Risk Factors

Risk Factors

Among the matters related to the Business Overview and Financial Information described in the Annual Securities Report, the major risks that management recognizes as having the potential to affect the financial position, results of operations, and cash flow statuses of the consolidated companies are listed below. In addition, we actively disclose matters that do not necessarily fall under the scope of business risk factors, from the viewpoint of disclosing information to investors on matters that are considered to be important for investment decisions.

The Group has established "Risk Management Regulations" for risks that affect business objectives (hereinafter, "risks"), as well as setting up a "Corporate Value Enhancement Committee (hereinafter, the "Committee") in order to maintain a system that can adequately respond to risks. The Committee conducts the identification, analysis and evaluation of concrete risks in accordance with the Risk Management Regulations, establishes policies to respond to such risks, and conducts reports to the Board of Directors on a regular basis.

Furthermore, the following matters regarding the future are based on the judgment of the Group as of June 25, 2021 and may differ significantly from the actual results that may occur in the future.

(Particularly Important Risks)

(1) Effects of the Spread of COVID-19
The Group is engaged in the General Human Resources Services Business and Other Businesses (nursing care and welfare businesses), both of which are based on people. In order to ensure the safety and health of all employees and people associated with the Group, we are reinforcing our measures to prevent the spread of COVID-19. However, in the event that individuals are affected by the virus at our clients, workplaces, or our nursing care facilities, the business performance of the Group may be affected as follows:
・ The decline in product demand caused by a decline in consumers' willingness to purchase products will impact the production of our clients
・ The disruption of supply chains stagnates the supply of parts and will impact the production of our clients
・ The occurrence of COVID-19-affected individuals at our clients will impact their production
・ As a result of COVID-19's impact on our clients, the scale of transactions with them may be reduced or transactions may be terminated altogether, and if the situation is further prolonged, the Company may face a severe and challenging business environment for the foreseeable future
・A decline in trust in facility and home nursing care, etc., will impact the business performance of Other Businesses
(2) Legal Regulations
(General Human Resources Services Business)
The manufacturing-related human resources services, which are the main services of the General Human Resources Services Business, accounted for 91.8% of net sales in the consolidated fiscal year under review. With the authorization of the Minister of Health, Labour and Welfare, manufacturing dispatching is conducted in accordance with the "Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Workings of Dispatched Workers", and paid employment placement is conducted in accordance with the Employment Security Act. In addition, in manufacturing contracting, the business is operated in accordance with "Ministry of Health, Labour and Welfare Notification No. 518 (formerly Ministry of Labour Notification No. 37)", which specifies its difference in classification with manufacturing dispatching. In addition to the above, we also operate our businesses in accordance with a wide range of laws, including the Labor Standards Act, the Industrial Safety and Health Act, the Workers' Accident Compensation Insurance Act (also referred to as the “Industrial Accident Compensation Insurance Act”), the Health Insurance Act, and the Personal Information Protection Act.

The Group regards legal compliance as the most important management issue, and strives to thoroughly comply with laws and regulations by making efforts to strengthen the education, guidance, management, and supervision structures of relevant laws and regulations, and although we recognize that there are no facts that conflict with the above laws and regulations, in the unlikely event that matters or acts of misconduct occur that violate relevant laws and regulations, there is a possibility of punishment by competent supervisory authorities and the loss of social credibility, and the business performance of the Group may be affected.

In addition, such laws and regulations are being reviewed in response to changes in the state of affairs, and in the event that such laws are revised, depending on the content of the revisions, they may affect the business performance of the Group by causing restrictions on business operations, and time required to establish structures to respond to any such revisions.
Status of Licenses・Notifications of the Group
Company name
License name
Supervisory authority
Registered License no.
Date of obtainment
Expiration date
NISSO CORPORATION Temporary Staffing Business
Employment Placement Business
MHLW*
MHLW*
派14-150048
14-ユ-150026
Oct. 2002
Aug. 2002
Dec. 31, 2021
Dec. 31, 2021
Nisso Brain Co., Ltd. Temporary Staffing Business
Employment Placement Business
MHLW*
MHLW*
派14-020001
14-ユ-020011
Jul. 1986
Aug. 2000
Jan. 31, 2024
Jul. 31, 2023
MLHW* = Ministry of Labour, Health and Welfare
With regard to the above licenses and notifications, the reasons for suspension of business, revocation of licenses, and abolition/closure of business are stipulated in Articles 14 and 21 of the Worker Dispatching Act (also referred to as the "Worker Dispatch Law") and Article 32 of the Employment Security Act. As of June 25, 2021, although there are no facts that fall under the categories of suspension of business, revocation of licenses, or abolition/closure of business affecting the Group, in the event that such facts become applicable, the business performance of the Group may be affected.
(Other Businesses)
Other Businesses, which is engaged in nursing care and welfare businesses, accounted for 4.4% of net sales in the consolidated fiscal year under review.

