This section describes the major risk factors that may have an effect on the results of operations and financial position of the Avex Group.

(1)Trends in major titles, artists and talents

The Avex Group has been promoting the “Vertical Integration Model.” Consequently, the Group’s business performance can be affected by whether or not the Group has any hit artists and hit content, and by the popularity of major artists and talents, contract duration, and growth of new artists and talent.

(2)Operations in overseas markets

The major markets for our music and visual content businesses are in East Asia. We have expanded our operations to mainland China, where significant growth is expected in the future.
In the event that an unexpected incident occurs in any of the overseas markets due to a change in political or economic conditions or legal or regulatory elements, disadvantageous taxes, or social disorder caused by terrorist attack, war, or the like, it is possible that our performance may be affected.

(3)Impairment loss

When market values of the assets held by the Group decrease significantly, or business profitability deteriorates, an impairment loss in fixed assets may be recorded by applying impairment accounting, which would affect the Group’s businesses and financial position.

(4)Fundraising

The Group has mostly raised funds through borrowings from financial institutions and the issuing of bonds. The funds have been used to acquire investment securities and property, and for investing in the visual content business. If interest rates change, the Group’s performance may be affected.
In addition, certain of the borrowings have a financial restriction clause. Infringement on the clause may affect the financial position and business performance of the Group. For example, the borrowing interest rate will be raised, and/or the benefit of time will be forfeited, etc.

(5)New businesses

The Group is actively becoming involved in new areas to further consolidate its position in the entertainment business, but there is the undeniable possibility of risks arising in the the process of execution of new business due to a sudden change in the business environment or an unforeseeable problem which materializes afterwards, and this may affect the Group’s performance.

(6)Dependency on the specific corporate manager

CEO Masato Matsuura, one of the founders of Avex, has been playing the core role in formulating and determining Group management strategies and concluding contracts with important business partners and artists. In the event that Mr. Matsuura leaves the Group for any reason, the performance of the Group may be affected.