Management Principles
Business Risks
This section explains BCP countermeasures and matters that may significantly impact investors' decisions.
Of the matters concerned with business conditions and accounting conditions as stated in the securities report, the list below mentions the major risks which we are aware of that could potentially have a significant impact on the financial status, operation results, and cash flow situation of consolidated companies. Please note that descriptions concerning the future within the text are based on judgments of our company's Group made at the end of the then-current consolidated fiscal year.
While we acknowledge that these risks could potentially occur, we strive to prevent their occurrence and, if they do occur, to handle them appropriately; however, please note that investment decisions concerning our company shall only be made after carefully reading and considering the descriptions written herein as well as in any other sections. Please also note that the descriptions below do not cover all of the risks related to investment in our company.
Risks for the Entire Group
(1) Regarding talent acquisition and development
Game development is a knowledge-intensive industry, and securing exceptional talent is indispensable for maintaining and enhancing competitiveness. In Japan, the accelerating decline in the birthrate and the tightening supply-demand conditions in the labor market have led to heightened recruitment activity across industries. This poses increasing risks for our Group, which places top priority on new graduate recruitment.
Our Group is dedicated to advancing human capital management and improving employee engagement to achieve both talent acquisition and the best possible results. However, if we fail to adequately address the intensifying competition for talent or the growing workforce mobility, there is a possibility that it could significantly impact the long-term performance of our Group.
(2) Regarding intellectual property rights
Our company's Group is committed to protecting the intellectual property rights we possess from being infringed upon by others. At the same time, we take ample care to ensure our products and services do not infringe on the intellectual property rights of others. However, if any doubts or disputes concerned with potential infringement occur with a third party, the operating results and financial condition of our company's Group could potentially be affected.
In recent years, there are an increasing number of risks related to the attribution of rights for works generated by AI, but our Group has developed a closed network and established internal guidelines to ensure proper use of this technology.
(3) Regarding security of personal information and other assets
Our Group acquires personal information related to users and holds confidential information regarding content under development, exposing us to threats such as cyberattacks. To address these risks, we have established internal regulations for the handling and protection of information assets, ensuring proper management. Additionally, we strive to enhance information security by implementing the latest security tools and conducting internal training on countermeasures against cyberattacks.
However, in the event of unforeseen attacks, natural disasters, or other incidents leading to information leaks or system disruptions, there is a possibility that our Group's business performance and social reputation could be adversely affected.
(4) Regarding the protection of human rights
To create higher-quality content in game development, it is essential for each employee to work with enthusiasm and vitality. Our Group is committed to ensuring that no forms of harassment, forced long working hours, or unfair demands toward business partners occur. To this end, we have established internal regulations, reporting systems, and conduct internal training programs as part of our initiatives.
However, if these measures fail to deliver the intended results and such incidents occur, there is a possibility that our Group's business performance and social reputation could be negatively impacted.
(5) Regarding possession of securities
Our company's Group possesses cash and highly liquid securities in order to manage investments in development and business for our entertainment business or other businesses. These assets are invested in both domestic and foreign shares and bonds, for example, in order to perform safe and efficient fund management. While decisions relating to the fund management and the setup of portfolios are made in accordance with the company's rules that are subject to internal control in order to manage risks, in the event of sudden fluctuations in, for example, shares or bond markets, exchange rates, or economic conditions, such changes could potentially result in impairment or loss in valuation of possessed securities, which could have an impact on the operating results and financial condition of our company's Group.
Division-Specific Risks
＜Entertainment Division＞
The environment surrounding the entertainment industry is rapidly evolving, particularly with the widespread global distribution of content through digital downloads and the increasing diversity of consumer values driven by the proliferation of social media. In such circumstances, pursuing expressions that respect all values and cultural backgrounds may impose certain constraints on the originality of works. In the video game industry, content providing platforms are becoming more diverse and capable, and technological innovation and user preferences are changing quickly. As such, new products and services are constantly being introduced to respond to such changes. Furthermore, in recent years competition with other entertainment industries such as the Internet has intensified. The policy of our company's Group is to differentiate itself from other companies and ensure stable profits by flexibly responding to rapid technological innovation, as well as by timely developing and selling unique, high-quality content. However, if our response to changes in the market environment is not adequate, it could potentially impact the operating results and business development of our company's Group. To ensure products are widely accepted in the market, it is essential to deliver high-quality products in a timely manner that aligns with market trends. However, advancements in graphics and the diversification of platforms have made game development increasingly sophisticated and complex. This has led to the risk of prolonged development periods, resulting in rising development costs, technological obsolescence, and potential misalignment with market needs. The increasing complexity of products has also impacted quality management. Under Koei Tecmo Quality Assurance Co., Ltd., our Group is strengthening initiatives to improve efficiency and enhance quality, such as partially automating debugging tasks using AI and tightening internal evaluation standards prior to product launches. Our Group is actively expanding its business operations overseas. However, geopolitical risks such as changes in legal regulations, political and social conditions, and currency fluctuations in various countries may arise, potentially leading to instability. Additionally, with overseas sales accounting for a significant portion of our revenue, fluctuations in exchange rates--particularly the appreciation of the Japanese yen--could impact our Group's business performance and financial condition.(1) Regarding ethical considerations in content expression
Our Group is committed to creating compelling entertainment content by ensuring consistent expressions based on accurate factual understanding, while demonstrating consideration for diverse values and cultural backgrounds. However, unexpected reactions from consumers in specific regions or demographics to the content provided by our Group could potentially impact our business performance, market development, and social reputation.(2) Regarding changes in the market environment
(3) On prolonged development periods
Our Group has built a business portfolio that combines development titles of various scales to mitigate risks and optimize market launch timing. However, if delays in development progress or extended time required to meet quality standards occur beyond expectations, it may lead to product launch delays, potentially impacting our Group's business performance and cash flow.(4) On quality management
However, if these efforts prove insufficient and the products fail to meet the quality standards expected by users, there is a possibility that our Group's business performance and social reputation could be adversely affected.(5) On Overseas Business Expansion
＜Arcade Games Division＞
Our amusement facility operation business are regulated by the "Businesses Affecting Public Morals Regulation Law" as well as by related government ordinances and rules. If, in the future, these laws are materially altered or abolished, or if new laws are established or enforced, the operating results and financial condition of our company's Group could potentially be affected. In response to all types of management crisis risks, such as major disasters, outbreaks of serious infectious diseases, or terrorist attacks that could jeopardize business continuity, our company's Group has established a BCP, which is a set of internal regulations that focuses on the procedural flow for determining company policies, including the temporary chain of command, organizational structure, and Management Crisis Response Headquarters in the event of a management crisis.(1) Regarding legal restrictions
BCP Countermeasures
BCP Countermeasures
In particular, with regard to outbreaks of serious infectious diseases, the company has established internal regulations that also serve as guidelines for each overseas company based on our efforts, innovations, and knowledge about preventing the spread of such infectious diseases, in order to be able to flexibly adapt to the laws and government policies of each country.
With regard to the risk of disasters, in consideration of the risk of executives and employees not being able to return home due to the occurrence of a major earthquake, for example, we have also established a plan in which each business location has disaster reserves, including food and blankets, and the quantity and lists of such items shall be reviewed on a regular basis.