Status Update

Sep 17, 2020

I am Fukasawa, President and CEO of JRU East. Thank you very much for today. We announced forecast of business results for this fiscal year yesterday. We explained numbers yesterday. Today, I will mainly talk about our future measures. I will give a presentation based on the material. Firstly, speed up of move up 2027. We already announced JR East Group Management vision move up 2027. Under that vision, we planned various measures based on the outlook of transportation business impacted by changing lifestyles of customers, declining population and others. On the assumption that we will maintain the direction, I will mainly talk about enhancement of the level and speed today. I will give a presentation under the theme of speed up a move up 2027 and aiming at sustainable JRE Group. As for trends envisioned in society during and after the COVID-nineteen pandemic, the entire society is shifting from a phase of facing the current crisis under the declaration of our state of emergency and others 2, the during COVID-nineteen pandemic phase, where we aim to conduct infection prevention and socioeconomic activities simultaneously. Going forward, I think the society will shift to the post COVID pandemic phase with development of vaccines, establishment of medical treatment and others. During the past 6 months, in the current crisis, we mainly worked on the 3 measures, including accomplishment of social mission, speed up the move of 2027 and creation of transportation demand. With the shift to the during and post COVID pandemic phases, as is generally accepted, moves from concentration to dispersion, from company centered to lifestyle centered, from mass to personal will be accelerated and the new normal will be established. So I think we have to create new businesses through digital transformation. By practicing ESG Management, we intend to rebuild growth and innovation strategies and strengthen management efficiency fundamentally. We hope to realize a world of move up 2027 as soon as possible by enhancing the level and speed of our efforts. Our strength is real network we've been building. Through combination of the real network of virtual and digital, we will evolve our business model from railway centered to people centered model and aim to be a group that moves forward with local communities. This slide shows the overall picture of growth and innovation strategies and ESG management. To reveal growth and innovation strategies, we intend to work on these two themes of proposing new lifestyle ideas and taking on challenges in new fields. I will explain each item 1 by 1. As there are strong needs for work style reform, real and digital lifestyles, town development, reassurance and cleanliness in transportation and trips, mass and contactless needs. We will respond to such needs. We will also integrate group strategies for customers. In new fields, we already started logistics services that utilize trains. New fields also include business alliances with startup companies, businesses with the use of new technologies such as 5Z, utilization of robots and international businesses. For ESG, we already announced 0 Carbon Challenge 2,050 in railway operation and would like to make group wide efforts. We will also make sure to realize regional revitalization, including our theme of disaster reconstruction. Regarding proposal of new lifestyle ideas, we think new work styles such as telecommuting will be established. In response to that, we are doing businesses to promote locations and multiple residence lifestyles for customers. We already have 30 station work locations, including hotels and aim for 100 locations within 1 year and 1,000 locations nationwide by fiscal year ending March 2026. In consideration of off peak, future work styles and ways of traveling, we will promote off peak commuting in railway operation and provide benefits and services for repeat customers. For real and digital lifestyles, we are promoting new people centered businesses. Going forward, by promoting ticketless services and others, we would change station spaces dramatically. We would also like to create a mechanism to utilize customer movement data. In the initiative, we think e commerce centered on JRE mall is a very significant tool and have been rolling out local specialties unique to JRE's group, in particular. As we form a business alliance with Senshikai this time, we will strengthen JRE mode further through Belle Maison and reinforce the membership base of JRE Point. Besides, we intend to develop new businesses with the use of new technologies such as the one you see in Tatchit Go in Takanawa Gateway. Through mass, we would like to meet various needs of customers. We are considering town development for our significant business development for the future. Among other things, in real estate business, we aim to re concentrate and remobilize the potential of the group's real estate and maximize the group's asset value and advance new proposal type rental apartments further. We already launched real estate funds and will accelerate town development also by using such funds. Centering around Tokyo, we are currently advancing town development or large scale development in and around stations and is a name of Tokyo Metropolis Project in Shinagawa, Shibuya and others. We intend to promote specific plans further in areas such as Shinjuku, Yokohama, Omiya and Ikebukuro. Next, reassurance and cleanliness as well as transportation and trips, avoiding seas. As ways of transportation are changing dramatically, we are making efforts for customers to use our services with peace of mind. Congestion information we provide is used by many customers. In addition, through provision of dynamic pricing, travel plans, our group hotels and others, we will propose transportation during quiet periods, off peak hours and comfortable transportation. After the Bon holiday in August this year, we launched a special ticket offering 50% discount. As it received a great response, we would like to provide various products. As for mass, we are expanding urban type mass and tourism type mass. We