CO., LTD. 2019 ANNUAL REPORT Management Philosophy and Policy

The Tobu Group has established the “Tobu Group Management Philosophy” and “Tobu Group Management Policy” as follows:

(1) Tobu Group Management Philosophy The Tobu Group has set forth the concepts of “dedication,” “enterprising spirit” and “affinity,” as the corner stone for its management.

Dedication: The Tobu Group will contribute to materializing an affluent society based on the profound awareness that all of its businesses are supported by society. Enterprising spirit: The Tobu Group will keep taking up challenges with a pioneering spirit to pave the way to a new era through constant self-improvement without complacency. Affinity: The Tobu Group will contribute to the evolution of society by promoting its business as well as the welfare of its employees based on the concept of congeniality among people and harmony with the environment.

(2) Tobu Group Management Policy The Tobu Group will operate diversified and composite businesses on the basis of safety and security, including “transportation,” “leisure,” “real estate” and “retail distribution” as a corporate group contributing to the development of the areas along its railway lines through businesses that closely support customers’ daily lives. We will provide innovative and inventive services of high quality based on the customer’s viewpoint, thereby aiming to create attractive destinations full of energy along the Tobu lines, providing the residents with a comfortable lifestyle.

Contents

Message from the President...... 1 Medium-Term Business Plan 2017–2020...... 2 Review of Operations...... 4 Financial Review...... 8 Attention regarding forward-looking statements (C2) Corporate Governance...... 9 The reader is advised that this report contains forward-looking statements, including statements relating to the Company’s Risks to which the Company’s Business is Subject...... 11 future policies and strategies, and estimates of future business Five-Year Summary...... 12 development. As opposed to statements of historical fact, Consolidated Balance Sheets...... 13 these constitute estimates or projections made by the Consolidated Statements of Income and Company’s management on the basis of facts known to them Comprehensive Income...... 15 as of the time of writing, and actual results may therefore differ substantially from such statements, due to a wide variety of Consolidated Statement of Changes in Equity...... 16 possible risk factors. Page 11 contains a list of the principal Consolidated Statements of Cash Flows...... 18 categories of risk to which the Company’s business operations Corporate Directory...... 19 are subject. Message from the President

During the fiscal year under review, the Japanese economy ¥62,972 million (an increase of 1.1% year on year). Net showed signs of a modest recovery, including improvements income attributable to owners of the parent company was in the employment situation, but the future remained down to ¥28,024 million (a decrease of 22.2% year on year) uncertain due to factors such as sluggish improvement in due to recording of an impairment loss associated with land corporate earnings. holdings and other noncurrent assets in conjunction with Under these circumstances, the Tobu Group promoted business restructuring at subsidiaries. aggressive investment in sustainable growth and worked to In light of the above, the Tobu Group will pour every further enhance shareholder return while maintaining financial effort into supporting the lifestyles of our customers and soundness. These efforts were based on the Long-Term further developing the areas around our railway lines, Management Framework, which presents the Group’s basic focusing on the railway business, which is a part of the social management direction for new growth from a long-term infrastructure. perspective, and the Medium-Term Business Plan, which presents specific undertakings for the next four years based on that framework. Yoshizumi Nezu As for our consolidated results, revenues from President and Representative Director operations were ¥617,543 million (an increase of 8.4% year on year), operating income was ¥67,295 million (an increase of 1.0% year on year), and ordinary income was

ANNUAL REPORT 2019 1 Medium-Term Business Plan 2017-2020

The consolidated numerical targets set forth in the Tobu Group Medium-Term Business Plan 2014-2016 have all been achieved, and in April 2017 we established the Tobu Group Medium-Term Business Plan 2017-2020. Within the long-term management vision, this medium-term business plan is positioned as Phase 1.

Long-Term Management Framework

2020 Olympics West exit of Start and Paralympics station redevelopment project Completion

Previous Medium- Medium-Term Business Medium-Term Business Medium-Term Business Term Business Plan Plan Phase 1 Plan Phase 2 Plan Phase 3 2014-2016 2017-2020 2021-

Medium-Term Business Plan Four years from FY2017 to FY2020

• Promotion of growth investment for the next stage • Planting/cultivation of business seeds anticipating Tokyo Olympics and Paralympics and thereafter • Increased revenue through incorporation of rapidly growing inbound demand • Achieve balance between growth investments, maintenance of financial soundness and enhancement of shareholder return Growth Investment Set aside ¥107 billion out of total four-year capital expenditures of ¥320 billion for strategic and growth investment

Operating Cash Flow ¥380 billion

Enhancement of Shareholder Return Maintenance of Financial Strength The dividend for FY2017 will be 7 yen per share, and the Establish interest-bearing debt/EBITDA basic policy will remain to provide steady dividends while multiple of around 6.5x–7x to ensure long- establishing a total return ratio of around 30% for the term reserves period average of the Medium-Term Business Plan

Operating income Profit Attributable to Owners of Parent Japanese yen Japanese yen

68.5 billion (FY2020) 40.0 billion (FY2020)

