REVIEW OF OPERATIONS
To promote segment management, on April 1, 2019, we established intermediate holding companies in the station building and hotel businesses, and we implemented segment classification changes. Please note that in this section the reporting is based on the former segments.
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 18 REVIEW OF OPERATIONS
TRANSPORTATION GROUP (former segments)
FY2019/3 Results
Operating Revenues EBITDA YoY YoY
¥185.0 billion 0.7% ¥34.4 billion 0.3%
Operating revenues in the Transportation seg- Operating Revenues ment were ¥185.0 billion, an increase of ¥1.2 bil- (Billions of yen)
lion, or 0.7%, compared with the previous fiscal year. Operating income came to ¥27.4 billion, down ¥1.7 billion, or 6.0%, compared with the previous fiscal year, and EBITDA edged up 0.3%, to ¥34.4 billion. Operating revenues increased due to higher railway transportation revenues. However, operat- ing income declined as a result of a rise in depre- ciation and other factors, while EBITDA FY ’ ’ ’ ’ ’ registered a small increase.
Notes: Segment Overview Consolidated Subsidiaries (as of March 31, 2019) 1.Operating revenues, operating income (loss), and EBITDA are numerical EBITDA / Operating Income (Loss) values before eliminating intersegment transactions. Our Transportation segment consists Holding Company for Houhi Main Line (Billions of yen) 2.Transportation Group EBITDA for FY2016/3 and previous fiscal years mainly of our operation of a network of JR Kyushu Bus Company comprises operating income + cost of depreciation + earnings from use of railway lines constituting key commuter JR Kyushu Jet Ferry Inc. the Management Stabilization Fund, while EBITDA for FY2017/3 lines for the Kyushu regional area cov- comprises operating income + cost of depreciation. JR Kyushu-Rent-A-Car&Parking Co., Ltd. ering a total length of 2,273.0 operating JR Kyushu Service Support Co., Ltd. kilometers (including 288.9 operating kilometers of Shinkansen tracks leased JR Kyushu Linen Co., Ltd. from JRTT) that connects the entirety of the island of Kyushu and all seven of its prefectures as well as a number of Design and Story trains and tour experi- ences. The business also includes long- ( ) distance and local bus operations and ( ) hydrofoil ferry services to South Korea FY FY ’ ’ ’ ’ ’ and Tsushima. EBITDA Operating income (loss)
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 19 REVIEW OF OPERATIONS
Transportation Group
FY2019/3 Initiatives In the railway business, we continued to develop website, we provided information and offered Strengthening of Measures to Capture Inbound Tourism Demand
operations founded on safety and service quality. sales promotions catering to customers from spe- The number of inbound travelers to years individual travel has been increas- At the same time, we fully utilized our network cific countries and regions. Kyushu was 5.11 million in 2018, an ing, and we anticipate further gains in centered on the Kyushu Shinkansen to deploy In transportation, we implemented detailed increase of 170,000 year on year. railway usage going forward. In July sales measures from the customer’s perspective in transportation-oriented initiatives, making con- Through collaboration with overseas 2018, we concluded a strategic alliance order to secure profits. certed efforts to establish an efficient transporta- travel agencies and airlines and the with the Alibaba Group, which provides We promoted sales of all our planned ticketstion organization that meets the demand for each enhancement of specialized reservation Fliggy, a travel site visited by more than with the purpose of encouraging the use of rail- train line. At the same time, we promoted the use sites, we worked to expand sales of the 10 million people a ways, primarily the Kyushu Shinkansen, while of our railways by further enhancing our transpor- JR Kyushu Rail Pass. day. In FY2019/3, sales Looking at our transportation reve- of the JR Kyushu Rail implementing various campaigns aimed at trans- tation network, which is centered on the Kyushu nues, inbound use was primarily by cus- Pass in China were up porting passengers to target areas. Furthermore, Shinkansen. tomers from South Korea, Taiwan, Hong substantially, rising we took steps to promote use of the Internet In our passenger ship business, we began Kong,to and China. Previously, the major- approximately 20% Reservation Service, such as by launching the JR operate Japan’s first ferries combining passengers ity of Chinese tourists visiting Kyushu year on year. Kyushu Internet Train Reservation Business for cor- and cargo. This service is available on some of our JR Kyushu arrived by cruise ship, but in recent Rail Pass porate customers. We also made efforts to Beetle hydrofoil ferries on a domestic route increase awareness of the Kyushu brand and between Fukuoka and Tsushima. In this way, we encourage customers to visit Kyushu, including by worked to expand demand for travel via hydrofoil operating the cruise train Seven Stars in Kyushu on ferries. For our bus business, we rolled out limited- Recovery from Natural Disasters a new