In order to provide nursing care services in accordance to the Long-Term Care Insurance Act (also referred to as the "Nursing Care Insurance Act"), service providers are required to receive a designation from a prefectural governor as a relevant place of business. Designated places of business must comply with the number of personnel, equipment, and operational standards of the business set forth for each service, as well as labor regulations (Labor Standards Act, etc.). In the event that such standards and labor regulations are not complied with, or if a false/fraudulent claim is made, the designation may be revoked or suspended.

Although the Group maintains various manuals, conducts training, and strives for appropriate business management by strengthening our management structure, in the unlikely event that our designation is revoked or suspended at our places of business, the business performance of the Group may be affected.
(Risks of General Human Resources Services Business)
(1) Impact of Business Climate on Client Industries
Manufacturing-related human resources services account for the majority of the Group's net sales, and when looking at the composition ratio of net sales by transaction industry, the automobiles-related industry is the highest, followed by the electronic devices-related industry. Although the Group is making efforts to ensure that there are no significant biases in business development by company, industry, etc., in the event that the business conditions of highly dependent industries become sluggish, or if companies with which we conduct large-scaled business with undergo major and rapid fluctuations, and/or if their positions toward conducting transactions with the Company change, the business performance of the Group may be affected.
Manufacturing-related Human Resources Services Net Sales Composition Ratio by Industry (Apr. 2020 ~ Mar. 2021)
Industry
Net sales
(Million yen)
Composition ratio (%)
Automobiles
27,104
43.3
Electronic devices
18,406
29.4
Precision・
Electrical machinery
7,924
12.7
Other
9,154
14.6
Total
62,590
100.0
(2) Overseas Relocation of Manufacturing Bases
In the event that manufacturing bases of domestic manufacturers, who are our clients, are relocated overseas, or if the number of production bases in Japan are reduced, and/or if domestic production volumes are reduced due to the transfer of production to overseas bases, the business performance of the Group may be affected.
(3) Intensification of Competition within the Industry
In the human resources services industry, to which the Group belongs, there have been developments of an industry reorganization against the backdrop of legal reform and labor shortages. Hereafter, competition is expected to intensify as the number of competitors with high recruitment capabilities and price competitiveness increases. The Group grasps the needs of clients, recruits human resources to meet those needs, and responds to clients accurately and promptly in order to increase client satisfaction and to differentiate ourselves from our competitors. However, in the event that there is excessive competition to win orders which results in the lowering of order prices and/or increases in recruitment costs to secure human resources, and/or if the necessary number of personnel cannot be secured and there is a decline in net sales and deterioration of profitability due to the loss of sales opportunities, the business performance of the Group may be affected.
(4) Indefinite-term Employees ("Skilled Staff")
As mentioned above, the Group is actively promoting the utilization of "skilled staff", who have increased in numbers to 5,250 staff at the end of FY 3/2020, and 5,436 staff at the end of FY 3/2021. However, in the event that contracts with clients are reduced or terminated due to sudden changes in the economic environment, although measures such as changes/transfers of workplaces will be taken, if new workplaces cannot be secured, employment maintenance costs will be incurred, and the business performance of the Group may be affected.
(5) Manufacturing Contracting
In manufacturing contracting conducted by the Group, where we undertake the manufacturing operations on the premises of factories, we assume responsibility for labor management and areas such as production volume, delivery deadlines, quality, equipment, and inventory management of client company products, and in doing so, the Company has been able to provide high value-added manufacturing services to our client companies. Through these long-standing efforts, the Group has been certified as a "Superior Manufacturing Contractor" by the Manufacturing Contracting Business Improvement Promotion Council (commissioned by the Ministry of Health, Labour and Welfare). However, since manufacturing contractors must take responsibility for the occurrence of defective products and any damages to the equipment of client companies, in the event that such matters occur, the business performance of the Group may be affected.
(6) Risks of Occupational Accidents, etc.
With the manufacturing-related human resources services, which are the main services of the Group, we carry out manufacturing dispatching and manufacturing contracting on the premises of client manufacturer factories. Manufacturing dispatching is a form of employment in which, by law, human resources are dispatched to client manufacturers, and labor management such as direction/orders and instructions of dispatched personnel is entrusted to the dispatch destination (clients). On the other hand, in manufacturing contracting, which is carried out on the premises of client manufacturer factories, we assume the responsibility for areas such as production volume, production deadlines, quality, and equipment management when using the equipment of client manufacturers, in accordance to work contracting agreements with client manufacturers.

