Risk Factors

The following are the main risks that management recognizes may significantly affect the financial position, operating results and cash flow of our consolidated companies among the business and accounting matters in the securities report.

Our Group determined the matters relating to the future in this text at the end of March 2021.

Our Group is involved in the personnel dispatching and placement businesses mainly in the construction industry. Accordingly, our business performance is affected by construction investment trends in Japan from both public and private demand. If construction investment trends fluctuate significantly such as due to a substantial reduction in public works projects or a decline in private works projects because of economic fluctuations or worsening economic conditions, it may affect orders. The same is also true if there are structural changes to demand for the personnel dispatching business in the construction industry due to an impact of some sort. As a result, that may affect our Group’s business results and financial position.

Our Group is looking to optimize our business portfolio. We are building our portfolio under this goal. We are expanding business using our wealth of experience in the construction industry. This includes personnel dispatching and placement for the plant industry and machine design engineer dispatching through a subsidiary we have newly acquired as expansion into new fields outside of the construction industry in addition to our business as the best partner of the Japanese construction industry. Together with this, we are diversifying risk so that we do not concentrate on dispatching to specific companies and regions. Nevertheless, we recognize that we cannot completely eliminate such risks with our risk management measures. Therefore, they may materialize with a level of impact according to when they materialize and their size if there are sudden changes in the market.

The construction industry serves as our main dispatch destinations. It is possible that a construction company, our business partner, may suspend operation of its work sites over a long period of time or may reduce its construction work to prevent the spread of COVID-19. It is also possible that economic activities may stagnate for a long time and the business situation of our business partners may worsen if the spread of COVID-19 continues. If these events occur, it may affect the orders we receive. We hope that COVID-19 will be controlled with the spread of vaccinations in the future. However, if there is a serious impact from the prevalence of mutant strains, it may delay our business expansion. That may have an impact on our business results and financial position.

Our Group bills our business partners under monthly contracts for each dispatched engineer. Accordingly, we bill them appropriately even if they request the temporary closure of their sites. The skills of our dispatched engineers are required at each work site. Accordingly, we are negotiating with our business partners to ensure the continuation of dispatch contracts even after sites are reopened to reduce these risks.

Meanwhile, our Group has formulated our own COVID-19 prevention guidelines. These include our own Manual for Dealing with COVID-19 and Travel and Business Trip Guidelines for Officers and Employees . Under these guidelines, we are proactively taking measures to lead to infection control (e.g., temperature measurement before reporting to work, distribution of masks to all employees, thorough handwashing, gargling and hand disinfectant, and telecommuting and staggered working hours). Through these measures, we are striving to prevent the spread of COVID-19. Nevertheless, although we are working to reduce these risks, we recognize that we cannot mitigate and avoid them just with our own risk management measures. If these risks materialize, they may have an impact according to the frequency with which they materialize and their size. However, it is difficult to definitively predict their level of impact.

COVID-19 has led to the rapid digitalization of society. It has also caused people to seek a fundamental change in the way of society. For example, this has occurred to the extent that it must now be possible to continue working, studying and living while maintaining a social distance. We have also been affected by telecommuting requests, limitations on travel between regions and restrictions on face-to-face sales. However, we are working on a structure that takes into consideration safety in terms of the health of our employees. We have formulated the Telecommuting Manual . With that, we are practicing operations that support information systems and telecommuting work. Together with this, we are introducing staggered working hours and providing customer and dispatched engineer support over the Internet. We will continue to further develop our current ICT environment and to respond to changes in the social structure and to promote changes in behavior in the future. In this way, we will continue to strengthen and expand our business (e.g., by steadily increasing personnel and then developing them).

Other companies in our field of the personnel dispatching and placement businesses are making moves to strengthen sales and to increase their size through acquisitions and mergers. Our Group has also been aiming to increase our market share of existing customers, to cultivate new customers, and to proactively expand our business by acquiring and merging with companies in this industry. However, intensifying competition may lead to business not proceeding as we expect and to an impact on dispatching fees. As a result, that may affect our business results and financial position.

