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.
Demand for bill validator units for the gaming market, which accounts for a significant portion of overall sales in the Group, is affected by economic conditions in the countries and regions where they are sold. The gaming industry, as represented by casinos, is made of amusement facilities, and the business climate of the gaming market itself may be affected by the economic situation in each country, as well as world affairs such as military conflicts and terrorism, large-scale earthquakes, windstorms, floods, epidemics, accidents, and other events that reduce consumer confidence in individuals, which may affect our Group’s performance and financial positions.
The Group’s sales destinations are worldwide, and overseas sales account for a high percentage of total sales. The Company strives to optimize overseas commercial distribution within the Group to minimize the impact of exchange rates and to avoid the risk of future exchange rate fluctuations by using forward exchange contracts to the extent necessary. Nevertheless, the Group’s results are affected by exchange rate fluctuations, including the year-end difference in foreign currency denominated assets due to exchange rate fluctuations, which is recorded in non-operating income/loss.
The bill validator unit is a flagship product that accounts for a large portion of the Group’s total sales, as well as a large percentage of the Group’s total sales to the gaming market. The Group has secured a large share of the gaming market in various countries, particularly in North America, but the scale of this market share fluctuates due to competition with other companies in the industry. If competition in technological development and in pricing intensifies, there is no guarantee that we will be able to maintain our current market share in the future, and it may become difficult to maintain reasonable sales prices. In addition, the recent rapid global shift to cashless transactions (electronic transactions) may affect the Group’s performance and financial positions in that demand for our products may fluctuate significantly.
In the gaming industry, such as in casinos, strict laws and regulations are in place regarding the operation of casinos and the manufacture and sale of gaming machines to ensure that genuine game machines are operated without deception by persons who are not affiliated with criminal organizations. These laws and regulations require that the sale of bill validator units installed in game machines be approved by the authorities. In some states (or territories) in the U.S., bill validator units are considered part of the game machine and, like game machines, require a permit when sold. Therefore, changes in laws and regulations governing slot machines and other game machines may affect the Group’s performance and financial positions, even if there are no existing restrictions on bill validator units or sales thereof in certain countries and states around the world. Furthermore, in obtaining these permits and licenses, the Group undergoes rigorous screening not only of the Company, but also of individual officers. In the unlikely event of a criminal offense or other legal violation by the Company, an affiliated company, or an individual officer, the Group’s performance and financial positions could be affected by the revocation of the license or permit and the inability to sell products.
Pachinko parlors, which are the primary sales destination of the Group’s equipment for the amusement industry products, are subject to the Act on Control and Improvement of Amusement Business (hereafter, “Amusement Business Act”). In recent years, as a result of the introduction of standard machines mandated by new laws with the aim of curbing the gambling spirit of players, the industry as a whole has seen its sales shrink, and the Group’s sales to this market have also declined significantly. Future changes in the standards for amusement machines and other related revisions to the Amusement Business Act may also affect the Group’s performance and financial position.
The Group continues to invest aggressively in R&D to adapt to the diversifying needs of the changing times. Research and development of new products involves risks, and depending on the development theme, development costs may be high due to prolonged development periods, which may affect our Group’s business performance and financial position.
The Group’s overseas business development is affected by country risks such as political situations, trade issues, revision or abolition of laws and regulations such as business licenses and import/export restrictions, and revaluation of national currencies. If the impact of country risk in many countries suddenly becomes severe, it could cause major problems in production, sales activities, and other areas, which could affect the Group’s performance and financial position.
The Group’s products consist primarily of assembled electronic components, resin molded parts, and metal fabricated parts. With regard to electronic components, the demand for such components varies greatly depending on trends in the semiconductor market and is characterized by the rapid pace of such changes. To cope with this, we have secured multiple channels for procuring parts; however, market trends in semiconductors may affect the procurement of raw materials. In addition, the cost of parts purchased by the Group may rise due to soaring prices of crude oil and raw materials. Furthermore, our Group has a high ratio of overseas production, and the cost of goods may increase due to the rise in labor costs associated with economic development in each country.
