With regard to risks in relation to the Group’s business, etc., main factors that may influence the judgments of investors are stated. However, not all the factors that may influence the financial results of the Company are covered. With heightened awareness of those potential risks, the Group endeavors to avoid these risks from occurring, takes prompt action to reduce or eliminate damages should they occur.
This section contains forward-looking statements, based on the judgments on the date of filing this report (June 27, 2019).
1.Risks related to legal regulations
1.Business regulations related to the banking business
The Group’s savings bank business in South Korea is under control of various regulations including Savings Bank Act. Likewise, our banking business in Indonesia is subject to various regulations based on the Banking Law of Indonesia and other related legislations and government orders.
The Group operates business in compliance with laws and regulations. If the Group’s service infringes on any act and a suspension of the whole or part of the business is ordered, however, it may have an impact on the performance and financial position of the Group.
Meanwhile, the South Korean government revised and enforced the law regarding registration of moneylenders and protection of users of financial services on February 8, 2018. This reduced the legal interest rate cap to 24.0% p.a. It was applied to conclusions, renewals and extensions of loan contracts on the same day.
The Group has appropriately dealt with the gradual lowering of legal upper limits in South Korea. If the lowering goes beyond our expectation, however, it may have an impact on the performance of the Group.
2.Business regulations by the Money Lending Business Act
In accordance with the Money Lending Business Act revised and enforced in December 2007, stricter regulations and introduction of business improvement order came into effect and the Japan Financial Services Association was founded as a powerful independent self-regulatory organization. Since June 2010, the upper limit on interest rates has been lowered and a restriction on the total loan amount has also been introduced. In accordance with the rules preventing excessive loans stipulated in the self-regulation basic rules related to management of the loan business prepared by the Japan Financial Services Association, the Group has been striving for stricter credit control. In the future, if these rules are tightened, however, it may have an impact on the performance of the Group, including a decrease in profit and an increase in cost to comply with new rules.
3.Business regulations in the Act on Special Measures Concerning Claim Management and Collection Businesses
The Group's collection of accounts receivable business is under control of various regulations in accordance with the Act on Special Measures Concerning Claim Management and Collection Businesses (Servicer Act). If any of such laws or other regulations is revised, it may have an impact on the performance of the Group.
4.Business regulations in the Installment Sales Act
In the credit card business and consumer credit business, the Group is governed by various kinds of regulations pursuant to the Installment Sales Act. A partial revision to the same act, called the “Act for Partial Revision of the Installment Sales Act”, was enacted in June 2018. Enhanced regulation of merchants, appropriate management of credit card information, environmental improvements in anticipation of further implementation of Fintech, “Appropriate management and control of credit card information and preventing unauthorized use”, “Registration of Acquirer and Payment Service Providers”, “Duty of merchant inspection”, “Order to improve business issued to the operator", ”rescission of registration for registered Acquirers and others”, “Relaxation of duty to delivery written documents”, “Elimination of security deposits for sales”, “Services of Certified Installment Sales Association” and “Measures to handle amendments to Specified Commercial Transactions Law” were established by this act. At the J Trust Group, we plan to deal with “Issuance of IC Cards” and “Payment Card Industry Data Security Standards”, which are required as security policies, by outsourcing our core system as well as systems relating to credit card and consumer credit business. However, if a problem occurs during the transition of the core system, it may impact the Group's performance.
In addition, most of our business partners in the consumer credit service business engage in "Specified Continuous Service Offers," which constitute a transaction type under the Act on Specified Commercial Transactions. While the Group is not directly governed by the act, if any of our business partners engages in product sales or service provision in a manner that infringes on the act, it may have a serious impact on contracts, etc. made by the Group and consumers.
5.Business regulations in the Building Lots and Buildings Transaction Business Act(Buildings & Lots Transaction Act)
The Group’s real estate business is under control of various regulations in accordance with related laws including the Buildings & Lots Transaction Act. If any of such laws or other regulations is revised, it may have an impact on the performance of the Group.
