The main matters that may constitute risk factors among the information related to the Group’s business conditions are presented hereunder. Information that is not necessarily considered a business risk by the Group but constitutes important information necessary for making investment decisions or for understanding the Group's business activities is also actively presented from the standpoint of information disclosure for investors. The Group's policy is to recognize the potential for risks to materialize and then work to mitigate that potential and appropriately address any risk that does materialize.
Unless otherwise described, forward-looking statements in the following risks are based on the Group’s judgment made on December 20, 2016 and may therefore differ from actual results due to potential uncertain factors.
1. Trends in Internet Advertising Market and Competitive Environment
The Internet advertising industry, which is the main area of business developed by the Septeni Group, has rapidly expanded in recent years, for dozen years or so. However, the advertising business, and not just Internet advertising, tends to be highly susceptible to prevailing business conditions. If business conditions deteriorate going forward and the market size does not expand as much as expected due to the reduction of advertising expenses by advertisers, among other factors, the Group’s business activities, financial position and operating results may be significantly affected.
In addition, the competitive environment remains intense, so the Group is taking a variety of measures to establish a competitive advantage and bolster its overall competitiveness. However, these measures may not bear fruit and may not necessarily lead to the establishment of a competitive advantage, and if this is the case, the Group’s business activities, financial position and operating results could be impacted considerably.
2. Securing and Development of Human Resources and Dependence on a Specific manager
The Group considers human resources to be the greatest asset that underpins its growth. It also recognizes that the recruitment and development of outstanding individuals and continuous efforts to secure human resources in line with its business expansions and global development are key challenges for the Company. With this in mind, the Group places its maximum effort into the securing and development of competent human resources. That said, failure to secure or develop the necessary human resources due to intensifying competition for human resources, a supply-demand balance in the staffing market or other factors may have a material impact on the business activities, financial position, operating results and growth of the Group.
In addition, Mr. Koki Sato, Representative Director of the Company, plays an extremely important role in deciding and executing management policies and overall business strategies in the Group. The Group depends on the capabilities and skills of Mr. Sato in every aspect of its business. As a result, if Mr. Sato is dismissed from his job or has difficulties executing his duties for any reason, the Group’s business activities, financial position and operating results may be significantly affected.
3. Overseas Business
Considering “Expand advertising business globally” as one of the basic policies in the Midterm Business Policies, the Group has been developing businesses aggressively in numerous countries and regions overseas, including the United States, Europe and Asia. Consequently, the presence of its overseas business is increasing steadily. However, overseas business involves risks, including changes in global economic trends, fluctuations in foreign currency exchange rates, laws and regulations governing investment and competition, differences in business practices, industrial relations, and international politics, and if these risks materialize, the Group’s business activities, financial position and operating results may be impacted considerably.
4. New Businesses
Going forward, the Group will continue to create and develop new businesses proactively to achieve sustainable growth and diversify revenue sources. However, the launch of new businesses may lead to the inclusion of risk factors that are uniquely associated with such businesses, while at the same time numerous unpredictable risks including sudden changes in the business environment may arise in the course of the execution of new businesses. As a result, if the goals of the initial business plan cannot be achieved, there is the potential for the Group’s business activities, financial position and operating results to be substantially impacted.
5. Business Expansion through Mergers and Acquisitions (M＆As)
The Group intends to conduct M&As effectively as one of the means of accelerating business expansion. To conduct M＆As, it will undertake careful due diligence of the target companies in terms of the financial details and contract-related matters, among other issues, and make decisions after examining the risks exhaustively. Even so, if any issue that could not be identified in prior investigations arises, such as the occurrence of contingent liabilities or the discovery of unrecognized liabilities, or if the business is not developed as planned, the Group’s business activities, financial position and operating results may be significantly affected. Furthermore, the addition of any new business that has not been conducted by the Group as a result of M＆As may lead to the inclusion of risk factors uniquely associated with such a business.
