There are several risks relating to the Seibu group's, or our businesses that may have a material influence on investor decisions, mainly as described below. Fully recognizing these risks, we are making its best efforts to prevent any occurrence of such risks or cope with such risks if any occurred. Furthermore, the following descriptions include even matters that are not deemed to be risks from the standpoint of active disclosures of information. In addition, the future matters included in the following descriptions are generally based on our evaluations as of March 31, 2021.

1. Risks Related to Economic Conditions

We conduct its business mainly in Japan and are thus affected by various aspects of the country's domestic economic conditions.
Our Group monitors economic and market conditions, and when there is a change in circumstances, we will swiftly make decisions based on our Group policies and operate businesses in an accurate manner, while also establishing an efficient business management structure.
Nevertheless, several factors, such as lower consumer spending, deteriorating employment situation, stagnating corporate activities, shrinking demand for private and public construction, a downturn in the real estate market, a slump in the global economy, and geopolitical risks, etc. could have a negative impact on our results of operations and financial condition.

2. Risks Related to Legal Regulations

The businesses we engage in are subject to various laws and regulations.
To comply with any applicable law or regulation, the Group strives to comply with economic laws and regulations, gather information on revisions to laws and regulations, and conduct in-house education.

The urban transportation and regional business is subject to the Railway Business Act, the Road Transportation Act and other related laws and regulations. In our railway operations, we must obtain permits from the Minister of Land, Infrastructure, Transport and Tourism for each railway line and each type of business that we engage in pursuant to the Railway Business Act (Article 3 of the Railway Business Act) and furthermore, we need the approval of such Minister in respect of setting or changing the maximum chargeable fares (Article 16 of the Railway Business Act). Our fares are currently set at the maximum chargeable fares and any increases in such fares must be approved by the Minister. As a result, if business costs increase or if any other similar events occur, such additional costs may not be absorbed by the fares at a sufficient time or to a sufficient extent.

In respect of the railway operations referred to above, the permits and approvals that our group currently possesses have no fixed term. Any violations of the Railway Business Act, orders by the Minister under the Railway Business Act, administrative actions under them or violations of the conditions in the various permits or approvals from the Minister are subject to business suspension orders or withdrawal of such permits by such Minister (Article 30 of the Railway Business Act). At present, to the best of our group's knowledge, there are no facts that may fall under such violations and no events have occurred that may obstruct the continuance of our railway operations. However, any occurrence of such facts or events resulting in an order to suspend our business or a withdrawal of any permits from the Minister may have a significant impact on our group's business activities. The bus and taxi operations are also subject to regulations and are to be conducted in accordance with the permission of the general passenger automobile transportation business permits under the Road Transportation Act (Article 4 of the Road Transportation Act).

In addition, our railway operations may require investments for increased requirements related to safety, access for the disabled, energy conservation and environmental matters.

Our hotel and leisure business is subject to laws such as the Hotel Business Act and the Food Sanitation Act. Among other things, the hotel business is to be conducted in accordance with the business operation permits under the Hotel Business Act (Article 3 of the Hotel Business Act).

Our real estate business is subject to extensive national and local real estate and construction-related regulations, including the Building Lots and Buildings Transaction Business Act, the City Planning Act, the Building Standards Act and the Soil Contamination Countermeasures Act. For example, if any hazardous or toxic substances, including asbestos, are discovered on any of our properties, those properties could fall in value, and we might incur substantial costs due to being required to remediate the underlying hazard and discharge the related environmental liabilities. Furthermore, any changes in such applicable laws and regulations may require us to bear new obligations or cost increases or may regulate our rights relating to our real properties, which could result in deterioration of the value of such properties, limitations on our business scope or a significant amount of reconsideration of our development plans.

In addition, our construction business is subject to the Construction Industry Act, the Building Standard Act and other related laws and regulations.

Regarding the issue of our consolidated subsidiary Seibu Construction Co., Ltd. and others with inadequate practical experience at the time of obtaining previous qualifications, including construction engineers, on March 12, 2021, we reported to the Ministry of Land, Infrastructure, Transport and Tourism on the content of the investigation report and measures to prevent recurrence, following an investigation by a third-party investigation committee (including the results of quality verification by a third party) .

