Introduction Business Strategy and Operating Results ESG Section Financial Section

The President’s Message | Medium-Term Management Plan | Operating Results by Business Segment

Operating Results by Business Segment

Transportation Operations

JR-West’s transportation operations segment consists of railway Railway Revenues operations and small-scale bus and ferry services. Its railway operations encompass 18 prefectures in the western half of Japan’s Sanyo Shinkansen main island of Honshu and the northern tip of Kyushu, covering a total service area of approximately 104,000 square kilometers. The service area has a population of approximately 43 million Other Conventional Lines people, equivalent to 34% of the population of Japan. The railway network comprises a total of 1,222 railway stations, with an operating route length of 5,015.7 kilometers, almost 20% of the total passenger railway length in Japan. This network includes the Sanyo Shinkansen, a high-speed intercity railway line; the Kansai Kansai Urban Area (Kyoto-Osaka-Kobe Area) Urban Area, serving the Kyoto–Osaka–Kobe metropolitan area; and other conventional railway lines (excluding the three JR-West branch offices in Kyoto, Osaka, and Kobe).

The Sanyo Shinkansen is a high-speed intercity to the major stations of the Sanyo Shinkansen passenger service between Shin-Osaka Station Line, such as Okayama, Hiroshima, and Hakata, in Osaka and in Fukuoka in northern without changing trains. These services are Kyushu. The line runs through several major cities enabled by direct services with the services Sanyo in western Japan, including Kobe, Okayama, of the Tokaido Shinkansen Line, which Central Shinkansen Hiroshima, and Kitakyushu. It has a total operating Japan Railway Company (JR-Central) operates length of 644.0 kilometers and has 19 railway stations, between Tokyo and Shin-Osaka. In addition, including Shin-Osaka Station. JR-West owns the following the March 12, 2011 commencement entirety of the railway facilities related to the existing of operations on all lines of the , Sanyo Shinkansen, and with the exception of JR-West launched the and services, Shin-Osaka Station (owned by JR-Central), operates which travel directly between the Sanyo Shinkansen all of the other 18 railway stations. and Kyushu Shinkansen lines. These new services The , , and services enable customers to travel between Shin-Osaka have been operating on the Sanyo Shinkansen and Kagoshima-Chuo in as little as 3 hours and Line for some years. Many of the Nozomi services 42 minutes. allow passengers to travel from Tokyo or Nagoya

Transportation Revenues Number of Passengers

364.4 Billions of yen 67Millions of passengers (Billions of yen) (Millions of passengers) 2010 312.4 2010 58 2011 323.9 2011 60 2012 351.5 2012 64 2013 357.0 2013 65 2014 364.4 2014 67 (FY) (FY)

18 Annual Report 2014 Core Initiatives

Enhance (3) Expand business area by Kyoto-Osaka-Kobe Area to Fukuoka For the Shinkansen, work to further increase safety creating new demand (As of April 1, 2014) Travel Time Fare Frequency and reliability, and provide competitive Spur travel demand among seniors: Shinkansen 2h 22m ¥15,310 59 Leverage senior membership services transportation services, while also creating new Airlines and launch sales of discount tickets for 2h 20m ¥ 22,500 14 demand by expanding services for seniors and (Itami Airport) seniors Airlines 3h 00m ¥ 22,500 7(6) foreign tourists. Press ahead with preparations Capture inbound demand: (Kansai Intl. Airport) for the start of Hokuriku Shinkansen service to Develop West Japan tourism routes Travel Time and Fare: JAL or ANA Kanazawa, and promote exchanges among Frequency: All airlines. Numbers in parentheses are frequency and products and strengthen excluding those of JAL or ANA. people, to enhance the potential of the Shinkansen. promotions in South East Asia, improve Notes 1: Travel time for the Shinkansen is the shortest on Nozomi systems to support foreign travelers and Mizuho trains. Travel time for the airlines are estimates. For airlines, in addition to the travel time Key Measures such as information services in foreign required from the airport to the city center, the languages and free public Wi-Fi calculation includes 10 minutes travel time between (1) Sustain sound facilities and services the Airport Limousine Bus or station nearest the airport to the boarding gate, 20 minutes waiting time at the into the future, and enhance ability Kyoto-Osaka-Kobe Area to Fukuoka boarding gate, and 10 minutes from the gate to the to respond to natural disasters JRAirlines (Number of passengers) Airport Limousine Bus or station nearest the airport. JR’s Market Share (%) 2: Fare for the Shinkansen is the regular Nozomi and Maintain and manage tunnels, Mizuho fare, and for airlines the regular fare. elevated railway tracks, and other 2010 82.4 structures appropriately 2011 85.3 Advance earthquake and tsunami countermeasures and derailment 2012 88.0 prevention measures 2013 83.8 Advance the introduction of 2014 128 81.7 new ATC systems (FY) Shin-Kobe Nagoya Note: Figures for the fiscal year ended March 2014 are preliminary. Kyoto (2) Increase market share by Each graph bar represents the number of passengers using JR heightening competitiveness and the number of passengers using airlines; the bars Okayama indicate the total number of passengers using JR or Shin-Osaka Shorten travel time and enhance using airlines compared to the base year index frequency and improve on-board of 100 (the fiscal year ended March 1997). Osaka Source: Ministry of Land, Infrastructure, Hiroshima communication environment, increase Transport and Tourism membership of the highly convenient Internet reservation service Hakata Enhance safety and comfort by (Fukuoka) introducing N700A (Dec. 2013~) and modifying 16 N700 Series trains (~ Fiscal 2016/3) Kumamoto