6. Personal Information Management
Several companies in the Septeni Group handle personal information through their business activities. These companies have established privacy policies and management systems in accordance with the Act on the Protection of Personal Information and other regulations. They are also actively acquiring certifications related to information security, including the Privacy Mark and ISMS certification. Overall, careful attention is paid to appropriately managing personal information and preventing leaks. However, there is the possibility that personal information could leak out due to system failure, negligence or deliberate intent by related parties inside or outside the Group, criminal activity or other incidents. If such a situation occurs, it could lead to demands for damage compensation from the Group or negatively affect the Group's reputation, and this has the potential to substantially impact the Group’s business activities, financial position and operating results.
7. System Risk
A majority of media contents business and a part of the internet marketing business provide services to customers from server-based computer systems via the Internet. We are constantly taking measures to ensure stable operation of these systems, including system augmentation and reinforcement of backup systems. However, if computer systems or communication networks are shut down by device failure, natural disaster, dramatic and unanticipated increases in access, computer viruses, or other circumstances, it could force services to be suspended, and this could diminish the trust placed in us by customers. Such a turn of events has the potential to seriously impact the Group’s business activities, financial position and operating results.
8. Severe Fluctuations in Asset Prices of Securities Holdings
The Group may hold marketable securities whose prices have the potential for substantial fluctuations (declines) due to the performance of individual companies and trends in financial markets, including stock in business partners and investment targets, etc. and various financial products for effectively utilizing surplus funds. If these asset values substantially decline due to drastic changes in the economic environment, etc. , it could exert a major impact on the Group’s business activities, financial position and operating results; for example, profits may decline as a result of being forced to recognize valuation losses or sales losses.
9. Content Business
The Group develops business in the content market, and this market is characterized by dramatic changes in user needs as well as large numbers of competitors. The Group is striving to increase revenue by working to provide content with high user satisfaction levels, but if we are unable to appropriately respond to changes in user needs and intensifying competition and therefore unable to provide appealing content, there is the potential for the Group’s business activities, financial position and operating results to be substantially impacted; for example, by a decrease in fee revenues. In addition, Content business provides content to users through platform providers such as social networking services and app markets. For this reason, if these companies change their business policies, etc. and transaction terms are revised or it becomes no longer possible to provide content, it could seriously impact the Group’s business activities, financial position and operating results.
10. Intellectual Property Rights
The Group recognizes the importance of protecting and controlling intellectual property rights and operating each business with the utmost care to avoid infringement of any third party’s intellectual property rights. However, in the case that we infringe on a third party’s intellectual property rights, due to procedural flaws or errors caused by managers, there is a possibility that we will be requested to pay compensation for damages or stop using such rights, and this has the potential to seriously impact the Group’s business activities, financial position and operating results.
On the other hand, the Group is taking proper measures to protect its intellectual property rights, pertaining to services and content owned by the Group, from infringement by third parties. However, if, for some reason, the Group’s intellectual rights are infringed, there is the possibility that the Group’s business activities, financial position and operating results will be materially affected, due to such effects as a decline in competitive advantage.
11. Internal Control Systems
Positioning the enhancement of corporate governance as a key management challenge, the Group is implementing diverse measures to maximize its corporate value. In addition, to secure the proper implementation of operations and the reliability of financial reports, it is working to establish, improve and operate a system that makes the relevant internal control systems function effectively. However, if sufficient internal control systems are not established in a timely fashion due to a rapid expansion of business or other factors, the Company may have difficulties operating businesses appropriately, which may have a significant impact on the Group’s business activities, financial position and operating results.
12. Dependence on a Specific Customer
In the Internet marketing business, transactions with a specific customer may expand sharply against the backdrop of an increase in the advertising budget and an improvement in the cost-effectiveness of Internet advertising, among other factors, thereby leading to an increased presence in the sales breakdown. In this case, if transactions with the relevant client decline significantly due to a change in its business policy or other reasons such as operating results trends, the Group’s business activities, financial position and operating results may be significantly affected.
13. Laws and Regulations
There is no related law of limitation on expanding our main business at this moment. However, due to the diffusion and the diversified use of the internet in the future, situations such as enacting new related laws, revises of existing laws, or self-regulations in the industry could require the Group to comply. Such a turn of events has the potential of major impact on the Group’s business activities, financial position and operating results.