Kyushu Railway Company Name of Representative
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March 19, 2019 To whom it may concern: Company Name: Kyushu Railway Company Name of Representative: Toshihiko Aoyagi, President and CEO Securities Code: 9142 Tokyo Stock Exchange (First Section) and Fukuoka Stock Exchange Inquiries: Public Relations Department Tel.: +81-92-474-2541 Notice Regarding JR Kyushu Group Medium-Term Business Plan 2019-2021 Kyushu Railway Company (hereinafter, JR Kyushu) announces that, at a Board of Directors meeting held today, it has resolved to implement the JR Kyushu Group Medium-Term Business Plan 2019-2021, as described in the accompanying materials. JR Kyushu Group Medium-Term Business Plan 2019‒2021 Toward the Next Growth Stage Contents 1 Formulation of the New Medium-Term Business Plan Review of the Medium-Term Business Plan 2016‒2018 ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P2 Changes in the Operating Environment ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P4 2 2030 Long-Term Vision Management Plan Framework and 2030 Long-Term Vision ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P5 3 Medium-Term Business Plan 2019‒2021 JR Kyushu Group Medium-Term Business Plan 2019‒2021: Positioning and Priority Initiatives ・・・・・・・・・・・・・・・・・・・・・・・ P6 Further Strengthen Our Management Foundation ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P7 Build Sustainable Railway Services by Improving Earnings ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P9 Implement Strategic City-Building in our business area ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P12 Growth and Evolution in New Business Areas ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P18 Target Management Indicators (Consolidated) ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P20 Sources/Uses of Funds and Shareholder Return Policy ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P21 4 The JR Kyushu Group's Corporate Culture ESG ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P22 Safety and Service ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P23 Development of Human Resources ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P25 1 01. Review of the Medium-Term Business Plan 2016‒2018 In addition to issues related to the three key strategies under the previous medium-term business plan, the Formulation issues in the new plan include the recognition of JR Kyushu as a listed company. On that basis, we will of the New implement the new plan in a focused manner. Medium-Term The Medium-Term Business Plan 2016‒2018 New issues for JR Kyushu Business Plan as a listed company Three Key Strategies Priority Items Ongoing Issues ■Improve transportation services ■Address the end of special tax Strengthen Group management (information on train operating treatment and increased depreciation Build robust expense conditions, etc.) ■Further strengthen governance railways that ■Response to frequent natural disasters ■Increase Shinkansen revenues by and pursue effective segment provide the expanding online sales and diversify -Disaster recovery expenses: ¥14.3 management foundation for rail pass sales channels billion*2 ■Address the aging of facilities/rolling stock ■Manage the Group in an agile all our businesses ■Expand SSS*1 (3 train lines) ■Introduce energy-saving rolling stock ■Address technical advancement in IoT, and flexible manner Formulation of the New (DENCHA, etc.) AI, etc. 01. Medium-Term Business Plan ■Open JRJP Hakata Building and ■Enhance development capabilities using ●Review of the Medium-Term Ropponmatsu 421 our strengths and collaboration with Business Plan 2016‒2018 Financial Strategy Actively promote ■Achieve steady growth in core other companies ●Changes in the Operating Environment city-building businesses (station buildings, ■Consider and advance development ■Work to achieve both condominiums, rental apartments, and projects for 2022 onward financial soundness and in the Kyushu area hotels) capital efficiency with a 02. 2030 Long-Term Vision focus on sustained growth in the Group's corporate value 03. Medium-Term Business Plan ■Consolidate Caterpillar Kyushu, Ltd. ■Bolster our core business and move 2019‒2021 Take on the ■Open of JR Kyushu Hotel Blossom ahead with M&A and new businesses challenges of Naha in order to generate synergies ESG Initiatives new businesses ■Launch businesses in Thailand The JR KyushuGroup's and expand (serviced apartments, hotels, and ■Bolster ESG initiatives to 04. Corporate Culture outside the condominiums) support long-term growth Kyushu area *1 SSS = Smart Support Station *2 Extraordinary losses, total estimate for the period from FY17.3 to FY19.3 Issues to be addressed under the Medium-Term