The basic philosophy of SANKYO Co., Ltd. (the Company) and its consolidated subsidiaries and affiliates (SANKYO Group) is to fulfill its mission, namely, to contribute to the sound development of pachinko and pachislo, which are popular leisure activities in Japan, and to the quality of life in society at large as a leading company in the pachinko and pachislo industry.

SANKYO Group’s stakeholders include shareholders, pachinko parlors, which are the Group’s customers, pachinko players, suppliers, local communities, and employees. One of the most important management tasks is to maintain good relations with each of these stakeholders, and accordingly, the Group has set the following fundamental management policies:

1. Maximize stakeholder value and achieve the optimum distribution of that value
2. Ensure compliance with laws and regulations, social norms, and corporate ethics
3. Enhance efficiency and transparency of management
4. Inspire employees and develop their capabilities
5. Enhance society’s trust in the pachinko and pachislo industry

SANKYO Group aims to achieve stable, permanent growth by establishing a solid position in the industry through increasing its share of the pachinko and pachislo markets. The Company believes that the results of this effort are reflected in the ratio of operating income to net sales and formulates and implements various measures to increase competitive advantage in product planning, development, production, and marketing with the objective of increasing this ratio. The Group will continuously engage in cost reduction measures, including improvement of the efficiency of advertising and sales promotion, the sharing of parts and materials, and the streamlining of logistics.
The table below depicts change in the ratio of operating income to net sales for the most recent three-year period.

	FY2010	FY2011	FY2012
Ratio of operating income to net sales (%)	25.0	25.8	23.2

To maintain growth and increase profitability, SANKYO Group will concentrate its resources on the game machines business and strive to broaden the base of the game machines industry by increasing the player population, while aiming to secure a competitive advantage as a manufacturer that continues to lead the market.
The new management structure launched in April 2012 will address the following issues from a medium- to long-term perspective.

a. Broadening the base of the pachinko and pachislot industry

Our priority is to increase the player population and thus broaden the base of the pachinko and pachislot industry by vigorously disseminating information on the Group as well as on the pachinko and pachislot industry and pursuing collaboration with other industries. Our website is at the heart of the Group's communication strategy and we offer pachinko and pachislot games through a leading social networking website and smartphone apps to attract fans of particular content and other potential players who have never played pachinko or pachislot before. Through these measures, we are striving to cultivate new pachinko and pachislot fans.

b. Establishing brands with the support of players

We are developing machines from the players' perspective and establishing a structure that enables the Group to continually offer products with the attributes necessary for enduring appeal. The Group's recent products have met with an enthusiastic response, achieving considerable and stable popularity. While continuing to strengthen the development structure, we will identify market trends by conducting thorough marketing and strive to become a trendsetter with a view to earning a consistently high evaluation among players and parlors.
In recent years, services utilizing mobile technologies to enrich the game-machine player's experience have proliferated. Our strategy is to bring in players by offering services that link mobile phones with game machines by leveraging the Group's unique online community site. In doing so, we envisage enhancing player satisfaction with the Group's products through these services and increasing the number of service subscribers so as to heighten the popularity of the Group's products.

c. Expansion of the market share of the Group's pachinko and pachislot machine business

Although the game machines market is currently dominated to a considerable extent by a small number of major titles capable of generating large sales volumes, certain player needs particularly for niche products with a powerful retro appeal for older players, or for products delivering innovative gaming performance or using original content are only being met to a certain level. The Group has been operating the pachinko and pachislot machine businesses under the two-brand structure of SANKYO and Bisty, however, in March 2012, JB Co., Ltd., a game machine manufacturer, became a consolidated subsidiary of SANKYO Co., Ltd. The Group views the new brand as an opportunity to respond to the detailed needs of players and parlors, particularly for niche products whose concepts differ from previous items and with flexible pricing policies. Under the SANKYO brand, we will focus on products that can do the heavy lifting in terms of strengthening the brand power and enhance the position of the Bisty brand. By promoting three distinctive brands, we will pursue continuous expansion of the Group's market share.

d. Maximization of corporate value

We recognize the importance of cultivating relationships rooted in trust with shareholders and investors by enriching IR activities and through sustained improvement of financial performance. In addition to actively engaging in communication with shareholders and investors by improving the Company's website and briefings, we participate in IR events and periodically hold briefings for individual investors with the aim of broadening participation of the investor community, including that of individual investors. We will strive to enhance corporate value by promoting vigorous communication with shareholders and investors.