route. Moreover, we enhanced the JR time discount campaigns for the high-speed bus The heavy rains that occurred in July earthquakes. We are now coordinating Kyushu Rail Pass, a mainstay product geared B&S Miyazaki, which is connected to the Kyushu 2018, centered on western Japan, restoration initiatives with the national toward customers from overseas. To that end, in Shinkansen, and other high-speed bus routes. In caused damage to the Chikuhi Line, the government and related local govern- addition to a direct online sales system and a seat addition, we worked to further improve earnings Chikuho Main Line, and the Hisatsu ments, and we expect operation to be reservation service offered through JR Kyushu Rail through the revision of certain routes. Line. Consequently, in FY2019/3 the restored in FY2021/3. Pass Online Booking, a specialized reservation Company recorded disaster expenses Moving forward, the JR Kyushu Group totaling approximately ¥1.2 billion.* will continue to focus on initiatives tar- Railway Transportation Revenues Sales Amount and Number of JR Kyushu Operation has since been restarted on geting the building of robust railways in (Billions of yen) Rail Pass Purchased all of these routes. order to minimize the effects of natural (Billions of yen) The heavy rains in northern Kyushu indisasters. July 2017 caused damage to the Kyudai *Approximately ¥400 million of this amount was Main Line and the Hitahikosan Line. provision for loss on disaster. Operation on the Kyudai Main Line was restarted in July 2018, but operation on the Hitahikosan Line is still suspended between Soeda Station and Yoake Station. We are currently discussing the restoration plan with local governments. Moreover, operation on the Houhi Main Line between Higo-Ozu Station and Aso Station was suspended due to FY FY ’ ’ ’ ’ ’ FY FY ’ ’ ’ ’ ’ The Chikuhi Line was damaged the impacts of the 2016 Kumamoto by heavy rain in July 2018. Shinkansen Conventional lines Sales amount Number of tickets purchased (10,000 tickets)
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 20 REVIEW OF OPERATIONS
REAL ESTATE GROUP (former segments)
FY2019/3 Results
Operating Revenues EBITDA YoY YoY
¥72.6 billion 4.7% ¥33.1 billion 3.4%
Operating revenues in the Real Estate segment Operating Revenues were ¥72.6 billion, an increase of ¥3.2 billion, or (Billions of yen) 4.7%, compared with the previous fiscal year. Operating income came to ¥23.7 billion, an increase of ¥0.5 billion, or 2.5%, while EBITDA was ¥33.1 billion, up ¥1.0 billion, or 3.4%. Operating revenues, operating income, and EBITDA all increased year on year due to higher revenues from real estate leases. Our real estate lease business recorded ¥52.9 billion in operating revenues before intersegment FY FY ’ ’ ’ ’ ’ eliminations, operating income of ¥21.3 billion, and EBITDA of ¥30.7 billion. Segment Overview Consolidated Subsidiaries (as of March 31, 2019) EBITDA / Operating Income Notes: Our Real Estate segment consists of JR Hakata City Co., Ltd. 1.Operating revenues, operating income, and EBITDA are numerical values (Billions of yen) dedicated station buildings connected Kokura Terminal Building Inc. before eliminating intersegment transactions. 2.Real Estate Group EBITDA comprises operating income + cost of to our primary railway stations through- Nagasaki Terminal Building Inc. out Kyushu and the leasing of commer- depreciation. JR Oita City, Inc. cial retail space located within such Kagoshima Terminal Building Inc. complexes and office space in office buildings, the leasing of residential JR Kyushu Building Management Co., Ltd. apartments through our RJR brand, and JR Kyushu Business Development the sale of condominiums through our (Thailand) Co., Ltd. MJR brand. Our principal real estate JR Kyushu Capital Management holdings include those in highly desir- (Thailand) Co., Ltd. able areas of the major city areas of Kyushu, such as the Hakata District of Note:For JR Kyushu Capital Management (Thailand) Co., Ltd., the proportion of voting rights is 50% or less, Fukuoka. but it is substantially controlled by the Company, FY FY ’ ’ ’ ’ ’ and therefore it is a consolidated subsidiary. EBITDA Operating income
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 21 REVIEW OF OPERATIONS
REAL ESTATE GROUP
FY2019/3 Initiatives Our real estate lease business centers on commer- and other facilities at each station. In these ways, Initiativesto Develop Areas around Stations, Centered on Station Buildings cial facilities, such as station buildings, as well as wemade concerted efforts to expand earnings. We are advancing the station building development and development in the area offices and apartments, primarily in the Kyushu In our rental apartment business, we have business, predominantly targeting major around Kumamoto Station. In particular, area. established our brand in Kyushu, and units and stations in Kyushu, and promoting city- for the development in the area around In our station building business, we are salespromot have- both started to increase steadily. building overflowing with charm and Kumamoto Station, we are planning an energy, centered