1 Natural Disasters and Accidents

1.1 Risk from Epidemics

If an infectious disease becomes widespread and restrictions are imposed on the movement and lives of people in various ways, it may materially affect the Company’s businesses. Specifically, impacts may be seen in the Urban Transportation Business through effects such as a declining number of passengers on railways and other means of transportation; in the Real Estate Business through temporary closings and a decreasing number of visitors to leased facilities with fewer hotel guests from overseas and weaker domestic demand; in the Entertainment Business through the cancellation of and attendance restrictions on professional baseball games and performances of the Takarazuka Revue; and in the Travel Business through the cancellation of overseas and domestic tours.
 Since the spread of COVID-19, the Group has been impacted as described above. Although impacts remain in fiscal 2022, a degree of recovery is seen in many business segments.
 With the recovery of domestic and international economic activity to a significant degree expected as the influence of the pandemic subsides, the Group will get back onto a pre-Covid growth track through the implementation of the medium-term management plan, and will push forward with the implementation of strategies to realize its Long-Term Vision: Toward 2040

1.2 Natural Disasters

Operating across an extremely wide range of businesses in its Urban Transportation, Real Estate, Entertainment, Information and Communication Technology, Travel, and International Transportation, the Group maintains a correspondingly large assortment of facilities necessary for conducting business. In the event of earthquakes, typhoons or other natural disasters, large-scale accidents or acts of terrorism, the business performance and financial position of the Group could be adversely affected by damage to these facilities, its customers and/or limitations placed on its business operations. Especially in recent years, it has been pointed out that climate change in the form of rising air and sea temperatures may increase the frequency of torrential rains and strong typhoons, and there is an increasing risk of the above-mentioned adverse effects being brought about by these natural disasters.
 The Group is striving to minimize both the tangible and intangible impacts of natural disasters and accidents. Efforts include investing in maintenance and renovation of existing facilities, conducting seismic reinforcement work, analyzing and responding to the impact of intensifying natural disasters, and developing systems with a priority on safety, especially at group companies engaged in the railway business and other forms of public transportation.

2 Information Management

The Group uses information systems in each of its business segments. If the functions of these systems are materially impacted by accidents, disasters, human errors or cyber-attacks, system failures or malfunctions, information leaks or other events may occur and disrupt the Group’s business operations, thereby affecting its business performance and financial position. Regarding personal information, the Group manages databases containing customer data and other personal information in each of its businesses. If information is leaked due to an unexpected incident, claims for damages and loss of public credibility may substantially affect the Group’s performance.
 In accordance with internal regulations such as the Fundamental Polices on Electronic Information Security, the Group takes measures required to prevent leaks, falsification, or unauthorized use of information and to operate its information systems securely. In light of being a railway operator, an important role, and with ensuring cyber security positioned as an important element in risk management, the Group makes continuous efforts such as proactive information gathering in cooperation with administrative agencies and other related organizations. Additionally, the Group CSIRT has been established for damage localization by promptly communicating and dealing with a problem when it occurs. A system to take appropriate recurrence prevention measures is also in place. Regarding personal information, in addition to the above, the Group has established regulations, such as fundamental policies on the management of personal information, to ensure compliance with laws and regulations related to the protection of personal information at home and abroad, and developed a system to help ensure the appropriate use and protection of personal information. Relevant training programs for officers and employees are also provided.

3 Compliance

The Group aims to meet the expectations of all its stakeholders and operate as a corporate group that is trusted and applauded by them.One of the preconditions for achieving this goal is a compliancefocused business attitude. In the event of noncompliance, claims for damages and loss of public credibility may affect the Group’s business performance and financial position.
 The Group promotes compliance management in each of its business segments not only by strictly observing the Companies Act, Financial Instruments and Exchange Act, labor laws, tax laws, economic laws, various industrial laws, and other relevant laws, but also by developing various basic policies on respect for human rights, prevention of corruption (bribery, etc.), tax affairs, and so on, as well as internal regulations, such as a code of corporate ethics, thoroughly implementing business operations in line with these.
 In particular, the Group believes that respect for human rights is the foundation for continuing to fulfill its mission. Based primarily on the United Nations Guiding Principles on Business and Human Rights, the Group has developed (and revised in April 2023) a basic philosophy on respect for human rights and a basic policy on respect for human rights, and is undertaking due diligence to avoid or reduce any negative occurrences. To further enhance the effectiveness of these efforts, a variety of education and training programs are also implemented for officers and employees to raise their awareness of compliance and improve their knowledge, thereby preventing noncompliance. The Group has also established a whistleblower system that allows prompt detection of and dealing with events that threaten our compliance stance and record.

4 Finance (Interest-Bearing Debt)

The Group makes continuous capital investments in each of its business segments. Most of the necessary funds are procured by borrowing from financial institutions and issuing corporate bonds, among other means. For this reason, in the case of future increases in interest rates, changes in financial markets, or downgrades in the Group’s credit rating due to changes in its financial position, the Group’s interest expenses may increase, and raising additional funds on desirable terms, including funds needed to refinance interest-bearing debt that reaches maturity, may become difficult.
 The balance of interest-bearing debt held by the Group as of the end of March 2023 on a consolidated basis was ¥1,106,351 million. Going forward, the Group plans to make capital investments required for maintaining and improving facilities, etc., as well as growth investing toward the future, including investment in large-scale projects. With these investments, consolidated interest-bearing debt is expected to increase to a certain degree.
 The Group will continue to diversify its funding and secure its liquidity, take steps to avoid interest rate risks through fixed rate financing, and strive to maintain the soundness of its financial position by controlling interest-bearing debt through cost reduction and reductions in investment in maintenance and replacement.

