セガサミー（6460） – INTEGRATED REPORT 2021 (1/3)

INTEGRATED REPORT 2021©SEGA©SEGABreaking the Current Situation and Becoming a Sustainable CompanySEGA 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.SUSTAINABILITY ACTION REPORT 2021Provides 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/02 Realizing the Mission (Raison d’être)04 New Medium-Term Plan (From FY2022/3 to FY2024/3)Index12 To Our Stakeholders14 A Message from the CEO20 A Message from the CFO24 Financial Performance28 Special Feature: Growth Strategies for the Consumer Area34 Business Overview36 Entertainment Contents Business40 Pachislot and Pachinko Machines Business44 Resort Business46 The SEGA SAMMY Group’s Value Creationand Materiality52 ESG Risks and Countermeasures in the Value Chain54 A History of Experiences That Move the Heart68 Directors, Audit & Supervisory Board Members, 56 Non-Financial Data58 Corporate Governanceand Executive Officers71 Financial Information79 Company Profile / Stock Information80 Consolidated Financial Statements01Cautionary Statement with Respect to Forward-Looking StatementsStatements 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 RegulationsSEGA 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 2021Realizing the Mission (Raison d’être)Making Life More Colorful through the Creation of Experiences that Move the HeartThe 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 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.MISSION (Raison d’être)Constantly Creating, Forever Captivating —Making life more colorful—VISION (Ideal self)Be a Game ChangerValue created by our business (Value Creation in Core Business)Materiality to be addressed and key categoriesEntertainment Contents BusinessAdd color to life by providing experiences that move the heart through games and other entertainment.Consumer area Investment in growthVision for the Group in 2030Global Leading Contents ProviderPachislot and Pachinko Machines BusinessAdd stimulation to everyday life by providing experiences that move the heart through pachislot and pachinko.Pachislot and Pachinko Stabilization of earningsVision for the Group in 2030No. 1 in sales and utilization shareBuilding a stable earnings structureJapan IRInvestment in growthVision for the Group in 2030Opening of IREnvironment Addiction PeopleResort BusinessAdd relaxation to life by providing experiences that move the heart through resorts.Products and ServicesGovernanceHaruki SatomiPresident and Group CEO, Representative DirectorSEGA SAMMY HOLDINGS INC.“Always Proactive, Alway Pioneering”Merging business and materialityVALUE (Mindset and DNA) “Creation is Life” × Managing the Businesses Based on the Group’s Mindset and DNA03INTEGRATED REPORT 2021New Medium-Term Plan (From FY2022/3 to FY2024/3)GOALBeyond the Status QuoBreaking the Current Situation and Becoming a Sustainable CompanyFY2024/3: Ordinary income ¥45.0 billion, ROE over 10%STRATEGYConsumer AreaInvestment in growthPachislot and Pachinko Machines BusinessShoring up the earnings baseCertification as IR business operator* * For more information on the future direction of the IR business, see page 44.Strategic FrameworkIn 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 simultane-ous worldwide release, prolonging product life cycles by remaster-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 Pachislot and Pachinko Machines Business, we are aiming create “Super Games” that can bring in sales of ¥100.0 billion over their lifetimes. 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. the possibility of acquiring certification as an IR business operator.In the integrated resort (IR) business, we will continue to pursue Investment in growthConsumer Area, IR BusinessGlobal development of existing IPs Creating “Super Games”Certification as an IR business operatorEnsuring stable earningsCreating hitsPachislot and Pachinko Machines, Amusement Machine Sales, Animation and ToysBusiness efficiencyQuantitative GoalsWe will improve ROE by shifting management toward a focus on capital efficiency. We had been maintaining a substantial equity capital buffer preparing for entry into the domestic IR business, which meant holding down financial leverage. Going forward, we will optimize the capital structure, shift to a policy of proactive invest-ment, and target an ROE of over 10%.Improving ROE by Shifting Management toward a Capital Efficiency Focus2.9%0.9%0.4%5%(Forecast)7%(Forecast)10%(Forecast)ROEBillions of yen Net sales Ordinary income323.6331.6312.0337.0277.7350.045.04.6%366.525.230.020.014.57.4FY2018/3FY2019/3FY2020/3FY2021/3FY2022/3FY2023/3FY2024/3Previous medium-term plan (Road to 2020)New medium-term plan1.7Structural reformsBreakdown by SegmentWe 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 profit-ability once the COVID-19 pandemic subsides.FY2021/3 (Results)FY2022/3 (Forecast)FY2023/3 (Forecast)FY2024/3 (Forecast)Billions of yenEntertainment ContentsPachislot and Pachinko MachinesResortOther and eliminationsConsolidatedNet salesOperating incomeOrdinary incomeNet salesOperating incomeOrdinary incomeNet salesOperating incomeOrdinary incomeNet salesOperating incomeOrdinary incomeNet salesOperating incomeOrdinary incomeROE217.827.927.953.1–10.6–11.36.3–4.1–8.90.5–6.7–6.0277.76.51.70.4%213.023.025.089.09.09.09.5–3.0–5.00.5–9.0–90312.020.020.05%238.028.530.088.09.09.010.5–1.500.5–9.0–9.0337.027.030.07%242.039.040.096.013.013.010.5–1.31.01.5–8.7–9.0350.042.045.010%0405The 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.SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021New Medium-Term Plan (From FY2022/3 to FY2024/3)Goals and Strategies for the Entertainment Contents BusinessIn 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 GoalsBecoming a Global Leading Contents ProviderFY2024/3By FY2026/3 Reinforcing the earnings base by strengthening the global branding of existing IPs Investment stage toward becoming a global playerCreating “Super Games” * For more information, see pages 28-33.Proactive growth investment(additional investments of up to ¥100.0 billion over five years)Strategic PortfolioThe 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.3 yearsCore StrategiesGrowth potential High (global)Strategy 1Strengthen the global branding of existing IPs Establish hefty IPs recognized as global brands 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.5 yearsCore StrategiesStrategy 2Create “Super Games” Create titles that scale globally Expand the library of past IPs Utilize past IPs Support subscription-based salesVisualized Earnings GrowthStrengthening existing IPs over three years to build a robust frameworkCreating a “Super Games” within five years3 yearsCore StrategiesStrategy 1Strengthen the global branding of existing IPs5 yearsCore StrategiesStrategy 2Create “Super Games”Utilize past IPsSupport subscription-based serviceEarnngsiF2P games (smartphone games for Japan)Amusement MachinesBy