ALPICO HOLDINGS CO., LTD.

The Group relies on subsidies from national and local governments to cover a portion of operating costs for unprofitable bus routes and safety equipment renewal investments in the railway business. If subsidy amounts fluctuate significantly due to system reforms, continuation of the railway business could become difficult. Given the public interest nature of the business as social infrastructure, major policy shifts such as route discontinuation are also difficult, limiting the options for profit improvement. While the Group monitors trends in subsidy systems, countermeasures against system change risk are limited.

There is a risk that natural disasters such as heavy rain, large typhoons, large-scale earthquakes, and volcanic activity, or the spread of infectious diseases, could cause business activities to halt and result in substantial recovery costs. In particular, since the Group's head office and business locations are concentrated within Nagano Prefecture, there is a high possibility that business continuity would become difficult in the event of a large-scale disaster in that region. Although the Group has formulated a BCP and strives to avoid and respond to such events, complete avoidance is difficult.

The Group relies on borrowings from financial institutions for a portion of its business funding, and there is a risk that if creditworthiness declines, raising funds on desired terms could become difficult. Major borrowings are subject to financial covenants, and if these are breached, the Group could lose the benefit of the term. In addition, there is a high risk that rising market interest rates (likelihood: high) could increase borrowing costs, and although the Group is working to reduce interest-bearing debt, changes in the interest rate environment directly affect business performance.

If a system failure occurs due to natural disasters, power outages, hardware malfunctions, cyberattacks, or other causes, this could significantly disrupt business activities, and system recovery costs and a decline in operating revenue are anticipated. In addition, if a leak of customer personal information collected through commuter passes, accommodation services, point cards, and the like were to occur, this could result in a loss of social trust and the risk of damages liability. The Group is implementing measures such as backing up important data, conducting training to respond to targeted attack emails, strengthening information security, and establishing personal information management regulations.

In tourism-dependent businesses such as the mountain sightseeing route bus business, hotels and ryokan, and merchandise sales at service areas, there is seasonal fluctuation with business performance concentrated in the second quarter (the tourism season). If progress does not proceed as planned due to factors such as unfavorable weather, this could have a significant impact on annual performance. Although the Group formulates plans that take seasonal fluctuations into account, the risk of fluctuation due to external factors remains.

There is a risk that global crude oil price surges and exchange rate fluctuations could increase fuel costs in the bus and taxi business, raise procurement prices in the distribution and tourism businesses, and increase electricity and gas rates, thereby squeezing business performance. If cost increases cannot be passed on through pricing, profitability may deteriorate. There is no description of specific hedging measures by the Group, and dependence on the external environment is high.

Due to the declining birthrate reducing the number of students and the increasing use of private cars, the number of users of the railway and bus businesses has been declining year by year, and this trend is expected to continue going forward. There is a risk that this structural decline in demand will continue to erode the profit base of the Transportation Business. There is no description of fundamental countermeasures against declining demand, and there are challenges to medium- to long-term business continuity.

The competitive environment is becoming increasingly severe: in the Distribution Business, due to aggressive store openings by competitors and intensifying competition with online supermarkets; in the Transportation Business, due to new entrants and price-cutting competition resulting from deregulation; and in the Tourism Business, due to the entry of hotels backed by capital from outside the prefecture. Substantial capital investment, including hotel renovations, is required to maintain competitiveness, and if the effects of such investment are uncertain, this could adversely affect business performance and financial condition. Although each business is implementing differentiation measures, maintaining competitive advantage remains an ongoing challenge.

Against the backdrop of the declining birthrate and intensifying competition in the labor market, there is a risk that if securing and developing excellent human resources does not proceed as planned, or if there is an outflow of personnel or a sharp increase in labor costs, this could hinder business expansion and stable operations. In particular, in the Transportation Business, the application of the overtime work cap regulation from April 2024 has made appropriate staffing arrangements increasingly important. While measures such as strengthening new graduate and mid-career recruitment, revising personnel systems, and conducting training are being implemented, the labor shortage across the industry as a whole is a structural challenge.

The distribution, transportation, tourism, and real estate businesses are each subject to a wide range of legal regulations, including the Large-Scale Retail Store Location Law, the Railway Business Act, the Road Transportation Act, and the Inns and Hotels Act, and there is a risk that regulatory tightening or legal amendments could result in substantial capital investment and depreciation expense burdens. In particular, in the Transportation Business, responding to the overtime work cap regulation that took effect in April 2024 is required, which may result in additional burdens for staffing arrangements and capital investment. Each company manages expiration dates using a list of licenses and permits, and the Compliance and Risk Management Committee provides oversight.