Risk Factors

SMS's Mission is “to improve people's quality of life by providing information infrastructure for an aging society.” The markets for medical care, elderly/disability care, healthcare, and senior life, which are our business domains, are growing every year. The volume of information on these business domains in an aging society is increasing rapidly, and that information is becoming diverse and complex. We need to address these changes in a timely and appropriate manner to realize our Mission and increase our corporate value over the long term. In light of this environment, we consider all uncertainties that may hinder the realization of our Mission to be risks. We will sustain our growth and realize our Mission by controlling the negative impact derived from these risks as much as we can.

The Executive Committee, an advisory body to the Representative Director and President (CEO), determine the risk management policy and system for the entire SMS Group as well as priority measures to be taken and periodically confirm the progress. The department responsible for risk management oversees all the risk responses across the organization in the Group and implements specific measures with related departments.

As of the end of March 2024, our management recognized the following risks that may negatively impact the Group's financial position, business performance, and cash flows. Among these risks, those with a particularly large impact on management and a significant impact on the continuation of corporate activities or the sustainable growth of the company are listed as "1. Significant risks," and the risks other than these are listed as "2. Other risks."

The forward-looking statements are based on information available to us as of the end of March 2024 and certain assumptions we consider reasonable.

1. Significant risks

(1) Market environment

Risks

We operate businesses in the rapidly changing fields of medical care, elderly/disability care, healthcare, and senior life. If we fail to recognize the changes in the market environment or address the changes appropriately and timely, our business activities may be adversely affected. For instance, in the Career Business, we provide job placement services for certified professionals such as care managers and nurses. The demand for hiring these occupations by business operators may decline due to amendment of laws and relaxation of regulations that require business operators to employ a certain number of certified personnel. Regulation tightening on commissions and refunds, such as amendments to the Employment Security Act, may inhibit free competition, decreasing the amount of commissions we receive. In the Elderly/Disability Care Operators Business, the business environment for us and our client elderly care operators may change significantly depending on amendments to the Long-Term Care Insurance Act.

If these changes in the business environment become apparent, or if we are unable to address them in a timely and appropriate manner, there is a possibility that our business activities may be adversely affected.

Countermeasures

We formulate and implement our management and business strategies by closely monitoring changes and new events in the surrounding market environment. Simultaneously, we adapt to trends in related laws and regulations, including the Medical Care Act, the Long-Term Care Insurance Act, and the Employment Security Act, in close collaboration with relevant ministries such as the Ministry of Health, Labour and Welfare and industry organizations, and reflect them in our management and business strategies in a timely and appropriate manner.

(2) Natural disasters

Risks

In a natural disaster, an epidemic, or other emergencies that damage our employees and assets or significantly change social circumstances, it may become difficult to provide all or part of our services for a certain period, adversely affecting our business activities. In addition, the occurrence of a large-scale natural disaster could have a secondary impact, such as the interruption of our client’s business activities, which may adversely affect our business performance.

Countermeasures

We have established a basic policy for business continuity plans (BCPs) for natural disasters, epidemics, and other contingencies from the three perspectives of employee safety, business continuity, and social responsibility, and strive to ensure our business continuity as much as possible even during an emergency.

(3) Business development and M&A

Risks

To realize our Mission and increase our corporate value over the long term, we are developing and cultivating new businesses and expanding existing businesses through M&A and business alliances with other companies, in addition to organic growth by developing new businesses on our own. Launching a new business may require a certain amount of upfront investment or involve risks due to factors specific to the business. In addition, M&A and business alliances with other companies may not produce the expected effects and fail to achieve their strategic objectives, or unknown liabilities or compliance issues may be identified after an acquisition. There is also a risk of impairment loss if the profitability of a company acquired through an M&A transaction declines significantly from the initial plan due to economic recession or sharp fluctuations in FX rates.

In such a case, we may not be able to develop and nurture new businesses or expand existing businesses as strategically intended, adversely affecting our business activities and performance.

Countermeasures

When we develop new businesses, conduct M&As, and form business alliances with other companies, we carefully consider whether these actions will contribute to the realization of our Mission and the long-term enhancement of our corporate value. In considering M&As, we analyze the corporate value, future profitability, and risks of the target company through due diligence by external experts as necessary. We continuously monitor both new businesses and companies that have come under the SMS Group's umbrella through M&A, similar to existing businesses. In the event of deviations from the initial business plan, we promptly endeavor to analyze the cause and implement measures.

