ITFOR Inc.

The business environment surrounding regional banks and regional department stores, which are the Group's major customers, continues to be a cause for concern due to factors such as the decline in the working population resulting from the declining birthrate, aging population and population decrease, the slowdown in personal consumption caused by rising prices, and the impact of the normalization of monetary policy. If the challenging business environment continues, it could significantly affect customers' IT investment plans, which could in turn affect the Group's business performance. The Group continues its efforts to contribute to customers' profitability by providing solutions that lead to operational efficiency and business expansion.

While the Group is promoting the expansion of adoption of the "iRITSpay Payment Terminal," its strategic multi-payment terminal product, there is a possibility that business expansion may not progress as planned due to deterioration in the business conditions of merchant partners, trends in the semiconductor market, intensifying competition, and other factors. While the progress of cashless payments represents a business opportunity, it also carries the risk that intensifying competition could squeeze profitability. The Group positions the cashless payment business as a strategic growth area, and its progress directly affects business performance.

Competition with existing major computer manufacturers and specialized system integrators is becoming more intense, and downward pressure on unit prices is also increasing along with the decline in prices of information and communication equipment. If competition among companies intensifies further and the trend of declining sales prices continues, the Group's business performance could be affected. The Group seeks to differentiate itself by providing proprietary solutions and total services specialized for the financial, distribution, and retail industries.

Just under 40% of the Group's merchandise purchases are imports (mainly denominated in U.S. dollars), and a sustained significant depreciation of the yen would be a factor increasing costs. The Group seeks to mitigate this risk by conducting forward foreign exchange contracts within the range of foreign-currency-denominated accounts payable and order volume; however, it is not possible to eliminate all risks, including indirect effects, and business performance could be affected by fluctuations in foreign exchange rates. As all counterparties are highly creditworthy domestic banks, the Group judges that credit risk is minimal.

The lifecycle of information and communication equipment is tending to shorten year by year, and if the Group falls behind in technological progress or makes mistakes in product strategy, its business performance could be affected. The Group aims to sell new products utilizing new technologies such as AI and blockchain, but if technology development does not progress sufficiently and competitors gain an advantage, this could also affect business performance. In addition, for proprietary systems that have not been patented, there is a risk of the emergence of similar or competing products.

The Group provides package system development, manufacturing, and maintenance services, and if quality-related problems occur, the Group's business performance could be affected by additional costs incurred in responding to such problems or by damages compensation. The Group has obtained ISO9001 (2015 edition) and ISO27001 (2013 edition) certifications, and works to ensure thorough quality control through the establishment of quality manuals and quality objectives. In inventory management as well, the Group strives to optimize inventory levels by disposing of inventory items that have been held for two years or longer.

The Group has opportunities to handle important information, including customers' personal information, and if an incident were to occur in which important information were leaked, it could seriously affect the continuity of the business. The Group has obtained Privacy Mark certification, introduced company-wide access control systems and PC operation log visualization tools, and established a management structure in which each division head serves as the information management officer. A multi-layered security management structure has been built through the assignment of information management personnel to each department.

If a disaster such as a major earthquake occurs that exceeds the scope anticipated by the disaster prevention management system, unforeseen circumstances such as power outages or communication line failures could affect the conduct of business operations. The Group has established data centers at two locations, Tokyo and Osaka, and has implemented measures such as BCP development, introduction of a safety confirmation system, earthquake-resistance measures, and disaster prevention drills. However, a complete response may be difficult in the event of a large-scale disaster that exceeds these assumptions.

In the information services business to which the Group belongs, shipments and delivery deadlines tend to be concentrated in March, and in the fiscal year under review, this concentration in the fourth quarter was pronounced, with net sales of ¥8,021,578 thousand out of total net sales of ¥23,101,002 thousand (a composition ratio of 34.7%), and operating profit of ¥1,731,248 thousand out of total operating profit of ¥3,858,688 thousand (a composition ratio of 44.9%) concentrated in the fourth quarter. The tendency for third-quarter sales to shift into the fourth quarter also continues, resulting in significant quarter-to-quarter fluctuations in business performance. The Group is working to level out performance through an increase in orders divided by process stage, but seasonal fluctuation risk still remains.

While the Group's policy is to actively pursue M&A and business alliances, the Group's business performance could be affected if the initially anticipated synergy effects fail to materialize, if the business performance of alliance or investee companies deteriorates, or if problems arise in the business or financial aspects of an M&A transaction. With the aim of expanding and stabilizing the Group's businesses, the Group plans to continue actively pursuing business alliances and similar initiatives going forward, and the selection and management of such transactions has become an important management issue.