Message from the President

Financial Policy

Targeted Management Indicators (through fiscal 2019)

Because the improvement of the Group’s financial position had
been its greatest management challenge, it has kept total capital
investment to roughly the equivalent of depreciation and amortisation, and preferentially allocated surplus funds for the repayment of interest-bearing debt. However, we reviewed that policy
for fiscal 2016 and beyond and will allocate surplus funds in awell-balanced manner between “forward-looking investments,”“continuous strengthening of our financial standing,” and“returns to shareholders.”
First, with regard to “forward-looking investments,” wehave decided to allocate funds mainly for the aforementioned
Strategies 1 and 2 without regard to past levels of roughly theequivalent of depreciation and amortisation. During the fouryear period from fiscal 2016 through 2019, we anticipate capital
investments and loans of around ¥300.0 billion. Of this amount,around ¥150.0 billion is projected for investment in maintaining
and upgrading existing infrastructure (investments in railway
safety, and renovation pertaining to the real estate leasingbusiness) and ¥100.0 billion for investment in large-scale development and new market development.
Meanwhile, to “continuous strengthening our financialstanding,” we will constantly reduce interest-bearing debt, yet ata slower pace than before. This is because we have, to deal withrisk associated with interest rate increases and ensure a mediumto long-term surplus.
Although “returns to shareholders” will be discussed in detaillater, starting in fiscal 2014 (dividend payment in June 2014),
in order to enhance profit returns to shareholders, the annual
dividend per share was raised from ¥5 to ¥6. We will work tomaintain a stable dividend while balancing forward-looking
investments with the need to strengthen our financial standing.
At the same time, our approach to shareholder returns will be
continuously reviewed.

Based on the business strategies and financial policies outlined
above, we have set operating income and the balance of interestbearing debt as our management indicators for the period fromfiscal 2016 to fiscal 2019.
First, despite declining profit levels due to lower rental
income (rental area) associated with progress on the Umeda 1-1Project, we will seek to maintain operating income at the ¥80.0billion mark from fiscal 2016 and beyond. In order to increase
future earnings, it is inevitable that profits will fall to a certain
level. However, we want to strengthen the competitiveness ofeach business and ensure this level.
On the other hand, despite forward-looking investments, wewill continuously strengthen our financial standing with the aimof steadily reducing interest-bearing debt to under ¥900.0 billion
by the end of fiscal 2019.
In addition to these two goals, aiming for a longer term
perspective with the idea of providing the highest level offinancial soundness for a private railway operator group line, weestablished, as guidelines, an interest-bearing debt/EBITDA ratio
over the medium- to long-term of five times level and a D/E ratio
over the medium- to long-term of one time.

Returns to Shareholders
To enhance profit returns to shareholders, the annual dividend per share was raised from ¥5 to ¥6.
We will work for the stable and continuous enhancement of shareholder returns.

The expansion of shareholder returns had been a subject to bereviewed when the achievement of an interest-bearing debt/
EBITDA ratio of around seven times, which had been positioned
as a priority management issue, appeared to be within reach,and the achievement of that target was nearly within reach
during fiscal 2014. Moreover, we believe that the foundation
has been set for posting net income of around ¥40.0 billion on astable basis. Therefore, as a result of reconsidering the enhancement of shareholder returns, in February 2014, we changed ourdividend policy so as to raise our annual dividend for fiscal 2014by ¥1, from ¥5 to ¥6, and implement a stable dividend set at aminimum of ¥6 per share annually.
This level of dividend corresponds to a dividend payout
ratio of around 17% against net income of ¥45.0 billion in fiscal

2015. However, since this can by no means be considered a highpayout ratio, we must carefully consider from various angles ourapproach to shareholder returns.
In order to become a corporate group that is capable ofsustaining growth into the future, we must steadily carry out
our two aforementioned business strategies from a medium- tolong-term perspective and strengthen our financial standing,which is the basis for achieving those strategies. As alreadypresented in Financial Policy, we will enhance shareholder
returns while balancing forward-looking investments with thestrengthening of our financial standing, based on assessment ofchanges in the business environment. Under this concept, weseek to further raise the Group’s enterprise value and meet theexpectations of shareholders.

Financial Policy

Distribute cash flow in a balancedand flexible manner
To date, we had improved our financial standing bykeeping total capital investment to roughly the equivalent of depreciation and amortisation and preferentiallyallocating surplus funds to reduce interest-bearing debt.
However, from fiscal 2016 and after, we will allocate
funds in a well-balanced manner between (1) forwardlooking investments, (2) continuous strengthening of
our financial standing, and (3) returns to shareholders.

Up to fiscal 2015

Fiscal 2016 and beyond

Payback from major investment projects
Reconciling growth and financial soundness

Formulate and implement growth strategyconditional on maintaining financial discipline

Reducing
interest-bearing
debt

Investment

Reducing
interest-bearing
debt

Investment

Returns to shareholders

Returns to shareholders

Allocated over four years (Fiscal 2012–2015)

Allocated over four years (Fiscal 2016–2019)(1) Forward-looking investments
We will allocate funds for forward-looking investments
without regard to past levels (equivalent to depreciation
and amortisation expenses), focusing on efforts based on
the aforementioned strategies 1 and 2.

Investment

Investment

Taxes,
interest rates,dividends(2) Continuous strengthening ofour financial standing
To deal with risk associated with interest rate increases andensure a medium- to long-term surplus, we will continue
to strengthen our financial standing, even after achieving
our previous management target (interest-bearing debt/
EBITDA ratio of seven times). Specifically, we will steadily
aim for an outstanding balance of interest-bearing debt ofunder ¥900.0 billion by the end of fiscal 2019.

Improve financial
standing

Improve financial
standing

Taxes,
interest rates,
dividends■ Investment Funds(3) Returns to shareholders
From fiscal 2014, we changed our dividend policy so
as to implement a stable dividend set at a minimum of¥6 per share annually. Thereafter, we will work to pay astable dividend while balancing forward-looking investments with the strengthening of our financial standing.

Investments in large-scale developments
and for new market development
Investments in maintaining andupgrading existing infrastructure¥300.0 billion(around)¥230.0 billion● Investments in railway safety● Investments in renovation

pertaining real estate leasing business
Fiscal 2012–2015

Capital investment/Investments and loans

Management Indicators based on Business Strategies and Financial Policies

Targeted Management Indicators (through fiscal 2019)

Target levels at a longer term perspective

Operating income:Interest-bearing debt/EBITDA ratio:

Interest-bearing debt:

D/E ratio: around

Maintain ¥80.0 billion level
Steadily reduce to under ¥900.0 billion by end of fiscal 2019¥100.0 billion¥50.0 billion

over 5.0 times

1 timeFiscal 2016–2019

Capital investment/
Investments and loans