TKC Corporation

The market for the accounting firm-related business segment may shrink due to the declining birthrate and aging population, which is leading to a shortage of successors and difficulty in hiring staff at accounting firms, as well as business closures and bankruptcies among client companies. The Group is addressing this by strengthening its organizational structure and promoting marketing innovation.

In parallel with the government-led system standardization initiative, system modifications are required in response to legal and regulatory revisions, and if sudden legal and regulatory changes continue, there is a risk of a shortage of development resources. This poses a risk of disruption to the stable provision of services in the local government-related business segment. The Group is addressing this by strengthening its internal organizational structure.

Amid an increase in recent years in damage caused by cyberattacks, the Company provides cloud services to accounting firms, mid-to-large enterprises, and local governments, and thus faces the risk of large-scale disasters or unforeseen system failures. As countermeasures, the Company is working on four initiatives: strengthening verification systems when providing programs, enhancing BCP measures, shortening recovery times, and obtaining evaluation and verification by third-party organizations; however, the risk cannot be reduced to zero.

In the course of its operations, the Group is entrusted with large volumes of corporate and personal information held by accounting firms, local governments, and other entities. In the event of an information leak, the Group could suffer a loss of social credibility, incur substantial costs, and experience a decline in brand value, potentially affecting its financial position and business results. The Group is strengthening its information protection and management system through reviewing its information management policies, providing education and training for officers and employees, implementing system-based security measures, and obtaining third-party certification.

The printing business segment procures raw paper directly from paper manufacturers, but a surge in crude oil prices or tightening supply-demand conditions in international markets could make raw material procurement difficult or cause purchase prices to rise significantly. In such cases, the Group's policy is to respond through price negotiations with customers, but if such negotiations are unsuccessful, this could affect its financial position and business results.

The data centers operated by the Company consume large amounts of electricity, exposing the Company to the risk of fluctuations in energy prices such as electricity costs. Further increases in electricity costs and other energy prices could affect business results and cash flow. The Group seeks to mitigate this risk through cost reduction via energy-saving measures, but complete avoidance is difficult.

Employee retirement benefit obligations and related expenses are recorded based on actuarial assumptions (basic rates) such as the discount rate, and changes in these basic rates are a factor that can cause fluctuations in the financial position and business results. The Group has implemented measures such as transitioning part of its retirement benefit system to a defined contribution pension plan, but the impact cannot be entirely eliminated.

The Company has applied the "Accounting Standard for Impairment of Fixed Assets" since the fiscal year ended September 2006 (Heisei 18), and a decline in the value of fixed assets may affect the financial position and business results. Under the accounting standards based on the Financial Instruments and Exchange Act, there is a risk that a decline in the profitability of owned fixed assets could be recorded as an impairment loss.

At present, there are no ongoing litigation matters that could affect the financial position or business results, but it is stated that the possibility of such litigation arising in the future cannot be ruled out entirely. Should litigation occur, there are concerns about the resulting costs and potential impact on social credibility.