6.Laws and regulations, etc. related to General Entertainment Business
(Live Entertainment Division)
The Group faces regulations such as the “Law on Control and Improvement of Amusement Businesses” and “Regulations relating to authorization of amusement machines and model verification” in the development, manufacturing and sale of things such as computer systems related to amusement machines as well as surrounding equipment. If these and other laws are revised, they may have an impact on the performance of the Group.
(TV Program Production Division)
The TV program production division which the Group manages does business with multiple Tokyo-based flagship stations, but these flagship stations are regulated by laws and ordinances such as the Broadcast Act and Radio Act when conducting broadcasting operations. In the event that the flagship station does not fulfill the conditions set forth by the Broadcast Law such as standards relating to the assets of Certified Broadcasting Holding Companies, the station risks being stripped of its license and authorization. Furthermore, in the event that a new law or ordinance is enacted or a change is made to the regulatory contents of the aforementioned law or other relevant laws, the Group’s business may be affected depending on the performance or development of the flagship station.
(Idol Production Division)
The Group manages an idol production division which deals with intellectual property rights which are decided by contracts in addition to copyright tied to an artist’s recordings and the rights to use the artist's likeness. In situations where the company deals with these kinds of rights, it conducts a thorough investigation into the rights beforehand, consults its lawyers, and works to prevent copyright violation of a third party’s intellectual property from occurring. However, there is a possibility that third party copyright might be violated unintentionally. Cases like this may result in a lawsuit involving compensatory damages and may have an impact on the performance of the Group as well as its social credibility.
7.Act on Protection of Personal Information
The Group falls under an entity handling personal information, etc. under the Act on the Protection of Personal Information enforced on April 1, 2005. The Group has introduced in-house rules and improved its corporate systems to protect personal information from leakage by, for example, setting up the "Personal Information Protection Policy" concerning personal information handling and information control. Based on this policy, the Group enhanced internal management system by providing employee training on handling of personal information, management of access to personal information and improvement of security systems.
In addition, the Group has received "Privacy Mark" as a business owner that set up a proper system to protect personal information, etc. to offer greater safety and continuous service to customers in execution of daily operation.
However, in case the Group fails to prevent leakage of personal information or infringes on the Act on the Protection of Personal Information or other regulations due to unforeseen circumstances, it may have an impact on the performance of the Group, due to not only becoming subject to punishment under the law, but also to losing social credibility and having damage claims, etc.
1.Bad debt risk of loans receivable
The Group takes various anti-credit risk measures such as preventing degradation of loan receivables and enhancement of risk management.
The Group continues to pay attention to risk management including loan receivables. However, if the situation of borrowers, etc. is materially damaged by a major change in the economic and financial environments in Japan and abroad, resulting in a significant increase in credit risks and credit impairments as of the reporting date, or allowance for doubtful accounts increased due to changes in accounting standards, it may affect the performance and financial position of the Group.
2.Bad debt risk of accounts receivable
The Group is exposed to credit risks including accounts receivable from clients. The Group has been reinforcing receivables protection and credit control systems while paying attention to receivables collection risks. However, the risk of receivables becoming uncollectible could increase depending on the sales of customers. This may have an impact on the performance and financial position of the Group.
3.Foreign exchange risk
The Group operates business globally and is exposed to foreign exchange market fluctuation risks. Our overseas subsidiaries’ sales, expenses, assets, etc. are translated into yen when consolidated financial statements are prepared. Due to this, if exchange rates at the time of conversion experience a material change to a level beyond expectation, it may have an impact on the performance and financial position of the Group.
1.Risk of business expansion
The Group has been proactively expanding business into areas where the Group expects business restructuring and synergy with financial business operated by the Group both at home and abroad. Despite our adequate analysis and research in advance, the Group cannot deny the possibility of the occurrence of an unexpected result that our business strategy based on the assumption of effects from such business restructuring and business expansion, etc. may not function effectively, compelling us to modify the strategy itself. This will lead to the following risks and issues:
- That the new business strategy may not function as expected and profit will not increase
- That the Group must train and retain personnel who are capable of supervising, managing and executing the new business
- That the Group may encounter legal and other risks in operating the new business and receive instructions from the relevant public authorities.
