Financial Results and Investor Meeting
CONSOLIDATED AND NON-CONSOLIDATED FINANCIAL HIGHLIGHTS FOR SIX MONTHS ENDED SEPTEMBER 30, 2000
Overview of Interim Results and Outlook
Results of Operations
1. Overview of Results in the Interim Period
Summary
During the interim period ended September 30, 2000, a slight improvement in Japan's economy continued to take place, supported by an upturn in private-sector capital investment as corporate earnings rose. However, consumer spending, which accounts for the majority of private-sector demand, lacked signs of a sustainable recovery as there were no notable improvements in employment and personal income levels. To overcome this difficult environment, the JR East Group worked to establish a sound and stable management base by improving management efficiency, such as through cost cuts and steps to bolster its financial position, while making a concerted effort to generate higher revenues.
Due to these factors, consolidated interim operating revenues were 1,260.1 billion yen, operating income was 174.4 billion yen, ordinary income was 76.2 billion yen and net income was 37.6 billion yen.
Cash flows
Net cash provided by operating activities was 220.4 billion yen. JR East began amortizing the shortfall in obligations for severance and retirement benefits in this fiscal year, but payments of income taxes increased.
Net cash used in investing activities was 142.2 billion yen, including capital expenditures for transportation services to improve safety and stability and increase capacity, and for station buildings, hotels and other facilities.
Net cash used in financing activities was 102.0 billion yen. The primary uses of cash were payments for cash dividends and a net reduction of 76.7 billion yen in total long-term debt.
As a result, cash and cash equivalents at the end of the interim period totaled 231.9 billion yen.
As of September 30, 2000, total long-term debt amounted to 4,741.9 billion yen.
Segment information
In transportation, optimizing safety is the top priority. JR East made intercity travel, especially on Shinkansen lines, more convenient and comfortable. In addition, various steps were taken to prepare for a schedule revision in December 2000 that will mainly target increases in Shinkansen capacity during the morning rush hour and improvements in services for business and student commuters in the Tokyo metropolitan area.
With regard to sales, JR East worked to increase railway utilization and generate revenues by developing products that address the needs of specific customer categories and conducting a detailed marketing program to meet a diverse range of customer needs. Other themes are the development of tourism resources in JR East's service area and the provision of "park & ride" facilities that allow passengers to leave their cars at parking areas near stations. As a result, although commuter pass revenues declined because of a decrease in Japan's student and working populations, non-commuter revenues increased due to signs of a recovery in Japan's economy and other factors. Overall, transportation segment revenues were 938.1 billion yen and operating income was 148.0 billion yen.
In merchandise sales, JR East developed new retail facilities that meet customer needs in line with The Sunflower Plan, which aims to effectively utilize space at or around stations. One example is a Dining Court at Tokyo Station. Additionally, alliances with companies outside the JR East Group were formed to create new retailing formats, such as the Mujirushiryohin COM KIOSK. The goal of all these actions is to improve operating results in this segment. JR East continued to work on raising profitability, such as by scrapping and rebuilding existing stores and raising efficiency. Due to these measures, segment revenues were 221.0 billion yen and operating income was 4.2 billion yen.
In real estate leasing (shopping centers), JR East opened several new station building facilities, including Arcade Akabane in Tokyo and Aji-no-Shokusaikan Mizonokuchi (a restaurant mall) in Kanagawa Prefecture. At existing shopping centers, JR East focused on attracting tenants that can draw large numbers of shoppers. As a result, segment revenues were 80.9 billion yen and operating income was 17.2 billion yen.
In other services, HOTEL METS Mizonokuchi opened in Kanagawa Prefecture and joint advertising campaigns and other high-profile marketing activities were conducted. Steps to raise advertising revenues included the development of new advertising formats, such as placements on floors in trains, programs to promote advertisements on automatic fare collection gates and other locations, and sales programs using animated characters. In the credit card business, JR East enhanced convenience for customers by adding a VISA function to its View Card in April 2000. Using IT to launch new businesses, JR East started an Internet ticket reservation service and other Internet services as well as the eki-net shopping mall. As a result, segment revenues were 166 yen.1 billion and operating income was 5.2 billion yen.
Dividend policy
JR East's basic policy regarding the appropriation of earnings is to maintain a stable dividend for shareholders while increasing retained earnings as necessary to ensure a sound operating base for future development of business centered around railway services.
Based on this policy, the Board of Directors approved an interim dividend payment of 2,500 yen per share at their meeting today (November 21, 2000). The dividend will be payable from December 12, 2000.
Retained interim earnings will be used to reduce total long-term debt and improve JR East's financial position.
JR East will continue to work to pay a stable dividend while working to improve operating results and strengthen its operating base, thereby meeting the expectations of shareholders.
2.Outlook
Japan's economy is in the midst of a period of tumultuous change that is coinciding with the beginning of a new century. Structural changes are sweeping through many areas. In the second half of this fiscal year, the direction of the economy remains unclear. In addition, competition with other forms of transportation will become still more fierce due to expansion of the Tokyo metropolitan area subway system, the deregulation of air fares and routes, the expansion of capacity at Haneda Airport in Tokyo, and other factors. The operating environment for the JR East Group is thus expected to become still more difficult.
In this period of transition, the JR East Group will retain an intent focus on the customer. Speedy management practices will be used to take new actions and succeed at this time when the gap between winners and losers widens. To achieve this goal, the JR East Group will leverage its greatest strength: its railway business, which has earned a high level of trust among passengers. The group's resources, such as its railway network and space at stations, will be utilized in a highly effective manner to support the rapid development of businesses with growth potential. At the same time, the JR East Group will review and realign the activities of group members with the aim of boosting efficiency and becoming more competitive. In this manner, by making the most of the strength of the entire JR East Group, every effort will be made to create an operating base that is even more sound and stable.
