Risk Factors

The following items are major risks related to the business activities of the Benesse Group that could potentially have a significant effect on the judgment of investors. Recognizing the possibility that these risks may materialize, the Benesse Group considers and implements concrete measures with the aim of avoiding such risks and minimizing the impact on the Group’s results and financial position in the event that they should occur. The following discussion of risk factors contains forward-looking statements, and reflects management’s judgment as of June 26, 2017, the submission date of the Group’s securities report (yukashoken hokokusho).

1. Trouble Arising from Information Security and Information Systems

The Group manages a variety of information on its information systems required for providing products and services and for sales activities. This includes personal information of existing and potential customers, such as their names, genders, birthdates, addresses, telephone numbers, and so forth, in addition to other information required for business activities.

Moreover, the Group provides educational services utilizing original tablet PCs and other digital devices, as well as language lessons and other services using the Internet.

The Group takes information system security measures in managing this information to completely prevent leaks caused by unauthorized external access to the system or leaks by internal personnel. The Group also takes the necessary measures to ensure stable operation of its information systems, such as backing up information and appropriate server maintenance.

In response to the leak of customers’ personal information that came to light in 2014, the Group carried out rigorous fact-finding surveys to identify the cause and made every effort to control the spread of damage, while implementing countermeasures to prevent leaks, which it has continued to improve.

Nevertheless, this incident could lead to mistrust in the Group, as well as to damage suits and other legal action against the Group. If such consequences increase on a disproportionately large scale, they could have an impact on the Group’s results and financial position.

Moreover, if another leak of customers’ personal information should occur, such an incident would impair the Group’s trustworthiness and brand value. This could also affect the Group’s results and financial position.

2. Effect on Core Business

In the Group’s mainstay domestic education business, the Group conducts member-based correspondence course businesses, which had an enrollment of 2.45 million members as of April 2017, such as Shinkenzemi and Kodomo Challenge for students aged from preschool to senior high school. The Group also operates the school and teacher support business and the cram and prep school business.

The education system in Japan has been undergoing arguably the largest reforms from primary, and secondary, through to tertiary education since the end of the Second World War. These include the announcement of new curriculum guidelines and investigating new tests to replace the National Center Test for University Admissions. School-level education is expected to undergo a major change around 2020. Taking these changes as an opportunity, the Group will continue to determine the actual status of customers and gather information related to the discussion on the education system. The Group will then aim to grow its market share by expanding its cram and prep school business, developing education services combining paper and digital formats with human support services, providing a product lineup matched to customers’ learning styles such as new learning systems that incorporate physical locations, developing and advancing marketing methods other than direct mail, and bolstering its school and teacher support business.

Furthermore, the Group will aim to further expand the correspondence course business in East Asian countries, including China, where a high growth rate is expected. The Group is also responding to population trends by expanding the nursing care and childcare business, centering on operation of nursing homes for the elderly.

However, following the education system reform, if the environment were to change rapidly and at a scale exceeding the Group’s measures in the domestic education business, or if the market entry of companies in other industries were to result in price destruction and a significant change in the competition environment, this could affect the Group’s results and financial position.

3. Nursing Care Insurance

The Group’s nursing care business mainly involves operation of specified facilities. However, regional governments are inclined to continue regulating the total volume of specified facilities.

Meanwhile, although growth has levelled off in construction of elderly housing with care services promoted by the government, the elderly houses sector is seeing even more intense competition due to factors such as the entry of major corporations, soaring construction costs, and land shortages. With nursing care insurance facing a difficult situation, the Benesse Group has been working to create a business model with a low degree of reliance on nursing care insurance revenue. The Group has also started peripheral operations such as human resource dispatch and sourcing, nursing care consultation, and food delivery services for seniors, and is working to expand these in a way that is resilient to the impact of systematic changes.

Nevertheless, related laws and reimbursements applicable to nursing care could be further revised in a manner that is disadvantageous to the Group’s businesses, and this may require the Group to review the nature of its products, services and fee structures. In such an instance, the Group’s results and financial position could be adversely affected.

4. Damage from Natural Disasters

To ensure its readiness to cope with major earthquakes and other natural disasters, the Benesse Group is implementing business continuity measures. This includes putting in place a system for gathering data concerning damage suffered by Group companies and the strategic dispersal of key information systems and distribution bases in the domestic education business.

Nevertheless, in the event of a catastrophic natural disaster, the Benesse Group’s results and financial position could be affected by the interruption of sales activities in the disaster-stricken area; the destruction of Group facilities and other property; subsequent turmoil related to transportation, communications, distribution, and other social infrastructure; and damage to outsourcers. Furthermore, most of the Benesse Group’s operating companies are headquartered in Tokyo, which could adversely affect Group operations should a catastrophic event strike the city.

5. Accounting for Asset Impairment

In the event of a dramatic decline in the profitability of the Company or its individual Group companies, it is likely that impairment losses will need to be posted with respect to land, buildings, goodwill, or other assets held. The posting of such losses could affect the Group’s results and financial position.

6. Overseas Procurement and Business

The Benesse Group oversees manufacturing of and procures educational tools and toys mainly in China. Elsewhere, subsidiary Berlitz Corporation operates over 500 schools in more than 70 countries and regions worldwide. The Benesse Group also operates a business primarily providing preschool education services in China and other East Asian countries. As of April 2017, the business in China had 1,080 thousand members, the business in Taiwan had 150 thousand members, and the business in South Korea had 130 thousand members (licensing contract). In an attempt to mitigate risk, the Benesse Group actively collects data concerning legal and regulatory revisions and policy trends, particularly in East Asian countries, and ascertains the status of civil conflicts in which it could inadvertently become involved. Similarly, the Group hedges against volatility in foreign currency exchange rates, and seeks to identify new procurement sources. Nevertheless, natural disasters, cultural and religious tension, political or economic instability, or the new establishment or amendment of laws or regulations in any of these countries and regions could have an adverse impact on the Benesse Group’s results and financial position.

7. Distribution

The Benesse Group relies on postal services and the distribution services of other external parties for the production and delivery of its Shinkenzemi and Kodomo Challenge educational materials and direct mailings. The Group is currently promoting further digitalization of its educational materials and is developing marketing approaches beyond direct mail. Nevertheless, the Group’s results and financial position may be affected by an increase in production and distribution costs.

Last updated : 2017/07/11