In relation to the ALSOK Group's business and accounting circumstances, the following items are the major risks which the management recognize that can potentially have significant effects on business performance and cash flow. Future-related information mentioned below was deemed appropriate by the Group as of June 24, 2022, the date on which the 57th Securities Report was filed.
If the depreciation of the yen, soaring prices of raw materials such as crude oil, and rising production costs such as wage increases continue due to the effects of Russia's prolonged invasion of Ukraine, it may affect the continuous provision of services. Therefore, as a company that declares partnership building, we will continue to aim for coexistence and co-prosperity with our business partners, and we are also making efforts to pay attention to multi-stakeholders including our business partners. Insufficient supply of semiconductors and other parts, which is an issue in the supply chain, may affect the procurement of equipment used by our company. Therefore, in order to minimize the impact, the Group is taking appropriate measures such as inventory management based on supply and demand forecasts, expansion of suppliers, and promotion of reuse.
a. Providing service continuously
As an operator providing services concerning safety and security of the society (Security services, General property management and fire protection services, Long-term care services) the Group will adequately provide service and continue the business. If any employee guarding important facilities or when mass infection occur at long-term care facilities the Group operates, there is a possibility that might effect to providing service continuously. Therefore, the Group established countermeasures headquarters as for the aim to prevent the spread of infection under the risk of novel coronavirus. Contingency plan is formulated as to maintain continuous service providing and to stably provide various services. The following are the measures to prevent the spread of novel coronavirus.
• To be thorough at taking temperature by thermography, wearing face mask, and washing hands.
• Admission restriction and thorough cleaning at each facilities is in practice.
The Group will take appropriate measures to prevent the spread of infective diseases and continue our business, and will accurately meet the safety and security needs of our customers and society based on basic action policy, guidance by municipalities, and guidelines formulated by each industries.
When the Group can`t meet the expectations regarding the response to an increase in the risk of cyber attacks on critical infrastructure and supply chains, an increase in familiar crimes and accidents targeting socially vulnerable people such as the elderly, women, and children, and a series of natural disasters and aging infrastructure, it may result in loss of customer trust and impact on business performance.
Therefore, while strengthening the internal and external infrastructure cultivated in security and facility management operations, the Group has various services such as cyber security measures, services to monitor the safety and security of individual customers, and services to deal with natural disaster risks such as BCP solutions. We are expanding new solutions that combine various service functions, such as responding to outsource needs and comprehensive management services for building equipment and infrastructure, while utilizing alliances with the outside.
Should a massive disaster occur, the Group's employee or facilities the Group operates is affected, there is a possibility that might effect to business operation. Therefore the Group prepare for massive disasters utilizing know-how cultivated by experiences taking measures such as maintenance of disaster correspondence manual, disaster stockpile, nationwide mobile correspondence system, periodic education and training based on business continuity plan and disaster countermeasures regulation. By the massive disaster and blackouts for long period of time associated with disaster, if the function of the network the Group build stop, there is a possibility that might effect to providing service continuously. The Group located two data centers each in Eastern Japan and Western Japan as a important system backup environment, and monitors to prepare in case of massive disasters.
Under the circumstances of the working-age population decrease, the Group deploys wide operation fields (the Security Services business, General Property Management and Fire Protection Services business, and Long-Term Care Services and Lifestyle Support Services for the Elderly business), should retaining high quality employees be difficult and could not deploy employee appropriately, there will be a shortage of human resources and management personnel who manages for the operation of each business, the Group's operating performance could be affected. To correspond to such risks, we will further promote work style reforms within the group while improving engagement by creating a system and environment that allows individual workers to maximize their abilities, such as hiring diverse human resources, providing diverse work styles, and developing abilities. Furthermore, for the aim to revitalize the organization and rearing ability of employees, we reinforce proper personnel allocation such as promotion of personnel exchanges as a Group whole, expansion of the placement for female employees and flexible personnel management by reinforcement of multitasking.
In addition, retirees with abundant practical experience will be able to play an active role in the group for a long period of time after retirement, and will secure a high-quality workforce, digitize and utilize data within the company. We are also working to improve productivity by streamlining operations and saving labor in the front department and back office.
As to accurately correspond to safe and secure needs of customers and society, development of new products and services utilizing AI, 5G, IoT are essential. If the Group could not correspond to these changes in the technological environment, it may effect to the performance of the Group. Therefore, by understanding the latest trends of technology, for the aim of risk-averse, as the group promotes digital transformation with aggressively utilizing AI, 5G, IoT technologies.
