Business Risks
Among matters on business and accounting conditions described in the Annual Securities Report, the following is a list of major risks recognized by the management which may have a significant impact on the consolidated financial position, operating results, and cash flows. Recognizing the possibility of the occurrence of these risks, Broadleaf Group (hereinafter “the Group”) strives to prevent the occurrence of such risks as much as possible and to minimize the impact of such risks in case they materialized. The following risks are based on the judgment of the Group as of the end of the current consolidated fiscal year.
Changes in the market environment and laws and regulations
The Group’s main business is providing industry-specific applications in the automotive aftermarket industry. The Group’s results may thus be affected by the competitive environment, trends in investment in systems, and laws and regulations. The Group is working to expand its business domains. However, the entry of new competitors in the automotive aftermarket industry and revisions to automobile-related laws and regulations, including the car inspection system, could adversely affect the Group’s operating results and financial position.
Response to technological innovation
To provide competitive products and services in response to the needs of customers and the market, the Group works to gather information on new technologies and focuses on research and development under its medium-term policies on product development. The Group also endeavors to launch at the right timing new products that are expected to drive its growth.
However, failure to develop new products at the right timing, leading to delayed launches of products onto the market, chiefly due to the faster-than-expected emergence of technological innovations, alternative technologies, and competing products and changes in technology standards and technology platforms on which product development depends, could adversely affect the Group’s operating results and financial position.
Network failure
A large part of the Group’s product development and operations depend on computer systems and their networks. The Group thus takes steps to ensure their safety and takes out computer liability insurance in case of unexpected problems. However, the failure of the Group’s systems etc. to operate properly due to natural disasters, including earthquakes and fires, infection by computer viruses, system trouble caused by cyberterrorism, and failure of network infrastructure, including public lines, among other problems, could have direct adverse effects on the Group’s operations, among other significant repercussions, including degradation in the services provided by the Group, and this in turn could adversely affect the Group’s operating results and financial position.
Failure of service infrastructures provided by third parties
Some of the services provided by the Group are built on service infrastructures provided by third parties and are provided to customers. In the event the Group‘s services cannot be provided properly due to suspension of the service infrastructure caused by third parties’ problems, it may affect the Group’s operating results and financial position.
Failures in products
In the development and construction of systems in the Group’s operations, failures (malfunctions and bugs) may be found in systems after they are inspected by customers. The Group has taken steps to perfect its development processes and will endeavor to prevent failures by controlling product quality thoroughly from system development to delivery, while taking measures such as system testing. However, damage to customers resulting from the Group’s fault and products’ functions recognized as inadequate could lead to liability for damage and damage to the Group’s reputation, which in turn could adversely affect the Group’s operating results and financial position.
Leakage of confidential information and personal information and information control
The Group handles classified information, know-how, customer information, and personal information in its product development and business operations. Thus the Group endeavors to prevent the leaking of confidential information through unauthorized access to confidential information by way of networks and the taking out of data chiefly by enhancing confidential information control and employment training and making full use of software for preventing information leaks. However, there is still some possibility of information leaks resulting from unauthorized access to the Group’s computers from the outside, errors of officers and employees of the Group, and other unforeseen circumstances. Any information leakage could cause operating losses, losses from the suspension of business, and a significant adverse impact on the Group’s social credibility, which in turn could have adverse effects on the Group’s operating results and financial position, including expenses for dealing with the situation.
Protection of intellectual property and infringement of intellectual property rights
The Group develops systems and protects intellectual property, applying for trademark registration and patents, for facilitating business operations. However, the scope of intellectual property rights related to systems and software is not generally clear, and the intellectual property rights of the Group may not be protected adequately. An infringement of the Group’s intellectual property rights could have adverse effects on the Group’s business operations.
The Group has experts investigate any infringements of intellectual property rights of third parties by the Group to prevent the Group from violating any intellectual property rights. The Group has not been sued by any third parties for violating intellectual property rights or has not been notified of any lawsuits. Under the current patent system, however, there are limits to investigations, and it is difficult to maintain strict investigations. If any third parties that are not recognized by the Group have already obtained, or will obtain, intellectual property rights to technologies and know-how, etc. that the Group uses in its business operations, they could file for suspension of the use of technologies etc. or for damages or could demand royalties on the intellectual property rights, which in turn could adversely affect the Group’s operating results and financial position.
Acquisition and cultivation of human resources
The Group believes that it needs to secure highly skilled engineers and sales staff that will provide consulting for customers in order to expand its business domains. The Group thus acquires excellent human resources through recruiting activities and actively provides education to help employees improve their skills.
However, failure to acquire and cultivate appropriate human resources as planned and an outflow of human resources from the Group to the outside against a backdrop of the high mobility of human resources and the high pace of technological innovation in the information and communications industry could adversely affect the Group’s operating results and financial position.
Litigation risk
In the execution of business, the Group works to comply with applicable laws and regulations and to have its employees understand and pursue compliance. However, there is a possibility of lawsuits being filed against the Group in Japan and overseas, and lawsuits could have an adverse impact on the Group’s operating results and financial position.
Overseas operations
The Group is running business in China and the Philippines. Failure to deal with problems and risks in those regions, including unexpected economic fluctuations, the status of development of information infrastructure, lack of protection of intellectual property, uncertain international affairs, and changes in laws and regulations and the tax system, could adversely affect the Group’s operating results and financial position.
Acquisitions
In order to expand business and improve profitability in the future, the Group may make acquisitions of companies, establish subsidiaries, develop joint ventures, or invest in businesses aimed at alliances in Japan and overseas. The Group conducts investments and loans based on a thorough assessment of the risks and recoverability of investments and loans. However, it may be difficult to predict with certainty the impact of the status of the investee's businesses on the Group. If the investee's businesses do not progress as planned or if the Group is unable to efficiently utilize management resources, the Group's business performance and financial position may be affected.
The Group will continue to maximize synergies to enhance the corporate value of the Group as a whole. However, if the value of assets declines due to a decline in profitability or a decline in market value as the Group's business development fails to proceed as planned, the Group's business performance and financial position may be adversely affected by impairment losses or losses on sales.
Business Continuity
The Group operates mainly in Japan and has overseas operations in China and Southeast Asia. Therefore, the Group is exposed to various risks, such as natural disasters (e.g. earthquakes, typhoons, floods), political and economic instability, and spread of new viruses. As a countermeasure for these risks, the Group conducts preventive measures and develops an emergency countermeasure system. However, if the risk exceeds their assumptions, the Group's business performance and financial position may be adversely affected.