The Group maintains a certain amount of inventories in order to supply products that meet market needs in a timely manner. Although we are working to forecast the supply-demand balance in the market and maintain the minimum necessary amount of inventory, in the event of an unexpected increase in the volume of orders, sales opportunities may be lost due to a shortage. In the event of a decrease in the volume of orders, the Group’s business performance and financial position may be affected by a loss on valuation or disposal of inventory due to excess inventory.
The Group procures funds by borrowing from financial institutions and issuing bonds, but changes in the financial market environment may affect the Group’s fundraising. In addition, a rise in financing costs due to deterioration in the Group’s business performance or other factors could affect the Group’s ability to raise funds.
From its business activities, the Group is in possession of confidential information, including business partners’ and its own sales and personal information. If confidential information is leaked or lost from PCs, servers, or other equipment due to cyber attacks or unauthorized access from outside, business activities may be suspended and the Group’s performance and financial position may be affected due to loss of public trust and other factors.
In the amusement (pachinko) industry, the collection period for trade receivables tends to be longer than in other industries due to past business practices and other factors. The Group has thorough credit management for trade receivables in accordance with its internal rules and regulations, and has recorded an allowance for doubtful accounts based on certain rules to ensure that losses from bad debts do not cause significant fluctuations in its business results. However, our customers who operate pachinko parlors continue to see a decline in the number of players and a corresponding decrease in the number of parlors. Given these circumstances, the Group closely monitors the business conditions of its customers after sales to prevent any problems with debt collection; however, future trends in the industry may increase the risk of bad debts.
With respect to transfer pricing taxation, we are working to avoid tax risks such as double taxation by applying for APAs (advance pricing agreements), in which the tax authorities of the relevant countries give prior approval for transaction prices occurring within the Group. However, changes in taxation systems in various countries and the conclusion of tax treaties between countries may increase the risks associated with international taxation.
The Group is actively working to protect its intellectual property rights. In addition, we develop products after conducting sufficient research to ensure that we do not infringe on the intellectual property rights of third parties. However, due to differences in the legal systems of different countries, the Group may be subject to patent infringement lawsuits seeking payment of damages or an injunction against the sale of products, or third parties may illegally use the Group’s intellectual property rights, resulting in lost sales opportunities and liability for compensation payments, which may affect the Group’s performance and financial position.
We are committed to making products that comply with the environmental laws and regulations of each country and region. The Group continues to make efforts to further enhance environmental considerations, but laws and regulations, including environmental regulations, vary from country to country and region to region, and the scope of such regulations, such as the issue of conflict minerals, tends to expand. In addition, the economic burden associated with environmental measures and laws and regulations is increasing, and if the Group’s products fail to comply with various laws and regulations, the Group may be unable to sell its products in some regions, which may affect the Group’s performance and financial position.
The Group’s bill validator units are compatible with the currency of more than 140 countries around the world. Bills of some countries are reprinted more frequently than Japanese bills and are characterized by high levels of counterfeiting. There is also fraud by tampering with bill validator units. The Group readily revises its software and provides support for its products after delivery. In recent years, however, counterfeit banknotes and fraudulent devices have become more sophisticated and speedy. Therefore, increased costs to deal with these issues and compensation costs to customers may affect the Group’s performance and financial position.
Since our Group’s main business is money-handling machines, the rapid shift to cashless payment systems may affect our Group’s business performance and financial position in the event of rapid progress in diversified payment methods in countries around the world.
The Group’s retirement benefit obligations are calculated based on assumptions such as the discount rate for actuarially determined retirement benefit obligations and the expected return on plan assets. However, if actual results differ from the assumptions, the Group’s performance and financial position may be affected in the future.
The Group positions M&A and business & capital alliances as one of its growth strategies and is actively examining and implementing them. In implementing these measures, we conduct due diligence on the financial position and business activities of the target company to understand its business potential and risks before making decisions. However, if the performance of the target company deteriorates after implementation of the measures due to changes in the business environment or unexpected contingent liabilities, and the initially expected results are not achieved, an impairment loss on stock valuation or goodwill may occur, which may affect our Group’s performance and financial position.
In the event of the spread of infection of COVID-19, influenza, norovirus, or other viruses among our Group’s officers and employees, we would have to temporarily suspend our business activities, which could affect our Group’s performance and financial position.
There are various other risks besides those mentioned above, and those listed here do not represent all the risks of our Group.