FY2024/3By FY2026/3By FY2030/3Strategy 1 Strengthen the global branding of existing IPs 3 years Core StrategiesGrowing mainstay IPs into global brandsImage of Brand Expansion1 Expanding touch points with users2 Prolonging product life cycles3 Strengthening user engagement Strengthening global roll-out Multiplatform support Multilingual support Utilizing IP assets Strengthening digital sales Multichannel monetization Community management Strengthening the mix of mediaStrategy 2 Create “Super Games” 5 years Core StrategiesTaking on the challenge of creating major global titlesFY2022/3FY2023/3 FY2024/3FY2025/3FY2026/3ProfitabilityHigh(existing)06 Optimize business scale and focus on profitability F2P games (smartphone games for Japan) Amusement machinesGrowth potential Low (Japan)ProfitabilityLow(new) Developing new first person shooter game title at Europe-based studios Utilizing IP assets Creating titles with a view to three to five years down the roadCreating “Super Games”GlobalOnlineTranslation into other mediaIP utilizationTarget lifetime sales of ¥100.0 billion07SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021New Medium-Term Plan (From FY2022/3 to FY2024/3)Goals and Strategies for the Pachislot and Pachinko Machines BusinessIn the Pachislot and Pachinko Machines Business, our aim is to build a stable earnings structure, becoming number one in total utilization of pachislot and pachinko machines by the fiscal year ending March 2024.Although the pachislot and pachinko machine market as a whole is facing a shrinking number of pachinko halls, the overall number of installed machines has remained at a certain level owing to growth in the number of large halls. We believe there is ample room to ensure profits in this business by increasing machine turnover rates. We will heighten our focus on gaining market share, aiming to become the market leader in terms of sales and utilization as well as installation.We will also focus both on boosting development efficiency and on achieving greater business efficiency through cost improvements to build a stable earnings structure.Long-Term GoalsNo. 1 in sales and utilization shareBuild a stable earnings structureNo. 1 in total utilization of pachislot and pachinko machinesMaintain stable earningsFY2024/3Create hitsImprove business efficiencyCreate HitsWe will revise the product lineup, which in recent years was weighted toward new IPs, and create machines from a thoroughly user-centric perspective. We will organize the lineup around series machines that offer greater hit potential. We will also actively explore reviving past hits while being highly selective about new IPs. Furthermore, we will 1 Revising the product lineup Optimizing the product lineup (centered on series machines) Revivals of past IPs Rigorous screening and selection of new IPs2 Increasing hit potential Creating machines from a user-centric perspective Deeper user analysis by attribute3 Enhancing media functions Expanding communication with users through digital mediaImproving Business EfficiencyTo achieve greater efficiency in development, we will work to incorpo-rate common visual images and other production elements for both pachislot and pachinko machines. We will also develop derivative titles, such as spec changes. Apart from further standardizing compo-nents, we will continue to pursue cost improvements, such as holding 1 Boost development efficiencydown excess inventory by optimizing first-lot production. We will step up digital transformation initiatives, focusing on expanding online sales support launched for pachislot machines to pachinko machines as well. Use common visual images for pachislot and pachinko machines Expand derivative titles, such as spec changes Rationalize visual production2 Cost improvements Promote introduction of standardized components between pachislot and pachinko machines Hold down excess inventory by optimizing first-lot production (medium to long-term target: zero excess inventory)3 Promote online commerce Expand online sales support to pachinko machinesenhance media functions to reach out to users with various announcements. We will also take advantage of the relaxing of industry self-regulation banning TV advertising, carrying out a wide range of marketing including TV ads and digital media.Long-Term GoalsGoals and Strategies for the Resort BusinessDue to the decision by the city of Yokohama to call off the process for selecting business operators for its planned integrated resort (IR) project, the Group has been compelled to reconsider its domestic IR strategy, but will continue to identify opportunities for entry into this business. In other operations, both PARADISE CITY and Phoenix Seagaia Resort expect recovery in demand going forward and will work to steadily secure earnings.Aim for participation in IRAchieve highly transparent and sustainable IRProcess Leading up to IR LaunchSTEP 1STEP 2STEP 3RFPs (public solicitation /selection)(regional government)Designation of IR region(Ministry of Land, Infrastructure,Transport and Tourism)Acquisition of gaming license(Casino Regulatory Commission)Opening of IR Facilities0809SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021New Medium-Term Plan (From FY2022/3 to FY2024/3)Medium to Long-Term MapTo achieve our vision for the Group in 2030, we are steadily implementing various measures under the slogan of the new medium-term plan: Beyond the Status Quo—Breaking the Current Situation and Becoming a Sustainable Company—.New Medium-Term PlanBeyond the Status Quo—Breaking the Current Situation and Becoming a Sustainable Company—Realize a sustainable society and increase corporate valueFrom FY2022/3 to FY2024/3From FY2025/3 to FY2030/3The vision we aim to become in 2030Entertainment Contents Business Proactive investment (Consumer area) Strengthening the global branding of existing IPs Creating “Super Games” Creation of hits × Business efficiencyPachislot and Pachinko Machines Business Reinforcing the earnings base No. 1 in total utilization of pachislot and pachinko machines Increase share of utilizationResort Business Participation in IR, acquisition of license Prepare for openingGlobal Leading Contents ProviderNo. 