JR Kyushu Group Integrated Report 2020 The Story of Our Value Creation The Foundation of Our Value Creation Results of Value Creation Initiatives Introduction Financial and Non- History of Value Message from the Progress on Our Medium- Materiality Corporate Safety and Service Local Community Environmental Information on Segments Overview Digest Financial Highlights Creation Initiatives President Term Business Plan Governance Development of Invigoration Initiatives Financial Information Investor Information Value Creation Process Message from the CFO Feature Human Resources Dialog with Stakeholders Contents The Story of Our The Foundation of Our Results of Value Value Creation Value Creation Creation Initiatives 2 Introduction 25 Materiality 58 Transportation Group 4 Digest 26 Corporate Governance 60 Real Estate and Hotels Group 5 Financial and Non-Financial Highlights 38 Safety 62 Construction Group 7 History of Value Creation Initiatives 42 Service 63 Retail and Restaurant Group 9 Value Creation Process 46 Development of Human Resources 64 Financial Information 10 Message from the President 51 Local Community Invigoration 70 Overview 15 Message from the CFO 53 Dialog with Stakeholders 71 Investor Information 19 Progress on Our Medium-TermTerm 54 Environmental Initiatives Business Plan 21 Feature Editorial Policy Forward-looking Statements This report was developed for the purpose of imparting a deeper understanding This report contains forward-looking statements, including future outlooks and objectives of the JR Kyushu Group. These of the JR Kyushu Group’s operations (Kyushu Railway Company (JR Kyushu) statements are judgments made by JR Kyushu based on information, projections, and assumptions available at the time of the and related companies) to our stakeholders. The report was prepared with document’s creation. Please be advised that actual operating results could greatly differ from the statements in this document due to the effects of the economic situation both inside and outside Kyushu and Japan as a whole, real estate market conditions, the reference to the International Integrated Reporting Framework of the International progress of our projects, changes in laws and regulations, and a wide range of other risk factors. The purpose of this document Integrated Reporting Council (IIRC)* and the Guidance for Integrated Corporate is not to solicit the purchase of JR Kyushu’s stocks or other financial instruments in Japan. In addition, this report does not Disclosure and Company-Investor Dialogues for Collaborative Value Creation from constitute an offer of securities in the United States. Based on the American Securities Act of 1933, offering or selling securities the Ministry of Economy, Trade and Industry. The editors’ aim is to communicate in the United States is not permitted, with the exception of cases where a company is registering securities or is exempt from financial and non–financial information, such as management policies, business registration. In cases where securities are being publicly issued in the United States, an English prospectus created on the basis strategies, and ESG information, to readers in a concise manner. More detailed of the Securities Act of 1933 will be used. The prospectus states that said securities may be acquired from an issuing company or seller and contains detailed information and financial statements on issuing companies and their management. information is available on the corporate website for those who are interested. * A private-sector organization established in 2010 by entities such as private- sector companies, investors, accountants’ organizations, and government institutions with the aim of developing an international corporate reporting framework. Kyushu Railway Company Integrated Report 2020 1 JR Kyushu was established following the breakup and privatization of Japanese National Railways in 1987. Since then, we have not only worked steadily to build a robust railway business, but have also leveraged the power of the JR Kyushu Group for active city-building and community development in the form of community What we aim to be enhancement and invigoration. Along the way, we have established three pillars that form our code of conduct, concepts that each and every employee of the JR Kyushu Group can keep in mind and use as a touchstone in everything that they do. These are Integrity, Growth and Evolution, and Local Community Invigoration. With a focus on these three pillars and a view to the future, we strive to achieve our vision of what the JR Kyushu Group aims to be: A corporate group that invigorates Kyushu, Japan, and Greater Asia with safety and service as its foundation. A corporate group that invigorates Kyushu, Japan, Integrity and Greater Asia with