Kagoshima-Chuo Annual Report 2014 19 Introduction Business Strategy and Operating Results ESG Section Financial Section

The President’s Message | Medium-Term Management Plan | Operating Results by Business Segment

The Kansai Urban Area comprises the densely Furthermore, we held the grand opening populated metropolises and surrounding areas of Osaka Station—the largest JR-West-operated of Kyoto, Osaka, and Kobe. (Population of the hub station—as OSAKA STATION CITY on May 4, Kyoto–Osaka–Kobe metropolitan area is more 2011. Osaka Station serves as the gateway to the Kansai than 20 million.) It has an operating route length Kansai region as well as the gateway into Osaka Urban Area of 946.0 kilometers, forming a comprehensive itself. For this reason, we hope that OSAKA network stretching across the entire STATION CITY will serve as a new landmark in Kyoto–Osaka–Kobe Area. Osaka, a landmark that embodies a sense of flair The Kansai Urban Area includes the section and sophistication befitting its role as a of the Fukuchiyama Line between Tsukaguchi gateway. This strong desire was a key factor in Station and Amagasaki Station, the location our naming of OSAKA STATION CITY. where JR-West caused a terrible accident on April Furthermore, it is our wish that it will come to be 25, 2005, resulting in a substantial loss of the trust loved by all who visit it as a “city” that is both we have built with customers and society. We highly appealing and convenient. recognize that redoubling our efforts to prioritize safety and regaining that trust is one of our highest management priorities.

Transportation Revenues Number of Passengers

292.1Billions of yen 1,488 Millions of passengers (Billions of yen) (Millions of passengers) 2010 286.1 2010 1,423 2011 284.4 2011 1,424 2012 287.3 2012 1,439 2013 291.4 2013 1,451 2014 292.1 2014 1,488 (FY) (FY)

Boundary Stations between JR-West and Other JR Companies Main Lines Omishiotsu in the Kansai Urban Area Shinkansen Line (Bullet Train) Intercity Lines Regional Lines Maibara

Osaka Loop Line Tanigawa JR Kobe Line (Osaka–Himeji) Yamashina Kusatsu JR Kyoto Line (Osaka–Kyoto) Kyoto (Kyoto–Nagahama) Shin-Osaka Kameyama Aioi Himeji JR Tozai Line (Kyobashi–Amagasaki) Amagasaki Kakogawa Tsuge JR Yumesaki Line (Nishi-Kujo–Sakurajima) Shin-Kobe Kyobashi Nara JR Takarazuka Line (Osaka–Sasayamaguchi) Kobe Nishi-Akashi Osaka Tennoji Sagano Line (Kyoto–Sonobe) Oji Gakkentoshi Line (Kyobashi–Kizu) Takada Kansai Airport Nara Line (Kyoto–Kizu) Yamatoji Line (JR-Namba–Kamo) Hanwa Line (Tennoji–Wakayama) Wakayama Kansai Airport Line (Hineno–Kansai Airport) Osaka Higashi Line (Hanaten–Kyuhoji)

