Heiwa Corporation

The Amusement Machines Business is strictly regulated under laws such as the Act on Control and Improvement of Amusement Business, and significant amendments or abolition of laws, or the enactment and implementation of new regulations, directly affect the business. The pachinko industry is vulnerable to changes in regulatory authorities' policies, and stricter regulation may impose constraints on unit sales volumes and product specifications. Although the Group maintains a legal compliance framework, its fundamental means of responding to changes in the regulatory environment are limited.

Following the acquisition of PJC Investments Co., Ltd. (now Accordia Golf Holdings Co., Ltd.) as a subsidiary in January 2025, the Company entered into a syndicated loan of ¥510,000 million, resulting in a net interest-bearing debt balance of ¥572,155 million and a net interest-bearing debt ratio of 230% for FY2026 (ending March 2026), both at high levels. The borrowings are subject to financial covenants, and in the event of a breach, there is a risk that obligations to repay before maturity or the exercise of security rights could be triggered. Amid a rising interest rate environment following the Bank of Japan's termination of its negative interest rate policy, increases in interest expenses and funding costs may further strain the financial position.

As the entire baby-boomer generation reaches the ranks of the elderly and the declining birthrate and aging population progress, a future decline in the golf-playing population and an oversupply of golf courses have become unavoidable structural challenges. There is also a risk that deteriorating consumer sentiment due to rapid price increases and changes in social conditions could lead to reduced leisure spending. The Group is responding through approaches targeting new players, women, and dormant golfers, as well as by offering a wide range of golf environments from casual to high-grade, but it is difficult to completely avoid the impact of market contraction.

Due to diversification of leisure activities, the declining birthrate, and population decline, the number of pachinko halls and the amusement-playing population continue to trend downward, and hall operators have become increasingly selective in purchasing amusement machines. Amusement machine manufacturers are required to develop appealing products that accurately capture player preferences, and there is a risk of losing sales opportunities if responses to rapidly changing preferences are delayed. The Group strives to improve profitability through the creation of differentiated products, model development from the player's perspective, and cost reduction through parts reuse, but further deterioration of the market environment would directly affect business performance.

The Group holds large amounts of property, plant and equipment centered on the Golf Business, as well as intangible assets such as goodwill arising from M&A, with a high proportion of non-depreciable assets such as golf courses and land. If asset values decline due to a significant deterioration in the business environment, there is a risk of substantial impairment losses, which could materially affect the financial position and results of operations. The scale of assets in the Golf Business has expanded due to the acquisition of Accordia Golf Holdings as a subsidiary, further heightening the significance of this risk.

The Golf Business, which owns golf courses nationwide, is susceptible to direct damage such as course collapse, facility damage, and flooding caused by major typhoons, linear rain bands, earthquakes, and tsunamis, and business closures during recovery periods affect the financial position. In the Amusement Machines Business as well, if the development base in Taito Ward, Tokyo, or the production base in Isesaki City, Gunma Prefecture, were to be affected by a disaster, there is a risk of disruption to product supply. A pandemic of a new strain of influenza or other infectious disease could affect the Golf Business through refraining from leisure activities, and the Amusement Machines Business through stagnation of production and sales activities.

Cyberattacks using malware, including ransomware, are becoming increasingly sophisticated and elaborate year by year, and the risk is growing as the Group's reliance on information systems increases. If a system failure occurs due to unauthorized access or computer virus infection, business interruption could affect the financial position and results of operations. The Group implements ongoing updates to security measures and raises awareness of countermeasures against fraudulent emails, but it is difficult to guarantee complete defense against evolving attack methods.

The Golf Business handles large volumes of personal information of visitors obtained through the Company's own website and those of other companies, while the Amusement Machines Business handles privacy and credit information of customers and others; if an information leak occurs, this could result in the burden of costs such as damages and damage to brand image. The Group has established a management framework compliant with the Act on the Protection of Personal Information and the Number Act, but it cannot completely eliminate the risk of leakage due to unforeseen circumstances. An information leak would, in addition to a direct impact on the financial position and results of operations, pose a long-term business risk in the form of loss of customer trust.

In the Amusement Machines Business, manufacturing parts are procured from multiple suppliers, but for some parts the Group depends on specific suppliers, creating a risk of significant procurement disruption due to the bankruptcy of such a supplier, policy changes, or disaster damage. When signs of parts shortages are observed, the Group responds by securing inventory and promoting reuse, but supply disruptions due to external factors beyond the Group's control directly affect product supply plans. Delays in parts procurement could cause delays in the production and sales plans for amusement machines, potentially resulting in lost purchasing opportunities for hall operators.

Due to the nature of golf as an outdoor sport, the Golf Business is directly affected by weather factors associated with climate change, such as extreme heat, snowfall, and typhoons, in terms of the number of visitors and the number of operating days. In recent years, extreme weather events have occurred almost every year, heightening both the risk of physical damage to golf courses and the risk of demand fluctuation. The Group is working to understand and reduce its greenhouse gas emissions, but addressing climate change itself is a challenge for the industry as a whole, and there are limits to what individual companies can achieve on their own.