Kyushu Railway : The Future Railway Project (with commentary)（7,884 KB）

• I am Michiya Sadaraki, Director General of Railway Operations Headquarters.

• I will discuss the Future Railway Project.

• Please turn to slide 4.

  I	Need for the Future Railway Project	3
  B	The Future Railway Project in Review	6

  Contents

  B Outcomes of and Progress on the Future Railway

  Project

  IV Impact of the Future Railway Project within the Medium-Term Business Plan

  Realize Sustainable Mobility Services

  1 1

  1 7

  2

  3

Need for the Future Railway Project

• Internal environment: asin9 of railway infrastructure

1,600

1.200

Agin9 bridges

800

400

90

Aging tunnels

60

30

0

12,000

8,000

16,000Aging utility poles

4,000

44-45

56-60

• I will explain the necessity of the Future Railway ProJect.

• As is generally recognized, the external environment surroundin9 mobility, includin9 railways, presents severe challenges, such as the intensification of natural disasters, and population decline and a rapidly asins society in Japan and Kyushu.

• Resardins the internal environment, most of our railway facilities-such as bridses, tunnels, and utility poles-were developed durins the JNR period (Japan National Railways), and they are now approachin9 a time that requires larse-scale renewal and replacement.

• Please turn to the next slide.

  Need for the Future Railway Project

  • Internal environment: rollin9 stock renovation on Shinkansen and conventional lines

  160

  140

  120

  100

  80

  The standard replacement period for conventional lines: 45-60 years

  60

  The standard replacement period for Shinkansen: 25-30 years

  40

  20

  1972 1975 1978 1981 J 984 J 987 1990 1993 J 996 1999 2002 2005 2008 20J 1 201 4 20J 7 2020 2023

  5

• Regarding our rollin9 stock, based on an estimated service life of 45 to 60 vears for conventional lines and 25 to 30 vears for the Shinkansen, the need for renewal and replacement will be concentrated in the 2030s.

• As a response to these challen9es, we must deepen our considerations across the following areas, positioning safety as our highest priority: pursuing rational management, implementin9 Balance Sheet (BS) management, improving operating income throu9h top-line 9rowth, creatin9 new business models for the future, and achieving thorough cost reductions.

• We believe that the Future Rail Project is one of the

  key initiatives to address these challenges.

• Please turn to slide 7.

  6

I

The Future Railway Project in Review

• Business structural reforms in the railway business, the segment most impacted by the COVID-19 pandemic

Impact of the pandemic and project initiatives

• As part of cost reduction efforts in the railway business, we achieved a ¥14.0 billion reduction in fixed costs through BPR.

• To further deepen business structural reforms. we launched the Future Railway ProJect in FY23.3.

Profit

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

(Initial public offering)

We conducted business process re-ensineerins (BPR) in a short timeframe and successfully achieved a Y14.0 billion reduction in fixed costs in FY23.3.

• I will now provide the overview of the Future Railway Project.

• The COVID-19 pandemic exposed the rail business's heavy reliance on passen9er traffic and its high fixed-cost ratio, makin9 the continuous reduction of fixed costs an urgent necessity for the sustainable operation of our rail business.

• Consequently, we executed our first business structure reform-a Y 14.0 billion reduction in fixed costs throu9h the BPR project-which was completed over two and a half years.

• Subsequently, leverasin9 the streamlined rail business achieved throu9h the BPR, we launched the Future Railway Project in the fiscal year ended March 2023 to create the "railway of the future" that will drive urban development in Kyushu, aimin9 to achieve sustainable 9rowth.

• Please turn to the next pa9e.

  The Future Railway Project in Review

  • Creating the "railway of the future" to drive city-building in Kyushu

  Overview of the Future Railway Project

  • The Future Railway Project builds on the lean railway business established through BPR and aims to strengthen both mobility innovation and financial resilience.

  • Cross-functional teams are working to harness the railway' s strengths and assets to create new revenue oeeortunities and drive innovation through technological development and adoption of new technologies. ""","""

  Goals of the Future Railway Project

  • Quantitative goal

    • Through DX promotion and technological innovation, the project aims to further reduce fixed costs and increase revenues, tar9etin9 an improvement of over Y14.0 billion in operatin9 profit by FY31.3.

  BPR imeact

  Forecast for FY26.3

  ""

  • Qualitative goal

    • The project is driven by a foundation of safety, security, and a customer-first mindset, with the soal of enhancin9 the value of railways and creating a virtuous cycle of growth.

  Note: The ¥14.0 billion improvement target is measured from FY2022 earnings, after the COVID-19 pandemic.

