Risk Information

In relation to the ALSOK Group's business and accounting circumstances, the following items can potentially have significant effects on the judgment of investors. Future-related information mentioned below was deemed appropriate by the Group as of June 26, 2018, the date on which the 53th Securities Report was filed.

1. Sales Depending on a Specific Business Sector

Sales from the financial institutions sector accounted over 20 percent of the Group's total sales in the year ended March 31, 2018. Consequently, trends in the economic environment surrounding financial institutions, including the possible cancellations of existing security service contracts due to the elimination or consolidation of branch locations, can have a considerable effect on the Group’s operating performance. Therefore, the Group will continue to aggressively advance sales promotion toward other business sectors and find new clients in order to find new clients as well as maintain and develop the firm relationship with existing clients in the financial institutions sector.

2. Electronic Security Services Business

Of the Group's total sales, 39.9% are dependent on the Electronic Security Services business. The effective operation of the Electronic Security Services business requires continuous capital investment for structuring and maintaining operational infrastructures such as the preparation of Guard Centers and depots, vehicles for Electronic Security Services and communication systems, as well as personnel expenses for Guard Center staff and security staff. Should the Group fail to enter into a certain volume of Electronic Security Services contracts due to any of a wide range of factors associated with the Group's Electronic Security Services business, the Group's operating performance can be affected. Also in situations such as when troubles occur in business operation by communication system failure, the Group’s operating performance can be affected. Therefore, we have tried to diversify our business so that we can minimize business risks.

3. Transportation Security Services

The Group uses its own funds or funds financed through overdrafts as cash to be used in the CD machines installed by the subsidiaries of financial institutions in their business partners' stores and offices or cash used to deposit advances for Cash Deposit Machine On-line System contracts. For this reason, though the Group endeaver on the efficient operations of the fund, should there be an increase in interest rates associated with cash procured for these purposes, the Group's operational performance could be adversely affected. Consequently, the Group must renegotiate the pricing conditions defined in contracts between the Group and its clients. Further, the Company has subscribed to cash securities transport insurance to cover any damage or loss that may occur during the transportation or storage of such cash. If the trend of cashless settlement becomes more common in Japan, the needs towards cash transportation would decline, the Group’s operating performance can be affected. Therefore, the Group make a study of developing new services based on the progress of the cashless trend.

4. Dependency on a Specific Equipment Supplier

The Group mostly depends on some companies for development and provision of the center equipment installed in the Guard Centers. Should any difficulty arise in the provision of such center equipment due to natural disasters or other reasons, the normal operation of the Guard Centers could be affected. As for provision involving the center equipment as well as main equipment used for the offer of Electronic Security Services, the Group enters into a master agreement for commodity purchases to provide for anticipated quantities of items. Furthermore, the group holds certain levels of spare items for maintenance to allow for emergencies.

5. Adaptation to Changes in the Technological Environment

The development of new products and services utilizing Ai, IoT, robots and ICT technology are indispensable to the Group’s adequate provision of security services, since we need to deal with "brutal and sophisticated crimes such as terrorism and cyberattack", "progress of declining birthrate and aging of society", "natural disasters such as earthquakes, volcanic eruption and wind and flood damage" and "decrepit of infrastructure equipment". Should our adaption to technological progress fall behind the changes in the technological environment, the Group's operating performance could be negatively affected. Therefore, the ALSOK Group continues to make efforts in the development of security-related equipment and advanced technologies such as ICT, IoT, and AI principally in the R&D Department of the Group. At the same time, we work to avoid risk by staying abreast of the latest technology trends in communications, devices and other technologies.

6. Management of Client Information

In order to conclude a security service contract with clients, the Group obtains a significant amount of information about them including their names, addresses and phone numbers of related parties, as well as various information about the clients' premises where security services are to be provided, and utilizes that essential information for the execution of security services and business activities. If any problem, whether inevitable or not, should arise, the Group may suffer for unfavorable reputation and legal claim for damages. We, therefore, have managed client information properly through employee education and careful observation of subcontractors. These measures enable us to avoid leaking, losing and deleting personal information. As a further precaution, the ALSOK Group has "Cyber Risk Insurance", which covers all Group companies.

7. Ensuring Human Resources

In recent years, Japanese society has been rapidly super aging due to a combination of extended average life expectancy and a plunge in the birthrate. Although it can be anticipated that these trends will lead to a rise in the need for ALSOK's security services, it could become more difficult to recruit younger workers in this labor-intensive industry and could lead to long working hours caused by labor shortage. We promote the government-led work style reform while improving labor productivity as we secure the health of employees, and to strengthen cooperative structure in recruitment of the Group companies as to enhance local recruitment and year-round recruitment applying the strength of having security base nationwide. Moreover, we work to cultivate ability of employees and be well-placed through the promotion of personnel exchanges between urban area and regional area. In addition, we established a company which re-employs experienced retired workers for the purpose of securing high quality labor force.