on station buildings. integrated development project that will ing attractive and lively city-building centered on Furthermore, the occupancy rate at rental apart- With e-commerce sales continuing to include not just a station building but also train stations and rooted in local communities. ments remains at a high level. grow, we took steps to revise our opera- hotel, residential, and other facilities. The Also, we are maximizing synergistic effects with In the real estate sales business, the condomintions, such- as strengthening leasing activi- opening is scheduled for spring 2021, the railway business with the aim of improving the ium sales business is active in all areas of Kyushu, ties and implementing store renovations. Leveraging the know-how that we have value of our stations and station buildings. At the and our MJR series has grown into a popular brand As a result, we are now recording steady cultivated to date, we will work to increase tenant sales at JR Hakata City and other city value with stations as bases. new commercial facility Higo Yokamon Ichiba, of buildings in Kyushu that sell out quickly after major station buildings. In FY2019/3, we which was fully opened beneath Kumamoto they are put on the market. We recorded sales at implemented the full opening of Higo Station in FY2019/3, we worked to create a lively MJR the Garden Kagoshima-Chuo, MJR Oita Yokamon Ichiba, which was the first initia- station atmosphere. In addition, we renovated Ekimae the Residence, and other properties, and tive in the development project for the area around Kumamoto Station. We also Amu Plaza Kokura and Amu Plaza Nagasaki and we worked to promote sales activities at MJR renovated Amu Plaza Kokura and Amu actively held events utilizing the station squares The Garden Kami-Kumamoto Ekimae. Plaza Nagasaki. During the period of the JR Kyushu Group Medium-Term Business Plan 2019–2021, we are planning to imple- Higo Yokamon Ichiba was opened under ment the Miyazaki Station west entrance elevated railway tracks at Kumamoto Station
Station Building Business Number of Units at Rental Number of Sold Condominiums Revenues Apartments (Aggregate) (Aggregate) (Billions of yen) (Units) (Condominiums) FurtherProgress in the Rental Apartment and Condominium Businesses
To generate revenues in Kyushu, focusing FY2019/3 we started to deliver units at on Fukuoka, which is a major area, we will MJR the Garden Kagoshima-Chuo, which leverage our brand strengths in the rental has a total of 472 units. apartment and condominium businesses, Moving forward, we will continue efforts where we are providing a stable supply of to secure further earnings. about 500 rental apartments and 500 con- dominiums a year. In rental apartments, we are implement- ing new development projects and taking other steps to generate stable earnings. We are also working to develop high- grade properties that leverage our know- ’ ’ ’ FY ’ ’ ’ ’ ’ ’ how in the field of condominiums, and we Note:Figures above are the total of Note:Figures are as of March 31 of each Note:Figures are as of March 31 of each continue to secure high occupancy rates. business revenues from six station fiscal year. fiscal year. In FY2019/3, we started accepting tenants building business subsidiaries and at Grand Precia Shibaura, a property in the JRJP Hakata Building. Delivery of units at MJR the Tokyo with a total of 234 units. Garden Kagoshima-Chuo started With regard to condominiums, in in FY2019/3
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 22 REVIEW OF OPERATIONS
RETAIL AND RESTAURANT GROUP (former segments)
FY2019/3 Results
Operating Revenues EBITDA YoY YoY
¥104.0 billion 0.8% ¥5.0 billion 4.8%
Operating revenues in the Retail and Restaurant Operating Revenues segment were ¥104.0 billion, an increase of ¥0.8 (Billions of yen) billion, or 0.8%, compared with the previous fiscal year. Operating income was ¥3.4 billion, a decrease of ¥0.2 billion, or 6.5%, while EBITDA came to ¥5.0 billion, a decrease of ¥0.2 billion, or 4.8%. In the retail business, we opened new drug- stores and convenience stores. In the restaurant business, we took steps to expand our business area, such as opening our FY ’ ’ ’ ’ ’ first cafe in the Hiroshima region. We also worked to develop new business formats in stations. Segment Overview Consolidated Subsidiaries (as of March 31, 2019) EBITDA / Operating Income Notes: Our Retail and Restaurant segment JR Kyushu Retail, Inc. 1.Operating revenues, operating income, and EBITDA are numerical values (Billions of yen) consists mainly of the operation of JR KYUSHU DRUG ELEVEN CO., LTD. before eliminating intersegment transactions. 2.Retail and Restaurant Group EBITDA comprises operating income + cost DRUG ELEVEN branded drugstores, JR Kyushu Food Service Inc. FamilyMart branded convenience store of depreciation. JR Kyushu Fast Foods Inc franchises, kiosk stands, fast food Inc Train D’or chains, and restaurants located throughout Kyushu, Okinawa, Tokyo, Shanghai JR Kyushu Food Service Inc. and Shanghai, China, both in and JR Kyushu Farm. Co., Ltd. around our railway stations and other attractive urban locations.