(4) Human resources and organization

Risks

The market related to an aging society, which is our business domain, is expected to expand continuously and create enormous business opportunities for us. In order to realize our Mission, it is necessary for us to timely find such opportunities and continue to create a large number of diverse services. Therefore, it is extremely important to hire and train human resources who can accommodate the demands of society seriously and respond to changes proactively. In the Career Business in Japan, which is our core business, we need many career partners who serve as intermediaries between medical/elderly care operators and job seekers to communicate appropriate information. However, we may not be able to recruit, train, and retain the necessary number of diverse and capable human resources for a variety of reasons, including a decrease in the working population due to the low birth rate and aging in Japan, an increase in demand for human resources due to the expansion of business regions globally, changes in and advancement of required skills, and a lack of competitive working conditions.

In such a case, we may not secure sufficient personnel to carry out our business, adversely affecting our business activities.

Countermeasures

We believe that it is important to continuously provide growth opportunities to our employees in line with our sustainable growth in order to improve our recruitment capabilities in the recruitment market, where competition for human resources is getting fierce, and retain human resources. We are also developing a competitive compensation system in the recruitment market, a performance appraisal system that appropriately evaluates employees' abilities, an educational system to improve their abilities, and attractive career paths.

(5) Information security

Risks

We handle customer information, including personal information and other confidential information, in the process of operating each of our services. Such information may be leaked, destroyed, or altered due to the intentional or negligent actions of our and subcontractors' employees or related parties, malicious attacks by third parties, or other unexpected events.

In such a case, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

To prevent the leakage, destruction, and falsification of customer information that we deal with, we conduct company-wide monitoring of information security, respond to incidents, and consider and implement drastic measures at regular meetings under the information security management system led by the management.

• Establishment of information security management system

  In addition to assigning a person in charge of information security management, we systematically identify information security risks for the entire SMS Group at regular management-level meetings and promptly implement necessary measures.

• Introduction of information security technology

  We strive to implement information security measures to prevent unauthorized access, leakage, falsification, loss, destruction, or interference with the use of our information assets.

• Development of internal regulations

  We have established internal regulations regarding information security, and have a clear policy regarding the appropriate handling of all information assets, including personal information. We also ensure that all employees are fully aware of the policy.

• Continuous improvement

  To ensure that we comply with laws and internal regulations in business operations, internal audits are conducted regularly or whenever there is a significant change. In addition, we continuously improve our information security measures by reviewing our internal regulations.

• Education for employees

  We regularly conduct education and training on information security, such as personal information protection, for all employees, including contract employees, part-time employees, and temporary employees, as well as subcontractors, to raise their awareness and literacy.

(6) System failure

Risks

Many of our services are provided through websites and IT systems offered by ourselves or our business partners. All or part of our services may be suspended or their quality may deteriorate if the website or IT system is unable to operate normally due to a communication network failure, malfunction, or system failure caused by a natural disaster or accident; an operational error by employees or related parties or our business partners; or destruction or falsification caused by a computer virus or unauthorized access by a third party.

In such a case, in addition to making it difficult to provide all or part of our services, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

The IT infrastructure for our business is designed to be highly available and fault-tolerant to secure service reliability and transaction security. For services that handle important data, we take measures, such as using cloud computing, to provide services even in the event of an emergency, following sufficient security measures. In addition, we continue to strengthen our systems by hiring personnel with extensive experience in system development and system operation and by proactively providing system-related training to our employees.

(7) License

Risks

To carry out the recruiting agent business, which is our main business, a license for fee-charging employment placement is required, and we have been licensed by the Minister of Health, Labour and Welfare as a fee-charging employment placement business provider. If the relevant license is revoked or the business is suspended for some reason, it may become difficult for us to carry out our recruiting agent business, which may adversely affect our business activities.

The reasons for revocation of the license and suspension of business are stipulated in Article 32-9 of the Employment Security Act. To the best of our knowledge, as of March 31, 2022, we are not subject to any of these reasons. Our license information is as follows:

Countermeasures

We work closely with the Ministry of Health, Labor and Welfare, other government agencies, and industry organization to keep abreast of amendments to the Employment Security Act and other business-related laws. We are also making continuous efforts to strengthen our compliance system. For example, we have established rules and guidelines to comply with the Employment Security Act and conduct training to ensure that all officers and employees are familiar with them.