20 Annual Report 2014 Core Initiatives

Improve Increase and improve guidance for (3) Build a more convenient railway For the Kansai Urban Area, pursue higher levels customers during transport disruptions network of safety and implement thorough going Advance projects such as construction measures for reliable transport to build 2) Create an appealing Kansai of the Osaka Higashi Line (northern a railway that offers high-quality transport Urban Area section) and Nara Line double track and is used repeatedly by customers. Also, Consider building new underground enhance the Osaka Loop Line to increase (1) Create railway belts that are easy to use station accompanying Umekita and where people will want to reside the value of railway belts and improve the development appeal of urban areas. Convert to over-track stations and Establish new stations build new stations that integrate with community development : Osaka Key Measures Loop Line Renovation Project Enhance lifestyle-related services 1) Increase quality of transport Pursue safe, reliable transport service, (2) Advance urban tourism replace rolling stock, introduce new Boost demand by leveraging the safety system, increase safety of level opening of “USJ Harry Potter” crossings, increase facilities for turn Disseminate information through back operation, take natural disaster mainly our website The OSAKA POWER LOOP promotional train wrap launched countermeasures as part of the Osaka Loop Line Renovation Project

Annual Report 2014 21 Introduction Business Strategy and Operating Results ESG Section Financial Section

The President’s Message | Medium-Term Management Plan | Operating Results by Business Segment

JR-West’s other conventional lines comprise conventional lines continues to be difficult due intercity transport provided by limited express to the declining population of the areas they serve. and express services, regional transport for However, considering that this network plays a commuters and students in and around regional role as a feeder for Shinkansen services as well as Other hub cities such as Hiroshima and Okayama, and functions as a vital part of the overall JR-West Conventional Lines local lines with low transport density. The other railway network, we are working to provide more conventional lines have an operating route length community-oriented services and undertake of 3,425.7 kilometers. other management efforts, while placing priority The operating environment for other on ensuring safety.

JR-West’s transportation operations segment includes bus and ferry services. In our bus services, we have endeavored to increase customer convenience by implementing flexible Bus and fares reflecting usage trends. Ferry Services In our ferry services (the Miyajima Line), we have focused on securing revenues through initiatives like marketing activities targeting travel companies.

22 Annual Report 2014 Operating revenues for the Transportation Japan with the “Hiroshima Destination Campaign” Fiscal 2014 Operations segment increased 0.8% from the and worked to stimulate tourism in cooperation Results previous fiscal year to ¥851.3 billion, with with local communities, including the “Discover operating income up 1.0% to ¥91.0 billion. Shin-Hokuriku! Campaign” and the “Japanese In transportation operations, the usage of the Beauty Hokuriku Campaign,” as part of an effort to Sanyo Shinkansen and conventional lines was increase the use of railways to the Hokuriku positive as a result of increases in the frequency region. We also expanded services for overseas of Shinkansen services and limited express visitors to Japan, including the launch of free services on conventional lines, mainly during the public Wi-Fi services at major stations, and the Obon holidays and the year-end and New Year addition of frequently asked questions by holidays. We also took steps to enhance customers on our global website regarding the convenience with timetable revisions implemented use of JR West Japan lines. Furthermore, we took in March 2014 that included on the Shinkansen steps to enhance services for seniors, including lines, a partial revision of the operating structure expanding products for Zipangu Club members, of Nozomi and Sakura services and an increase and launching sales of the “Nori-nori Kippu” in the frequency of Mizuho trains, as well as on tickets for passengers over 60 years old. For the conventional lines, an increase in the frequency ICOCA e-money service, we worked to enhance of Biwako Express limited express trains. In addition, usage convenience for customers by expanding in anticipation of the opening of the Kanazawa the usage area through alliances with Nankai segment of the Hokuriku Shinkansen in spring Electric Railway Company and JR Shikoku. 2015, we established a special preparatory office. To contribute to the continued development of In October 2013, we decided on train names and local communities and railway services, we, in their service schemes, and in December, began close cooperation with local governments and conducting tests on certain rail segments. companies, implemented measures to achieve For the sections of the San-in Line, Yamaguchi “coexistence with communities,” such as Line, and Sanko Line where services remain development of communities centering on the suspended from 2013 as a result of heavy rains, stations and regional renovations. we have made a concentrated effort to restore services. (Services on the Sanko Line resumed on July 19, 2014.) In marketing initiatives, to compete with other modes of transport, we launched “Super Haya-toku” early discount tickets and made efforts to promote the use of the Shinkansen through such initiatives as “Remember Kyushu Campaign” to firmly establish the use of direct through-services between the Sanyo and Kyushu Shinkansens and the “Detective Conan Kumamoto/Aso Mystery Tour.” We also drew customers from throughout

Operating Revenues Operating Income

851.3 Billions of yen 91.0 Billions of yen (Billions of yen) (Billions of yen) 2010 797.4 2010 45.2 2011 806.4 2011 61.1 2012 839.0 2012 76.7 2013 844.9 2013 90.1 2014 851.3 2014 91.0 (FY) (FY)

