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Business Risks

The following items could have an effect on the results, stock price, and the financial circumstances of JCM Group. Note that the items described here are those judged to be relevant by JCM Group at the end date of the most recent consolidated fiscal year.

Economic Conditions

As sales strengthen across the entire JCM Group, it is the demand for bill verification units in the gaming market, an important market for our group, that is most sensitive to economic conditions in the countries and regions where our customers are. Since the gaming business, as exemplified by casinos, is dependent on the provision of amusement facilities, sentiment in the gaming market itself may affect the results and financial condition of the JCM Group. Besides the economic situation in the relevant countries, sentiment is affected by phenomena that affect the outlook of individual consumers, such the international political situation in terms of wars/terrorism, and disasters such as earthquakes, storms, flooding and accidents.

Exchange Rate Fluctuations

With JCM Group customers located all over the world, overall sales are strongly dependent on overseas sales. We are working to avoid the future exchange rate risks by optimizing our overseas sales network to minimize the effects of exchange rate fluctuations and, where required, utilizing forward exchange contracts. In spite of these measures, JCM Group results are still affected by exchange rate fluctuations due to factors such as the inclusion of non-operating profit or losses after accounting for assets and liabilities denominated in foreign currencies at the end of the fiscal year.

Dependence on Specific Products

Bill validator units are an important product in the context of JCM Group overall sales and account for a high proportion of sales in the gaming market. While JCM Group holds a significant share of the of the gaming market in a several countries but especially in the U.S., this share fluctuates depending on competition in the sector. There is no guarantee that this can be maintained going forward and heated competition on both technology and price may affect future results.

Regulations based on Gaming-related Laws

In the gaming industry, including casinos etc., strict laws and regulations cover casino management and the manufacture and sale of gaming machines to ensure that machines are set fairly and that management is legitimate and free from any connection to criminal organizations. According to these regulations, permission from the relevant authorities is required to manufacture and sell gaming machines equipped with bill validator units. In a number of states (or self-governing territories) bill validator units are deemed to be gaming machines and require permission in the same way as gaming machines. For this reason, in countries or states which require licenses to sell bill validators, JCM Group results can clearly be affected if laws or regulations covering licensing are changed. However, even if the sale of bill validator units themselves is not regulated, our results may still be affected if laws or regulations covering gaming machines, such as slot machines etc., are changed.
It goes without saying that companies in JCM Group hold the required licenses, and we also ensure that individual staff undergo a strict vetting process. In the unlikely event that an employee of JCM Group or an affiliated company did commit a crime or otherwise behave illegally, we could lose the corresponding licenses and no longer be able to sell our products. In such as case, there would be knock on effects for the JCM Group results.

Regulations based on Entertainment and Amusement Business Law

Pachinko halls, the main customer for our amusement center machine products, are subject to the Law on Control and Improvement of Amusement Businesses (Amusement Businesses Law). In recent years, as a result of the obligation to introduce new-standard machines in line with the new laws intended to dull players’ passion for gaming, the industry as a whole has contracted and JCM Group sales in the same market have fallen significantly. Going forward, there is a risk that JCM Group results will be affected by further changes to gaming machine standards or other relevant revisions to Amusement Business Law.

Risks relating to Development of Overseas Production

The JCM Group has rolled out production in China. Increasing production in China is subject to country-specific risks such as the political situation and revaluation of the Chinese Yuan. To reduce such risks, we have established production systems in countries besides China. However, if the severity of risk in China was to increase in severity and we were compelled to reduce or suspend production, JCM Group results might be affected.

Risks relating to Procurement of Parts and Materials

JCM Group products are built by assembling electronic, molded plastic, machined metal and other parts. The jumps in the cost of oil and materials are factor in rising costs for parts procured by JCM Group. Also, since a high proportion of the parts we use are produced in China, prices are also likely to be affected by rising labor costs as the Chinese economy advances.

Receivables Credit Risk

In the amusements (pachinko etc.) industry, there is a tendency for the collection period of accounts receivable be longer than in other industries due to traditional commercial practices etc.. JCM Group has measures in place to ensure that losses due to bad debts do not cause significant fluctuations in our results. Specifically, credit control over receivables is carefully enforced based on company procedures and provision for bad debts is calculated based on a fixed set rules.
However, our customers, the pachinko halls, are experiencing reduction in player numbers and continue to shrink in number as a result. In JCM Group, while we continue to work to ensure that collection difficulties do not occur by monitoring the financial situation of our customers after the sale, trends in the sector may heighten the risk of bad debts going forward.

International Tax and Accounting Risk

JCM Group has measures in place to avoid tax and accounting risks such as double taxation. For instance, to comply with transfer pricing regulation, the setting of trade prices within the group during the tax and accounting periods in relevant countries is carried out by applying to the APA (Advanced Pricing Arrangement) system for prior approval of pricing. However, the possibility of heightened international tax and accounting risks due to future changes to the tax systems within individual countries and mutual taxation agreements between countries cannot be discounted.

Intellectual Property Risks

JCM Group actively seeks to protect our intellectual property. Moreover, new products are only developed after performing a full search to ensure that we are not infringing on the intellectual property of a third party. However, there is a risk that intellectual property issues could affect our results or financial situation. This might happen if, for instance, due to differences in the legal systems in different countries, we were subject to patent litigation seeking payment of damages or suspension of the sales of a product and were obliged to pay compensation. Alternatively, a third party could illegitimately use JCM Group intellectual property and thereby deny us sales opportunities.

Environmental Policy Risk

JCM Group manufactures products that comply with international and regional environmental regulations. While JCM Group continues to work hard to increase awareness of environmental issues, there is multifarious environmental regulation in different countries and regions and, in recent years, a trend towards an expansion of regulation to cover problems such as conflict minerals. If, as the economic burden associated with environmental policies and regulations increase, a JCM Group product was to fail to comply with the relevant regulations, we would be unable to sell the product in certain regions and results could be affected.

Risks relating to Validation of Bills in Various Currencies

JCM Group bill validators can handle currencies in more than 135 countries and regions worldwide. Bills outside Japan are updated with greater frequency and are more likely to be counterfeit. Also, bill validator units are more likely to be illegitimate. JCM Group provides speedy software updates and after-purchase product support. However, in recent years, illegitimate activity relating to counterfeit currencies and machines is becoming more rapid and more sophisticated. Consequently, with the increasing costs of handling these issues and the potential costs of paying compensation to customers, results may be affected.

Pension and Retirement Liability Risks

JCM Group pension and retirement liability risks etc. are calculated based on assumptions based on the actuarially determined discount rate on retirement benefit obligations and the expected return on pension funds. However, if actual results differ from these assumptions, the results and financial situation of JCM Group may be affected going forward.
Although certain of the JCM Group companies make use of multi-employer employee pension plan, JCM Group results and financial conditions may be affected by changes in the business environment, funding plan, benefit plan, etc..

Note that the risks outlined above do not cover all potential risks to the JCM Group.

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