Risk Factors

The Group regularly reevaluates its risk awareness and evaluate the initiatives it takes to mitigate risk on a regular basis, in its efforts to avoid risks or to deal with them if they emerge. Of the matters related to the business conditions and financial situation that are stated in the securities report, the Group has identified four types of risk in consolidated management—risks associated with the spread of new infections, risks related to safety management initiatives, risks related to responses to change in the business environment, and compliance risks—as the most important risks that could have a material impact on investor judgment. Risks related to workstyles and the recruitment of human resources are identified as important risks from a long-term perspective.
The content of the risks and initiatives for controlling them are described below.
This section includes forward-looking statements, which are based on our judgment as of the date of submission of the securities report. Please note that the following is not intended to include all the business risks of the Group.


(1) Risks associated with the spread of new infections

A significant contraction of economic activity due to changes in human movements resulting from restrictions on going out and telework, including working from home, which may be caused by a resurgence of COVID-19 infections or the spread of new infections, or due to a reduction in inbound tourists, among other factors, or a temporary difficulty in business continuity due to a cluster of infections or restrictions on attendance at places of business operated by the Group could adversely affect the Group's performance and financial position.
The Group has been developing its management foundations in a far-sighted manner. It has announced its long-term management initiative, which is aimed at achieving sustainable growth from a longer-term perspective, and has been promoting this initiative. To respond promptly to future changes in society, the Group is moving ahead with new initiatives and reforms in each business and striving to further deepen its business strategies.
In addition, the Group takes initiatives to prevent the spread of infection in its businesses, such as partially opening multiple windows of each train car for ventilation whenever a train is moved out of a train depot, by following requests from the Ministry of Land, Infrastructure, Transport and Tourism and the Ministry of Health, Labour and Welfare, as well as the guidelines on the prevention of infection in the railway industry created by the Japan Private Railway Association, among other efforts. The Group is taking other steps to enhance health management, ensure safety, and prevent the spread of infections. They include promoting diverse ways of working, such as working at home, taking steps to prevent infections, such as measurement of body temperature, at workplaces, and holding online meetings to avoid gathering in one place.


(2) Risks related to safety management initiatives

1. Risk that the provision of services will be made impossible by the destruction of a facility or similar reason due to insufficient preparation for natural disasters and similar events, including the effects of climate change
Injury to humans, business interruption, or other consequences of a large natural disaster or similar event could adversely affect the Group's performance and financial position. The Group takes steps to strengthen its ability to respond to natural disasters and the spread of infections, among other occurrences, including the building of cooperation mechanisms among consolidated companies. The Group also assesses operating losses caused by climate change and its social impact and takes measures (to prevent or minimize losses) based on the results of the assessment. In addition, the Group promotes constant reviews and other initiatives to improve the effectiveness of its risk financing, including earthquake insurance and commitment lines.
2. Risk that a human-caused accident will result in a liability to pay compensation for damages and a loss of trust in the Group's services and facilities
Injury to humans, business interruption, or other consequences of a serious human-caused accident or similar event could adversely affect the Group's performance and financial position. Accordingly, the Group undertakes various initiatives assuming problems caused by accidents or the failure of equipment and information systems, problems caused by the inadequate quality of food or construction work, etc., and problems that may occur due to other causes. It has installed platform doors and fixed platform fences with sensors on all Tokyu lines*. It has also developed measures to prevent the recurrence of accidents, etc. by collecting and sharing information about accidents which have occurred. In recent years, the Group has been undertaking safety initiatives, including the installation of 3D sensors at crossings for obstacle detection.
*Excluding the Setagaya and Kodomonokuni Lines
3. Risk that the destruction of a facility, the death or injury of customers, or other incidents caused by external factors such as terrorist attacks will make it impossible to provide services, resulting in a loss of social trust in the Group's services
Injury to humans, business interruption, or other consequences of serious accidents or similar events caused by external factors, such as a terrorist attack, could adversely affect the Group's performance and financial position. In response to the risk, the Group has been pursuing numerous initiatives, assuming disasters caused by unlawful acts, including terrorist attacks, and other troubles due to other causes. The Group is promoting safety initiatives, including the installation of security cameras in all cars* of Tokyu Railways and the effective deployment of security personnel in station facilities and retail facilities.
*Excluding the cars running on the Kodomonokuni Line