1 in sales and utilization shareBuilding a stable earnings structureOpening of IRFrom FY2022/3 to FY2026/3 Financial strategies for maximizing corporate value　　 For more information, see page 20. Efforts to address material issues (materiality) that make up the foundation of sustainability For more information, see page 46.Environment Addiction PeopleProducts and ServicesGovernance10INTEGRATED REPORT 202111SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021To Our StakeholdersPassing on Leadership to a New GenerationEven in this unprecedented situation, though, I was struck by the fact that, no matter how turbulent society becomes or how much the environment changes, basic human nature will never change—people will always long for experiences that move the heart. People continue to turn to entertainment seeking such experiences. In fact, I don’t think there has ever been a year when people felt, as strongly as they did this past year, how wonderful everyday life that has entertainment is. We have the power to create such experi-ences. And I am convinced that extending that power throughout the world is the true value our Group brings to society. The situation remains uncertain, but keeping this conviction in mind, our Group will con-tinue to create experiences that move the heart through entertainment.Since the founding of Sammy Industry, the predecessor of Sammy Corporation, and following the birth of SEGA SAMMY HOLDINGS in 2004, I continued to stand at the forefront of Group leadership. In April 2021, however, I passed on the CEO baton to my son, Haruki Satomi, while I remain in the position of Chairman and Representative Director. As CEO, he will now play the central role in steering the management of the Group. Of course, as Chairman, I will also draw on my personal connections and experiences to support the new CEO to the best of my abilities. The entertainment market we are facing is marked by fast-changing trends. Technology is moving ahead by leaps and bounds. Content that no one has ever experienced before is being generated every day. That’s why it is vital to have managers with youthful sensibility who can stay abreast of such trends, and also why I have high expectations for the new CEO, who is still in his forties. Aside from his youth, one of Haruki’s greatest assets is his ability to grasp the big picture. Taking the broad view of movements in the world engenders the ability to stay a step ahead of the times, which is crucial for someone in management. From a young age, I always stayed a step ahead of the times, too, which enabled me to grow the company. Going forward, I expect Haruki to place even greater weight on engagement with customers, employees, and other stakeholders as he matures into a CEO who earns the trust of all those around him.The evolution of digital technology in recent years has been monumental, and is bound to accelerate even further. No one knows exactly what the technological landscape will look like 10 or 20 years down the road. But I have no doubt that entertainment will not simply be confined to the digital realm. There will con-which our Group continues to pursue opportunities, is truly a form of entertainment where people interact directly, generating excitement. Decisions about the direction of this business still lie ahead, but I believe an integrated resort will be a venue that brings delight to many visitors from around the world. COVID-19 brought about major changes in the Group. My sense, though, is that this is a runup to a great leap forward for us. Our structural reforms have further bolstered the organization, and we have formulated a long-term vision for the Group in addition to a new medium-term plan. The only thing that remains is for all of our employees to continue to be bold in their pursuit of new challenges. We would like our stakeholders to keep having high expectations for the SEGA SAMMY Group, and ask for their even greater support and cooperation.The value we bring to society is the creation of experiences that move the heart Continuing to Take On Challenges to Achieve Dramatic GrowthThe world now stands at a major turning point. The COVID-19 pandemic has had a profound global impact, tinue to be entertainment in physical spaces. The integrated resort (IR) business in Japan, a business in Hajime SatomiChairman, Representative Directorbringing about significant shifts in people’s values and lifestyles. In this time of uncertainty, companies in every field are struggling to define their future path, wrestling with issues of how they can contribute to society going forward and whether they will be able to provide value. In the midst of these circumstances, our Group pressed forward with structural reforms. While perfor-mance in the Entertainment Contents Business grew on the back of stay-at-home demand, the brick-and-mortar Pachislot and Pachinko Machines and Resort businesses faced serious adversities. Given this business environment and carefully considering the direction the Group ought to take in a post-pandemic context, we felt compelled to make several very painful decisions. We withdrew from the amusement facili-ties operation business, which could be considered the business in which we first started out. We also called for numerous volunteers for early retirement, including employees who have supported the Group since its inception.1213SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021A Message from the CEOHaruki SatomiPresident and Group CEO, Representative DirectorWe will continue to be a company that can create experiences that move the heart The SEGA SAMMY Group has declared its mission to be Constantly Creating, Forever Captivating —Making Life More Colorful—. This mission has grown even more important amid the rampant, ongoing spread of the COVID-19 pandemic. It was this common mission which enabled our Group, even in the midst of the pandemic, to avoid any missteps.The declaration of a state of emergency in Japan in the spring of 2020 caused me to reflect on the purpose and mean-ing of the Group’s existence. At the end of the day, entertainment is essentially a peacetime industry, which is generally not enjoyed unless society is at peace. Initially, there was a public outcry against pachinko halls in Japan, with some voices even questioning the significance of entertainment and wondering whether it might be a “non-essential, non-urgent” business. Nevertheless, for their own mental well-being, some customers continued to visit pachinko halls and spend their leisure time in that way. Of course, it is possible for human beings to live without entertainment. But can life without entertainment truly be con-sidered fulfilling? After their needs for food, clothing, shelter, security and safety are met, people still long for happiness, excitement, and relaxation. Our greatest value lies in having the management resources to provide these things at a high level. I am more convinced than ever that our raison d’être is without question to continue to be a company that can create experi-ences that move the heart.In terms of management, we anticipated the impact of the pandemic on the Group at every turn, and took swift action in response. At the time of the state of emergency in spring 2020, we assumed the worst-case scenario—that, if the situation dragged on, our net assets might be reduced by as much as half. Fortunately, the pandemic did not put that level of downward pressure on business performance. In fact, the Consumer area saw a significant upturn in earnings, driven largely by stay-at-home demand. Because the Pachislot and Pachinko Machines