2 TOBU RAILWAY CO., LTD. Our Current Situation

The Tobu Group consists of TOBU RAILWAY CO., LTD. and its subsidiaries and affiliates. The core business of the parent company founded in 1897 is operating a network of private railway lines that extends across Tokyo, Chiba, Transportation Saitama, , and Gunma prefectures of the Kanto region. The main lines, which originate in , eastern Tokyo, extend to Saitama, Tochigi, Gunma, and Chiba prefectures, including the trunk lines Leisure Other (the ( Line), Nikko Line, and the TOBU URBAN TOBU PARK Line (Noda Line)) and branch lines. They can be broadly divided into Group the TOBU SKYTREE Line (the southern portion of the Isesaki Line) and the (Noda Line), which primarily serve commuters Retail and students, and the Nikko Line and northern portion of the Isesaki Line Real Estate Distribution that primarily serve tourists and businesses. The Tojo Line mainly carries commuters and students. Development in areas along the line has been proceeding smoothly. In addition to the main railway business, the Tobu Group engages in the development businesses outlined in the following paragraphs. In our leasing business, particularly in areas alongside our railway lines, the Group is leasing a large number of sites for such purposes as stores, office buildings, houses, and warehouses. In particular, in TOWN with the commercial facility TOKYO SOLAMACHI®, and we lease the office facility TOKYO SKYTREE EAST TOWER®. In addition, spaces inside our station buildings are leased or utilized for business purposes, and stations and railway cars are used for advertising. In our subdivision business, we are engaged in the sale and development of homes and land, and the independent and joint construction and sale of condominium units. In the leisure business, the parent company directly manages the Courtyard® by Marriott® Tokyo Ginza Hotel and the Tobu Hotel Levant Tokyo in the center of Tokyo, and in developing its leisure business, the Company works in close corporation with each of its member companies.

Basic Indicators

Number of Group Companies Number of Employees Revenue from Operations

Administration Transportation Other Transportation 1.4% 48.4% Other Transportation % % % % 20.0 34.1 Other 15.0 31.6 14.5%

Retail Retail Retail Distribution Distribution Distribution Total Total 15.3% 13.9% 33.1% 85 Group Companies 20.347 688,169 Leisure Leisure employees millions of yen 27.0% 11.3% Real Estate Real Estate Leisure Real Estate 3.6% 1.5% 20.3% 9.0%

*Figures above are before elimination of inter-company transactions.

ANNUAL REPORT 2019 3 Review of Operations

Transportation

Sales by Sector (¥ million)

SALES RATIO 211,960 216,631 216,170 215,802 217,107 BY SEGMENT 31.6% 2015 2016 2017 2018 2019

In our railway operations, our top priority is safety, and we are promoting various initiatives so that more customers can take advantage of our offerings. As part of our work on safety, we promoted elevation projects near Takenotsuka Station, between Shimizu-koen and Umesato, and near . Moreover, as a measure to ensure platform safety, we introduced new platform doors at and Asaka Station and promoted preparatory construction to install platform doors at Kitasenju Station, Shin- Station, Kita-, and Shiki Station as well. In marketing, we introduced new pricing for children on the open seating TJ Liner and changed to reserved seating. We also launched operations of a Kawagoe and worked to promote use of our lines through measures to improve speed and popularity, including the introduction of the decorated Ikebukuro / Kawagoe Art Train. In the Nikko/ area, we implemented measures in collaboration with areas along the Taiju SL service area, working to further revitalize the area and increase revenue. We also began working on restoration of a C11 class steam locomotive that had been on display, a first for a major private railway. Moreover, in an effort to attract foreign tourists, we consolidated the types of special discount passes we offer to make it easier to understand how to use them and launched an online service for purchasing and reserving limited express tickets. In the bus and taxi business, TOBU BUS WEST CO., LTD launched operations of the Ken-O Liner Kawagoe-Shonan Line to capture new tourist demand. In the transportation business overall, revenues from operations were ¥217,107 million (an increase of 0. 6% year on year), while operating income fell to ¥41,116 million (a decrease of 0.1% year on year) as a result of a sharp increase in power and fuel expenses.

Transportation (31 firms) Kawagoe Limited Express Railway business: The Company; Jomo Electric Railway Co., Ltd.*1 Bus and taxi business: ASAHI Motor Corporation*1, TOBU BUS CO., LTD*1 Freight business: TOBU TRANSPORTATION CO., LTD.*1, TOBU DELIVERY CO., LTD.*1 25 other firms

The transportation business consists of fixed-route and long- distance bus services, taxi services, freight trucking, and other services.

Notes: 1. Consolidated Subsidiary. 2. Affiliate according to the equity method. Restored steam locomotive TOBU RAILWAY CO., LTD. is counted multiple times in the above segment breakdown.

4 TOBU RAILWAY CO., LTD. Leisure

Sales by Sector (¥ million)

79,612 79,006 76,792 78,620 77,944 SALES RATIO BY SEGMENT 11.3% 2015 2016 2017 2018 2019

In the SKYTREE business, TOBU TOWER SKYTREE Co., Ltd. launched SKYTREE TERRACE TOURS allowing customers to enjoy not only an outdoor view 155 meters above ground but also the steel structure of TOKYO SKYTREE and worked to attract a wide range of customers. In the hotels business, we stepped up our sales efforts targeting online travel agencies in and other countries to capture demand from individual travelers and worked to increase revenue by addressing the needs of families traveling from Asia. In the amusement parks and tourism business, we worked on attracting customers to Tobu Zoological Park through such efforts as nighttime illuminations. Meanwhile, we worked on attracting customers to by launching a miniature exhibit of landmarks in the northernmost part of Taiwan and SKYTREE TERRACE TOURS ©TOKYO-SKYTREE illuminating the theme park at night. In the sports business, TOBU SPORTS Co., Ltd. opened TOBU Fitness Club Neos Higashi-Washinomiya to attract new customers. In the leisure business overall, due in part to the impact of unseasonable weather, including record-breaking heat waves, revenues from operations were ¥77,944 million (a decrease of 0.9% year on year), and operating income was ¥6,069 million (a decrease of 12.1% year on year).

Leisure (29 firms) Amusement parks and tourism: Tobu Leisure Planning Co., Ltd.*1 Sports: Tobu Kogyo Co., Ltd.*1 Travel: TOBU TOP TOURS CO., Ltd.*1 Hotels: The Company; Tobu Hotel Management Co., LTD.*1 Food: Tobu Foods Service Co., Ltd.*1 SKYTREE business: TOBU TOWER SKYTREE Co., Ltd.*1 22 other firms Winter Illumination at Tobu Zoo

In addition to TOKYO SKYTREE™, we operate the Tobu Zoological Park and TOBU WORLD SQUARE. Group companies manage enterprises in such fields as travel, city and resort hotels, inns, skiing facilities, golf courses, sports clubs, ropeways, and sightseeing vessels.