Annual Report 2014 23 Introduction Business Strategy and Operating Results ESG Section Financial Section

The President’s Message | Medium-Term Management Plan | Operating Results by Business Segment

Non-Transportation Operations

JR-West’s non-transportation operations segment accordance with that approach, we will develop comprises three operations: retail business, real commercial facilities in and around railway stations estate business, and other businesses. Those as well as areas between railway stations, and operations contribute to the sustainable growth of conduct operations that use idle land for the the Group as a whole by vigorously taking development and sales of condominiums. Also, in advantage of their assets, improving services for order to foster earnings mainstays for the next era, customers using railway services and customers in JR-West is furthering initiatives to create new areas alongside railway lines, as well as providing businesses through collaborations both inside and high-quality services that are safe and reliable to outside the Group. further increase the appeal of railway stations and earn the increased trust of customers. The Railway Non-Transportation Revenues Operations Headquarters and the Business Development Headquarters will increase the value Retail Business of its railway belts through initiatives that entail collaboration with local communities to develop individual railway stations and their surrounding areas. Other Businesses In development initiatives, our basic approach is to clarify management responsibility in order to accelerate operational development and pursue development through Group companies. In Real Estate Business

Operating Revenues Operating Income

479.6 Billions of yen 44.0 Billions of yen (Billions of yen) (Billions of yen) 2010 392.6 2010 32.4 2011 407.0 2011 35.5 2012 448.6 2012 33.3 2013 453.9 2013 39.8 2014 479.6 2014 44.0 (FY) (FY)

24 Annual Report 2014 JR-West’s retail services, centered on railway took steps to establish shops that appeal to local passengers, consist of convenience stores, customers, and is considering fundamental measures specialty stores, and food and beverage outlets aimed at business revitalization. The Group also took located in and around station buildings, as well steps to enhance the appeal of stations, including Retail as department stores such as JR Kyoto Isetan for Sannomiya Station, opening an Entree Marche Business department store. hybrid convenience store, along with fashion and variety goods stores, for Osaka Station, opening an Eki Qol Pharmacy JR Osaka Store, an in-station Fiscal 2014 Results dispensing pharmacy, and for the Fukuyama Station, Operating revenues in the Retail Business segment opening restaurants and other stores at its south rose 2.3% from the previous fiscal year to ¥240.1 exit. The Group also opened a budget hotel called billion, with operating income of ¥4.4 billion. Via-inn Nagoya. In July 2013, we merged two For the JR Osaka Mitsukoshi lsetan department consolidated subsidiaries in the San-in area store, the Group worked to offer highly original goods with differing industries and types of business, and services. In response to the tight commercial with the aim of developing and operating more climate surrounding the department store, the Group convenient and attractive commercial facilities.

Operating Revenues Operating Income

240.1Billions of yen 4.4 Billions of yen (Billions of yen) (Billions of yen) 2010 201.9 2010 3.1 2011 201.3 2011 3.5 2012 233.5 2012 –2.9 2013 234.6 2013 –0.4 2014 240.1 2014 4.4 (FY) (FY)

JR-West’s real estate business consists of the Fiscal 2014 Results management of shopping centers in station Operating revenues for the Real Estate Business buildings and other facilities, the operation of large segment increased 12.5% from the previous fiscal station buildings at hub railway stations, the year to ¥102.2 billion, with operating income down Real Estate development of commercial facilities near railway 0.8% from a year earlier to ¥27.7 billion. Business station areas and underneath elevated tracks, and The Group moved forward with the development real estate sales and leasing operations for residential of stations and surrounding areas. At the Himeji and urban development focused on railway lines. Station Building, completed in April 2013, the Group

Annual Report 2014 25 Introduction Business Strategy and Operating Results ESG Section Financial Section

The President’s Message | Medium-Term Management Plan | Operating Results by Business Segment

opened “piole HIMEJI” in conjunction with the reopened the MEDIO Shin-Osaka fashion zone at renovation of the shopping center underneath the Shin-Osaka Station, as well as Porta and The Cube at Kyoto elevated tracks. The Group also opened a new station Station. To stimulate business in the entire area around building at Nada Station, a Higashi- Station Osaka Station, the Group conducted area management Building and a Shimonoseki Station Building called activities in association with local business operators. “ripie.” As part of the Osaka Loop Line Renovation In addition, the Group made efforts to utilize former Project, the Group opened VIERRA TAMATSUKURI at sites of company housing, by developing residential Tamatsukuri Station. Further, the Group renovated and buildings and leasing land to an education institution.

