Business and other risks
The following are some of the business and other risks associated with the Group that may have a significant impact on investors' decisions. In addition, in the interest of proactively sharing information with investors, the Company discloses below those matters that do not necessarily fall under the risk category but are considered important for investors' investment decisions.
Although the Group's policy is to recognize the possibility of the occurrence of these risks and to work to avoid them or to respond to them if they do occur, we urge investors to make investment decisions regarding the Group's shares after careful consideration.
The likelihood, degree and timing of these risks materializing, and the degree of quantifiable impact on the Group's operating results, are not specifically stated here due to the difficulty in reliably predicting and calculating such risks.
The forward-looking statements in this document are based on the Company's assumptions and beliefs as of May 14, 2021, and do not represent all the risks that may arise in the future.
By implementing risk management, the Group is striving to reduce the following risks.
(1) Internet operating environment
Our Group's main business is Internet-related. Significant changes in the Internet usage environment due to the introduction of new regulations, the occurrence of problems, or other unforeseen factors may affect the business performance of the Group.
Consequently, to appropriately respond to changes in the Internet environment, the Administrative Headquarters, as well as each business unit, gather information on the relevant laws and regulations.
(2) Risks related to competition
In the Internet advertising market, where the Group operates its main business, competition is expected to intensify in all aspects, including the entry of new companies.
As a result, the emergence of superior competitors, improvements in services offered by competitors, and the emergence of higher value-added business models, may reduce the Group's competitiveness, which, in turn, may affect the Group's business performance.
Therefore, the Group will continue to maintain and improve its service provision system (a one-stop service system that comprises of consulting, production, editing, and operation of media that attract customers on the Internet) in an effort to differentiate itself from its competitors.
(3) Technological innovation
Technological innovation in the Internet-related field is remarkable, and it is expected that the technologies and industry standards currently in use will change rapidly. In addition, as customer needs are evolving in line with technological innovation, business models and services that meet these diverse needs are continuously being developed.
Failure to respond appropriately to technological and business changes could reduce the Group's competitiveness in the industry and affect the Group's business performance.
Consequently, the Group is constantly monitoring industry trends and making efforts to hire and retain engineers and other necessary personnel.
(4) Operational structure of the content marketing business
The focus of the content marketing business, the Group's core business, is to offer our clients support with marketing activities using internet search engines. It is crucial that we respond quickly to frequent changes in search algorithms that affect search results rankings.
There is no guarantee that we will be able to promptly respond to such changes in search engine systems implemented by Google and other companies in the future. If the necessary measures are not properly implemented, the business results of the Group may be affected.
Therefore, to expedite response to system changes, our Group created operational procedures that do not depend on highly qualified system engineers. Instead, thanks to strategies such as the manualization of operational tasks, even personnel with little specialized knowledge and experience can promptly respond to sudden changes.
(5) Laws and regulations
The Group is subject to regulations such as the Act Against Unjustifiable Premiums and Misleading Representations, the Act on the Protection of Personal Information, the Copyright Act, and laws related to the business of our clients.
In the unlikely event that a violation of these laws and regulations occurs, or in the event that new laws and regulations are enacted or existing laws and regulations are reinterpreted to restrict our business, the business performance of our group may be affected.
Therefore, the Administrative Headquarters and business divisions of the Group gather information on the revision and abolition of relevant laws and regulations, etc. The Group conducts business operations in strict compliance with said laws and regulations, self-imposed regulations in the Internet advertising industry, and various guidelines, using manuals prepared under the guidance of legal counsel.
(6) High dependence on specific projects
The Group's core business, the content marketing business, accounts for approximately 80% of sales in the IT segment, and the Group is concentrating its management resources on this business.
If said business shrinks due to changes in the business environment, etc., and we are unable to respond appropriately to such changes, our group's business results may be affected.
Thus, we plan to cultivate new pillar businesses (such as overseas IT human resources business) and diversify our earning power in the future.
(7) Employment of foreign workers
The Group's language education business employs foreign nationals.
