Sega Sammy : INTEGRATED REPORT 2021 (1/3)

INTEGRATED REPORT 2021

©SEGA

©SEGA

Breaking the Current Situation and

Becoming a Sustainable Company

SEGA SAMMY Group announced a new medium-term plan in May 2021.

Amid dramatic changes to the business environment under the global impact of COVID-19,

the Group has embarked on a new mission to break out of the current situation and

become a truly sustainable corporate group.

INTEGRATED REPORT 2021 explains the Group's future growth strategies centered on

the new medium-term plan, and presents the vision for the Group in 2030, our long-term vision.

Index

02 Realizing the Mission (Raison d'être)

1. New Medium-Term Plan (From FY2022/3 to FY2024/3)

1. To Our Stakeholders

1. A Message from the CEO

1. A Message from the CFO

1. Financial Performance

28 Special Feature:

Growth Strategies for the Consumer Area

34 Business Overview

36 Entertainment Contents Business

40 Pachislot and Pachinko Machines Business

44 Resort Business

46 The SEGA SAMMY Group's Value Creation and Materiality

1. ESG Risks and Countermeasures in the Value Chain

1. A History of Experiences That Move the Heart

1. Non-FinancialData

1. Corporate Governance

68 Directors, Audit & Supervisory Board Members, and Executive Officers

71 Financial Information

1. Company Profile / Stock Information
2. Consolidated Financial Statements

SUSTAINABILITY ACTION REPORT 2021

Provides detailed information and data on activities related to the Group's five key issues (materiality). Please read alongside the INTEGRATED REPORT.

https://www.segasammy.co.jp/english/pr/commu/

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.]

Cautionary Statement for Investors and Shareholders with Respect to Nevada Gaming Statutes and Regulations

SEGA SAMMY HOLDINGS INC. ("the Company") is registered with the Nevada Commission as a publicly traded corporation and has been found suitable to directly or indirectly own the stock of SEGA SAMMY CREATION INC., and Sega Sammy Creation USA, Inc., both of which are subsidiaries that have been licensed as manufacturers and distributors of gaming devices in Nevada. Pursuant to Nevada law, the Company's shareholders are subject to the rules and regulations of the Nevada Gaming Authorities. A detailed explanation of Nevada gaming statutes and regulations can be found on the Company's corporate website: https://www.segasammy.co.jp/english/ir/stock/regulation/

INTEGRATED REPORT 2021

01

Realizing the Mission (Raison d'être)

Making Life More Colorful through the Creation of Experiences that Move the Heart

The SEGA SAMMY Group has formulated a long-term vision aiming for 2030. The Group's Mission of "Constantly Creating, Forever Captivating-Making life more colorful-" and our Vision, "Be a Game Changer" which are the reason we exist, remain unchanged.

Guided by these overarching concepts, we seek to become a Global Leading Contents Provider in the Entertainment Contents Business centered on SEGA. We will deliver even more games and other content to global markets. In the Pachislot and Pachinko Machines

MISSION (Raison d'être)

Constantly Creating, Forever Captivating

-Making life more colorful-

VISION (Ideal self)

Be a Game Changer

Business, we are aiming to be No. 1 in sales and utilization share by creating machines from a user-centric perspective and optimizing the product lineup. Finally, in the Resort Business, we will identify opportunities for entry and focus on opening an integrated resort (IR).

We have also begun to explore ways of enhancing sustainability, and will work toward the sustainable improvement of corporate value.

Value created by our business

(Value Creation in Core Business)

Entertainment Contents Business

Add color to life by providing experiences that move the heart through games

and other entertainment.

Consumer area		Investment in growth

Vision for

the Group Global Leading Contents Provider

in 2030

Pachislot and Pachinko Machines Business

Add stimulation to everyday life by providing experiences that move the heart

through pachislot and pachinko.

Pachislot and PachinkoStabilization of earnings

Vision for	No. 1 in sales and utilization share
the Group	Building a stable earnings structure
in 2030

Resort Business

Add relaxation to life by providing experiences that move the heart through resorts.

