in this securities report represent the judgement of the Group as of the end of the current fiscal year.

1. Significant risk

1) Management of personal information, etc.

The Group implements thorough precautions for information management. In the course of business operations, confidential information and personal information pertaining to customers is obtained and handled indirectly. To safeguard such information assets, the Group has established rules on information management. Appropriate security measures have been taken to strengthen server facilities and to prevent illegal access to internal networks and information devices. Information leaks and other incidents would result in unexpected costs, including liability to provide compensation for damages, which in turn may affect business activities and the Company’s financial performance. Moreover, as laws to protect personal information continue to evolve in countries and regions around the world, the Group recognizes the importance of remaining adequately abreast of the laws, particularly when handling personal information in the various countries, and establishing a speedy internal company system to address these tasks.

2) Statutory regulations affecting the Pachislot and Pachinko Machines Business

The products sold by the Group in the Pachislot and Pachinko Machines Business must conform to the technical specifications set forth in the Public Safety Commission’s “Regulations for the Verification of Licenses, Formats, and Other Aspects of Pachislot and Pachinko Machines,” based on Japan’s Act on Control and Improvement of Amusement Business, etc. and related laws and statutory regulations. Additionally, they must pass inspections performed by relevant prefectural Public Safety Commissions to determine compliance. The Rules for Partial Revision of Ordinance for Act on Control and Improvement of Amusement Business, etc., and Regulations for the Verification of Licenses, Formats, and Other Aspects of Pachislot and Pachinko Machines, which focuses mainly on curbing gambling elements, took force on February 1, 2018. Within the Group, the Ethics Committee regulates expressions that may be regarded as detrimental to standards of public decency and acceptable social norms and statements that could encourage excessive gambling or invite misunderstanding. The Group has established an office tasked with preventing improper manipulation of machines for profit. This office continually gathers market information to build machines resistant to improper manipulation. However, major changes in laws and regulations or the establishment of a voluntary self-censorship period for sales in conjunction with the holding of various international events, could significantly affect the Group’s operating results.

2. Overall management risk

The Group undertakes cross-mapping by investigating the potential scale of an impact and latent risks for the Group, then perform risk evaluations and examine appropriate countermeasures to address such risks. The risks identified as especially significant are described below.

Risk items	Summaries	Main measures
Compliance and legal violation	・Risks related to obstructions in acquiring IR operating licenses due to compliance and legal violations and license cancellation by the Nevada State Gaming Commission ・Violation of the rights of third parties by way of products or services provided by the Group ・Malfunctions in products manufactured by the Group ・Risk of damage to brand image due to litigation arising from unexpected complaints from users	・Implement harassment training, compliance training, and other measures to raise awareness of compliance by establishing a dedicated office. ・Promulgate knowledge of the internal whistleblowing contact point (Corporate Ethics Hot Line). ・To prevent involvement with anti-social forces, implement background checks on suppliers.
Disasters	・Risk of greater than anticipated physical damage or casualties among personnel at headquarters, operating bases, or manufacturing bases of Group companies or those of the Group’s business partners due to large-scale natural disasters, whether earthquakes, fires, or floods, or terrorist attacks	・Transform the crisis management guidelines into crisis management rules, identify inherent business risks, take measures to mitigate risks and prevent crises as a matter of normal practice, and establish and maintain systems to respond immediately to major crises.
Information security	・Leakage of important information through external attacks such as hacking ・Malfunction and other failures of information system due to computer virus, etc. ・Leakage of customer trade secrets of personal information ・Risk of violation of laws on protection of personal information in countries around the world	・Implement strengthening activities, educational activities, and monitoring activities for security governance at each Group company. ・Implement precautionary measures (surveillance and monitoring) and follow-up measures (incident reporting); implement vulnerability diagnosis, etc. ・Strengthen security surveillance tools. ・Establish a specialized internal team (Group Privacy Promotion Office) to ascertain the details of applicable laws and respond swiftly when handling personal information from overseas
Procurement difficulties and rising cost of raw materials	・Supply chain disruptions caused by factors such as international conflicts and COVID-19 ・Refraining from making purchases due to rising prices in response to rising raw material costs	・Develop products using alternative parts.
Important issues to be addressed related to ESG and SDGs (material issues)	・Risk of suspension of transactions by customers or damage to the brand’s social image due to failure to take appropriate actions from an ESG perspective	・Establish a Group Sustainability Subcommittee in the Group Management Committee and address important topics (material issues).

3. Risk by business

Each Group business varies in its essential nature. Each faces different risks. The business-specific risks are as follows:

Segments	Summary of main risks	Main measures
Entertainment Contents	・Intensification of competitive environment in the Consumer area due to the emergence of high quality items with valuable IP ・Loss of investment appetite for facility operators due to changes in personal consumption trends and user needs in the Amusement Machine Sales area ・Surplus inventory in home video game software and toys when those items cannot be launched during peak trading seasons	・Optimize the number of titles offered and number of new title launches. ・Offer a revenue model that enhances investment efficiency for amusement center operators while providing the Group with long-term, stable revenue. ・Strengthen product development management.
Pachislot and Pachinko Machines	・Issue of gambling addiction ・Changing user preferences ・Risk of inability to procure sufficient materials ・Surplus parts	・Launch initiatives to tackle addiction across the industry. ・Establish a system for developing a product lineup that features new types of gameplay and meets market needs. ・Enable parts sharing. ・Cut procurement lead times. ・Strengthen inventory controls. ・Allow effective use for other products.
Resort	・Risk of lower guest traffic due to further spread of infectious disease	・Achieve thorough implementation of preventive measures against COVID-19 in accordance with national and local policies.

4. Individual risk

The following non-business risks may impact Group management results.

Risk items	Summary of main risks
Business expansion through M&As, etc.	・Risk of failing to achieve anticipated synergies ・Risk of declining business performance due to poor performance following M&A
Asset impairment accounting	・Impairment risks on capital investment amounts and goodwill amounts emerge due to falling future cash flows.
Loss on investment securities in possession	・Risk of declining business performance due to a drop in fair value ・Risk of impairment loss due to decline in actual prices
Loss on abandonment of deferred tax assets	・Risk of recording tax expenses due to decrease in expected recoverability of tax loss carried forward and deductible temporary differences
Loss due to foreign exchange fluctuation	・Risk of changes in foreign exchange market in sales activities to and materials procurement from overseas markets ・Risk of loss on net assets due to foreign currency translation adjustments following changes in foreign exchange market for foreign subsidiaries and affiliates

Operational Risks