However, in the future, in the event that the Ministry of Land, Infrastructure, Transport and Tourism implements a supervisory action against Seibu Construction Co., Ltd. or otherwise suspends the nomination of construction under the direct control in accordance with the supervisory action, may negatively impact our results of operations and financial condition.

Changes in applicable laws and regulations or additional regulations could result in increased compliance costs and a failure to follow any regulations could result in restrictions on our group's activities or may have other adverse effects on our results of operations and financial condition.

In addition, changes to accounting standards and tax laws and policies may negatively impact our results of operations and financial condition.

3. Risks Related to Natural Disasters, Accidents and Infectious Diseases

We recognize that “safety and security” are top priority issues as we operate our businesses and take the utmost care with respect to safety management. Namely, in the urban transportation and regional business, we focus on enhanced safety and maintain a safety transportation management system and in the hotel and leisure business, take the measures to ensure food security and implement safety measures at our facilities. However, a large-scale accident, natural disasters such as earthquakes, or an act of terrorism or a similar incident, may require additional costs, which could negatively impact on our results of operations and financial condition.

In addition, typhoons or abnormal weather, such as cold summers or snowfall conditions, may decrease customers in our hotel and leisure business, and in the event any infectious diseases become epidemic, such as a COVID-19, where treatment measures have not been established, it might trigger the closure of a part of our operations or may reduce the willingness of people to go out or engage in leisure activities in our urban transportation and regional business and hotel and leisure business, which may result in a decrease of operating revenues or additional costs for countermeasures, and could negatively impact on our results of operations and financial condition.

The effects of COVID-19 infection are described in "2[Analysis of financial position, operating results, and cash flow by management] (7) Factors that have a significant impact on operating results" in the 2Q Quarterly Report of the 18th Fiscal Year (Japanese only).  

4. Risks Related to Declining Birthrate and Aging Population

The businesses operated by the Seibu Group, such as the urban transportation and regional business and hotel and leisure business, are closely related to the daily lives of customers.

Specifically, we are implementing measures in Urban Transportation & Regional business to increase the number of people living along our railway lines and in the Hotel & Leisure business, we are gearing up for a paradigm shift toward inbound tourists. However, we are concerned about a decline in passengers in connection with the railway operations and bus operations and a decline in leisure facility users due to a decline in the student and working population caused by a decreasing birthrate and aging population or a population decline in the present or future. Especially in the railway operations, the operating resources are concentrated in the Seibu railway's regional area, and the impact of a declining and aging population in such area is a concern. Furthermore, because we earn a significant part of its railway operating revenues from commuters, the declining day time population in Tokyo may have a negative impact on our results of operations in our urban transportation and regional business.

Many of our businesses, including our urban transportation and regional business, hotel and leisure business and construction business, require a large labor force in order to maintain efficient operations. Although our group is diversifying its recruitment methods and implementing measures to avoid the departure of young employees, there are concerns that it will become even more difficult in the future to recruit young employees. In these cases, the Group's performance and financial condition may be affected.

5.Risks Related to Decline in Tourists

Our hotel and leisure business may be significantly affected by trends in the Japanese tourism market, including an increase or a decrease in overseas tourists. The Japanese tourism market may be affected by various factors, including Japanese economic conditions, exchange rates, perceptions of various countries towards Japan, natural disasters, accidents and epidemics.

In addition, we operate overseas businesses mainly in U.S. State of Hawaii. Our Hawaii operations may be affected by the aforesaid factors, and changes in international conditions, including U.S. economic conditions, leading to a decline in travelers to Hawaii, which could result in a decrease in operating revenues.

In response to these risks, our Group is working to strengthen marketing that does not rely on a single market, promotional activities to attract passengers, reciprocal customer transfer between domestic facilities and overseas facilities, and to develop new products responding to such risks. Nevertheless, a sudden decrease in tourists in Japan or Hawaii could affect our Group's performance and financial condition.

6. Risks Related to “Seibu Group's Medium-Term Management Plan”

The Group formulated the Medium-term Management Plan for the three-year period ending with FY2023, which sets forth the theme of “Looking ahead to our vision for the Group in a post-COVID-19 society, overcoming the impact of COVID-19 and creating a pathway for rapid growth, in a fixed format.
But if we are unable to achieve its management strategy, management goals, or other development plans based on this plan, our business performance and financial condition may be affected.