and Resort businesses involve physical contact, these sectors faltered. Nevertheless, we were able to stay in the black for the fiscal year ended March 2021, with net sales of ¥277.7 billion, operating income of ¥6.5 billion, ordinary income of ¥1.7 billion, and profit attributable to owners of parent of ¥1.2 billion.To better position the Group to achieve sustainable growth going forward, during the previous fiscal year we moved ahead with reforms to the business portfolio as well as structural reforms to secure the funds needed for growth. We have long recognized low profitability in the amusement facility operation business and market contraction in the pachis-lot and pachinko machines sector as issues for the Group. We have sought to improve business efficiency and asset efficiency to resolve these issues, but the onset of an unprecedented crisis like this pandemic prompted us to take even more drastic reform measures with a sense of urgency.Some reforms, such as calling for voluntary early retirement, were painful. But we are confident that this will allow us to trans-form into a sturdier corporate structure than ever before. I believe we have a duty to build the kind of corporate entity that makes those who agreed to take early retirement proud of having been a part of the SEGA SAMMY Group. Going forward, based on a more solid foundation, we will further boost employee motivation and steadily implement the new medium-term plan to achieve substantial future growth, and make our vision a reality.FY2021/3 ResultsNet salesOperating incomeOrdinary incomeProfit attributable to owners of parentDown 24.2% year on yearDown 76.4% year on yearDown 93.3% year on yearDown 91.2% year on year¥ 277.7 billion¥ 6.5 billion¥ 1.7 billion¥ 1.2 billionImpact of Implementation of “Structural Reform”P/L impact in FY2021/31. Review of Business Structure Structural reform expenses in Amusement Center Operations area Closure of Orbi Yokohama Structural reform expenses in Amusement Machine Sales area¥ –19.1 billion (extraordinary losses)¥ –0.5 billion (extraordinary losses)¥ –3.2 billion (extraordinary losses)2. Reduction of Fixed Expenses Call for voluntary retirement, etc.¥ –9.2 billion (extraordinary losses)3. Review of B/S Gain on sales of investment securities (Sales of shares of Sanrio, etc.) Gain on sales of non-business real estate (Sales of real estate in Osaka)¥ +11.2 billion (extraordinary income)¥ +15.2 billion (extraordinary income)P/L improvement in FY2022/3 associated with “Structural Reform”(Billions of yen)5.91.28.8–2.23.9Improved amount in P/L associated with structural reform Increase Decrease TotalStructural reform in Amusement Center Operations area, etc.Reduction of labor expensesReduction from optimization, etc., in Amusement Machine Sales areaNormalization of labor expenses (Employee bonuses, officer compensation, etc.)P/L improvement in FY2022/3Impact from reduction of fixed expenses associated with structural reformNormalization of labor expensesP/L improvement1415SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021Appointed as the New CEOI was appointed President and Group CEO on April 1, 2021. As new CEO, in May I announced our new medium-term plan, which carries the slogan Beyond the Status Quo—Breaking the Current Situation and Becoming a Sustainable Company—. The thinking behind Beyond the Status Quo is that sales of the SEGA SAMMY Group fell to ¥277.7 billion in the fiscal year ended March 2021—half the peak level at the 2004 management integration of SEGA and Sammy. I see my management respon-sibility as CEO is to overcome this situation. That means achieving net sales of ¥400.0 billion in the medium term and more than ¥500.0 billion in the long term, while pursuing management with a focus on capital efficiency and maximizing Group value.New Medium-Term PlanAs I mentioned earlier, the slogan of the new medium-term plan is Beyond the Status Quo—Breaking the Current Situation and Becoming a Sustainable Company—. In terms of metrics for the plan, we are targeting ordinary income of ¥45.0 billion and ROE of over 10% for the fiscal year ending March 2024. I have strong feelings about “break the current situation” that is included in the slogan. Until now, we had to be mindful of the investment capa-bility required to move ahead with the integrated resort (IR) business in Japan, which meant that we needed to enhance equity capital. This was one factor behind our declining capital efficiency. Unfortunately, while we will have to keep looking for other opportunities to enter the IR business here, at the same time we will proactively invest in other growth areas. In particular, we plan to make aggressive additional investments in the Con-sumer area, which promises sustainable market growth going To do this, I will carry on the values and the DNA my father inculcated as the former CEO—expressed in the catchphrases “Creation is Life”דAlways Proactive, Always Pioneering”—while working to reform and evolve our management and businesses to stay abreast of the changing times. The environment in which we operate is marked by the growing speed of change, with new technologies and business models being created daily, and we have to embrace these changes and respond to them flexibly. If we keep resting on the laurels of our past successes, we will be quickly left behind by the competition. So, with a sure sense of the crisis we face, all of our employees will continue to work together as we take on new challenges.forward. I want to achieve substantial growth over the medium to longer term by combining the boost in financial investment with the intellectual property (IP) assets and development capa-bilities we possess. On the other hand, it is impossible to achieve sustainable growth simply by pursuing a bigger bottom line. It requires taking a long-term view in management, self-confident of our raison d’être in society and with a clear awareness of the ways we make a positive impact on society as a whole. We will steadily address the material issues we have identified—the environ-ment, addiction, people, products and services, and gover-nance—as we strive to become a sustainable company. As all of our employees come together to make the slogan of the new medium-term plan a reality, this will surely tie in to our mission of “Making Life More Colorful.”GoalMaterialityBeyond the Status Quo—Breaking the Current Situation and Becoming a Sustainable Company— Environment Addiction PeopleProducts and ServicesGovernanceEntertainment Contents Business StrategyFor this business, we set a long-term goal, “to be a global leading contents provider.” With the current favorable market environ-ment, now is the time for us to push forward to be a company that can demonstrate its competitive edge on a global scale by fully capitalizing on our IP assets, development capabilities, and financial strengths. The most critical issue in the new