Business and Other Risks

Among the matters that concern the status of business and the status of accounting stated in the annual securities report, the following are those that may have a significant impact on the decisions of investors. Forward-looking statements in the document are based on the judgment of the Company Group, as of the current consolidated fiscal year (March 31, 2021).

(1) Business environment
Improving productivity has become an urgent issue, due to a declining working population in the business environment in which the Company Group operates, as a result of a declining birthrate, an aging population, and a declining population. In addition, as the impact of the coronavirus disease (COVID-19) becomes prolonged worldwide, it is necessary to respond flexibly to changes in the economic and social environment. Furthermore, as the trend toward shifting from hardware to software will continue due to the progress of cloud computing, our business model will be forced to change.
In each of our businesses, the evolution of fintech, changes in the legal system, as exemplified by the revision of the Consumption Tax Act and the Local Public Service Act, the development of cashless services, work style reform, and the transition of services to next-generation mobile communication systems are expected to have an impact on our future business performance.

The business environment continues to be less than optimistic, as financial institutions, particularly regional banks, which are positioned as the Company Group’s strongest business domain, have been affected by prolonged low interest rates and legal revisions, while regional department stores continue to face difficult conditions due to sluggish regional economies. Although the Company Group is working to contribute to the earnings of its business partners by providing various solutions leading to improved operating efficiency and business expansion, if the severe business environment continues to have a significant impact on the business results of its business partners, the Company Group’s business results may also be affected.
In the cashless payment business, which is a strategic product, the Company Group’s business results may be affected if business expansion does not progress due to issues such as the business conditions of member stores at which its multi-payment terminal “iRITSpay” is introduced, trends in the semiconductor market, and intensifying competition. In addition, in the event that performance or financial problems arise in M&A projects, they may affect the business results of the Company Group. Although the Company Group aims to acquire new technologies such as AI and blockchain, and to sell new products that utilize them, if it fails to make sufficient progress in technological development and its competitors take the lead, that may affect the business results of the Company Group.

(2) Competition
By concentrating its business strategies in fields related to systems for the financial industry and systems for the distribution and retail industries, the Company Group has accumulated superior system know-how compared to its competitors, and provides total hardware and software services in these fields, including proprietary solutions and network infrastructure.
However, the competition with existing major computer manufacturers and specialized system integrators is becoming more severe. In addition, although the Company Group is striving to increase sales by proposing high-quality solutions, there is increasing pressure to reduce unit prices as the prices of information and communication equipment decline. If this intensification of competition among companies and the downward trend in sales prices continue, the Company Group’s business results may be affected.

(3) Exchange rate fluctuations
Approximately 30% of the Company Group’s product purchases are imported, and transactions are mainly denominated in U.S. dollars. The Company enters into forward exchange contracts within the scope of foreign currency denominated accounts payable, and other accounts payable and purchase orders, in order to mitigate the risk of exchange rate fluctuations. All of the counterparties to these forward exchange contracts are domestic banks with high credit ratings, and the Company believes that there is little credit risk associated with the potential for default of counterparties on their contracts.
However, even though it is possible to mitigate the effects of exchange rate fluctuations through forward exchange contracts, it is impossible to eliminate all risks, including indirect effects, and if the yen continues to weaken, it will act as a factor that increases costs. Accordingly, the business results of the Company Group may be affected by exchange rate fluctuations.

(4) System (product) development and quality control
The lifecycle of the information and communication equipment handled by the Company Group tends to shorten year by year. Although the Company Group purchases the latest information technology and equipment from Japan and overseas, and provides these resources to its customers, if the Company Group lags behind in technological progress or makes misjudgments in its product strategies, they may affect the business results of the Company Group. In addition, the Company strives to maintain appropriate inventory levels by disposing inventory held for over two years, in cases where there is no possibility of it being sold.
The Company Group’s business performance may be affected by the emergence of similar or competing products, such as systems for which the Company Group has developed its own proprietary technology and has secured a high market share, but for which patent rights have not been granted. In addition, the Company Group develops, manufactures, and provides maintenance (hardware and software) services for packaged systems tailored to customers’ needs, as well as software based on customer requirements, and thoroughly manages the quality of these products to guarantee quality to our customers and improve customer satisfaction. Furthermore, the Company has acquired ISO 9001 (2015 version) certification, and established a quality manual and quality targets to ensure thorough quality control. The Company has also acquired ISO 27001 (2013 version) certification, a domestic standard for information security management systems, and is working to improve its services for customers. However, in the event that quality issues arise in the services provided by the Company Group, additional costs incurred for troubleshooting or compensation for damages may affect the business results of the Company Group.