Notes: 1. Consolidated Subsidiary. 2. Affiliate according to the equity method. TOBU RAILWAY CO., LTD. is counted multiple times in the above segment breakdown.

ANNUAL REPORT 2019 5 Review of Operations

Real Estate

Sales by Sector (¥ million)

SALES RATIO BY SEGMENT 56,808 54,505 55,828 53,649 61,943 9.0% 2015 2016 2017 2018 2019

In the SKYTREE TOWN business, we held various seasonal events at TOKYO SOLAMACHI® together with TOKYO SKYTREE and worked to attract customers by such means as introducing Alipay and WeChat Pay to expand payment options. In the real estate leasing business, we renovated the Soka VARIE north station building, which is directly connected to Soka Station, and re-opened it. We also opened Multi-Square, one of the largest in-station event spaces in the city under the West Exit of Ikebukuro Station, in an attempt to generate more foot traffic. Moreover, we acquired rental condominiums in Asakusa, which is a priority investment area for strategic investments for growth within Solaie Katsushika Kosuge our Medium-Term Business Plan and worked to secure further profits. Additionally, we operated three satellite offices within the Tokyo Metropolitan area and worked on opening daycare centers and after school care centers near stations. In the real estate subdivision business, we sold condominiums and built-for-sale houses to raise the value of properties and increase the resident populations along our lines. In the real estate business overall, revenues from operations were ¥61,943 million (an increase of 15.5% year on year) and operating income was ¥14,082 million (an increase of 11.4% year on year).

Real estate (4 firms) Soka VARIE Real estate leasing: The Company; TOBU REAL ESTATE CO., LTD.*1 Real estate subdivision: The Company SKYTREE TOWN: The Company; TOBU TOWN SOLAMACHI CO., LTD.*1 1 other firms

We are involved in real estate leasing, real estate brokerage, and the car parking lot and bicycle parking lot businesses.

Notes: 1. Consolidated Subsidiary. 2. Affiliate according to the equity method. TOBU RAILWAY CO., LTD. is counted multiple times in the above segment breakdown.

6 TOBU RAILWAY CO., LTD. Retail Distribution

Sales by Sector (¥ million)

SALES RATIO 205,055 199,442 194,915 192,808 228,161 BY SEGMENT 33.1% 2015 2016 2017 2018 2019

In the retail distribution business, TOBU DEPARTMENT STORE CO., LTD. worked to acquire new customers, including working couples and young people, by completely renovating the food sales area on the south side of the 2nd basement level at its Ikebukuro branch. Additionally, TOBU DEPARTMENTSTORE CO., LTD. worked to attract a wide range of customers by remodeling two brand stores at the front entrance to the Utsunomiya branch. Moreover, we acquired TOBU STORE CO., LTD. shares and made it a wholly-owned subsidiary. On this occasion, in the supermarkets business, TOBU STORE CO., LTD. rolled out a new store format taking advantage of the prime locations near stations, and the Group overall strengthened collaboration between group Tobu Store with new format companies, utilizing group cards and group point services. We aim to become a railway line that offers great convenience for daily living and a comfortable area in which to live. In the retail distribution business overall, revenues from operations were ¥228,161 million (an increase of 18.3% year on year), primarily as a result of making TOBU STORE CO., LTD. a subsidiary, but operating income was down to ¥2,048 million (a decrease of 7.3% year on year), primarily as a result of recording expenses related to acquisition of the company’s shares. Retail distribution (14 firms) Retail: TOBU DEPARTMENT STORE CO., LTD.*1, TOBU UTSUNOMIYA DEPARTMENT STORE CO., LTD.*1, TOBU STORE CO., LTD.*2 11 other firms There are Tobu department stores in Ikebukuro, , Utsunomiya, Ohtawara and Tochigi, and we own TOBU STORE CO., LTD., which operates a chain of supermarkets. Notes: 1. Consolidated Subsidiary. 2. Affiliate according to the equity method. Other In other businesses overall, revenues from operations were ¥103,014 million (an increase of 6.3% year on year), and operating income was ¥5,073 million (an increase of 3.5% year on year). Other (18 firms) Construction: TOBU CONSTRUCTION Co., Ltd.*1, Tobu Yachida Construction Co., Ltd.*1 Other businesses: Tobu Building Management Co., Ltd.*1, Tobu Energy Support Co., Ltd.*1 14 other firms Other businesses include construction, building and facility management, construction materials supply, and heating supply systems. Notes: 1. Consolidated Subsidiary. 2. Affiliate according to the equity method.

ANNUAL REPORT 2019 7 Financial Review

Business Performance

Due to the impact of unseasonable weather and other factors, revenues were down in the leisure business, but inclusion of Taiju SL operations in full-year results and favorable performance of tourism/transportation services in the Kawagoe area in the railway business and the conversion of TOBU STORE CO., LTD. into a consolidated subsidiary in the retail distribution business contributed to bringing revenues from operations to ¥617,543 million (an increase of 8.4% year on year). Despite the sharp increase in power and fuel expenses in the railway and the bus and taxi businesses and the recording of expenses related to acquiring TOBU STORE CO., LTD. shares, operating income was ¥67,295 million (an increase of 1.0% year on year) as a result of an increase in operating revenue. As for non-operating income, there was a decrease in contributions toward small construction, and as for non-operating expenses, interest expenses decreased owing to reduced principal and lower interest rates. As a result, recurring income came to ¥62,972 million (an increase of 1.1% year on year). These factors brought net income attributable to owners of the parent company to ¥28,024 million (a decrease of 22.2% year on year).

