Q1. Can you please summarize once again the distinctive features of JR East 2020 Vision—idomu—which was announced at the end of March 2008?

One noteworthy aspect of the plan we prepared in March last year is the long period it covers—10 years. Previously, we prepared medium-term management plans covering periods of four or five years. However, the particular characteristics of railway operations make it preferable to work with timeframes that give us enough time to move initiatives forward, slowly but surely, to become the kind of company we want to be. Accordingly, we took a long-term view, looking 10 years, or in some cases even 15 years, ahead, and, within this timeframe, considered the corporate profile we aspire to and the measures needed to that end.

Another feature of the plan is the key theme: idomu, which means “challenge” in Japanese. That theme reflects the fact that, in response to tough business conditions characterized by an aging population and general market volatility, we must adopt methods that depart from previous approaches, set ourselves ambitious goals, and boldly take on the challenge of reaching them.

In other words, JR East 2020 Vision—idomu—calls on us to take on the challenge of meeting ambitious long-term goals.

To be a little more specific, under the heading of “things that must change,” the plan urges us to take on the challenge of initiatives that transcend previous frameworks by “Moving Up a Gear in Seven Areas,” which relates to our core railway operations; life-style businesses, the second major pillar of our operations; and the future status of Suica operations as a third pillar. At the same time, the plan identifies as “things that must not change” the “JNR reform” mindset that is part of our organizational DNA and the distinctive JR East dedication to safety as a management priority.

Q2. Looking back over fiscal 2009, did JR East make good progress under JR East 2020 Vision? Also, what measures will you advance in fiscal 2010?

In fiscal 2009, ended March 31, 2009, the global financial crisis triggered a rapid economic recession that had a fairly significant effect on JR East’s business results. Despite those tough business conditions, respective businesses made steady progress toward the corporate profile set out in JR East 2020 Vision. However, we have only completed one year under the plan, so concrete results will not emerge until later.

In transportation operations, in the Tokyo metropolitan area, as part of efforts to make line-side areas more attractive and convenient, we advanced construction for the opening of Musashi-Kosugi Station on the Yokosuka Line, which is scheduled for the end of fiscal 2010. In initiatives to expand our through-service network, we began construction work to lay additional tracks between Ueno and Tokyo stations to enable operations of the Tohoku Through Line, slated to begin operations in fiscal 2014. And, we prepared for mutual through services with Sotetsu, which will start from fiscal 2015.

As for railcars, fall 2009 will see the introduction of a new-type railcar to the Narita Express. In addition, we moved forward steadily with preparation for the introduction of high-speed E5 series railcars to coincide with the extension of the Tohoku Shinkansen Line to Shin-Aomori Station, planned for December 2010.

In life-style businesses, JR East stepped up initiatives to increase non-transportation operating revenues to approximately 40% of total operating revenues by fiscal 2018. Also, in fiscal 2009 we undertook medium-scale development at Tachikawa Station, Tabata Station, and other railway stations. Looking ahead to the concentration of large-scale development projects for terminal stations, including the upgrading of railway facilities, in the second half of the JR East 2020 Vision period, we readied our in-house organization by establishing the new Station Development Planning Department in June 2008. Further, we are carrying out plans for projects that combine the enhancement of railway stations with the large-scale development of shopping centers, office buildings, and other facilities at the new south exit of Shinjuku Station, Chiba Station, the west and east exits of Yokohama Station, and Shibuya Station. In addition, we are furthering a project to create a large developable area of land by reorganizing and downsizing facilities at the Shinagawa rail yard.

For Suica, we aim to make it the de facto standard IC passenger ticket by enabling its use in railway networks throughout Japan. At the same time, we also want to make Suica the number one form of electronic money. Regarding Suica as an IC passenger ticket, commencement of mutual use with transportation companies in Kyushu in spring 2010 will enable the use of Suica in most of Japan’s major cities, such as Tokyo, Osaka, Nagoya, Sapporo, and Fukuoka. Regarding Suica as electronic money, it is becoming ever more convenient with its acceptance at an increasing number of convenience stores and restaurants throughout Japan. Daily Suica transactions reached a high-water mark of 1.42 million during fiscal 2009. With a view to reaching 8 million transactions by fiscal 2011, we will strengthen related measures.