(3) Risks related to responses to change in the business environment

1. Risk of drastic changes in market conditions in business areas due to changes in administrative policy measures, including taxation, among other factors
The Group's performance and financial position could be adversely affected if consumer spending remains in a slump due to a decline in household income caused by a prolonged economic slump, tax hike, or similar cause, or if there is a change to legal systems related to the Group's business. Accordingly, the Group has established a medium- to long-term operating policy in anticipation of changes to market conditions and political, economic, and legal systems. It is working on various measures such as the formulation of an appropriate business plan that includes repair and equipment investment and measures for maintaining and improving its facilities' ability to attract customers, such as the improvement of convenience, development of an attractive tenant mix, and the addition of modern elements.
2. Risk of difficulty in securing profits and business continuity due to the new normal resulting from the COVID-19 pandemic, a delay in responding to accelerating digital transformation, and wrong projections of demand and profitability
The Group's management resources are concentrated in the areas served by the Company's railway lines. Its performance and financial position could be adversely affected if the demand for its existing business declines due to declining birth rates and an aging population or the reduction of the population, if use of its transportation services, offices, or commercial facilities decreases due to lifestyle changes, or if the competitiveness of its existing business is lowered due to the emergence of a new industry or business model.
The Group has developed a three-year medium-term management plan and implements measures under the plan. However, the plan may not be implemented as expected or may not produce the expected earnings and effects due to differences between demand forecasts and actual demand after the COVID-19 pandemic subsides and changes in the economic situation. This could adversely affect the Group's performance and financial position.
Accordingly, the management team is working to identify trends in the performance of each business and signs of change in these trend as soon as possible. They discuss countermeasures, make decisions, monitor, and take other measures promptly and appropriately.
3. Risk of rising procurement cost and falling profitability due to the deterioration of market conditions and increasing cost for reducing CO2 emissions
The Group implements cost reduction measures in response to trends in the market prices of raw materials, labor, and other expenses. However, the Group's performance and financial position could be adversely affected if the cost of raw materials rises sharply due to changes in market conditions and increasing costs for reducing CO2 emissions. Accordingly, the Groups is working to continuously scrutinize the content of its construction activities, including value engineering and cost reduction, among other measures.
4. Risk that financial conditions will be aggravated by a financial market disruption, deterioration of the interest rate environment, downgrading, or other event
The Group has raised much of the funds necessary for its railway operations and other businesses through bonds and borrowings from financial institutions.
Accordingly, if interest rates rise, or if the Company is downgraded by rating agencies, the burden of interest could increase, and financing conditions could worsen, which would adversely affect the Group's performance and financial position.
Accordingly, the Group is striving to improve its ability to raise funds flexibly using the short-term money market, including the use of commercial paper, while controlling refinancing risk by promoting the conversion of interest-bearing debt* into long-term fixed rate debts.
*Interest-bearing debt: the sum of borrowings, bonds, and commercial paper

(4) Compliance risks

1. Risk that the revelation of non-compliance will result in disposal of loss related to it and loss of social trust in the Group as a corporate entity
The Group complies with applicable laws and regulations and follows business ethics in its businesses, including railway operations and the real estate business.
However, if society's trust in the Group is lost as a result of violations of laws and regulations or business ethics, the Group's performance and financial position could be adversely affected, with a loss of customers, business partners,
etc. Accordingly, the Group has established and operates an appropriate legal compliance system by communicating and enforcing the Tokyu Group Compliance Guidelines and the Tokyu Corporation Code of Conduct. At the same time, the Group is pursuing initiatives such as the collection of information about misconduct and scandals, sharing information to prevent misconduct, scandal and their recurrence, and the enhancement of systems to raise awareness and provide training on overall compliance matters and responses to the amendment of laws.
2. Risk of the erosion of social trust that may result from the announcement of inappropriate financial statements or other matters caused by a critical error or misconduct in accounting or other processes
The Group takes an array of measures to optimize its consolidated accounting system and strengthen its governance while complying with applicable laws and regulations and following the accounting standards of each country.
However, if society's trust in the Group is lost as a result of the violation of laws, regulations, or standards, the Group's performance and financial position could be adversely affected, with a loss of customers, business partners, etc. Accordingly, the Group is undertaking initiatives such as the optimization of its consolidated accounting system and the standardization of operations through the use of a common accounting system by its consolidated subsidiaries in Japan.
3. Risk related to the handling of leaks and losses of confidential information and personal information due to inadequacies in information management, including IT security, and risk of an impairment of social trust
The Group provides systems and services for social infrastructure. If a failure or any other problem in the systems and services occurs during their operation, the Group's performance and financial position could be adversely affected by the erosion of social trust, degradation of the brand image, or the payment of compensation for damages caused by the failure or problem, among other consequences. Accordingly, the Group takes an array of initiatives assuming problems caused by failures of equipment and information systems or other incidents.
Consolidated subsidiaries responsible for key infrastructure such as transportation, payment, and telecommunications are actively engaged in various initiatives including cyber attack drills and the promotion of the purchase of cyber insurance, in addition to external security assessments and the formulation of improvement plans.

(5) Risks related to workstyles and the recruitment of human resources

1. Risk that appropriate human resources cannot be secured amid the decline in the productive-age population, resulting in a degradation of service quality and business contraction and even inducing illegal employment
The Group's performance and financial position could be adversely affected, with a loss of customers, business partners, etc., if the problems of the outflow of employees and the difficulty of recruitment become serious in the future due to declining birth rates and an aging population or a decrease in the population, and the shortage of human resources may lead to a degradation of services, the spread of rumors, or similar problems. Accordingly, at the Group,
all consolidated subsidiaries are working together to strengthen their recruitment and training of human resources and to promote the use of human resources within the Group, in their efforts to secure sufficient human resources.
They are also taking a number of other measures, such as reviewing personnel systems and employee welfare programs to permit diverse, flexible workstyles that are not dependent on regular full-time employees.