Financial Results and Investor Meeting
CONSOLIDATED AND NON-CONSOLIDATED FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED MARCH 31, 2001
Management Policies and Results of Operations
Results of Operations
1. Summary
Overview
During Fiscal 2001, the Japanese economy experienced a trend of slow improvement with capital investment in the private sector recovering for the background of improvement of corporate profits. However, personal consumption, comprising the majority of private-sector demand remained subdued, without significant improvement in the employment and income environment. Further, the economy started to show signs of weakness again towards the end of the term, with exports and industrial production declining, affected by the overseas economic slowdown. To overcome such a severe situation, JR East, with its consolidated subsidiaries and equity method affiliated companies, made efforts to establish a sound and stable management base by improving the efficiency of business operations by carrying out a scrupulous review of the overall expenses, coupled with reinforced endeavor to expand revenues.
As a result, operating revenues increased 1.7% to 2,546.0 billion yen, while operating income decreased 5.3% to 323.7 billion yen due to an increase in operating expenses through the adoption of the new accounting standard for retirement benefits. Because other expenses decreased, due to reduced interest expense, ordinary income increased 1.7% to 133.9 billion yen, and net income increased 3.3% to 69.1 billion yen.
Cash Flows
Net cash provided by operating activities decreased by 19.2 billion yen to 455.4 billion yen. JR East began amortizing the shortfall in obligations for severance and retirement benefits in Fiscal 2001, but payments of income taxes increased.
Net Cash used in investing activities was 266.3 billion yen, including capital expenditures for transportation services to improve safety and stability and increase capacity, and for shopping centers, hotels and other facilities.
Net cash used in financing activities was 161.1 billion yen. The primary uses of cash were payments for cash dividends and a net reduction of 119.1 billion yen in total long-term debt.
As a result, the balance of cash and cash equivalents increased by 28.0 billion yen to 283.8 billion yen.
Total long-term debt at the end of Fiscal 2001 amounted to 4,699.7 billion yen.
Overview by Segment
In transportation, JR East carried out various measures to improve safety in the railway operations, which was placed as top priority. Further, JR East brought about improvements in services by enhancing convenience and comfort of intercity travel, strengthening the transport capacity for business and student commuters in the Tokyo metropolitan area, and improving station facilities. With regard to sales, by using the five-route Shinkansen network, JR East carried out development of products that meet customers' diversified needs, including campaigns named "Nonbiri Komachi," and "Odorokidane!" in addition to "Zipangu Club" and "Megri Hime," and conducted a detailed marketing program. Further, JR East made efforts to promote the use of railways and to secure revenues by enhancing the provision and expansion of "park & ride" facilities, as well as expanding demand for sightseeing in the areas of JR East by operating "SL Ban-etsu Story" steam locomotives.
As a result, operating revenues increased 0.5% to1,873.7 billion yen, due to a small increase in operating revenues in railway operations, helped by an increase in non-commuter pass income. Operating income decreased 10.5% to 263.9 billion yen because of a large increase in operating expenses due to an increase in personnel expenses, by the amortization of the shortfall in obligations for severance and retirement benefits.
In merchandise sales, JR East has developed a group of stores meeting customers' needs, including "Dila Tokyo (Dining Court and Media Court)" at Tokyo Station and "Dila Ueno" at Ueno Station (Tokyo), as part of the "Sunflower Plan" that aims to make effective use of space at or around stations. Furthermore, JR East promoted the development of new store formats to strengthen sales through a tie-up with companies outside the Group such as "Mujirushiryohin COM KIOSK" and "UNIQLO KIOSK."
As a result, operating revenues increased 0.2% to 449.0 billion yen. Operating income increased 55.3% to 8.9 billion yen because of efforts to improve profitability by scrapping and building existing stores and raising the efficiency of business operations.
In real estate leasing, JR East has promoted the development of shopping centers which mainly handle foods and general goods for daily use that are closely related to people's life-styles, including the opening of "Arcade Akabane" at Akabane Station (Tokyo), "Aji no Shokusaikan Mizonokuchi" at Mizonokuchi Station (Kanagawa), and so forth, and has carried out major renewals of shopping centers such as that at Kameido Station (Tokyo). In addition, as regards existing shopping centers, JR East made efforts to introduce leading tenants capable of attracting customers.
As a result, operating revenues increased 5.4% to163.5 billion yen. Operating income increased 8.9% to 35.4 billion yen because of a rise in the efficiency of operations.
Regarding other services, in hotel operations JR East opened the "Hotel Metz Mizonokuchi" (Kanagawa) and carried out positive marketing activities such as joint advertising. In advertising and publicity, JR East developed new media such as "full wrap" advertising to make use of stores at stations, and carried out sales promotion such as advertisement stickers on automatic fare collection gates at stations. In card business, JR East raised customer convenience by adding a VISA function to its View Card, which enabled shopping at VISA member merchants throughout the world and cashing services in overseas countries. With reference to new businesses using IT, JR East opened a shopping mall on the Internet, "eki-net," through which customers can receive purchased merchandise at stores located at stations.
As a result, operating revenues increased 9.3% to 371.1 billion yen, and operating income increased 67.2% to15.9 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 the future development of business centered around railway services.
Based on this policy, JR East is to set a year-end cash dividend per share at 2,500 yen for Fiscal 2001, with a total annual cash dividend per share to be set at 5,000 yen, which includes an interim cash dividend of 2,500 yen per share.
Retained 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
The operating environment for the following term is estimated to remain very grim in view of intensifying competition, due to the expansions of other railways' route networks, etc.,coupled with the reinforcement of market price method for the accounting system, as well as the current economic trend continuing its uncertain fluctuations.
In this operational environment, JR East intends to fulfill obligations to shareholders by attaining full privatization, which is just around the corner, and achieving the various objectives raised in "New Frontier 21."
To this end, JR East will make efforts to maximize consolidated cash flows by making effective use of the railway network and station space and carrying out positive development of businesses with growth potential, while maintaining its mainstay railway operations, which is the strength of the JR East Group and highly trusted by customers. Furthermore, JR East will promote various measures related to all business areas following the concept of "Station Renaissance," which means the creation of new stations in the 21st century and using new technologies such as IT. In addition, JR East intends to implement management efficiency and strengthen its competitiveness by carrying out review of business areas of the Group and bold reorganization.
(Note)Forward Looking Statements
Statements contained in this report with respect to JR East Group's plans, strategies and beliefs that are not historical facts are forward looking statements about the future performance of JR East Group which are based on management's assumptions and beliefs in light of the information currently available to it. These forward looking statements involve known and unknown risks, uncertainties and other factors that may cause JR East Group's actual results, performance or achievements to differ materially from the expectations expressed herein. These factors include, without limitation, (i) JR East Group's ability to successfully maintain or increase current passenger levels on its railway services, (ii) JR East Group's ability to improve the profitability of its railway and other operations, (iii) JR East Group's ability to expand its non-railway operations and (iv) general changes in economic conditions and laws, regulations and government policies in Japan.