Moreover, besides the issues mentioned above, the Group may face risks and issues stemming from expanding businesses that the Group had no experience or inadequate experience in the past. If the Group is unable to cope with such an event appropriately, it may have an impact on the performance of the Group.
2.Risks in Business partners
The Group maintains business tie-ups with multiple financial institutions in its credit guarantee business, etc. in Japan. Also, the Group has been expanding business with partnered conglomerates, banks and Japanese-affiliated companies in Southeast Asia. Should the joint-venture or allied business shows the following unsatisfactory developments: (i) the performance of the Group or a partnered company should worsen; (ii) the engaged business should destabilize due to changes in legislative systems relating to the partner’s business; (iii) the performance of the joint-venture or allied business should fall short of the expectation; or (iv) unexpected events should arise relating to the partnership, etc., it may have an impact on the Group’s performance.
3.Risk of Real Estate Business
The Group engages in acquisitions, sales, holding of income properties and leasing for businesses and ready-built housing for individuals. Since demand by lessees or purchasers is affected by external factors such as economic, interest and land price trends, reduction in demand for leasing or purchase or revision in tax systems may have an impact on the performance of the Group. As for sales of ready-built housing in the real estate business, sales are recorded at the time of handing over the property. Due to this, if unexpected material delays in property handover caused by natural disasters and other unexpected events occur, there may be an impact on the Group’s performance. Furthermore, in the segment Financial Business in Japan, we provide real estate secured loans and credit guarantee for real estate secured loans. Risks such as impaired value of real-estate collateral may require further provision of allowance for doubtful accounts which will affect the business and performance of the Group.
4.Risk of General Entertainment Business
(Live Entertainment Division)
In the event of a decrease in the number of clients caused by competition not only with other companies in the same industry but with those in the leisure industry or a decrease in sales, termination of a rental agreement prior to the termination date at one of Key Studio's live entertainment facilities due to a change in the lessor’s policy or bankruptcy of the lessor, reductions in demand due to a frugal mentality of consumers brought on by changes in social conditions or natural disasters, changes to specifications for live event planning, reductions in advertising costs by event sponsors or a change of advertising agencies, or budgetary alterations due to changes in live event schedules or the timing of sales, the Company’s business may be affected.
(TV Program Production Division)
In the event of an increase or decrease of advertising revenue which serves as the basis of performance for advertising companies that affect the costs of program production—the source of revenue for this division— at flagship stations due to fluctuations in the domestic economy, there may an effect on the Group’s performance. Additionally, if opportunities to access video content continue to increase due to the diversification of media, the value of the television broadcast as a medium may proportionally decrease which may have an impact on the performance of the Group.
(Pop Idol Production Division）
At the Group, long-term management of the artists and entertainers which it retains as a content holder is assumed. However, in the event that an artist or entertainer’s exclusivity contract is not renewed or trouble occurs due to, for example, a violation of the contract with the client, it may have an impact on the performance of the Group.
On a fundamental level, this division operates with a business model that is easily affected by increases and decreases in popularity, as well as the presence or lack of hit products, and may affect the Group’s performance as a result of changing consumer needs. Furthermore, if the effects extend to the number of concert attendees or sales of CDs, DVDS or merchandise, or with regards to appearances in other media, the contract is terminated against the Group’s wishes by the other media company, or when a broadcast is or cancelled, it may affect the performance of the Group.
The Group creates guidelines for how to handle social media and conducts in-house training for its artists, entertainers as well as employees, but on social media there is a chance that the information transmitted by at artist or the company may be spread as negative information, regardless of the true intention, and may have an impact on the performance of the Group.