medium-term plan, which covers the first three years, is to expand the scope of our existing IP development and promote the global branding of our IPs. We will get there in three ways: expanding touch points with users, prolonging product life cycles, and strength-ening user engagement. With regard to expanding touch points with users, we will further accelerate the global and multiplatform deployment of content. Until now, the Group has tended to roll out an IP on a single platform and in a single region, or to migrate an IP that succeeds in one region to another region or platform. The disad-vantage of this model was that it resulted in poor investment and marketing efficiency. In recent years, digital sales have been expanding in the gaming industry, with distribution methods changing dramatically. Previously, in order to sell products glob-ally it was necessary to have offices and sales staff all over the world. But now we are in an era where digital sales mean that products can be immediately distributed globally. The base of users is also rapidly expanding. In the past, competition in the gaming business mainly centered on developed countries, which had numerous users who could afford costly hardware. Now, with platforms moving into PCs and smartphones, games can be delivered to many people around the world. We will seize oppor-tunities to greatly expand such touch points to generate growth. In terms of prolonging product life cycles, the mainstream business model until now was to focus for a while on selling a newly released game and then sell its sequel a few years later. Now, however, it is common to keep users playing a single game over a long span by distributing additional content and Making Existing IPs into Global Brandfrequently updating content. The Group will continue to hone its game development and operation capabilities so that we can create numerous games that continue to attract users for a decade or more.Finally, in terms of strengthening user engagement, while increasing opportunities for people to come in contact with our content from multiple angles, it is also necessary to grasp the potential needs of users in a timely manner and provide prod-ucts and services that meet these needs. In developing last year’s movie, Sonic the Hedgehog, we received a lot of feedback from Sonic fans all over the world regarding the initial character designs. Based on their opinions, we made improvements and were able to achieve great success. Understanding fan expectations is a key theme for maximizing IP value going forward. If we can gauge fan expectations accurately and provide products and services that far exceed their expectations, the fan base for each IP will further grow, and this in turn will feed into maximum profitability. The Group will implement these measures over the three years of the new medium-term plan as a run up to creating a “super game”—a major global title. To achieve this, we will con-sider up to ¥100.0 billion in additional investments over the next five years. To invest proactively in growth, we will be looking not only at development resources and the product pipeline but also more broadly, with acquisitions as an option. The scale of the gaming market has grown significantly over the last few years and is projected to exceed ¥20 trillion by 2023, with the number of gamers—which includes players, online streamers, and viewers—reaching more than 3.0 billion. If we can create experiences that move the heart that win the support of these gamers worldwide, we can expect huge returns. I am confident that by harnessing the IPs, game quality, and strong brand recognition we have built up over the years, we will be possible to bring accomplish this in this promising market.1 Expansion of touch points2 Prolonging the product life cycle3 Strengthening of user engagement1617SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021Pachislot and Pachinko Machines Business StrategyIn the fiscal year ended March 2021, the pachislot and pachinko machine industry was hit hard across the board by COVID-19. Pachinko halls were forced to suspend operations and the dead-line for removing previous regulation machines was extended, leading to stagnant sales of new regulation machines for manu-facturers. But the pachislot and pachinko machine market is by no means extinct—many pachinko halls, with the support of loyal users, have opened their doors again after taking rigorous measures to prevent infection. In the long run, because the scope of this business area is limited to Japan, achieving signifi-cant growth in this area may prove difficult. Nonetheless, we continue to position the Pachislot and Pachinko Machine Busi-ness as a key business for the Group, one which can maintain high profitability and a strong competitive edge. Our long-term goals in this business are “to be No. 1 in Sales & Utilization Share” and to “build a stable earnings structure.” By achieving these goals, we will work to further augment cash creation. Currently, in terms of utilization share, Sammy ranks fourth in pachislot machines, second in pachinko machines, and third overall. Our aim is to be number one in total utilization of pachis-lot and pachinko machines by the third year of the new medi-um-term plan. The fact that the machines are being utilized means that the proper number of machines are reaching the market. It is also proof that we are able to contribute to the man-agement of pachinko halls, which are our business partners, and that we are gaining the support of users. This is the reason we have focused on “utilization share” and positioned this as the key performance indicator for the business. The key to increasing this indicator is creating hit machines. To this end, we thoroughly revised the lineup, building a new lineup centered on proven IP series, striking a balance between improving the probability of success and achieving stable profitability. In addition, we are actively exploring the revival of past IPs, using them to create machines with the higher level of gameplay allowed by current regulations. To improve our chances of launching hit products, it is essential that we create machines from a thoroughly user-centric perspective, upgrading to machines that satisfy user demands. By blending a user-centric perspective with our core strengths in machine development, we will create ground-breaking machines that are in tune with the times. Furthermore, we will take advantage of the relaxing of industry self-regulation to pursue TV advertising and digital media and other platforms to reach young people directly with the appeal of our machines.As we move forward with these measures, it is also critical that we enhance business efficiency to secure a stable profit margin. One move we are planning, to boost development effi-ciency, is to gradually phase in common visual images for both pachislot and pachinko machines—at