J. Front Retailing Co., Ltd.
IR Business Strategy Presentation
Create and Bring to Life “New Happiness.” Create and Bring to Life “New Happiness.” Today’s Speakers
J. Front Retailing Co., Ltd.
YOSHIMOTO Tatsuya Director and Representative Managing Executive Officer President and Representative Director, Daimaru Matsuzakaya Department Stores Co. Ltd.
WAKABAYASHI Hayato Director and Managing Executive Officer Senior Executive General Manager, Financial Strategy Unit
NINOBE Mamoru Executive Officer President and Representative Director, JFR Card Co., Ltd.
1 Create and Bring to Life “New Happiness.” Disclaimer
Current plans, strategies, business forecasts and forward-looking statements in this document represent our assumptions deemed reasonable based on information available to us at the time of release and inherently involve potential risks and uncertainties. And these data are subject to change without notice. Therefore, actual businesses and results may differ materially from the results anticipated herein due to changes in various factors including economic conditions and market conditions.
2
Growth Strategy of Settlement and Finance Business
July 23, 2019 NINOBE Mamoru Executive Officer, J. Front Retailing Co., Ltd. President and Representative Director, JFR Card Co., Ltd.
Create and Bring to Life “New Happiness.”
3 Create and Bring to Life “New Happiness.” Today’s Agenda
1. Business and Issues of JFR Card 2. Rebuilding of JFR Card Midterm Business Plan (100- day plan) 3. Environment of Settlement and Finance Industry surrounding JFR Group 4. Settlement and Finance Business in JFR Group 5. Policy and Scope of Initiatives 6. Settlement Business 7. Finance Business 8. Changes in Business Forecasts (Organic Growth) 9. Options for Dramatic Growth
4 Create and Bring to Life “New Happiness.” 1. Business and Issues of JFR Card
Affluent customer base (¥100 mn)
Rapid changes in technologies, fiercer FY FY competition Underinvestment in HRs, products and
FY FY
*We have voluntarily applied the International Financial Reporting Standards (IFRS) since FY2017. 5 Create and Bring to Life “New Happiness.” 2. Rebuilding of JFR Card Midterm Business Plan (100-day plan)
5 pillars of strategic actions
① Improvement of ② Strengthening of card bottom line of existing products business
③ Launch of merchant ④ Review of system acquiring services platform
⑤ HR development / building of organization
6 Create and Bring to Life “New Happiness.” 2. Rebuilding of JFR Card Midterm Business Plan (100-day plan)
Actions/investments up to the present
① Improvement of bottom line of existing business ー Improved bottom line approximately ¥1 bn in total for 2019 to 2021 by reviewing business structure ② Strengthening of card products ー Launched project jointly with Department Store and preparing for renewal of Daimaru Matsuzakaya Card ③ Launch of merchant acquiring services ー Scrutinized merchant agreements of Daimaru Matsuzakaya Department Stores and reviewed commission rates, etc. Reduced commissions more than ¥100 mn a year (Daimaru Matsuzakaya Department Stores) ー Acquired licenses directly from Visa and Mastercard in July 2019 ④ Review of system platform ー Plan to launch merchant acquiring services in 2020 ⑤ HR development / building of organization ー Sep 2018 Formed new organization, acquired experts from outside the Group, employed HRs from inside the Group 7 ー Jun 2019 Opened Tokyo Office 3. Environment of Settlement and Finance Industry Create and Bring to Life “New Happiness.” surrounding JFR Group
Competitive environment of settlement and finance industry changed significantly
Social/economic environment Technology
● Entry of foreign companies due to borderlessness ● Use of inexpensive and flexible cloud ● Declining birthrate and ageing population / ● API that connects digital players depopulation ● Polarized consumption / sharing economy ● Big data analysis ● AI ● Spread of smartphones ...etc. ● Block chain ● Biometrics ...etc.
Government
● Relaxation of finance-related laws (Revised Fund Settlement Act, Revised Installment Sales Act, Revised Banking Act ...etc.) ● Promote cashless transactions: Present 20% → 25 years later 40% (Establishment of Payments Japan Association, cashless and consumer return business: Secure financial resources of ¥400 bn ...etc.）
Shift to mobile Conscious of Lower cost Use of data Convenience Personalization security/safety/ interfaces privacy 8 Create and Bring to Life “New Happiness.” 4. Settlement and Finance Business in JFR Group
JFR Group Vision Create and Bring to Life “New Happiness.”
