Risk Management System of the OLC Group
The OLC Group identifies, analyzes, assesses, and prioritizes risks facing the Group, and, based on the result, it establishes and operates a risk management cycle to formulate risk prevention and response measures against individual risks. The cycle is overseen by the Risk Management Committee chaired by the president.
The Committee specifies risks of utmost importance from among risks it has identified; discerns whether the risk prevention and response measures formulated by the organization in charge of the relevant risks are effective in controlling the risks within an acceptable range; and monitors the execution status of the measures. The Committee reports these activities to the Executive Committee and the Board of Directors to maintain the viability of the risk management cycle.
The OLC Group also has in place the Emergency Control Center (ECC) to respond to materialized risks. In cases where a Group company identifies a risk in an emergency, it is obligated to report the situation promptly to the ECC.
Among matters described under Business Overview and Financial Information in the Annual Securities Report (Yukashoken Hokokusho), the following are major risks that could have a material impact on the financial position, business results and/or cash flow of our consolidated companies as recognized by the top management.
All forward-looking statements herein are based on judgments by the OLC Group as of the end of the consolidated fiscal year under review.
Risk Related to Weakening of the Quality at Tokyo Disney Resort
Quality of Structural Aspects (e.g., facilities and services)
Tokyo Disney Resort, the core business of the OLC Group, has succeeded in obtaining a high level of Guest satisfaction by consistently creating new experience value for Guests through various measures including installation of new facilities. Multiple projects have been implemented, including Soaring: Fantastic Flight, a new large-scale attraction at Tokyo DisneySea, and Tokyo Disneyland Large-Scale Development, which will be opening new facilities. We intend to keep improving the quality of our facilities and services to enhance the appeal of Tokyo Disney Resort as a whole. However, if new facilities cannot be introduced at an appropriate timing owing to unexpected circumstances such as a natural disaster, resulting in declined quality, Theme Park attendance may decrease, which could have an adverse impact on the Group’s business results, such as a decline in net sales.
Quality of Non-Structural Aspects (e.g., Cast Members’ hospitality)
Tokyo Disney Resort, the core business of the OLC Group, is sustained by a large number of Cast Members. Their hospitality sustains the high level of satisfaction of Guests. However, in cases where the recruitment and development of Cast Members become unexpectedly difficult, leading to a decline in the quality of our hospitality, Theme Park attendance may decrease, which could have an adverse impact on the Group’s business results, such as a drop in net sales. On the assumption that the competition for workers equipped with hospitality skills will intensify over the long term, we are undertaking such measures as increasing the cap on the Cast Members’ pay rise, establishing a new category of full-time employees named Theme Park operation employees and converting some Cast Members into these employees, and offering expanded educational and division-specific training programs. In addition to providing Cast Members with education and training opportunities, we intend to continue making improvements in their workplace environment to enable them to work with pride and joy.
Risks Related to Operations
Problems with Products
At Tokyo Disney Resort, the Group’s core business, we give top priority to safety with regard to the products we offer, including attractions, merchandise, and food and beverages. However, in the event that a product-related accident occurs (e.g., accidents involving an attraction, defective merchandise, food poisoning, food contaminated with foreign materials), causing serious damage to our Guest(s), the Group’s business results may be adversely affected as a result of undermined public trust in the Group’s policy of giving top priority to safety, damage to the brand image, huge expenses incurred due to a law suit, or other consequences. As measures against such risks, we strive to prevent product-related problems from occurring by complying with safety-related laws and regulations and the Group’s own regulations, standards, and manuals, and performing audits on a regular basis by organizations other than supervisory divisions of the relevant risks.
Violation of Laws and Regulations
The OLC Group places importance on compliance with regard to the operation of its businesses as well as the procurement and transactions of related materials and products. However, in cases where a serious industrial accident or a violation of a law or regulation occurs as a result of negligence on the part of a director or employee, the Group’s business results may be adversely affected as a result of a partial disruption in operations owing to an administrative disposition, undermined public trust in the Group, damage to the brand image, huge expenses incurred due to a law suit, or other consequences. As measures against such risks, we strive to prevent violation of laws and regulations by having in place the OLC Group Compliance Code, building a system for promoting compliance, and engaging in awareness activities for the Group’s directors and employees.
The OLC Group possesses customer information pertaining to business execution and confidential information needed for its sales activities. In cases where internal information is hacked into by an external party, or an internal database is misused, leaked, or falsified, the Group’s business results may be adversely affected as a result of undermined public trust in the Group, damage to the brand image, huge expenses incurred due to a law suit, or other consequences. As measures against such risks, we strive to prevent information security incidents by building a system for information security promotion and raising awareness among the Group’s directors and employees, strengthening monitoring functions for internal networks, and limiting access to information, among other initiatives. In cases where such risks materialize despite our having taken preventive measures, the situation will be appropriately addressed, the cause will be analyzed, and the scope of impact will be examined. Furthermore, we have a system in place to prevent recurrence and optimize preventive measures.
