Risks that may affect the Group’s financial position and operating results etc. are as follows. Furthermore, matters alluding to the future are based on judgments made as of the end of the current consolidated fiscal year.
(1) Laws, etc.
a. Pachinko and pachislot machine business
The pachinko and pachislot machine business is regulated by laws, etc., such as the Act on Control and Improvement of Amusement Business, etc., the Order for Enforcement of the Act on Control and Improvement of Amusement Business, etc., and the Regulations Concerning Authorization and Model Approval for Amusement Machines. Thus, if there are any major abolitions or revisions to these laws, etc., or if new laws that regulate the pachinko and pachislot machine business are enacted and enforced, there is a possibility that this will affect the Group’s financial position and operating results.
b. Golf business
Development and use of land for golf courses is regulated by laws concerning land use and development, such as the River Act, the Forest Act, the Agricultural Land Act, the City Planning Act, the National Land Use Planning Act, and the Road Act. Operation of golf course facilities is affected by laws, such as the Food Sanitation Act, and the Public Bath Houses Act, as well as laws related to the environment, such as the Agricultural Chemicals Regulation Act, and the Waste Management and Public Cleansing Act. Thus, if there are any major abolitions or revisions to these laws, or if new laws that regulate the golf business are enacted and enforced, there is a possibility that this will affect the Group’s financial position and operating results.
(2) Market conditions
a. Pachinko and pachislot machine business
In recent years, the number of pachinko parlors and the number of participants in leisure activities has continued to decline due to the effects of diversification of leisure and the declining birthrate and decreasing population, and the operating conditions of pachinko parlors have become more severe. Thus, pachinko parlors are becoming more selective when it comes to the pachinko and pachislot machines they purchase, and pachinko and pachislot machine manufacturers must apprehend players’ preferences and develop more attractive machines. Under these conditions, the Group is working to produce products that are differentiated from other companies, improve product value by designing machines from the players’ perspective, and increase profitability by reducing costs through the reuse of components, etc.
However, the Group’s financial position and operating results may be impacted by further worsening of operating conditions for pachinko parlors and rapidly changing player preferences, etc.
b. Golf business
The golf business is part of the leisure industry, which is greatly affected by changes in economic trends and customer preferences. Furthermore, there is harsh competition due to the aging of golf players and the oversupply of golf courses caused by the declining number of golf players. Under these conditions, we are expanding the GRAND PGM brand and working to improve the quality of golf courses and services, with the concept of “making Japan’s golf experience more opulent and elegant.” Furthermore, we are providing diverse play styles such as by increasing individual bookings and providing an environment for playing the whole course in one session, and we are promoting measures to expand the range of players, such as by communicating the joy of golf through the PGM JUNIORS program. However, if abnormal weather events or large-scale natural disasters occur more often than anticipated, the Group’s financial position and operating results could be affected by a sudden decline in golf players and a prevailing mood of refraining from leisure activities, etc., in addition to sustaining direct damage.
(3) Natural disasters, major accidents, and infectious diseases, etc.
a. Pachinko and pachislot machine business
In terms of company regulations, we have established Risk Management Regulations, and in terms of latent risks to business activities, we are anticipating earthquakes, typhoons and fires, etc., and instituting clear procedures to respond to them. However, if the pachinko and pachislot machine development center (Taito-ku, Tokyo), the manufacturing center (Isesaki-shi, Gunma Prefecture), our offices, or pachinko parlors that we deal with incur damage due to a natural disaster that exceeds projections, or if there is a major outbreak of an infectious disease such as new strains of influenza, this may hamper business activities and impact the Group’s financial position and operating results.
b. Golf business
We own golf courses throughout Japan, so facilities such as golf courses and club houses, and equipment such as golf carts may suffer direct damage from natural disasters such as typhoons, which have grown in scale in recent years, floods, earthquakes, and tsunamis. There may be instances in which closure is unavoidable for a certain period of time due to instances such as strategic closures being implemented to ensure the safety of customers and employees or minimize damage, or if it takes time to restore infrastructure such as electricity and water or for golf courses to recover, and this may impact the Group’s financial position and operating results. Furthermore, if there is a major outbreak of an infectious disease such as new strains of influenza, the Group would not only sustain direct damage, but its financial position and operating results may also be affected by people refraining from leisure activities, etc.
(4) Procurement of components, etc.
In the pachinko and pachislot machine business, the Group procures certain components used in the manufacturing of pachinko and pachislot machines from multiple external suppliers and relies on particular suppliers for some components. If signs of a shortage emerge amid scheduled procurement of components, the Group will cope by securing the largest quantities possible and promoting the reuse of components.