8. Legal Restrictions

In order to provide our clients with various security and other services, 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.

Major Operation Relevant Laws Competent Authorities, etc.
Electronic Security Services
Stationed Security Services
Transportation Security Services
Security Business Law
Road Traffic Law
National Public Safety Commission
Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors Japan Fair Trade Commission Small and Medium Enterprise Agency
Telecommunications Business Law
Radio Law
Ministry of Internal Affairs and Communications
Electronic Security Services
General Property Management and Fire Protection Services
Construction Business Act Ministry of Land Infrastructure Transport and Tourism
Act on Ensuring Fair Electric Business Practices Ministry of Economy, Trade and Industry
Electronic Security Services Electrical Appliance and Material Safety Act Ministry of Economy, Trade and Industry
The Specified Commercial Transaction Act Ministry of Economy, Trade and Industry
Consumer Affairs Agency
Consumer Contract Act Consumer Affairs Agency
Transportation Security Services, Other Services Truck Transport Business Law
Freight Forwarding Business Law
Road Trucking Vehicle Law
Ministry of Land, Infrastructure, Transport and Tourism
Transportation Security Services Warehousing Business Law Ministry of Land, Infrastructure, Transport and Tourism
Stationed Security Services Act on Penal Detention Facilities and Treatment of Inmates and Detainees Ministry of Justice
Act on Special Districts for Structural Reform Cabinet Office
General Property Management and Fire Protection Services Fire and Disaster Management Act Ministry of Internal Affairs and Communications
Fire Prevention Ordinance Each municipality
Pharmaceutical and Medical Device Act
Act on Maintenance of Sanitation in Building
Ministry of Health, Labor and Welfare
Waste Disposal Act Ministry of the Environment
Building Lots and Buildings Transaction Business Law
Architect Act
Act on Advancement of Proper Condominium Management
Ministry of Land, Infrastructure, Transport and Tourism
Electricity Business Act
Law Concerning the Securing of Safety and the Optimization of Transaction of Liquefied Petroleum Gas
Ministry of Economy, Trade and Industry
Long-term Care Services Long-term Care Insurance Act
Act on Social Welfare for the Elderly
Ministry of Health, Labor and welfare
Each prefecture
Each municipality
Other Services Correspondence Delivery Act Ministry of Internal Affairs and Communications
Worker Dispatching Act
Employment Security Act
Ministry of Health, Labor and Welfare
Insurance Business Law
Financial Instruments and Exchange Act
Financial Services Agency
Act on Prevention of Transfer of Criminal Proceeds
Law About the Adequacy of Duties of the Detective Business
National Public Safety Commission
Personal Information Protection Law Personal Information Protection Commission
Act on Special Measures to Prevent and Correct Shift for Consumption Tax Japan Fair Trade Commission
Small and Medium Enterprise Agency
Consumer Affairs Agency
Act Against Unjustifiable Premiums and Misleading Representations Consumer Affairs Agency

9. Measures of System Failures Occured by Natural and Other Disasters

In the event in which unprecedented natural disaster were to occur, information exchange with the clients would become unavailable, causing serious difficulties such as the suspension of our security services. In such cases, the resulting claims for damages and the decline in public trust of the Group could affect the operating performance and future business development of the Group. In addition the Group may be compelled to pay huge expenses to recover damaged monitoring centers and other facilities. The Group locates two network centers each in East Japan and West Japan in terms of business continuity, and has made backups by mutual monitoring with building backup environment of important systems. Preparing for major wide-area natural disaster, the Group will reduce risk by taking measures for each stage.

10. Risk Related to Massive Disasters

Should a major earthquake occur, or there be wind and flood damage, and following disasters such as long-term power failure occur, the Group's networks or other operational infrastructure could stop functioning. Which may disrupt its ability to provide security and other services. Moreover, such disasters could damage the Group's assets, such as security equipment located on clients' premises, forcing the Group to repair or replace those assets. And the Group's operating performance or financial position could be adversery affected. Therefore, the Group has developed a number of precautionary measures based on its wealth of security-related experience and expertise. It has formulated disaster response rules in accordance with disaster response regulations, established a business continuity plan and other response manuals, stockpiled necessary disaster prevention items and developed a flexible nationwide response network. It also conducts periodic disaster prevention training and education and other precautionary measures. As a approach to not let the ATMs suspend if at all possible, int the event of natural disaster, we obtained ISO22301 certification in March 20, 2014. This will be the nation`s first as a security service targeting at Transportation Security Services which charges cash for ATMs the ALSOK Group manages and troubleshooting operation for ATMs. Hereafter the Group will enhance the structure, and will contribute to the preservation of social infrastructure.