RISKS IN BUSINESS OPERATIONS
Major risks that UT Group’s management recognize of the possibility of having a material impact on its financial situation, operating performance and cash flow among items related to the Group’s business and financial situation are as follows. Please note that any remarks concerning the future indicated in the descriptions have been made based on the judgment made by UT Group as of March 31, 2021.
01GROUP-WIDE RISKS
① DEPENDENCE ON SPECIFIC INDUSTRIES
UT Group’s major clients are manufacturers in the semiconductor and electronic component sector, which represent approximately 40% of our sales. Our business may be affected by the semiconductor industry’s so-called silicon cycle of roughly every four years, and the extent of the impact is difficult to forecast. In order to mitigate such impact, we utilize our expertise that has been accumulated in the semiconductor-related or electronics-related sector to expand into the entire manufacturing sector including automobiles, and develop workplaces in each area. We are also expanding in the engineer dispatch domain, which is less sensitive to economic fluctuations, and strengthening our efforts to capture structural reform demand in the solution business.
② INTENSIFYING COMPETITION IN THE INDUSTRY
UT Group is engaged in the manufacturing and engineer dispatch industry, where companies are strengthening sales efforts and aiming for scale expansion through M&A activities. There is a possibility that intensified competition may not allow us to make progress as smoothly as expected. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we are striving to increase our share of business with existing clients, develop new clients, and aggressively expand operations by acquiring businesses in the same industry.
③ RISKS IN LICENSING
UT Group holds licenses from Japan’s Minister for Health, Labour, and Welfare (MHLW) for the business of general worker dispatch, based on the Worker Dispatching Act, and for the business of fee-charging employment placement, based on the Employment Security Act. The Worker Dispatching Act stipulates that, with the aim of ensuring appropriate management of the worker dispatching business, the license can be revoked or activity of part or the entire business can be suspended if the dispatching company falls under the causes of disqualification (Worker Dispatching Act; Article 6) or the causes of rescission of the license (Worker Dispatching Act; Article 14). The Employment Security Act also stipulates that the license can be revoked or a part or the entire business can be suspended if the fee-charging employment placement company falls under the causes of disqualification (Employment Security Act; Article 32) or the causes of rescission of the license (Employment Security Act; Article 32-9).
As of the submission date of this document, we operate business properly in compliance with laws and regulation. However, in case of a serious breach of law, which results in the rescission of the license or the suspension of business, there is a possibility that our business may be affected. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we make efforts on compliance education and the continual enhancement of internal control.
UT GROUP’S STATUS OF LICENSING AND SUBMISSION
| CORPORATE NAME | NAME OF LICENSE | MINISTRY IN CHARGE | LICENSE NUMBER |
DATE OF OBTAINING THE LICENSE |
EXPIRATION DATE |
|---|---|---|---|---|---|
| UT AIM CO., LTD. | WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 13-300427 |
JANUARY 2004 |
DECEMBER 31, 2026 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
13-YU-301531 | SEPTEMBER 2006 |
AUGUST 31, 2024 |
|
| UT CONNECT CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 13-314179 |
JUNE 2003 | MAY 31, 2026 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
13-YU-310980 | AUGUST 2003 | JULY 31, 2026 | |
| FUJITSU UT CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 13-314180 |
MAY 1998 | APRIL 30, 2026 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
13-YU-310982 | JANUARY 2007 |
DECEMBER 31, 2024 |
|
| UT TOSHIBA CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 14-300874 |
JULY 1999 | NOVEMBER 30, 2022 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
14-YU-300568 | OCTOBER 2000 | SEPTEMBER 30, 2023 |
|
| UT MESC CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 08-010031 |
April 2001 | March 31, 2024 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
08-YU-300392 | JANUARY 2022 |
DECEMBER 31, 2024 |
|
| UT FSAS CREA CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 14-300913 |
NOVEMBER 1996 |
NOVEMBER 30, 2023 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