  8

  ProfiI improvement due

  
  
  

• The Future Railway ProJect is based on two core pillars-"Evolution of Mobility" and "Strengthening Management Foundation"-with the objective of creating the "railway of the future" that will drive urban development in Kyushu.

• This project aims for a tar9et soal in the fiscal year endin9 March 2031 while also envisionins the ideal future state of the railway beyond that point. It is a unified effort involving the field, headquarters, and branch offices.

• The quantitative soal of the Future Railway ProJect is to achieve an improvement in the rail business's balance of income and expenditure of over

  ¥ 1 4.0 billion by the fiscal year ending March 2031. The qualitative soal is to realize a "virtuous cycle of enhancing railway value and srowth."

• By promoting the project, we will generate "sustainable profit" and invest this profit into business srowth and human capital, creating "employee srowth and job satisfaction." As employees grow, they will enhance the value provided to our customers. leading to "customer satisfaction and regional vitality." and ultimately building a stronger management foundation. This is the cycle we aim for.

• Please turn to the next pase.

  
  
  

  The Future Railway Project in Review

  • Improving revenue and expenditures through revenue acquisition and investment, and creating the future beyond organizational boundaries.

    Purpose of the Future Railway ProJect

    • With rising depreciation costs, it is essential to build a resilient management foundation for the future-both defensively and offensively.

    Defensive efforts at future- Proactive efforts at future-

    oriented reinforcement Oriented reinforcement

    Build unwavering mana9ement resilience to fulfill the mission of rail and mobility even amid unforeseen challenges.

    Prioritize safety while evolving into a mana9ement structure capable of bold investments in new technolo9ies and services.

    Population decline, inflation, climate chanse Lar9e-scale renovation of rolling stock and

    (increasingly severe disasters) infrastructure ahead, as well as investment

    aligned with evolving customer needs

    Rise in depreciation cost

    Differences between BPR and the Future Railway Project

    BPR ProJect Future Railway ProJect

    Considered by individual organizations

    Short term (completion to take aeeroximately two and a half years)

    Focus on cutting costs

    Considered by cross-functional teams

    Medium to long term (sishts set on FY2031.3) Improve provides by earnin9 revenues and investing

    9

• The Future Railway Project has two aims: "Defense" and "Offense." The Defense aim is to prepare for external environmental risks such as population decline and the intensification of natural disasters. The Offense aim is to build the financial strength necessary to make proactive growth investments for the future, with "safety as our hi9hest priority."

• In implementin9 this project, we have clearly defined its difference from the BPR. The Future Railway Project focuses on: formin9 new cross-functional teams spanning multiple departments, drawing a medium- to long-term growth strate9y, and implementin9 measures for improving income and expenditure that involve revenue 9eneration and investment.

• Please turn to the next pa9e.

  Working-level meetinss for each team

  [Secretariat meeting Frequency: Once per month

  [Progress meetin9 Frequency: Once eer month

  Participants: Railway business division heads and others

  IPresident' s briefinsJ Frequency: Once eer month

  Participants: President, executive officers, and others

  Project discussions and frequency

  • To ensure achievement of the Y1 4.0 billion income improvement tar9et for the Future Railway Project, each initiative is monitored, tracked, and risk-assessed.

  Future local lines

  Future GrouD companies

  Future earnin9 methods (railwaY-adjacent areas)

  The teams that implemented the initiatives have now transitioned to the fuII operation phase, where each department or relevant unit is responsible for onsoins management and verification.

  The Future Railway Project in Review

  • Promotion system and Decision-Makin9 Framework for Reliable ProJect Execution

  Future Railway Project Promotion Framework

  • Originally launched with nine cross-functional teams; currently progressing across five cross-functional teams spanning multiple divisions

  Future transeor tation systems

  Future back office

  Future facilities

  Future earning methods

  Future maintenance

  Cross-functionalteams

  10

• To ensure the steadv execution of the project, we have clearly defined the promotion structure and the decision-making process.

• Upon the launch of the Future Railway Project, we formed nine cross-functional teams according to specific objectives and commenced our efforts. Currently, the structure has evolved into five teams, and we are promotin9 the project across the or9anization, aimin9 to enhance railway value by incorporatin9 new perspectives and ideas.

• Please turn to Pa9e 12.

  B Outcomes of and Progress on the Future Railway Project

Outcomes of and Progress on the Future Railway ProJect (Future Transportation Systems)

• • Buildin9 a Safe, Customer-Centric, and Environmentally Sustainable Railway

    Creating a Rewarding and Comfortable Workplace throu9h Expanded Roles

    • Expanded autonomous drivin9 section

      • Promote automation and mechanization of tasks to ensure long-term maintenance of transportation infrastructure amid declinin9 labor population.