(5) Information management
The Company Group has opportunities to access important information, including personal information, with the consent of its customers.
In addition to obtaining the PrivacyMark®, the Company has introduced its self-developed access control system and CAT supporter, which visualizes PC operation logs on a company-wide basis, to ensure thorough information management. As for the management system, the general manager of each division is responsible for information management and for security management within the division under charge, and each department has a person in charge of information management. The Company Group will continue to take all possible measures for information management. However, in the unlikely event that important information is leaked from the Company, it could have a significant impact on its business continuity.

(6) Natural disasters, etc.
The Company has established data centers in Tokyo and Osaka, and has taken measures such as preparing a business continuity plan (BCP) for large-scale earthquakes, introducing a safety confirmation system, earthquake-proof measures, and disaster drills. However, in the event of a major earthquake or other disaster that is beyond the scope of our disaster prevention and management system, there is a risk that power outages, communication line failures, or other unforeseen circumstances may affect the execution of our business operations.
Furthermore, due to the global spread of COVID-19, the Company has been engaged in efforts to ensure the safety of its employees by changing work systems such as implementing telework, encouraging employees to check their temperature, wear masks, and disinfect their hands with alcohol when arriving at work, and decentralizing operations. However, if there is another surge in the infection or if the impact is further prolonged, the Company Group’s business results may be affected by delays in order-taking activities and software development.

(7) Seasonal fluctuations in business results
In the information service industry, to which the Company Group belongs, shipments to customers and delivery dates tend to be concentrated in September and March. As a result, there are fluctuations in net sales, operating income, etc. for each quarter of the consolidated fiscal year, and the same trend may continue in the future.

  Current consolidated fiscal year
(From April 1, 2020 to March 31, 2021)
Q1 Q2 Q3 Q4 Total
Net sales (thousand yen) 3,429,385 4,014,958 3,560,609 5,285,017 16,289,970
(Composition %) (21.1) (24.6) (21.9) (32.4) (100.0)
Operating income (thousand yen) 289,733 567,915 422,436 906,785 2,186,871
(Composition %) (13.2) (26.0) (19.3) (41.5) (100.0)
Ordinary income (thousand yen) 320,601 586,672 472,796 937,644 2,317,713
(Composition %) (13.8) (25.3) (20.4) (40.5) (100.0)

(8) Business alliances, etc.
While the Company Group will continue to actively pursue business alliances, etc. in order to expand and stabilize the Company Group’s business, the Company Group’s business results may be affected in the event that the synergies initially envisioned by the Company Group do not occur, or depending on the business results of the alliance or investee companies.

(9) Dilution of share value
The Company has issued stock acquisition rights in the past, in accordance with the provisions of Articles 236, 238, and 239 of the Companies Act, and if these rights are exercised, the value of its shares may be diluted and the Company’s stock price may be affected. In addition, as a hostile takeover defense measure, the Company resolved to introduce measures against large-scale purchases of the Company’s shares at the Annual General Meeting of Shareholders held in June 2006, and resolved to revise such measures at the General Meeting of Shareholders held on June 21, 2019. If the conditions for such measures are not met, an allotment of stock acquisition rights without contribution will not be implemented, and the rights and interests of the shareholders and investors will not be directly affected. If an allotment of stock acquisition rights without contribution is implemented upon satisfaction of such conditions, stock acquisition rights will be allotted to the shareholders on an allotment date set separately by the Board of Directors, at a ratio of two shares for each share held, and therefore there will be no dilution of shares for the relevant shareholders. Following the allotment of stock acquisition rights, the Company will undertake procedures to acquire the stock acquisition rights of shareholders other than purchasers with a hostile nature, and will notify the relevant shareholders to that effect. The shareholders will receive shares of the Company’s common stock as consideration for the acquisition of the stock acquisition rights by the Company, without paying cash or other consideration. On the other hand, the Company will not acquire the stock acquisition rights that are allocated to purchasers with a hostile nature. Furthermore, the stock acquisition rights held by such purchasers may not be exercised. As a result, such purchasers will not only suffer a decrease in the percentage of voting rights in the Company’s shares held by the purchaser, but will also suffer a significant economic loss.