(Digital Content Division)
At the Group, we have developed smartphone games which utilize IP contents. New technological developments in Internet-related fields and new services based on those developments have been introduced one after the other, but competitive strength may weaken when response to new technology is slow, affecting the Group’s performance. Additionally, in the event that our users' interests change almost instantly and for some reason we are unable to accurately assess their needs or we cannot provide content that meets their needs, the Group’s performance may be affected. At the Group, we have developed smartphone games which utilize IP contents. New technological developments in Internet-related fields and new services based on those developments have been introduced one after the other, but competitive strength may weaken when response to new technology is slow, affecting the Group’s performance. Additionally, in the event that our users` interests change almost instantly and for some reason we are unable to accurately assess their needs or we cannot provide content that meets their needs, the Group’s performance may be affected. Our Group develops digital contents for mobile devices such as smartphones equipped with operating systems like Android or iOS using platforms provided by Apple Inc. or Google Inc. But in the event that for some reason the services are terminated or restricted, or in the event that major expenses are required to deal with the issue, the Group’s performance may be affected.
(Advertising Agency Division)
Revenue for this division is mainly composed of expenditures from domestic advertising corporations, so increases or decreases due to fluctuation of the domestic economy, which serves as the basis for corporations' performance, may affect the performance of the Group. Revenue for this division is mainly composed of expenditures from domestic advertising corporations, so increases or decreases due to fluctuation of the domestic economy, which serves as the basis for corporations' performance, may affect the performance of the Group. Also, if we are unable to adequately deal with changes to the structure of the advertising medium in the future, or if something occurs such as a change in the ongoing business relationship which serves the advertising agency’s interests, it may impact the performance of the Group. The market environment for this division is constantly in flux, with overseas advertising agencies joining the Japanese market in addition to competition mainly with major advertising firms. At the Group, we take pride in our specialized advertising methods through our Group’s unique expertise and cooperation with clients and work to set our Group apart from competitors. However, in the event that a new company emerges using similar advertising methods, or we are exposed to even fiercer market competition, the Group’s performance may be affected.
5.Risk in Investment Business
The Group’s proactive M&A activities strategically focuses on significant growth prospects in Asia. Moreover, to expand our business foundation, we will continue our efforts to establish new companies and make investments through acquisition of existing firms. Nevertheless, we may have difficulty in achieving expected results from these investments such as the Group’s failure to recoup investments with the expected method or timing.
Moreover, in Investment Business, the Group has been selecting investees by comprehensively considering all factors, including synergy in the business, quality of product, service capability and other factors. Such factors are likely to be affected by trends in politics, industries, reputations, etc. in addition to the impact of the domestic and overseas financial markets. When any of such external factors worsens the investment environment, it may have an impact on the performance and financial position of the Group.
6.Risk of Other Business
The Group operates a wide variety of businesses including savings bank business and capital business in South Korea, banking business and multi-finance business in Indonesia, credit guarantee business and receivables collection business (servicer business), credit and system related services in Japan. These businesses embrace various types of uncertainty, and, if the Group encounters a risk exceeding initial forecasts, it may have an impact on the performance and financial position of the Group.
7.Risk of Goodwill Impairment
The Group applies International Financial Reporting Standards (“IFRS”) in consolidated financial statements from the fiscal year ended March 2018. IFRS does not require companies to amortize goodwill unlike generally accepted accounting standards in Japan (“Japanese GAAP”). Nevertheless, the impairment loss of goodwill may be required to be recognized if there is an indication of impairment due to the worsened business performance in the entity carrying goodwill, and the carrying amount of goodwill exceeds the recoverable amount of goodwill. Since Japanese GAAP requires regular amortization of goodwill, the carrying amount of goodwill declines as the time passes and the impairment risk, therefore, is to be mitigated. On the other hand, IFRS does not require the amortization of goodwill and the risk of goodwill impairment will remain in the future. As a result, the impact of the recognition of goodwill impairment loss on the profit and loss could become material, and thereby could have a material impact on the performance and financial position of the Group.
8.Litigation risk, etc.