Cause to be assumed by JFR Group
Engage in business that removes concerns/frustrations in daily life to create virtuous cycle in which people can spare more time for festive occasions
Remove concerns/frustrations concerning “money” as “Multi Service Retailer”
Place settlement and finance business at core of JFR Group 9 Create and Bring to Life “New Happiness.” 4. Settlement and Finance Business in JFR Group
Vision of settlement and finance business (what it aims to do)
Aim to become best partner of settlement/finance services that support “how to enjoy” and “how to live”
Mission of settlement and finance business (mission to be fulfilled)
Daily life Future
Provide settlement/finance services so that Provide settlement/finance services customers can “enjoy” without stress that realize fulfilling “life”
Target of settlement and finance business
Shops around JFR Customers (including JFR Group companies Group department employees) of JFR Group and suppliers stores (“Shops”) 10 Create and Bring to Life “New Happiness.” 4. Settlement and Finance Business in JFR Group
Assets held by JFR Group are source of competitiveness
Large urban stores Group transaction that attract many volume of customers more than ¥1 tn
Brand strength / More than 6 mn customer service good customers skills
11 Create and Bring to Life “New Happiness.” 4. Settlement and Finance Business in JFR Group
Blood that grows Urban Dominant areas
Customers (including JFR Group companies Shops employees) of JFR Group and suppliers
Real Estate Division
～Connect customers to companies and Shops in the Group ～ Settlement Provide payment methods to customers and payment/receipt methods to Group companies / suppliers / Shops in Urban dominant areas
～Economic growth in Urban Dominant areas～ Finance Provide finance services to customers/ Group companies / suppliers / Shops 12 Create and Bring to Life “New Happiness.” 5. Policy and Scope of Initiatives
Provide finance services based on customer relationship and customer data
Use strengths of
Settlement Finance
Credit (post-payment) Financing
Provision P o
of Debit i n Insurance payment (prompt payment) t methods Prepaid Asset management (prepayment)
Investment management
Merchant acquiring Provision of receipt services Exchange methods VISA, Master, UnionPay Suica, Alipay, WeChat, etc. Remittance
13 Create and Bring to Life “New Happiness.” 5. Policy and Scope of Initiatives
Reasons for focusing on settlement
●Lead to improvement of customer relationship
Emotional relation to Usage frequency to move money move money
●Can obtain customer data (lifestyle / asset situation)
Customer attribute data Settlement data (address, name, age, occupation, residence, family composition, annual income, credit (place of purchase, product, amount, information, etc.) frequency, etc.）
14 Create and Bring to Life “New Happiness.” 6. Settlement Business
Provide finance services based on customer relationship and customer data
Use strengths of
Credit (post-payment) Financing
Provision P o
of Debit i n Insurance payment (prompt payment) t methods
Prepaid Asset management (prepayment) Investment management
Merchant acquiring Provision Exchange of receipt services methods VISA, Master, UnionPay Suica, Alipay, WeChat, etc. Remittance
15 Create and Bring to Life “New Happiness.” 6. Settlement Business – Payment Methods –
Expand share of own payment methods and acquire data
In Urban Dominant In JFR Group areas
Cash / gift certificates Cash / gift certificates
Cash / gift certificates
Other companies Other companies Unknown
Other companies Co-branded
Daimaru Matsuzakaya Hakata Daimaru / Shimonoseki Parco Shops Department Stores Daimaru / Kochi Daimaru
Other companies’ (co-branded) Other companies’ Own payment methods Cash / gift certificates payment methods payment methods 16 Create and Bring to Life “New Happiness.” 6. Settlement Business – Payment Methods –
Ⅰ. Introduce original points to connect Urban Dominant areas
New point program provided by JFR Card in addition to existing Daimaru Matsuzakaya point program Points are earned with all credit card payments and can be exchanged in stores in Urban Dominant areas
Earn points Daimaru Matsuzakaya points Original points Earn points only with purchases Earn with all credit card payments in department stores
Exchange points Use points
In Urban Dominant Daimaru Matsuzakaya JFR Group Daimaru Matsuzakaya areas
17 Create and Bring to Life “New Happiness.” 6. Settlement Business – Payment Methods –
Ⅰ. Introduce original points to connect Urban Dominant areas
・Renew Daimaru Matsuzakaya Card (in preparation) ー Pull in potential customers in addition to existing customers
*Consider issuing cards co-branded with JFR Group companies that provide original points
Ⅱ. Consider platform of payment methods
・Low-cost system platform that can use data and change/add services flexibly
Ⅲ. Consider prepaid settlement / payment via bank account
・Consider payment methods that substitute for cash and gift certificates ー Review Tomonokai Card (prepaid), consider prompt payment via bank account
Ⅳ. Consider interfaces other than cards
・Consider providing interfaces including apps and biometrics
18 Create and Bring to Life “New Happiness.” 6. Settlement Business – Receipt Methods –
Expand share of own payment methods and acquire data
In Urban Dominant In JFR Group areas
Cash / gift certificates Cash / gift certificates
Cash / gift certificates
VISA, Master, JCB, AMEX, UnionPay, Alipay, WeChat, etc. Unknown
VISA, Master, JCB, AMEX, UnionPay, VISA, Master, Daimaru Alipay, WeChat, etc. JCB, AMEX, Matsuzakaya Card UnionPay, Tomonokai Alipay, WeChat, etc.
Daimaru Matsuzakaya Hakata Daimaru / Shimonoseki Department Stores Daimaru / Kochi Daimaru Parco Shops
Other companies’ (co-branded) Cash / gift certificates Own payment methods payment methods 19 Create and Bring to Life “New Happiness.” 6. Settlement Business – Receipt Methods –
Ⅰ. Review merchant agreements
・Review merchant agreements of Daimaru Matsuzakaya Department Stores and JFR Group companies
Ⅱ. Consider platform of receipt methods
・Acquired licenses of settlement brands (Visa and Mastercard) ・Plan to launch merchant acquiring services in 2020
Ⅲ. Promote receipt methods (cashless) that accommodate various payment methods
・Support JFR Group companies in promoting cashless transactions ー E-money, contactless settlement (touch settlement), QR code settlement, etc.