Materiality to be addressed and

key categories

Environment		Addiction		People

Products and		Governance
Services

Haruki Satomi

Japan IR		Investment in growth

Vision for

the GroupOpening of IR

in 2030

President and Group CEO, Representative Director

SEGA SAMMY HOLDINGS INC.

VALUE (Mindset and DNA)

"Creation is Life" ×	Merging business
"Always Proactive, Alway Pioneering"
and materiality

Managing the Businesses Based on

the Group's Mindset and DNA

INTEGRATED REPORT 2021

03

New Medium-TermPlan (From FY2022/3 to FY2024/3)

The goal of the new medium-term plan is to go Beyond the Status Quo. We are aiming to break out of the current situation and become a truly sustainable corporate group. As quantitative goals for the plan, we have set a target of ordinary income of ¥45.0 billion and ROE of over 10% in the fiscal year ending March 2024.

Beyond the Status Quo

GOAL	Breaking the Current Situation and Becoming a Sustainable Company
	FY2024/3:  Ordinary income ¥45.0 billion,  ROE over 10%
		Pachislot and Pachinko
STRATEGY	Consumer Area	Machines Business	Certification as
Investment in growth	Shoring up	IR business operator*

the earnings base

* For more information on the future direction of the

IR business, see page 44.

Quantitative Goals

We will improve ROE by shifting management toward a focus on	which meant holding down financial leverage. Going forward, we will
capital efficiency. We had been maintaining a substantial equity	optimize the capital structure, shift to a policy of proactive invest-
capital buffer preparing for entry into the domestic IR business,	ment, and target an ROE of over 10%.

Improving ROE by Shifting Management toward a Capital Efficiency Focus

ROE	2.9%	0.9%	4.6%	0.4%	5%(Forecast)	7%(Forecast)	10%(Forecast)
Billions of yen			366.5				350.0
Net sales	323.6	331.6				337.0
		312.0
Ordinary income
			277.7
							45.0
			25.2			30.0
				20.0
	14.5
		7.4		1.7
	FY2018/3	FY2019/3	FY2020/3	FY2021/3	FY2022/3	FY2023/3	FY2024/3
				Structural
	Previous medium-term plan (Road to 2020)	reforms	New medium-term plan

Strategic Framework

In terms of growth investment, we will focus management resources mainly on the Consumer area and expand the scale of earnings by strengthening the global branding of existing IPs.

Our initiatives will include expanding touch points with users such as by the multiplatform deployment of content and simultaneous worldwide release, prolonging product life cycles by remaster-

create "Super Games" that can bring in sales of ¥100.0 billion over their lifetimes.

In the Pachislot and Pachinko Machines Business, we are aiming to boost market share by creating machines from a user-centric perspective and optimizing the product lineup, while also working to improve business efficiency and ensure stable earnings.

Breakdown by Segment

We aim to achieve further growth in the Entertainment Contents Business, targeting ¥40.0 billion in ordinary income in the fiscal year ending March 2024. In the Pachislot and Pachinko Machines Busi- ness, we will build a business structure that can steadily generate

ordinary income at a level of around ¥10.0 billion over three years. The Resort Business will target the fastest possible return to profitability once the COVID-19 pandemic subsides.

Billions of yen

ing and remaking IPs and other measures, and strengthening user engagement through a mix of media. Over the long run, we aim to

In the integrated resort (IR) business, we will continue to pursue the possibility of acquiring certification as an IR business operator.

		FY2021/3 (Results)	FY2022/3 (Forecast)	FY2023/3 (Forecast)	FY2024/3 (Forecast)
Entertainment	Net sales	217.8	213.0	238.0	242.0
Contents	Operating income	27.9	23.0	28.5	39.0
	Ordinary income	27.9	25.0	30.0	40.0
Pachislot and	Net sales	53.1	89.0	88.0	96.0

Investment in growth	Global development of existing IPs
Creating "Super Games"
Consumer Area, IR Business
Certification as an IR business operator

Ensuring stable earnings	Creating hits
Pachislot and Pachinko Machines,
Amusement Machine Sales, Animation and Toys	Business efficiency