offer JR East app, Ringo Pass app, coordinated with second way transportation and hiking from the railway station. We coordinate also with stores with the use of ticketless and smartphone friendly services. For tourism type mass, we will expand areas. In particular, in April next year, we will hold the Tohoku destination campaign for 6 months as staying near disaster reconstruction period will be over. Through the campaign, we plan to promote tourism type mass and cashless payment in various places. By pursuing ticketless and smartphone friendly services, the number of mobile Sika members exceeded 10,000,000 in September this year. As you can see in this graph, the number of mobile Sika members has been increasing due to the measures we have been taking. We started ticketless services for shinkansen, such as shinkansen eticket and touch the go shinkansen. The penetration rate is about 30% now. By expanding such services further, we will cater to contactless needs of customers, save resources and provide stress free transportation. As I mentioned earlier, we will create new station spaces and transform stations as places to sell tickets into places to create new businesses. We are currently promoting various smartphone friendly services, including verification test, as you see at the bottom. To integrate group strategies for customers, we intend to use various data through ticketless and smartphone friendly services. We will analyze data for personalization, provide accurate information for customers and create businesses. We would like to advance comprehensive services that encompass 3 businesses: railway, lifestyle services and IT and Sika businesses. As we have been accumulating lots of data of transportation, in particular, we will make appropriate recommendations reflecting customers' transportation or life stage. Next, services that utilize trains. As picked up in the media recently, we are looking to transport local fresh seafood and vegetable, small amount of valuable parts and others with the use of shinkansen. So far, we implemented 1 off verification test. As we are planning scheduled transportation, the number of inquiries from various customers is increasing. We intend to grow this initiative as a decent business. In so doing, we will collaborate with external parties such as Japan Post and JA. To take on challenges in new fields, we are currently collaborating with various start up companies. For regional revitalization, new travel and Smart Life, we would like to continue to collaborate with various start up companies and universities for technologies. As for 5 gs, we will establish 5 gs communications environment inside railway stations and in railway lineside areas and begin business for renting out to telecommunication carriers. Regarding use of new technologies such as robots, we are implementing various tests in Takanawa Gateway and other locations and will pursue development and use of robots, including maintenance robots. We are also looking to expand international businesses, including railcar manufacturing operations. In lifestyle services as well, we plan to develop a hotel in Taiwan. We will pursue overseas expansion in railway and lifestyle services. For ESG, as I said earlier, under 0 Carbon Challenge 2,050, we are making group wide efforts to realize substantially 0 CO2 emission by fiscal year ending March 2051. We will advance Shinagawa development project, development of trains, introduction of Shiyo2 Free power generation to our power station and use of renewable energy. Another big theme of ESG is to contribute to regional revitalization. We've been working on regional revitalization, mainly through tourism. In transportation services reform, we will pursue optimal transportation modes in regions and realize BRT autonomous driving. We will launch regionally linked IC cars in Utsunomiya and Iwate in spring next year and promote such link between Sika and regional cars. In addition, a post office opened in unmanned EME station on the Uchibo line at the end of August. We would like to promote further such an initiative of integrating post office and railway station. I talked about JRE mall earlier. We will integrate real and virtual world, including online. Now I will talk about how to strengthen management efficiency fundamentally. We already announced 150,000,000,000 yen of cost reduction to improve cash flows. We are accumulating efforts to achieve the target in this fiscal year, and we will reduce fixed costs even further as well as capital expenditures in the next fiscal year onwards. To increase productivity, we will establish efficient sales systems by promoting ticketless and cashless services. Besides, we will increase driver only services, consider autonomous driving, accelerate smart maintenance and reform business execution systems. We will also review train timetable and fare, which are premises for those initiatives. We will review investments by streamlining equipment and reviewing railcar replacement cycle. Besides, Levo seek even greater business profitability in large scale projects and aim at efficient operational management through reorganization of the entire group. To strengthen management efficiency fundamentally, we will improve tight cash flows in this fiscal year. For that purpose, we will reduce fixed costs and revise investment required for the continuous operation of business. As I said earlier, we also intend to increase productivity, review services, which form the basis of railway business, in particular, and streamline equipment. Lastly, let me discuss plan for the use of cash. Planned capital expenditures for this fiscal year is 711,000,000,000 yen. We will advance cost reductions and others. In light of these factors, we plan to pay dividend of 100 yen per share as shareholder return in this fiscal year. I would appreciate your understanding. As for approach to shareholder returns, as we always discuss, we intend to return profit to shareholders in a stable manner and use cash flows in a well balanced manner. In the medium- to long term, we aim at a conventional total return ratio target of 