East Japan Railway Co

TSE:9020

Earnings Call Transcript 2020-Q2

[Yoichi Kise, executive]

Thank you very much for coming to our financial results briefing for the second quarter today, despite your busy schedule.

In the opening of the briefing, I sincerely apologize for causing you so much trouble and concern due to the impact of Hagibis the other day.

We are employing the full strength of the Group to restore operations of interrupted lines and making every effort to secure transport capacity to minimize the impact of this disaster. I ask for your kind understanding and support, once again.

Now, by using the prepared slides, I will discuss financial results for the second quarter and full-term plan, starting with nonconsolidated results.

For operating revenues, passenger revenues increased partly due to 10-day Golden Week. As a result, operating revenues increased for 8 terms in a row. Although operating expenses increased, income increased at all levels due to an increase in operating revenues.

In comparison with plan, operating revenues exceeded plan in the first half. On the other hand, in other nonpersonnel expenses, testing expenses of ALFA-X, the next-generation Shinkansen, scheduled to be booked in the first half were postponed to the second half. As a result, income exceeded plan at all levels.

We plan to book carried forward testing expenses of ALFA-X in the second half. The impact of Hagibis may include drop in revenues due to suspended operations and increase in expenses due to damaged equipment. However, specific amount of the impact on full year results has not been made clear at this stage.

With this in mind, we judge we don't need to revise our forecast at this time. We assume Hagibis pushed down October revenues by about JPY 12 billion, mainly due to planned suspension of operations on lines from October 12 to 14 and suspension of operations on the Hokuriku Shinkansen, the Chuo Line and the Tohoku Shinkansen.

As for decrease in revenues for November onwards and expenses for restoration, we are currently calculating the impact of damages, such as flooding, destruction of bridges caused by swollen rivers and sediment flow on railway equipment.

Let me move on to passenger revenues. This slide shows results and main positive and negative factors for passenger revenues. Revenues from commuter passes continued to be firm due to increase in working population and were up JPY 1 billion or 0.4% year-on-year. Revenues from non-commuter passes were up JPY 10.3 billion or 1.5%. Revenues from both Shinkansen network and Kanto Area Network of Conventional Lines increased due to 10-day Golden Week absence of previous year's natural disasters, increased basic trend and others, although natural disasters occurred in the first half.

Next, I will talk about the relationship between results and plan of passenger revenues. Passenger revenues were JPY 800 million higher than plan. As for the breakdown, revenues from commuter passes were JPY 700 million lower than plan, mainly due to timing difference associated with 10-day Golden Week. For non-commuter passes, revenues from Shinkansen Network were very strong and JPY 1.6 billion higher than plan.

Revenues from Kanto Area Network of Conventional Lines were JPY 200 million lower and other network of conventional lines were JPY 100 million higher than plan.

Revenues from inbound tourist are as shown on this slide. The total inbound revenues were up about 6% year-on-year, although the first half plan was not achieved. We think you can see growth rate of our inbound revenues exceeded that of the number of visitors to Japan.

Going forward, we will pay close attention to trends of visitors to Japan and secure revenues in the second half to achieve original plan of JPY 30 billion.

Next, please look at this slide, showing nonconsolidated operating expenses. For the first half, personnel expenses continued to be down due to a decrease in the number of employees caused by the relationship between the number of retirees and new recruits or a rejuvenation effect. However, other non-personnel expenses were up mainly due to outsourcing expenses. Depreciation also increased due to capital expenditures. As a result, operating expenses increased JPY 12.4 billion or 1.5% year-on-year.

Next, I will move on to consolidated financial results. For consolidated financial results, operating revenues increased for 8 terms in a row and reached record high first half results. Besides, income at all levels reached record high.

By segment, for Retail & Services, revenues increased and income decreased. However, for Transportation, Real Estate & Hotels and Others, both revenues and income increased compared to plan. All the segments were almost in line with plan in the first half, although operating expenses partially shifted to the second half.

