Risk Factors

This section lists major risks related to the business activities of the Benesse Group that could potentially have a significant influence on investor decisions, and that management recognizes as having the potential to seriously impact the Group’s balance sheet, operating results, and cash flow. The Group has designated people in charge of its administrative divisions, and based on assessment of potential risks from an expert viewpoint and recognition of the possibility that these risks might materialize, it considers and implements specific measures to avoid the occurrence of such risks and minimize the impact on the Group's business performance and financial position in the event that they do occur.

Forward-looking statements in this section are based on judgments current as of June 27, 2022, the date of submission of the annual securities report (yukashoken hokokusho).

1. Information Security

The Group’s core Education Business in Japan operates enrollment-based correspondence courses such as Shinkenzemi for students ranging from elementary school to high school, the Cram Schools/Classrooms business for cram schools, prep schools, and classrooms, and School & Teacher Support business such as Shinken Simulated Exams. The Kids & Family business operates Kodomo Challenge, a correspondence course mainly for preschoolers in Japan, China, and Taiwan as well as the mail order and magazine publishing business.

In the Nursing Care and Childcare business, the main operations are nursing home resident care services, home help services, and kindergarten and after-school child care services.

In the course of providing and marketing these products and services, the Group holds personal information about existing and potential customers such as their names, gender, birthdate, addresses, and telephone numbers, as well as various other information in order to provide products and services that meet customers’ needs. Moreover, in the process of expanding these businesses, the Group holds trade secrets regarding development and marketing of products and services.

The Group is committed to constructing an information security environment that takes into account confidentiality, integrity, and availability when managing and utilizing this information. Necessary measures are being taken to prevent information leaks and service interruptions due to external cyber attacks such as targeted emails, ransomware, and unauthorized access, as well as information leaks by insiders, and to fully comply with rules concerning the selection and operation of services when using public cloud services.

Also, following the leak of customers’ personal information which occurred in 2014, we have implemented thorough measures to prevent a recurrence, and continue working to reinforce these measures.

However, as digital technology spreads and develops and attacks on information security become more advanced and sophisticated, if measures taken by the Group are insufficient to prevent external cyber attacks, or if new leaks and service interruptions occur as a result of willful misconduct or negligence on the part of employees or subcontractors, the Group’s credibility and brand value could be damaged, and its business performance and financial position could be affected.

2. Information systems and network problems

The Group manages personal information about existing and potential customers as well as various other information necessary for business purposes on its information systems. It also provides education services using the internet, as well as ICT education services for schools and cloud-based learning support and school business support services.

In managing these information systems and networks, the Group develops and upgrades the infrastructure necessary to provide its products and services and implements necessary measures. These include continuous efforts to strengthen its supervisory framework and ensure that operations are thoroughly based on regulations, emphasis on ensuring the stable operation of information systems and networks with security measures in place, appropriate server maintenance and information backup, improvement of system development capabilities in accordance with the digital transformation of business, and enhanced monitoring of important development projects.

However, in the event of failure of the public cloud used by the Group to manage information and provide goods and services, hardware or software defects or accidents, or large-scale network failure due to disasters or accidents, not only would the continuous and stable supply of products and services be compromised, but the suspension of the business base including orders and receivables management could impact the Group’s business performance and operations.

3. Natural disasters

The Group is reviewing each Group company’s initial response plans and business continuity plans in preparation for major disasters such as earthquakes, storms and flood damage. It is working to build systems which can ensure the safety of its customers and employees and the continuity of its operations. Specifically, the Group is introducing its own safety confirmation systems, upgrading information systems and logistics bases in the Education Business in Japan segment and the Kids & Family business, building emergency systems and training in the Cram Schools/Classrooms business, ensuring equipment support measures for resident care service at its Nursing Care facilities and kindergarten and after-school daycare services in the Childcare business, disseminating disaster response manuals and implementing regular drills, and reviewing disaster stockpiles.

However, the headquarter functions of the Group’s main operating companies are concentrated in Tokyo, most residential nursing care facilities are located in the Tokyo Metropolitan area, and the main production and logistics functions of the correspondence education and simulated exam businesses are concentrated in Okayama. In view of these facts, in the event of a major disaster such as an earthquake with an epicenter in Tokyo or a Nankai Trough earthquake, any resulting damage to the Group’s facilities in the affected areas, power outages, disruption of social infrastructure such as transportation, communication, and logistics, and damage to suppliers could affect the Group’s business performance and financial situation.

4. Pandemics including the novel coronavirus (COVID-19)

The Group provides services at locations for its Cram Schools/Classrooms business and overseas study support business in the Domestic Education business, China business in the Kids & Family business, Nursing Care and Childcare, and the Naoshima Cultural Village business. In order to continue operating during a pandemic, the Group has established the necessary plans and systems and implemented extensive measures to prevent the spread of infection. Online lessons were introduced in the Cram School/Classroom business, and in the Nursing Care and Childcare business every effort has been made to provide a safe and secure place by establishing guidelines and measures to prevent the spread of COVID-19. In addition, we are implementing necessary changes in working practices and measures to prevent the spread of COVID-19 at our business offices, including the continuation of a hybrid work model combining working from home and at the office and workplace vaccination drives.