5 Changes in Political, Economic and Social Environment

5.1 Legal Risk

In accordance with the stipulations of Article 3 of the Railway Business Law, the Group must obtain separate permissions from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) for each category of railway operations on each route that it intends to operate. Under Article 16 of the Law, a railway operator must obtain MLIT’s approval for the passenger fares it intends to set and on each occasion when it wishes to change the fares. Therefore, these regulations may limit the activities of the Group’s railway business. Notably, no fixed periods are prescribed for the permissions or approvals of MLIT.
 In addition to the railway business, other businesses in which the Group engages are also subject to various laws and regulations. If these are tightened, the cost of regulatory compliance may increase, while failure to comply with regulations may limit the Group’s activities and affect the Group’s business performance, financial status, etc.
 The Group is working to minimize any such effects by investigating and ascertaining in advance information regarding changes in existing regulations and the establishment of new regulations and their respective impacts.

5.2 Decline in the Market Value of Assets Held by Members of the Hankyu Hanshin Holdings Group

In the case of a substantial decline in the market value of inventory assets, property and equipment and intangible assets, investment securities or other assets, the recording of impairment loss or valuation loss would likely have a negative impact on the business performance and financial position of the Hankyu Hanshin Holdings Group.

5.3 Declining Birth Rate

In the Group’s mainstay Kyoto-Osaka-Kobe area, demographic changes accompanying the declining birth rate and other factors are expected to decrease demand for railway, bus, taxi and other types of passenger transportation services, as well as decrease demand in other business areas. In addition, securing personnel is likely to become difficult as an imbalance between supply and demand develops in the labor market. Such situations could affect the business performance and financial position of the Group.
 In addition to efforts to increase the resident population in areas along railway lines operated by the Group and to increase the influx of visitors to these areas by capturing the demand generated by foreign tourists, etc., the Group will broadly promote efforts to improve productivity by leveraging DX (Digital Transformation) and by other means.

5.4 Social Changes (in Lifestyle and Workstyle)

Triggered by the COVID-19 pandemic, social changes, such as changes in people’s behaviors and locations they are based in, and expansion of awareness of QOL (Quality of life) are seen. Socioeconomic and business environments are changing rapidly, as illustrated by increasing awareness of SDGs and carbon neutrality 2050 (achieving a decarbonized society by 2050). Going forward, if these changes transform people’s lives, it may affect the existing business models of the Group, since it operates businesses closely related to the way people live.
 In light of this situation, the Group will progress with measures in line with the strategies outlined in its Long-Term Vision: Toward 2040 formulated in May 2022, respond to changes in socioeconomic and business environments, and take into account people’s needs and preferences to offer a range of products and services, thereby continuously improving the corporate value of the Group.

5.5 Addressing Climate Change

To cope with climate change, efforts are being mounted extensively on a global basis to reduce greenhouse gas emissions. Although the Group’s railway, its core business, has less of an environmental impact than other means of transportation, the business is expected to require future investment or incur additional expense to respond to a more decarbonized and recycling-based society. Moreover, introduction of a carbon tax system for greenhouse gas emissions and a rise in retail electricity prices (to promote renewable energy, etc.) may be accompanied by further increases in cost. If the Group fails to adjust to these social demands, it may face a decrease in revenue due to the loss of public credibility and/or financing difficulties.
 The Group recognizes that greenhouse gas reduction is necessary for realizing a sustainable society. With “environmental protection” set as one of the priority issues in its Sustainability Declaration, the Group is moving forward with environmental protection activities that contribute to achieving a more decarbonized and recycling-based society.
 As part of these activities, the Group has agreed to and is taking steps in accordance with the recommendations from the Task Force on Climate-related Financial Disclosure (TCFD). In line with its disclosure framework, the Group has specified its “governance,” “risk management,” and “indicators and goals.” As for “strategies,” “risks and opportunities” in the railway business and real estate business that are likely to be significantly affected by climate change in its businesses have been identified by the Group for analysis, including estimation and disclosure of financial impacts. For the purpose of evaluating and managing these risks and opportunities related to climate change, CO2 emission reduction target values (fiscal 2031: 46% reduction compared to fiscal 2014; fiscal 2051: net zero) have been set as group-wide Key Performance Indicators (KPI). Having set individual KPIs for each business as well, the Group is working to improve the resilience of its business to climate change.

5.6 International Operations

The Group’s Real Estate, Travel, International Transportation and other businesses are also active overseas and are, therefore, subject to various risk factors in each country, ranging from drastic changes in political and economic conditions to incidents of conflict, dispute or terrorism and the outbreak of infectious diseases. The Group is working to address these risks based on risk analyses supported by the advice of lawyers, consultants and other experts. However, in the case of an unexpected development, the business performance and financial condition of the Group may be affected.