14-YU-300637 | JANUARY 2001 |
DECEMBER 31, 2023 |
|
| UT TECHNOLOGY CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 13-305240 |
JANUARY 2013 |
DECEMBER 31, 2025 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
13-YU-306625 | AUGUST 2014 | JULY 31, 2022 | |
| UT CONSTRUCTION CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 13-305176 |
OCTOBER 2012 | SEPTEMBER 30, 2025 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
13-YU-305580 | SEPTEMBER 2012 |
AUGUST 31, 2025 |
|
| UT SURI-EMU CO., LTD. |
WORKER DISPATCHING BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
DISPATCH 23-300139 |
SEPTEMBER 2004 | AUGUST 31, 2022 |
| FEE-CHARGING EMPLOYMENT PLACEMENT BUSINESS LICENSE |
MINISTRY FOR HEALTH, LABOUR, AND WELFARE |
23-YU-300787 | JUNE 2009 | MAY 31, 2027 |
④ THOROUGH ADHERENCE TO COMPLIANCE
UT Group conducts operations according to a diverse range of laws and regulations, including Japan’s Labor Standards Act, Industrial Safety and Health Act, Workmen’s Accident Compensation Insurance Act, Ministerial Notification No. 518 of the MHLW, Health Insurance Act, and Act on the Protection of Personal Information. UT Group is dedicated to always ensure maintenance of corporate compliance. However, in case of a breach of law, there is a possibility that our business may be affected due to the rescission of the license, loss of credibility in society, and other reasons. In the course of its business activities, the Group may be exposed to confidential information of client companies, etc. In the event that management deficiencies related to such information cause information leakage to the outside world, the termination of dispatch contracts, demands for compensation for damages, and a loss of social credibility may affect our business. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we make efforts on compliance education and the continual enhancement of internal control. We also focus on promoting clients’ correct understanding on compliance and contributing to sound development of the manufacturing outsourcing industry.
⑤ AMENDMENT OF THE WORKER DISPATCH LAW
The amended Worker Dispatching Act, which was enacted on September 30, 2015, requires agencies to provide support for their dispatched workers’ career building, and education and training. The Act also specifies measures for stable employment. We recognize this amendment is intended for stable employment and sound development of the dispatched industry and it would help boost our business opportunities as it allows indefinite-term dispatched workers to be employed without time limit. However, there is a possibility that intensified competition and other factors may prevent expected demand growth to materialize and may not allow us to make progress as smoothly as expected. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we are striving to expand business with the aim at becoming a corporate group selected by companies that use dispatched workers and by workers, by promoting the Twin Customer Strategy that identifies both dispatched workers and companies as clients.
⑥ FINANCIAL CONDITIONS
UT Group borrows money needed for business expansion from many financial institutions. At present, our borrowing rates are at low levels, thanks to monetary easing policies and other factors. In arrangements with some financial institutions, a financial covenant has been attached to the loan agreement. In the case of breach of such a condition, there is a possibility that we may face an increase in borrowing rates or a decrease in periodic profit, which may influence our business results and financial conditions. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we target the gross D/E ratio of 1.0 or less as an important management benchmark and are engaged in the management with a good balance of borrowings and shareholders’ equity.
⑦ RISKS IN FLUCTUATION IN PRICE OF INVESTMENT SECURITIES
UT Group forms capital alliances for purposes of maintaining long-term friendly relationships, or makes strategic corporate acquisitions, with the aim of expanding its existing business base or entering into new business activities. A significant decline in market value or effective market value of investment securities or shares of related companies we hold may force us to record loss on sale or valuation loss, and influence our business results or financial conditions. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we aim at improving performance of these the companies we have made capital appliance or have acquired by regularly monitoring them at the Board of Directors and the Management Committee and enhancing our supervisory function.