        Automated

        Automated operation with on-board certified operators (internal ALJtomated Automated operation with licensed drivei's (national

        Operation GOA2.5

        qualification).

        In emersencies, operators eerform emersency stoe and guide evacuation.

        Operation GOA2.0

        quailficatiOn).

        In emersencies, drivers eerform emersency stop and guide evacuation.

        March 2024: GOA 2.5 automated operation launched on the Kashii Line; GOA 2.0 trial operation started on Ka9oshima Main Line (Orio-Futsukaichi).Future plans: Further expansion of automated operation sections.(GOA: Grade of Automation)

        Flexible Transportation Capacity to Meet Demand

    • ExDlorin9 Optimal Transportation Capacity and Improved Convenience Indicate buffer times between stations with eco through New Turnback Facilities (leaf) marks.

      Developing an Eco-Friendly Railway ' 'ea' a'k'5*ec ds

    • Deployment of Ener9y-Efficient Drivin9 (Eco Drivin9) 2 leaf mark : 30 seconds

      • Conventional Lines: Display eco marks on timetables and desi9nate 3 leaf mark : 45seconds or more

        priority sections for energy-efficient drivin9. Promoteefficient drivin9 by moderating maximum

      • S hinkansen: Standardize buffer times between stations and set priority SDeedto reduce traction power and CO₂ emissions.

        periods for energy-efficient driving.

        Short-Term (by 2027)

        Expand ener9y-efficient driving to all areas (mainly local trains).

        Medium-Term (by 2035)

        Full-area implementation; reduce traction

        power by 5%. FY2025 Initiatives

        12

• I will explain the results and progress of the Future Railway Project.

• First, let us look at the Future Transportation System Team. This team is working to create a sustainable railway system, with safety and the customer's perspective as its foundation.

• Central to this effort is the introduction of Automatic Train Operation technology. In March 2024, we started GOA 2.5 Automated operation on the Kashii Line and commenced GOA 2.0 Automated operation demonstration test on the Kagoshima Main Line. This initiative addresses the decline in the workin9 population, reduces the burden on train drivers, and improves operational efficiency.

• Going forward, in addition to considering the expansion of Automated train operation sections. we will explore securing appropriate transport car›acity and improving convenience by newly constructing turnaround facilities.

• Furthermore, as part of our commitment to creating an environmentally friendly railway, we are promoting Eco-Driving. This will be expanded across all areas, mainly tarsetins local trains, by 2027. This initiative is effective in reducing both traction power consumr›tion and CO₂ emissions.

• By achieving both railway safety and environmental r›erformance, we will establish a transportation system for the future.

• Please turn to the next pase.

  
  
  

  Outcomes of and Progress on the Future Railway ProJect (Future Maintenance)

  • Drivin9 the Future of Railways with Advanced, Creative Maintenance

Tar9et Cycle

Mechanizing, robotizing, and leveraging AI to streamline the entire maintenance cycle-from inspection and analysis to reeair.

Minimizing Lifecycle Costs through Condition-Based Maintenance

• Deployment and Full-Scale Operation of Multi- • Introduction and Development of REDEYE

  Functional Inspection Vehicle "BIGEYE" and Smart REDEYE

• Reelacins traditional on-foot patrols with the multi-functional inspection vehicle "BIGEYE" enables material monitoring, displacement measurement, and eoint cloud data conversion for comprehensive condition monitoring.

• Our ultimate soal is to eliminate on-foot patrols entirely by introducing AI-driven decision-makinp for maintenance necessity.

• In addition to reelacins train patrols with "REDEYE," we are develoeins a portable version, Smart REDEYE.

• These systems enable imase analysis via onboard cameras and measurement of train vibrations

  Image analxsis

  Enhancing Productivity and Safety through Mechanization and Workforce Optimization

• Autonomous Drone Security

  • Conducting surveillance and inspection of structures and track surroundings through low-altitude, remote autonomous flisht.Reducing human patrols to enhance safety and efficiency.

    Brid9e Inspection

• One-person operation of the track checkin9 vehicles (Kyushu Shinkansen)

  • Equieeed with Al-powered cameras to automatically detect obstacles within the clearance envelope. Drivers monitor via onboard display.

  • AI utilization reduces workforce requirements for track confirmation tasks.

    13

    • Next, I will explain the Future Maintenance Team. This team is working to advance and optimize maintenance practices.

    • We aim to reduce the lifecycle cost by optimizing the entire cycle-from inspection and analysis to repair-throu9h mechanization, robotization, and the application of AI.