In the manufacturing dispatching and manufacturing contracting transaction types, the entities responsible for occupational accidents suffered by employees and manufacturing staff while they are carrying out their duties are different. In the case of manufacturing dispatching, client manufacturers assume responsibility for such damages, while the Group is responsible in the case of manufacturing contracting.

Although we believe that occupational accidents will basically be resolved within the applicable scope of labor insurance, in the event that an occupational accident caused by the fault/flaw of the Group develops into a matter of legal procedure, such as the victim of such an accident demanding compensation beyond the application of labor insurance, the business performance of the Group may be affected.
(7) Handling of Information of Client Companies
Employees of the Group may come in contact with highly confidential information of our client companies related to production plans, and the development/manufacturing of new products. Regarding the handling of such confidential information, it is stated in work contracting agreements, basic dispatching contracts, etc., that client information acquired through the course of work must not be disclosed or leaked to third parties, and the Group conducts appropriate operation management, such as educating employees on the handling of client information. However, if this information is leaked due to an unexpected situation, as a result of claims for damages to the Group or a decline in social credibility, the business performance of the Group may be affected.
(8) Seasonal Changes in Business Performance
In the Group's business, net sales and profits are expected to decrease in May, August, and January of each year due to the decrease in the number of working days as a result of consecutive holidays, etc. In the event that client manufacturers set up longer consecutive holidays, etc., the profit and loss of the Group may be affected.
General Human Resources Services Net Sales Composition Ratio by Season (Apr. 2020 ~ Mar. 2021)

Apr. ~ Jun.
Jul. ~ Sep.
Oct. ~ Dec.
Jan. ~ Mar.
Total
Net sales
(Million yen)
15,839
15,675
16,713
17,021
65,250
Composition ratio
(%)
24.3
24.0
25.6
26.1
100.0
(9) Natural Disasters
Since the main workplaces of the Company's dispatched/contracted staff are at client factories nationwide, in the event that natural disasters such as large-scale earthquakes or wind and flood damages occur in such areas, or if such factories suffer damages, or if there are disruptions in supply chains due to damages at product suppliers, and production activities are suspended or restricted, the business performance of the Group may be affected. In addition, even if such disasters occur in areas other than at our client companies, in the event that the domestic economic situation deteriorates due to the occurrence of such disasters, the business performance of the Group may be affected.
(Risks of Other Businesses)
(1) Revision of the (Long-Term) Nursing Care Insurance System
Nursing care and welfare businesses (facility・home nursing care) will be affected by the nursing care insurance system because their main business is to provide services subject to the Long-Term Care Insurance Act. In this nursing care insurance system, the Long-Term Care Insurance Act and nursing care compensation are revised every 3 years, and in line with these revisions, the Municipal Insured Long-Term Care Service Plan, which is one term for 3 years, is being formulated.