present they use different images of the same IP. We will also focus on standardizing com-ponents, and continue seeking to optimize lots and control excess inventory. We will also expand the online sales support we launched for pachislot machines to pachinko machines as well, taking the lead in the digital transformation of the industry. We are moving further ahead with the adoption of ZEEG machine cabinets, aiming to fully migrate all pachislot machines to these cabinets by the fiscal year ending March 2024. We continue to reach out to other companies in the industry as well, seeking to get as many manufacturers on board as possible.In addition to pachislot and pachinko machines, we plan to secure a new earnings base by entering into new fields. Drawing on the expertise in the gaming field we have cultivated over many years, we started up a new business line, called “m,” cen-tered on the poker game Texas hold ’em. We will continue to seek to expand our business domains.1 Review of product lineup2 Increase the profitability of a hit3 Strengthening media functionsCreation of HitsImprovement of Business Efficiency1 Improvement of development efficiency2 Cost reduction3 Promotion of e-commercePursuing Sustainable ManagementIn 2020, the Group redefined the material issues we need to tackle in order to continuously enhance corporate value. One of these issues is the environment. Climate change is seen as the risk with the greatest potential impact on the world in the future. As a corporate citizen, the Group is expected to do all we can to address this issue. Until now, we have looked at con-trolling greenhouse gas emissions only within the Group, that is, from a Scope 1 perspective. Now, we are working to expand our focus to Scope 2 and 3 emissions as well. We will work to accu-rately gauge the power used when operating the amusement machines as well as pachislot and pachinko machines we develop, and quickly identify and act to reduce the environmen-tal impact of the Group’s business activities. Regarding other material issues we have identified—addiction, people, products and services, and governance—we are in active discussions with the various business companies in the process of formulat-ing a concrete action plan and establishing KPIs, so we can make an announcement in the fiscal year ending March 2022. Going forward, I will make sure top management has sufficient time to discuss matters related to ESG and the SDGs. My view is that it is appropriate to separate management supervision and execution, leaving business decisions to the business companies while the Board of Directors meeting deliberates on matters related to long-term topics affecting our business environment. This approach is leading to the sophisticated corporate governance needed to support the Group. As of June 2021, our Board had a 50-50 ratio of internal and external directors, three of whom were female directors. The addition of diverse skills and knowledge of people from outside the Group better empowers us to consider from multiple angles the kind of organization the Group should aim to be in the midst of major changes in the world.In ConclusionIn the fiscal year ended March 2021, we pressed forward with structural reforms in the midst of massive, unforeseen changes in the environment. Our biggest achievement was to become a stronger organization through these reforms. Going forward, our sustained growth will depend on further shoring up the strength of the organization. The key to achieving this will be fostering an environment in which diverse human resources can harness their unique abilities and carry out innovative action. We also recognize that strengthening international human resources is a critical issue as we aim for substantial growth overseas. We will develop systems and cultivate an attractive corporate culture that allows people with the ability to create a range of value, regardless of nationality, race, or gender, to come together and each take an active role. Our long-term goal is to foster a work-place atmosphere where diverse human resources can work as a matter of course. In addition, we revised the personnel evaluation system, adopt-ing a structure where promotions and compensation are decided on the basis of ability and performance rather than seniority. Going forward, together with a team of people with diverse abilities and together with our stakeholders, the SEGA SAMMY Group will work to build even greater corporate value. I would like to ask for your continued support as we do so.1819SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021A Message from the CFOKoichi FukazawaSenior Executive Vice President and Group CFO, Director of the BoardExpansion of TSRROE: Over 10%Ordinary Income: Over ¥50.0 billionA Management Focus on Capital EfficiencyIn tandem with structural reforms on the business side, we decided to fully implement a management framework that focuses on capital efficiency. Guided by the new medium-term plan, the measures we have put in place, including a review of the business portfolio, can be said to represent a dramatic transfor-mation of the management framework across the Group. ital cost, which is one of the three components of ROE. In other words, we will lower the weighted average cost of capital (WACC) through an optimal capital structure. In the past, our view was that the Group’s business performance was subject to greater fluctuations than in other industries, and so we followed a financial strategy of setting aside a generous risk buffer. However, excessive cash accumulation has been a hindrance to raising A key financial strategy going forward will be to optimize cap-Shift to the management focusing on capital efficiencycapital efficiency and has also put downward pressure on stock prices. In the new medium-term plan, drafted after the structural reforms undertaken in the fiscal year ended March 31, 2021, we set out a clear future direction for the Group and carried out a detailed analysis of risk and the capital structure. In procure-ment, we intend to raise the debt-to-equity ratio by between 0.5 to 0.6 times, on the condition that we maintain an appropriate cash position and rating level. At one point this ratio dropped to about 0.2 times, at the end of March 2021. By making use of interest-bearing debt more aggressively than in the past, we will firmly invest in the businesses planned in the new medium-term plan, while maximizing corporate value under optimal WACC. fonoitazmxaMii leuaVetaroproCeht Investment focus on Consumer business ROIC management Management of business portfolio Reducing of WACC through optimal capital structure Active use of debt according to the risk Reduction of long-term risk through enhancement of ESGTotal return ratio: 50% or moreImprovement of per business company ROICD/E ratio: around 0.5~0.6(Net D/E ratio: around 0.2~0.3)Improvement of ROE and reduction