Hiroshima Electric Railway Co.,Ltd.

As the Group's business locations are concentrated around Hiroshima City and Kure City, a large-scale natural disaster or infectious disease outbreak could make it difficult to continue operations, particularly in the transportation businesses such as railway/tramway, bus, and marine transportation. Terrorism or deterioration in public security could have similar effects. Although measures such as formulating BCPs and disaster response manuals, conducting disaster prevention drills, and elevating critical facilities have been implemented, damage cannot be completely eliminated.

If a large-scale accident occurs in business-use vehicles or facilities such as trams, buses, ships, or cableways due to human or mechanical factors, including defects attributable to manufacturers, there is a risk of revenue decline from service suspension, incurrence of restoration and compensation costs, and significant impact on business activities due to loss of trust. The Group addresses this through the preparation of vehicle management tables, planned replacement based on discussions at the Board of Directors and Management Committee, and systematic education and training in transportation safety management.

As business operations are concentrated in the western Hiroshima Prefecture region, deterioration in the region's consumption trends, population decline, and land price fluctuations directly affect business performance. In particular, the railway/tramway and automobile businesses, which are mainly dependent on commuting and school commuting demand, have a structure highly susceptible to regional economic trends. The Group aims to achieve both regional revitalization and its own growth through a management strategy based on the "Hiroden Group Purpose."

The Group is subject to various laws and regulations such as the Railway Business Act, the Tramway Act, and the Road Transportation Act, and the railway/tramway and automobile businesses are subject to statutory fare cap regulations, making flexible fare changes difficult. Changes in laws and regulations or in national/local government transportation policy could result in substantial capital expenditure and depreciation burden for regulatory compliance. Maintenance of the permits and licenses that serve as preconditions for business operations is a condition for achieving the management plan.

If the working and student population declines due to the progression of the declining birthrate and aging population in the western Hiroshima Prefecture region, revenue from the railway/tramway and automobile businesses, which are mainly dependent on commuter and student transportation, could decline. The Group has set a policy of increasing usage by elderly and other passengers through the replacement of vehicles with barrier-free models and the development of an easy-to-use travel environment, but addressing this structural demand decline remains a challenge.

As funds required for capital expenditure are primarily raised through borrowings from financial institutions, a rise in interest rates could increase interest expenses and affect business performance. The Group has adopted a policy of managing the balance between profitability and interest-bearing debt over the medium to long term by setting the EBITDA interest-bearing debt multiple as a management indicator in its medium-term management plan. It also strives to obtain forecasts of market trends such as interest rates through information exchange with financial institutions.

In the transportation business, power and fuel costs account for a high proportion of operating expenses, and there is a risk that a surge in crude oil prices due to international or economic conditions could squeeze profits through increases in electricity charges, diesel fuel costs, and other expenses. The Group is promoting the replacement of vehicles with power-saving tram cars and hybrid buses, while striving to grasp market trends through information exchange with oil wholesalers and others.

Many of the Group's businesses, particularly transportation, are labor-intensive, and securing high-quality human resources is a precondition for business operations. If securing human resources becomes difficult due to intensifying competition in the labor market or other factors, this could affect the operation of each Group business. The Group is addressing diverse working styles through the introduction of a shorter-hours regular employee system, operation of in-house daycare centers, and thorough employee health management, and is working to secure and develop excellent human resources and to create a comfortable working environment.

As each business is highly dependent on computer systems and communication networks, there is a risk that business performance could be affected if a serious failure occurs due to sabotage by third parties, such as computer viruses, or due to natural disasters. The Group has implemented measures such as introducing various security systems and backing up data to robust data centers.

If the Group fails to respond appropriately to advances in ICT and digitalization, there is a risk that it will become difficult to provide new products and services, affecting business performance. The Group has set a policy of steadily advancing the sophistication of operation management through the integrated use of ICT, aiming to improve operational efficiency and productivity.