Message from the President  188th period

Annual Business Report 188th period
April 1, 2016 through March 31, 2017

Review of Business Operations 

During the fiscal term under review, the Japanese economy showed improvement in employment as a result of various economic policies and continued to recover as overseas economies showed moderate levels of recovery although production and exports were sluggish due to the influence of the economic slowdown of emerging nations.

 

Under this business environment, our performance showed a decrease in sales of railway rolling stock, totaling 101,094 million, down 8.9% from the previous year. In terms of profits, we made provisions for losses from some overseas railway rolling stock projects. As a result, the operating loss was 5,104 million (the operating loss in the previous year was 10,172 million) and the ordinary loss was 5,149 million (the ordinary loss in the previous year was 10,174 million), and the net loss attributable to owners of the parent was 5,124 million (the net loss in the previous year was 16,130 million).

 

The Outlook 

In the railway rolling stock business, the overall trend in the domestic market suggests that the midto long-term market expansion will remain poor and demands will mainly come from replacement demands of existing railcars, thus the business environment is presumed to remain challenging. In such a situation, we will continue to make efforts to enhance a competitive edge by differentiating ourselves from competitors through technological developments as well as cost reductions through improvements in efficiency of production processes, etc. In terms of Asian markets, we will make efforts in keeping losses in check by reviewing project execution structures in the large railway rolling stock project for Indonesia. As for our North American business especially for the large railway rolling stock project for the U.S.A. which makes a huge loss, we have consistent approach to implement the project stably and consistently by taking actions such as assigning dedicated personnel in the design department. However, we were faced with technical challenges while responding to design changes and we offered the customer about the difficulty to execute this project as planned and currently in negotiation with them. We will continue to discuss with the customer to decide upon a direction to properly carry out this project. We are working toward early resolution of these issues and improvement of performance.

 

In the transportation equipment and steel structure business, the transportation equipment business is facing difficulties in winning orders. We will, however, continue to make efforts in developing products which promptly capture market trends, further reducing costs in order to secure orders, and develop new customers. Our efforts in the steel structure business will be focused on enhancing our ability to propose technological solutions that match customer needs and reducing costs in terms of orders of new bridges. As we continue to secure incoming orders, we will also develop our business in peripheral areas such as repair/maintenance projects.

 

In the construction equipment business, we will capture business opportunities by maintaining and consolidating the production system to respond to steadily growing domestic demands and responding to local needs in Asia and other overseas markets in a flexible manner.

 

In other businesses, we will make efforts in securing profits by proposing products that cater to market needs. 

 

Our major products - such as railcars and bridges - are mostly built to order and order units are also relatively large; therefore, the breakdown of the production and sales numbers changes greatly from year to year. This fluctuation poses permanent challenges to us; we must level the capacity utilization rate and effectively handle various specifications. Most of our projects require a long period of time from order to delivery, which greatly affects management performance because of changes in raw material costs and fluctuations in foreign exchange rates. We will make efforts to curtail cost increases by taking measures such as optimization of raw material procurement timing, yield increase, and material changes. We will also make efforts to reduce risks against foreign exchange fluctuation by hedging, such as foreign exchange contracts.

 

We anticipates a loss in the large railway rolling stock project for Indonesia,, as well as a loss associated with railcars delivered to compensate for the option rights attached to the railway rolling stock project in the U.S.A. In another large railway rolling stock project in the U.S.A., a further increase in manufacturing cost is expected due to the review of the design of the basic vehicle structure. We rationally calculated these losses and recorded a provision in this consolidated fiscal year. As a result, an operating loss was recorded for three consecutive years.

 

Considering these circumstances, we are well aware of events and situations which may raise significant doubt concerning the ongoing viability of our company. In such a circumstance with issues in each business segment requiring resolution, we will make efforts to enhance the profitability not only by aiming at improvement of our overseas business but also by promoting a further reduction of the raw material costs and expenses and trying to increase sales in the domestic business. President and Chief Executive OfficerAs for financial arrangements, we participate in the CMS (Cash Management System) operated by our parent company (Central Japan Railway Company (hereinafter called as "JR Central")) group and can raise operating funds promptly from CMS, thanks to a strong coordination with the parent company. Therefore, we are able to secure funds which can sufficiently meet demands anticipated from the funding plan. In addition, factory assets were transferred to the parent company and some non-business assets were transferred to some domestic businesses as of the end of the consolidated fiscal year. Proceeds from these transactions were used to repay, in advance, the full amount of long-term loans remaining with financial institutions as of the end of this consolidated fiscal year. We are making these efforts to optimize the management resources and improve the financial health of our company. As we are taking measures to resolve issues and improve the situation, we consider that there is no critical uncertainty for any going concern.

 

 

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