Kyushu Railway Company · TSE:9142
Kyushu Railway — FY2019.3 Earnings Presentation
46 slides from Kyushu Railway's earnings presentation, May 2019
Slide 1: President's opening remarks on FY19.3 results
I am Toshihiko Aoyagi, the president of JR Kyushu. I would like to thank you for taking the time to attend our presentation today. I will discuss our financial results for FY19.3, which were announced on May 13. Please turn to slide 3.
Slide 2: Contents
Contents Highlights I Financial results for FY19.3 II Forecasts for FY20.3 II _ Business Initiatives by Each Segment Under Medium-Term Business Plan APPENDIX 11 16 36
Slide 3: Overview of today's presentation
Today, I will discuss the three points listed here: our financial results for FY19.3, our performance forecasts for FY20.3, and the business initiatives by each segment in the Medium-Term Business Plan, which we announced in March. First, I will discuss our financial results in FY19.3. Please
Slide 4: I. Financial results for FY19.3
I . Financial results for FY19.3
Slide 5: Highlights of FY19.3 consolidated results
Consolidated operating revenues increased ¥26.9 billion year on year due to increased revenues from the consolidation of Caterpillar Kyushu Co., Ltd., etc. Operating income was slightly down year on year due to an increase in depreciation costs at JR Kyushu, etc. Net income attributable to own
Slide 6: Consolidated Income Statements
Consolidated Income Statements Operating revenues Operating expenses Operating income Non-operating income and expenses Ordinary income Extraordinary gains and losses Net income attributable to owners of the parent EBITDA FY18.3 413.3 349.4 63.9 3.0 67.0 (2.2) 50.4 81.8 FY19.3 440.3 376.4 63.8 2.6 6
Slide 7: Results by segment
I will discuss the major segments. The Transportation segment recorded an increase in railway transportation revenues. However, due to a rise in depreciation costs at JR Kyushu, etc., overall the segment had higher revenues but lower income for the fiscal year. The Construction segment registe
Slide 8: Balance Sheet and Cash Flow Statement
Balance Sheet Balance Sheet and Cash Flow Statement (¥bil) (decrease) Total Assets 749.3 801.4) 52.0 Cash and time deposits 15.0 16.9) 1.9 Short-tem securities 65.0] 19.9 (45.1) Decrease in negotiable certificates of deposit, etc. Money held in trust 55.7 56.9 11 Property, plant and equipment 390.6
Slide 9: Non-consolidated results
Non-consolidated operating revenues increased ¥2.1 billion year on year due to higher railway transportation revenues and higher revenues from real estate leases, etc. Personnel costs declined, but nonetheless operating expenses rose ¥3.2 billion due to higher depreciation resulting from an incr
Slide 10: Railway transportation revenues
Railway transportation revenues were up 1.5% year on year due to a solid basic trend for the Shinkansen, which was 1% higher than in the previous fiscal year, as well as the benefits of the broadcast of the Segodon period drama on television, an increase in the number of consecutive holidays in Se
Slide 11: II. Forecasts for FY20.3
II. Forecasts for FY20.3 11
Slide 12: Changes in segment classifications
To strengthen segment management, on April 1, 2019, we established intermediate holding companies in the station building and hotel businesses, implemented segment classification changes, etc. The major change in segment classifications is the transfer of the hotel business, which was previously
Slide 13: Consolidated forecasts for FY20.3
Consolidated operating revenues are forecast to increase in FY20.3, as a result of higher railway transportation revenues and the opening of new hotels. We are forecasting declines in operating income, ordinary income, and net income attributable to owners of the parent due to higher expenses re
Slide 14: Consolidated Financial Forecasts (By Segment)
Consolidated Financial Forecasts (By Segment) (New Segments) « (il) Majour Factors ‘Operating revenues 440.3 442.3 1.9 100.4% Transportation == tSCS™S 181.8 180.4 (1.4) 99.2% | ty nn cot) 172.2 ea | (8) 98.9% Sa ee en ee ae ene ee Construction 93.8 96.0 2.1 102.3% RealEstateand Hotels 90.0 93.1 3.0
Slide 15: Non-consolidated Financial Forecasts
Non-consolidated Financial Forecasts (¥bil) Results Forecasts Majour Factors FY19.3 FY20.3 Operating revenue 221.9 220.4 (1.5) 99.3% Railway transportation Increase due to leap year and rebound from heavy rain in July revenues 151.4 152.8 1.3 100.9% 2018, etc. Shinkansen 54.9 55.7 0.7 101.3% Basic t
Slide 16: III. Business Initiatives by Each Segment Under Medium-Term Business Plan
Il. BUSINESS INITIATIVES BY EACH SEGMENT UNDER MEDIUM-TERM BUSINESS PLAN 16
Slide 17: 2030 Long-Term Vision