Our initiatives to enter new business areas included forming a new in-house taskforce for overseas railway operations, which has began examining possibilities and frameworks for the development of overseas operations. As worsening global environmental problems cause mounting concern, countries around the world are reassessing railways as environment-friendly mass transportation systems, and an array of railway construction projects are in the pipeline. Our first step in overseas operations will be to draw on the expertise of JR East and its Group companies in such areas as railway operations and maintenance to provide consulting services for those projects.

Additionally, we intend to actively tackle environmental problems. In order to conduct specialized research on railway-related technology themes that will help address global environmental problems, we established the Environmental Technology Research Center in April 2009. Also, looking at possible tie-ups with universities and manufacturers, we want to become the world leader in environmental technology for railways.

In other environmental preservation efforts, for ecoste—railway stations that incorporate a wide variety of environmental technologies such as solar power generation and LED lighting—we are considering designating one railway station in the service area of each of our 12 branch offices as a model railway station. As far as possible we will power those railway stations using solar and wind power generation.

Also, having begun operating the world’s first commercial hybrid railcars on the Koumi Line, we will introduce new-type resort trains incorporating the same technology. We plan to introduce a total of 10 railcars to three regions: the Aomori region, to coincide with the extension of the Tohoku Shinkansen Line to Shin-Aomori Station; the Akita region, to replace existing resort trains that have become obsolete; and the Nagano region. Compared with diesel railcars currently in service, railcars that incorporate hybrid systems realize a 20%* reduction in fuel consumption and a 60% reduction in nitrogen oxide emissions. As diesel railcars become obsolete, we will replace a considerable portion of them with hybrid railcars. At present, the cost of producing hybrid railcars is relatively high. However, I think it will be possible to lower that cost through mass production.
* An approximately 10% reduction on the Koumi Line because it has significant differences in elevation

Regarding investment, we are shifting from our former approach, which sought to balance the allocation of net cash provided by operating activities among capital expenditures, debt reduction, and returns to shareholders, to one that places greater emphasis on investment for growth to ensure the continuation and development of JR East as a company. As a result of heightening the priority of investment, we realized capital expenditures of ¥402.6 billion in fiscal 2009, and we plan to invest ¥455.0 billion in fiscal 2010.

As for increasing returns to shareholders, our dividend policy is to raise dividends in stages toward the target for the consolidated dividend payout ratio of 30%. For fiscal 2009, we paid cash dividends of ¥110 per share, which would be a ¥10 increase if the Company had executed the stock split that has an effective date of January 4, 2009, at the beginning of the previous fiscal year, and the consolidated dividend payout ratio was 23.5%. For fiscal 2010, in light of expected decreases in earnings and revenues, we plan to keep cash dividends at the same level as that for fiscal 2009. Further, in April and May 2009, JR East acquired 4 million shares of treasury stock, which represents 1% of total issued and outstanding shares of common stock. We have not retired the acquired shares, which we intend to hold as treasury stock. We will consider a range of options for increasing corporate value.

In fiscal 2009, we reduced total long-term debt by approximately ¥70 billion on a consolidated basis. Although the size of the reduction was smaller than in previous fiscal years, we will continue working to strengthen our financial position.
Note: JR East implemented a stock split at a ratio of 100 shares for 1 share of common stock with an effective date of January 4, 2009.

JR East 2020 Vision includes numerical targets for fiscal 2011. However, I think achieving those targets will be difficult, based on consideration of the effect that significant changes in business conditions have had on fiscal 2009 business results and the fiscal 2010 business results outlook. Although revision of medium-term numerical targets will become necessary, for the time being, we will not revise them because I think we need time to carefully assess outside conditions that are opaque at the moment. As an immediate goal, I want to make sure that we achieve the business results that we forecast for fiscal 2010. Further, refraining from revising fiscal 2018 targets, we will continue working to raise corporate value from a long-term standpoint that looks to the coming decade.