However, if the impact of COVID-19 exceeds current assumptions, it could have a serious effect on the Group’s business performance and financial position due to a decline in sales as a result of a voluntary reduction of on-site services and rising costs for pandemic preparedness.

5. Human resources

In order to continue to develop and operate products and services that meet the needs and circumstances of individual customers, people with a high level of expertise in digital technologies such as AI and IoT who can support the implementation of business plans are indispensable. Considering the DX human resource needs of each business, we are making efforts to attract and train people by identifying the necessary skills for each area of planning, development, and manufacturing, by bolstering recruitment, and by introducing development programs for each job category.

In addition, we believe that attracting and retaining adequate nursing care and childcare staff is a key issue for realizing continuous growth and providing stable service in the Nursing Care and Childcare business. In the nursing care business in particular, the Group is working hard to attract personnel by creating an environment where capable people can play an active role in the Group through measures to enhance the professionalism of nursing care staff, and by improving how the staff is treated in a way that reflects their evaluation according to job function, experience, and skills.

However, inability to adequately attract capable people due to intensifying hiring competition and changes in labour market conditions, lack of success in training in-house personnel, or obstacles to continued employments could affect the Group’s business performance and financial position.

6. Procurement and production

Efforts are being made to lower procurement, production, and logistics costs for the production and distribution of educational materials and direct mail in the Group’s correspondence course business by digitizing educational materials and developing marketing methods other than direct mail. Among the educational materials used in the correspondence course business, teaching tools and toys are procured mainly from China. Given the rising procurement costs due to soaring labour and raw material costs and the possibility of delays in receipt of products due to country risk, we are working to identify new suppliers.

However, if there is a sharp increase in the cost of paper and other raw materials or an increase in procurement costs due to logistics costs and exchange rate fluctuations on a scale that exceeds our current expectations before these measures succeed, or in the event that country risk materializes, the Group’s business performance and financial position could be affected.

7. Business partners and other management risks

In order to achieve business growth, we are relying not only on the Group’s resources but also on cooperation with many business partners to move forward in each business. In particular, we collect information about business partners we rely on heavily both in Japan and overseas, through continuous monitoring and other means, for signs of deteriorating business conditions due to COVID-19 in order to minimize the impact on the Group.

However, if a business partner’s situation deteriorates on a scale that exceeds our expectations, it could have a negative effect on the business.

8. Product safety and location safety

The Group provides a wide variety of products and services in its Education Business in Japan and Kids & Family businesses, including teaching tools and toys for correspondence courses, cram schools and classrooms, and concerts. Moreover, in its Nursing Care and Childcare business, the Group provides services for the elderly, infants, and elementary school students. We are working hard to build and improve the management structure required to ensure the safety of our products and our locations so that our customers in these businesses can use our products and services with peace of mind.

With respect to product safety, we formulate our own safety standards based on international product safety standards, and along with evaluating and managing the safety and quality of products from the design stage, we work to develop safer and more convenient products which reflect customer feedback. In addition, in the Cram School/Classroom business and the Nursing Care and Childcare business, we strive to provide safe and secure spaces by establishing accident prevention guidelines and various manuals for on-site operations and conducting accident response training.

However, in the course of providing products and services, if there is an accident that harms the life, body, or property of a customer due to a defect in a product or service, it could undermine the Group's credibility and even affect the continuation of the business itself.

9. Overseas business

The Group is expanding its Kodomo Challenge business in China and other East Asian countries, and as of April 2022 enrollment is 950,000 in China and 100,000 in Taiwan.

Overseas business could be affected by differences and changes in the laws and regulations of each country and region, foreign capital regulations and tax systems, deteriorating political and economic conditions, differences in business practices and culture, labor problems, changes in the social environment such as deterioration of relations with Japan, and by war and terrorist incidents. Because of that possibility, the Group collects information on legal system revisions and administrative trends, etc., mainly in China and other East Asian countries, and is also working on preparations to respond quickly if risks materialize.

However, if a situation occurs in these countries that is beyond expectations, overseas business development and business continuity could be obstructed, or the Group could be forced to bear a greater burden in responding to these events, which could affect the Group's business performance and financial position.

10. Impact of earnings deterioration at subsidiaries

In the Group’s new medium-term management plan "Evolve Core Businesses and Expand into New Fields," one of our medium- to long-term management strategies is to actively invest in areas where we can leverage the Group's strengths to take on the challenge of new areas of business. Therefore, it is possible that intangible assets including goodwill on the consolidated financial statements and shares of affiliated companies on the Company's financial statements will increase in the future.

However, in the event of a dramatic decline in the profitability of the Company or the Group, it may be necessary to reduce the book value of the land, buildings, goodwill and other assets held by the Group to the recoverable value and to record the difference as impairment losses on the consolidated financial statements. This could have an impact on the business performance and financial position of the Company and the Group.

Last updated : 2022/06/28