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Investor RelationsFBusiness Risks

June 2021

Risks that may have some impact on the Group's business results, share price and financial situation include the following. Forward-looking statements in this document are based on judgments made by the Group at the end of the consolidated fiscal year under review.

ƒRisks due to information system faults and information security failures„
The Group undertakes outsourced development and operation of information systems, etc. for the credit, distribution and service industries. For this reason, the Group is engaged in the construction of data centers with the very latest equipment and robust security features, and employee education and training with regard to both information security and technical aspects. However, in the unlikely event of information system faults (including communications network and electric power grid system faults) and/or information security failures (including personal information leaks due to threats such as computer viruses or cyber-attacks), there is a possibility of repercussions for the Group that may include a loss of confidence and credibility, loss of customers, and claims for damage compensation.
As measures against these risks, the Group uses firewalls, VPNs and other system-based measures to prevent unauthorized access, has built a system framework that conforms to an Information Security Management System (ISMS), and conducts education and training on the protection of personal information. In addition, as the Groupfs management strategy advocates continuous investment in global business, it has also built an information management system that conforms to the EUfs General Data Protection Regulation (GDPR).
ƒRisks associated with disasters„
The Group operates systems operation businesses centered primarily around data centers as well as support services. The Group recognizes risks concerning fires, earthquakes, wars, infectious diseases, security and others. The Groupfs data centers are designed to withstand earthquakes, fire and other threats, and ensure a certain level of safety. However, in the event of major earthquakes, fire or other natural disaster and/or equipment fault or operational error, there is a possibility of major interruption in the provision of services, which could impact the Groupfs business performance and finances due to claims for compensation and loss of confidence and credibility. In addition, in the event that infectious diseases or other factors hamper access of support personnel to internal resources, there is a risk to business continuity.
To avoid the faults and suspension of systems operation and support services, the Group implements a variety of measures including capital investment in equipment, security countermeasures, procurement of routes for access from outside to the resources and enrichment of internal education and training. The Group makes sure that these measures are effective not only to systems operation and support but also to system development, package sales and all internal back-office operations.
ƒRisks concerning securing and training engineering personnel„
At the same time as being knowledge-intensive, the design and construction of information systems also has some labor-intensive aspects. The Group recognizes that securing good engineering personnel with a certain level of skills is essential for expanding its business operations. At present, the Group has secured the engineers it needs through its personnel and education schemes. However, in the event that the Group becomes unable to secure the necessary numbers of good engineers and manpower that it requires due to a tight labor market, or in the event of large numbers of employees leaving the Group, there is a possibility of constraints being placed on the development of the Groupfs business operations.
As a measure against such risks, the Group is working to improve the efficiency of its recruitment activities, for instance by delegating authority for recruitment and utilizing recruitment management tools; and is formulating and implementing skill transfer plans by identifying expert personnel for each of its business divisions.
ƒRisks concerning outsourced development„
For outsourced development projects exceeding a certain scale, the Group conducts reviews of the appropriateness of estimates by persons not involved in the project. The Group is also working continuously to improve the quality of its projects and enhance its management frameworks such as by promoting the standardization of project development methods, and training project managers. However, even for outsourced development projects where it is judged at the time of undertaking the project that appropriate profitability can be anticipated, there are some cases in which the project may later become unprofitable due to reasons such as project management problems during the development stage, unforeseen increases in the scope of the development, and increases in the number of work / man-hours. In such cases, there is a possibility of an impact on the Groupfs business performance and finances due to the posting of losses for orders received, claims for damage compensation due to delays in delivery, and an impairment loss on related assets.
As a measure against such risks, the Group implements project progress monitoring using project organization meetings and tools such as milestone reviews and digital alerts. The Group also develops relevant regulations, works to instill group-wide development standards and development procedures, and operates certified project manager schemes.
ƒRisks concerning software development for new products and services„
The Group is investing in software for enhancing and maintaining its market competitiveness, and reports assets for development in-progress as gsoftware in progress.h However, in the event of it becoming apparent that the expected return on investment will not be achieved as initially planned, for instance due to downward adjustments of future revenue plans and/or delays and cost increases in development plans, there is a possibility that the Group may be forced to lower its valuation of these software assets.
As a measure against such risks, the Group implements project progress monitoring using project organization meetings and tools such as milestone reviews and digital alerts, as well as developing relevant regulations and promoting modern development.
ƒRisks concerning trends at specific clients„
Net sales to a specific client, specifically Credit Saison Co., Ltd., account for 24.5% of the Groupfs overall net sales (for the consolidated fiscal year under review). In the event of a decline in the amount of sales to this client, there is a possibility that it could impact the Groupfs business performance and finances.
The Group seeks to respond to such risks by driving the development of business operations in new technologies and new business domains as outlined in the medium-term management plan, and by developing highly profitable business operations with respect to new markets and customers.
ƒRisks concerning intellectual property„
With regard to sales of mainstay Group products such as HULFT and DataSpider, as outlined in the business strategy for its HULFT business, the Group is focusing on global development and the customer digital transformation domain. In developing its operations in new technologies and business domains, the Group takes care to protect and preserve its own proprietary technologies and know-how, and to avoid infringing upon the intellectual property rights of third parties. However, due to differences in legislation in some regions, there is a possibility of problems occurring with regard to intellectual property rights, posing the risk of the Group incurring claims for damage compensation for infringement upon the intellectual property rights of others. There is also the possibility of the Group being unable to secure licenses from the owners of certain intellectual property rights, etc., and being unable to offer specific technologies, products and/or services as a result. In such cases, there is a possibility of an impact on the Groupfs business performance and finances.
To avert such risks, the Groupfs Compliance Division and other departments conduct checks with regard to the intellectual property of other companies, and appropriately manage the intellectual property owned by the Group itself.

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