Foresight in sight

Investor Relations

Risks in Business Operations

Risks related to the Group’s businesses and finances described in this report that have the possibility of having a material effect on the decisions of investors are as follows.
Note that forward-looking statements contained in this document are based on the understanding of the Group as of the end of the fiscal year under review.

1 Impact from Economic Trends and the Market Environment

The business results and financial conditions of the Group may be affected by a number of factors including reluctance to invest in information systems, unexpectedly intense price competition, and delayed response to technological advancement due to economic trends and shifts in the information service market.
They may also be affected by a worsening of the business environment as a result of changes in regulations and systems such as laws, taxation, and accounting systems or changes in social infrastructure such as power and communications.

2 Project Management Risks

The Group is engaged in many different system development projects.
However, intensified competition has meant that customers are continually demanding more sophisticated systems, resulting in projects becoming increasingly complex. Accordingly, if a problem arises in a development project, there is a risk that the problem would require greater-than-expected costs and time to resolve, which could lead to a cost overrun.
To avoid such a risk, the Group has instituted a thorough and multifaceted system for assessing risk in the Project Review Committee at both the proposal and implementation stage.
It is also working to implement effective measures for preventing cost overruns and detecting problems at an early stage by enhancing the project management system, increasing productivity by systematizing and standardizing the system development method, and implementing the Andon system, which detects problems in a project at an early stage, as well as implementing a cycle of improvement that includes the review of problems to ascertain their true causes and implement fundamental countermeasures.

3 System Failure Risks

The systems and services provided by the Group have a significant effect on important administrative systems of customers and on social infrastructure.
In the event of a major failure due to a system malfunctioning, an operational mistake, etc., involving these systems and services, the business results of the Group could be affected by such factors as a decline in society’s trust in the Group, a decline in the Group’s brand image, and the payment of compensation for damages that have occurred.
Accordingly, the Group determines quality standards, such as the categorization of systems in use by their degree of social importance, problem occurrence rates, and the number of days needed to complete the response to a problem, and establishes systems to respond to problems.
In addition, in regard to the occurrence of problems, the Group is working to provide information to related in-house departments through a problem reporting system and to rapidly implement responses to problems.
The Group is also working to raise the quality of systems in use by implementing evaluation and improvement activities through periodic system maintenance.

4 Risks Associated with Investment Decisions

The Group makes large investments with the aim of providing new products and services to strengthen its competitiveness and expand its businesses.
When such investments are made, the Project Review Committee, the R&D / Investment Committee and above them the Executive Council carefully determine the appropriateness of business plans and other factors.
However, there is no guarantee that an adequate return on investment will always be achieved.
If the Group is unable to achieve an adequate return, then its business results may be affected.

5 Information Control Risks

The Group has many opportunities to access customers’ confidential personal and / or corporate information, as well as information on the Group itself, through business activities related to the development and provision of information systems.
We therefore consider information control to be a top priority in order to hold information in strict confidence, and take all possible measures for appropriate management of information as a member of the ICT industry.
To cope with the small possibility of an information leak in an emergency case that is beyond conventional imagination, the Group has insurance contracts to address the situation up to a certain extent. However, in the case that damage repair expenses are higher than the overall amount of contract coverage, or in the case that the leak has resulted in severe damage to the Group’s reputation, there is the possibility that the business results and financial conditions of the Group would be severely affected.

6 Risks Associated with Retention of Skilled Engineers

The shortage of skilled engineers in the information service industry is a significant issue.
If we are unable to recruit high-caliber engineers to meet our needs, this could have a material impact on the Group’s ability to secure technological advantages. The Company is working to address this issue by creating an environment in which Group personnel can acquire high-level skills.
To this end, we have instituted a wide range of personnel development measures, including career planning and other support systems as well as programs to enhance employee abilities.

7 Intellectual Property Rights Risks

The Group applies intellectual property rights to a large number of computer programs for its business operations.
Thus, any failure in the acquisition or maintenance of licenses as scheduled could affect the Group’s business activities.
In addition, there is a possibility that the Group may be one of the parties concerned with intellectual property rights litigation on computer programs and, as a result, any incurred expenses could affect the Group’s business results.

8 Risks Associated with Key Supplier Relations

We procure hardware from suppliers in Japan and overseas such as Unisys Corporation, and provide them to customers.
For this reason, changes to product specifications or the suspension of the supply of products due factors such as unforeseen changes in the business strategy or deterioration in the business conditions of supplier companies could affect the Group’s business results.
In addition, we handle the import, sales, and maintenance services of Unisys Corporation-made computers and other products in Japan, while Unisys Corporation grants us the use of its trademarks, technical information, and assistance.
The trading relationship with Unisys Corporation has been secure, but if the relationship became unbalanced and could not be sustained, this would have a material impact on the Group’s business results.

9 Exchange Rate Fluctuation Risks

The Group imports and sells Unisys Corporation-made computers and other foreign-made products.
Thus, the Group’s procurements in foreign currency denominations could be exposed to fluctuations in foreign exchange rates.
To avoid such risks, the Group takes risk-hedging measures through forward exchange contracts.
The Group’s purchase of foreign-currency denominations totaled ¥17,255 million for the fiscal year under review.

10 Compliance Risk

The Group’s business activities are exposed to the risk of lawsuits and legal action by third parties, and depending on the outcomes of such events it could result in having to pay unexpectedly large amounts of damage compensation and ultimately affect the Group’s business results.
For this reason, the Group has established the Nihon Unisys Group Action Guidelines and the Group Compliance Basic Regulations, based on which all of the Group’s employees conduct ethical behavior in compliance with laws and regulations, social norms, and in-house regulations.

11 Natural Disaster Risks

The occurrence of a natural disaster, such as an earthquake or infectious disease outbreak, could cause damage to or otherwise result in the loss of social infrastructure of one or more of the Group’s major business bases.
Such a disaster could also impact many of our suppliers or employees or result in a situation in which the Group must restrict its business activities to ensure the safety or maintain the well-being of such suppliers or employees.
Were such a disaster to occur, the Group may have to incur significant expenses to respond to the damages, which could greatly impact service provision or other business activities and ultimately affect the Group’s business results.
Therefore, in preparation for such an occurrence or a situation where such an occurrence is anticipated, the Group is striving to establish a structure based on which its operations could be maintained.