Business activities, business performance and financial status of our Group may be adversely influenced remarkably by whichever of the risk factors.
The market price of our shares may possibly drop by whichever of these factors.
Our Group tries hard to avoid occurrence of such risks and further to cope with the occurrence once happened recognizing the possibility of potential risks, while we recommend it is necessary to judge equity investments in our shares upon reckoning, deliberating, and weighing the following description in the papers hereof.
Risks on the Data Center Management
The Data Center business of our Group is made up of secure and appropriate management of the communication network and system which links our clients with us. However, we strictly understand that we may not possibly perform proper management in case our Group faces following situations.
(1) Machine trouble
(2) Unjust hacking to our computer system from the outside
(3) Computer virus infection
(4) Leakage or theft of our customers’ data
(5) Cutting off the communication lines inside and outside office
(6) ower shutoff
Under such understanding, our Group builds the organizational system with network engineers and system engineers in our offices for the maintenance of the communication network system, the maintenance systems support and performance retention, and also concludes the maintenance management contracts with computer manufacturers, by which we consequently take thorough measures.
Furthermore, we will continuously improve the operational quality of system operations, based on the quality management system.
Despite such measures taken so far, the business performance and financial status of our Group may be influenced by the deterioration of social trust, or the compensation payment for damages incurred when we fail to cope with such situations precisely and speedily, which causes the troubles in the stable and appropriate administration of the Data Centers as a natural consequence.
Risks on Natural Disasters
Our Group's Data Centers were built with a quake-absorbing structure, which are functionally capable of enduring large-scale earthquakes. However, when we may be subjected to an unexpected damage by a fierce earthquake, our data processing operation cannot help being suspended, which may possibly cause an influence on the achievements.
Furthermore, we may need a large amount of expense for restoration or substitution of the Data Centers..
Besides, as the infectious disease is predicted to spread from a person to a person within a short time, unlike natural disasters restricted to a small area, the business performance and financial status of our Group may be influenced by our operation suspension caused by the expansion of human damages.
Risks on System Construction
Our system development sector, occupying high percentage of all sales in our Group, takes responsibility to finish the ordered system construction strictly before the appointed day of delivery. So, we thoroughly carry out the development process control and quality control as our daily work. However, the business performance and financial status of our Group may be influenced by the compensation for damages due to the delivery delay by installing unexpected specifications and a problem occurrence or by unexpectedly exceeding the cost.
Risks on Information Security
Our group handles personal information or confidential information as a part of our task performance.
In this context, we examine and further enrich the information security measures including the personal information protection by the Risk Management Committee held monthly. However, when loss or leakage of these information occurs, the business performance and financial status of our Group may be influenced by the deterioration of social trust of our Group, or the compensation payment for damages incurred.
Risks on the Compliance
As a member of a key industry that provides social information infrastructure, our Group has established the “I-Net Charter of Corporate Code” to contribute to the development of a sound information-oriented society. With this code, we build a compliance promotion program, implement education and training activities for our officers and employees as required, and strive to improve corporate ethics and strengthen legal compliance.
However, we may not completely evade risks on the compliance. The business performance and financial status of our Group may be influenced by the deterioration of social trust of our Group or the compensation payment for damages incurred when we face the situation conflicted with the laws or ordinances
Risks on Securing Human Resources
Our Group needs to require and maintain excellent employees in order to manage our Data Centers and perform an outsourcing service stably, and also to continue the development of the software such as business applications as its main field. Therefore, the human resources department of our Group makes utmost effort to recruit and keep on employing the human resources who are able to be assigned to important technical departments.
However, the purpose of the operations may possibly become difficult to accomplish when lots of able employees conspicuously leave their jobs from our Group, or we fail to recruit anew on time.
Besides, we may possibly have risks such as the compensation due to the responsibility as the business owner to the employees who are recognized as the mentally and physically disorder.
Risks on Sales Management
(1) Concentration on sales recognition period
Our system development sector, occupying high percentage of all sales in our Group, adopts "Completed-Contract method" and "Percentage-of-Completion method" in our sales recognition criteria.
In regards to the “Completed-Contract method”, the completion period tends to be concentrated in the fourth quarter of the consolidated fiscal year, which is the closing period of our customer companies.
Consequently, expenses relatively come to outnumber sales in the first quarter.
Additionally, the business performance and financial status of our Group may be influenced by the timing of the sales recognition postponed to the following quarter due to customers’ inspection delay.
(2) Credit management (Large amount of bad debt expense)
Our Group controls the sales receivables based on the concluded contracts with our customers pursuant to relevant internal rules.
