System Support Inc.

With the increase in large-scale and complex projects under contract, there is a risk that specification changes or cost overruns may result in low-profit or loss-making projects. Although the Administrative Division conducts progress and profitability reviews and a work-in-progress management system has been introduced, as projects become more complex and delivery timelines shorten, there remains a possibility that penalties for delay or damages could arise. The Group employs its own project management methods to control quality, schedule, cost, and risk, but unforeseen circumstances cannot be entirely eliminated.

Securing and developing highly skilled systems engineers is fundamental to the Group's competitiveness, but there is a risk that tightening labor supply and demand nationwide will make it difficult to secure the necessary personnel. A shortage of personnel directly leads to lost orders or reduced order scale, resulting in decreased revenue. The Group is addressing this through proactive recruitment activities and enhanced in-house training and education programs, but the difficulty in securing personnel may continue.

In the course of business, the Group holds personal information and confidential information belonging to customers and employees, and there is a risk that an information leak could result in loss of trust and damages. System Support, e-Net Solutions, and Communication Planning have obtained ISO/IEC 27001 (ISMS) certification and conduct regular internal audits and employee training, but threats such as cyberattacks cannot be completely eliminated.

The information services industry has low barriers to entry, and intensifying service and price competition with competing products, along with rapid technological innovation such as cloud adoption, continues. The industry is also highly sensitive to economic conditions, with customer IT investment tending to decline during downturns in the Japanese economy. The Group is responding through proactive business expansion into new technology fields and securing specialized personnel, but rapid changes in the business environment may affect performance.

In FY2025 (ended June 2025), outsourcing costs accounted for 39.5% of total manufacturing costs, making partner companies an important element in business continuity and expansion. If the Group is unable to secure highly skilled business partners appropriately and in a timely manner, or if relationships with such partners change, there is a risk of disruption to project launch and execution. The Group has built a collaborative framework based on long-term trust relationships among engineers and companies, but competition to secure partners is intensifying.

In Data Center Services such as hosting and housing, if equipment malfunctions, cyberattacks, or operational errors occur, there is a risk of serious disruption to service provision, potentially leading to damages claims and loss of trust. The Group continuously reinforces and upgrades equipment, strengthens security, and trains operational engineers, but these measures may not completely prevent failures.

One of the Group's management strategies is to enhance technological capabilities and expand into new customer fields through corporate acquisitions and capital alliances. However, there is a risk that performance could be affected if the initially expected synergies fail to materialize, or if impairment becomes necessary due to a deterioration in the earnings outlook of an acquired company or capital alliance partner. The Group conducts prior legal and financial due diligence and strives to acquire companies at appropriate prices, but there is no guarantee that the expected results will be achieved.

Because the Group applies revenue recognition based on the cost-to-cost method, there is a risk that a significant revision to the estimated total cost of a project—due to specification changes or other factors—could directly affect the earnings outlook. As projects become more complex, larger in scale, and shorter in delivery time, there are increasing cases where labor and outsourcing cost estimates need to be revised. The Group has established a system for regular progress management, but significant changes in cost estimates cannot be completely prevented.

The Group operates a worker dispatching business and has obtained a general worker dispatching business license from the Minister of Health, Labour and Welfare, and is therefore subject to the Worker Dispatching Act and related regulations. There is a risk that falling under disqualification grounds or violating laws and regulations could result in a loss of social trust and adversely affect business performance. The Group strives for legal compliance through employee training and monitoring by the Internal Audit Office, but must also respond to changes in laws and regulations.

Since the Group primarily procures funds through bank borrowings, there is a risk that performance could be affected if cost increases due to rising interest rates cannot be absorbed through business activities. Currently, relationships with financial institutions are favorable and there are no issues in procuring the necessary funds, but there is no guarantee that sufficient funding will continue to be available in the future. As the interest rate environment continues to change, ongoing attention to the risk of rising financial costs is necessary.