With regard to business and other risks, the Company has established a system for managing such risks in accordance with its regulations. In the event of a major incident impacting business activities, the Company will establish a task force under the direction of the CEO to take prompt and appropriate action and minimize losses and damages.
In addition, in order to keep abreast of the status of various potential risks, we update business risks by reviewing the "Risk Map" every year, and report the results to the Board of Directors.
Below is a list of major risks related to business and accounting conditions, as described in the Annual Securities Report, which management believes may have a material impact on the Company's financial position, operating results, and cash flows, among other matters. It is our policy to recognize the possibility of the occurrence of these risks, to work to avoid them, and to respond to them if they occur. However, we believe that any investment in the Company should be made after careful consideration of the potential risks described below. It must be taken into account that any forward looking-statements are based on the best judgment of management as of the end of the period under review, and the statements below do not cover all the possible risks of investment in the Company.
1. Economic trends and employment situation
Our mainstay personnel recruiting services business is dependent on the hiring plans of companies that place job advertisements, and our business operations and business results are substantially affected when the business environment fluctuates significantly due to changes in economic trends, employment conditions, the job market, other economic conditions, and the spread and prevalence of infectious diseases.
For the fiscal year ended February 28, 2021, the spread of COVID-19 had an impact on the placement of job advertisements by client companies, as they curbed their recruitment activities and reduced their recruiting budgets. The Company is working to increase the number of contracted companies through the implementation of online business discussions and the use of self-developed sales tools that meet the hiring needs of customers in a timely manner. We will continue to further strengthen our direct sales force and work to expand our user base and customer base through new services and promotions.
In the DX business segment, as the spread of COVID-19 has led to changes in work styles, such as the proliferation of telecommuting, the need for business automation is rapidly increasing. We will continue to expand our customer base among small and medium-sized enterprises (SMEs), while working to enhance our lineup of stock products that are packaged according for each workflow of the customer, are easy to introduce, and can be used for a long time. In addition, by strengthening the customer success system after the introduction of products and providing continuous support, we will strive to increase the duration of the program and expand up-selling.
2. Spread of COVID-19
It is possible that an employee of the Company may become infected with COVID-19 which could interfere with the Company’s business and operations. Since the end of January 2020, based on the "Guidelines for Preventing the Spread of Coronavirus Infection," we have been managing our offices in a way that takes into consideration the prevention of infection among our employees. We are also working to ensure the safety of our employees by recommending telecommuting, staggered work hours, and rotating work schedules. Additionally, to prevent the spread of infection both among our employees and in society at large, we are working to reduce the risk of infection by, in principle, conducting business meetings with customers online. We will continue to make every effort to prevent the spread of the infection and strive for a quick recovery in our business performance.
Please refer to "(1) Economic trends and employment situation" for the impact of the pandemic on the performance of each of our businesses.
Due to the nature of our business of operating information websites on the Internet, our business relies on the communication networks that connect the computer systems constituting the websites and the devices accessed by the users. If a system outage occurs due to large-scale and/or wide-reaching natural disasters, such as earthquakes, floods, fires, other local disasters, computer viruses, loss of electrical power, communication failures, or other causes that are unpredictable at this point, we may be forced to suspend business.
Other potential risks we face include the disabling of the Company’s system or ISP service due to temporary overload, criminal acts such as unauthorized access to our server by a third party, unintended failure due to an operational error by an employee, or a failure of the communication network. In order to prevent such incidents from occurring, we are continuously improving our backup systems and security measures to prevent critical incidents from occurring and to reduce the impact on our business operations when they do occur. Nevertheless, if these failures occur, there is a possibility that our business performance and financial position will be affected due to the suspension of transactions resulting from a loss of trust in the Company, or lawsuits and claims for damages against us.
4. Protection of personal information and information security
The Company employs the Secure Sockets Layer (SSL) protocol in all communications with its websites. SSL encodes the data between the Company and the job seeker, ensuring that all information is protected from interception, alteration and spoofing.
In addition, the Company is continuing to implement other security measures such as preventing unauthorized access. However, in the event of a serious problem such as an outflow of personal information in the personnel recruiting services business or the DX business, the Company may be held legally liable regardless of the content of the contract. Even if the Company is able to avoid legal responsibility, it could lead to a loss of credibility with companies and job seekers, or even damage to the brand image, which may affect the Company’s operating results and financial position.
In order to ensure the strict management of personal information, we have obtained, and continue to update, the Privacy Mark. Moreover, in October 2005, we obtained certification under the ISMS conformity assessment system. Subsequently, we underwent a transition audit to ISO27001 (JISQ27001) in tandem with continuity and expansion audits, and obtained that certification in November 2006. We maintain and renew that certification as required.
5. Reliance on the personnel recruiting services business
The personnel recruiting services business accounted for 97.5% (31,671 million yen) of the Company's net sales of 32,494 million yen for the fiscal year ended February 28, 2021, and the Company is highly dependent on this business. Therefore, fluctuations in sales for this business segment due to intensified competition with other media in the job advertising market may have a significant impact on our business operations and business results.
In order to establish a more stable revenue base by diversifying its business portfolio, the Company has been working on the DX business and other businesses since the fiscal year ended February 28, 2020. Sales from the DX business for the fiscal year ended February 28, 2021 grew steadily to 823 million yen (sales for the fiscal year ended February 28, 2020 were 46 million yen). However, in the event that these businesses do not progress as initially planned, there is a possibility that the Company will continue to rely on the personnel recruiting services business.
