Risks in Project Profitability, Quality and Schedule Management

「As the Group expands its business, projects are becoming larger, while their technical and operational difficulty and complexity are increasing, making project management increasingly important. If problems arise in project execution, resolving them may require more time and expense than expected, while the risks of delivery delays and unexpected work hours and recovery costs also increase.」

「At the quotation stage before receiving an order, the operating, sales and quality management divisions responsible for the project hold quotation review meetings. During project execution, the Company monitors variances between budgets and actual results, checks execution status at project audit meetings, and conducts various training programs to improve project quality. It works to reduce risks arising from project management and establish risk countermeasures.」

「Provision for losses on contracts 2,835 2,185」

「Provision for losses on contracts 2,835 2,517」

「Provision for losses on contracts 488,092 2,835」

「Provision for losses on contracts 488,092 28,075」

「To strengthen technical capabilities, the Company established recommended training and project experience requirements by level in order to refine the definition of project managers, and promoted the acquisition of the necessary skills. In the core businesses, the ICT infrastructure construction business performed well as semiconductor supply conditions normalized, in addition to the completion of work addressing the unprofitable projects that had continued.」

「In the core businesses, the impact of unprofitable projects still being addressed remained within expectations, while the ICT infrastructure construction business performed well as semiconductor supply conditions normalized.」

「Regarding an unprofitable project continuing from the previous fiscal year, the Company recorded an additional provision for losses on contracts in the fourth quarter of the current fiscal year to address improvements required for problems that arose after migration to the production environment.」

「On the earnings front, the impact of unprofitable projects that arose in the previous fiscal year continued, resulting in a ¥41 million, or 1.2%, year-on-year decrease in operating profit to ¥3.44 billion.」

「In terms of profitability, the impact of an unprofitable project arising in the previous fiscal year continued, and operating profit declined by ¥402 million, or 16.3%, year on year to ¥2,066 million.」

「The impact of an unprofitable project arising in the previous fiscal year expanded as delivery delays continued, and the Company recorded an additional provision for losses on contracts during the first quarter of the current fiscal year. As a result, operating profit declined by ¥485 million, or 35.0%, year on year to ¥900 million, while ordinary profit declined by ¥486 million, or 34.9%, to ¥907 million.」

「Because the Company agreed to bear the cost of maintaining customers’ existing systems and other costs from April 2022 through September 2022 in connection with delivery delays on certain system development projects, it recorded ¥414 million of such costs as an expense for the provision for loss compensation.」

「Because the Company agreed to bear the cost of maintaining customers’ existing systems from April 2022 through September 2022 in connection with delivery delays on an unprofitable project, it recorded ¥396 million of such costs as an expense for the provision for loss compensation.」

「In terms of profitability, in addition to the decline in profit accompanying lower revenue, the impact of unprofitable projects at some customers resulted in operating profit declining by ¥450 million, or 16.9%, year on year to ¥2,220 million, and ordinary profit declining by ¥472 million, or 17.4%, to ¥2,250 million.」

「To address this, at the quotation stage before receiving a project order, the relevant operating and quality management divisions hold quotation review meetings. During project execution, they monitor variances between budgets and actual results and conduct interim reviews through the quality management division, as well as provide training to improve project quality, thereby working to reduce risks arising from project management.」

「Some customers continue to restrain IT budgets and defer or scale back development projects.」

「Amid restrictions on economic activity resulting from the spread of COVID-19, efforts to win orders for new projects stagnated, while some development projects were deferred or scaled back.」

「As specific measures, our group conducts advance assessments of the appropriateness of contract prices and other risks during order reviews, and monitors projects. We also seek to ensure QCDS (high quality, appropriate pricing, adherence to delivery schedules and high productivity) through project management training.」

「In terms of profitability, although some development projects became unprofitable, operating profit increased by ¥742 million, or 20.1%, year on year to ¥4,438 million, ordinary profit increased by ¥784 million, or 21.1%, to ¥4,507 million, and net profit attributable to owners of the parent increased by ¥397 million, or 15.9%, to ¥2,897 million. The increases reflected growth in highly profitable projects and expanded sales of the Company’s products and services, as well as continued efforts to improve productivity and quality.」

「Although some development projects became unprofitable, operating profit increased to ¥2,870 million, up ¥333 million (13.1%) year on year, and ordinary income increased to ¥2,929 million, up ¥370 million (14.5%), due to an increase in highly profitable projects and expanded sales of proprietary products and services, in addition to ongoing productivity and quality improvement measures.」

「As specific measures, our group conducts advance assessments of the appropriateness of contract prices and other risks during order reviews, and monitors projects. We also seek to ensure QCDS (high quality, appropriate pricing, adherence to delivery schedules and high productivity) through project management training.」

「Profit margins improved following the resolution of unprofitable projects that arose in the previous fiscal year and the promotion of productivity and quality improvement measures. Operating profit was ¥3,696 million, up ¥1,094 million (42.1%) year on year.」

「Profit increased due to higher profit accompanying revenue growth, the resolution of unprofitable projects that arose last fiscal year, and improved profit margins resulting from productivity and quality improvement measures.」

「In addition to the increase resulting from the containment of unprofitable projects that arose last fiscal year and revenue growth, the effects of ongoing productivity and quality improvement measures also contributed to an increase in operating profit to ¥1,340 million, up ¥666 million (98.7%) year on year.」

「Due to the impact of unprofitable projects in some contract development projects, revenue was ¥21,397 million, down ¥259 million (1.2%) year on year.」

「In the system integration business, the Group focused on further strengthening collaboration with partner companies and promoting related products and services, including the Convergent® collaborative business with Microsoft Japan. Although financial-sector and public-sector system development projects remained steady, the impact of unprofitable contract development projects that arose in the first quarter resulted in a ¥277 million, or 1.7%, decrease in net sales to ¥15.824 billion and a ¥39 million, or 1.6%, decrease in operating profit to ¥2.461 billion.」

「In the system integration business, we focused on further strengthening collaboration with partner companies and promoting related products and services, including “Convergent®,” a collaborative business with Microsoft Japan (コンバージェント). Although system development projects for the financial and public sectors remained solid, the impact of unprofitable projects in some contract development projects arising in the first quarter resulted in revenue of ¥10,672 million, down ¥116 million (1.1%) year on year, and operating profit of ¥1,596 million, down ¥71 million (4.3%).」

「Due to unprofitable projects arising in some contract development projects, operating profit was ¥674 million, down ¥110 million (14.1%) year on year, and ordinary income was ¥694 million, down ¥127 million (15.5%) year on year.」

「As we undertake a growing variety of projects, the importance of project management is increasing, making its enhancement an essential priority. As specific measures, our group conducts advance assessments of the appropriateness of contract prices and other risks during order reviews, and monitors projects.」