Financial Position

Total assets were ¥1,643,190 million, up ¥24,916 million compared to the end of the previous consolidated fiscal year (an increase of 1.5% year on year). This was a result of increased purchases of property, plant and equipment. Liabilities came in at ¥1,173,914 million, up ¥16,222 million compared to the end of the previous consolidated fiscal year (an increase of 1.4% year on year) due primarily to increases in advances and interest-bearing debts incurred from progress on contributed construction. Net assets were ¥469,276 million, up ¥8,693 million compared to the end of the previous consolidated fiscal year (an increase of 1.9% year on year) owing primarily to the recording of net income attributable to owners of the parent company, despite a decrease in the valuation difference on available-for-sale securities.

Operating Income (Millions of yen) Shareholders’ Equity Ratio (%)

70000 30

60000 25

50000 20

40000 15 30000

10 20000

5 10000

0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

* Shareholders’ Equity Ratio equals net assets attributable to shareholders’ as a percentage of total assets.

8 TOBU RAILWAY CO., LTD. Corporate Governance

Basic Approach to Corporate Election of Outside Directors Governance We have also appointed outside directors who play an important role in ensuring the efficiency and fairness of We believe that it is important to establish a fair and management. At meetings of the Board of Directors and transparent management structure in order to earn the trust other important meetings, our directors provide explanations of our shareholders and many other stakeholders as well as of the execution of duties with outside directors in mind to achieve sustainable growth and improve our corporate and reflect their objective opinions and suggestions in value in the medium to long term. We will continue to further management of the Company. Moreover, outside directors enhance our Board of Directors, executive officer system, contribute to the enhancement of corporate governance as and corporate auditor system and engage in the proactive members of the Nominating and Remuneration Committee, disclosure of corporate information in a timely and appropriate which is an advisory body of the Board of Directors that manner. Furthermore, we will work to strengthen corporate considers important matters related to nominations and governance by engaging in honest corporate activity based remuneration, and play an important role in strengthening on corporate ethics and awareness of legal compliance. We the independence and objectivity of functions of the Board will also strive to improve corporate value based on the above of Directors. The Nominating and Remuneration Committee approach, respecting the spirit and intent of the Corporate is comprised of two outside directors and one representative Governance Code and addressing each principle. director (president), and the chair of the Committee is selected from among the outside directors. The Committee reviews the adequacy of the proposal of nomination of Current Status of Corporate director candidates, as well as the adequacy of the level of remuneration, organizing the Committee’s opinion on these Governance subjects, and report to the Board of Directors. All members Corporate Governance Structure attend every meeting. The Company’s Board of Directors consists of 10 directors, of Management Meeting and Meeting of Executive whom two are outside directors. The Board’s responsibilities Officers are, in addition to those set forth by law and in the Articles of At the Management Meeting, which is comprised of fulltime Incorporation, to make comprehensive and strategic business directors, managing executive officers and standing audit & decisions based on the “Rules of the Board of Directors” and supervisory board members, members deliberate and make for each director to exercise supervisory functions over the decisions on the execution of business operations assigned execution of day-to-day business operations. by the Board of Directors and share important management- The President and Representative Director chairs the related information. Board of Directors, and ordinary meetings are held monthly, in At the meeting of executive officers, which is comprised principle. All fulltime directors attend these meetings, and the of fulltime directors, all executive officers and standing audit status of attendance by outside directors is provided in the & supervisory board members, reports are provided every business report. quarter to directors on the status of execution of operations Furthermore, we have introduced an executive officer and progress on the management plan, and information is system to clarify authority and responsibility for business shared on management to review business development execution. With regard to executive functions, we have plans for the next year and other matters. developed a system where executive officers execute business operations according to the authority and Internal control system responsibility established within the “Rules for Execution of In an effort to ensure the reliability of the internal control Duties” under the control and supervision of the representative system, establish corporate ethics, and ensure that its director. The executive officers are selected by the Board of officers and its employees are fully aware of compliance, the Directors. In this way, we increase management mobility. Company has been promoting compliance management. This consists primarily of setting out specific guidelines for day- to-day activities and developing training systems based on

ANNUAL REPORT 2019 9 Corporate Governance

the Tobu Group Basic Policy on Compliance and establishing Additionally, to strengthen and enhance the function a Compliance Committee that meets regularly to provide of monitoring group companies and further increase the support and guidance on effective compliance. effectiveness of the internal control system at the group level, we have prepared an integrated system within the Group Governance Committee business division. It consists of nine individuals of general Additionally, to further increase the effectiveness of corporate manager rank or lower, auditing group companies and governance, we have established a Governance Committee, providing guidance for improvement based on those results. which is chaired by the President and Representative Director Furthermore, our Internal Audit Office conducts internal and consists of representative directors, outside directors and audits of those monitoring activities. Group management standing audit & supervisory board members. In response policies are communicated and management information to reports on and suggestions concerning activity plans is shared by holding Tobu Group Corporate Meetings and and activities from the chairs of the Compliance and Crisis other meeting on a regular basis in the aim of improving the Management committees, it engages in deliberations and corporate value of the Group. In addition, to raise the levels evaluations, referring matters to the Board of Directors to of fairness and transparency of the Group’s management, the strengthen the supervisory functions of the Board of Directors. Company conducts regular investor relations events, such The Governance Committee is chaired by an outside director. as results briefings for analysts and tours of facilities in areas served by our railway stations. It also provides extensive Group Company Audits corporate information on its website and will continue to To ensure the proper operation of the Tobu Group under pursue a policy of openness in communications with investors the Rules for Management of Group Companies, the Group and the general public in a prompt and appropriate manner. business division that is specifically responsible for the management of subsidiaries and other companies manages and supports the business execution of subsidiaries and other companies.

