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Message from Hidetoshi Yamamoto, Chairman, President and Group CEO

ceo

We wish to express our sincere gratitude to all our stakeholders for your continued support and patronage and also for your thorough understanding of our Company's business.

In the Japanese economy, corporate profits are continuing to improve and consumer spending is recovering gradually, but there are uncertainties about the prospects of overseas economies, and no trend towards full-scale recovery.
As for the pachinko/pachislot industry, there have been reports in some media that the market is shrinking, but we have found that although the number of pachinko halls decreased by 40% from the peak, the decrease rate in the number of pachinko/pachislot machines installed has remained at 6%.
On the other hand, it appears that the periodic tightening of regulations from 2014 to 2018 may have been a major cause of a downturn in the market in recent years.
We believe that reasons for the Company's results being in the red for two consecutive years include insufficient marketing and an inability to establish a corporate structure for overcoming the effects of the periodic tightening of regulations. We apologize for any concerns caused to our stakeholders in that regard.
However, with the coming into effect of the "Amendment of the Regulation for Enforcement of the Amusement Businesses Law*" in February this year, the turmoil that continued for four years has ended, and we expect the trend to be towards recovery in the market going forward.

The Company has implemented various measures for securing profits and ensuring growth within the changing market and enabling it to respond to any possible future amendments to the regulations.
With regard to the pachinko/pachislot business, we are the only distribution company in Japan that has nationwide sales bases, and to further increase our sales capabilities, we have set up eight new bases during this fiscal year to provide a structure of 34 bases nationwide. In addition, we have established alliances with manufacturers with strong product development ability to make it structurally easier to secure quantities of goods for sale.
In our cross–media business, which expands IP into various media, we have consolidated the business into two subsidiaries—Tsuburaya Productions Co., Ltd., which owns "Ultraman" and other leading IP, and Digital Frontier Inc., which is a prominent Japanese CG production studio. This has led to a structure enabling more efficient development and promotion of IP and profitability.
We are also promoting increased optimization of Group-wide costs.

Going forward, as well as aiming to develop a new way for the pachinko industry, we will continue to take on the challenges of IP creation and content development, contributing not only to the sustained development of the industry, but also the growth of the leisure market.
We will continue our efforts across the Group as a whole to meet the expectations of our stakeholders, and we ask for your continued support as we pursue our goals.

*"Regulation Partially Amending the Ordinance for Enforcement of the Act on Control and Improvement of Amusement Business, etc." and the "Regulations for the Verification of Licenses, Formats and Other Aspects of Pachinko and Pachislot Machines"

May 2018