The following are important items considered potential risk factors to the development of the businesses of the Gurunavi Group ("the Group") and deemed necessary for investment decisions or for general understanding of the Group's business operations. The Group is aware of the possibility of these risks occurring and will endeavor to prevent them and respond when they occur. However, in order to properly evaluate the Group's operating status and future business, we believe that you have to pay careful attention to the following items and also to the descriptions in other sections. The forward-looking risk items outlined below are those identified by the Group as of update date. Furthermore, the following is not an exhaustive list of the risks governing an investment in Gurunavi's shares.
1.Sales performance including impact of the spread of COVID-19
Restaurant promotion service sales which account for 90% of the Group's consolidated sales are influenced by the business environment in the food service industry and changes in sales promotion policies of major accounts, because their growth is highly dependent on the number of member restaurants and contract fees paid by each restaurant. Therefore, if the spread of COVID-19 does not settle down and the influence on the business of member restaurants continues, operating results may be adversely affected in the event such as declines in number of member restaurants, or lower contract fees for each restaurant.
The Group has established two original and unique items of business infrastructure: an official online search service for restaurants, providing the accurate, latest and impartial information on member restaurants, and human support structure through which the Group builds strong relationships with restaurants. By providing support from multiple angles, the Group aims to fulfill its mission to sustain and promote Japan’s vibrant food culture and contribute to improving productivity in the food service industry.
The Group will continue aiming to retain its competitive position by recovering customer referral ability, cultivating new customers, and launching new products. Nevertheless, as the service to provide information through the internet has low barriers to entry and many new operators are emerging. As the trends in competitors and the emergence of new business models expand the choice of customers, it is possible that operating results may be adversely affected.
3.Number of users
The Group aims to increase revenues by increasing the appeal of the Gurunavi website contents to attract more website visitors, and by increasing the value of Gurunavi as a marketing tool for restaurants to increase the number of customer referrals to member restaurants.
However, if the number of Gurunavi users decrease due to trends in competitors or the emergence of new business models by different type of industry, the decline in the value of Gurunavi as a marketing tool for restaurants and the sluggish growth in the number of customer referrals may lead to a decrease in the number of member restaurants and adversely affect operating results.
4.The relationship with Rakuten, Inc.
The Company has entered into a capital and business alliance with Rakuten, Inc. ("Rakuten") in anticipation of future business expansion and development through realization of high synergy in the internet service business. Rakuten is a major shareholder holding 14.4% of total number of issued shares of the Company as of March 31, 2020.
The independence from Rakuten of the Company is secured, as there are no matters requiring the prior approval by or the prior reporting to Rakuten in the important decisions of our management, and the business relationship with Rakuten is under as general conditions as with independent third parties.
The Company believes that the alliance will be maintained in the future because the company has already built a close and mutual cooperation relationship with Rakuten such as mutual membership cooperation and granting Rakuten points in the reservation service. However, should this tie-up be no longer maintained, there is a possibility that revenues may decrease due to decline in the customer referral ability, or it may affect the future business development and capital policy of the Group.
The Group is continuously creating new services and actively injecting personnel to develop systems related by utilizing various human resource acquisition methods. If the Group is unable to secure staff in accordance with plans, it is possible that operating results may not be achieved as expected by delay of business progress and this could adversely affect operating results. It is also possible that investment in development may not be realize the results anticipated.
6.System failure risks
The Group's services are provided over the Internet and the Group's operations are heavily reliant upon the quality of infrastructure including access to the Internet and internal and external computer networks. The Group has implemented a wide range of measures for all aspects of our computer network-related systems, including enhancing the backup center, strengthening and duplicating each type of server, using a personal identification certification system for entry into server rooms, and an internal computer network usage monitoring system. However, if a failure such as system down occurs due to damage from an external event, an internal human error or natural disaster, there is possibility that the service provision to the customer may be stopped or the user information may be lost. As a result, our operating results could be adversely affected by a decrease in service usage fees, compensation for users, and loss of reliability.
7.Investments in response to changes in the operating environment
The Group's businesses are based on IT, and the Group therefore introduces technology that is likely to enhance the value of its services. IT is developing rapidly, and new, valuable technologies could emerge that could lead to a devaluation of the Group's services. As a result, investment costs related to the development or introduction of network-related tools, software, and suchlike could be higher than anticipated and this could adversely affect operating results.
8.Securing human resources
The Group considers recruiting and training human resources in line with business development an important issue and promotes and trains staff internally, as well as recruiting external staff by utilizing various human resource acquisition methods. However, should it be unable to recruit, train, retain and ensure appropriate human resources in accordance with plans, or should core staff resign, it is possible that operating results may not be achieved as expected and this could adversely affect operating results.
9.Future business development
In order to sustain and promote Japan's vibrant food culture, the Group aims to build a multifaceted business portfolio that goes beyond sales promotion support for restaurants, and the progress and income and expenditure plans of each business are appropriately discussed at the executive committee. However, there is no guarantee that the expansion will progress as planned, and additional costs, such as an increase in investment in facilities or additional staff recruitment beyond the capacity initially envisaged for the new businesses, may be incurred that could adversely affect operating results. In the event that the Group chooses to expand its business through a corporate merger or acquisition, the investment might not yield the results anticipated.
10.Current and future legal framework concerning the Internet
The legal restrictions on the Internet related to our businesses are limited. However, if legal restrictions for internet users and related businesses be established in the future, large-scale renovation of information display in Gurunavi could be required, and it could adversely affect operating results.
11.Issues between member restaurants and site users
In instances where a Gurunavi site user contacts the Group with problems that have arisen with a member restaurant caused by accuracy of the information, the appropriate person-in–charge at the Group contacts the member restaurant to confirm the situation and request improvements to address issues as appropriate, while also explaining matters to the site user. Various other measures may be taken at the discretion of the Group, including termination of the member restaurant contract.
However, it is not always possible to reach agreement with users who experience problems, so the user's withdrawal may occur due to a decline in our reputation, and there is a possibility that the customer referral ability to member restaurants may decline, which will adversely affect operating results.
12.Risk about contents
The Group commissions chefs, experts, specialists, celebrities, and others to create contents about food and dining and provides them to users. To ensure that the Group provide highly trustworthy information content is carefully checked and queries from stakeholders regarding posted content are promptly addressed.
However, it is not always possible to reach agreement with stakeholders, and in addition to the possibility of incurring costs due to compensation for damages, etc., the decline in the Group's brand image may cause users or member restaurants to leave, which may adversely affect operating results.
However, should a user's personal information be leaked externally through an external party, the Group's affiliate, operations vendor, or other party and is used illegally, in addition to being liable for the Group's liability, such as claims for damages, it may damage the Group's reputation and affect its operating results.
14.Intellectual property rights
The Group has set up a specialized department related to intellectual property rights to properly manage intellectual property rights such as application and infringement prevention, and applies for patents and trademark rights when it is possible to secure intellectual property rights on newly developed services. However, there is no guarantee that rights will be granted. If a competitor secures a patent or trademark right on a service name, or a service that is related to the Group's technology and expertise, sales and service development could be impeded and this could have an adverse effect on operating results. In the future, should litigation or other proceedings arise citing intellectual property right infringement, it may affect operating results such as payment of a large amount of license fee or damages.
15.Concerning foreign businesses and subsidiaries
For foreign businesses and subsidiaries, the political or financial situation, changes in regulatory status in that country could have a negative effect on operating results or the speed of returns.
In the event of a litigation from a third party, including a stakeholder, the Group’s business development could be adversely affected and our brand image damaged. Furthermore, the financial burden could affect operating results.
Last updated: June 18, 2020