20 Create and Bring to Life “New Happiness.” 7. Finance Business
Provide finance services based on customer relationship and customer data Use strengths of
Credit (post-payment) Financing
Provision P o
of Debit i n
payment (prompt payment) t Insurance methods
Prepaid (prepayment) Asset management
Investment management
Merchant acquiring Provision of receipt services Exchange methods VISA, Master, UnionPay Suica, Alipay, WeChat, etc. Remittance
21 Create and Bring to Life “New Happiness.” 7. Finance Business
Profit volume ～Development from strengths～ (image) Prioritize “Areas Ⅰ and Ⅱ”
High Area Ⅱ Area Ⅰ
Financing (revolving) P
r Insurance o Financing f
i (loan) t a b i
l Area Ⅲ Area Ⅱ i t y
Exchange
Settlement
Investment Asset management Lo management Remittance w Lo High w Affinity with customers of JFR Group 22 Create and Bring to Life “New Happiness.” 7. Finance Business
Financing (revolving)
Increase revolving balance
・Increase young customers: Renew Daimaru Matsuzakaya Card ・Increase revolving payment of existing customers: Promote revolving payment of gaisho customers ・Establish ability to manage credit to expand size and improve efficiency
Insurance
Expand insurance agency business
・Reach unreached customers (gaisho / cash point card / Tomonokai) ・Try to change business model ・Develop strategy to expand corporate market
23 Create and Bring to Life “New Happiness.” 7. Finance Business
Financing (loan)
Ⅰ. Consider purpose-based loans
・Consider purpose-based loans for individuals in alliance with moneylenders (banks/nonbanks)
【Examples of purpose-based loans】・Education loan ・Home loan ・Reverse mortgage ・Bridal loan ・Driver’s license loan ・Education loan ・Home improvement loan
Infanc School Employ Marria Child Second Birth y age ed ge raising life
Ⅱ. Consider financing for supporting companies in Urban Dominant areas
・Consider financing for businesses using settlement data and cash flows obtained through merchant acquiring services
24 Create and Bring to Life “New Happiness.” 8. Changes in Business Forecasts (Organic Growth)
Operating profit
25 Create and Bring to Life “New Happiness.” 9. Options for Dramatic Growth
Organic growth
¥5 bn
Present 202Y 202X 26
Major Turning Point of Department Store Business Model - Opening of New Main Building of Daimaru Shinsaibashi Store -
July 23, 2019
YOSHIMOTO Tatsuya Director and Representative Managing Executive Officer, J. Front Retailing Co., Ltd. President and Representative Director, Daimaru Matsuzakaya Department Stores Co. Ltd.
Create and Bring to Life “New Happiness.” Create and Bring to Life “New Happiness.” Once-in-a Century “Major Turning Point”
Environmental changes are accelerated at unprecedented speed
“Department store” business model is becoming increasingly obsolete
Many of successful experiences are becoming meaningless
Can department stores evolve or be revitalized by changing “business model”?
28 Create and Bring to Life “New Happiness.” Today’s Agenda
Ⅰ. Current situation surrounding department stores
Ⅱ. Direction for changing department store business model
Ⅲ. Highly profitable hybrid model “Daimaru Shinsaibashi store”
29 Create and Bring to Life “New Happiness.” History of Retail Industry
30 Entire Department Store Industry Is Create and Bring to Life “New Happiness.” on a Downward Trend National department store sales remain on a downward trend after peaking at ¥9,700 bn in 1991 Most recent national department store sales in 2018 were ¥5,887 bn, below ¥6 tn for 2 consecutive years
Peak of sales ¥9,700 bn
Lehman Shock
31
*Source: “National department store sales” released by Japan Department Stores Association Expansion of Shoka Shiire*, Excessive Create and Bring to Life “New Happiness.” Shift to Women’s Clothing
Main business system changed from selling after purchase called “kaitori” to purchase without inventory called “shoka shiire” Core operations changed from merchandising to marketing, brand assortment At the same time, stores increasingly depended overly on women’s apparel, department store sales peaked *Shoka shiire: Purchase recorded at the time of sale
Image of changes in department store business structure (purchase system)
Shoka shiire
Shoka shiire Shoka shiire Kaitori Kaitori
Kaitori Kaitori
【Early days of 【1970s】 【mid-1980s】 【Present】 department stores】 32 Share of Expenditure on Clothing of Household Create and Bring to Life “New Happiness.” Expenditure Is Decreasing Steadily
Expenditure on clothing and footwear decreased to 3.8% in 2018, almost half of 7.3％ in 1991
Department stores cannot get out of past successful experiences and continue excessive floor allocation to women’s clothing (Yen, %)
Yen
%
33 *Source: Monthly Disbursements per Household (two-or-more-person households) from “Family Income and Expenditure Survey” by the Ministry of Internal Affairs and Communication Create and Bring to Life “New Happiness.” Toward Discontinuous Growth
Discontinuous Business models for the past 50 growth years no longer apply S a l e s Limit of Growth curve as-is Growth curve over the past extension over the next 50 years 50 years
Present Timeline
34 Decided to abandon “conventional department store business model” when we developed current Medium-term Business Model (FY2017-21) Actually Change Department Store Business Model Create and Bring to Life “New Happiness.” during Current Midterm Plan
Business model centered on shoka shiire and women’s clothing stalls
Low growth, rising business risk in mature market
Cannot create enough return to match asset value
Redefine what business model should be
35 Create and Bring to Life “New Happiness.” Direction for Changing Business Model ①
“Not operate department stores”
Shoka shiire Fixed-term lease
Kaitori
“Ginza Six” Opened in 2017
Created by developing two blocks including former site of 36 “Matsuzakaya Ginza store” as one Create and Bring to Life “New Happiness.” Direction for Changing Business Model ②