Meeting of shareholders

Appoint and dismiss Appoint and dismiss

Board of Directors Nominating and Audit & Remuneration Committee Directors Supervisory Board Audit Outside directors Accounting Standing audit & Governance Committee auditor supervisory board members President and Representative Director Outside audit & President and CEO supervisory board members Management Meeting

Compliance Committee

Crisis Management Committee

Executive of cer

Audit Business division Internal Audit Of ce General administrative division

Audit Group companies

10 TOBU RAILWAY CO., LTD. Risks to which the Company’s Business is Subject

The following is a list of categories of material risk that could significantly impact the business performance and financial position of the Group, and consequently could have a substantial effect on the decisions of investors. The forecasts in the text below are based on the assessment of the Tobu Group as of the date of the Ordinary General Meeting of Shareholders (June 21, 2019).

(1) Changes in the Law in the future would increase the Group’s interest payment In the railway business, permission to engage in railway burden, and this could have a substantial effect on the operations must be obtained from the Ministry of Land, business performance and/or financial position of the Group. Infrastructure, Transport and Tourism with respect to each Additionally, changes in the economic climate arising railway line and each category of railway-related business from increases in consumption tax or electricity charges could under Article 3 of the Railway Business Law. Under Article impact the business performance and/or financial position of 16 of the Law, the initial setting and subsequent revision of the Group. fares by passenger transport operators must not exceed the upper limits approved by the Ministry. The Minister of Land, (4) Management of personal information Infrastructure, Transport and Tourism conducts a review of As part of its various business operations, the Tobu Group whether or not such revisions exceed fair costs incurred as accumulates and manages databases containing information a result of efficient management and fair profits to approve on individual customers. The Group takes great care to them (fully-distributed cost method). Additionally, the railway manage and safeguard this personal data properly in such operator must apply for permission to the Ministry each time it ways as establishing in-house protection regulations on the wishes to revise its fares within the approved upper limits. acquisition and use of the information, fully enforcing the Therefore, a change in the legal system and the revision information management by related parties by developing the of fares could have an impact on the business performance of management system, and strengthening the development and the Company. supervision of confidentiality agreements when outsourcing The business operation of the Company and other information processing. However, in the event that, for some Group companies must also be in compliance with a variety reason, such information were to be divulged or stolen, this of laws and regulations. A change in the relevant laws would have an adverse impact on the trustworthiness of the could, therefore, have a substantial effect on the business Group, which could have a substantial effect on the business performance and/or financial position of the Group. performance and/ or financial position of the Group.

(2) Adverse demographic trends (5) Natural disasters Currently, the birthrate in Japan is declining, while the As a railway service operator, the Tobu Group takes utmost population is aging. Although there are differences depending care to ensure the safety of its services in order to win the on the region, it is expected that the population will continue trust of customers. However, in the event of an accident, a to decline along Tobu Railway lines as well due to the natural disaster, a terrorist attack, an act of war, or any other phenomenon. such external cause beyond the control of the Group, this As the business operations of the Tobu Group are could have a substantial effect on the business performance centered around railway operations serving areas within and/or financial position of the Group. reach of the Group’s railway stations, phenomena such as a Moreover, the occurrence of unseasonable weather declining number of children, an increasing number of elderly or weather that is otherwise exceptional, or an outbreak of people, and a general population decline over the long term an infectious disease, would have a negative impact on the could have a substantial effect on the business performance business of tourism and leisure facilities, which would be likely and/or financial position of the Group. to adversely affect the Group’s leisure operations and related businesses. In this event, there could be a substantial effect (3) Economic conditions on the business performance and/or financial position of the The Tobu Group constantly invests in equipment in its Group. business operations, and the funds required for these capital investments are raised principally through the issuing of The above is a list of the principal categories of risk thought to corporate bonds or by borrowing from financial institutions. apply to the business operations of the Tobu Group, but it is Because of these facts, an upward movement in interest rates not intended to be an exhaustive list of all risks.

ANNUAL REPORT 2019 11 Five-Year Summary (Years ended March 31, TOBU RAILWAY CO., LTD. and Subsidiaries)

Consolidated Millions of Yen 2015 2016 2017 2018 2019 Revenues from operations...... ¥ 583,268 ¥ 574,334 ¥ 568,887 ¥ 569,519 ¥ 617,543 Operating income...... 53,158 64,399 68,335 66,645 67,295 Profit attributable to owners of parent...... 30,653 27,277 36,137 36,025 28,024 Net assets...... 394,826 411,282 442,772 460,582 469,276 Total assets...... 1,596,725 1,592,475 1,597,733 1,618,274 1,643,190

Yen Net income per share — basic...... ¥28.7 ¥25.54 ¥33.76 ¥168.87 ¥168.87 Net income per share — diluted...... 28.62 25.47 — — —

Sales by Sector Millions of Yen 2015 2016 2017 2018 2019 Transportation...... ¥ 211,960 ¥ 216,631 ¥ 216,170 ¥ 215,802 ¥ 217,107 Leisure...... 79,612 79,006 76,792 78,620 77,944 Real estate...... 56,808 54,505 55,828 53,649 61,943 Retail distribution...... 205,055 199,442 194,915 192,808 228,161 Other...... 95,635 91,027 94,507 96,896 103,014

Non-Consolidated Millions of Yen 2015 2016 2017 2018 2019 Revenues from operations...... ¥ 221,825 ¥ 222,617 ¥ 223,761 ¥ 222,356 ¥ 231,906 Operating income...... 37,430 47,334 50,597 50,167 51,547 Net income...... 20,010 22,361 28,771 23,102 30,850 Net assets...... 318,699 329,981 355,220 364,933 383,452 Total assets...... 1,477,008 1,472,169 1,487,353 1,512,122 1,559,584

Yen Dividends per share of common stock...... ¥6 ¥6 ¥6.5 —* ¥35

* Fiscal 2017 results have been reclassified in conjunction with the partial amendments to accounting standard for tax effect accounting.