⑧ TECHNICAL ASSOCIATES AND THEIR HIRING
It is the “technical associates” (defined by us as employees assigned to work at the production sites of our clients; they include both regular associates and contract associates) who actually perform the work contracted by UT Group companies. In principle, these persons work under regular (indefinite-term) employment contracts. The work that we do under contract consists, in virtually all instances, of organizing groups or teams of experienced personnel, establishing a chain of command and the performance of work as teams. If there is an insufficiency of skill or experience, we raise the technical levels of associates through training programs or on-the-job training. If a team becomes understaffed, we either transfer someone to the team or hire a person to fill the position. The employment of technical associates may have the following risks.
・With regard to hiring of technical associates, the job market conditions may make it difficult for UT Group companies to hire the personnel required.
・Hiring costs may increase due to a lower retention rate of our technical associates.
・The working population, especially young people, has been on a declining trend since 2000 in Japan. The average age of the technical associates is relatively low. A decrease in the working population may make hiring more difficult.
・UT Group companies’ hiring policy is to hire locally but if the hiring environment becomes tougher and local hiring more difficult, staff may be hired in another region and transferred, which may generate initial relocation expenses and depress gross margin.
While we do not recognize the likelihood of such risks emerging or affecting our earnings, we aim to create a society in which all people who are motivated to work have equal opportunities to develop their skills and advance their careers. We are building a platform that supports diversity in workstyles by focusing on the development of workplaces in each area in addition to hiring diverse job seekers, including women, the elderly, and foreigners.
⑨ DAMAGE CAUSED BY NATURAL DISASTERS, PUBLIC HEALTH RISKS, AND OTHER FACTORS
A large-scale natural disaster or public health risks including infectious diseases may influence UT Group’s performance. At present, it is difficult to accurately predict the impact of this risk to our performance, but if COVID-19 infections are not contained and become worse for a prolonged period, our client companies may make production adjustment, such as a temporary suspension of production activities or a decrease in output, which may affect UT Group’s business activities and performance. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we are prepared for emergencies, by having an emergency countermeasure manual and a recovery manual for the Group’s Business Continuity Plan (BCP). In addition, we have established a system to manage and analyze risks including those associated with climate change, and to monitor the analyzed results at Management Committee and Board of Directors meetings.
⑩ PERSONAL INFORMATION AND CLIENT INFORMATION
UT Group handles personal information on employees, including technical employees, and applicants for employment. We also handle clients’ confidential data in each business division. In the event that information leaks occur despite our efforts, this may greatly affect UT Group’s performance. While we do not recognize the likelihood of such risks emerging or affecting our earnings, with regard to various personal and client information, we have adopted certain security standards, in line with our internal rules, such as the Basic Policy on the Protection of Personal Information and the Handling Rules of Specific Personal Information, and we continuously make improvements to the management system and structure, such as establishing restrictions on personnel with rights of access.
⑪ INFORMATION SECURITY
UT Group possesses a large amount of personal and confidential data. In the event that an information leakage occurs due to a cyber attack, unauthorized access, or other unforeseen circumstances, this may greatly affect UT Group’s performance. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we have developed measures that are tailored to the characteristics of information assets in accordance with the Information Security Management rules and other detailed rules under the Basic Policy on Information Security stipulated by the Group. We strive to ensure high information security and cybersecurity levels. In addition, we regularly provide information security education to our employees, including technical employees, in order to continuously improve their ethics and enhance their information security literacy.
⑫ M&A,CAPITAL ALLIANCES, AND OTHER ACTIONS
UT Group is pursuing strategic acquisitions and capital alliances but there is a possibility that various due diligence measures to identify important risks or a post-acquisition business integration or business promotion may not proceed as expected. In such cases it may be difficult to recover invested capital and this may have an adverse impact on UT Group’s performance, such as the risk of generating impairment of goodwill. While we do not recognize the likelihood of such risks emerging or affecting our earnings, but UT Group has a designated section in charge of M&A and capital alliances. The experienced personnel in charge are engaged in the examination of deals, negotiations regarding alliances, and developing post-acquisition business plans. Targeted deals, after careful due diligence, are discussed at a designated meeting and resolved by the Board of Directors. The acquired business and company is regularly monitored by the Board of Directors, the Management Committee, and other bodies, and aims to improve business performance with the enhanced supervisory function.