“Hybrid”
Fixed-term Shoka shiire lease
Shoka shiire Kaitori Kaitori
“New main building of Daimaru Shinsaibashi store” Planned to open on September 20, 2019
Combine strength of “kaitori / shoka shiire” and strength of 37 “fixed-term lease” at optimal balance Create and Bring to Life “New Happiness.” Innovation of Department Store Business Model
Created new business model with unprecedented “hybrid structure” leading to future of department stores Capital investment of ¥38 bn in new main building of Daimaru Shinsaibashi store, planned to open on September 20, 2019
- “philosophies” 5 values to be offered -
Reach the highest level of locality and provide globally
Produce a dramatic world view so that customers will become media
Offer highly authentic products with discerning ability regardless of whether they are well known or unknown
Foster “next generation arts and crafts” that find beauty in life and harmonize things and people
Aim to improve and restore civic pride with the local community 38 *The photo is for illustrative purpose only. Characteristic Customer Composition of Create and Bring to Life “New Happiness.” Current “Shinsaibashi Store”
“Affluent customers,” mainly gaisho customers, and “foreign tourists” generate more than 60% of sales
It is important to draw out maximum potentials of “2 promising pillars”
Daimaru Shinsaibashi store Sales percentage by customer Categories that can be grown by inbound tourists and affluent
Gaisho customers: Maximize profit by (credit sales) kaitori / shoka shiire Domestic and other
Other categories:
Inbound Attract more customers and make (tax-free sales) revenue more stable and more efficient
39 *Figures are actual percentages in FY2018. Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Strengthening of Cosmetics and Luxury Maximize gross profit of cosmetics/luxury by increasing floor area and brands to grow sales Main building of Shinsaibashi store Floor area Add +78 Cosmetics +15 ％ brands
Floor area Add +15 Luxury +11 ％ brands
40 *Figures are comparison to current “north wing.” Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Restructuring of Women’s Apparel Narrow down women’s apparel to around 60% of current floor area and number of brands under “fixed-term lease”
Floor area No of brands Women’s - 40 apparel - 40 ％ ％
Actively introduce shops that combine women’s and men’s fashion items
Expand floor area per brand to create world view and value of brand
Use know-how and achievements of Ginza Six 41 *Figures are comparison to current “north wing.” Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Strengthening of Experience-based Consumption Increase entertainment with food, restaurants and Japanese culture to attract more customers
Floor area Add Food +83 Restaurants 65/104 ％ brands
<9F> Provide Japanese culture globally Pokemon Center Osaka DX Pokemon Cafe
Jump Shop
Tully’s Coffee Kaiyodo 42 *Figures are comparison to current “north wing.” Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Innovative Low-Cost Operation Change HR structure to completely different one from traditional department stores by introducing fixed-term lease boldly
Fixed-term HR lease structure 65 - 250 ％ posts
*Other: Reduce facility, admin, logistics and hygiene management costs
Realize low-cost operation that supports highly profitable operation
43 *Figures are comparison to current “north wing.” Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Hybrid and Mixed Category Floor Composition
Hybrid composition: Kaitori / shoka shiire 35% and fixed-term lease 65% of a total of 370 shops
Adopt “mixed category” learned from Ginza Six, “fashion floors” on 4th to 6th floors
10F Restaurants 9F Entertainment 8F Lifestyle 7F Shinsaibashi Terrace (tentative) 6F Fashion 5F Fashion 4F Fashion 3F Luxury fashion / Shoes 2F Luxury fashion / Jewelry 1F Cosmetics / Fashion jewelry B1 Food / Women’s accessories B2 Shinsaibashi Food Hall
44 Low-cost operation through HR structure reform Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Store Environment－Fusion of “Tradition” and “Innovation”
Create special space by merging beauty of W. M. Vories architecture before rebuilt with modern design
売場面積 新規導入
％ ブランド
45 Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Use of Digital Technology Digital art Improve convenience
Create artistic world with LED monitor images in Enable pre-order with smartphone and visualize escalator space penetrating from 1F through 10F congestion status of restaurants using digital
Food Hall on B2F
1 2 3 4
Visit Order Cook Pickup store
【Customer】 【Customer】 【Tenant】 【Customer】
Order and pay at Touch order Confirm order from Stop beep on printer in Kitchen home or before confirmation smartphone and and touch call button visiting store button after seated pick up order at when cooked counter
Restaurants on 10F
Visualize with store Visualize by giving Visualize with QR code monitor (sales floor / Visualize online numbers information desk)
46
50 m by 4 m LED panel Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.” Flagship Store that Addresses ESG Issues Create store and community with strong consciousness of ESG issues such as consideration for global environment and coexistence with local community
100% LED lighting in building including backyard
Change all vehicles for out-of-store sales to EVs
Main building and north wing will act as one to create inbound center
Secure parking lot for 390 bicycles to address on-street parking issue
47 “Shinsaibashi Terrace” (tentative) on 7F *The photo is for illustrative purpose only. Create and Bring to Life “New Happiness.” Scalable Hybrid Business Model
“Main building” will open on September 20, 2019
“Main building” will fully operate in FY2020
Expected to increase profit ¥2 to 2.5 bn compared to FY2019
*The photo is for illustrative purpose only.
