The main items regarded as potential risk factors for the business activities of the Prestige International Group (Prestige International, 38 subsidiaries, 2 equity-method affiliates) are listed below. Similarly, the Group will also disclose items that do not necessarily fall under these potential risk factors from the perspective of proactively providing information to investors. The policy of the Prestige International Group is to stay aware of the potential for these risks to occur and to avoid them, but if they do occur, to address them. However, the Group believes that the decisions to invest in Group shares should be considered carefully together with a variety of information, in addition to the information provided here and in the section on business risks in the financial statements for the 37th term. The items included here that refer to the future were determined by the Prestige International Group at the end of this consolidated fiscal year. Although the current situation is gradually returning to normal economic activities as restrictions on activities due to the pandemic are easing, in the event that the COVID-19 spreads worldwide again and results in restrictions on activities, the following risks could affect the business activities, performance, and financial position of the Group.
| Risks related to the BPO business market and industry situation |
Both in Japan and overseas, the risk of reduced activity by companies and individuals due to city-wide lockdowns, travel restrictions, and people voluntarily refraining from going out, as well as a decrease in overseas travelers, a decrease in credit card use, and restrictions on the operation volume initially envisioned |
| Risks related to the world situation |
The risk of delays in gathering financial information about overseas operating bases due to the issuance of stay-at-home orders |
| Risks related to human resource management |
Risks to the securement and management of human resources, such as the adjustment of working hours due to the declaration of a state of emergency, schools closing, and other risks |
Risks related to the BPO business market and industry situation
Because BPO market growth is greatly impacted by the expansion of outsourcing against the background of deregulation, there is a possibility that the growth of the Prestige International Group will slow if outsourcing stops expanding. In both Japan and overseas, nonlife insurance companies, automobile manufacturers, credit card companies, and other large enterprises often carry out BPO activities as in-house business within their own corporate groups, so there is the possibility of market expansion being limited or restricted. Moreover, when client companies jointly establish outsourcing companies in each industry or business field, the Group foresees the possibility of independent BPO operators like the Prestige International Group losing business opportunities in the event of industry restructuring or M&A advances.
In response to these risks, the Prestige International Group is continuing to provide highly efficient, original services with appeal power through IT investment and the creation of new business models in collaboration with client companies, thereby endeavoring to further expand and secure client businesses. As part of these initiatives, following on from Toyama BPO Town, Akita BPO Yokote Campus, and Niigata BPO Uonuma Terrace, in March 2021, Prestige International expanded Yamagata BPO Garden by 500 positions and opened Yamagata BPO Park. Furthermore, in April 2022, Prestige International merged the Akita BPO Main Campus—which operated in three locations in Nikaho City, Akita Prefecture—and the Nikaho Branch, establishing the Akita BPO Nikaho Campus. These measures were carried out in response to many voices calling for the creation of multiple operational bases in preparation for business expansion requests from client companies, as well as emergencies. However, in the event the market environment changes due to intense competition or if capital investment through up-front investment cannot be recouped, it is possible that the Group's performance will be affected.
Risks related to the world situation
The Prestige International Group has established overseas operating bases in the United States, the United Kingdom, China, Singapore, Thailand, Australia, and many other locations, and the Group is expanding its global business activities.
Overseas business expansion has several inherent risks. In the unlikely event that any of the phenomena listed below should occur, the management strategies and business policies of client companies may be affected, which would impact the business performance and financial standing of the Prestige International Group.
- Unforeseen changes to or tightening of laws and regulations
- Unfavorable political or economic factors
- Changes to the tax system or tax rates
- Social turmoil caused by terrorism, war, or other factors
Risk of losing credibility and rumors
The Prestige International Group's client companies include many that are leaders in their respective industries, such as nonlife insurance companies, automobile manufacturers, and real estate management companies. Such companies can easily be affected by rumors and/or the loss of credibility. If a client company were to be subjected to rumors or the loss of credibility, that impact could possibly extend to the performance of the Prestige International Group. Furthermore, if serious trouble or complaints were to arise from the BPO business activities of the Group, there is the possibility of not only the outsourcing contract between Prestige International and the client company being canceled but also the impact spreading even further and leading to the cancellation of outsourcing contracts between Prestige International and other client companies.
Exchange risks
The Prestige International Group's overseas sales (centered on the global business) were 2.735 million yen for the fiscal year ended March 2022 (5.9% of consolidated net sales) and 3,366 million yen for the fiscal year ended March 2023 (6.2% of consolidated net sales). Due to the majority of overseas sales is in foreign currencies, it is possible for exchange rate fluctuations to impact the business performance and/or financial standing of the Group.