Our Group closely monitors trends in other companies to grasp at an early stage the risk of such events manifesting. However, we recognize that we cannot mitigate and eliminate such risks alone. Therefore, it is difficult to definitively predict when such risks might manifest and their level of impact.

Getting human resources who can become technical employees with high added value is the driving force for Group growth, and securing human resources, such as our ability to recruit, is a strength of the Group. In order to secure technical employees with high added value, we are not only actively recruiting experienced construction industry technicians, mechanical design engineers, and IT engineers, but we are also targeting inexperienced people through paid media.

In recent years, the supply-and-demand situation in Japan has been tight for construction management technicians, and mechanical design and IT engineers. While the supply-and-demand situation for labor, especially those with experience, has become tighter, the Group has been actively investing in recruiting costs to meet the booming demand for human resources, such as the number of jobs posting requests from clients exceeding 3,000 per month, and we are working to further strengthen our recruitment strategy.

However, depending on future trends in the technical employee recruitment market, there is also the possibility that it will become difficult to secure human resources and that recruiting costs may increase, which may impact the operating results and financial position of the Group. By closely monitoring trends in the technical employee recruitment market, we are striving to ascertain at an early stage the risk of such a thing happening, but since such risks cannot be completely eliminated by the Group's risk management measures, in the event of a sudden change in the market, etc., we recognize that risks may materialize with a degree of impact depending on the timing and scale.

Our Group’s policy is to expand business overseas in the fields of engineer dispatch and placement in the future. We are expanding overseas upon taking measures to minimize business risks. However, changes in the political and economic condition, revisions to laws and regulations, and currency exchange risks in the regions where we expand may affect our business expansion. As a result, that may affect our Group’s business results and financial position.

We established a local subsidiary in Singapore in April 2020 and a local subsidiary in Vietnam in April 2021. We will proactively build business in ASEAN (Southeast Asia) in the future to develop personnel and to realize personnel dispatching and placement businesses there. However, the spread of COVID-19, the emergence of unfavorable political factors, the outbreak of terrorism and conflicts, and unexpected changes to laws and regulations may delay our business expansion.

*COPRO GLOBALS PTE. LTD. (local subsidiary in Singapore) dissolved on February, 2024.

Kosuke Kiyokawa, our founder and president, has been the chief executive officer since our foundation. He holds our shares both directly and indirectly through an asset management company. The CEO has a wealth of experience and knowledge about personnel dispatching and placement for the construction industry. Accordingly, he plays an extremely important role in determining and executing management policies and business strategies.

Our Group has established a management structure that does not excessively rely on the CEO. Officers and executive managers share information in Board of Directors’ meetings and group management meetings. We have also strengthened our management organization. Nevertheless, if it becomes difficult for Kosuke to continue our operations for some reason, it may affect determination and execution of management policies and business strategies. As a result, that may affect our Group’s business results and financial position.

Our Group operates business under a governance structure that does not rely on specific persons – including the Board of Directors. Accordingly, we do not see any problems that should be noted in our current structure. Therefore, we believe it is unlikely that such risks will manifest.

Our Group’s policy is to promote acquisitions and mergers, the establishment of new companies, and business partnerships. The aim of this is to expand our personnel businesses and peripheral businesses and to cultivate new business fields in the future. We conduct full preliminary investigations and examinations on these measures. Nevertheless, if a business deviates significantly from our initially envisioned profit plan, goodwill impairment losses may affect our Group’s business results and financial position.

Our Group employs approximately 2,000 dispatched engineers. We also recruit a large number of dispatched engineers every year. Therefore, we are working to secure the quality of personnel at recruitment, to enhance management of dispatched engineers including labor management with an emphasis on compliance, to strengthen our education and training structure, and to improve employee satisfaction.

Nevertheless, disputes may arise with dispatched engineers about occupational health and safety and employment relations. These may impact our business activities. As a result, that may affect our Group’s business results and financial position.