of capital cost by utilizing interest-bearing debtConceptual DiagramBillions of yenCash and deposit154.984.9Surplus capital70.0Working capitalNon-controlling interest0.452.0Interest-bearing debtOverall B/S growth associated with business growthReduce retaining surplus capitalSurplus capitalWorking capitalInterest-bearing debtUtilization of interest-bearing debt188.2Invested capital290.7Shareholders’ equityInvested capitalShareholders’ equityProactive shareholder returns considering the balance between investment in growth* Invested capital = Total assets excluding cash and deposit –liabilities excluding interest-bearing debt* Shareholders’ equity includes accumulated other comprehensive incomeFY2021/3New “Medium-Term Plan”Targeting the further growth of the Group through an optimal capital structure and proactive investment Implementation of Structural ReformsAs we started out the fiscal year ended March 31, 2021, my biggest challenge as CFO was to secure business funds in the midst of the pandemic, with no way of making profit forecasts or predicting what lay ahead. We completed a series of financing arrangements, including expanding our commitment lines, and, while ensuring our immediate financial safety, pressed forward with full-fledged structural reforms to adapt to changes in the environment.In the amusement facilities operation business, we had already been aware of a number of issues from the standpoint of returns on investment, and made the decision to divest this busi-ness to signal a clear shift of resources to the Consumer area, which is a growth field. We also took steps to streamline fixed costs, mainly by calling for volunteers for early retirement, and to dispose of non-business assets. In particular, headcount in the Pachislot and Pachinko Machines Business, which the market is shrinking was excessive compared to our competitors. These were difficult management decisions—as this business has long been a pillar of the Group—but our measures have created a framework that will allow us to weather the current harsh envi-ronment. COVID-19 had an enormous impact on the Group, but seiz-ing upon this crisis as an opportunity, we were able to swiftly resolve outstanding management issues and lay the ground-work for the next stage of business growth.2021Growth of profitOptimization of capital costImprovement of asset efficiencyExpansion ofequity spreadShareholder returnSEGA SAMMY HOLDINGSINTEGRATED REPORT 2021As we deliberated on the optimal capital structure for the With regard to fundraising, as of the end of March 2021 the combined total of our commitment lines and the unused portion of overdraft lines was ¥213.0 billion. Depending on market inter-est rates, however, we will also consider issuing corporate bonds and other financing measures. Group, we also decided on a clear policy for shareholder returns. Up till now, we maintained steady annual dividends at ¥40. While being conscious of keeping this as the lower limit, we set targets of a dividend on equity ratio (DOE) of 3% or more and a total return ratio of 50% or more. In this way, we clarified our policy of linking returns with profits and paying out shareholder returns in line with business growth. We are also introducing ROIC to all of our business compa-nies as an index to measure business investment efficiency. Growth Investment PlanThe key objective of the new medium-term plan is to clearly position the Consumer area of the Entertainment Contents Business as a driver of growth for the Group going forward, and to focus investment in that area. Our approach to achieve the These various indicators aren’t simply management targets The minimum ROIC level for each business is set on the hold-ing company side, based on capital costs. Regarding various measures to raise ROIC, we will work to enhance the ROIC of each business while being in discussions with each business company to confirm progress in achieving the measures and to monitor operational aspects. that ought to be achieved—all of them are organically interre-lated and form the mechanism by which we can ultimately improve ROE. metric we established to achieve an ideal equity spread, using the average WACC for the Group over the past five years as a benchmark.The medium-term plan’s ROE target of over 10% is the optimal capital structure I mentioned earlier is premised on this investment strategy. To achieve substantial growth in the Con-sumer area, the medium-term plan projects additional invest-ments of up to ¥100.0 billion over five years.Concept of Investment in Growth and Shareholder Return (FY2022/3-FY2026/3)[Procurement][Allocation]D/E ratio: 0.5-0.6 times in 5 years later (or Net D/E ratio: 0.2-0.3 times)Fundraising through interest-bearing debtInvestment in growth Consumer Area IR business Investment in growth of existing business New businessShareholder returns Stable increase in dividends (Details at right)Working capital level5 years laterSurplus capitalCurrent level of working capitalEnd of FY2021/35-year cumulative totalAllocation image for the next 5 yearsPolicies on Shareholder ReturnIntroduce the following return policies being conscious of past dividend amount results Total return ratio = 50% or more Dividend Policy = DOE 3% or more Regarding share buybacks, make flexible decision taking business performance trends and stock market trends into account We expect to book these additional investments in a variety of ways. So, to say that the investments are going toward con-sumer games doesn’t necessarily mean only R&D. Success in the Consumer area going forward will depend on factors such as building a media platform to enhance user engagement and fostering vibrant user communities. In fact, it will require strategies that broadly incorporate members of communities other than direct game users. Of course, the amount we invest is less important than the content of our investments, but these kinds of marketing-related investments are also on our radar. The Group boasts numerous intellectual properties (IPs) capable of growing into global brands through proactive invest-ment. Increasing the value of each IP will enable us to maximize business profits and ensure more stable profits. Meanwhile, the Pachislot and Pachinko Machines Business is in a very unique position. The structural reforms we undertook yielded an optimal management scale and put in place a frame-work that will enable more stable bottom-line contributions than before. We aim to boost our share in the shrinking market by building on our competitive strengths, paying particular attention to ways of eliciting greater support from pachinko halls and users. If we sustain investment on an appropriate scale, I believe this business will continue to generate stable profits, securing annual ordinary income of between ¥10.0 and ¥15.0 billion.Reducing Long-Term Risks and Building Corporate Value through Stronger ESG ManagementThe