Risks related to equipment and facilities
With the Akita BPO Main Campus as the central facility, the Prestige International Group's operating bases include Toyama BPO Town, Akita BPO Yokote Campus, Niigata BPO Uonuma Terrace, and Yamagata BPO Park, as well as the new Akita BPO Nikaho Campus, which opened in April 2022. In the event that the networks and information systems at each of the BPO centers and contact centers are unexpectedly destroyed or interrupted due to a natural disaster or accident, or if information systems or data are destroyed or falsified or if information is leaked due to unauthorized access from the outside, it is possible that the business activities of the Prestige International Group would be seriously affected and that the client companies would lodge claims for damages.
Risks related to human resource management
1. Each of the contact centers of the Prestige International Group endeavors to secure and train human resources, such as operators, allocate staff and organize shifts in accordance with work volume, and implement appropriate labor management. With the diversification, sophistication, and globalization of BPO business activities, the Group is in a situation where such human resource management is growing increasingly more important. If the Prestige International Group were unable to implement appropriate human resource management, it is possible that the work quality and efficiency would decrease and the outsourcing contracts of Prestige International with client companies would be canceled.
2. Currently, the labor shortage in Japan has become a chronic and serious social problem. In the Group, major operations are conducted at BPO centers located in regional cities, and the number of recruits is relatively stable compared to the metropolitan area. However, if recruitment activities do not progress and the number of recruits falls far short of the plan, the Group's business activities may be affected.
Risk of customer information leakage
The Prestige International Group concludes standard nondisclosure agreements with client companies and handles enormous amounts of client information. Accordingly, Prestige International has prepared personal information protection regulations and information security management regulations, and the individual contact centers operate in line with the ISO-accredited Akita BPO Main Campus, Akita BPO Yokote Campus, Akita BPO Nikaho Campus, Yamagata BPO Park, Yamagata BPO Park Tsuruoka Branch, Toyama BPO Town, and Niigata BPO Uonuma Terrace. However, if an employee or someone with connections to the Prestige International Group were to personally disclose or leak client information outside the Group, it is possible that the Prestige International's outsourcing contracts with client companies would be canceled and that the client companies or end-users would lodge claims for damages against the Prestige International Group.
Risks related to laws and regulations
Although there are currently no specific licensing systems for the main business activities of the Prestige International Group, it is possible that in the future the Group will be obligated to establish new self-imposed controls and acquire official or quasi-official certification. Although the Group pays careful attention to legislative trends, if legal restrictions or self-imposed controls beyond the Prestige International Group's expectations were to be established, this could possibly impact the business activities of the Prestige International Group.
Risks related to litigation and claims
As of now, no litigation and no claims have been lodged against the Prestige International Group with regard to its main business activities. In the event of the initiation of litigation or claims in the future in relation to the services provided by the Prestige International Group as part of the planned business activities, it is possible that this could impact the business activities of the Prestige International Group and the Group's financial standing and performance.
Risks related to the automotive business
Earnings structure for roadside assistance services
Outsourcing fees for roadside assistance services have a fixed + variable income-expenditure structure. Methods for calculating fixed expenses are mainly classified into the following two methods. Also, the content of Prestige International's outsourcing contracts with client companies is revised periodically.
Unit number warranty method
Outsourcing fees are determined using the formula: Number of client company insurance contracts (or number of automobiles covered) x unit price.
Unit price warranty method
Outsourcing fees are determined using the formula: Number of arrangements (Number of anticipated arrangements) x unit price.
There is a seasonal element to the number of end-users provided with each type of roadside assistance service—that is to say, the relevant fees—because the number of service users increases at times of the year when traffic is heavy (such as the holiday season and year end-New Year holidays) and at times when the weather is bad (heavy rain, snowfall). Seasonal factors affect the performance of this business division. In particular, if natural disasters, such as typhoons, snowfall, and earthquakes, were to become more frequent than usual, it is possible that the number of vehicle breakdowns and accidents would greatly increase, causing a temporary decline in performance. However, depending on the content of the outsourcing contract with the client company, there may be a provision or clause providing for subsequent compensation for higher-than-expected costs, enabling mitigation of declines in performance.
Quality of roadside assistance services
In order for the Group to provide a variety of different roadside assistance services on a 24-hour year-round basis, the Prestige International Group has created nationwide networks comprising affiliated companies (Premier Assist Inc.) and automobile maintenance companies, towing companies, and other partner companies. For the client companies, the quality of roadside assistance services is an important factor influencing customer satisfaction, and so the Prestige International Group is working with partner companies to speed up on-site arrival times and enhance face-to-face customer service. However, the efforts of the Prestige International Group in this area are not necessarily sufficient, and if the quality of roadside assistance services were to decline for such reasons as being unable to maintain good relations with partner companies, there is the possibility of the outsourcing contract between Prestige International and the client company being canceled.
Guarantee services
In the automotive business, Prestige International provides extended automobile warranties and maintenance programs as part of the guarantee services. Under these guarantee services, users pay a fixed fee in return for insurance coverage against specified damage and malfunctions or rent in arrears for a stipulated time period. The services of the Prestige International Group cover calculating the appropriate fees based on past performance and reinsurance for anticipated costs. However, if unforeseen damage or malfunctions were to occur, it is possible that increased reinsurance fees and other effects would impact the financial standing and performance of the Group.
