Human Creation Holdings, Inc.

The core System Solution Service Business operates under a license granted by the Minister of Health, Labour and Welfare based on the Worker Dispatching Act, and there is a risk that the company could be subject to revocation of its business license or a business suspension order if it falls under grounds for disqualification or revocation. Five group companies (Asset Consulting Force, Brain Knowledge Systems, Sailing, Human Base, and Cosmopia) each hold their respective licenses, and there is a possibility that legal amendments or changes in interpretation could impose new burdens or require changes to business operations. As a countermeasure, the Administration Division works with retained legal counsel and maintains a system to continuously monitor developments in legal regulation.

Securing, developing, and retaining motivated and specialized engineers who underpin the foundation of the business is the most critical challenge, and the shortage of specialized human resources is expected to worsen over the medium to long term due to the declining working-age population from the falling birthrate and aging population, and the decreasing number of students pursuing science and engineering fields. Reputational damage on the internet, among other factors, poses a risk of adversely affecting recruiting activities, and a significant increase in the resignation of engineering staff would directly impact business performance. As countermeasures, the company is promoting improvements to its personnel system with an emphasis on results-oriented behavior, ongoing implementation of management training, and the expansion of in-house educational programs including original e-learning curricula and subsidies for study groups and workshops.

The Group actively pursues corporate acquisitions to expand its business, and there is a risk that the invested amount may not be sufficiently recovered if the expected synergies are not achieved due to the loss of the acquired company's customer base or personnel, or changes in the business environment following an acquisition. In addition, if indications of impairment arise due to a deterioration in the acquired company's business performance or other factors, and the recoverable amount falls below the book value of recorded goodwill, impairment processing will be required, which could affect business performance and financial condition. As countermeasures, the company conducts due diligence utilizing external institutions and thoroughly implements post-merger integration (PMI) through a basic integration plan (Day100 Plan) covering approximately 100 days after closing.

The Group makes investments centered on corporate acquisitions, and as of the end of the current consolidated fiscal year, the ratio of interest-bearing debt (borrowings, etc.) to consolidated total assets stood at 25.4%. If borrowings and other interest-bearing debt increase further due to future corporate acquisitions, the financial burden may expand, potentially affecting business performance and financial condition. There is also a risk that necessary fundraising may become difficult due to a deterioration in business performance and financial condition or changes in financial market conditions.

The core System Solution Service Business is highly dependent on the business trends of major manufacturing and IT-related companies that serve as dispatch destinations, and there is a risk of deteriorating performance if an economic downturn or changes in the economic environment lead to prolonged restraint in capital investment or reductions in research and development spending by client companies. In addition, the relocation of client companies' development facilities overseas or business suspension due to large-scale disasters may also affect business performance. As a countermeasure, the company is diversifying its client base to avoid concentration in specific industries and thereby spreading risk.

The System Solution Service Business operates in a highly competitive market with numerous operators, and there is a risk that transaction unit prices may stagnate due to price competition among industry peers during economic downturns. In addition, industry restructuring is anticipated in connection with amendments to the Worker Dispatching Act and related laws, which could further intensify the competitive environment. A significant increase in engineers on standby without assignments would also have a direct adverse impact on business performance.

In the course of its business, the Group is in a position to become privy to confidential information such as clients' research and development activities, and it also holds large volumes of personal information on employees, including engineers, and job applicants. If confidential information or personal information is leaked externally, lost, or misused for any reason, it could result in loss of trust and claims for damages, potentially having a significant impact on business activities, business performance, and financial condition. As countermeasures, the company is working to establish and operate information security regulations and to instill appropriate handling practices through education and training.

As dependence on information systems in business activities increases, if a serious failure occurs in the information systems due to natural disasters, accidents, computer viruses, unauthorized access, or other causes, business continuity could become difficult, potentially affecting business performance. This risk is also linked to risks arising from natural disasters and is recognized as a risk in which the suspension or malfunction of information systems and communication networks could restrict business activities. The Group states that it strives for the stable operation of its information systems.

There is a risk of unexpected disputes and litigation arising with business partners, employees, or third parties, including litigation related to intellectual property rights such as patents, and depending on the content and outcome of such litigation, business performance could be affected. The incurrence of substantial litigation-related costs and damage to brand image could also adversely affect business performance and business activities. As countermeasures, the company positions the strengthening of its compliance framework and internal control system as an important management priority, and takes preventive measures such as severing ties with antisocial forces and preventing misconduct.

The company's basic policy is to maintain consecutive dividend increases and a total return ratio of 30% or more, and it plans to pay a dividend of ¥27.00 per share (payout ratio of 28.6%, consolidated payout ratio of 21.4%) for the current fiscal year; however, there is a possibility that dividends could be reduced or suspended depending on the prioritization of important business investments or the state of cash flow. In addition, the company intends to continue utilizing stock option plans for officers and employees, and there is a risk that the exercise of stock acquisition rights could dilute the value of shares held by existing shareholders and affect share price formation. Note that the company implemented a two-for-one stock split of its common shares effective January 1, 2025.