7. Risks Related to Important Litigation

Although our group strives to ensure legal checks at the time of contract agreement, obtain legal knowledge through seminars, etc., and respond to matters appropriately in collaboration with our counsels, in the ordinary course of business, we may be subject to lawsuits and other legal means from third parties in connection with contract disputes, damages, labor disputes, environmental pollution, etc., or be investigated by the government.

In addition to the costs of legal proceedings, in the event of an adverse judgment or order, our results of operations and financial condition could be adversely affected.

8. Risks Related to Interest-bearing Debts

The businesses that we engage in, among others, the railway operations and the hotel operations, require a large amount of capital expenditures on a continuous basis. Although the Seibu group is concerned with reducing interest-bearing debts, the net balance of interest-bearing debts, excluding cash and deposits, was 908,340 million yen as of March 31, 2021.
In procuring funds, the Group is taking steps to respond to the risks of short-term interest rate increases by mainly borrowing at long-term, fixed rates, improving/maintaining funding terms, and diversifying funding methods.

In addition, with the aim of achieving asset-light business operations, the Group considers to sell and liquidate assets and businesses, and proceeds with rigorous screening of capital investments to strengthen and optimize balance sheet.

However, future increases in interest rates, changes in the financial market, or downgrades followed by the company’s worsening financial condition could lead to an increase in interest expenses and make it difficult to obtain additional funds on desirable terms, including the funds required to refinance interest-bearing debt maturing at the time of repayment.
These events could adversely influence our results of operations and financial condition, and furthermore we may not be able to apply sufficient funds to capital expenditures due to the repayment of borrowings.

9. Risks Related to Value of Our Property

Due to the nature of our businesses, namely, the railway operations and the hotel operations, we hold a significant amount of properties and other fixed assets.

Although the Group carefully selects investments by managing business hurdle rates and implements various initiatives to improve the utilization of existing assets by reviewing the Group’s business portfolio (selection of non-core asettes), the Group's assets, such as real estate and securities, are subject to price volatility risks. As a result, the Group's business performance and financial position may be affected by economic conditions or economic trends, a decline in the value of assets held due to a decline in the ability to generate cash flows, and the occurrence of impairment loss or a loss on the sale of assets.

10. Risks Related to Intensified Competition

We are subject to significant competition in various businesses.

The competition across the industries between our hotels and succession of companies responding to “stay home” are intensifying among our hotel and leisure businesses, as the demand for banquets and restaurants declining while online conferences and meal delivery services increasing, due to the impact of the COVID-19 infection. We are required to differentiate our services in response to diversified consumer needs.

Furthermore, shrinkage of hotel market due to the COVID-19 outbreak will intensify our conventional competition between foreign companies and hotels specialized for lodging.

Also, our real estate business is subject to intense competition from competitors in operation of commercial facilities under the real estate leasing business, based on factors such as price and convenience of location. Our construction business competes with a large number of participants, with contracts generally awarded based on a competitive bidding process.

In response to these risks, the Group is striving to maintain and strengthen its competitiveness by 1) offering PCR test in our services such as weddings, MICE—meetings, incentives, convention and exhibition businesses, and baseball, 2) incorporating the MICE 2.0 concept to diversify uses of hotel banquet halls nationwide—autonomous initiatives such as self-sponsored events using the Group’s internal content, 3) promoting Workcation—work + vacation, 4) conducting chain operations utilizing one of the largest networks in Japan, and 5) differentiating itself from competitors through the management of the Group's brands, and considering the utilization of business alliances and acquisitions and promoting the Sustainability action if needed.

However, divestitures of our property in order to maintain and enhance our competitiveness, could have a material adverse effect on our results of operations and financial condition.

11. Risks Related to Information Technology Systems and Management of Information

We depend on various information technology systems to operate our various businesses, including our urban transportation and regional business and hotel and leisure business.

Although our group carries out training for system failure (cyber-attack) response and recovery, project management that realizes the introduction of high-availability systems, and measures such as authorization inventory and confirmation of the safety of partner companies, if a serious failure occurs in that function due to an accident, disaster, human error, etc. with respect to these systems, our group's business operations could be affected, and our group's performance and financial condition could be affected by a decrease in operating revenues or the incurrence of countermeasure costs.