Establish new scalable “business model” by repeating PDCA
Apply this to Nagoya store and other flagship stores 48 Create and Bring to Life “New Happiness.” Connect Main Building and North Wing as One
North wing New main building
Planned to open in spring 2021 Planned to open in September 2019
Specialty shop mall
Daimaru Parco
Open “north wing” as Real Estate Business and connect it to main building in FY2021
Expected to increase profit more than ¥2 bn compared to FY2020 49 (Revenue impact on Daimaru Matsuzakaya Department Stores) Create and Bring to Life “New Happiness.” Achievement of Both Social Value and Economic Value
Creation of community centered around Daimaru Shinsaibashi store, which will be newly reborn, as “Shinsaibashi, Adored by the World“ is fully in progress
Realize highly profitable Store planning with business model ESG perspective
Create new value with which society empathizes
Accelerate “Urban Dominant Strategy”
for growing with local communities 50
Finance Strategy of J. Front Retailing
July 23, 2019 J. Front Retailing Co., Ltd. WAKABAYASHI Hayato Director and Managing Executive Officer Senior Executive General Manager, Financial Strategy Unit
Create and Bring to Life “New Happiness.” Create and Bring to Life “New Happiness.” Today’s Agenda
I. Seven initiatives to increase corporate value 1. Setting mid- to long-term financial strength target 2. Adding B/S to management perspective
3. Reviewing investment criteria and withdrawal criteria for existing businesses (1) Investment Project Review Committee (2) Revitalization Plan Review Committee 4. Defining optimal shareholder composition 5. Studying shareholder return measures (dividend / share buyback)
6. Maintaining / improving rating
7. Preparing for large-scale purchases Ⅱ. IFRS Ⅲ. Finance talents Ⅳ. The Company’s quantitative management objectives 52 Ⅰ-1. Setting mid- to long-term financial strength target Create and Bring to Life “New Happiness.” Background to Setting ROE target at 8% ～Relationship between Management Indicators and Hurdle Rates
□ Require return on investment above hurdle rate to achieve management indicators □ Recognize the Company’s cost of shareholders’ equity at 6 to 7 % and set ROE target at 8% or more above it
Management Hurdle rate indicator ＞
Operating liabilities Revised ROA before-tax 4.5％ WACC Interest- 4.0％ ROIC bearing ＷＡＣＣ 5.5％ Assets debt ５.0％
Cost of Parent shareholders’ ROE ８％ equity interest ６-７%
Non-controlling interest 53 Ⅰ-1. Setting mid- to long-term financial strength target Relationship between Capital Investment of Create and Bring to Life “New Happiness.” ¥200 bn and Return
□ ROIC that represents return on midterm plan investment of ¥200 bn (¥14 bn increase in operating profit, ¥10 bn increase after tax) exceeds WACC
Amount/% Special note ① FY2017-21 investment \200 bn Nominal investment
Department Store safety and security (\20 bn), Real Estate upfront investment ② Considerations (\53 bn) (\7 bn), Parco upfront investment (\13 bn), IT upfront investment (\1.3 bn)
③ FY2017-21 investment \147 bn ①-② Real investment that contributes to return in current midterm plan Previous midterm plan Previous midterm plan investment that contributes to return in current ④ \35 bn upfront investment midterm plan ⑤ Adjusted investment \182 bn ③+④ ⑥ Increase in operating profit \14 bn ≒FY2021 \56 bn ー FY2016 actual \41.7 bn Increase in operating profit ⑦ \10 bn ≒ \14 bn increase in operating profit × (1- Tax rate 0.3） ≒ Cash flow (after tax) ⑧ ROIC 5.5% ⑦÷⑤
ROIC WACC Exceeding the Company’s hurdle rate (WACC) 5.5% ＞ 5.0% 54 Ⅰ-1. Setting mid- to long-term financial strength target Create and Bring to Life “New Happiness.” Breakdown to achieve 8% ROE
□ Operating companies focus on improving ROA Improve asset efficiency through store-by-store B/S management, Investment Project Review Committee / Revitalization Plan Review Committee □ Holding company promotes tax strategy (consider consolidated tax payment) and finance strategy Tax strategy ROA Finance strategy
Operating Total Profit Net sales profit assets ROE ＝ × × × Operating Total assets profit Net sales Equity (%) (Times) (%) (Times) (Times)
0.46 FY2016 7.6％ ＝ 0.65 × 9.2％ × × 2.77 times times times 4.2％
*After applying IFRS 16 4.5％ FY2021 ％ 0.39 ８ ≒ 0.66 × 11.6％ × × 3.12 or more times times times 55 Ⅰ-1. Setting mid- to long-term financial strength target Breakdown of Quantitative Management Create and Bring to Life “New Happiness.” Objectives (JFR Consolidated)
□ PBR＝PER×ROE So holding company will strive to optimize stock value / equity / profit to maximize corporate value and improve ROE
□ Need to improve ROE and increase PER accordingly for optimal balance
Present FY x 株S式to価ck値 value 1.0 S株toc式k価 va値lue 1.0
0.5 PBR PER PBR 0.5 PER 1.1 16.8 *** *** 0.0 0.0
自己資本 当期利益 Equity Profit 自己資本 当期利益 ROE Equity Profit ROE 6.8% ***
Stock value : Equity : Profit = 17 : 15 : 1 Stock value : Equity : Profit = 15 : 10 : 1
56 Ⅰ-1. Setting mid- to long-term financial strength target
Breakdown of Quantitative Management Create and Bring to Life “New Happiness.” Objectives (Department Store Business)
□ Department Store Business will promote efficiency by maintaining stable earnings and improving operating margin
Present FY x
N売et上 s高ales Net sales 1.0 売上高 1.0
0.5 Total assets Operating 0.5 総資tu産rn回o転ve率r 営m業a利rg益in率 Total assets Operating 総資産回転率 営業利益率 2.07 3.6% turnover margin 0.0 *** *** 0.0
Total Operating 総資産 営業利益 Operating assets profit T総ot資al 産 営業利益 ROA profit assets ROA 7.4% ***
Net sales : Total assets : Operating profit Net sales : Total assets : OperatOinpge rpartoinfigt = 28 : 14 : 1 = 25 : 15 : 1 margin
57 Ⅰ-1. Setting mid- to long-term financial strength target
Breakdown of Quantitative Management Create and Bring to Life “New Happiness.” Objectives (Real Estate Business)
□ Real Estate Business will promote expansion of business scale and growth while ensuring appropriate operating margin and also considering improvement of total assets turnover
Present FY x
N売et上 sa高les N売et上 s高ales 1.0 1.0
Total assets Operating Total assets Operating 0.5 0.5 総資tu産r回no転v率er 営m業ar利g益in率 総資tu産rn回o転ve率r 営m業ar利g益in率 0.07 30.1% *** *** 0.0 0.0
T総ot資al産 営O業pe利ra益ting T総ot資al産 営O業pe利ra益ting assets ＲＯA profit assets ＲＯA profit 2.2% ***
Net sales : Total assets : Operating profit Net sales : Total assets : Operating profit = 3 : 45 : 1 = 5 : 25 : 1
58 Ⅰ-2. Adding B/S to management perspective Store-by-store B/S Management (March 2017 -) Create and Bring to Life “New Happiness.” Focus KPI from Perspective of Asset Efficiency
□ Focus of all department stores changed from P/L to B/S to achieve consolidated ROE of 8% □ Continue to promote management of “focus indicators” in addition to “traditional indicators” Margin B/S Accounts
perspective receivable ⇒Prevention of delay F
Profit o
collection ratio in collection, etc. c
Operating Total assets u s
profit turnover Merchandise i ⇒Assessment with n turnover turnover / cross ratio d i
Net sales c a
Total ⇒Investment project t Sales per o assets that highly contributes r month/tsubo s ROE ROA to ROA, etc.