The Group strives to prevent and minimize litigation risks by consulting lawyers and other experts for advice in preparing written contracts, etc. Furthermore, since the Group conducts business in Japan and abroad, e.g. South Korea, Mongolia and Southeast Asia, we take measures to mitigate risks in close coordination with lawyers in respective regions. However, if the Group encounters any of the following: (i) filing of a significant lawsuit, etc. in the future that stems from legal issues including the violation of laws or conclusion of an incomplete contract; (ii) declaration of a court ruling or payment order disadvantageous to the Group exceeding normal circumstances that arises from different judicial systems in respective regions or unpredictable litigation proceedings; or (iii) rendering of judgments in favor of the opposing party in any significant pending lawsuits, it may have an material impact on the performance and financial position of the Group.
However, if the Group encounters any of the following: (i) filing of a significant lawsuit, etc. in the future that stems from legal issues including the violation of laws or conclusion of an incomplete contract; (ii) declaration of a court ruling or payment order disadvantageous to the Group exceeding normal circumstances that arises from different judicial systems in respective regions or unpredictable litigation proceedings; or (iii) rendering of judgments in favor of the opposing party in any significant pending lawsuits, it may have an material impact on the performance and financial position of the Group.
5.Risk associated with financing
The Group’s borrowings from banks, etc. include variable interest loans. The Group strives to diversify its funding sources. However, if the Group’s funding costs increase due to a change in financial markets, or the Group faces difficulties in fund procurement, it may have an impact on the performance and financial position of the Group.
6.Risk associated with economic environment and external environment
The financial sector, the Group’s core business, is likely to face more severe competition to attract customers due to mergers for the shake-up of the financial industry, new entries into the financial industry by companies in different industries through business tie-ups, and reinforced sales activities owing to improved quality of loan portfolio. Under these business circumstances, if the Group is unable to maintain superior competitive strength, it may have an impact on the businesses and performance of the Group.
Competition in the general entertainment industry is becoming fierce due to companies which offer similar services to our Group and emerging companies. Our Group works to set itself apart from competitors. However, in the event that we are exposed to even fiercer market competition, the Group’s performance may be affected.
The real estate industry has many competitors, including large corporations. Among the segments in the real estate industry, in general, the entry barrier to the real estate distribution business is said to be low because it does not require a large amount of capital, which results in severe competition. Thus, competition is expected to become more intense in the future. The Group believes that it has competent personnel and distinctive sales schemes. However, if the Group is unable to maintain the present superior competitiveness when competitors emerge, etc., it may have an adverse impact on the businesses and performance of the Group.
Moreover, our design and construction businesses of commercial facilities mainly undertake interior and exterior fit-outs of amusement arcades, restaurants and other facilities. Since there are plenty of interior and exterior finishing contractors in Japan, unit prices fluctuate wildly and order-winning competition is becoming intense. Thus, increased competition may hinder us from winning construction orders and it may have an impact on the performance of the Group.
2.Reputation risk, etc.
The Group has been paying close attention to rumors, etc. that may cause damage, having a system to take swift and proper measures and minimize such damage in case of the occurrence of a rumor or problem that may jeopardize fundamentals of the Group’s management. For social media, which has grown in recent years, "Social Media Policy" and "Social Media Guidelines" have been established to protect the Group, its directors and employees from defamation, negative rumor caused by other abusive use of social media.
However, a problem might arise in the future whose cause is not always attributable to the Group or which is difficult for the Group to control.
If such a problem occurs or if the Group cannot handle such a problem properly, it may have an impact on the performance of the Group.
3.Risk of natural disasters, etc.
If stores or facilities, etc. owned by the Group suffer physical damage, or if executives and employees or customers of the Group incur bodily injury due to a major earthquake, tsunami, typhoon or other natural disasters, or if the Group receives a social request attributable to such disaster, it may have an impact on the performance of the Group.
The Group has set up and strengthened systems, in addition to training employees, which can take swift and smooth measures by, for example, setting up disaster control headquarters based on the BCP (Business Continuity Plan) against such a large disaster and emergency communication systems. However, if a large disaster beyond expectation should occur, it may hinder the business operation of the Group.