    • Specifically, to realize Condition-Based Maintenance, we have introduced the multi-functional inspection train BIG EYE, to monitor the condition of tracks and facilities usins data.

      Furthermore, we utilize RED EYE and Smart REDEYE to automatically detect anomalies in overhead wires and tunnels using AI.

    • Additionally, we are transformin9 maintenance from "Preservin9" to "Improvins" by promotin9 safety enhancement and labor reduction through autonomous inspection via drones and the mechanization of work. We will thereby achieve both the sustainability and profitability of our railway.

    • Please turn to the next pa9e.

      • Aim to streamline station facilities and operations while enhancing customer service.

      Future

      Current

      Expansion of train operation information services

      • Introduction of Next-Generation Information System

        • Implement large LCD ganels for departure indicators to improve convenience.

        • Considerin9 services that allow gassen9ers to check real-time train operation and location information anytime, anywhere via PC or smartphone.

      Stop Wmitpoint

      Level crossin9 controllers Activation circuits

      Cables

      Si9nal equipment

      Wireless Train Control System (Concept)

      Central control unit Wireless communication

      devices

      Network

      to streamline equipment and improve safety through in-cab signal display.

      • In the future, aim to enhance convenience by enabling flexible timetable management.

      Streamlining Expected Equipment

      Outcomes of and Progress on the Future Railway ProJect (Future Facilities)

      • Optimization of railway assets usin9 new technologies according to transportation systems

      Enhancing Safety and Convenience through Train Control Using General-Purpose Wireless Communication

      • Development of Wireless Train Control System

      • Introduce train control systems utilizin9 general-gurgose wireless communication

      14

• Next, I will explain the Future Facilities Team. This team is promoting the optimization of railway assets throush the introduction of new technolosies tailored to the transportation system.

• One such initiative is the development of the wireless train control system. By introducin9 train control that utilizes General-purpose wireless communication, we will achieve the streamlinin9 of facilities, such as si9nals and cables, thereby enhancin9 safetv and efficiency.

• Furthermore, throu9h the introduction of a next-seneration information svstem, we will provide real-time train operation information via smartphones and station facilities. This will improve customer convenience and evolve the quality of our railway services.

• Please turn to the next page.

  Outcomes of and Progress on the Future Railway ProJect (Future earning methods for Railways) Development of products and initiatives that encourage eeoele to ride and travel Revenue Rail transportation revenue = Number of Passengers (New customers + Repeat Growth users) x Average Spend Maximize Customer Lifetime Value (LTV)" sophistication Specific Achievements and Progress Product Initiatives • Since the launch of this service in September 26, last year, usage has [Driver's License Return Going Out Ticket] been on the rise. The service contributes to reduced workload at station counters and helps ease congestion. 65 and above who have returned their • Starting in July 8, we will expand covera9e from the northern Kyushu driver' s license area to all conventional lines limited express and D&S trains. (Note: Does not apply to 36+3, KANPACHI/ICHIROKU, and ARU RESSHA.) (Unit: people) 9000 90.0% 6000 80.0% 3000 70.0% 0 60.0%
  Sales Performance: Over 1,000 passes sold since July 2024

  • Expandin9 New Customers and Repeat Users, Drivin9 Demand for Travel, and Maximizing LTV

  • Challen9e: Acquire and expand new • Repeat Users: Build hi9hly loyal fans for lon9-term relationships customers

    • Develop products that nurture core enthusiasts and enhance apps

  • Secure inbound demand effectively and loyalty pro9rams

  • Ensure fair value capture from • Creatin9 events (develoein9 eureoses to 9enerate travel demand) customers • Implement themed trains and initiatives that

    • Advance yield management leverage fan ensa9ement to drive traffic

  • Development of Target-Specific • Expansion of QR ticketless services

    • Area-limited pass for customers a9ed

  15

  
  
  

• Next, I will explain the Future Earnin9s Team. This team is working to enhance the value of the railway by focusing on the themes of "inspirin9 people to ride" and "inspiring people to visit," and challen9in9 ourselves to expand both new customers and repeaters.

• Specifically, to maximize rail transportation revenue usin9 the formula "Number of Passengers (New Customers + Repeat users) x Average Spend," we are developin9 new products that connect the region and the railway. These include target-specific product planning, such as the "Driver' s License Return Goin9 Out Ticket" and planning and hostins events that create new travel demand.

• Furthermore, the QR ticketless service, which we launched last September, has been used by many customers since its introduction and has contributed to reducin9 the burden on station ticket offices and alleviatin9 con9estion. Since July of this year, we have expanded its scope to include all conventional line limited express trains and D&S trains.

• Please turn to the next pa9e.