Pachinko Machines	Operating income	-10.6	9.0	9.0	13.0
	Ordinary income	-11.3	9.0	9.0	13.0
Resort	Net sales	6.3	9.5	10.5	10.5
	Operating income	-4.1	-3.0	-1.5	-1.3
	Ordinary income	-8.9	-5.0	0	1.0
Other and	Net sales	0.5	0.5	0.5	1.5
eliminations	Operating income	-6.7	-9.0	-9.0	-8.7
	Ordinary income	-6.0	-90	-9.0	-9.0
Consolidated	Net sales	277.7	312.0	337.0	350.0
	Operating income	6.5	20.0	27.0	42.0
	Ordinary income	1.7	20.0	30.0	45.0
	ROE	0.4%	5%	7%	10%

04

SEGA SAMMY HOLDINGS

INTEGRATED REPORT 2021

05

New Medium-TermPlan (From FY2022/3 to FY2024/3)

Goals and Strategies for the Entertainment Contents Business

In the Entertainment Contents Business, we have positioned the Consumer area as a growth area for the Group. Over the period of the new medium-term plan, we will expand the scale of earnings by digging deeper into existing IPs and developing them globally. We are also striving to create "Super Games," major titles that scale globally, by the fiscal year ending March 2026.

Moreover, we will augment development resources in Japan and overseas and actively seek out acquisition opportunities. We will also continue to invest in startups and other ventures. In the Consumer area, we plan additional investments of ¥100.0 billion over the next five years.

Long-Term Goals

Becoming a Global Leading Contents Provider

FY2024/3By FY2026/3

Visualized Earnings Growth

Strengthening existing IPs over three years to build a robust framework

Creating a "Super Games" within five years

3years Core Strategies

Strategy 1

Strengthen the global branding of existing IPs

F2P games (smartphone games for Japan)

Amusement Machines

5years Core Strategies

Strategy 2

Create "Super Games"

Utilize past IPs	Support subscription-based service

Earnings

Reinforcing the earnings base by strengthening
the global branding of existing IPs	Creating "Super Games"
Investment stage toward becoming a global player

* For more information,	Proactive growth investment
see pages 28-33.	(additional investments of up to ¥100.0 billion over five years)

Strategic Portfolio

By FY2024/3By FY2026/3By FY2030/3

Strategy 1Strengthen the global branding of existing IPs 3 years Core Strategies

Growing mainstay IPs into global brands

Image of Brand Expansion

1 Expanding touch points

2 Prolonging product

3 Strengthening user

The core strategies of the new medium-term plan center around digging deeper into key existing IPs like Sonic, PHANTASY STAR, YAKUZA (Ryu ga Gotoku), Persona, and Total War and offering these to global markets. We are also taking up the challenge of "Super Games" within five years. Also, given our large pool of IPs that enjoy strong global recognition, we will actively leverage past IPs and further develop them, that is, by means of remasters, remakes, reboots, etc.

Meanwhile, in Japan, we will cultivate the F2P games (smartphone games) in domestic market and amusement machines into businesses that can secure stable earnings. We will select titles that have done well domestically and use these to target overseas markets as well.

with users		life cycles		engagement
Strengthening global roll-out		Utilizing IP assets		Community management
Multiplatform support		Strengthening digital sales		Strengthening the mix of media
Multilingual support		Multichannel monetization

3

Growth potential High (global)

5

years Core Strategies

years Core Strategies

Strategy 1

Strategy 2

Strengthen the global branding of existing IPs

Create "Super Games"

Establish hefty IPs recognized as global brands

Create titles that scale globally

Expand the library of past IPs

Utilize past IPs

Support subscription-based

sales

Profitability

Profitability

High

Low

(existing)

(new)

Optimize business scale and focus on profitability

F2P games (smartphone

Amusement machines

games for Japan)

Growth potential Low (Japan)

Strategy 2

Create "Super Games"

5 years Core Strategies

Taking on the challenge of creating major global titles

FY2022/3

FY2023/3

FY2024/3

FY2025/3

FY2026/3

Developing new first person shooter

game title at Europe-based studios

Utilizing IP assets

Creating "Super Games"

Creating titles with a view to three to

five years down the road

Global

Online

Translation into other media

IP utilization

Target lifetime sales of ¥100.0 billion

06

SEGA SAMMY HOLDINGS

INTEGRATED REPORT 2021

07