FY ’ ’ ’ ’ ’
EBITDA Operating income
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 23 REVIEW OF OPERATIONS
CONSTRUCTION GROUP (former segments)
FY2019/3 Results
Operating Revenues EBITDA YoY YoY
¥91.7 billion 4.3% ¥7.5 billion 6.1%
Operating revenues in the Construction segment Operating Revenues were ¥91.7 billion, an increase of ¥3.7 billion, or (Billions of yen) 4.3%, compared with the previous fiscal year. Operating income was ¥6.5 billion, up ¥0.2 billion, or 4.1%, and EBITDA came to ¥7.5 billion, an increase of ¥0.4 billion, or 6.1%. In the construction business, work orders have been received for Shinkansen-related projects, elevated tracks, condominium-related projects, and other projects, with construction being steadily executed. Cost reductions were also FY FY ’ ’ ’ ’ ’ pursued.
Notes: Segment Overview Consolidated Subsidiaries (as of May 31, 2019) 1.Operating revenues, operating income, and EBITDA are numerical values EBITDA / Operating Income before eliminating intersegment transactions. Our Construction segment provides KYUTETSU CORPORATION (Billions of yen) 2.Construction Group EBITDA comprises operating income + cost of comprehensive services that include Sanki Construction Co., Ltd. depreciation. the design, planning, and construction JR Kyushu Housing Company of a variety of railway and civil engi- JR Kyushu Engineering, Ltd. neering projects. Our construction busi- Kyushu Electric System Company ness complements our railway business through its involvement in projects JR Kyushu Consultants Company including the upgrade of our railway network, as well as working on other railway construction throughout Japan.
FY FY ’ ’ ’ ’ ’
EBITDA Operating income
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 24 REVIEW OF OPERATIONS
OTHER GROUP (former segments)
FY2019/3 Results
Operating Revenues EBITDA YoY YoY
¥89.8 billion 33.3% ¥6.3 billion 59.1%
Operating revenues in the Other segment were Operating Revenues ¥89.8 billion, an increase of ¥22.4 billion, or 33.3%, (Billions of yen)
compared with the previous fiscal year. Operating income came to ¥3.5 billion, an increase of ¥1.1 billion, or 48.1%, while EBITDA was ¥6.3 billion, up ¥2.3 billion, or 59.1%. In the hotel business, we took steps to expand earnings by renovating JR Kyushu Station Hotel Kokura and strengthening revenue management at existing hotels. In the seniors business, we began to provideFY FY ’ ’ ’ ’ ’ home nursing care services at SJR Takatori, a private residential home for the elderly. We also Segment Overview Consolidated Subsidiaries (as of March 31, 2019) worked to improve services to make our facilities EBITDA / Operating Income Our Other segment consists mainly JR Kyushu Huis Ten Bosch Hotel Co., Ltd. more attractive to customers. (Billions of yen) of our hotel operations in Japan, but JR Kyushu Hotels Inc. also includes a trading company, an JR Kyushu Station Hotel Kokura Inc. In the construction machinery sales and rental advertising agency, and nursing homes. JR Kyushu Resort Development Co., Ltd. business, we took steps to acquire new orders, Our hotels are located across Kyushu, Oyama Yumekobo, Inc. Tokyo, and Okinawa. Our hotel proper- such as exhibiting construction machinery that JR Kyushu Trading Co., Ltd. ties enjoy occupancy rates higher than leverages information and communications the average hotel in Kyushu and have JR Kyushu Financial Management Company been a stable source of cash flows and JR Kyushu Agency Co., Ltd. technology. a growing source of revenues. JR KYUSHU SECOM INC. Notes: JR Kyushu Life Service Co., Ltd. 1.Operating revenues, operating income, and EBITDA are numerical values before eliminating intersegment transactions. JR Kyushu System Solutions Inc. 2. Other Group EBITDA comprises operating income + cost of depreciation. JR Kyushu Senior Life Support, Inc. FY ’ ’ ’ ’ ’ Caterpillar Kyushu Ltd. EBITDA Operating income Notes:JR KYUSHU SECOM INC. is an equity-method affiliate of the Company.