  
  
  

  Outcomes of and Progress on the Future Railway Project (Oeen Innovation)

  • Leveraging open innovation to explore knowledge and co-create new value

Capital and business alliance with Tokyo Artisan Intelligence Co., Ltd.

• • Background and objective of the capital and business alliance

    • We have been collaborating under the Future Railway ProJect since 2022, to jointly eursue technolo9y development.

    • The alliance aims to further stren9then the development of AI products that contribute to labor-savin9 and workforce reduction under the Future Railway Project.

• Future outlook

• We aim to strengthen collaboration throu9h initiatives such as promotin9 joint development, expandin9 external sales, and fosterin9 talent-includin9 throu9h secondments.

  Partnership agreement with Plus and Pla:r Jaean Inc.

  Shinkansen track monitoring device

  Al-based obstacle detection system

  • Objective in forming the partnership

    • To 9ain opportunities for co-creation with numerous 9lobal startups, and drive business transformation throu9h fresh ideas and cuttin9-ed9e technolo9ies beyond the scope of existin9 frameworks, JR Kyushu entered into a partnership a9reement.

    • With Plu9 and Play Japan servin9 as a catalyst, the company aims to accelerate the Future Railway Project by combinin9 its existin9 technolo9ies and mana9ement resources with those of startuos to co-create new mobility value.

  • Future outlook

  • Through collaboration, JR Kxushu will strengthen efforts toward accelerated implementation, creation of new businesses, and the exploration of next-seneration products. These initiatives aim to lead to tangible, measurable results.

Demonstration test of "SPACECOOL," a radiative coolins material

16

• Next, I will explain our efforts to levera9e open innovation to explore knowledse and co-create new value.

• The first initiative is a capital and business alliance with Tokyo Artisan Intelli9ence Co., Ltd., TAI. Since 2022, we have continuously collaborated on the technological development of AI products. Going forward, we will not only further strengthen technolosical development but also focus on external sales of the developed AI products to other railway companies and other industries. Furthermore, we will strengthen collaboration on the development of human resources who will support the future of railways, including study sessions and employee training with TAI.

• The second initiative is a partnership agreement with Plug and Play Japan Inc. We concluded this agreement in 2023 to promote co-creation with start-ups. Through open innovation, we aim to combine our technologies and management resources with those of start-ups to create new markets and co-create new mobility value.

• Please turn to Pase 18.

  17

2027

18

Investment in 9rowth

BPR

0

"

[Structure of Profit Improvement EffectsJ

(Based on 2021 projections) I Medium-Term Business Plan

2025-2027 I

I The erofit imerovement tarset of Y14 billion reeresents the imerovement from FY2022 post-COVID profit levels.

[Breakdown of Cost-Specific Effects (Image)]

(Unit Ybil)

2025 2026 2027 2028 2029 2080

0

2030

2025

2022

Y14.0 billion Reductions in fixed costs due to BPR

].5

(Unit ¥bil)

3

[Estimated Profit Improvement Effect (Image)]

Y14.0 billion

Y9.0 billion

Y7.0 billion

Income improvements due to the Future Railway ProJect

Impact of the Future Railway Project on the Medium-Term Business Plan

• Impact of the Future Railway Project on the Medium-Term Business Plan

(Visualization of cost-specific effects, capital investment, and profit improvement impact)

Current Planned Cost-Specific Profit Improvement and Capital Investment(Tarset Imase for 2030)

[Capital Investment Plan for the Future Railway ProjectJ

I

• Finally, I will explain the impact of the Future Railway Project on our Medium-Term Business Plan.

• The Future Railway Project aims to achieve an improvement in its balance of income and expenditure of over ¥14.0 billion by the fiscal year ending March 203J.

• Durins the period of the current Medium-Term Business Plan, we anticipate an improvement in the balance of income and expenditure of approximately ¥9.0 billion. We will accelerate the transformation of our revenue structure for the future, enhancin9 the sustainability of the railway while responding to population decline and market chan9es.

• With sustainable mobility as our core, we will support the local resion and brins the ener9y of Kyushu to the world. We aim to achieve a future railway that balances both profitability and srowth.

• This concludes my presentation. Thank you for your attention.

Forward-Looking Statements

These materials contain forward-looking statements concerning business forecasts, targets, etc. of the JR Kyushu Group.

These statements are Judgments made by the Comr›any based on

information, projections. and assumr›tions available at the time of the materials' creation.

Accordingly, please be advised that actual operating results could greatly differ from the contents of the materials due to the economic situation inside and outside Japan and the economic situation in Kyushu; real estate market conditions; the progress of respective projects; changes in laws and regulations; and a wide ranse of other risk factors.

19