However, if procurement of components is severely affected by factors outside the Group’s control such as a disaster or changes in policy or bankruptcy among suppliers, this may impact the Group’s financial position and operational results.
(5) Handling of personal information
The pachinko and pachislot machine business handles information about the privacy and reputation of customers, etc. (including personal information, etc.). The golf business handles a large volume of personal information belonging to visitors to golf courses through the Company’s website or other websites using computer systems, etc. The Company complies with the Act on the Protection of Personal Information and the Act on the Use of Numbers to Identify a Specific Individual in the Administrative Procedure (My Number Act) with regard to the personal information of customers, etc., and specific personal information of employees, and has management systems in place for the protection of personal information and specific personal information. However, if information is leaked to an external party due to unforeseen circumstances, costs such as compensation for damage may be incurred, and this may impact the Group’s financial position and operating results such as by affecting the reputation of the Group’s brand.
(6) Information security
The utilization and importance of information systems is increasing for each of the Group’s businesses, leading to increased reliance on IT. Furthermore, crimes and accidents using information and telecommunication networks, such as cyberterrorism and computer viruses, have become more common in recent years, so we are implementing appropriate security measures such as establishing operational structures for computer systems and ensuring thorough information management. However, the Group’s financial position and operating results may be impacted if operations are suspended as a result of systems being compromised due to illicit access or infection by computer viruses, etc.
(7) Impairment of fixed assets
The Group owns fixed assets such as tangible fixed assets and goodwill, and the Accounting Standard for Impairment of Fixed Assets applies to these assets. The accounting standard measures the sum recoverable from grouped fixed assets, and as a result, if the recoverable sum is less than the book value, the difference is considered an impairment loss. Impairment loss arises if asset value falls dramatically due to marked deterioration of management conditions going forward. Particularly in the golf business, there is a risk that the amount of loss will be great if there is a high proportion of golf courses and land, which are considered to be non-depreciable assets due to their individual characteristics, and impairment loss arises. Therefore, if such impairment loss arises, the Group’s financial position and operational results may be impacted.
(8) Risks related to financing
In the pachinko and pachislot machine business, if additional capital is necessary to invest in equipment, etc., finance will be procured by borrowing from financial institutions. In the golf business, if additional capital is necessary to operate golf courses or conduct M&A, finance will be procured by borrowing from financial institutions. With regard to the borrowing rate, the current low interest rates have continued for an extremely long time; however, if they go up markedly due to changes in the global situation, etc., the cost of financing will increase due to rises in variable interest rates, rollover of existing borrowings, and new borrowings, etc. Furthermore, most of the golf businesses’ major borrowings have restrictive financial covenants imposed, and if said covenants are infringed, then a mortgage may be registered against some real estate specified by the golf business, or the golf business may be subject to a requirement for early repayment, if a new agreement is not reached with the financial institution etc. concerned. Therefore, if said covenants are infringed, the Group’s financial position and operational results may be affected.
In the pachinko and pachislot machine business, we may strengthen ties with other companies and conduct new investments, etc., in order to expand existing businesses and develop new businesses. In the golf business, we are conducting M&A by carefully selecting targets with a focus on regions that we expect to lure customers in large cities, with M&A forming the basis for growth. When conducting M&A, we conduct thorough due diligence regarding target golf courses, and mitigate risks to the best of our abilities. However, if the corporate value of investment targets or the market value of shares, etc., falls due to changes in social conditions and competition, etc., or if it is determine we are unable to achieve anticipated results, valuation loss on shares of associates or goodwill may arise, which may impact the Group’s financial position and operational results.
(10) Spread of the novel coronavirus (COVID-19)
In the pachinko and pachislot machine business, business conditions for pachinko parlors are worsening rapidly due to factors such as voluntary suspensions of operations and shortened operating hours accompanying the declaration of states of emergency, as well as the loss of customers, particularly senior citizens, after the lifting of states of emergency, and the decline in parlors may accelerate. In this case, sales competition is expected to intensify as demand for pachinko and pachislot machines decreases.
In the golf business, there is concern that if infections begin to spread again, another state of emergency will be declared and be accompanied by downturns in consumer sentiment such as refraining from going out or engaging in leisure activities, resulting in a decline in the number of visitors to golf courses.
Even if the COVID-19 situation improves gradually thanks to factors such as the growing availability of vaccines, there is a high degree of uncertainty and the impacts of the pandemic may persist for the foreseeable future. In this case, it is predicted that the situation described above will occur, which may impact the Group’s financial position and operational results.