In addition, as I said earlier, the specific impact of Hagibis, mainly in nonconsolidated full year results, has not been made clear at this point. Also, with that in mind, we judge, we don't need to revise consolidated forecast either at this moment.

As with the case of nonconsolidated forecast, as soon as the outlook of performance and the impact become clear, we will make an announcement immediately.

Next, I will talk about situation by segment. Results and plan for Transportation are as shown on this slide. Both revenues and income increased due to an increase in passenger revenues of JR East.

I will briefly talk about MaaS as a topic. As you know, we launched an organization in our headquarters on April 1 to advance MaaS in an integrated fashion. The department is taking initiatives to establish a system to promote MaaS in an integrated manner by involving various transportation services and IT and Suica services.

As described here, as we provide railway services in the Tokyo metropolitan area and Eastern Japan, we want to contribute to creation of valuable space for mobility and society of mobility and revitalization of society through mobility revolution.

We will promote the initiative speedily by being conscious of time line, hoping mobility linkage platform we provide will be a convenient service for customers.

In promoting MaaS, we intend to collaborate with other business operators more actively than before.

Please refer to this slide for our recent initiatives. For Retail & Services, revenues of East Japan Marketing and Communications and Tetsudo Kaikan increased. However, due to an increase in non-personnel expenses and others, revenues increased, but income decreased.

This page shows results and plan for Real Estate & Hotels. For Real Estate & Hotels, both revenues and income increased, mainly due to increased revenues of JR East Building and LUMINE.

We prepared one slide for topics of lifestyle services. Shibuya Scramble Square will open on November 1. Besides WATERS Takeshiba, we are preparing now in Takeshiba will open in fiscal year 2020.

Projects scheduled for development and opening before the Olympics are progressing smoothly.

A big project after that, Shinagawa Development Project, is also progressing smoothly towards opening in 2024.

This slide shows results and plan of others. For others, both revenues and income increased as revenues of IC card business and credit cards increased.

We prepared a slide on Suica as a topic for others. For Suica, both the number of e-money available shops and the largest number of e-money transactions in one month increased steadily. The number of e-money transactions per day reached record high of 9.46 million on October 11.

Besides, as you know, we began JRE POINT provision for use of Suica for railway services on October 1. This service is making a significant contribution to growth of Suica. As a result, the number of JRE POINT members exceeded 11 million as of October 6.

After that, the number of members has been increasing at a pace of 17,000 per day on average. The number reached 11,270,000 as of October 20.

For nonoperating income and expenses, extraordinary gains and losses, cash position and cash flows, please refer to Pages 17 and 18.

Page 19 shows change in capital expenditures. As we explained in the beginning of the fiscal year, in capital expenditures for this fiscal year, we plan to actively make growth investment, which will be a foundation for our future revenues.

Capital expenditures for the first half were JPY 206.8 billion, which were almost in line with plan.

For change in interest-bearing debt balance, please refer to Page 20.

This page shows plan for the use of cash in fiscal year ending March 2020. As shown here, we will continue to do our best to achieve numerical targets and reinforce corporate structure.

Lastly, we prepared one slide, showing status of Hagibis damage and restoration. As I mentioned in the beginning, Hagibis caused significant damage and impact on our railway equipment and operations. Nagano Shinkansen Rolling Stock Center was flooded. Besides, some lines and equipment were heavily damaged. Operations were suspended on many segments in the first days after the typhoon.

However, as you are aware, for the Hokuriku Shinkansen, direct services between Tokyo and Kanazawa stations were resumed on October 25 based on a provisional timetable. The number of direct fastest train services between Tokyo and Kanazawa restored to 90% of the pre-typhoon level. We resumed operations by securing transportation volume of about 80% of the pre-typhoon level in total.

For the Chuo Line, we were able to resume operations on October 28. Operations were resumed sequentially. As I said in the beginning, we are doing our best with group companies and partner companies for disaster restoration to minimize impact of this disaster on our business performance.

I would appreciate your understanding and support, once again. That concludes my presentation. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]