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.Shrinking of the restaurant market due to the impact of the spread of COVID-19
Restaurant promotion service sales which account for 90% of the Group's consolidated sales are influenced by trends in the restaurant market, the business environment in the food service industry, changes in sales promotion policies of major accounts and changes in the number of customers visiting restaurants, 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 measures such as shortening business hours are continued, and as a result, the business of restaurants is significantly affected, our operating results may be adversely affected due to declines in number of member restaurants, or lower contract fees for each restaurant.
The Group will continue to support restaurants flexibly in line with changes in the restaurant market and customer needs, and evolve from a sales promotion support company to a management support company for restaurants, aiming a recovery and renewed growth in business performance.
2.Future business development
Although the Group aims to build a multifaceted business portfolio that goes beyond sales promotion support for restaurants in order to sustain and promote Japan's vibrant food culture, there is no guarantee that the expansion will progress as planned, and additional costs in investment in facilities or in additional staff recruitment beyond the capacity initially envisaged for the new businesses may be incurred. 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. These factors could adversely affect operating results.
Therefore, the Group has been taking measures for new business such as thoroughly evaluating the progress, income and expenditure plans and the risks and costs of withdrawal in the event that the business do not proceed as planned at the executive committee.
3.Gain user support
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.
The Group will improve the customer referral ability and cost-effectiveness, which leads to an increase in the number of member restaurants and contract fees paid by each restaurant, by further expanding the Gurunavi member linkage with Rakuten IDs which counts more than 100 million, creating an environment where Rakuten points can be accumulated and used at member restaurants, and maintaining and expanding the number of users.
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. 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.
The Group will continue aiming to retain its competitive position by keeping track of competitive trends, launching new products, further improving customer referral ability and cultivating new customers.
5.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.
Therefore, the Group constantly monitor the latest technological trends and strive to secure funds so that the Group can invest in the latest technology promptly as needed.
6.The relationship with Rakuten Group, Inc.
The Company has entered into a capital and business alliance with Rakuten Group, Inc. ("Rakuten") in anticipation of future business expansion and development through realization of high synergy in the internet service business. Rakuten is a largest major shareholder holding 14.4% of total number of issued shares of the Company as of March 31, 2021.
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, but, 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 strives to contribute to the development of both companies by building a close and mutual cooperation relationship with Rakuten such as mutual membership cooperation and support from the Group for Rakuten's business based on the capital and business alliance.
7.Securing human resources
The Group considers recruiting and training human resources in line with business development an important issue. Therefore, 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.
The Group promotes and trains staff internally and recruit external staff by utilizing various human resource acquisition methods, and also strives to prevent the outflow of staff by implementing "new work styles" and other measures to balance job satisfaction and ease of working.
The Group is continuously creating new services and actively injecting personnel to develop systems related. If the Group is unable to secure staff in accordance with plans or imbalance between development plan and number of personnel and development skills, it is possible that operating revenues 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.
The Group strives to secure staff by utilizing various human resource acquisition methods, and also strives to systematically and efficiently allocate development personnel and improve their skills.
9.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. 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.
Regarding our computer network-related systems, the Group has been implementing all possible measures 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.
10.Internal administrative risks
If the Group is unable to provide services as stipulated in the contracts with member restaurants due to inadequate internal administrative procedures, its business performance may be affected by a decrease in sales due to the cancellation of the membership contract.
The Group will strive to build workflows that eliminate human arbitrariness and improve productivity related to customer management by renewing back-office systems, etc.
11.Intellectual property rights
If the Group does not possess the necessary Intellectual property rights, such as 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.
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.
The Group has accumulated a wide range of registered users, accumulating extensive personal information through the user registration process. Therefore, 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.
13.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.
14.Occurrence of a major disaster such as an earthquake
If a huge disaster such as an earthquake occur in a major city, not only would a large number of restaurants and other customers be severely damaged, but the Group's personnel, facilities, and systems would also be severely damaged, and the loss of customers and the foundation for providing services could have a significant impact on our earnings.
The Group has been taking various measures to maintain its business infrastructure, such as duplicating servers and formulating a business continuity plan.
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 22, 2021