We are also vulnerable to system failures of other companies, such as other railway operators or railway related service providers. Furthermore, we manage the data base containing the personal information such as lists of guest or the customer data for membership services of hotel and leisure business, information about the sales of season tickets or IC card tickets of urban transportation and regional business, and the customer data concerning the real estate business or management of point card services.

Our Group provides security-related education using e-learning and cyber- attack response drills, etc., and pays a close attention to the management of personal information. However, in the unlikely event of a problem such as a leak of personal information, our Group may be claimed damages and our Group's credibility may deteriorate, which could affect our Group's business performance and financial condition.

12. Risks Related to Increases in Price of Fuel, Electricity or Raw Materials

In connection with our urban transportation and regional business, it is possible that, due to increase in the oil price, the price of fuel will increase in the bus and taxi operations, etc. In connection with the railway operations, which particularly rely on electricity supplied by TEPCO Energy Partner, Incorporated, costs for electricity may increase in the future due to a rise in the amount of the basic rate and the increase in the amount of the charges related to the promotion of renewable energy.

In our construction business, there are many cases where the length of construction period from acceptance of order and commencement of construction until the completion thereof is relatively long, and, if the amount of raw material costs or the labor costs increases during the construction period, construction costs may increase accordingly. Also, in the case that the amount of building raw materials increases and it is difficult to reflect the fluctuation in prices of such raw materials into selling prices and contract prices in the real estate business and construction business, we are not always able to realize the profits that were originally expected. In addition, with respect to the issue of the capital expenditure, the amount of capital expenditure may increase, and the depreciation costs and the funding costs may increase, or we may be forced to delay making required capital expenditures.

As a countermeasure to these risks, our Group will strive to conduct efficient business operations by constantly identifying changes in the prices of fuel, electric power, raw materials, etc., considering the introduction of energy-saving equipment and vehicles, and negotiating prices with business partners that share mutual benefits with our Group. However, if the prices of crude oil, electricity, and raw materials soar, our Group's performance and financial condition may be affected.

13. Risks Related to Profit Structure

A substantial proportion of our operating expenses consists of fixed expenses, such as personnel and depreciation costs, particularly in the case of our urban transportation and regional business, hotel and leisure business, and real estate business, among our operations, and, as a result, a relatively minor decline in sales could have a significant negative impact on our operating income.

In response to these risks, our Group is carrying out management reforms with no exceptions declared in the "FY2021-FY2023 Seibu Group's Medium-term Management Plan", to realize an asset-light business operation by reviewing the Group’s business portfolio, striving to reduce the break-even point through reduction of fixed expenses, rigorous selection and efficient investments using different hurdle rates for each business, and to reduce costs through the work system reform.

However, such an earnings structure may affect our Group's performance and financial condition.

In addition, although our Group is carrying out management reforms, in particular, Hotel and Leisure business may be affected more significantly because of relatively large volatility in operating revenues when economic fluctuations or a new pandemic of infectious diseases will be occured.

14. Risks Related to Rumor

Many of our businesses provide services and products directly to retail customers under the "Seibu" and "Prince" brands.

Although our Group implements brand management, appropriately manages information, establishes a disclosure system, and implements measures to improve CS and ES, if any of the risks described in "Business and Other Risks" becomes a reality, or if the brand image of our Group is impaired, it may affect the Group's performance and financial condition.

In addition, because there are third parties that utilize the same or similar brands, the acts or statements of such third parties which damage these brands could indirectly damage our reputation.

15. Risks Related to Food-Borne Illnesses or Management of Food

We provide meals and sell food in our hotels, restaurants, and stores, etc. The Group conducts food safety management systems, food safety audits, and food safety education, and pays due attention to quality control and food hygiene. However, in the event of a food poisoning accident, the Group may be subject to a suspension of operations, the Group's reputation and brand may be damaged, and the Group's performance and financial condition may be affected.

In addition, in the case where problems occur concerning the food hygiene and the safety and security of food by, for example, norovirus or contagious diseases that affect animals, the decrease in sales or the disposal loss of inventory could adversely affect our results of operations and financial condition.

