Nankai Electric Railway Co.,Ltd.

There is a risk that railway passenger numbers may decline due to the declining birthrate and aging population, a decrease in the population along the railway lines, and trends in the number of users of Kansai International Airport, including inbound visitors. In addition, changes in domestic and overseas economic and consumption trends may affect sales in the Real Estate Business, Retail & Distribution Business, and leisure businesses, and fluctuations in interest rates and foreign exchange rates as well as soaring electricity charges and material prices may also put pressure on business performance. There is also an inherent risk that impairment losses arising from fluctuations in the share prices of investment securities or in land prices of owned real estate could worsen the financial position.

In the Railway Business, some lines compete with other companies, and the ongoing shift of transportation means to private cars and motorcycles may continue to have an impact. In the Bus Business, new entrants are permitted under free competition, raising concerns of intensifying competition, and the nationwide shortage of bus drivers, which is becoming increasingly serious, may affect business performance depending on the status of personnel recruitment. Commercial facilities such as Namba CITY also compete with large-scale commercial facilities in the Umeda and Tennoji areas.

Under the Railway Business Act, permission from the Minister of Land, Infrastructure, Transport and Tourism is required for each line and business type, and approval is also required to set or change the upper limits of passenger fares and charges. If a violation of the Act is found, the Minister may issue an order to suspend business operations or revoke permission, which could have a significant impact on business activities. At present, there are no facts constituting a violation of the Act, but there is a risk that regulatory compliance costs may increase due to the strengthening of legal regulations.

Due to the nature of its business, the Group has a high degree of dependence on borrowings, and the balance of interest-bearing debt may further increase due to the issuance of corporate bonds and bank borrowings accompanying capital expenditures and M&A execution. There is a risk that an increase in interest burden due to interest rate fluctuations could adversely affect business performance, and a downgrade by a rating agency could have an additional adverse effect on funding costs and financial condition. The Group strives to diversify its funding methods and maintain financial soundness, but these risks cannot be completely eliminated.

Continuous grade separation construction work in the Railway Business and various renewal investments to ensure safe operations are long-term and involve large sums of money, and the associated fundraising and interest burden continue to have an ongoing impact on business performance and financial condition. For large-scale properties for sale, there is a risk that capital recovery may be delayed due to declining land prices in suburban areas and the trend of housing demand returning to city centers. It is expected that difficult conditions for large-scale suburban housing development will continue due to declining housing demand caused by the falling birthrate and the strengthening preference for returning to city centers.

If railway facilities, buildings, and other infrastructure suffer extensive damage from large-scale earthquakes and tsunamis such as a Nankai Trough earthquake, or from wind and flood damage or landslides caused by typhoons, this could adversely affect business performance and financial condition. The Group has implemented measures such as seismic reinforcement of elevated bridge piers, disaster prevention and mitigation measures for bridges, formulation of BCPs, and introduction of earthquake-response commitment lines, but depending on the region, scale, and timing of occurrence, damage could expand. Indirect railway transportation disruptions are also anticipated, such as facility damage to Category 3 railway business operators, power supply restrictions, and difficulty in procuring parts.

In the Group, whose core business is Transportation, if an accident, fire, explosion, or serious incident occurs, it could lead to a loss of public trust as well as significant impacts on business performance due to restoration costs and damage compensation claims. System failures caused by human error or equipment malfunction impede business operations and result in facility restoration and substitute transportation costs. The Group works to prevent such occurrences through the development and renewal of safety facilities and station operation systems, regular maintenance, and thorough employee training.

When executing M&A as part of its growth strategy, if contingent liabilities or unrecognized liabilities that could not be detected during due diligence come to light, this could adversely affect business performance and financial condition. If the profitability of a target company declines due to changes in the business environment after the M&A is executed, or if the expected synergies cannot be realized, there is a risk that impairment losses may be recognized or that the investment may become unrecoverable. The Group conducts thorough due diligence involving outside experts, but these risks cannot be completely eliminated.

Nankai Tatsumura Construction Co., Ltd., a consolidated subsidiary, is the Group's only listed company and a core company, and the Group has provided management support to it in the past, including underwriting third-party allotments of new shares and providing support funds. If unexpected deterioration in the order environment or other issues occur at this company, it could adversely affect the Group's business performance and financial condition. The Group has established a unified risk management system through a group-wide risk management committee, but there may be cases where it is difficult to respond to sudden changes in the external environment.

Each business holds personal and confidential information of customers and employees, and if an information leak occurs for any reason, it could affect business performance due to the occurrence of liability for damages and a loss of public trust. The Group has implemented measures against third-party acts such as unauthorized access and terrorist activities, including vigilance against suspicious objects, enhanced patrols within facilities, and ensuring information security, but if such an event were to occur, it could disrupt business activities. The Group continuously develops internal regulations such as its basic information security policy and provides ongoing employee training.