The Group has been entering international markets to develop businesses and build new revenue bases. These overseas companies face various types of country risks in their governing countries, including local market trends, competitors, politics, economy, laws, culture, religions, customs, natural disasters and foreign exchange rates. If a provision of a law or regulation is changed, or if the politics or economy becomes unstable unexpectedly, or if a social disturbance, including terrorism and war, and a large-scale natural disaster occurs, the Group may not be able to carry out business activities as expected or face difficulty in continuing the business, and this may have an impact on the performance and business development of the Group.
5.Effects of consumption tax hike on personal consumption
The Group offers entertainment services to consumers mainly through management of live entertainment facilities; production of live concerts and various events by affiliated artists; sales of recorded CDs, DVDs and merchandise; distribution and management of smartphone apps, in addition to sales of ready-built housing. If consumption taxes, income taxes and social insurance premiums are raised, consumer sentiment may deteriorate and it may have an impact on the performance of the Group.
1.Internal control in financial report
As part of measures to improve disclosure systems under the Financial Instruments and Exchange Act, “Internal Control Reporting System” has been implemented since the business year starting from April 2008. The said system requires listed companies and others to establish, evaluate and disclose its assessment on internal control system. If accounting auditors point out significant deficiencies that must be disclosed in internal control systems over financial reporting which include qualified opinions as a result of auditing, the Group’s corporate reputation and image in the market will deteriorate, and it may have an impact on the performance of the Group.
The Group must comply with various laws, including the Financial Instruments and Exchange Act and the Money Lending Business Act. In addition, the Group must abide by social rules, including social norms and ethical standards such as common sense.
The Group has been striving to improve its compliance system. However, if the Group is involved in a scandal or fails to abide by social norms, it may have an impact on the business of the Group due to the penalties imposed and damaged social credibility. In addition, it may have an impact on the performance of the Group due to the deterioration in market’s view on the Group and corporate image.
3.Disturbance, breakdown, and damage on information network systems, internet service, and/or technical systems
The Group has established backup computer systems to minimize damage and loss stemming from natural disasters, fires, accidents, etc. that are likely to have a material impact on the business continuity of the Group. However, if the Group is affected by huge disasters beyond expectations such as earthquakes and typhoons, the Group may have to suspend operations.
The Group relies on its internal and external information and technical systems to properly control and manage the Group's businesses. The hardware and software that the Group uses may suffer an adverse impact due to human errors, natural disasters, blackout, cyber-attack, terrorism, computer viruses or similar events, and interruption, etc. of support services provided by third parties including telephone carriers and internet service providers. Further, if suspension of operations or deterioration in function resulting from the above should occur, it may lead to loss of profit opportunities, lower reliability in the Group’s systems and compensation for damages as well as possible administrative penalties imposed by regulatory authorities.
4.Training and retention of personnel
The Group needs experienced personnel who possess advanced product knowledge in diverse areas of business. The Group has been focusing on retaining and training capable personnel by, for example, enhancing education and training systems, reviewing the existing seniority-based wage system and internal promotion system. Despite this, if the Group cannot retain an adequate number of superior personnel or when such valuable personnel leave the Group, it may hinder operation of the Group.
5.Dependency on the company representative
Businesses of the Group have been promoted by Mr. Nobuyoshi Fujisawa, the largest shareholder and Representative Director, President & CEO of the Company. Mr. Fujisawa has been playing an important role in diverse areas including decisions on the management policy, strategy and promotion of businesses in sales, technology and finance. Accordingly, it is assumed that Mr. Fujisawa has a significant influence over the Group's final decisions including appointments of executives of the Company. Such decisions may have an influence on the Group’s business.
The Group has been promoting improvement in the corporate systems and reinforcing the management system so that the Group has no excessive dependency on Mr. Fujisawa. However, should Mr. Fujisawa leave his current post or is unable to execute his duties, it may have an impact on the performance and financial position of the Group.