6. New businesses
As a "Labor force solution company," we provide personnel recruiting services and DX services, and are actively considering the development of new businesses in order to expand our business scale and diversify our business portfolio. When considering a new business, it is necessary to appropriately incorporate the ever-evolving technology and consider services that match customer needs. However, if it becomes difficult to secure IT engineers and other system technicians, or if it becomes difficult to launch new businesses in a timely manner due to delays in the system development period, our business performance and financial position may be affected.
In addition, as a result of our aggressive efforts to develop new services and new businesses, we may incur additional expenditures for system investment, advertising, and other expenses, which may lower our profit margin. Furthermore, if circumstances that differ from our projections arise and the development of new services and new businesses does not proceed as planned, we may not be able to recover our investments, which may affect our business operations and business results.
7. Climate change
The occurrence of natural disasters such as earthquakes, tsunamis, heavy rains, and floods in the areas where we operate may affect our business operations and business results. In preparation for these events, we have taken measures such as formulating guidelines for employee behavior in the event of a disaster, implementing earthquake-proof measures for buildings and systems, data backup systems, employee safety confirmation systems, disaster drills, and stockpiling disaster supplies.
8. Intellectual property rights
In the event that another company operating in the same industry acquires a utility model or patent, etc. for Internet-based provision of information services, or the DX business, depending on the content of the patent, the competitive advantage of the Company's business may decline or a lawsuit may be filed against the Company, which may have an impact on the Company's business performance and financial position.
The Company cannot completely rule out the possibility that we might be obligated to compensate for violation of utility model rights or a patent related to the whole or a part of the business, which someone in Japan or abroad have already acquired. The Company’ intellectual properties also have the possibility to be infringed by a third party. Although we are not aware of any specific examples of such cases at this point in time, the occurrence of such cases may have an impact on our business operations and business results.
In the personnel recruiting services segment there are many competitors that offer part time job information, dispatch employee job information, regular employee job information, and nurse placement services using the Internet. New operators enter the business each year, as the barrier to entry is low. The Company is committed to introducing pioneering services and continuously providing new functions in order to attract and retain users, but if the Company fails to respond effectively and efficiently on a timely basis in the intensifying competition with existing rivals and in the competition with new entrants, our business and operating results may be substantially affected. This may have an impact on our business operations and business results.
In the DX business, we are also developing DX services by leveraging the unique strengths that we have cultivated through our job information services business – an extensive base of existing customers and a large and experienced direct sales team. However, if competitors with similar strengths, or strengths that we do not have, appear in the future and we are unable to respond in a timely, effective and efficient manner in competition with these companies, our business operations and business results may be affected.
10. Asset impairment
Due to reasons such as a decline in the profitability of the sites we operate or a significant deterioration in the business environment, we may not be able to expect to collect cash flows from fixed assets in which we have invested in the past.
Additionally, the Company has established a corporate venture capital (CVC) fund, "DIP Labor Force Solution Investment Limited Partnership" (abbreviated name: "DIP Labor Force Solution Fund"). As a result, the Company has further strengthened its ability to identify opportunities and upgraded the investment review process to avoid risks. However, in the event that the Company is unable to generate the expected earnings or synergies and it takes longer than expected to recover the investment, the Company may incur impairment losses on investment securities and shares of subsidiaries and affiliates, which may affect the Company's business performance and financial position.
11. Human resources
The Company has rapidly expanded the scale of our business centered around the personnel recruiting services business. Since reinforcing our sales system and developing services are crucial for further business expansion and launching new services, we believe it is necessary to secure quality human resources. Therefore, our business and operating results may be affected by failure to recruit a sufficient number of appropriate personnel or an outflow of many personnel due to resignation. This could have an impact on our business operations and business results. In the DX business, competition for talented engineers and business consultants is intensifying both in Japan and overseas, and if we are unable to secure adequate and appropriate personnel, there may be delays in the development of our services, which may affect our business operations and business results.
12. Legal restrictions
The Company is engaged in Internet-based job advertising services in the personnel recruiting services business, as well as services utilizing digital technology in the DX business. At present, there are only a limited number of laws and regulations covering the Internet and digital technology. However, in the future, if laws and regulations are enacted or amended that affect this area, or if the cost of complying with laws and regulations increases, our business operations and business results may be affected.
The Company is subject to a variety of different legal restrictions, such as the Law on Securing, Etc. of Equal Employment Opportunity and Treatment between Men and Women in Employment, the Employment Security Law, and the Labor Standards Law. The Company operates in compliance with these laws with sufficient attention; however, violation of these laws or their revision and enhancement may lead to the possibility of limiting business and increasing expenses to comply with the new legal restrictions. This may affect the Company’s business performance and financial position. In addition, since we provide services for nurses and other qualified personnel, any future revision of the Law on Public Health Nurses, Midwives and Nurses, which regulates these qualifications, may affect our business operations and performance.
The Company has obtained license from the Ministry of Health, Labor and Welfare as a fee-charging employment placement business provider. Our license number is 13-ユ-303788 and the expiry date is January 31, 2022. Since a fee-charging employment agency license is required for the continuation of our employment agency business, if the license is revoked for any reason, it may affect our business operations and operating results. The potential reasons for revocation of a license are stipulated in Article 32-9 of the Employment Security Law. As of February 28, 2021, in so far as the Company is aware, there are no facts that correspond to these reasons for revocation of a license.