Operating Revenues Operating Income

102.2 Billions of yen 27.7Billions of yen (Billions of yen) (Billions of yen) 2010 70.9 2010 22.5 2011 75.7 2011 22.2 2012 93.5 2012 25.9 2013 90.9 2013 28.0 2014 102.2 2014 27.7 (FY) (FY)

JR-West’s other businesses consist of the travel For the J-West Card, the Group made efforts to agency business operated by Nippon Travel Agency, acquire cardholders through an online application the hotel business, an advertising agency business, service and by running a campaign to waive the maintenance and engineering services, and other membership fee for the first year. For the ICOCA Other businesses to facilitate the smooth and efficient e-money service, the Group maximized the effect of Businesses operation of the mainstay railway business. nationwide reciprocal services of transport IC cards that started in March 2013, and worked to expand Fiscal 2014 Results opportunities to use the services, including Operating revenues for the Other Businesses introducing services at large commercial facilities segment increased 6.8% from the previous fiscal year outside of stations. The Group also conducted a to ¥137.1 billion, with operating income down 4.0% variety of campaigns to mark the 10th anniversary to ¥11.8 billion. of ICOCA, and made efforts to promote its use. In In hotel operations, the Group worked to expand addition, the Group developed and nurtured new sales through such measures as hosting various businesses, including the launch of a “Rail & Car events. In travel agency operations, the Group Share” service at Shinkansen stations and 12 major expanded internet retailing, and took steps to stations in the Kyoto-Osaka-Kobe region. increase sales of products that utilize railways.

26 Annual Report 2014 Operating Revenues Operating Income

137.1Billions of yen 11.8 Billions of yen (Billions of yen) (Billions of yen) 2010 119.6 2010 6.7 2011 129.9 2011 9.6 2012 121.4 2012 10.3 2013 128.4 2013 12.3 2014 137.1 2014 11.8 (FY) (FY) Core Initiatives

Develop 2) Department stores 3) Real Estate Business In the area of business development Thorough renovation of the West Wing of (1) Advance sales of condominiums (non-transportation operations), expand the OSAKA STATION CITY North Gate (Sales revenue) (Billions of yen) lifestyle-related services businesses, Building increase Group asset value by advancing Make the department store specialize in 2009 3.1 development of terminal stations and fields where they have a competitive 2010 2.5 thoroughly renovating OSAKA STATION advantage and create a new facility by 2011 4.8 CITY’s North Gate Building, and foster new leveraging strengths of shopping centers 2012 10.7 business development by developing and and department stores 2013 6.9 pioneering new business fields. Sales Targets 2014 19.1 Approx. ¥80.0 billion total for East Wing (FY) Key Measures (SC: Lucua) and West Wing 1) Sales of goods and food services Outlook for profitability (2) Advance development and (1) Renovate retail shops in stations West Japan Railway Isetan Limited: renovation when stations are upgraded Profitable in Fiscal 2016/3 Kanazawa, Shin-Osaka, etc. (2) Aggressively develop areas other Opening schedule than those adjacent to railway lines In spring 2015 (Plan) and within the JR-West service area (Start of renovation work on July 28, 2014) Transfer of budget hotel operations from ORIX Group

Current Main Topics Promote a railway operations Enhance the value of group assets Consider participation in businesses system change Thorough renovation of the West Wing around major stations Additional share acquisition and of the OSAKA STATION CITY Share Acquisition：Kobe Chikagai Co., Ltd. business alliance: Asia Air Survey Co., Ltd. North Gate Building • Contribute to revitalization of the Sannomiya • By bolstering collaboration, further • Renovate to create an entirely area through cooperation with companies increasing safety, saving maintenance new, attractive facility by in the surrounding community works, and reinforcing disaster measures leveraging strengths of shopping centers Enhance the safety and quality and department stores (Spring 2015) Expand lifestyle-related services Include DAITETSU KOGYO CO., LTD. in the scope of consolidation Business alliance with Seven- Cultivate new business fields by leveraging assets and technologies • Enhance the safety and quality of the Eleven Japan JR-West Group’s construction operations • Convert current in-station stores (approx. Day service business specializing 500 stores) to allied stores within about in rehabilitation 5 years • Expand businesses by making POSSIBLE Transfer of budget hotel operations Medical Science a subsidiary from ORIX Group Internet retailing for customers overseas • Re-brand open of 3 hotels as “Via-inn” • Internet retailing of local goods and (Jun. 2014) provision of information (Business Alliance with Navibird, Inc.)

Annual Report 2014 27