Kyushu Railway Company · TSE:9142

Kyushu Railway — FY2018 Earnings Presentation

41 slides from Kyushu Railway's earnings presentation, May 11, 2018

1. Slide 1: FY2018/3 Annual Investors Meeting

   FY2018/3 Annual Investors Meeting May 11, 2018 Kyushu Railway Company 11

2. Slide 2: Contents

   Contents Ⅰ Financial results for FY2018/3 3 Ⅱ Forecasts for FY2019/3 11 Ⅲ Business Initiatives Under Medium-Term Business Plan 17 Ⅳ Progress of the Medium-Term Business Plan 30 Appendix 35 2

3. Slide 3: Financial results for FY2018/3

   Ⅰ Financial results for FY2018/3 3

4. Slide 4: Consolidated Financial Highlights for FY2018/3

   Consolidated Financial Highlights for FY2018/3 【Year on Year】 • Operating revenues up for the 8th consecutive year (set new record) • Net income attributable to owners of the parent up for the 2nd consecutive year (set new record) • EBITDA up for the 5th consecutive year (set new record) （Billions o

5. Slide 5: Consolidated Income Statements

   Consolidated Income Statements （Billions of yen） YoY FY2017/3 FY2018/3 Increase/ Major factors % (decrease) Railway transportation revenues ＋4.6 382.9 413.3 30.4 108.0% Operating revenues Consolidation of Caterpillar Kyushu, Ltd +7.3 Depreciation cost (JR Kyushu) +2.6 324.1 349.4 25.2 107.8% Taxes +

6. Slide 6: Segment Information (Summary)

   Segment Information (Summary) (Billons of yen) YoY FY2017/3 FY2018/3 Increase / % (decrease) Operating revenues 382.9 413.3 30.4 108.0% Transportation 176.4 183.7 7.3 104.2% Construction 79.3 88.0 8.6 110.9% Real Estate 67.4 69.4 1.9 102.9% (Real Estate Lease) 46.3 49.0 2.6 105.8% Retail and Restaur

7. Slide 7: Financial Position and Status of Cash Flows (consolidated)

   Financial Position and Status of Cash Flows (consolidated) （Billions of yen） As of March As of March Increase/ Consolidated balance sheets 31,2017 31,2018 (decrease) Assets 676.6 749.5 72.9 Current assets 198.6 206.7 8.1 Non-current assets 478.0 542.8 64.7 Liabilities 328.2 366.3 38.1 Current liabil

8. Slide 8: Nonconsolidated Income Statements

   Nonconsolidated Income Statements （Billions of yen） YoY FY2017/3 FY2018/3 Increase/ Major factors % (decrease) Operating revenues 212.2 219.7 7.5 103.5% Revenues from real estate leases +1.6 Rebound from impacts of the 2016 Kumamoto (Railway transportation revenues) 146.4 151.1 4.6 103.2% earthquake

9. Slide 9: Nonconsolidated Income Statements [Reprint]

   Nonconsolidated Income Statements【Reprint】 （Billions of yen） YoY FY2017/3 FY2018/3 Increase/ % (decrease) Operating revenues 164.9 171.3 6.3 103.8% business Railway Operating expenses 139.8 143.0 3.1 102.3% Operating income 25.0 28.2 3.1 112.5% Operating revenues 47.2 48.4 1.1 102.5% businesses Rela

10. Slide 10: Railway Transportation Revenues and Performance of Transportation Volume

    Railway Transportation Revenues and Performance of Transportation Volume （Billions of yen） YoY Railway transportation FY2017/3 FY2018/3 Increase/ Major factors revenues % (decrease) Total 146.4 151.1 4.6 103.2% Shinkansen 50.1 54.1 4.0 108.0% Rebound from impacts of the 2016 Kumamoto Commuter pass 2

11. Slide 11: Forecasts for FY2019/3

    Ⅱ Forecasts for FY2019/3 11

12. Slide 12: Consolidated Financial Highlights for FY2019/3

    Consolidated Financial Highlights for FY2019/3 【Year on Year】 • Operating revenues forecast to increase • Net income attributable to owners of the parent forecast to decrease • EBITDA forecast to increase （Billions of yen） Results Forecasts YoY FY2018/3 FY2019/3 Operating revenues 413.3 439.7 26.3 1

13. Slide 13: Consolidated Financial Forecasts

    Consolidated Financial Forecasts （Billions of yen） YoY Results Forecasts Increase/ FY2018/3 FY2019/3 % (decrease) Operating revenues 413.3 439.7 26.3 106.4% Operating income 63.9 60.7 (3.2) 94.9% Ordinary income 67.0 62.6 (4.4) 93.4% Net income attributable to owners of the parent 50.4 47.5 (2.9) 94

14. Slide 14: Consolidated Financial Forecasts [By segment]

    Consolidated Financial Forecasts 【By segment】 （Billions of yen） YoY Results Forecasts Increase/ FY2018/3 FY2019/3 % (decrease) Operating revenues 413.3 439.7 26.3 106.4% Transportation 183.7 186.9 3.1 101.7% Construction 88.0 88.6 0.5 100.7% Real Estate 69.4 70.6 1.1 101.7% Retail and Restaurant 103

