ISB CORPORATION

The information services industry has numerous competing software development companies, raising concerns that intensified competition could deteriorate the order environment. If software development demand declines due to economic downturn or other factors, engineer utilization rates and order unit prices may fall, potentially affecting business performance and financial condition. As countermeasures, the Group is promoting productivity improvements through new development methods, curbing unprofitable projects through strengthened project management, reducing costs through offshore and domestic remote development, and advancing educational investment to strengthen human resources.

The Group's core business is contracted software development for manufacturers, including development of mobile devices and related infrastructure, which creates a structural risk whereby a decline in demand in these specific fields would directly affect business performance and financial condition. To diversify its revenue base, the Group is pursuing new customer development, leveraging Group synergies, acquiring prime contractor projects, and expanding and improving the profitability of the solutions business through promotion of the product business. Reducing dependence remains an ongoing medium- to long-term management challenge.

In contracted software development, accurately estimating development scale at the time of order acceptance can be difficult, creating a risk that changes in conditions after order acceptance may worsen project profitability. There is also a possibility that defects (bugs) or quality issues in software products and services could result in additional costs or damages claims. As countermeasures, the Group has established quality control regulations, reviews the validity of plans and cost estimates at the time of order acceptance, and regularly conducts progress and risk management during projects, working to curb the occurrence of unprofitable or low-profitability projects.

One of the Group's management strategies is to enhance technological capabilities and expand customer fields through corporate acquisitions and capital participation; however, there is no guarantee that the expected results will be achieved, and if amortization of goodwill or impairment losses occur, this could affect business performance and financial condition. At the time of decision-making, the Group conducts third-party evaluations and due diligence by external experts such as financial advisors, accountants, and lawyers, and examines risks and countermeasures in advance at Board of Directors meetings. The Group also seeks to maximize effects through post-merger integration (PMI) support from Group companies.

For the Group, whose basic strategy is differentiation through advanced technological capability, securing and developing excellent technical personnel is a top priority; failure to secure necessary personnel could make it difficult to secure order opportunities, improve productivity, and respond to technological innovation, thereby affecting business performance. The Group is working to enhance training programs and conduct planned recruitment aimed at passing on and developing technologies in wireless communications, embedded software, security products, and other areas. It is also focusing on improving engagement through promotion of work-life balance, improved treatment, and improved working environments.

As the Group holds personal information and confidential information of customers and employees, if a system failure or leakage, destruction, or falsification of information occurs due to computer virus infection, unauthorized external access, or cyberattacks, this could result in loss of trust and significant costs (such as leak prevention measures and damages), potentially affecting business performance and financial condition. The Group works to reduce these risks by establishing and periodically reviewing information security policies and personal information protection policies, introducing security equipment and services, and conducting employee training and internal audits.

If compliance issues or legal violations occur, this could affect business performance and financial condition through loss of social trust and brand image, and payment of damages. In particular, in light of improper transactions discovered at a consolidated subsidiary in FY2022 (ending December 2022), the Group is formulating and implementing recurrence prevention measures including reducing M&A risk, improving internal controls, strengthening Group governance and control systems, and thoroughly enforcing compliance education. Through the establishment, maintenance, and enhancement of systems by the Compliance Committee, the Group is working to build effective governance.

In contracted software development, there is a risk that personnel adjustments with outsourced business partners may not be made in a timely and appropriate manner. In the security systems business, shortages, delays in supply, or price increases of parts and raw materials used in manufacturing entry/exit control systems could lead to production line stoppages or reduced profit margins. While dependence on specific suppliers is unavoidable for certain part types, the Group works to minimize the impact through securing multiple suppliers, strengthening cooperation with suppliers, reducing costs, and partially passing on costs to sales prices.

If the Group is slow to respond to growing societal demands for climate change countermeasures, this could result in lost business opportunities due to reputational decline, increased response costs such as equipment conversion and rising electricity prices, and increased costs from damage to business sites caused by extreme weather, potentially affecting business performance and financial condition. The Group has set GHG emissions reduction targets, promotes activities through its Sustainability Committee, and works to reduce green purchasing, office paper use, and electricity consumption. It has also begun disclosing climate-related financial information based on the TCFD or an equivalent framework.

Natural disasters such as earthquakes and typhoons, man-made disasters such as conflicts and terrorism, and outbreaks of infectious diseases such as novel influenza could hinder the continuity of business activities. The spread of infectious diseases could bring about a global economic slowdown, potentially creating significant risks to the Group's business, such as customers curbing or postponing IT investment, scaling down existing projects, and stagnation in new sales activities. The Group works to avoid and mitigate these impacts by establishing a business continuity plan (BCP) and activating the BCP when a disaster exceeding certain criteria occurs.