It is necessary to check visas and residence cards when hiring foreign workers. However, there is a possibility that foreign workers continue to work despite their residence status having changed or been revoked. If we are penalized by the Immigration Bureau for employing such workers, it may have a ripple effect on our social credibility and reputation, which may affect the business performance of our group.
Therefore, with regard to the employment of foreign workers, we not only check their visas and residence cards at the time of hiring, but we have also created a visa management system to prevent illegal employment after they are hired.
(8) Risks related to personal information
Our group owns personal information acquired through our business activities.
In the event that 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, and suspension of customer transactions, which may affect the Group's business performance.
Therefore, the System Integration Division and other business units manage personal information in accordance with the Personal Information Protection Regulations created in accordance with the provisions of the Act on the Protection of Personal Information. Moreover, in 2017, Zenken Corporation received the Privacy Mark certificate, which has since been reviewed and renewed every two years.
(9) Risks related to information systems
Our Group is developing businesses that utilize information systems.
System troubles due to unpredictable reasons at this stage, such as interruption of electricity supply, communication failures, or prolonged interruption or suspension of services attributable to telecommunication carriers, may affect the business performance of our Group.
Therefore, in order to avoid system troubles caused by server shutdowns, network equipment failures, natural disasters, accidents, fires, etc., the System Integration Division is taking measures to monitor the systems’ operating status and implementing regular backups.
(10) Risks related to intellectual property rights
In the event that 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 due to a discrepancy in interpretation of contract terms, or in the event that a third party infringes on the Group's intellectual property rights, the Group's business performance may be affected.
Therefore, the Administration Headquarters has acquired trademark rights for the Group's main services and has established a management system to protect the intellectual property rights of the Group.
(11) Risk of litigation
The Group may encounter unexpected problems with suppliers, partners, or other third parties, which may lead to litigation. Depending on the content and outcome of the lawsuit, the Group's business performance may be affected by the incurrence of significant litigation costs and deterioration of the corporate brand image.
Therefore, the Group has established risk and compliance regulations and strives to reduce the risk of legal violations and other incidents by having employees comply with relevant laws and regulations.
(12) Natural disasters, accidents, etc.
In the event that the business activities of the Group suffer downtime or suspension due to natural disasters such as earthquakes or typhoons, accidents such as fires, or information system outages, the Group's business performance may be affected.
Therefore, we have formulated a "Business Continuity Plan" to prepare for crises.
(13) Risk related to novel coronavirus infection
In the language education business, face-to-face training continues to face difficulties due to the effects of COVID-19 pandemic, and there is a possibility that the cancellation of training, etc., will affect business results of the Group. For this reason, we are switching our training format from face-to-face training to online training.
In addition, in common with each of our businesses, if the provision of services, etc. were to be delayed due to an outbreak of the novel coronavirus infection among the Group's employees or business partners, it could have an impact on the Group's business and earnings. Therefore, in order to curb the spread of COVID-19, our group has been taking thorough daily measures such as wearing masks, gargling, hand washing, and alcohol disinfection, as well as using web conferencing and telecommuting.
(14) Risks related to recruitment, training and retaining of talented human resources
Retaining and developing the necessary human resources is crucial in order for the Group to continue to expand its business.
As a result, the Group's business performance may be affected if recruitment activities do not proceed as planned, or if there is an outflow of personnel exceeding the Group’s expectations.
Therefore, we are making efforts to actively recruit and train our personnel as early as possible.
(15) Risks related to the establishment of an internal control system
Due to the rapid expansion of its business, the Group may find itself in a situation where it is unable to maintain an adequate internal control system. It may become difficult to operate the business in an effective and transparent manner, which may affect the business performance of the Group.
Therefore, in order to ensure the proper operation of the business and the reliability of financial reporting, the Group is striving to establish an internal control system appropriate for the scale of its business, and is working to strengthen corporate governance in order to maximize corporate value.
(16) Dilution of share value due to the exercise of stock acquisition rights
The Group grants stock acquisition rights to its directors and employees for the purpose of incentivizing them to increase corporate value over the long term, and may issue stock acquisition rights in the future to secure excellent human resources.
If the stock acquisition rights currently granted or to be granted in the future are exercised, the total number of outstanding shares may increase and the value per share may be diluted.