16. Risks Related to Credit Management

The Group strives to strengthen its credit management system by ascertaining the financial condition of its business partners, determining the outstanding balance of receivables, and checking credit. In particular, because the construction period is long and the amount of receivables is big in the Construction business, the Group's performance and financial condition may be affected by difficulties in collecting contracted payments due to a deterioration in the financial position of its business partners.

17. Risks Related to Subcontractors/Counterparties

In our construction business, while we depend on subcontractors for all of the execution of our construction projects except for the management thereof, primary responsibility to our customers rests with us.

While our Group strives to ensure that the services of our subcontractors meet high standards by providing management and supervision to our subcontractors and establishing subcontracted management systems, the failure of subcontractors to meet such standards or the failure of subcontractors to complete construction could affect our Group's performance and financial condition.

18. Risks Related to Costs and Obligations for Our Pension and Retirement Benefit Plans

Costs and obligations related to our pension and retirement benefit plans are calculated based on the actuarial assumptions determined by the discount rate and the long-term expected rate of return on plan assets, etc. Any difference between actual results and actuarial assumptions or any change in the actuarial assumptions may affect our results of operations and financial condition.

19. Risks Related to Currency Fluctuations

Although the Group monitors its overseas subsidiaries to check trends in operating revenues and capital expenditures from time to time, and considers efficient methods of financing by overseas subsidiaries based on exchange rates and domestic and overseas interest rate trends, fluctuations in foreign exchange rates may reduce operating profit, which may affect the Group's performance and financial condition.

In addition, local currency-denominated financial statements of our foreign subsidiaries are converted into Japanese yen when preparing our consolidated financial statements, and thus our results of operations and financial condition may be impacted by exchange rates.

20. Risks Related to Climate Change

With regard to climate change, which is expected to have a large impact year by year, our group will implement disaster countermeasures such as carrying out training in preparation for a catastrophic disaster, formulating evacuation plan and crisis management system, and transforming business models to reduce impacts.

However, if we are unable to avoid climate change worldwide, the impact on our respective businesses of rising temperatures and the increased occurrence of heavy rain and sediment-related disasters, as well as the decline in skiers due to the decline in snowfall in Hotel and Leisure, could have an impact on our group's performance and financial condition.

In response to climate change, we are making further efforts to prevent global warming by introducing energy-saving vehicles and equipment, utilizing energy from natural resources such as photovoltaics or renewable energy such as biofuels, with the goal of reducing CO₂ emissions per unit of production (emissions per operating revenue) by 25% from fiscal 2018 levels by fiscal 2030.

In addition, the Group has endorsed the recommendations of the Task Force on Climate-related financial Disclosures (TCFD) on May 2021 . Going forward, we will identify and evaluate climate-related risks based on assumed scenarios. Moreover, we have established the Seibu Group Sustainability Committee, chaired by our president and chaired by the president, to continuously, proactively and systematically promote Sustainability Actions in the future, including the aforementioned reduction of CO2 emissions. We have established a system to prevent climate change risks, in order to respond to international requests, confirming the situation of CO2 emissions reductions and its process, and to actively share information related to Sustainability Actions in our group.

However, if we fail to respond to an unexpected and rapid transition to a carbon-free society, our Group's performance and financial condition could be affected by a decline in sales due to damage to our Group's reputation and brand, as well as by the expense of countermeasures and the occurrence of facility upgrades.

21. Risks related to technological innovation

In many of the Group's business fields, the pace of business transformation brought about by the evolution of new technologies and their evolution is increasing at an accelerating pace.

Although our Group is promoting the penetration activities of the Digital Transformation (DX) strategy, invited Mr. SHOJI Tetsuya (Corporate Advisor to NTT Communications Corporation) as Executive Advisor in order to inquire specialized and specific advice on the DX strategy, securing and training digital personnel, integrating group customer information and building a group marketing foundation, improving operational efficiency through the utilization of new technologies, and promoting partnership with the company utilizing new technology such as 5th Generation Mobile Communication System (5G), insufficient understanding and delays in the introduction of advanced technologies could lead to customer departure due to a decline in the quality of services compared to our competitors, which could affect our Group's performance and financial condition.