RISK INFORMATION
Business and other risks
Of the matters relating to the status of business, accounting and other matters described in the Annual Securities Report, the following are particularly important risks that the management recognises as having the potential to materially affect the financial position, operating results and cash flows of the consolidated companies. In addition, matters that do not necessarily fall under such risk factors but are considered important for investors' investment decisions are disclosed below from the perspective of proactive information disclosure to investors. While it is the Group's policy to be fully aware of the possibility of these risks occurring and to endeavour to avoid their occurrence and to respond to them if they do occur, the Group believes that investment decisions regarding the Company's shares must be made after careful consideration of this section and the other sections of this document. The Group believes that its risk management measures have reduced the likelihood of the occurrence of the following risks to a certain low level. The degree and timing of the likelihood of these risks materialising and the quantitative impact on the Group's operating results and other conditions if such risks materialise are not stated in detail as it is difficult to foresee them reasonably.
Matters relating to the future in the text are based on the Company's judgments as at the end of the current financial year and do not cover all possible risks that may arise in the future.
Particularly important risks
Risks related to the recruitment and development of qualified personnel.
The Group's growth is supported by its employees, and one of the most important tasks for the Group as it continues to expand its business is to continuously secure and develop the necessary human resources. If recruitment activities do not proceed as planned, or if there is an outflow of executive personnel or more personnel than expected, the Group's performance could be significantly affected.
Measures to address risks.
- Strengthening human resources strategies
- Planning recruitment in view of market trends
- Enhancing training and education opportunities
High dependence on specific projects
The Group's core business, the content marketing business, accounts for approximately 60% of sales in the IT segment and the Group concentrates its management resources on this business. If this business shrinks due to changes in the business environment or other factors, and the Group is unable to respond appropriately to such changes, the Group's business results could be significantly affected.
Measures to address risks
- Diversification of revenue sources through expansion of business areas (e.g. overseas human resources business).
Key risks
Technological innovation
The internet advertising market, where our group operates, is undergoing dramatic changes, notably with the emergence of technological advancements such as "ChatGPT" (a text generation model) provided by OpenAI in the United States. Our group is navigating these market environment changes by constantly seeking the optimal solutions in our management strategies. However, unexpected technological advancements or the emergence of new platforms could challenge our ability to maintain the competitiveness of our services. Such developments may potentially impact our group's performance.
Responding to Risks
- Monitoring of industry trends
- Gathering up-to-date information on internet use and analysing its impact
- Securing technical personnel
Risks related to competition
The internet advertising market, where our group operates, is expected to face intensifying competition in all aspects due to new companies entering the market. Consequently, the emergence of superior competitors, improvements in competitors' services, and the advent of business models with higher added value may diminish our group's competitiveness and potentially impact our performance.
Responding to Risks
- Monitoring of industry trends.
- Maintain and improve service delivery systems to differentiate from competitors
Operational structure of the content marketing business
The Group's core business, the content marketing business, supports marketing activities utilising search engines, and it is necessary to respond promptly to frequent changes in the criteria for determining display rankings (algorithms). Therefore, there is no guarantee that the Group will be able to respond promptly to changes in search engine systems implemented by 'Google' and others in the future, and if such responses are not properly implemented, the Group's business results may be affected.
Responding to Risks
- Establishment of an operational structure that does not depend on specific technicians.
- Manualisation of operations
- Dispersion of the impact of changes by owning a large number of operational media
Legislation
Our group operates under regulations such as the Unfair Competition Prevention Act, the Act on the Protection of Personal Information, Copyright Law, and laws related to our clients' businesses. Therefore, should there be any violations of these laws or in the event of new legislation being enacted or changes in the interpretation of existing laws that may restrict our operations, it could potentially impact our group's performance.
Responding to Risks
- Implementation of business operations in full compliance with laws and regulations, self-imposed regulations of the internet advertising industry and various guidelines.
- Implementation of information gathering on the revision or abolition of laws and regulations in each business unit and administrative division.
Risks related to personal data
The Group owns personal information acquired through its business. Therefore, if personal information is leaked or problems arise in the process of collecting personal information, the Group may be subject to claims for damages, loss of social credibility, suspension of customer transactions and other damages, which may affect the Group's performance.
Responding to Risks
- JIS Q Formulation of internal regulations and appropriate management of personal information as required by JIS Q 15001
- Development of internal systems and training
Risks related to information systems
The Group's business is based on information systems. Therefore, system problems caused by reasons that cannot be predicted at this stage, such as electricity supply interruptions, telecommunications failures and long-term interruptions or stoppages of services caused by telecommunications carriers, could have an impact on the Group's business performance.
Responding to Risks
- Monitoring of operational status and regular backup in the information systems sector
- Thorough information management and education through the formulation of information management regulations
Risks related to intellectual property rights
If the Group is sued by a third party for infringement of intellectual property rights, or receives a request for an injunction against the use of intellectual property rights, or if a third party infringes the Group's intellectual property rights due to a discrepancy in interpretation of the terms of the contract, the Group's business results may be affected.
Responding to Risks
- Acquisition of trademark rights for the Group's main services
- Developing a system for best practice in cooperation with lawyers and other professionals
Risk of litigation
The Group may encounter unexpected problems with suppliers, partners and other third parties, which may lead to litigation. Depending on the nature and outcome of litigation, the Group's business performance may be affected by significant litigation response costs and damage to the corporate brand image.
Responding to Risks
- Formulation of risk and compliance regulations and education
- Establishment of a system for taking the best possible measures in cooperation with lawyers and others.
Natural disasters, accidents, etc.
In addition to its domestic business, the Group also operates overseas, and its business performance could be affected if the Group suffers damage from natural disasters such as earthquakes and typhoons, fires and other accidents, widespread infectious diseases, outbreaks of terrorism, or sudden changes in political or economic conditions that cause its business activities to stagnate or come to a halt.
Responding to Risks
- Business Continuity Plan (BCP) development and continuous improvement
- Risk transfer through insurance
Risks related to the establishment of internal control systems
The rapid expansion of the Group's business may result in a situation where the Group's internal management system cannot be maintained. In such cases, it may become difficult to operate the business properly, which may affect the Group's performance.
Responding to Risks
- Establishing an internal management system appropriate to the size of the business.
- Strengthening corporate governance
Dilution of Share Value Due to the Exercise of Share Subscription Rights
The Group grants share options to its directors and employees as an incentive to increase long-term corporate value and for other purposes, and may issue share options in the future to attract talented people. The number of potential shares resulting from subscription rights at the end of June 2023 was 592,900, which corresponds to 4.8% of the total number of shares issued (12,227,200 shares). This corresponds to 4.8% of the total number of shares outstanding (12,227,200 shares).
Responding to Risks
- Initiatives to enhance corporate value