Financial Results and Investor Meeting
CONSOLIDATED AND NON-CONSOLIDATED FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED MARCH 31, 2002
Management Policies and Results of Operations
Operating Results and Financial Position
Summary
Overview
During fiscal 2002, the Japanese economy reentered a period of business setback due to stagnation of production activities, affected by reduction of exports behind the background for slowdown of the overseas economy. In addition, in September 2001 terrorist attacks occurred in the USA, which increased future uncertainties even further. Although exports and production appeared to stop declining towards the end of the fiscal year, the economy remained in the doldrums in general with weak personal consumption under the continuing severe employment conditions and lower capital expenditures. JR East, its consolidated subsidiaries and equity method affiliated companies continued to make efforts to expand revenues by maximizing the use of operational resources such as railway networks of the Shinkansen Lines, etc. and stations in order to overcome such severe situations and effected measures to increase the efficiency of business operations by carrying out a scrupulous review of the overall expenses.
As a result, operating revenues decreased by 0.1% to 2,543.3 billion yen, while operating income decreased by 2.3% to 316.3 billion yen. On the other hand, ordinary income increased by 1.4% to 135.7 billion yen due to lower interest expenses as a result of a decline in interest bearing debts, because of the use of fund raised by a part sale of its Japan Telecom shares as well as the introduction of a cash management system which controls the combined total group funds. Net income for fiscal 2002 decreased 31.3% to 47.5 billion yen, affected by extraordinary loss due to revaluation of part of securities held, despite an increase in extraordinary gain as a result of a part sale of its Japan Telecom shares.
Cash Flows
Net cash provided by operating activities decreased by 0.4 billion yen to 455.0 billion yen, affected by a decline of income before income taxes, despite a decrease of payments of interest.
Net cash used in investing activities decreased by 160.6 billion yen to 105.6 billion yen, helped by part sale of the Japan Telecom shares, despite capital expenditures for measures to ensure safe and stable transportation, improvement in transportation capacity and development of shopping centers and hotels.
Net cash used in financing activities increased by 272.4 billion yen to 433.5 billion yen due to a reduction of 359.3 billion yen in total long-term debt and dividend payments.
As a result, the balance of cash and cash equivalents decreased by 83.7 billion yen to 200.0 billion yen.
The balance of the total long-term debt at the end of fiscal 2002 amounted to 4,379.8 billion yen.
Segment Information
JR East and its subsidiaries used to classify businesses of the Companies in four business segments, i.e., Transportation, Merchandise sales, Real estate leasing and Other services in order to disclose actual operational diversification concretely and appropriately in accordance with the Japanese standard industrial classification. However, from fiscal 2002, the segmentation was changed to the new four segments, i.e., Transportation, Station space utilization, Shopping centers & office buildings and Other services.
This change was made in order to reflect more appropriately the changes in positioning and actual situation of the businesses of JR East and its subsidiaries as a whole, at the occasion of a review of the operational management units based on the medium-term business plan which aimed mainly at effective use of management resources of the Companies. The following is segment information by the business segments for the previous consolidated period reclassified according to the new business segmentation.
In Transportation, securing safety is the subject of top priority, and various measures have been taken for this purpose. In addition, services have been substantiated both in hardware and software such as enhancing the level of convenience and comfort in transportation as well as improving station facilities.
On the operating front, by fully utilizing the five-route Shinkansen network, JR East conducted detailed marketing programs that meet customers' diversified needs to secure revenues. In more detail, we carried out sales of common travel packages and destination campaigns in cooperation with travel agencies, and started "A holiday for adults," which is a travel brand for the senior generation and "My family," which is a new brand backing up family travels successively as a strategic development for targeted customers in addition to the conventional campaigns called "Meguri Hime" and "Nombiri Komachi."
On the transport front, we continued to increase the number of units of two-storied Shinkansen "Max" in the Joetsu Shinkansen Line to strengthen transport capacity during the commuting hours. Furthermore, in transport in the Tokyo metropolitan area, we started to operate the "Shonan Shinjuku Line" which runs directly from Yokohama to Omiya through Shinjuku, the "Chuo Liner" and the "Ome Liner" with all-guaranteed seat service on the Chuo Line.