⑬ RECRUITMENT AND RETENTION OF TALENTED PERSONNEL
UT Group is expanding its corporate scale by capturing client companies’ demand for personnel and structural reform needs. If UT Group cannot stably secure talented people, such as losing more personnel than expected in management and business operations and personnel who support the business base such as back-office operations, this may hinder the Group’s competitive advantage and prevent its sustainable growth. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we are working to develop a foundation that allows our employees to work vigorously, such as designing a personnel system to accommodate changes in the business environment, developing a flexible working environment including a remote work system, and creating good workplaces that ensure diversity in personnel while making employees feel rewarded and realize their own growth as the organization grows. Furthermore, we are working to establish a system that does not depend on people, including the standardization and systemization of back-office operations.
⑭ MANAGEMENT TEAM
If unforeseen circumstances arise in relation to important management team members such as Yoichi Wakayama, the Founder, Chairman and Representative Director of UT Group, the Group’s business development may be hindered. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we have established a succession plan to prepare for such a situation and are promoting the establishment of a system that allows other directors and officers to perform their duties on their behalf.
⑮ RESPECT FOR HUMAN RIGHTS
In recent years, issues regarding human rights, such as forced labor and child labor in corporate supply chains, discrimination, and harassment, have been raised. Besides its domestic business activities, UT Group is engaged in the business of receiving and assisting foreign technical interns and the overseas human resource dispatching business. If human rights laws and regulations are not compiled with or human rights are violated in any country and region where we operate, there is a possibility that our business may be affected by hindrance to our business operations, the loss of social credibility, and other such factors. While we do not recognize the likelihood of such risks emerging or affecting our earnings, we adopted the UT Group Basic Policy on Human Rights in December 2021, in accordance with our Basic Policy on Respect and Growth of Individuals enacted in April 2021, in support of the International Bill of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work. In addition, by conducting annual risk assessments, we identify human rights risks and other risks regarding the entire Group, and we are formulating measures that prioritize important risks as well as action plans to minimize related losses.
02RISKS IN THE DISPATCH AND OUTSOURCING BUSINESS
① RISKS RELATING TO OVERSEAS RELOCATION OF MANUFACTURING BASES
In case that Japanese manufacturers, who are UT Group’s clients, relocate their manufacturing bases overseas and reduce their domestic production bases, this may affect UT Group companies’ business performance.
② VARIABLE FACTORS RELATING TO BUSINESS PERFORMANCE
Japanese manufacturers, who are UT Group’s clients, need to turn labor costs into variable costs. We recognize that clients contract the performance of work by others, at their own production sites, in order to achieve flexibility in modifying production levels in accordance with changes in business conditions, in addition to hiring qualified professionals capable of making immediate contributions to their operations.
Consequently, along with a decline in production levels of our clients, we tend to face a decline in contractual outsourcing work volume and intensified price competition with our competitors. On the other hand, in order to alleviate the risk of these variable factors, we devote efforts to building a partnership with our clients and aim at receiving long-term, stable outsourcing contracts. In case that our technical associates who are based on indefinite-term employment with UT Group companies cannot be smoothly re-assigned to other work sites, they are put on a stand-by status, which may depress our earnings. In case that UT Group companies rapidly increase the contractual work volume, the burden of hiring costs may increase ahead of generating sales and have an adverse influence on performance in a given term.
③ RISKS RELATING TO “CONTRACTUAL ON-SITE WORK”
UT Group’s manufacturing dispatch business includes “contractual on-site work” at client premises. In conjunction with this, we sign equipment lease contracts with clients, and bear liability for damage to equipment during the term of the contract. UT Group companies in outsourcing operations also bear part of the productivity risk and the risk of producing defective products. In the event that “technical associates” suffer industrial accidents such as injury while on the job, we bear responsibility for such accidents. In case that the costs of such damage and injury increase, this may affect UT Group companies’ business performance.