Profit Operating Recovery of ⇒Examined by profit investment investment committee, etc. Equity Total assets T r
P/L a d
perspectiv i
Associated sales t i Profit emargin o n
No of new identifiable a l
Financial Operating customers i profit Continuing n
leverage d
Product sales profit focus i Net sales c Total assets a t Efficiency of operating o r
Equity expenses 59s Ⅰ-2. Adding B/S to management perspective Strengthening of Department Store B/S Create and Bring to Life “New Happiness.” Management
□
■Investment projects only Set midterm B/S target ■Budget each store’s B/S and ROA ● aimed to maintain/increase Strengthen investment ■Use it as performance indicator for sales PDCA cycle store managers, etc. ■Set the amount of equity Can grasp each store’s profitability by store Could not grasp ● asset profitability Raise awareness Visualize cumulative profit6s0 Ⅰ-2. Adding B/S to management perspective Create and Bring to Life “New Happiness.” Setting of the Amount of Equity by Segment
□ Split head office account of Department Store into equity and borrowings to make store-by-store B/S clearer □ Step 1: Set appropriate equity ratio of Real Estate Business at 30% from 3 perspectives and determine allocation of equity to each of Department Store and Real Estate Business segments
Step 1 Shareholders’ equity Consider appropriate equity ratio of Real By segment ¥182 bn Estate Business (1) Benchmark indicator (2) Liability approach (borrowing limit) (3) Asset approach (impairment risk)
Allocate head office account on Real Estate Business B/S to equity and head office borrowings
Liabilities
Head office Department Real Assets Head borrowings Store Estate office ¥＊＊ bn ¥＊＊ bn ¥＊＊bn Equity 61 Ⅰ-2. Adding B/S to management perspective Create and Bring to Life “New Happiness.” Setting of the Amount of Equity by Store
□ Step 2: Allocate full amount of Department Sore equity ⇒ Visualize cumulative profits □ Adopt “comprehensive ratio” that exhaustively reflects size of sales / assets / profits
Shareholders’ equity Comprehensive ratio (Ａ:Ｂ:Ｃ＝３:２:１) ¥182 bn A Sales size: Current earning size B Asset size: Safety Step 1 C Profit size: Profitability By segment Department Real Estate Store Allocate head office account on each ¥＊＊ bn ¥＊＊ bn store B/S to equity and head office borrowings using comprehensive ratio
Liabilities
Head office C
S Head borrowings o Assets S h S r
Step 2 N U p h i T a K office n U K o a m i o p s y r z ＊＊ o e By store g
a ¥ bn
a Equity k p o u e t n b o i y e b o t o d e o y
o o a S r k a a s a o Comprehensive a h l e
i ratio s 62 Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1) Create and Bring to Life “New Happiness.” Investment Project Review Committee
□ Investment decision making requires comprehensive judgment such as quantitative criteria and qualitative criteria □ The Committee was created to set quantitative investment criteria, formulate operation rules, and inspect and judge profit/loss plan before decision making concerning large-scale investment □ 3 years have passed since launch and discussions have further advanced due to accumulated know-how + participation of legal staff, etc. Judge comprehensively Quantitative criteria Qualitative criteria
■Investment in store renovations: ■Investment purpose/meaning Payback method ■Alignment with Vision and strategy ■Contribution to ■Development investment, rebuilding brand/community/environment, etc. project, etc.: NPV method ・・・ (NPV≧0 ⇒ OK)
■M&A: DCF method (stock value) Financial / legal / other risks 63 Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1) Create and Bring to Life “New Happiness.” Flow of “Investment Project Review Committee”
□ Investment Project Review Committee examines in terms of quantitative criteria + risks and presents opinions Add qualitative criteria and judge comprehensively at Management Meetings and Board of Directors meetings
Investment Project Review Committee Group Management Meeting / (Examine from financial perspective) Board of Directors meeting ① OK Propose Proposing Quantitative Quantitative Present division examination criteria criteria results
No Risk Risk ② ＋ Qualitative ③ No (Re-examine) criteria 64 Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1) Create and Bring to Life “New Happiness.” Hurdle Rates by Business
□ Determined hurdle rates by business by reference to peer 5-year average discount rates Investment Project Review Committee uses them as discount rates for NPV method
Peer 5-year Business Hurdle rate average Department Store 5.0% 4.4%
Parco 4.5% 3.9% Real Estate
Credit and Finance 3.0% 2.2%
Staffing Service 5.5% 5.0% Design and 5.5% 4.9% Construction
Entire Group 5.0%
*The hurdle rate of the entire Group is not peer average but calculated using the following formula: Cost of shareholders’ equity × Shareholders’ equity / (Interest-bearing liabilities + Shareholders’ equity) + Cost of liabilities × (1 – Effective tax rate) × Interest-bearing liabilities / (Interest-bearing liabilities + Shareholders’ equity) 65 Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1) Items Examined at Investment Project Create and Bring to Life “New Happiness.” Review Committee
The Committee examined a total of 11 items including the following since it was created in 2016
Amount Item Investment criteria Judgment invested
Floor renovation of Daimaru Payback period Kobe store ¥1.3 bn OK (September 2016) within 5 years
Corporate value of Acquisition of shares in company X fell below Company X ¥●● bn No estimated acquisition (November 2016) amount (DCF method)
Opening of Kinshicho Parco ¥1.9 bn NPV ＞ 0 OK (March 2017)
66 Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (2) Screening of Underperforming Businesses Create and Bring to Life “New Happiness.” (Management by Phase)