Business Plan 2 01. Review of the Medium-Term Business Plan 2016‒2018 Due to favorable results in revenues from railway transportation and in the construction segment, we Formulation expect to surpass the financial targets (operating revenues and EBITDA) in the previous medium-term of the New business plan. Medium-Term [Reference]Capital investment will surpass the initial plan of ¥190.0 billion due to growth investment mostly in the rental apartment business, the hotel business, and overseas projects Business Plan Operating revenues*1 EBITDA*1 [Reference]Capital Investment*2 Revenues from railway transportation Revenues from non-railway transportation (Billions of yen) (Billions of yen) (Billions of yen) 500 100 250 239.0 438.5 Formulation of the New 83.0 01. 400.0 Medium-Term Business Plan 400 377.9 80 78.0 200 190.0 Growth 133.7 ●Review of the Medium-Term Investment Business Plan 2016‒2018 65.5% Growth 300 60 58.0 150 Investment 80.0 ●Changes in the Operating Environment More 60.3% than 62% 02. 2030 Long-Term Vision 200 40 100 Maintenance and Maintenance and Upgrade Investment Upgrade Investment Medium-Term Business Plan 100 20 50 03. 2019‒2021 Railway Safety 67.2 Railway Safety 65.0 Investment Investment The JR KyushuGroup's 0 0 0 04. Corporate Culture 16.3 19.3 19.3 16.3 19.3 19.3 Total capital investment Figures announced in (Medium-term business plan target) (Medium-term business plan target) over three-year period medium-term business plan (FY) (FY) *1 Figures for FY19.3 are the most recent performance forecasts (announced February 4, 2019) *2 For the total capital investment over three-year period, the amount for FY19.3 is the planned amount at the beginning of FY19.3 3 01. Changes in the Operating Environment We believe that a long-term vision is essential because we anticipate a dramatic change in the environment Formulation including technical innovation and the emergence of new business models, in which we manage the company of the New in the future. Medium-Term Opportunities Threats Increasing populations in urban areas Fluctuations in real estate market conditions Business Plan (Fukuoka City, etc.) Market contraction due to declining population Technical innovation, such as Ongoing increase in self-driving vehicles and AI Decrease in the working population due to inbound tourism demand declining birth rate and aging population Emergence of new business models, Frequent occurrence / Activities related to the enhancement of *1 urban functions(deregulation, etc.) such as the sharing economy and MaaS increased severity of natural disasters Formulation of the New 01. Medium-Term Business Plan With consideration for opportunities and threats, we will: ●Review of the Medium-Term • Approach businesses from new perspectives that are not simply Business Plan 2016‒2018 ●Changes in the Operating Environment extensions of current approaches • Develop countermeasures to ensure business sustainability 2030 Long-Term Vision 02. Expected increase in number of inbound overseas Declining population in Kyushu, where the pace of the Expected increase in population of Fukuoka City tourists visiting Kyushu*2 decline exceeds that in the nationwide population Increasing natural disasters in Kyushu Source: Future estimated population of Fukuoka City Source: Internal investigation Source: Estimated population nationwide and Average annual number of incidents with 80 mm or more of precipitation in one hour in Kyushu Medium-Term Business Plan (National Institute of Population and Social Security Research) IndexIndex in the 7 prefectures of Kyushu (times) Source: Meteorological Agency (2015(2015 = 100100) (National Institute of Population and Social Security Research) 20 03. Index IIndexndex 2019‒2021 (2015 = 100) 200 ((20152015 = 100) 108.4 Effect of runway 15 110 110 Fukuoka City 180 increase at 23 wards of Tokyo Fukuoka Airport 10 105 The JR KyushuGroup's 105 160 161.0 04. 104.9 100.0 Corporate Culture 5 100 140 100 100.0 98.8 0 Total for 1976-1985 1986-1995 1996-2005 2006-2015 95 120 95 93.7 ordinance-designated Nationwide ((year)year) cities 100.0 July 2012: Heavy rain in northern Kyushu 92.2 Kyushu Natural phenomena 90 100 90 April 2016: Kumamoto earthquakes causing notable 2015 2020 2025 2030 July 2017: Heavy rain in northern Kyushu 2015 2020 2025 2030 2015 2020 2025 2030 damage in recent years (year) (year)(year) (year)(year) July 2018: Heavy rain *1 Maas = Mobility as a Service. A new concept regarding seamless mobility in which ICT is used to leverage the cloud and mobility through all modes of transportation other than privately owned cars is addressed as a single service. *2 Estimates based on statistics from the Policy Research Institute for Land, Infrastructure, Transport and Tourism