Nichii

Business and other risks

Potential risks to the operations of each segment of the Nichii Group are described below. The Group strives to mitigate these risks by enhancing its business portfolio, focusing on developing and providing high value-added services that are not dependent on the medical insurance and long-term care insurance systems. However, under unexpected circumstances, these risks could have serious implications for the Group's business performance and financial position.
The Company identified the following risks at the end of the fiscal year under review, but risks associated with investments in shares in the Company are not limited to those described below.

1.Business risks

Medical Support Segment

The Nichii Group's Medical Support Segment provides, among other services, medical services other than medical practice by medical institutions, medical-related services, medical practice management consulting, and courses in medical administration. Medical institutions will see major fluctuations in revenues due to biennial revisions of the medical service fees and medical insurance system reform. The Group provides services to medical institutions, and the integrated tax and social security reform, percentage changes in medical service fees, or advances in information technology could affect the Group's contracts, including contract fees.
The number of students attending the Group's courses in medical administration could fluctuate dramatically due to changes in the employment environment and other factors, and this could affect the Group's performance.

Long-term Care Segment

The Nichii Group's Long-Term Care segment principally provides services regulated under the Long-Term Care Insurance Law and other relevant laws. Income from these services could be impacted by the revisions to the long-term care insurance system made every five years or by the revisions to compensation for long-term care made every three years. The Company strives to diversify risks by providing services in the Health Care Segment that are not covered by long-term care insurance and by expanding its service offerings. Nevertheless, these efforts may not be sufficient to offset a decrease in income that could be caused by a reduction in compensation for long-term care and other factors, which could have a significant adverse effect on earnings.
The long-term care facilities (including group homes, pay nursing homes, and day-care facilities) operated by the Group offer community-based services under lease agreements. The term of most of these lease agreements is 20 years, and declines in occupancy rates caused by decreases in resident numbers and falls in market rates for residents could have adverse effects on earnings in the Long-Term Care segment.
The number of students attending the Group's long-term care courses, especially training for newly appointed long-term care workers, could fluctuate dramatically due to changes in the employment environment and other factors, and this could affect the Group's performance.

Child Care Segment

We operate authorized nursery centers and other childcare facilities including company daycare centers. We also provide childcare courses (such as babysitting). Factors such as changes to child care systems could affect the expansion of these services and the Group's performance.

Health Care Segment

We provide a housekeeper service called “Nichii Life.” We also provide the Sunny Maid Service, another category of housekeeper service designed to be offered in National Strategic Special Zones across the country. The Sunny Maid Service is operated in conjunction with the policy promoted by the government for the National Strategic Special Zones. Changes or developments in the government policy may affect the services or related business results.

Global Business Segment

We provide a nursing care service along with a range of housekeeping services, including the development of human resources performing such services in China. We also operate the therapy dog breeder business in Australia. In our overseas business, we seek to closely monitor and address changes in government policies, legislation, security intelligence and risks in an appropriate manner. However, in the event that an unpredictable or unexpected change occurs, our business promotion initiatives or business results might be affected.

  • Unexpected legislative/rule changes
  • Political or social turbulence, including a terrorist attack or a social disturbance
  • Unexpected volatility in markets, economic developments or currency exchange rates
  • Differences in practices regarding labor-management relationships or commercial trade

2.Risks due to the internal management system

The Nichii Group is working to strengthen its self-enforcing operational control structure and internal check functions to prevent human error and fraudulent activities. However, problems in operational control could cause a loss of stakeholder trust and could affect the Group's performance.

Risks due to personal information

The Nichii Group handles personal information specified in the Act on the Protection of Personal Information. The Group recognizes the protection of personal information as an extremely important business issue and has established the Personal Information Protection Committee to ensure the appropriate acquisition and handling of information. In addition, the Group takes preventive steps to block leaks of personal information, including the establishment of regulations and in-house education and training.
However, personal information leaks could cause a loss of confidence in society and claims for compensation, among other things, which in turn could affect the Group's results.

3.Official license and legal regulation in personnel business

To provide worker dispatching services in the Medical Support segment and Health Care segment, the Group has already obtained a license for the general worker dispatching business under the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (Worker Dispatching Law). Under the Worker Dispatching Law, if a business engaged in a worker dispatching business meets any of the conditions for disqualification or commits illegal acts, its license could be canceled, or it could be ordered to suspend its business.
The Nichii Group strives to enhance compliance, but if the Group violates laws and regulations, its performance could be adversely affected.
Further, the Worker Dispatching Law and related laws and regulations could be amended in the future according to employment conditions and other factors and, depending on the nature of the amendment, this could affect the Group's performance.

4.Risks associated with human resources acquisition

Our business largely depends on human resources providing services, and we seek to enhance our service capabilities by securing and developing a workforce with a low turnover ratio. The Group possesses a certain original scheme to acquire human resources based on the business model providing services that cover areas ranging from education to work employment in the Medical Support Business segment and the Long-term Care Business segment. In the Child Care Business segment, we recruit staffers through enhanced hiring activities and a matching system on the strength of nationwide business activities. We are also actively developing our human resources, including the transition from non-regular to regular employment, improvement in labor conditions, retaining workers with improved employment conditions and workplace environments, along with making active use of training programs and the introduction of a career path system. In the event that the Group is unable to maintain its service capabilities or meet the workforce requirements because it fails to find replacements or new manpower, contrary to expectations, our service capabilities may be affected.

5.Risks due to natural disasters and accidents

The Nichii Group provides services at medical institutions with which the Group has contractual relations, long-term care facilities, schools, and other facilities across the country. If natural disasters, including earthquakes and tsunamis, occur, or if infectious diseases, including new types of influenza, spread, the Group's staff and facilities could not work in the affected areas. In that case, the Group will strive to maintain its system for providing services by endeavoring to promptly restore the functions of the affected facilities and dispatching support staff. However, if the Group cannot provide services, its results and financial position could be adversely affected.
Each branch and facility of the Group is reviewing all its countermeasures against risks related to business continuity in emergencies and is seeking to strengthen its crisis management system, putting priority on the safety of customers.

6.Risks related to the application of impairment accounting

The Nichii Gakkan Group may need to realize an impairment loss on land and buildings owned, goodwill and/or other assets if the profitability of each business declines significantly, which may affect the financial position and financial results of the Group.
If IFRS is adopted, goodwill will become a non-amortizable asset. If in an impairment test, which will be conducted at least once a year, the recoverable value proves to be lower than the book value, an impairment loss could be posted.

7.Risks related to deferred tax assets

The Nichii Group recorded deferred tax assets based on future estimates of taxable income and the results of scheduling temporary differences. If the Company lowered its taxable income estimate in the future due to deterioration in the operating environment or other factors, the need to reverse deferred tax assets could arise and this could affect the Group's performance and financial position.

8.Risks due to overseas expansion

The Nichii Group is implementing a globalization strategy focused on China business, and is developing business not only in China but also in Singapore, Australia, Canada and the Philippines. The Group endeavors to gather information concerning aspects such as political trends, changes to the law and the public security situation and implement measures to reduce the risks associated with business expansion overseas and to deal with them appropriately, but the Group's business progress and operating results may be affected in the event of a change that could not be predicted or exceeded projections such as the following.

  • Unforeseen changes in laws and regulations
  • Political or social disorder including acts of terrorism
  • Greater than anticipated fluctuation in market or economic trends or exchange rates
  • Differences in labor-management relations or business customs