15. Slide 15: Nonconsolidated Financial Forecasts

    Nonconsolidated Financial Forecasts （Billions of yen） YoY Results Forecasts Increase/ FY2018/3 FY2019/3 % (decrease) A B B-A B/A Operating revenues 219.7 222.8 3.0 101.4% (Railway transportation revenues) 151.1 151.5 0.3 100.2% Operating expenses 172.9 178.0 5.0 102.9% Personnel costs 51.3 49.8 (1.5

16. Slide 16: Nonconsolidated Financial Forecasts [Reprint]

    Nonconsolidated Financial Forecasts 【Reprint】 （Billions of yen） YoY Results Forecasts Increase/ FY2018/3 FY2019/3 % (decrease) Operating revenues 171.3 174.0 2.6 101.6% business Railway Operating expenses 143.0 147.5 4.4 103.1% Operating income 28.2 26.5 (1.7) 93.9% Operating revenues 48.4 48.8 0.3

17. Slide 17: Business Initiatives Under Medium-Term Business Plan

    Ⅲ Business Initiatives Under Medium-Term Business Plan 17

18. Slide 18: Position of the Medium-Term Business Plan 2016–2018

    Position of the Medium-Term Business Plan 2016–2018 Aiming to be a kind and robust corporate group involved in comprehensive city-building  Actively promoting city-building through strong railway construction and diverse businesses and further solidifying business foundations in Kyushu  Steadily m

19. Slide 19: Creating Synergies Between Businesses through City-Building

    Creating Synergies Between Businesses through City-Building  Development of versatile businesses that leverages the security and trust and customer attraction capabilities cultivated in the railway business  Contribution of city-building to increased ridership and short-distance transportation in

20. Slide 20: Strong Railway Business as the Foundation for All Business

    Strong Railway Business as the Foundation for All Business  Stable railway transportation revenues following establishment of position as an important transportation method connecting all of Kyushu  Strong JR Kyushu brand known for safety and reliability in Kyushu to be cultivated by operating saf

21. Slide 21: Initiatives in the Railway Business—Bolstering Profitability

    Initiatives in the Railway Business—Bolstering Profitability  Further increase train usage and bolster profitability by encouraging the use of the “JR Kyushu Internet Reservation Service” and actively promoting policies focused on inbound demand ＜Internet Strategy＞ 10,000 ＜Number of Reservations th

22. Slide 22: Initiatives in the Railway Business—Pursuing Efficient Business Operations

    Initiatives in the Railway Business ―Pursuing Efficient Business Operations  Pursue technological innovation and efficient business operations to respond flexibly to rapidly changing operating environment and diversifying customer needs ＜Development of Next-Generation Rolling Stock＞ ＜Streamlining o

23. Slide 23: Recovery from Natural Disasters

    Recovery from Natural Disasters (Heavy Rain in Northern Kyushu and Typhoon No. 18) ＜Heavy rain in northern Kyushu＞ ＜Typhoon No. 18＞ Hitahikosan Line  Time of occurrence Kokura  Time of occurrence ・July 2017 Hakata Houhi ・September 2017 Main Line  Details on major damages Sasebo Tosu  Details on

24. Slide 24: Real Estate Segment Driving Growth and Evolution

    Real Estate Segment Driving Growth and Evolution  Important segment comprising real estate lease and sales operations and accounting for approximately 40% of consolidated EBITDA  Develops operations focused on station buildings and other commercial facilities, office buildings, and condominiums in

25. Slide 25: Initiatives in the Station Building Business

    Initiatives in the Station Building Business  Carry out attractive and lively city-building centered on train stations and rooted in local communities  Maximize synergistic effects with the railway business with the aim of improving the value of our stations and station buildings ＜Performance of T

26. Slide 26: Initiatives in the Apartment Business

    Initiatives in the Apartment Business Units ＜Aggregate Number of Rental Apartment Units ＞ ＜Rental Apartments＞ 4,000 3,147 3,150  Secure stable profits by promoting new business development 3,000 2,637 2,419 RJR Series 2,000 1,879 1,607 ・High-grade apartments capitalizing on JR Kyushu’s condominium

27. Slide 27: Other Business Initiatives: Hotel and Seniors Business

    Other Business Initiatives ＜ Hotel Business ＞  Expand chain through development of hotels mainly ＜Hotel (Ryokan) Business Revenues and Room Numbers＞ consisting of guest rooms for overnight stays Hotel Business ホテル事業収入 客室数 Room numbers ¥ Billions （億円） Revenues J.D. Power, 2017 Japan Hotel Guest Sati

28. Slide 28: Major Development Pipeline

    Major Development Pipeline • Continue to strengthen profitability through large-scale developments • Without being limited to areas surrounding train stations, actively pursue development in urban areas as a “city-building” company • Promote expansion outside of the Kyushu area, including Tokyo and

