Major risk factors in the businesses in which the Group is involved, including the research business, IT solutions business, and Web marketing business, are as described below. Under our policy of actively disclosing information to investors, factors that are not business risks are also included if we believe that they are important for investors when they make investment decisions.
Unusual changes in financial position, operating results, and cash flows
(i) System development
The Group regularly makes investments related to systems. While paying full attention to any infringement of other companies’ intellectual property rights related to system development, the Group conducts thorough preliminary surveys and uses open sources where possible. The Group believes that the risk of its results being affected is very small. However, any delays in system development or any trouble related to system development could boost development costs or could adversely affect the Company’s results.
(ii) Impairment of goodwill
In M&A, the Group carries out acquisitions after fully examining whether it can achieve stable profitability into the future. However, any failure to secure earnings as planned could lead to impairment losses related to goodwill, which in turn could adversely affect the Group’s financial position and operating results.
(iii) Exchange fluctuation risk
The overseas subsidiaries of the Group prepare their financial statements in local currencies, and the amounts in the financial statements are converted to yen when the consolidated financial statements are prepared. Changes in exchange rates could thus adversely affect the Group’s financial position and operating results. If transactions in foreign currencies increase, significant differences between initially assumed exchange rates and prevailing exchange rates could adversely affect the Group’s businesses and results.
Dependence on specific business partners, products, and technologies
(iv) Obsolescence of service
The Group’s businesses are affected by rapid changes in technologies related to commercial activities and industry standards, and the needs of users are expected to change and diversify. Any failure of the Group to respond appropriately to changes in a timely manner could lower the Group’s competitiveness in the industry and adversely affect its results.
In each business of the Group, companies providing services similar to those provided by the Group are expanding their business or entering the market. In the research business, M&A and business integration among companies are increasing as companies are endeavoring to respond to large-scale research projects and price competition. One of the causes of this situation is the lack of strong entry barriers in the Group’s businesses, and the Group is expected to continue to face fierce competition. Any failure of the Group to record results as planned or to respond effectively to competition could adversely affect the Group’s results.
(vi) System failure
The Group’s businesses use the Internet, and system failure can be caused, including telecommunications network disconnections due to natural disasters, accidents, unauthorized access, and other causes, and failures of network equipment, including servers. In these cases, the Group could not continue its operations. Any system failure could cause damage directly to the Group. Any suspension of transactions caused by malfunctions or failures of servers of the Group could cause a reduction in the reliability of the Group’s systems and could have a significant adverse impact on the Group’s results.
(vii) Use of registered respondents
In the research business, the Group primarily uses the registered respondents of affiliate company Research Panel, Inc. The Group uses the registered respondents exclusively. The Group has established relationships of trust with Research Panel and its parent company, VOYAGE GROUP, Inc., through business and capital alliances. If it becomes difficult for the Group to use the registered respondents of Research Panel, the Company’s operating results could be adversely affected.
Legal restraints, trade practices, and management policies
(viii) Securing human resources
When hiring human resources, the Group places great importance on expertise in each business field and the ability to establish good interpersonal relationships for organizational management. Enhancing employees’ capabilities and motivations by improving cultivation and evaluation systems are important initiatives for the Group. Intensifying competition in recruiting human resources in association with an upturn in the economic environment and a lack of progress in the cultivation of human resources could impede growth in the Group’s businesses.
(ix) Risk associated with the development of overseas operations
Since the Group expanded into China (Shanghai) in FY2012, it has been expanding its operations in overseas markets. In overseas operations there are a range of risks, including business risks associated with regional characteristics, risks related to intellectual property rights, and exchange risks. To minimize these risks, the Group is fully examining operations, improving organizational structures, and taking other steps. However, any unforeseeable circumstances stemming from political and economic factors and the social environment in individual countries could have significant adverse effects on the Group’s results.
(x) Possibility and effects of personal information leaks
In the research business, the Group may obtain the personal information of respondents. For the appropriate acquisition, management, and operation of personal information, Cross Marketing, Util, Research and Development, Research Panel, and Medilead are granted the right to display the PrivacyMark in the PrivacyMark System operated by the Japan Information Processing Development Center (JIPDEC).
(xi) Dividend policy
The Group considers returning profits to shareholders to be an important management issue. The Group’s basic policy is to seek to return profits to shareholders by paying dividends, taking investment in business and cash flows into comprehensive consideration. However, a downturn in the Company’s results due to changes in the business environment, cash flow conditions, and risks that are not included in this list could mean that the Company is unable to continue to pay dividends.
(xii) Risk related to litigation
In the IT solutions business, the Group is commissioned to create websites and mobile sites, and delivers them by the time specified in agreements.
Any delays in delivery due to delays in development and creation and defects after delivery could result in an increase in expenses, and any delays or defects attributable to the Group could cause penalties or other damage. As a result, the Group’s results could be significantly affected.
Important matters related to officers, major shareholders, and affiliates
(xiii) Changes in important affiliates due to business expansion
With the aim of becoming Asia’s No. 1 marketing group in the medium term, the Group is developing overseas operations through M&A and the establishment of new subsidiaries. The Group uses its own funds and borrowings from financial institutions in M&A, etc., and outstanding borrowings may increase. Any changes in important affiliates in association with M&A, etc. could affect the Group’s financial position and results.