(1) Price competition in the information services industry
Competition is fierce among service providers in the information services industry. Intense price competition could occur in the future as a result of the continuing participation by new service providers from other industries, emergence of overseas providers, and an increase in demand for packaged products.
Under these business circumstances, NRI strives to differentiate our services from those of our competitors by offering high value-added services that enhance our ability to offer end-to-end services from consulting to system development and system management and operation. We are also striving to improve productivity.
However, if price competition becomes more intense than forecast, NRI's business performance may be adversely affected.
(2) Technological changes in the information services industry
In the information services industry, we must constantly respond to match market needs that change as information technology evolves.
Acknowledging such a changing business climate, NRI is striving to respond rapidly to technological innovations by being active in investigation and research of advanced, basic, and developmental IT through implementing a cross-sectional system.
However, if technological innovations advance in a wide range of areas, and if our response to these changes is delayed, it could adversely affect NRI's business performance.
(3) Stability of management and operation services business
Expansion of system management and operation services requires various investments such as real estate for data centers and equipment for operations and software. Return on such investments is obtained over the long term through client contracts.
Many contracts for system management and operation services span more than one year or are automatically renewed in the case of one-year contracts. Accordingly, sales are deemed relatively stable; moreover, NRI strives to achieve steady return on investments through careful management of work in progress and continuous credit control of clients.
Nevertheless, there is no guarantee that this stability in sales of system management and operation will continue in the future; each time a client business undergoes a merger or bankruptcy, or when a client decides to overhaul its information systems strategies, there is a possibility that it will not renew its contract with NRI.
(4) Investment in software
NRI invests in software to expand our business, including product sales, shared online services and outsourcing services. In many cases, the software is designed for specific use and cannot be readily readapted for other applications, which means that careful consideration must go into the decision to make such an investment.
At NRI, we exhaustively discuss the legitimacy of each business plan before commencing software development. We also have an internal system whereby regular checks on the plan's progress enable prompt revision to the plan when necessary, both in the development stage and after completion.
However, with this type of software investment, there is never a total guarantee that the initial investment will be recovered, and there is a chance the capital will not be recovered and a loss will be incurred.
(5) Dependence on specific business categories and clients
NRI sales showed strong dependence on specific business sectors and clients. In the fiscal year ended 31st March, 2016, sales of Financial IT Solutions to external clients mainly in the financial sector accounted for 60% of total sales. Moreover, NRI's combined sales to our major clients, Nomura Holdings, Inc. and its subsidiaries, and Seven & i Holdings Co., Ltd. and its subsidiaries, accounted for one-fourth of consolidated sales.
NRI possesses the operational know-how gleaned from our businesses for the financial sector and large-scale and advanced system development and operation expertise. NRI is aggressively cultivating new clients by utilizing these strengths in services for other sectors. In terms of our approach to major clients, NRI is differentiating ourselves from our competitors by becoming even more adept in our areas of strength and is strengthening our client relationships through strategic deployment of human resources.
However, it is possible that in the future NRI will experience an enormous impact on business performance if the legal system in a specific sector is changed, if the business environment is suddenly changed, if the business circumstances of our major clients change, or if they radically reexamine their information systems strategies. There is also a possibility that NRI, against expectations, will be unable to secure new clients.
(6) Investments, M&As, alliances
NRI invests in various companies with a view to developing future business opportunities, and it also takes equity stakes in clients to strengthen business relationships, considering expected return on investment. NRI also undertakes M&As and forms business alliances with a view to strengthening the global operating base. Such actions involve careful prior examination of the target company's financial standing and its business activities, and decisions are made only after all the necessary information has been gathered and due diligence exercised. Despite this approach, there is a possibility that NRI's business performance may be adversely impacted by, among other things, the need to apply impairment accounting procedures to goodwill in the event that clear problems arise that were unrecognized by NRI prior to completed investments, M&As and alliances, or if expected benefits fail to materialize.
(7) Capital relationship with Nomura Holdings, Inc. and its affiliates
As of 31st March, 2017, Nomura Holdings, Inc. held 37.2% of the voting rights of NRI (including 9.4% of indirectly held voting rights). In addition, affiliated companies (JAFCO Co., Ltd. and TAKAGI SECURITIES CO., LTD.) held 8.1% of NRI's voting rights.
There is no guarantee that the percentage of voting rights held by Nomura Holdings, Inc. and its affiliates will remain stable. Furthermore, the exercise of voting rights by Nomura Holdings, Inc. and its affiliates may not necessarily be aligned with the interests of other NRI shareholders.