12 TOBU RAILWAY CO., LTD. Consolidated Balance Sheet March 31, 2018 and 2019

Millions of Yen Assets 2018 2019

Current assets Cash and deposits...... ¥ 25,168 ¥ 28,629 Notes and accounts receivable - trade...... 60,615 61,323 Short-term loans receivable...... 1,245 1,221 Securities...... 115 1,163 Land and buildings for sale in lots...... 28,327 31,347 Prepaid expenses...... 2,416 2,756 Other...... 23,574 28,053 Allowance for doubtful accounts...... (202) (204) Total current assets...... 141,260 154,291

Non-current assets Property, plant and equipment Buildings and structures, net...... 546,158 541,695 Machinery, equipment and vehicles, net...... 81,383 83,773 Land...... 636,052 634,281 Construction in progress...... 62,279 83,786 Other, net...... 14,809 16,569 Total property, plant and equipment...... 1,340,683 1,360,105

Intangible assets Public facilities charges...... 1,450 1,199 Other...... 16,276 19,476 Total intangible assets...... 17,726 20,675

Investments and other assets Investment securities...... 83,644 65,170 Long-term loans receivable...... 892 165 Claims provable in bankruptcy, claims provable in rehabilitation and other...... 979 964 Net defined benefit asset...... 2,247 2,762 Deferred tax assets...... 10,272 12,866 Other...... 22,818 27,864 Allowance for doubtful accounts...... (2,249) (1,676) Total investments and other assets...... 118,604 108,117 Total non-current assets...... 1,477,014 1,488,899 Total assets...... ¥ 1,618,274 ¥ 1,643,190

ANNUAL REPORT 2019 13 Millions of Yen Liabilities 2018 2019

Current liabilities Notes and accounts payable - trade...... ¥ 40,270 ¥ 44,093 Short-term loans payable...... 54,386 45,084 Current portion of long-term loans payable...... 58,476 69,764 Current portion of bonds...... 20,000 19,700 Accrued expenses...... 6,152 7,108 Accrued consumption taxes...... 2,687 3,020 Income taxes payable...... 14,046 10,790 Advances received...... 69,806 77,032 Provision for bonuses...... 2,756 2,970 Allowance for collection loss on gift certificates and other items...... 4,356 4,501 Asset retirement obligations...... 138 93 Other...... 77,296 85,505 Total current liabilities...... 350,373 369,665

Non-current liabilities Bonds payable...... 137,400 137,700 Long-term loans payable...... 495,902 504,148 Long-term accounts payable to Japan railway construction, transport and technology agency...... 20,643 14,160 Deferred tax liabilities...... 13,791 5,841 Deferred tax liabilities for land revaluation...... 50,395 50,395 Provision for directors’ retirement benefits...... 736 919 Net defined benefit liability...... 49,077 51,186 Asset retirement obligations...... 2,512 2,720 Other...... 36,858 37,175 Total non-current liabilities...... 807,318 804,248 Total liabilities...... 1,157,692 1,173,914

Net assets

Shareholders’ equity Capital stock...... 102,135 102,135 Capital surplus...... 61,948 59,723 Retained earnings...... 208,973 229,476 Treasury stock...... (3,423) (3,450) Total shareholders’ equity...... 369,634 387,884 Accumulated other comprehensive income Valuation difference on available-for-sale securities...... 27,554 21,520 Revaluation reserve for land...... 46,820 47,856 Foreign currency translation adjustment...... 85 65 Remeasurements of defined benefit plans...... 2,892 4,031 Total accumulated other comprehensive income...... 77,352 73,474 Non-controlling interests...... 13,595 7,917 Total net assets...... 460,582 469,276 Total liabilities and net assets...... ¥ 1,618,274 ¥ 1,643,190

14 TOBU RAILWAY CO., LTD. Consolidated Statements of Income and Comprehensive Income Years ended March 31, 2018 and 2019

Millions of Yen Consolidated Statement of Income 2018 2019

Revenues from operations...... ¥ 569,519 ¥ 617,543 Operating expenses Operating expenses and cost of sales of transportation...... 396,575 433,253 Selling, general and administrative expenses...... 106,298 116,995 Total operating expenses...... 502,874 550,248 Operating income (loss)...... 66,645 67,295 Non-operating income Interest income...... 29 29 Dividend income...... 1,507 1,604 Dividends income of insurance...... 492 502 Share of profit of entities accounted for using equity method...... 202 111 Other...... 2,636 2,037 Total non-operating income...... 4,868 4,285 Non-operating expenses Interest expenses...... 7,093 6,766 Other...... 2,134 1,841 Total non-operating expenses...... 9,228 8,607 Ordinary income (loss)...... 62,286 62,972 Extraordinary income Contribution for construction...... 2,674 2,026 Gain on sales of investment securities...... 3,856 3,426 Contract settlement money...... 3,456 — Other...... 1,002 906 Total extraordinary income...... 10,989 6,359 Extraordinary losses Loss on retirement of non-current assets...... 11,170 1,835 Loss on reduction of non-current assets...... 2,674 2,009 Impairment loss...... 809 21,790 Other...... 1,150 2,079 Total extraordinary losses...... 15,805 27,715 Income before income taxes...... 57,470 41,616 Income taxes - current...... 21,871 19,647 Income taxes - deferred...... (1,540) (6,530) Total income taxes...... 20,331 13,116 Profit (loss)...... 37,139 28,499 Profit (loss) attributable to non-controlling interests...... 1,114 475 Profit attributable to owners of parent...... 36,025 28,024

Millions of Yen Consolidated Statement of Comprehensive Income 2018 2019

Profit (loss)...... 37,139 28,499 Other comprehensive income Valuation difference on available-for-sale securities...... 5,728 (6,032) Foreign currency translation adjustment...... (13) (19) Remeasurements of defined benefit plans, net of tax...... 180 1,035 Share of other comprehensive income of entities accounted for using equity method...... 85 103 Total other comprehensive income...... 5,981 (4,911) Comprehensive income...... 43,120 23,587 Profit attributable to Comprehensive income attributable to owners of parent...... 42,002 23,110 Comprehensive income attributable to non-controlling interests...... 1,118 477