29. Slide 29: New Businesses and Tackling Challenges Outside of the Kyushu Area

    New Businesses and Tackling Challenges Outside of the Kyushu Area ＜New Business Initiatives＞ ＜Business Initiatives Outside the Kyushu Area＞  Conversion of Caterpillar Kyushu, Ltd into subsidiary in October 2017  Entry into service apartment business in Thailand to expand  Expansion of operations

30. Slide 30: Progress of the Medium-Term Business Plan

    Ⅳ Progress of the Medium-Term Business Plan 30

31. Slide 31: Target Management Indicators

    Target Management Indicators ◆ Target Indicators (FY 2019/3) ＜Operating Revenues: ¥400.0 billion＞ ＜EBITDA: ¥78.0 billion＞ Share of operating revenues not from railway ¥ Billions transportation revenue: Over 62% ¥ Billions 81.8 82.0 4,500 450 439.7 800 80 3.9 73.2 413.3 78 69.1 3.3 5.3 400 382.9 377.

32. Slide 32: Target Management Indicators: Capital Investment

    Target Management Indicators ＜Capital Investment Amounts[Reference]＞ Total 3-Year Capital Investment Target ¥ Billions ¥239.0 billion ¥190 billion 120 1200 (FY 2017/3–2019/3 totals) 100.9 90 900 (Main details) 69.4 68.7 58.8  Investments to improve safety in the 60 600 35.9 39.0 railway business ¥6

33. Slide 33: Returns to Shareholders

    Returns to Shareholders ◆ Dividend Policy Until FY 2019/3, we will aim for stable dividends per share with a consolidated payout ratio at a level of approximately 30% as the standard guideline. ◆ Annual Dividend Amount per Share and Payout Ratio ・Planned dividend of ¥83.00 per share for FY2018/3 ・Pl

34. Slide 34: Medium-Term Outlook (Reference)

    Medium-Term Outlook (Reference) ＜Consolidated Operating Revenues＞ ＜Consolidated EBITDA＞ Approx. ¥ Billions ¥ Billions Approx. 460.0 4,500 439.7 450.0 100 1,000 450 Approx. 413.3 400.0 約840 382.9 81.8 82.0 Approx. 84.0 78.0 78.0 800 80 73.2 300 3,000 Over 62% 600 60 40 400 150 1,500 20 200 146.4 151.

35. Slide 35: Appendix

    Appendix 35

36. Slide 36: EBITDA by Segment

    EBITDA by Segment ＜Transportation＞ ＜ Real Estate ＞ EBITDA margin EBITDAマージン EBITDA margin EBITDAマージン ¥ Billions ¥ Billions 350 34.3 34.4 35 20% 350 50% 35 32.0 32.1 31.1 28.5 28.4 280 27.0 28 280 28 25.8 25.1 18.7% 18.4% 210 21 210 21 46.9% 16% 45.8% 46.2% 46.2% 45% 140 140 14 45.5% 14 16.2% 70 7 70

37. Slide 37: Progress of Business Initiatives Under Medium-Term Business Plan

    Progress of Business Initiatives Under Medium-Term Business Plan ＜Station Building Business Revenues＞ ＜Retail and Restaurant Store Numbers＞ ＜Hotel (Ryokan) Business Revenues＞ ¥ Billions Stores ¥ Billions 450 45 750 750 15 150 14.2 14.0 40.3 13.0 13.0 400 40 38.6 38.5 693 701 36.7 700 665 100 350 35

38. Slide 38: Peripheral Business Initiatives

    Peripheral Business Initiatives ＜ Rental Apartments ＞ Timings (Acquisition / Start of Name Location Units move-in availability) Higashi Jujo Rental Apartments Kita Ward, Tokyo June 2017 182 RJR Precia Oita Ekimae II Oita City February 2018 130 RJR Precia ChiyoKenchoguchi Ekimae Hakata Ward, Fukuoka

39. Slide 39: Major Properties

    Major Properties Timings Floor space / Units / Asset type Name Location Tenant sales (FY2017/3) Major tenants (Opening / Acquisition) Rooms Commercial facility Kokura Kita Ward, Kitta AMU PLAZA Kokura Mar. 1998 Approx. 48,500㎡ ￥12.1 billion UNITED ARROWS, Francfranc, etc. (Station building) Kyusyu ￥

40. Slide 40: Overview of Major Development Pipelines

    Overview of Major Development Pipelines Name Location Timings Floor space / Lot area / Units / Rooms Additional comments (uses, etc.) M arch 2018: Scheduled start of operations in area under elevated tracks Lot area: Approx. 70,000 m2 Area below elevated tracks: Commercial area Spring 2019: Schedule

41. Slide 41: Forward-Looking Statements

    Forward-Looking Statements These materials contain forward-looking statements concerning business forecasts, targets, etc. of the JR Kyushu Group. The Company decided on these forward-looking statements based on the available information, as well as Company estimates and assumptions, at the time the

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