Property business risks
Earnings structure for real estate services (Home Assist)
Outsourcing fees for real estate services (Home Assist) have a fixed + variable income-expenditure structure, and the fixed expenses are calculated on the basis of the following formula: Number of properties managed by the client company (or number of properties covered) x unit price. Also, Prestige International's outsourcing contracts with client companies are revised periodically.
There is a seasonal element to the number of end-users provided with each type of home assistance service—that is to say, the relevant fees—as the number of service users increases around the year end-New Year holidays and during the summer months. Such seasonal factors affect the performance of this business division and could possibly cause a temporary decline in performance. However, depending on the content of the outsourcing contract with the client company, there may be a provision or clause providing for subsequent compensation for higher-than-expected costs, enabling mitigation of declines in performance.
Quality of real estate services (HOME ASSIST)
In order for Prestige International to provide a variety of home assistance services on a 24-hour year-round basis, the Prestige International Group has created nationwide networks comprising affiliated companies (Premier Assist Inc.) and plumbers, electricians, locksmiths, and other partner companies around the country. For client companies, the quality of home assistance services is an important factor influencing customer satisfaction, so the Prestige International Group is working with partner companies to speed up on-site arrival times and enhance face-to-face customer service. However, the efforts of the Prestige International Group in this area are not necessarily sufficient, and if the quality of roadside assistance services were to decline for such reasons as being unable to maintain good relations with partner companies, there is the possibility of the outsourcing contract between Prestige International and the client company being canceled.
Guarantee services
As part of the property business, Prestige International provides household equipment extended warranty services. Under these services, if greater than anticipated damage or malfunctions were to occur, it is possible that increased reinsurance fees and other effects would impact the financial standing and performance of the Prestige International Group.
Global business risks
Determining fault/non-fault in overseas travel insurance claim agent services
For overseas travel insurance claim agent services, the Prestige International Group uses its unique expertise to determine fault/non-fault for medical expenses up to a certain limit (insurance) in accordance with insurance policies on behalf of the client companies. However, these decisions are not necessarily correct. If the results of an investigation by a client company finds that a no-fault reason applies, the insured person is billed for the medical expenses that the Prestige International Group has paid on their behalf, but there is a possibility that the receivables cannot be recovered.
Advance payment of insurance on behalf of the insured person
For overseas travel insurance claim agent services and healthcare program services for employees of Japanese companies stationed overseas, the Prestige International Group pays the medical expenses (insurance) of the insured person in advance in the local currency. However, if the exchange rate fluctuates greatly before the Prestige International Group receives the insurance amount from the client company, foreign exchange profit and loss occurs.
Issuing credit cards for Japanese company employees stationed overseas
With regard to the issuing of the PREMIO CARD credit card for Japanese company employees stationed in the United States, the Prestige International Group has established a three-way tie-up with a local financial institution and a Japanese airline, and the issuance of the PREMIO CARD is premised on the local financial institution being licensed by the financial authorities. Accordingly, if the three-company tie-up were to be canceled for any reason or the terms of doing business changed, there is the possibility that the performance of this business division would be impacted, and business continuity may become difficult.
In addition, the identity verification, credit check, setting of credit limits, and other procedures that are performed upon the issue of the PREMIO CARD are carried out by the Prestige International Group using independent criteria and its expertise. In the event of overdue receivables, the Prestige International Group purchases the receivables and records the required bad debt allowance based on a contract with the local financial institution and then requests payment directly from the cardholder. Consequently, if a large amount of overdue receivables were to occur, there is the possibility that the performance of this business division would be affected. In addition, when settling credit card transactions, the local financial institution pays the merchant first and then collects the payment from the cardholder. Since financing for payments incurs interest, which is borne by the local financial institutions and the Group, there is a risk that interest costs will increase due to higher U.S. dollar interest rates.
Financial guarantee services risks
Guarantee services
As part of the financial guarantee services, Prestige international provides guarantee-related services under the rent guarantee program. If risks of greater-than-anticipated rent in arrears were to become apparent, it is possible that increased reinsurance fees and other effects would impact the financial standing and performance of the Prestige International Group.
Legal compliance under the rent guarantee program
The Prestige International Group provides a rent guarantee program through two affiliated companies (Entrust Inc. and Premier Life Inc.). In the rent guarantee industry, there have been social issues where some landlords implement excessively harsh measures in evicting tenants who are late making rent payments. Self-imposed controls and legal restrictions on the industry are currently being considered, and the Prestige International Group is aware of this situation. It is the policy of the Prestige International Group to comply fully with the law, but if violations of a law were to arise, it could possibly become difficult for the Group to carry out its business activities, and the performance of this business division could possibly be affected.