Risks Related to the External Environment
Tokyo Disney Resort, the core business of the OLC Group, is susceptible to fluctuations in Theme Park attendance caused by climate-related factors including the weather and temperature. As measures against heat in the summer, the attraction queuing areas have been placed indoors or covered with roof. We are also proceeding with measures against extreme climate events such as torrential rain and extreme heat likely to affect the outdoor areas of our Theme Parks. Despite such measures, when adverse weather conditions or extreme heat continues over a long period of time, the Group’s business results, such as its net sales, may be adversely affected as a result of a temporary drop in Theme Park attendance.
As the Group’s business is largely based in Maihama, in the event of a large-scale earthquake, typhoon, fire, flood, or other disaster in or near Maihama, we expect our facilities to be damaged, transportation systems and utilities (electricity, gas, water supply) to be affected, and consumer sentiment toward leisure activities to fall, which may temporarily reduce Theme Park attendance, possibly leading to an adverse effect on the Group’s business results such as a decline in net sales. As measures against such risks, we strive to prevent disasters from affecting our business or to mitigate the extent of the damage by giving safety considerations to Tokyo Disney Resort facilities, including ensuring their earthquake and fire resistance, preparing procedure manuals for employees, and periodically implementing training. Furthermore, for the purpose of ensuring we have liquidity on hand to continue with our business, we restructured our Earthquake Risk Countermeasure Financing Type Term Loan with Commitment Period in February 2019, which allows us to instantly procure the necessary capital in the event of a disaster.
To undertake its business the Group welcomes a large number of Guests at its facilities. Therefore, in the event of a terrorist attack at any of the facilities at Tokyo Disney Resort or a large-scale commercial facility within or outside Japan, a temporary closure of our Theme Parks and a drop in consumer sentiment toward leisure activities is expected, which may have an adverse effect on the Group’s business results, such as reducing its net sales, consequent to a temporary drop in Theme Park attendance. As measures against such risks, we strive to prevent terrorism by strengthening security and having metal detectors installed at our Theme Park entrances. In the event that such a risk materializes despite our having taken preventive measures, we will give top priority to securing safety. In preparation for such a situation, we have procedure manuals for employees to use and periodically implement training.
To undertake its business the Group welcomes a large number of Guests at its facilities. Therefore, in the event of the spread of an infectious disease, a temporary closure of our Theme Parks and a drop in consumer sentiment toward leisure activities is expected, which may have an adverse effect on the Group’s business results, such as reducing its net sales, as a result of a temporary drop in Theme Park attendance. As measures against such risks, we strive to protect our business from the impact of infectious diseases by preparing procedure manuals for employees and rigorously implementing hygiene management.
To take measures against the novel coronavirus (COVID-19), we established the Tokyo Disney Resort Infectious Disease Response Coordination Division led by the president to collect information on COVID-19, establish procedures to avoid closed spaces, crowded places, and close-contact settings, and create systems to prevent the spread of infection, including measuring employees’ temperatures.
Tokyo Disney Resort, the core business of the OLC Group, has periodically introduced new attractions and seasonal special events in an effort to continuously revamp its offerings. Judging from Tokyo Disney Resort’s stable business results during Japan’s recession, we consider the business to be unsusceptible to economic fluctuations.
To ensure that each and every Guest can enjoy a Park experience that brings them a high level of satisfaction, we will enhance our Theme Park environment in terms of both its structural and non-structural aspects. Investments required for this are executed based on a long-term plan and reinvestments are made using operating cash flow generated by business activities, which enable us to continue with our business regardless of short-term economic fluctuations. Even so, in the event of an unprecedented recession, Theme Park attendance may temporarily drop, which could adversely affect the Group’s business results, such as reducing net sales.
The OLC Group is subject to a variety of legal restraints, including safety standards for attractions, quality standards for merchandise offered to Guests, environmental standards, accounting standards, tax laws, and more. Notably, with respect to safety and quality, we partially set rigorous voluntary standards that exceed statutory requirements. In other areas, we thoroughly ensure compliance with legal requirements. In the event that new or revised laws and regulations are introduced, the Group will certainly strive to comply with them as part of its social responsibility. However, in some cases, if the legal restraints affect our business, a part of our business operations may be restricted for a certain period, which may adversely affect the Group’s business results, such as reducing its net sales.