If an engineer our Group has dispatched suffers an injury, illness, disability or death while working at or commuting to a dispatch destination, our Group is obliged to provide accident compensation as the employer. Our Group attempts to grasp risks in the working environment of dispatch destinations in advance by conducting periodic interviews with our dispatched engineers. However, if an occupational accident occurs, it may affect our Group’s business results and financial position.

Our Group strives to operate business that does not result in conflicts or occupational accidents among dispatched engineers. We do this by establishing an internal control structure while thoroughly complying with laws and regulations. Accordingly, we believe it is unlikely that such risks will manifest.

The Group is continuously working to improve the working environment by appropriately managing working hours and curtailing overtime work, but in the event of a significant loss of trust in the Group due to such things as absences from work, human resources leaving, and serious accidents caused by long working hours or overwork, it may affect the business activities, operating results and financial condition of the Group.

In addition, in the construction industry, to which the Group's major clients belong, the application of the upper limit on overtime work has been postponed or exempted until March 2024. However, since there will be no postponement or exemption after April 2024, and the upper limit will be applied, if regulations regarding overtime work and holidays are strengthened, it may impact our business activities. As a result, the operating results and financial condition of the Group may be affected.

In addition to thorough compliance with laws and regulations, by establishing an internal control system that includes such things as promoting a project to reduce long working hours, and monitoring working conditions by lending IT devices to employees, we are striving for business operations where we do not provoke such things as absences from work, human resources leaving, and serious accidents due to long working hours or overwork. We recognize that the possibility is low for such risks to materialize.

Recent trends in labor administration have strengthened guidance and supervision with regard to long working hours, and companies are required to pay close attention to labor management and safety considerations for their employees. As a company that dispatches temporary staff, to ensure that the technical employees that our Group dispatches do not work overtime beyond the scope of the Article 36 Agreement, we are striving to take measures that we deem necessary in a timely manner, such as giving notices asking for step-by-step improvement at the companies where staff are dispatched to depending on the accumulated overtime hours of each dispatched technical employee. However, if the labor management and safety consideration efforts of the Group, which is the one doing the dispatching, are not sufficiently reflected at the companies where staff are dispatched, it may impact our business activities, operating results, and financial condition.

By thoroughly complying with laws and regulations and establishing an internal control system, the Group strives to operate its business in such a way that the efforts for labor management and safety considerations of the Group, which is the one doing the dispatching, are nothing but fully reflected at the companies where staff are dispatched to. We recognize that the possibility is low for such risks to materialize.

In addition, depending on the future strengthening of regulations, and the trend in applying such laws as the Labor Standards Law, the operating results and financial condition of the Group may be affected by factors such as a decrease in sales due to the cancellation of contracts, the occurrence of labor problems, an increase in costs due to the obligatory use of paid leave, and the application of upper limits on overtime work in the construction industry from April 2024.

Regarding risks arising from external factors like changes in legal regulations such as the Labor Standards Law, the Group’s policy is to quickly identify risks that may materialize and develop measures for them by monitoring trends such as amendments to relevant laws and regulations.

However, the Group recognizes that it is difficult to estimate the degree of impact in advance, as it is not possible for the Group to control such things as the details and timing of the risks posed by such external factors.

Our Group’s dispatched employees may learn the confidential information of our customers in operations. We also handle the personal information of dispatched engineers (e.g., their names, addresses and telephone numbers) in the dispatching business. To that end, we are ensuring the appropriate handling of information and information equipment. We are achieving this by establishing and operating various information security regulations. We also acquire privacy marks and educate and train our officers and employees.

Our Group has strengthened network security and are taking measures against data loss and leakage in our information systems.

If confidential information or personal information our Group possesses is leaked externally despite taking the above measures, claims for damages may affect our business results and financial position. Data loss or leakage in our Group’s information systems may also interfere with the operation of our business.

Our Group strives to appropriately operate our personal information structure. Accordingly, we believe it is unlikely that such risks will manifest.