Besides, we perform every customer company's credit management, and set respective credit limit amount by credibility. We regularly grasp slow-moving credits and their collection situation, and account for allowance for doubtful accounts as required.
However, it can possibly be thought the case when the business condition is worsened rapidly in the companies with vulnerable economic bases by a change of the economic climate.
In our Group, we try to strengthen the credit management furthermore. However, the business performance and financial status of our Group may be influenced by obstructing the collection of sales receivables when an unpredictable situation occurs.
(3) Business partners (Partnership with the strategic partners)
Our Group builds the strategic partnership with various companies in the development of the new products and the sale of the existing products.
We may possibly cancel the partnership with these companies when they face financially critical situation or other business difficulties, or they change strategic purposes, or we judge the merit of partnership is little.
When our Group cannot maintain the partnership, the fact may possibly be affected by the achievements in the business field.
Risks by Dependence on Specific Industry
Our Group now presents business for the customers of wide variety of the industries such as information service industry, manufacturing industry, finance industry, retail distribution industry, service industry and a government and its municipal offices in addition to oil industry.
However, the sales amount for oil industry, which is the established business of our Group, still occupies approximately 20% of our consolidated sales. Taking this into consideration, the business performance and financial status of our Group may be influenced by the change of the legislative system or a sudden change of the business environment in oil industry.
Risks on Investment in Information Technology by the Customers’ Companies
Investment in information technology of the customers’ companies is vividly reflected by the influence of economic trends.
When remarkable business recession, dramatic decline in consumption, change of the legislative system specific to the industry, or merger and abolition within the industry occur in the future, the business performance of our Group may be greatly influenced.
The budget compilation and the performance forecast of our Group are made based on the available information such as market growth forecast where our Group belongs, demand prediction for investment in information technology of each customer company. However, the business performance and financial status of our Group may be influenced by the growing divergence between actual performance and forecast value.
Risks on Price Decline Pressure
The competition between companies is intense, and we also experience newly entry from different industries and rise of the overseas companies, which may possibly lead to the price competition in the information service industry.
Taking such climate into consideration, our Group tries hard to differentiate from the competitors and tackles with the improvement of the productivity by providing value-added high level services with the accumulated know-how to the customer companies so far.
However, the business performance and financial status of our Group may be influenced by unpredictable severe price competition.
Risks on Technological Innovation
In the information service industry to which our Group belongs, companies are required to respond promptly to advances in information technology and changes in market needs that accompany those technological advancements. Our Group strives to investigate and conduct research and development on various technological trends, such as advanced technology and core technologies. However, our Group’s business performance and financial position may be affected if there are delays in responding to unexpected innovative technological advances.
Risks on Intellectual Property Rights
In regards to intellectual property rights necessary for our Group to conduct business, we may be unable to acquire licenses, etc. from the rights holders and consequently, our Group may be unable to provide certain technologies, products, or services. Furthermore, we implement investigations in advance to ensure that our business does not infringe on the intellectual property rights of other companies. However, if the business operations of our Group infringe on the intellectual property rights of another company, we may be subject to damages. In either case, the business performance and financial position of our Group may be affected.
Risks on Capital Investment
In developing data centers and cloud services, our Group requires large funds for continuous capital investment, in addition to initial investments, to ensure stable maintenance and operation, such as responding to aging equipment and increasing equipment to handle a rise in demand. These strategic investments are made after thoroughly examining the investment effects and risks in advance. However, if the expected return on investment cannot be generated due to changes in the market environment or deteriorating profits, and recoverability decreases, our Group’s business performance and financial position may be affected.
Risks on Investment
Our Group invests and acquires companies in areas related to existing businesses. In carrying out these activities, we conduct necessary and sufficient investigations from various perspectives in advance, such as business content and financial position. However, if the expected results cannot be achieved due to sudden changes in the business environment or unexpected events occur after the investment or acquisition, the Group’s business performance and financial position may be affected.
Risks on Legal Matters
Since our Group provides a wide range of services to customers for business purposes, we have accumulated a large amount of customer information. For this reason, the Group falls under the category of entities handling personal information stipulated in the Personal Information Protection Act, and the handling of personal information is subject to regulations.
Our Group has set up a specialized department to promote initiatives on personal information protection, such as establishing and operating regulations on personal information protection, strengthening system security, and implementing regular training for officers and employees. However, in recent years, the risk of intrusion by computer viruses and unauthorized access has increased. If customer information held by our Group is used for non-business purposes or is leaked to the outside, our Group’s business performance and financial position may be affected due to bearing the cost of handling such cases, claims for damages from customers, and a reduction in the number of applications or cancelling of contracts due to reputational damage.