The Medium-Term Business Plan, which was announced in March, includes the newly formulated 2030 Long-Term Vision. To fulfill our social responsibilities in the area of mobility services, the JR Kyushu Group will take on the challenge of establishing sustainable mobility services in the area. To
Slide 18: Positioning of the three-year plan
We have positioned the three-years of the plan as a period for building a business foundation based on the key words of the 2030 Long-Term Vision: “Mobility Services in Kyushu.” Over three years, we are planning for a decline in operating income and an increase in EBITDA, with capital investment
Slide 19: Safety investment and labor-saving initiatives
In the railway business, we will need to implement safety investment and maintenance and upgrade investment of a constant in order to address frequent disasters and the aging of facilities and equipment. In addition, in order to improve our profitability in the years ahead, we will invest in lab
Slide 20: Mobility services (MaaS)
One of the goals that we are aiming for under the 2030 Long-Term Vision is to take on the challenge of establishing new mobility services, known as Maas, and to leverage MaaS to improve our profits. We believe that MaaS is necessary and appropriate in Kyushu, the Group’s business area. Our view
Slide 21: Real Estate and Hotels segment investment
In the Real Estate and Hotels segment, which is a key driver in our generation of cash flow, over the period of the medium-term business plan we are planning capital investment of ¥190.0 billion in order to build a foundation for growth. Through investment in strategic city-building initiatives
Slide 22: Station building development
In station building development, opportunities will be fostered not only by macro factors, such as changes in the population of our service area and in competitive conditions, but also by the replacement of aging facilities, the Shinkansen opening, and the city-planning initiatives of local govern
Slide 23: Target management indicators
In the medium-term business plan, we have set consolidated target management indicators for operating revenues and operating income. Looking at operating income during the period of the plan, a number of factors will affect operating income in comparison with FY2019.3. Positive factors will be a
Slide 24: Transportation segment
The Transportation segment is the foundation for the entire JR Kyushu Group. In FY20.3, we are expecting growth in railway transportation revenues, and the method of recording revenues and expenses for station buildings, etc., will change. On the other hand, compensated construction work revenue
Slide 25: Railway earning power: Shinkansen
In strengthening our earning power in the railway business, our initiatives are centered on three areas: the Shinkansen, urban area, and inbound tourism. First, I will discuss the Shinkansen. As one facet of yield management, we are working to promote the use of “Internet train reservation servi
Slide 26: Short-distance and inbound demand
The second key area is short-distance. Development in regions around our business areas and various events in the areas around our railway lines have synergy effects that benefit railway operations, which contributes to gains in our short-distance earning power. Development projects in the areas a
Slide 27: Disaster recovery
In recent years, there have been a large number of disasters in Kyushu, and the areas around our railway lines were damaged by the 2016 Kumamoto earthquakes, the heavy rains in northern Kyushu in July 2017, and the heavy rains in July 2018. We have recorded related disaster recovery expenses of ¥1
Slide 28: Real Estate and Hotels segment
Along with the railway business, the Real Estate segment is one of JR Kyushu’s operational pillars. In FY20.3, we will open THE BLOSSOM HIBIYA and THE BLOSSOM HAKATA Premier, and the method of recording revenues and expenses for station buildings, etc., will change. As a result, we are forecasti
Slide 29: Integrated development in business areas
To generate revenues in Kyushu, centered on the major area of Fukuoka, we will aggressively implement integrated development initiatives in the regions around our business areas, including not only at station buildings but also hotels, offices, and residential facilities. In regard to station bu
Slide 30: Future development pipeline
Looking at key elements of our future pipeline, in addition to the Kumamoto and Miyazaki projects, which will open during the period of the medium-term business plan, moving forward we also plan to implement development initiatives centered on the major Kyushu cities of Kagoshima, Nagasaki, and Ha
Slide 31: Retail and Restaurant segment