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 25 OVERVIEW OF SEGMENT CLASSIFICATION CHANGES
Overview of Segment Classification Changes (as of April 1, 2019) Points of change
Former Segments New Segments
Transportation Transportation Establish intermediate holding companies in the station 1 2 JR Kyushu Service Support Co., Ltd., JR Kyushu Bus Company, JR Kyushu Service Support Co., Ltd., building and hotel business (as of April 1, 2019) JR Kyushu Jet Ferry Inc., JR Kyushu Linen Co., Ltd., etc. JR Kyushu Bus Company,JR Kyushu Jet Ferry Inc., JR Kyushu Linen Co., Ltd., etc. Strengthen governance and achieve agile and flexible decision- JR Kyushu-Rent-A-Car & Parking Co., Ltd. 2 making and operational execution through business management based on intermediate holding companies (JR Kyushu Hotels And Construction Resorts Holdings Inc., JR Kyushu Ekibiru Holdings Inc.) KYUTETSU CORPORATION, JR Kyushu Engineering, Ltd., Construction Sanki Construction Co., Ltd., KYUTETSU CORPORATION, JR Kyushu Engineering, Ltd., Kyushu Electric System Company, etc. Change segment classifications and revenue / Sanki Construction Co., Ltd., Kyushu Electric System Company, expense classifications (as of April 1, 2019) etc.
1 Real Estate and Hotels [Segment classification changes, etc.] Real Estate 1 Real Estate JR Kyushu Ekibiru Holdings Inc. RealEstate segment Real Estate and Hotels segment 1 Segment name changed in conjunction with the segment JR Hakata City Co., Ltd., Kokura Terminal Building Inc., classification changes in order to seamlessly strengthen the Hotels real estate and hotel businesses Nagasaki Terminal Building Inc., JR Oita City, Inc., JR Kyushu Hotels And Resorts Holdings Inc., Kagoshima Terminal Building Inc., JR Kyushu Building Oyama Yumekobo, Inc. 2 Management Co., Ltd., etc. JRKyushu-Rent-A-Car & Parking Co., Ltd. Aim for further growth in the core parking lot business by ,etc. JR Kyushu Senior Life Support, Inc. strengthening collaboration with the real estate business
JR Kyushu-Rent-A-Car & Parking Co., Ltd. 3 Hotelbusiness and JR Kyushu Senior Life Support, Inc. Retail and Restaurant Revise the practice under which multiple segments record JR Kyushu Retail, Inc., JR KYUSHU DRUG ELEVEN CO., LTD., revenues, etc., from the hotel business and the seniors busi- JR Kyushu Food Service Inc. ,etc. ness, which are aiming for further growth by strengthening collaboration with the real estate business. Shift the hotel business and the seniors business to the Real Estate and Hotels segment Other Retail and Restaurant JR Kyushu Retail, Inc., JR KYUSHU DRUG ELEVEN CO., LTD., JR Kyushu Station Hotel Kokura Inc., JR Kyushu Food Service Inc., etc. 2 3 JR Kyushu Huis Ten Bosch Hotel Co., Ltd., JR Kyushu Hotels Inc., Oyama Yumekobo, Inc.
JR Kyushu Senior Life Support, Inc. 3 Other JR Kyushu Trading Co., Ltd. JR Kyushu Trading Co., Ltd. JR Kyushu Financial Management Company, etc. JR Kyushu Financial Management Company, etc.
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 26 OVERVIEW OF SEGMENT CLASSIFICATION CHANGES
Operating revenues (billions of yen) Transportation Services Real Estate and Hotels Operating income (billions of yen)
FY ’ ’ ’ FY ’ ’ ’ (estimate) (objective) (estimate) (objective)
new segment new segment
Retail and Restaurant Construction Other
FY ’ ’ ’ FY ’ ’ ’ FY ’ ’ ’ (estimate) (objective) (estimate) (objective) (estimate) (objective)
new segment new segment new segment
INTEGRATED REPORT 2019 KYUSHU RAILWAY COMPANY 27