Depending on the content of the revisions, the business performance of the Group may be affected by the necessity of reviewing or changing the content of our business.
(2) Securing Human Resources (Qualified Personnel)
Nursing care services provided by the Group are required to be provided by qualified personnel. Depending on the content of the services provided, these qualified personnel are required to have appropriate qualifications since personnel and equipment standards are stipulated by an ordinance of the Ministry of Health, Labour and Welfare. Although the Group is actively engaged in the acquisition and training of human resources that meet personnel standards, in the future, in the event that the securing of qualified personnel does not proceed as planned and results in vacancies, or if it becomes difficult to meet personnel standards due to the inability to secure personnel even if it becomes necessary to replenish human resources as a result of changes in standards, etc., the establishment of new facilities and the provision of services currently provided may be disrupted, and the business performance of the Group may be affected.
(3) Intensification of Competition within the Industry
Since the enforcement of the nursing care insurance system, the number of users of nursing care services has been increasing. As the aging of the population continues to progress hereafter, the nursing-care related business market is expected to expand, and non-profit corporations such as medical and social welfare corporations, as well as profit-making corporations such as joint-stock corporations, are also entering the market. Although the Group strives to improve the quality of the services we provide, differentiate ourselves from other companies, expand the number of our users, and continue the use of our services, the business performance of the Group may be affected in the event of further intensification of competition within the industry as a result of new entrants.
(4) Influence of Reputation, etc.
Nursing care and welfare businesses (facility・home nursing care) are largely dependent on the trust/confidence of users and their families. Therefore, in the event that negative rumors, etc., about the Group and facilities are incurred and spread, and market participants such as users and their families understand and recognize the Group and facilities differently from the facts, it may be difficult to acquire new users and maintain facility utilization rates, and as a result, the operation, business performance, etc., of the Group may be affected.
(5) Safety and Health Management
Since many of the Group's services are for the elderly, there is a possibility that the deterioration of customers' physical conditions, falls, etc., may lead to serious accidents. The Group is taking the utmost care and paying close attention to the safety and health management of our users, such as conducting in-house and hands-on training based on our long-term achievements, as well as implementing health checks. However, in the unlikely event that an accident, etc., occurs and the liability of the Group is questioned, the credibility of the Group may decline, as well as the Group being subject to lawsuits or other claims for damages, and the business performance of the Group, including the continuity of our business, may be affected.
(6) Natural Disasters
In the event of large-scale natural disasters such as earthquakes or tsunamis, or the spread of infectious diseases such as the new-type influenza, etc., there is a risk that nursing care staff and facilities may become inoperable. Although the Group strives to strengthen our crisis management system that places the highest priority on customer/client safety, in the event that it becomes impossible to provide services due to the occurrence of these disasters, or if the liability of the Group is questioned as a result of these disasters, the trust/confidence in the Group may decline, and the business performance of the Group may be affected.
(The Group's Overall Management)
(1) Protection of Personal Information
The Group possesses a large amount of personal information, including that of job seekers (applicants for job offer items, applicants for employment placements, etc.), and believes that this personal information and all information related to personal information are the most important assets for our business operations. In addition to complying with the Act on the Protection of Personal Information that was enforced in April 2005, the Company has acquired the "PrivacyMark", established our own Personal Information Protection Philosophy and Privacy Policy, and, in accordance with the Basic Personal Information Protection Regulations, we take heed to the strict management of personal information, including the maintenance of an internal operational structure, regular training, and thorough strengthening of information management. However, in the event of intentional or negligent leakage or unauthorized use of personal information, the Company/Group may be pursued for legal liability, including damages, which may worsen our social credibility, and the business performance of the Group may be affected.
(2) Impairment of Fixed (Non-current) Assets
Although the Group possesses fixed assets such as land and buildings, etc., for business-use and applies accounting standards for impairment of fixed assets, depending on future trends of land prices and the profitability of the business of the targeted fixed assets, the recording of impairment losses may be required, and the business performance and financial position of the Group may be affected.
(3) Litigation
At present, the Group is not in any way the subject of a claim or lawsuit seeking damages from us. Since the Group thoroughly complies with laws and regulations by providing educational opportunities, etc., as deemed necessary, we believe that the possibility of litigation and disputes are very unlikely. However, in the event of litigation or disputes related to the Group arising as a result of unforeseen circumstances, if the Group fails to respond appropriately, the occurrence of expenses due to lawsuits, damages, etc., a decline in social credibility, and a decline in the Group's brand image may result in a decrease in orders from clients and a decrease in the number of job seekers, and the business performance of the Group may be affected.
(4) Dilution of Stock Value by the Exercising of Share Acquisition Rights
The Group issues share acquisition rights through stock options to officers and employees in order to increase their motivation and morale to improve their business performance. In the event that these share acquisition rights are exercised, the Company's shares may be newly issued, and the value of the shares held by existing shareholders and the ratio of voting rights may be diluted. As of the end of May 2021, the number of potential shares through these share acquisition rights was 32,800 shares, equivalent to 0.1% of the total number of shares issued of 34,320,400 shares.
 

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