ANNUAL REPORT 2019 15 Consolidated Statement of Changes in Equity Previous Consolidated Fiscal Year (April 1, 2017 to March 31, 2018)

Millions of Yen Shareholders’ equity Total Retained shareholders’ Capital stock Capital surplus earnings Treasury stock equity Balance as of April 1, 2017...... ¥102,135 ¥70,484 ¥180,765 ¥(2,567) ¥350,818 Changes of items during period...... Dividends of surplus...... (7,492) (7,492) Profit (loss) attributable to owners of parent...... 36,025 36,025 Purchase of treasury stock...... (10,042) (10,042) Disposal of treasury stock...... 1 5 6 Retirement of treasury stock...... (9,180) 9,180 — Reversal of revaluation reserve for land...... (323) (323) Change in parent company equity associated with transactions with non-controlling shareholders...... 643 643 Net changes of items other than shareholders’ equity... Total changes of items during period...... — (8,536) 28,208 (856) 18,815 Balance as of March 31, 2018...... ¥102,135 ¥61,948 ¥208,973 ¥(3,423) ¥369,634

Accumulated other comprehensive income Valuation Foreign Accumulated difference on Revaluation currency Remeasurements other Non- available-for- reserve for translation of defined comprehensive controlling sale securities land adjustment benefit plans income interests Total net assets Balance as of April 1, 2017...... ¥21,830 ¥46,497 ¥99 ¥2,624 ¥71,051 ¥20,901 ¥442,772 Changes of items during period...... Dividends of surplus...... (7,492) Profit (loss) attributable to owners of parent...... 36,025 Purchase of treasury stock...... (10,042) Disposal of treasury stock...... 6 Retirement of treasury stock...... — Reversal of revaluation reserve for land...... (323) Change in parent company equity associated with transactions with non-controlling shareholders...... 643 Net changes of items other than shareholders’ equity... 5,723 323 (13) 267 6,301 (7,306) (1,005) Total changes of items during period...... 5,723 323 (13) 267 6,301 (7,306) 17,810 Balance as of March 31, 2018...... ¥27,554 ¥46,820 ¥85 ¥2,892 ¥77,352 ¥13,595 ¥460,582

16 TOBU RAILWAY CO., LTD. Consolidated Fiscal Year Under Review (April 1, 2018 to March 31, 2019)

Millions of Yen Shareholders’ equity Total Retained shareholders’ Capital stock Capital surplus earnings Treasury stock equity Balance as of April 1, 2018...... ¥102,135 ¥61,948 ¥208,973 ¥(3,423) ¥369,634 Changes of items during period Dividends of surplus...... (7,394) (7,394) Profit (loss) attributable to owners of parent...... 28,024 28,024 Purchase of treasury stock...... (32) (32) Disposal of treasury stock...... (0) 5 4 Retirement of treasury stock...... — —— Reversal of revaluation reserve for land...... (126) (126) Change in parent company equity associated with transactions with non-controlling shareholders...... (2,225) (2,225) Net changes of items other than shareholders’ equity... Total changes of items during period...... — (2,225) 20,502 (26) 18,250 Balance as of March 31, 2019...... ¥102,135 ¥59,723 ¥229,476 ¥(3,450) ¥387,884

Accumulated other comprehensive income Valuation Foreign Accumulated difference on Revaluation currency Remeasurements other Non- available-for- reserve for translation of defined comprehensive controlling sale securities land adjustment benefit plans income interests Total net assets Balance as of April 1, 2018...... ¥27,554 ¥46,820 ¥85 ¥2,892 ¥77,352 ¥13,595 ¥460,582 Changes of items during period Dividends of surplus...... (7,394) Profit (loss) attributable to owners of parent...... 28,024 Purchase of treasury stock...... (32) Disposal of treasury stock...... 4 Retirement of treasury stock...... — Reversal of revaluation reserve for land...... (126) Change in parent company equity associated with transactions with non-controlling shareholders...... (2,225) Net changes of items other than shareholders’ equity... (6,034) 1,035 (19) 1,139 (3,877) (5,678) (9,556) Total changes of items during period...... (6,034) 1,035 (19) 1,139 (3,877) (5,678) 8,693 Balance as of March 31, 2019...... ¥21,520 ¥47,856 ¥65 ¥4,031 ¥73,474 ¥7,917 ¥469,276

ANNUAL REPORT 2019 17 Consolidated Statement of Cash Flows Years ended March31, 2018 and 2019

