Business and Other Risks

The following is a list of major risk factors related to our group’s business that may have a significant impact on investors’ decisions. In addition, matters that do not necessarily fall under such risk factors but are considered important for investors’ investment decisions are described below from the viewpoint of proactive information disclosure to investors. Recognizing the possibility that such risks may arise, the Group will endeavor to avoid their occurrence and to take appropriate measures in the event that they do arise.
This section contains forward-looking statements that are based on our judgment as of the date of submission of the Annual Securities Report (June 27, 2024).

(1) Impact of changes in the business environment and price competition in the information services industry

In the information service industry, IT demand is expected to continue on an upward trend due to the support of national IT strategies and investments for DXs that promote business enhancement and transformation. However, if the Japanese economy slumps or worsens, there is a possibility that customers’ investment in information technology may decrease, which may affect our group’s business performance.
In addition, the information service industry in Japan is in a state of intense competition. In the event of direct competition with these competitors, or if competitors develop products or technologies that have a significant impact on the market, our group may be pressured to lower prices further, or the services and products we provide may become obsolete, which could reduce our competitiveness.

(2) Securing and developing human resources

Securing and developing new human resources is critical to the Group’s business operations, and failure to secure or develop human resources could affect the Group’s future growth and operating results.

(3) Cooperation with alliance partners

In connection with its business operations, the Group has established cooperative relationships with various partners, including vendors and subcontractors. Any change in the relationships with these partners may make it difficult to provide services or to offer services at reasonable prices, which may affect our group’s business performance.

(4) Possibility of wrong estimates and delays in delivery dates for system development services

However, as the development period becomes shorter and the complexity of functions becomes more sophisticated, the demands of customers are increasing, and the additional costs for development man-hours and functional improvements may exceed the initial cost estimates, resulting in lower profitability or loss of profitability. In addition, there is a possibility that the Group’s costs may exceed its initial estimates and become low or unprofitable. In addition, if the Group is unable to complete or deliver the work by the deadline predetermined with the client, it may incur late fees, and if it is ultimately unable to complete or deliver the work, it may incur liability for damages.

(5) System failure after delivery and acceptance inspection

The Group has obtained ISO 9001 certification and is working to improve the quality of its products and services, and to date has not been subject to any lawsuits or other claims for damages related to system malfunctions that could have a serious impact on the Group’s business. However, if a system failure caused by the Group’s negligence causes damage to a customer, the Group’s business performance may be affected due to the burden of claims and loss of trust in the Group.

(6) Dependence on specific customers

The Group expects that a large percentage of its sales will be to the Nippon Telegraph and Telephone Corporation Group, the Nippon IBM Corporation Group, and the Fujitsu Limited Group, etc. If these customers change their business policies, it may affect the Group’s operating results, etc. However, changes in the business policies of these customers may affect our group’s operating results, etc.

(7) Information leakage

In the course of its business, the Group may come into contact with confidential customer information (including personal information). The Group has obtained ISO27001 certification as well as the Privacy Mark, and has established a strict management system. However, if for some reason confidential information is leaked outside the Group, the Group may receive a claim for damages from the client, and the loss of trust in the Group may affect the Group’s business performance.

(8) Intellectual property infringement risk

Currently in Japan, business model patents have a wide range of rights, and there is a possibility that patents whose scope is unclear will be granted. Therefore, in our group’s service areas, including cloud services, we may be subject to injunctions to provide services or claims for damages for infringement of intellectual property rights, such as patents held by third parties.
In addition, our group sometimes uses programs developed by third parties in our system development operations, and we use such programs only after obtaining permission to use them, but there is a possibility that we may receive a claim for damages or an injunction against use on the grounds of infringement of copyrights or other intellectual property rights of a third party.

(9) Long working hours and labor problems

Due to the social nature of the services provided and the systems built, as well as the highly personal nature of system development, there is a possibility that long working hours may occur in emergency situations, leading to health and labor problems.

(10) Impact on computer facilities

The Group owns computer facilities, but in the event of a disaster or power outage, as well as damage caused by unauthorized access or computer viruses, system development and services may be delayed or interrupted, which could affect the Group’s business performance.

(11) Derivative transactions

In order to manage funds effectively and efficiently, the Group sometimes invests in compound financial instruments that incorporate derivatives such as convertible bonds of other companies, etc., based on a basic policy of setting investment fund limits and diversifying risk. However, in the event of a decline in the stock price of the underlying securities, losses may be incurred, which may impact business performance.

(12) Impact of natural disasters, etc.

In preparation for unexpected events such as earthquakes, typhoons, and other natural disasters, as well as fires and pandemics, the Group implements and examines measures for business continuity. However, depending on the circumstances of a disaster, all or part of our operations may be suspended, which may affect the Group’s business performance.

(13) Impact of investment activities

The Group engages in capital tie-ups, acquisitions, and the establishment of subsidiaries for the purpose of launching new businesses and expanding its operations. However, if the business of the investee does not perform as initially expected due to changes in the business environment or other factors, the Group may incur a loss on the investment or be required to contribute additional funds, which could affect the Group’s performance and financial position. In this case, the Group’s performance and financial position may be affected.