The SB Technology Group has set out its Third Medium-Term Management Plan for achieving substantial growth and the Company's operating results and financial standing could be affected by whether or not it can achieve the planned strategy. Major potential risks to realization of the Group's strategies are outlined below. The Group' s policy is to recognize such risks and to attempt to avoid any risks which are avoidable and take appropriate action should any risk materialize. The forward-looking statements in the document are based on the judgment of the Group as of the end of the fiscal year under review.
Business environment risk
In the IT services sector to which the Group belongs, technological innovation is occurring at a rapid pace due to intense competition between companies both inside and outside of Japan. Changes in the business environment could cause customers' IT investment needs to change suddenly, technological innovation could lead to significant changes to pricing standards within the sector, or the Group's current technology and knowhow could become obsolete. The Group's policy for coping with the speed of technological innovation is to equip itself with the ability to accurately meet customer needs by constantly mastering new technologies and knowhow as an organization, improving the skills of all employees, and properly attracting, retaining and developing the human resources necessary to propel business forward. The Group's failure to respond appropriately and rapidly to such technological innovations and changes in customer needs in the future could result in existing business relationships and service contracts being changed or terminated, which might affect the Group's business expansion, operating results and financial standing.
Information security risks
Due to the nature of the solutions and services the Group provides to enterprises, the Group's employees may receive personal information and confidential information held by customer enterprises. The Group also accumulates and manages large amounts of personal data through the sale of IT-related products on the Group's own e-commerce sites as well as on customer e-commerce sites which the Group is contracted to operate on behalf of customers. Any leak of customers' confidential information or personal information held by the Company could undermine confidence in the Group or lead to legal action for damages, which might affect the Group's business expansion, operating results and financial standing. Accordingly, the Group implements a range of measures including adopting countermeasures against cyberattacks, obtaining access logs, establishing a constant monitoring system to quickly detect anomalies, establishing CSIRT, a specialist team for responding to computer security incidents, ensuring compliance and security both within the Group and at subcontractors, and providing relevant training on a regular basis.
The occurrence of a disaster such as a large earthquake, an emergency that causes damage to the social infrastructure such as a power outage or transport disruption, or a novel influenza or coronavirus pandemic could affect the Group's business activities and performance.
The Group mainly provides online services to customers in the Tokyo area, and any to disruption to the digital infrastructure (power supply interruptions, interruptions to data communication lines, difficulties hiring required personnel) would make it difficult for the Group to continue providing the services.In addition, restrictions on going out in a pandemic or other disaster situation would make it difficult to provide a 24-hour 365-day monitoring service or system operation and maintenance services that involve carrying out physical tasks at customer sites. The Group formulates business continuity plans and takes steps to be able to deal with a range of emergency scenarios, including data centers incorporating uninterruptible power systems, redundant communication channels and the provision of equipment and facilities to enable employees to work from home. The Group also adopts a type of contract under which it prioritizes services based on their importance and withdraws certain services in order to continue providing others. However, in the event of such an emergency situation, service provision would inevitably have to be scaled back and this could affect the Group's business expansion, operating results and financial standing.
System development risks
The Group provides customers with system design and construction services and these services require the determination of system specifications with customers before development begins. However, the initial specifications sometimes have to be changed midway through development due to circumstances on the customer side and, in such cases, the Group may incur unexpected development costs. Moreover, the increasingly large and complex systems of recent years require sufficient testing before they are put into operation. However, if the delivery date specified by the customer is tight, testing may not be adequate and faults which were not discovered before delivery may occur once the system goes into operation and the Group may incur considerable costs to repair the defects. The Group takes steps to address such risks such as enhancing its project development system and monitoring the development progress of important projects as well as adopting new system development methodologies such as agile scrum development (development through repeated short bursts of activity). However, the occurrence of issues such as those described above despite such measures could affect the Group's business expansion, operating results and financial standing.
Software investment risks
The Group is investing in software in line with its strategic goal of expanding tools for realizing efficient system development and services which involve selling these tools to customers. The Group sufficiently validates business plans before starting software development, continues to assess business plan progress after software is completed and makes revisions to business plans where necessary. However, the ability to recoup investment is not always guaranteed and the Group may post a loss without getting the expected return on investment.
Risks related to attracting, retaining and developing talent
The Group's business relies heavily on human resources, and the Group needs to hire and retain human resources with high levels of expertise. However, competition to attract IT resources is intensifying across all industries due to the low birth rate and aging population, and calls for businesses to increase their competitiveness by using IT (DX). Under such conditions, the Group endeavors to attract and retain talent through the development of a corporate climate, personnel systems and office environment that allows the advancement of diverse human resources and also focuses on the development of human resources by supporting employees to gain qualifications and systemizing training programs. However, failure to attract and retain human resources as anticipated or the loss of human resources could affect the Group's business expansion, operating results and financial standing.
Risks related to the listing of the parent company and its subsidiaries
The Group belongs to a group headed by SoftBank Group Corp. SoftBank Corp., which is a core company of the SoftBank Group responsible for the domestic communications business, is the Company's parent company deemed to have the biggest influence over the Company, and directly held 53.3% of the Company's voting rights as of the end of the consolidated fiscal year under review, Whilst maintaining its independence, the Company takes part in the parent company's group management and makes effective use of the SoftBank Group's brand and other management resources within the SB Technology Group. However, a change in the parent company's strategy or the emergence of some kind of competitive relationship between the SB Technology Group and the parent company group in the future could affect the Group's business expansion, operating results and financial standing. Meanwhile, regarding matters which require the approval of the Company's general meeting of shareholders, the parent company has voting rights and veto rights on ordinary resolutions and significant influence including veto rights over extraordinary resolutions. However, the parent company's exercise of its voting rights may not always be consistent with the interests of the Company's other shareholders.Furthermore, the parent company's share of voting rights in the Company will not necessarily remain constant moving forward. Any major fluctuation in the parent company's ownership of the Company's shares in the future could affect the liquidity and price formation of the Company's shares, as well as the Group's business and operating results.
Dependence on specific business partners
The Group provides comprehensive services encompassing all aspects from EC site front shop sales through to back office operations (receiving and placing product orders, logistics, sales management, payment and collection). However, the Group currently depends on specific business partners for a large proportion of its sales and operating income. The Group maintains sales partnerships through the systems it provides, its unique management knowhow and contracts and plans to continue doing so in the future. However, any decision by these partner companies to bring back-office operations back in-house or change in service contractor or any major change in the settlement price may affect the Group's business expansion, operating results and financial standing.
Risks of service integration using outside services
The Group is increasingly offering "integration of services" which involves providing system monitoring, operation and maintenance to customers in addition to system design and construction services offered previously. Since such service integration involves embedding certain functions required by customers into cloud services provided by vendors, the quality (functions, information security, service continuity) of external services is important. Accordingly, the Group manages service quality and continuity from the design stage by conducting sufficient function examinations, credit examinations, continuity testing and regular onsite inspections and by building vendor relationships. However, the termination of services due to changes in vendor strategy and sudden changes to service specifications due to regular improvement of functions peculiar to cloud services could prevent the Group from providing certain services or could affect the Group's operating results and financial standing.