2. Other risks

(1) Technological innovation

Risks

We provide various information-based services to professionals, business operators, and end users, and the software, systems, and security-related technologies that support these services are extremely important to our business operations. The pace of technological innovation in recent years has been remarkably fast, and to maintain and enhance our competitiveness, we need to invest in and introduce technologies timely and appropriately while keeping an eye on future changes in technologies. There is a possibility that we may not be able to grasp trends in technological innovation accurately, and our technologies may become obsolete due to rapid changes in the technological environment caused by the unexpected spread of new technologies.

In such a case, our business may be adversely affected.

Countermeasures

We continuously invest in new software, systems, security-related technologies, as appropriate, to ensure that our technologies do not become obsolete. For example, we are developing a system to introduce cutting-edge technologies, such as big data analysis obtained through our business activities and AI. We are working to continuously improve our technologies and to introduce these technologies into our business.

(2) Competition

Risks

We define our business domains in an aging society as Medical Care, Elderly/Disability Care, Healthcare, and Senior Life. These markets are expanding year by year, creating enormous business opportunities for us.

However, if the number of new entrants to such attractive markets increases and the competitive environment intensifies, our business may be adversely affected.

Countermeasures

We have established an overwhelming position in the market related to an aging society. Especially in the Career Business, we have created the market as a pioneer and have built a substantial customer base of professionals and business operators, thereby achieving a high market share. We can achieve a sufficient competitive advantage over our competitors by identifying the entire aging society as our business domain and leveraging our substantial customer base across the services.

(3) Country risk

Risks

We provide services in many countries and regions, especially in APAC, where the needs for medical care and healthcare are rapidly expanding due to population growth and economic development. In such overseas business operations, there may be events that are difficult to anticipate due to factors unique to each country such as differences in the politics, economy, society, laws/regulations, taxation system, culture, business practices, and natural environment, in addition to global economic trends.

Failure to respond to these events in a timely and appropriate manner may adversely affect our business activities.

Countermeasures

We have established an overseas head office in Singapore and dispatch management and administrative personnel from the Japan headquarters to the Singapore office. We also assign such personnel to each overseas office under the control of the Singapore office, thereby realizing a system for appropriate cooperation among the Japan headquarters, the Singapore office, and other local offices. Through this system, we collect information on the differences in politics, economy, society, laws/regulations, taxation systems, culture, business practices, and natural environment unique to each country, in addition to global economic trends, and implement necessary measures.

(4) Dissemination of information

Risks

We provide a wide range of information in medical care, elderly/disability care, healthcare, and senior life through the Internet and other media.

In the event of social criticism regarding the legality, accuracy, or appropriateness of such information, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

In disseminating various information, we have established a system to carefully check the legality, accuracy, and appropriateness of such information both internally and externally, including advice from our legal counsel and supervision by experts.

(5) Laws and regulations

Risks

We operate in a wide range of business fields in Japan and overseas, and must comply with the laws and regulations of each country/region. Due to the rapid expansion of our business in the future, we may not be able to build an appropriate compliance system, which may result in violations of laws and delays in responding to new laws, law amendments, and changes in interpretation by the authorities, and loss of business opportunities caused by such violations and delays.

In such a case, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

We are making continuous efforts to strengthen our compliance system to comply with the social norms, laws, and regulations of each country where we operate. We have established rules and guidelines necessary for compliance, and conduct training to ensure that all officers and employees are familiar with them. These rules, guidelines, and training include content regarding compliance with laws and regulations closely related to our business, such as the Act on the Protection of Personal Information and the Employment Security Act, the blocking of relationships with antisocial forces, and the prevention of corporate fraud.

(6) Litigation

Risks

If in the course of our business activities, litigation or other legal proceeding is brought against us regarding deficiencies in the services that we provided, labor-management of employees, leakage of personal information, infringement of intellectual property, and a judgment or decision unfavorable to us is made, our social credibility may be damaged, or we may be obligated to pay a large amount of compensation. In such a case, our business may be adversely affected.

As of the end of March 2022, no litigation has been filed that would significantly impact our business activities of performance, and we are not aware of any possibilities of such litigation.

Countermeasures

We are working to strengthen our compliance system to ensure that our business is conducted appropriately in compliance with social requirements, laws/regulations, and other various rules so that we will not be involved in unreasonable disputes. In preparation for the unlikely event that litigation is filed, we have established a system to ensure prompt and reliable reporting on the filing and status of important litigation on a global basis. At the same time, we have built a system to respond to litigation and other legal proceedings in cooperation with personnel of our subsidiaries and law firms in each country.