□ The Committee classifies the Group’s businesses into 3 phases and reviews them on a regular basis □ The Committee inspects the businesses and examines validity of measures S
c Normal r Continue to manage e Phase ●Continue to achieve e performance n Ⅰ operating profit i at each company n g
o R e f
v u
Caution needed i t n a d 1st period of operating deficit Revitalization l
● i e z a r Phase Sign of operating deficit plan
● t p i o e Ⅱ 【prepared by
●New business with operating n r
f operating company】 P
o deficit beyond initial plan l r a m n
i R n e g v
i b Consider revitalization/ e w u
s withdrawal Revitalization C i n Phase o ●2 consecutive periods of operating deficit plan m e
s Ⅲ ●Concern about liabilities exceeding assets 【prepared by m s i
e holding company】 New business expected to make a loss t
● t s 6e 7
in FY when it is planned to turn profitable e Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (2) Create and Bring to Life “New Happiness.” Revitalization Plan Review Committee
□ The Committee was created to inspect loss-making businesses quantitatively and qualitatively and examine validity of measures for “revitalization or withdrawal” Judge comprehensively
Quantitative criteria Qualitative criteria
Meaning of revitalization ■Probability of revitalization plan ■ ■Group strategic need ■Achieve operating profit ・・・ within 3 years
■ROIC > WACC in 5th year Financial / legal / other risks
68 Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (2) Create and Bring to Life “New Happiness.” Items Examined at Revitalization Plan Review Committee
The Committee examined 6 items including the following since it was created in 2016
Item Description Decision
Senshukai announced its intention to take over business March 2017 JFR Online Transferred business to its 100%-owned subsidiary Business transfer Feel Life
Performance below initial targets and operating deficit June 2017 continued since inception Closing of business JFR Plaza and dissolution Considered it difficult to turn the company profitable December 2017 and decided to close business and dissolve it Completion of liquidation
Daimaru Continued poor performance since 2007 and could not eliminate operating deficit even after recognizing July 2017 Urawa Parco impairment losses. So considered it difficult to turn Closing of business store the company profitable and decided to close business
Continued to decrease profit and expected Spring 2020 Daimaru 3 consecutive periods of operating deficit. So drew up Renovation and Ashiya store plan to reform by returning part of leased floors and reopening inviting tenants and decided to continue business (Planned) 69 Ⅰ-4. Defining optimal shareholder composition) Create and Bring to Life “New Happiness.” Optimal Shareholder Composition
□ Define optimal shareholder composition (guide/target) 1. Currently domestic institutional investors constitute the majority of shareholders. We will increase domestic private investors and foreign institutional investors to improve balance and ensure management stability and steady growth of share price. 2. Change shareholder return measures, financing measures and investor relation activities according to aimed shareholder composition Present Aimed
Domestic composition private Domestic Domestic investors private institutional 29% Domestic investors investors institutional investors Foreign 54% institutional Foreign investors institutional investors 17%
Domestic institutional investors Increase private/foreign investors to improve balance constitute the majority. Particularly, 70 financial institutions account for 40%. Ⅰ-5. Studying shareholder return measures (dividend / share buyback) Create and Bring to Life “New Happiness.” Shareholder Return Policy
□ Continue shareholder return targeting dividend payout ratio of at least 30% □ Purchase own shares as appropriate (Purchased own shares of ¥5 bn in 2015) (Yen)
Share buyback ¥5 bn
Commemorative dividend Ordinary dividend
*Annual dividend per share is shown on a post-share consolidation basis. 71 Ⅰ-6. Maintaining/improving rating Create and Bring to Life “New Happiness.” Optimization of Equity of Each Company in the Group
□ Review and optimize equity of each company in the Group to reduce total assets
Reduce cash Liabilities and Business deposits efficiency Liabilities Net Assets assets Assets Reduce Net UP equity assets
□ Increase equity of holding company to improve double leverage ratio from 100% to 94%
Double leverage ratio Shares of subsidiaries and associates (Less than 100% is ＝ desirable) Equity of JFR
72 Ⅰ-7. Preparing for large-scale purchases Create and Bring to Life “New Happiness.” Preparation for Large-scale Purchases
Created project team in 2016 Organized functional teams and confirmed major roles
(To be formed in case of hostile takeover)
FA Consultation FA Board of Independent Directors committee* LA Advice/opinion LA
*Several members can be selected from independent Outside Directors and experts
Secretariat: Secretariat: Board of Directors Finance *FA: Financial advisor Secretariat / Team Leaders LA: Legal advisor
Information Strategy Stock Price Analysis Fact Finding Team Management Formulation Team Team Team 73 Ⅱ. IFRS Create and Bring to Life “New Happiness.” Purpose of Adopting IFRS
□ Decided it is effective tool to change awareness about and system of business management and achieve midterm business targets □ Applied IFRS when midterm 5-year plan started in FY2017
Purpose of adopting IFRS Mid- to long-term business strategy
① Business management with (1) Strengthen competitiveness of focus on profit (P/L) Department Store Business through new department store model Focus of business management shifts from “operating profit” to “profit” ・Shift to profitable business model ・Build store operation system with high ② Business management with asset efficiency focus on asset efficiency (B/S)