40% and a dividend payout ratio of 30%. As there is no change to the direction of our policy, we will make sure to realize these targets. That concludes my presentation based on the material. Thank you very much. I am Sakai. I will explain on Page 22 and following pages. Page 23 shares non consolidated and consolidated revenues and income. The graph on Page 24 shows our current outlook for passenger revenues, results up to August and expected recovery after August are shown. In Kanto area network of conventional lines, recovery trend already started. Nyan commuter passes will recover gradually and reach approximately 80% at the end of this fiscal year and approximately 85% in the next fiscal year at a steady state. Shinkansen is still very sluggish at approximately 30%. We place hopes on go to campaign as Tokyo will be included in the campaign targets from October. On the other hand, by factoring in risks of spreading infection of influenza and COVID in the autumn and winter, we currently forecast Shinkansen will recover early in the New Year and after when vaccines are available and reach 55% at the end of the fiscal year and 80% in the next fiscal year as a steady state. I hope you understand this is just our current fundamental view. As Fukasawa mentioned, in railway operation, we will control yield and boost demand for tourism by taking an opportunity of Sato Hoku destination campaign held for 6 months in the next fiscal year. Page 25 shows breakdown of revenues and breakdown of the first half and the second half. Page 26 shows the current cost reduction plan for this fiscal year. We totaled cost reduction amount of group companies simply. At this time, total cash cost reduction of 156,000,000,000 yen is planned, including investments. Non consolidated cost reduction plan is shown in detail on Page 27. By offsetting cost increase caused by additional measures in this fiscal year, we plan to reduce cost by 62,400,000,000 yen as shown in the middle. Cost reduction plan we announced after the Q1 was 50,000,000,000 yen We revised ABSA plan by slightly higher than 12,000,000,000 yen to 62,400,000,000 yen Of course, this is not the end. As shown on the top right, we plan to dig deeper into cost reduction in this fiscal year. As Fukasawa mentioned, to strengthen management efficiency fundamentally, entire group will review profit and loss and conduct a zero based review of investments. We will ensure safety. However, we will prioritize other investments and take one step further to downsize or cancel investments of low priority. Page 28 shows plan for non consolidated operating expenses after incorporating the initiatives that I just mentioned. Page 29 shares consolidated plan by segment. As you can see, we plan to secure positive income in real estate and hotels and others. On the next few pages, a brief summary by segment is described. In transportation, as you see, as the share of railway operation is high, the plan is as shown here. In retail and services, monthly trends are shown on the bottom right. As you know, J Retail and JR Foods have quite a number of stores in station spaces, so we think their trends will be quite close to trends of short distance passenger revenues of Kanto area network you saw earlier. However, we think trends of Tokyo Station and other terminal stations will be impacted by Shinkansen as the share of souvenirs and match boxes is also high. In light of such factors, we made a plan by segment. The next page shows real estate and hotels. Again, monthly trends are shown at the bottom. Trends of station buildings recovered significantly. Recovery of suburban stores is much faster than that of urban stores. Sales of foods and Atre and others dropped only slightly, which was a characteristic. We forecast monthly trends will recover to 80% or 90% of free COVID level at the end of the fiscal year. For hotels, as you see here, monthly trends of August were 39%, showing a recovery compared to previous months. However, hotels are significantly impacted by sluggish inbound demand and others. At present, as measures such as discount services provided for Tokyo residents by hotels in Tokyo are received well, we will make sure to attract customers in nearby places. There are no impacts on offices basically except decrease of conferences. In others shown on the right, our electronic money business has been relatively firm. External revenue of ViewCard was impacted by declining consumption. However, due to progress of cash restatement, we expect Viewcard will recover to pre COVID level around the end of the fiscal year. Page 32 shows plan for consolidated capital expenditures. I will explain the factors for year on year decrease of gross investment and others on the next page. Change in capital expenditure for 3 categories is described on Page 33. Growth investment will decrease year on year due to high level of investment made in Shinagawa development in the last fiscal year and Takeshiva Construction, which peaked in the last fiscal year. However, basically, we intend to make growth investment as planned. There are also factors boosting investment needed for the continuous operation of business such as automatic platform gates and seismic reinforcement. However, as I said earlier, we made a review. We will make steady investment in seismic reinforcement and others, but review the amount and reduce cost. Also, by slightly postponing replacement of old railcars, we will reduce cost by 50,000,000,000 yen from the plan. We will continue to make investment in innovation to source these for the future. Lastly, for direction of funding shown on Page 34, we intend to firmly maintain these three policies we explained in the past. As you see in short term funding and issuance facility, we secured JPY 1,350,000,000,000 in total as issuance facility and contract value. There is remaining facility of approximately 670,000,000,000 yen compared to the current balance. We recognize this is a sufficient level, and we'll continue fundraising based on the policies. Please refer to reference materials shown on the following pages. That concludes my presentation.