environment in which the Group operates is undergoing rapid changes. We have to seriously address ESG and other sustainability issues, recognizing that these are at the very heart of corporate management. We are also taking proactive mea-sures to address issues that are sure to have an enormous impact on the Group’s businesses, in terms of shifts in consumer tastes and values, such as environmental issues that have recently become the subject of intense concern, as well as addiction issues that are closely related to the Group’s business. In particular, even though the transition to carbon neutrality could potentially have a major long-term financial impact, we believe that efforts at present are still inadequate. As we work to implement TCFD-based financial disclosure, we are in the pro-cess of formulating environmental targets for Scope 1 to Scope 3 CO2 emissions. We also face a pressing need to promote the diversity of human resources. The Group emphasizes diversity of thinking as well as of race, gender, sexuality, and in other areas. I think the strongest organizations are those where employees with a variety of values can arrive at the best possible solutions by freely engaging in discussions on topics that do not offer a single, clear-cut answer. We are currently exploring specific actions to deal with the above material issues, taking into account perspectives from outside the Group as well. We plan to announce more about these actions in 2022.Investors often ask me what the Group will do with surplus Pursuing a Growth Strategy and Realizing an Optimal Capital StructureDue to the decision by the city of Yokohama to call off the pro-cess for selecting business operators for its planned IR project, the Group has been compelled to reconsider its IR business strategy. However, going through the request for proposal (RFP) process in Yokohama gave us great confidence that our Group undoubtedly has one of the top IR teams in Japan. So, we will continue to identify opportunities for entry into the IR business, while also reconsidering our current investment strategies, including resource allocation. capital that can’t be used for investment. I believe my duty as CFO is, in line with the corporate strategy, to proactively invest in business growth, boost capital efficiency by achieving an opti-mal capital structure, and expand the equity spread. I will con-tinue striving to earn the trust of shareholders and investors regarding the future of the Group through ongoing dialogue while making full disclosure of our processes in carrying out financial strategy.2223Operating C/FSEGA SAMMY HOLDINGSINTEGRATED REPORT 2021Financial PerformanceNet Sales*1The COVID-19 pandemic impacted the Group’s businesses in different ways, leading to a clear divergence in sales performance.The Consumer area reported a steep rise in sales, but consolidated net sales declined 24.2% year on year to ¥277.7 billion.¥277.7 billionBillions of yen395.5321.4378.0366.8347.9366.9323.6331.6366.5277.7’12’13’14’15’16’17’18’19’20’21(FY)Operating Income / Operating Income MarginOperating income fell 76.4% year on year to ¥6.5 billion.¥6.5 billion / 2.3% Operating income Operating income marginBillions of yen / %14.758.310.238.538.55.919.019.04.717.45.117.68.029.529.55.517.73.93.913.07.527.627.6’12’13’14’15’16’17’18’19’202.36.56.5’21(FY)%33.5Operating Income (Loss) by Segment*3Billions of yenChanges to segments in 20150.20.37.471.0–15.1–5.402.045.2–1.2–1.2–1.2–6.41.11.923.5–0.7–0.4–0.4–6.3FY2012/3–FY2015/3SegmentsFY2015/3–FY2021/3Segments Pachislot and Pachinko Machines Business Consumer Games Business Amusement Machine Sales Business Amusement Center Operations Other Corporate and eliminations Pachislot and Pachinko Machines Business Entertainment Contents Business Resort Business Adjustment*34.025.7–2.5–0.9–0.9–2.0–6.5025.7–2.3–2.3–6.04.220.9–1.8–1.8–5.711.126.3–2.2–2.2–5.714.811.9–2.5–2.5–6.59.813.4–2.4–2.4–7.816.523.2–3.6–3.6–8.5’12’13’14’15’15’16’17’18’19’20’2127.9 –10.6 –4.1 –6.7 (FY)Operating Income Margin by Segment Pachislot and Pachinko Machines Business Amusement Center Operations (area) Amusement Machine Sales Business (area) Consumer Games Business Entertainment Contents BusinessOrdinary Income / Profit (Loss) Attributable to Owners of Parent*2Structural reforms resulted in the booking of substantial extraordinary income and losses.Profit attributable to owners of parent declined 91.2% year on year to ¥1.2 billion. Please refer to page 15 for more details about structural reforms.¥1.7 billion / ¥1.2 billion Ordinary income Profit (loss) attributable to owners of parentBillions of yen58.133.440.540.530.730.721.820.916.816.45.328.527.614.58.97.42.625.213.71.71.2–11.324.914.816.517.216.94.92.6’130.7’122.10.1’143.6’150.0’1517.85.414.92.2’1621.413.312.811.37.16.74.5’12’13’14’15’16’17’18’19’20’21(FY)’17’18’19’20’21(FY)*1 As the recognition of net sales was changed (1) from a net basis to a gross basis and (2) from a shipment basis to a delivery basis in FY2016/3, figures for FY2015/3 reflect these changes retrospectively.*2 The Company has adopted the “Revised Accounting Standard for Business Combinations” (Accounting Standards Board of Japan (ASBJ) Statement No. 21, issued on September 13, 2013) and has presented income (loss).*3 As of the FY2015/3 change in segments, elimination of inter-segment transactions and general corporate expenses that are not allocated to the reporting segment are included in the adjustment to segment “net income (loss)” as “profit (loss) attributable to owners of parent” from FY2016/3.2425SEGA SAMMY HOLDINGSINTEGRATED REPORT 2021ROE / ROA*4ROE decreased 4.2 points from the previous fiscal year to 0.4%.ROA decreased by 2.7 points to 0.3%.*4 ROA = Profit attributable to owners of parent ÷ Total assets%11.06.39.35.77.74.40.4% / 0.3%Capital Expenditures / Depreciation and Amortization*5Capital expenditures decreased 36.4% year on year to ¥14.5 billion.Depreciation and amortization decreased 18.2% to ¥12.1 billion.¥14.5 billion / ¥12.1 billion ROE ROABillions of yen Capital expenditures Depreciation and amortization36.132.838.128.728.728.028.027.027.034.424.122.816.118.118.116.117.617.616.616.316.214.514.814.512.1 9.25.21.81.02.91.8’184.63.0’200.9’190.60.40.3’21(FY)’12’13’14’15’16’17’12’13’14’15’16’17’18’19’20’21Billions of yen Net cash provided by operating activities Net cash provided by (used in) investing activities Free cash flowBillions of yen / % R&D expenses and content production expenses R&D expenses to net sales ratioCash FlowsCash flow used in operating activities in FY2021/3 was ¥6.3 billion, compared with cash provided of ¥38.5 billion in the previous fiscal year.Cash flow provided by investing activities was ¥30.4 billion, compared with cash used of ¥15.4 billion in the previous fiscal year.75.238.036.637.024.918.66.316.9–0.7–20.9–59.059.154.326.414.86.038.523.030.424.0–38.5–37.7–18.3–35.2–4.7–20.4–7.2–22.1–15.4–6