As regards measures to improve services utilizing IT, a new automatic fare collecting system for which an IC card, "Suica" was used was introduced at the stations in the Tokyo metropolitan area.
However, both commuter and non-commuter revenues declined, accompanied by a fall in the number of passengers, reflecting the severe economic condition.
As a result, operating revenues decreased by 0.6% to 1,841.0 billion yen. Operating expenses decreased by 0.1% to 1,605.4 billion yen due to a decline in personnel expenses as a result of an increase in the number of retirees and a review of the maintenance system of facilities. Operating income decreased by 3.7% to 235.5 billion yen.
In Station space utilization, "Dila Kaihin Makuhari" (Chiba prefecture) and "Dila Sendai" (Miyagi prefecture) were opened under the "Sunflower Plan" to make effective use of space at and around station. In addition, as part of the round of the "Station Renaissance," which is for creating new station environments for the 21st century, JR East implemented the first part of the "Cosmos Plan" to carry out major developments centering on terminal stations in the Tokyo metropolitan area at Ueno station, and opened "Atre Ueno" (Tokyo metropolis). Furthermore, new type of store development progressed to strengthen the profitability in association with non-group companies such as the restaurant "Tokyo Shokudo Central Mikuni's" (Tokyo metropolis).
As regards reorganization of the group companies, in the restaurant operation, East Japan Restaurant Co., Ltd. merged with JB Co., Ltd. to create JR East Food Business Co., Ltd., which enhanced the efficiency of store operation and progressed joint use of know-how. In the convenience store operation, Higashinihon Kiosk Co., Ltd. and JR East Convenience Stores Co., Ltd. merged, and the convenience store operation division of East Japan Railway Trading Co., Ltd. was integrated into Higashinihon Kiosk Co., Ltd. By so doing, JR East succeeded in improving operational efficiency by unifying trading and distribution.
As a result, operating revenues increased 5.4% to 378.7 billion yen. Operating expenses increased by 5.9% to 351.9 billion yen due to an increase in cost of sales because of the increase in the number of stores, etc. despite efforts made to improve profitability such as greater business efficiency. Operating income decreased by 1.1% to 26.8 billion yen.
In Shopping centers and office buildings, renovations putting emphasis on foods and groceries were carried out at "Toride Box Hill" (Ibaraki prefecture) and "Hill Top Garden Meguro" (Tokyo metropolis), etc. and nurseries for which the certified nursery system of the Tokyo metropolis was applied were opened within "Lumine Kitasenju" (Tokyo metropolis) and "Nishi Hachioji Lonlon"(Tokyo metropolis). In addition, leading tenants who have power of attracting customers were introduced in existing shopping centers. Furthermore, we opened "ekipara," an information provision site on the web for the Group's shopping centers and tried to increase power of attracting customers by detailed information distribution. Furthermore, some companies renegotiated the terms of various agreements.
As a result, operating revenues decreased by 0.1% to 172.9 billion yen. Operating expenses decreased by 2.9% to 134.4 billion yen due to carrying out scrupulous low cost operation. Operating income increased by 11.2% to 38.4 billion yen.
In Other services, in hotel operations JR East opened the "HOTEL METS Shibuya" (Tokyo metropolis) and carried out positive marketing activities such as joint advertising as well as a further strengthening of chain management. In advertising, revenue increases were sought by expanding sales of advertising within stations and trains, and by developing new media such as car body advertising. In housing development and sales, sales of condominiums such as "View Park Todakoen" (Saitama prefecture) and "View Park Yokohama Tomiyacho Nibankan" (Kanagawa prefecture) have started. In card business, a new card system was introduced and an expansion of point service was made. In addition, acceptance of credit cards of other companies has been started by a new ATM network, "VIEW ALTTE." As an undertaking in which Internet is used, services of the shopping mall, "eki-net Shopping"a has been strengthened.
As a result, operating revenues increased by 3.7% to 498.8 billion yen. Operating expenses increased by 4.2% to 482.8 billion yen due to outsource costs and personnel expenses put forward, accompanied by an increase in workloads in maintenance related business. Operating income decreased by 11.1% to 16.0 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 2002 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 make efforts to improve business performance and establish a strong operating base where a stable dividend payment can be maintained.
This material is a translated version prepared for the purpose of convenience only in respect to the most recent financial statements, disclosure of which is required in Japan.