safety and service as its foundation The three pillars forming the JR Kyushu Group's code of conduct Long-Term Vision for 2030 To contribute to the sustainable development of Growth Local Kyushu through city-building/community development and Community initiatives that leverage the distinctive characteristics of local Evolution Invigoration communities, centering on safe and reliable mobility services Medium-Term Business Plan 2019–2021 Annual business policies Kyushu Railway Company Integrated Report 2020 2 The Story of Our Value Creation The Foundation of Our Value Creation Results of Value Creation Initiatives Introduction Financial and Non- History of Value Message from the Progress on Our Medium- Materiality Corporate Safety and Service Local Community Environmental Information on Segments Overview Digest Financial Highlights Creation Initiatives President Term Business Plan Governance Development of Invigoration Initiatives Financial Information Investor Information Value Creation Process Message from the CFO Feature Human Resources Dialog with Stakeholders Kokura Developing Our Businesses, Centered on the Railway Business based in Kyushu The JR Kyushu Group’s first and central business is our railway network Hakata throughout Kyushu. Over the years, our business has expanded into areas such as condominiums, construction, shipping, hotels, and station Fukuoka Prefecture buildings. These areas complement our railway business, allowing us to Saga Prefecture Oita Prefecture achieve a synergy between our various areas of business. We are dedicated to Oita contributing to the sustainable development of Kyushu through city-building and Saga community development initiatives that leverage the distinctive characteristics of local communities, centering on safe and reliable mobility services. Nagasaki Prefecture Kumamoto Nagasaki Kumamoto Prefecture Miyazaki Prefecture Expected increase in population Faster population decline in Kyushu Miyazaki of Fukuoka City than in the nationwide population Index (2015 = 100) Index (2015 = 100) 110 100 108.4 Nationwide Fukuoka City Kagoshima-Chuo Kagoshima Prefecture 105 104.9 Kyushu 23 wards of Tokyo 95 93.7 100 98.8 Total for ordinance- Conventional lines designated cities 92.2 95 90 Shinkansen line 2015 2020 2025 2030 2015 2020 2025 2030 Source: Regional Population Projections for Japan (estimated in 2018 by Source: Regional Population Projections for Japan (estimated in 2018 by the National Institute of Population and Social Security Research) the National Institute of Population and Social Security Research) Kyushu Railway Company Integrated Report 2020 3 The Story of Our Value Creation The Foundation of Our Value Creation Results of Value Creation Initiatives Introduction Financial and Non- History of Value Message from the Progress on Our Medium- Materiality Corporate Safety and Service Local Community Environmental Information on Segments Overview Digest Financial Highlights Creation Initiatives President Term Business Plan Governance Development of Invigoration Initiatives Financial Information Investor Information Value Creation Process Message from the CFO Feature Human Resources Dialog with Stakeholders Our segments have been reclassified from the fiscal year ended March 2020 to enable a more streamlined view of sales and profits and steady segment management. As a result, our segments have been reclassified from Transportation, Construction, Real Estate, Retail and Restaurants, and Other to Transportation, Real Estate and Digest Hotels, Construction, Retail and Restaurants, and Other. Operating Revenue Business Overview by Segment Operating Revenue EBITDA/Operating Income (to outside customers) Transportation Group Our Transportation business comprises businesses such (billions of yen) (billions of yen) ■EBITDA ■Operating Income 200 40 as our railway business, bus business, and passenger ship 180.9 176.4 183.7 185.0 181.8 173.7 34.3 34.4 34.3 28.5 29.5 business. We operate a total of 22 lines (1 Shinkansen line, 8 150 27.0 20 29.2 main lines, and 13 regional lines), covering 2,273km across 25.7 27.4 27.4 100 19.8 all seven prefectures of Kyushu. Our bus business consists 38.4% 0 of local bus, express bus and charter bus services, while our 50 passenger ship business covers routes such as Fukuoka and 0 -20 -10.5 Tsushima to Busan. ’16/3 ’17/3 ’18/3 ’19/3 ’19/3 20 ’16/3 ’17/3 ’18/3 ’19/3 ’19/3 20 Former Segments New Segments Former Segments New Segments Real Estate and Hotels Group Our Real Estate and Hotels Group operates a real estate (billions of yen) (billions of yen) ■EBITDA ■Operating Income 100 40 lease business (commercial facilities, offices, rental 90.0 90.7 35.6 33.1 80 31.1 32.0 30.5 apartments, etc.), a real estate sale business (condominiums), 67.4 69.4