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Investor RelationsFBusiness Risks

June 2019

As of Securities Report for the fiscal year under review, Saison Information Systems has applied the provisions of Instructions on Preparation (31) listed on Form 2 of the Cabinet Office Order on Disclosure of Corporate Affairs, as revised after the Cabinet Office Order for Partial Revision of the Cabinet Office Order on Disclosure of Corporate Affairs (Cabinet Order No. 3 of January 31, 2019).

Of those matters concerning the state of business and accounting, etc., listed in the securities report, the major risks that the Groupfs management recognizes as posing the possibility of significant impact to the state of the Groupfs consolidated finances, business results and cash flow are as follows.
Forward-looking statements in this document are based on judgements 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 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 impact to the Group which may include loss of confidence and credibility, loss of customers, and claims for damage compensation.
As countermeasures 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 due to data center faults„
The Group operates systems operation businesses centered primarily around data centers. 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, fires and other natural disasters and/or equipment faults or operational errors, there is a possibility of major interference to the provision of services, which could impact the Groupfs business performance and finances due to claims for damage compensation and loss of confidence and credibility.
In order to avoid the risks posed by data center faults, the Group implements a variety of measures including capital investment in equipment, security countermeasures, and education and training for the engineers who operate its data centers..
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 this current time, the Group has secured the necessary engineers 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 stringency in the labor market, or in the event of large numbers of employees retiring from the Group, there is a possibility of constraints being placed on the development of the Groupfs business operations.
As a countermeasure against such risks, the Group is working to improve the efficiency of its recruitment activities such as by delegating authority for recruitment and utilizing recruitment management tools; and formulating and implementing skill transfer plans by identifying expert personnel for each of its business divisions.
ƒRisks concerning outsourced development„
For outsourced development projects over 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 impact to the Groupfs business performance and finances due to posting of losses for orders received, and claims for damage compensation due to delays in delivery.
As a countermeasure 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 advancing investments in software for enhancing and maintaining its market competitiveness, and reports assets for developments in-progress as gsoftware in progress.h However, in the event of it becoming apparent that plans for return on investment will not be achieved as initially planned, such as 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 countermeasure 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 two specific clients (Credit Saison Co., Ltd. and Qubitous Co., Ltd.) account for 41.1% 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 these clients, 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 investing its energies into 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 impact to the Groupfs business performance and finances.
In order to avert such risks, the Groupfs Compliance Division and other departments conduct checks with regard to the intellectual properties of other companies, and engage in appropriate management of intellectual properties owned by the Group itself.

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