Millions of Yen 2018 2019 Cash flows from operating activities Income (loss) before income taxes and minority interests...... ¥ 57,470 ¥ 41,616 Depreciation...... 52,499 53,477 Share of (profit) loss of entities accounted for using equity method...... 809 21,790 Increase (decrease) in allowance for doubtful accounts...... (202) (111) Increase (decrease) in provision for bonuses...... 112 (570) Increase (decrease) in provision for loss on disaster...... 234 33 Increase (decrease) in net defined benefit liability...... 552 (1,015) Increase (decrease) in provision for retirement benefits and directors’ retirement benefits...... (1) 93 Increase (decrease) in allowance for collection loss on gift certificates and other items...... 162 124 Interest and dividend income...... (1,537) (1,637) Interest expenses...... 7,093 6,766 Proceeds from contribution for construction...... (3,311) (2,402) Loss on retirement of non-current assets...... 10,782 1,634 Loss on reduction of non-current assets...... 2,674 2,009 Contract settlement money...... (3,456) — Decrease (increase) in notes and accounts receivable - trade...... (2,803) 452 Decrease (increase) in inventories...... (4,259) (3,637) Increase (decrease) in notes and accounts payable - trade...... (210) 361 Other...... (3,938) (2,527) Subtotal...... 112,671 116,459 Interest and dividend income received...... 1,538 1,627 Interest expenses paid...... (7,065) (6,716) Contract settlement money received...... 3,456 — Income taxes (paid) refund...... (18,632) (23,179) Cash flows from operating activities...... 91,967 88,191 Cash flows from investing activities Net decrease (increase) in short-term loans receivable...... 123 88 Payments of long-term loans receivable...... (16) (41) Collection of long-term loans receivable...... 12 751 Purchase of short-term and long-term investment securities...... (38) (35) Proceeds from sales and redemption of short-term and long-term investment securities...... 46 5,486 Purchase of investments in subsidiaries resulting in change in scope of consolidation...... — (14,559) Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation...... 3,423 — Payments for sales of investments in subsidiaries resulting in change in scope of consolidation...... (17) — Purchase of property, plant and equipment and intangible assets...... (85,090) (78,999) Proceeds from sales of property, plant and equipment and intangible assets...... 664 1,353 Proceeds from contribution received for construction...... 14,056 10,382 Payments for guarantee deposits...... (530) (607) Proceeds from collection of guarantee deposits...... 650 640 Other...... (234) (555) Cash flows from investing activities...... (66,951) (76,094) Cash flows from financing activities Net increase (decrease) in short-term loans payable...... 1,056 (2,894) Proceeds from long-term loans payable...... 69,843 77,922 Repayments of long-term loans payable...... (71,765) (58,387) Proceeds from issuance of bonds...... 23,000 20,000 Redemption of convertible bonds...... (23,600) (20,000) Purchase of subsidiary treasury stock...... (850) (4,504) Net decrease (increase) in treasury stock...... (10,036) (27) Cash dividends paid...... (7,491) (7,390) Redemption of accounts payable to Japan railway construction, transport and technology agency...... (6,856) (7,645) Dividends paid to non-controlling interests...... (5) (5) Purchase of investments in subsidiaries not resulting in change in scope of consolidation...... (6,854) (5,088) Other...... (552) (576) Cash flows from financing activities...... (34,111) (8,598) Effect of exchange rate change on cash and cash equivalents...... (11) (30) Net increase (decrease) in cash and cash equivalents...... (9,106) 3,468 Cash and cash equivalents at beginning of period...... 34,118 25,011 Cash and cash equivalents at end of period...... ¥ 25,011 ¥ 28,479

18 TOBU RAILWAY CO., LTD. Corporate Directory

Board of Directors and the Audit & Supervisory Board (As of July 1, 2019)

President and Representative Outside Directors External Audit & Supervisory Board Director Mitsuyoshi Shibata Members Yoshizumi Nezu Takaharu Ando Osamu Shoda Yuzaburo Mogi Representative Director Standing Audit & Supervisory Board Takashi Kobayashi Kenichi Tsunoda Members Naotaka Nakajima Directors Ikuo Toyoda Hiroaki Miwa Koichi Sekiguchi Akihiro Ojiro Toshiaki Onodera Takashi Kobiyama Tsutomu Yamamoto

Investor Information (As of March 31, 2019)

TOBU RAILWAY CO., LTD. Principal Shareholders: Registered Office: Number of Percentage of Shares Held Total Shares 1-2 Oshiage 1-chome, Sumida-ku, Name (Thousands) in Issue Tokyo 131-8522, Japan The Master Trust Bank of Japan, Ltd. (trust account) ...... 15,250 7.21 http://www.tobu.co.jp/ Japan Trustee Services Bank, Ltd. (trust account)...... 9,092 4.30 Fukoku Mutual Life Insurance Company...... 5,235 2.47 Head Office: , Ltd...... 4,653 2.20 18-12 Oshiage 2-chome, Sumida-ku, STATE STREET BANK WEST CLIENT- TREATY 505234...... 4,330 2.04 Tokyo 131-8522, Japan Japan Trustee Services Bank, Ltd. (trust account 5)...... 4,136 1.95 JP MORGAN CHASE BANK 385151...... 3,263 1.54 Date of Establishment: Nippon Life Insurance Company...... 3,187 1.50 November 1897 MUFG Bank, Ltd...... 3,154 1.49 Japan Trustee Services Bank, Ltd. (trust account 1) ...... 2,765 1.30 Number of Employees: 3,510 Securities Traded: Annual Meeting of Shareholders: Common Stock The annual meeting of shareholders is Common Stock: , 1st Section normally held in June. ¥102,135 million

Transfer Agent and Registrar: Number of Shareholders: Sumitomo Trust Bank, Limited 64,968 4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8233, Japan

ANNUAL REPORT 2019 19 TOBU RAILWAY CO., LTD. Head Office: 18-12 Oshiage 2-chome, Sumida-ku, Tokyo 131-8522, Japan http://www.tobu.co.jp/foreign/en/

Tobu Railway Lines (major stations only)

TOCHIGI GUNMA Shin-fujiwara Kinugawa-onsen

Akagi Tōbu- Shimo-imaichi Tōbu-utsunomiya Isesaki Kuzū Shin-tochigi Ōta

Nishi-koizumi Tatebayashi Higashi-koizumi Kuki Kurihashi SAITAMA Yorii Tōbu-dōbutsu-kōen Ogose Sakado Ōmiya Kasukabe Kawagoe Nagareyama-ōtakanomori Shin-koshigaya Wakōshi Daishimae Kashiwa Nishiarai Shin- Ikebukuro Kita-senju Funabashi TOKYO SKYTREE Hikifune Kameido Asakusa Oshiage TOKYO CHIBA

Tōbu Main Line Isesaki Line Sano Line Kiryū Line Kameido Line Koizumi Line Daishi Line Noda Line Kinugawa Line * The Isesaki Line between Asakusa/ and Tōbu-dōbutsu-kōen Station is nicknamed “TOBU SKYTREE Line” * The Noda Line is nicknamed “TOBU URBAN PARK Line”

Tōbu Tōjō Line Tōjō Main Line Ogose Line