Promote business management to use (2) Strengthen initiatives in assets effectively after “evaluating them growth areas properly” Through M&A and alliance ③ Response to M&A and ・Incorporate growth areas globalization ・Expand businesses in overseas markets Promote M&A, alliance, IR, etc. 74 Improve brand image Ⅱ. IFRS Create and Bring to Life “New Happiness.” Response to New Accounting Standards
Recorded at present discounted value of unexpired operating leases ⇒ Assets/liabilities recognized on lessee’s B/S will increase
Accounting for lessees
F Operating leases Finance leases o r m e r
s Rent expenses / Lease assets / Lease obligations t
a Lease obligations / Cash and deposits n Cash and deposits
d Interest expenses / Cash and deposits a (not recognized as assets) Depreciation / Accumulated depreciation r d s
On balance (same as finance leases) I F R Right-of-use assets / Lease liabilities S
Excluding 1 Lease liabilities / Cash and deposits 6 Interest expenses / Cash and deposits short-term leases (within 12 months) and low-value leases (purchase price of $5,000 Depreciation / Accumulated depreciation or less when new) 75 Ⅱ. IFRS Create and Bring to Life “New Happiness.” Impact on Financial Statements
◎Impact of IFRS (applied in 2017)
B/S: Total assets decrease ・・・ Evaluated at fair value, assets including land decrease (debtor) / Net assets decrease (creditor) P/L: Operating profit decreases ・・・ Sales are presented on a net basis (Gross amount is presented for reference) Non-operating expenses/income are replaced with other operating expenses/income Ordinary profit is not presented and others
◎Impact of new lease accounting (applied in 2019)
B/S: Total assets increase ・・・ Recognize right-of-use assets (debtor) / lease liabilities (creditor) P/L: Operating profit increases ・・ Depreciation ＜ Rent expenses CF: Operating CF increases / Financing CF decreases ・・・ No impact on total CF (same amount of transfer)
76 Ⅲ. Finance talents Create and Bring to Life “New Happiness.” Placement and Evaluation of Finance Talents
□ Financial Strategy Unit of JFR formulates placement and evaluation plan for finance talents of operating companies Human Resources Strategy Unit makes a final decision after discussing with Affiliated Business Unit
【Former】１ reporting line and evaluation 【New system】 2 reporting lines and evaluation
JFR Senior Executive JFR Senior Executive General Manager General Manager of of Financial Strategy Unit Financial Strategy Unit ① Transfer and placement / Promotion and pay raise plan Affiliated Business Unit Human Resources Affiliated Business Unit Strategy Unit Human Resources Strategy Unit Final decision on transfer and placement / promotion and pay raise plan Operating companies (responsible person) ① Transfer and placement / Operating companies Promotion and pay raise (responsible person) ② Semiannual/annual ② Semiannual/annual performance evaluation performance evaluation
Finance responsible person of Finance responsible person of operating companies operating companies 77 Ⅲ. Finance talents Employment and Development Plan of Create and Bring to Life “New Happiness.” Finance Talents
① Employment of new graduates and mid-career job seekers in cooperation with HR divisions ■ Finance divisions participate in recruitment activities to identify people trained in finance and assign them to finance divisions Newly graduated employees are assigned after one-year OJT in stores
② Career-path-conscious finance talent training ■ Acquire overall basic accounting/finance operations intensively in short term Aim to complete in 5 years after assigned to finance divisions ■ Measure business ability regularly and quantitatively
Introduction Beginning Middle Realization Contribution OJT Acquire Search Shape Seek Pursue in MG GM stores basics career career career career
78 Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.” FY2021 Quantitative Management Objectives
Reason behind ROE target of 8%
Cost of shareholders’ equity FY2021 recognized by the Company ROE target 8.0％ or more ＞ 6 - 7％
79 Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.” Progress of Business Portfolio Transformation
“Real Estate Business” is growing steadily with opening of “Ginza Six” and “Ueno Frontier Tower” Parco Business reports loss on business liquidation in FY2018 due to decision to close Kumamoto Parco and Utsunomiya Parco (Billions of yen) Percentage of “operating profit” (before application of IFRS 16) 56
Credit and Finance 49.5 Other 18% 41.7 45 Credit and Finance Other 40.8 Real Estate 12%
Real Estate Parco
Parco
Department Department Store Store
(FY) 80 Forecast Forecast Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.” Creation of Cash Flows and Strategic Investment
Free cash flows ¥60 bn or more Expansion of equity
Implement capital policy well balanced among strategic investment, improvement of shareholder return and expansion of equity
Realize management structure that can achieve 8% ROE continuously 81 Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.” Annual Forecast of Capital Investment
□ Accumulated investment for 5 years of midterm plan: ¥200 bn Investment will peak in FY2019, and subsequently free CF will turn significantly positive □ Properly judge investment matters based on hurdle rate set by business
Other
M&A Daimaru Matsuzakaya Capital investment (excluding Growth investment Real Estate) ¥200 bn (5-year total)
Parco Business Real Estate Business
82 (FY) Website https://www.j-front-retailing.com
Create and Bring to Life “New Happiness.”
Forward-looking statements in this document represent our assumptions based on information currently available to us and inherently involve potential risks, uncertainties and other factors. Therefore, actual results may differ materially from the results anticipated herein due to changes in various factors.