Business and Other Risks

The following are the risks with the potential to have a significant impact on the business (business results and financial condition) of the TIS INTEC Group. All forward-looking statements in this document are based on information available to the company as of June 27, 2018.

1. Price Competition, Intensified Competition

Competition among businesses is intense in the information services industry. Competition from new entrants from other industries is progressing, and as a result, price competition may intensify. The Group is offering higher value-added services and taking other measures to differentiate itself from competitors, while raising productivity. If price competition intensifies more than expected, however, it may impact the Group's business and business results.

2. Legal Systems, Compliance

The Group conducts its various business activities in compliance with laws and regulations in and outside Japan. In conducting these activities, the Group has established a compliance structure based on the Group's Basic Direction on CSR and thoroughly complies with all laws. If the Group were to contravene the law, or a new law or regulation were introduced, it may impact the Group's business and business results.

3. Overseas Business

As part of its growth strategy, the Group is pursuing growth in overseas markets, with a focus on ASEAN. The overseas business may be impacted by various factors, including global economic and foreign exchange trends, legal regulations on investment and competition, business practices, and labor-related issues. Regarding risk management of overseas business, the Group is improving the management structure by ensuring coordination between overseas Group companies and business sites and corporate management organizations in Japan in order to maintain an accurate understanding of local conditions and consult on ways to implement rapid response measures. If an unanticipated risk emerged, however, it may impact the Group's business and business results.

4. System Development

The Group performs development and outsourced development of various client company information systems. In conducting its business, the Group uses quality management systems to continually enhance quality management and raise productivity by thoroughly screening business proposals by dedicated organizations and reviewing projects at each stage of development. At the same time, the Group strives to improve management and technological capabilities by enhancing training programs for each rank of employee. Additionally, the Group Production Innovation Committee is used to thoroughly implement quality improvement and production innovation initiatives throughout the Group. However, as system development becomes more sophisticated, complex and subject to tighter time constraints, larger-than-expected costs may be incurred for additional work to complete projects in response to changing customer requirements and other issues which make it difficult for the Group to achieve the planned level of quality or complete a project within its development schedule. Furthermore, in developing systems, parts of projects are typically outsourced to many different companies in order to ensure production capacity, raise productivity, utilize technical capabilities and for other reasons. The Group strives to secure with superior partner companies in and outside Japan. There is the possibility, however, that productivity and quality fail to meet expectations, impacting the Group's ability to achieve smooth project management. In this event, the Group's business and business results may be impacted.

5. System Operation

The Group uses large-scale IT facilities such as data centers to provide outsourcing 24 hours a day, 365 days a year, cloud services, and other services. The Group expends a large amount of capital to operate these businesses, from initial capital investments to ongoing capital investments, to ensure stable facility maintenance and operation. The Group manages the progress of business plans to ensure a return on capital. However, if the operational status of these facilities declined significantly due to a larger-than-expected decline in demand, it may negatively impact the Group's business results. Furthermore, in the system operation business, the Group continually improves operational quality based on quality management systems. However, if system problems arose due to human error or equipment malfunctions during operation, and the Group were unable to provide services at a level agreed upon with the client, the Group's business and business results may be impacted.

6. Investments

The Group makes investments in companies in and outside Japan, including venture companies, with the purpose of expanding business and acquiring new technologies, while also making software investments to develop new services. In making decisions, the Group appropriately reviews investments based on business plans. After investments are made, the Group conducts regular reviews of the progress in business plan achievement. However, in the event of unanticipated changes in the business environment, investments may not yield results as planned, and the Group's business and business results may be impacted.

7. Information Security

From system development to operation, the Group is in a position to learn of various types of confidential information in the conduct of its business, including personal information held by clients and clients' technological system information. Although the Group strives to manage information appropriately based on the TIS INTEC Group Information Security Policy, in the event that confidential information was leaked or manipulated due to a computer virus, unauthorized access, or other reason, the Group's business and business results may be impacted by claims for damages from client companies or the loss of trust.

8. Human Resources

The Group's business relies heavily on human resources and is greatly affected by its ability to secure and develop superior human resources who can offer specialized, high added value to clients. The Group strives to secure talented human resources by providing a corporate culture, human resource systems, and an office environment in which a diverse group of people can thrive. Additionally, the Group strives to develop human resources by providing support for acquiring certifications, systemizing its training program, and creating plans and targets for the number of training days. However, the Group's business and business results may be impacted in the event the Group cannot secure and develop superior human resources according to its plans.

9. Technological Innovation

In the information services industry, companies must rapidly respond to progress in information technologies and the accompanying changes in market needs. The Group continually conducts research into information technologies and production as well as development technologies, and is strengthening its ability to conduct this research. The Group's business and business results may be impacted, however, in the event it is unable to appropriately respond to rapid progress in innovation over a broad realm of technologies.

10. Intellectual Property

To execute its business, the Group applies for and acquires patents for necessary technologies and business models as well as registers various trademarks in and outside Japan. The Group continually takes precautions to ensure that it does not infringe the intellectual property rights of third parties during the execution of its business activities. The Group may, however, be subject to claims for damages in the event that it infringes the intellectual property rights of another company. In any circumstance in which the Group infringes the rights of a third party, the Group's business and business results may be impacted.

11. Natural Disasters and Accidents

The Group uses data centers and other large-scale IT facilities to perform its outsourcing business and provide cloud services. The data centers use various kinds of equipment to deal with disasters and accidents. Despite these measures, a longer-than-expected power blackout, large-scale natural disaster, international conflict, act of terrorism or major crime, or other such events that impede the smooth operation of the data centers may affect the Group's business and business results.

12. Owned Securities

The Group owns shares as a way to build long and stable relations with business partners and to promote sales activities, while also owning bonds as part of its fund operations. The Group adequately confirms the reliability of these securities by determining the issuers' financial condition, business results, credit rating and by using other indicators. In the event of significant fluctuations in stock markets, however, the Group's business and business results may be impacted from the recognition of financial losses.

Update : June 29, 2018, 11:02

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