In reference to the development of new products, services and core system, the development may commission to externa vendor. Under the circumstance, in case when it did not work as planned due to the delay of development, the performance and management plan may be effected. Therefore, in terms of task management of the development, the Group work with contractor in close coordination, and checking the progress by custodian from each company, and prevent delay by taking appropriate response at early stage. In addition, renovation and improvement is accelerated at acceptance test and after the introduction. Moreover, by strengthening the ensurement and development of human resources with advanced expertise such as project management skill, the progress and quality of contractor will be controlled appropriately.
Also, under the circumstance when system trouble occurs after the introduction, the performance and internal control may be effected. Therefore, in the event of a system trouble, the Group is preparing to build a system to deal with the trouble with an external vendor, and has established appropriate internal control.
Beyond that, in reference to the operation of systems concerning product services, and core system, when communication failure and system trouble occur, the provision of service may be effected. The Group work for stable operation as to multiplex network equipments at each base, ensure various backup server at remote sites, after organizing the backup system, and practice assuming the case of system failure.
The Group conducts many personal information and confidential information.Regarding these information assets, when malicious attacks by third party or when any leakage occurs with carelessness or delibrate aim by concerned parties, it will lead to deterioration of social credibility and brand image, pament of damages, legal penalty that might effect the Company's performance.
Therefore, the Group set "Basic policy for information security" as cornerstone of ensurement of information security, and apply to all employees including board members and all information assets. Based on information assets management regulation, construction and promotion of information assets management system and trainings concerning serious information assets accident are conducted. Furthermore, when serious accident occurs, the Group lay out the framework of corresponding the accident and prevention of recurrence, and establish ALSOK-CSIRT (Computer Security Incident Response Team).
The Group uses common corporate brand among the companies proportionate to providing products and services. Under these circumstances, when any incident occurs in the Group or affiliated companies, not only will bidding be suspended, but the Group's brand image will deteriorate, which may affect business performance.
From the point of view of enhancing group governance, specialized department for affiliated companies is established to conduct guidance and supervision fairly. The company recieves reports such as performance of duty and important information concerning risks for loss of affiliated companies b cooperating with affiliated companies to correspond to risks and by dispatching directors or auditors from the Company. Based on "Internal Audit Regulation", inspection department is working for compliance of the Group by managing business activities of affiliated companies, supervision, advice, admonishment consider improvement of business and system of management be important.
The situation of the Company's internal control system streamline and audit by auditing officer and internal audit is described in securities report.
In recent years, extreme weather phenomena (abnormal weather) such as heat waves, heavy rains, and droughts have frequently occurred all over the world. In Japan as well, abnormal weather such as heavy rains exceeding 100 mm per hour and intense heat exceeding 40℃ have been observed in various places, which has a great impact not only on the Group but also on corporate activities and citizens' lives.
The Group has responded to such climate change by mitigating and adapting to climate change, conserving water, ocean and forest resources, responding circulating society, pollution prevention and waste management, and biodiversity. Regarding these issues, we aim to solve the issues and realize a sustainable society by providing various initiatives, products and services from both risk and opportunity perspectives. In addition, as for other activities, besides working on CO2 emission reduction (GX) as a global environmental measure by switching the lighting of our own facilities to LED and actively replacing to electric vehicles and hybrid vehicles, we support and participate in the domestic initiative on climate change (JCI Climate Change Initiative). From January 2020, we joined as a member company and donated business activity expenses to the Global Environmental Action Conference (GEA), an NGO with the aim of contributing to the solution of global environmental problems and sustainable development. Furthermore, in February 2022, we signed support for the Task Force on Climate Related Financial Information Disclosure (TCFD) proposal and actively working from various fields. These efforts are disseminated through our website and the annual ALSOK Report (integrated report).
In order to provide our clients with security services in addtion to Companies Act and Financial Instruments Act,the Group is subject to a variety of legal restrictions, including major ones stated in the table below. Should any of these legal restrictions be amended or abolished, or any new legal provisions established, the Group's operating performance could be affected.
Therefore each department and affiliated companies are to correspond to revision or abolition of law regulation and check if there are any new law regulation. The risk information is to be reported regularly associated with the change in law regulation, we will pay close attention to the trend of the authorities concerned and corresond appropriately.
To expand the business field from security business as origination to peripheral businesses, the Comapany may do an acquisition. Under the circumstances, when the performance of the Company acquired deviate from the business plan at the point when the acquisition waas decided, impairment loss of intagible assets such as goodwill and customer-related assets and other property, plant and equipment, might occur and will effect the Group's performance.
Therefore, regarding the performance of the acquired company, it is managed on a steady basis, and is reported to the board of directors regularly. Moreover, when diremption of the performance and the business plan at the point when the acquisition was decided is admitted, countermeasure is to be formulated and practiced promptly within related departments.