Business and Other Risks

Risks that may have a significant impact on the Company’s business performance, financial condition, and investors’ decisions include the following:

》 Performance trends in the manufacturing industry　
》 Competition with other companies in the industry　
》 Effectiveness of education and training
》 Securing suitable clients for our dispatching business　
》 Regulations on total work person-hours　
》 Securing science and engineering graduates　
》 Securing career engineers　
》 Information management　
》 Laws, regulations, licenses, and permits　
》 Disasters, accidents, etc.　
》 Climate change　
》 Mergers and acquisitions　
》 Medium-Term Business Plan　
》 Prime Market listing maintenance criteria

Performance trends in the manufacturing industry

Our major clients belong to the manufacturing industry, and we dispatch engineers primarily to their design and development departments. If these major clients were to reduce their capital investments, R&D costs, and the use of external engineers due to economic recession and other factors in the countries or regions in which they operate, our financial status and business performance could be affected.
In addition, if significant changes in the business environment take place for automobile-related manufacturers, which account for a large share of our sales, this will also affect our financial status and business performance.

Competition with other companies in the industry

If competition with other companies intensifies due to market contraction or new entrants in the engineer staffing industry, where we operate our business, and this results in a fierce price competition, our financial status and operating results may be affected.

Effectiveness of education and training

The Company strives to improve the skills of its engineers by providing training programs that have been developed based on many years of experience. However, if the training does not turn out to be as effective as expected and the unit price of engineers does not increase due to low customer satisfaction, and/or if we fail to satisfy the requests from clients and they start to make complaints, our financial status and business performance may be affected.

Securing suitable clients for our dispatching business

Although we always strive to secure and expand our clients for our engineer dispatching business, if we are unable to find suitable clients that match our engineers and cannot maintain or improve the unit price of engineers and/or utilization rates, our financial status and business performance may be affected.

Regulations on total work person-hours

The total work person-hours of our engineers is determined based on the business conditions of the client company. If the revisions to relevant laws and regulations generate a larger pressure against long working hours, which may result in a significant decrease in the total work person-hours of engineers, the Company’s financial status and business performance could be affected.

Securing science and engineering graduates

We consider science and engineering graduates to be an important managerial resource, but if the population of science and engineering graduates were to decrease due to the declining birth rate and other factors, making it significantly more difficult to hire talented graduates, our financial status and business performance could be affected.

Securing career engineers

We consider engineers with work experience to be an important managerial resource. However, if the competition to secure career hires intensifies due to a shortage of engineers who wish to change jobs as a result of booming design and development activities in the manufacturing industry, making it significantly more difficult to hire talented career engineers, the Company’s financial status and business performance may be affected.

Information management

By introducing measures such as acquiring the “PrivacyMark,” the Company has been committed to properly managing personal information, confidential information, and all other information obtained in the course of its business operations. However, if such information is leaked to outside parties for some reason, the Company’s social credibility will be damaged, affecting our financial status and business performance.
In addition, although we take appropriate security measures to ensure the stable supply of our services, system failures and other problems may be caused by computer viruses, unauthorized access, natural disasters, or other unforeseen events, affecting the Company’s financial status and business performance.

Laws, regulations, licenses, and permits

The following laws and regulations apply for each of our business categories:
(1) Worker dispatching business
Dispatching of engineers, which is the Company’s main business, is carried out under the license from the Minister of Health, Labour and Welfare as described below, based on the Act on Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers (hereinafter referred to as “Worker Dispatching Act”):

The Company considers compliance with the Worker Dispatching Act and relevant laws and regulations to be one of its highest priorities, and strives to maintain a legal compliance system by monitoring compliance with laws and regulations via internal audits and by regularly confirming compliance with laws and regulations at different meetings. However, in the unlikely event that the Company violates such laws and regulations, which would hinder the continuity of our business, our financial status and business performance may be affected.
In addition, Article 14 of the Worker Dispatching Act stipulates that if a dispatching business operator falls under any of the disqualification grounds provided in Article 6 of the Worker Dispatching Act (main possible grounds: if the Company is sentenced to imprisonment or more, or is sentenced to a fine for violating the Labor Standards Act, the Worker Dispatching Act, the Employment Security Act or other labor-related laws, or the Health Insurance Act, the Employment Insurance Act or other laws, or for committing a crime under the Penal Code, the Immigration Control and Refugee Recognition Act or other laws, and five years have not passed from the date on which the execution of the sentence is completed or the sentence is no longer executed; or if the Company becomes an adult guardian or warrantee, or goes bankrupt and has not had its rights restored, etc.) or violates the Worker Dispatching Act and the Employment Security Act, the business operator shall be ordered to have its business license canceled or its operations suspended. However, there are no such disqualification grounds applicable to the Company at this time. However, in the unlikely event that we violate such laws and regulations and are ordered to have our business license canceled or our operations suspended, it may become difficult to continue our business, and our financial status and business performance may be affected.
The Worker Dispatching Act and other relevant laws and regulations are being revised from time to time by means of adding modifications in response to changes in the labor environment, social conditions, and other factors.
The Company takes appropriate measures whenever such laws and regulations are revised. However, if any such revisions made are significantly unfavorable to our business, the Company’s financial status and business performance may be affected depending on the details of the revised laws and regulations.
(2) Paid employment agency business
Our paid employment agency business is conducted under the license from the Minister of Health, Labour and Welfare as described below, based on the Employment Security Act:

Article 32-9 of the Employment Security Act stipulates that if a provider of paid employment placement services (including its executives in case of a company) falls under any of the disqualification grounds as a paid employment agency business (if the Company is sentenced to imprisonment or more, or is sentenced to a fine for violating the Labor Standards Act, the Employment Security Act, the Worker Dispatching Act, or other labor-related laws, or for committing a crime under the Penal Code, the Immigration Control and Refugee Recognition Act or other laws, and five years have not passed from the date on which the execution of the sentence is completed or the sentence is no longer executed; or if the Company becomes an adult guardian or warrantee, or goes bankrupt and has not had its rights restored, etc.), or violates the Employment Security Act and the Worker Dispatching Act, the service provider shall be ordered to have its business license canceled or its operations suspended. However, there are no such disqualification grounds applicable to the Company at this time. However, in the unlikely event that the Company violates such laws and regulations and is ordered to have its business license canceled or its operations suspended, it may become difficult to continue its business, which may affect the Company’s financial status and business performance.
In addition, if such laws and regulations are revised in the future and if any such revisions made are significantly unfavorable to our business, the Company’s financial status and business performance may be affected.

Disasters, accidents, etc.

We have established a manual to deal with natural disasters, man-made disasters, and other disasters and accidents (hereinafter referred to as “Disasters, etc.”) in an effort to minimize the damage. However, if any Disasters, etc. that significantly exceed our prediction take place, our financial status and business performance may be affected.
In addition, in the event that the Company’s business activities are hindered as a result of the spread of COVID-19 infections and other factors, our financial status and business performance may be affected.

Climate change

In the event that our business activities are halted or stagnated as a result of our facilities being damaged by natural disasters due to climate change, the Company’s financial status and business performance may be affected.
In addition, if a carbon tax is introduced or environmental regulations are tightened as part of the government’s effort to transition to a decarbonized society, and if we are unable to offer personnel that meets our clients’ demands for engineers committed to carbon neutrality initiatives, the Company’s financial status and business performance could be affected.

Mergers and acquisitions

We have a policy of conducting mergers and acquisitions (M&A) to acquire new areas of expertise and technology with an aim to increase sales and revenues through expanding the scale of our business. Our M&As are implemented after thorough consideration of the risks involved by conducting preliminary research through detailed due diligence on market trends and client needs, as well as the financial status and contractual relationships of the target company. However, M&As may result in significant capital demands and amortization of goodwill, etc. In addition, such M&As may not necessarily generate synergies as expected by the Company. If the business performance does not progress as expected due to major changes in the business environment or business conditions, goodwill impairment losses or valuation losses on shares may arise, potentially affecting the Company’s financial status and business performance. Also, when a new business that we have not been engaged in previously is added to our portfolio through M&As, additional risk factors specific to that business domain will emerge.

Medium-Term Business Plan

In March 2022, the Company announced its new Medium-Term Business Plan “Build a foundation for sustainable and next-generation growth — Make Value for 2022 to 2024,” which concludes in the fiscal year ending January 31, 2025, and has been promoting specific measures accordingly. However, as the Medium-Term Business Plan is based on the outlook of the market environment and economic conditions at the time the plan was formulated, there is a possibility that the numerical business targets may not be achieved in the event that the market environment or economic conditions change dramatically beyond expectations and the business environment does not develop as predicted.

Prime Market listing maintenance criteria

The Company selected the Prime Market for its new market segment, applied since April 2022 by Tokyo Stock Exchange, Inc. However, the Company does not meet the listing maintenance criteria for the Prime Market on tradable share market capitalization as of January 2023. The Company is committed to taking necessary measures to meet the listing maintenance criteria by the fiscal year ending January 31, 2025. However, depending on the Company’s financial status and business performance as well as the market environment and economic conditions, we may not be able to meet the Prime Market’s listing maintenance criteria by the fiscal year ending January 31, 2025.