Our Group thoroughly complies with laws and ordinances by establishing education opportunities for employees as necessary. We are also reducing the risk of lawsuits in the relations with our business partners. Nevertheless, if a lawsuit or dispute arises relating to us due to unforeseen circumstances, the costs we will incur and the loss in our social trust due to such a lawsuit and compensation for damages may affect our Group’s business results and financial position.

Our Group strives to operate business that does not result in lawsuits or disputes. We do this by establishing an internal control structure while thoroughly complying with laws and ordinances. Nevertheless, our Group cannot control the content and timing at which such risks caused by external factors manifest. Therefore, we recognize that it is difficult to predict their level of impact in advance.

Our Group has sales bases across Japan. Accordingly, we will respond promptly and accurately if a natural disaster (e.g., earthquake, tsunami or typhoon) strikes. However, if an unexpected large-scale disaster strikes, it may be difficult for us to operate certain businesses. We also have a large number of engineers and customer bases due to the nature of our personnel business. This means we assume it will take an enormous workload to confirm the safety of our dispatched engineers and to adjust contract details. Therefore, that may affect our business operation, business results and financial position.

Our Group is working to reduce these risks. However, we cannot mitigate and avoid them just with our own risk management measures. If these risks manifest, they may have an impact according to the frequency with which they materialize and their size. However, we recognize that it is difficult to definitively predict their level of impact.

Our Group conducts business with the permission of the Minister of Health, Labour and Welfare as a worker dispatching and charged employment dispatching businesses operator. We give below the licenses we have obtained and the notifications we have submitted. This is current as of the date on which our Group submitted this document.

Article 14 of the Worker Dispatch Law and Article 32 of the Employment Security Act stipulate the grounds for the suspension of business, the revocation of licenses and the abolition of business for the above permissions and notifications. Our Group is working to prevent violations of laws and ordinances. Accordingly, the grounds to revoke our business licenses or to suspend our business have not arisen as of the date on which we submitted this document. Nevertheless, if our businesses licenses are revoked or our business is suspended for some reason, it may interfere with our Group’s business activities. That may also affect our business results and financial position. The reasons for this occurring include our dispatched engineers performing construction operations that correspond to exempt operations, something prohibited by the Worker Dispatch Law, at the instruction of client companies.

Our Group strives to operate business that does not result in grounds to suspend our business, revoke our licenses or to abolish our business. We are achieving this by establishing an internal control structure while thoroughly complying with laws and ordinances. Accordingly, we believe it is unlikely that such risks will manifest.

On the other hand, the construction industry, to which the Group's major customers belong, continues to face structural problems such as the aging of technicians and a shortage of young technical employees. In the event that there is an increase in the shift to permanent employment of dispatched technical employees, or a reduction in dispatching contracts by customers of the Group, or an increase in switching to direct employment contracts, and it happens at a speed that exceeds the Group’s ability to deal with it, there may be an impact on the orders received, etc. As a result, the operating results and financial condition of the Group may be affected.

The revision of the Worker Dispatch Law, which came into effect on April 1, 2020, asks us to select one of two methods: (i) (1)client company equal and balanced method or (ii) dispatch agency labor-management agreement method. The purpose of this is to eliminate unreasonable differences in working conditions between regular workers employed by client companies (permanent full-time employees) and dispatched workers.

We have responded to this revision based on the policy of equal pay for equal work of dispatched workers as sought by the Japanese government. In addition to responding to this revision, we are looking to secure and accumulate profits by negotiating appropriate charge increases (an increase in the sale price per dispatched engineer) with our business partners. However, if costs increase faster than we can respond, that may affect our Group’s business results and financial position.

Our Group policy is to establish a structure for risks caused by external factors (e.g., changes in legal regulations). We grasp the risk of this manifesting at an early stage by monitoring trends in the revision of relevant laws and ordinances. Nevertheless, our Group cannot control the content and timing at which such risks caused by external factors manifest. Therefore, we recognize that it is difficult to predict their level of impact in advance.