In the Retail and Restaurant segment, there is a basic trend of growth in revenues due to new store openings. However, in certain formats there are signs of an excess of stores, and going forward the store opening policy will become even more important than in the past. In FY20.3, we will streng
Slide 32: Construction segment
In the Construction segment, the scale of revenues is high, but the contribution to profits is limited. In FY20.3, the segment will benefit from higher demand due to favorable market conditions. However, there are also a significant number of factors that will affect profits, such as higher pric
Slide 33: Other segment
In the Other segment, performance in FY19.3 was led by strong results in the hotels division and by Caterpillar Kyushu, which we have acquired, and the segment recorded higher revenues and income. In FY20.3, we are forecasting lower revenues and lower income due to a decrease in revenues from sa
Slide 34: Investment plan
The total amount of investment over the period of the medium-term business plan will be ¥340.0 billion, which will exceed our cumulative consolidated cash flow over the same period. To establish sustainable railway and mobility services, we recognize that we will need to address the frequent dis
Slide 35: Shareholder returns
Next, I will discuss the provision of returns to shareholders. JR Kyushu places importance on the stable provision of returns to shareholders over the long term. Up to this point, our basic policy has been to aim for stable dividends per share with a consolidated payout ratio at a level of app
Slide 36: APPENDIX
APPENDIX 36
Slide 37: Review of the Medium-Term Business Plan 2016-2018
Review of the Medium-Term Business Plan 2016-2018 « @ Due to favorable results in revenues from railway transportatio n and in the construction segment, we surpassed the financial targets (operating revenues and EBITDA) in the previous medium- term business plan. e@ [Reference] Capital investment su
Slide 38: Review of the JR Kyushu Group Medium-Term Business Plan 2016-2018
Review of the JR Kyushu Group Medium-Term Business Plan 2016-2018 Previous Medium-Term Business Plan Current Medium-Term Business Plan Kumamoto earthquakes (Apr. 2016) Listing on stock exchange (Oct. 2016) © Start of operation of DENCHA dual energy chorge trains (Oct 2016) ‘© Commencement of Kawasem
Slide 39: EBITDA by Segment (Former Segments)
EBITDA by Segment (Former Segments) l Transportation l Real Estate « Notes: Figures for the Transportation segment EBITDA up to and (¥bil) (¥bil) including FY16.3 contain earnings 34,3 34.4 from use of the Management a5) SnEBTOA #5 20% 40) meson 50% Fortin izson O>EEITOA mn 0 O= EBITDA margin 31.1 3
Slide 40: Progress of Business Initiatives
Progress of Business Initiatives Station Building Business Revenues. | Retail and Restaurant Store rs. | Hotel (Ryokan) Business (¥bil) 45 Note: Figures represent total business revenues from six station building operating subsidiaries and the JRJP Hakata Building. Aggregate Number of Apartment Unit
Slide 41: Changes in Cost Structure
Changes in Cost Structure l Elimination of Special Tax Measures « © Elimination of special tax measures (special tax breaks implemented following the privatization of Japanese National Railways and provisions extending the period of these breaks) effective March 31, 2019 (period extending provisions
Slide 42: JR Kyushu's Capital Structure
JR Kyushu’s Capital Structure © Capital calculated as difference between assets and liabilities at time of privatization of Japanese National Railways in 1987 e JR Kyushu established with excessive levels of capital (additional paid-in capital) due to low levels of liabilities Note: The three JR com
Slide 43: Net Cash on March 31, 2019
Net Cash on March 31,2019 l Overview of Net Interest-Bearing Debt « Net Interest-Bearing Debt on March 31, 2018"! (¥mil) Interest bearing debt Cash and cash equivalents Borrowings Cash and deposits Securities Money held in trust RSS DRESS 9 ips Y bearing debt = = 87,324 15,064 65,077 55,783 (48,600)
Slide 44: Major Properties
Major Properties Floor space Tenan Asset type Units sales Major tenan' Rooms FY19.3 Mar 1998 Approx. 48,500m? ¥12.5 bil UNITED ARROWS, Francfranc, etc. MU PLAZA Kokura Kokura Kita Ward, Kitta Kyusyu . Onoemachi, Nagasaki 2 »» TOKYU HANDS, MUJI, ‘al AMU PLAZA Nagasaki City Sep 2000 Approx. 58,500m: ¥
Slide 45: Overview of Major Development Pipelines
Overview of Major Development Pipelines Name Kumamoto Station area development Nagasaki Station area development Kagoshima-Chuo Station West Entrance Development Miyazaki Station West Entrance Development Hakata Ekimae 2-Chome Complex (provisional name) RJR Precia Tenjin South MJR/RIR Sakaisuji Honm
Slide 46: 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
Kyushu Railway Company — FY2019.3 Earnings Presentation on 6ix