Kyoei Security Service Co.,Ltd.

In this labor-intensive business, which is highly dependent on human resources such as security guards, condominium managers, and temporary staff, the effective ratio of job openings to applicants for security occupations stood at an extremely tight 6.74x as of March 2025. If recruitment plans are not achieved, job advertising fees fluctuate, or unintended loss or attrition of human resources occurs, this could adversely affect business performance. As a countermeasure, the Group is implementing strategic recruitment premised on compliance with laws and regulations, but the structural labor shortage continues.

Domestic security companies number over 10,000 in competition, and the industry faces downward pressure on fees due to price competition. Labor costs, which account for the majority of expenses, are increasing against a backdrop of rising prices and wage increases, and if fee revisions are not realized, this will directly lead to a decline in profit margins. The Group is countering this by strengthening mobilization capacity through scale and enhancing service value-added through employees obtaining qualifications, but the pressure to lower prices due to intensifying competition is further increasing.

Compliance with laws and regulations such as the Security Services Act and the Labor Standards Act poses a burden on business activities, and future legal amendments could result in increased compliance costs and constraints on business activities. For example, if the standards for the placement of qualified security guards are strengthened, this could lead to increased qualification acquisition costs and restrictions on or discontinuation of existing services. If Group employees violate laws and regulations, they may be subject to fines, criminal penalties, or legal sanctions, which could also adversely affect business operations and reputation.

In acquisitions and joint ventures aimed at expanding market share, business performance could be adversely affected by significant acquisition costs, integration expenses, failure to realize synergies, loss of key personnel, or assumption of liabilities. In joint ventures, there are also risks related to strategic and cultural differences with partners, conflicts of interest, the need for additional capital contributions or debt guarantees, and risks associated with the sale or dissolution of equity interests. Insufficient management oversight or reputational damage could also adversely affect financial condition.

The Group holds goodwill, and impairment losses may be recognized due to deteriorating business performance, declining market capitalization, changes in economic conditions, or changes in valuation assumptions. In the fiscal year under review, following a review of revenue plans reflecting regional restructuring, the Group recognized an impairment loss of ¥325 million related to goodwill associated with several consolidated subsidiaries acquired in FY2024 (ended March 2024). In addition, a similar review resulted in the recognition of a valuation loss on shares of affiliated companies for non-consolidated subsidiaries, and intensifying competition is a further factor heightening impairment risk.

The Group's management structure is centered on its founder and Representative Director, President Fumio Wagatsuma, resulting in a high degree of dependence on him. In June 2025, the company transitioned to a company with an Audit and Supervisory Committee, strengthening governance by appointing 3 of its 6 directors as outside directors, but if he becomes unable to perform his duties, this could adversely affect business performance and financial condition.

Unforeseen events such as natural disasters (earthquakes, storms and floods, etc.), terrorism, and infectious disease pandemics could disrupt or halt service provision. In the event of economic stagnation due to infectious disease, cancellations or revisions of contracted services could occur due to facility closures or event cancellations. The Group has established a business continuity plan (BCP) system with a control center in Hokkaido and backup functions in Tokyo, but significant losses could still result in substantial repair or replacement costs.

Although relationships with major business partners have remained stable, price declines or contract terminations resulting from changes in the circumstances of business partners could adversely affect business performance and financial condition. While the Group strives to maintain and develop favorable and stable business relationships, concentration risk could materialize if dependence on specific business partners is high.

Technological advances in AI, robotics, IoT devices, and other areas continue, and these technologies could replace the Group's core business of human-based security services. If technological substitution progresses, the competitiveness of the business model that relies on human resources could decline, adversely affecting business performance. At present, no specific countermeasures are described, and continuous response to technological trends remains a challenge.

In providing services, the Group handles confidential and personal information of its clients, and there is a risk of information breaches due to malicious third parties, criminal organizations, or intentional or negligent acts by employees. While the Group has obtained Privacy Mark certification and works to prevent information breaches, if information leakage or misuse occurs, it could result in loss of sales, deterioration of customer relationships, litigation, or legal action by regulatory authorities, significantly and adversely affecting business performance and financial condition.