Results Presentation for Fiscal Year Ended February 28, 201810

J. FRONT RETAILING

thanniversary

April 11, 2018
J. Front Retailing Co., Ltd.
YAMAMOTO Ryoichi
President and Representative Director

Create and Bring to Life “New Happiness.”Today’s Agenda

I. FY2017 Results (IFRS)
II. FY2018 Forecast (IFRS)
III. FY2018 Environment Recognition
and Specific Measures1

FY2017 Results (IFRS)

2

FY2017 Consolidated Results (IFRS)Business profit above plan thanks to strong department store sales, growth ofReal Estate Business and cost reduction
Operating profit increased by double digits partly due to addition of gain on salesof shares of consolidated subsidiaries and gain on sales of real estateWith focus on shareholder return, increased annual ordinary dividend ¥5 YoY(Millions of yen, %)and added commemorative dividend of ¥2
Fiscal year ended
February 28, 2018

YoY

Results

ChangeVs Oct forecast% change% change

ChangeSales revenue

469,915

17,4103.8(2,085)(0.4)

Gross profit

212,935

368

0.2

35

0.0

SGA

166,688

(980)

(0.6)

(412)

(0.2)

Other operating revenue

8,967

4,883

119.6

1,967

28.1

Other operating expenses

5,668(1,587)(21.9)

1,868

49.2

Operating profit

49,546

7,819

18.7

546

1.1

Profit attributable toowners of parent

28,486

1,434

5.3

(14)

(0.0)

1,138,981

4,639

0.4

3,019

(0.3)

46,842

1,944

4.3

342

0.7

（率差） (0.1)
7.5 (RD)(RD)－ （率差）

0.0

－

35

－

－

－

Gross sales
Business profit
ROE (%)

Dividend per share (Yen)* (Annual)（年間）

7*Commemorative dividend for the 10th anniversary of the founding of J. Front Retailing is included.

3

FY2017 Segment Information (IFRS)
Department Store Business: Renovation and stronger promotion boosted spending by
inbound tourists and the affluent
Parco Business: Affected by temporary closing of Shibuya Parco until 1H, sluggish sales ofrural stores
Real Estate Business: Revenue and profit were up thanks to opening of Ginza Six and Ueno
Frontier Tower, etc.
Credit and Finance Business: Revenue was up but profit edged down partly due to cost of
strengthening security
Other: Revenue was down, partly affected by business transfer and sales of subsidiaries,
but profit was up due to improvement of profitability.
(Millions of yen, %)Fiscal year
ended
February 28, 2018

Sales revenue

Results

Operating profit

YoYVs
Oct forecast%
Change change

Change%Change change Change

Results

Change%changeChange26,453

2,203

9.1

633

Parco

91,621 (2,159) (2.3) (2,379) 11,752 (1,269) (9.7)

152

10,284 (2,513)(19.6)(114)

Real Estate

13,427 8,423 168.3

527

4,131

3,783 1,085.4 2,131

3,251

2,654

443.9

251

Credit and Finance

10,176

(104)

2,742

(114) (4.0)

(128)

2,803

(41)

(1.4)

(77)

Other

117,645 3,261

2.8 (2,905)

4,744

1,763 59.1

(756)

4,490

291

6.9

(586)

Total

469,915 17,410

3.8 (2,085) 49,546 7,819 18.7

546

46,842

1,944

4.3

342

3.3

1,408 26,659 4,435

Vs
Oct forecast

YoY

609

329

2.3

Results

Vs
Oct forecast

20.0

Department Store274,308 6,075

YoY

Business profit

4

FY2017 Segment Information (IFRS)FY2017 analysis of changes in consolidated operating profit by segment

Department
Store

CreditRealandEstate Finance

Other

Adjustment

Adjustment

Real
Estate(Millions of yen)
Department
Store

Parco

Parco

Up ¥7,819 mn (18.7%) YoY

LY
results

Other

CreditandFinance¥546 mn (1.1%) above Oct forecast

FY2017
results

Oct
forecast

5

FY2017 Daimaru Matsuzakaya Department Stores
Sales floor renovation of flagship stores with strong sales to inbound tourists, acceptance ofmobile payments and stronger promotion proved successful
Annual tax-free sales grew 1.4 times to ¥47.9 bn from those amid shopping spree called“bakugai” in FY2015
Average spend per customer up 8.1% YoY, number of customers up 50.6%, and sales of“consumables” doubled from previous year
<Daimaru Matsuzakaya Department Stores tax-free sales and number of customers>
Number of customers

Sales

6
*Gross sales basis

Year / MonthFY2017 Daimaru Matsuzakaya Department Stores
Purchase by Japanese affluent gaisho (out-of-store sales) customers was strong due tostable share price level
Credit sales of 9 flagship stores increased 1.5% YoY in full year and 1.7% in 2H alone
Number of new gaisho card accounts steadily increased to 13,250 in current period andcustomer base was expanded<Daimaru Matsuzakaya Department Stores
credit sales to individual customers>“Gold Card”
for gaisho customers(Millions of yen)

(FY)

7

FY2017 Daimaru Matsuzakaya Department Stores
Sales continued to increase for 14 months in Shinsaibashi store, for 18 months in Tokyo store, for 15
months in Sapporo store and for 12 months in all stores until February
Shinsaibashi: SNS promotion for inbound tourists, expansion of mobile payments and cosmetics
offering on two floors proved successful
Tokyo: Jumped credit sales by strengthening sales to the affluent and steadily attracted neighbors anddomestic tourists
Sapporo: Met demands of the affluent and inbound tourists whose spending is rapidly increasing by
expanding timepiece floor 1.5 times<Sales of national department stores and Daimaru Matsuzakaya Department Stores (YoY % change) >(%)

Daimaru Matsuzakaya

National department
stores (10 cities)

National department
stores8*Figures for “national department stores” and “national department stores (10 cities)” are those released by Japan Department Stores Association.

Year / MonthFY2017 Daimaru Matsuzakaya Department Stores
Sales of luxury and jewelry, which sell well to inbound tourists and the affluent, grewstrongly all year
Cosmetics captured demand of domestic customers as well as inbound tourists in each store
Sales of challenging women’s volume zone clothing rose in 3Q due to strong sales of winteritems but sales of spring items were sluggish in 4Q due to prolonged cold weather< Daimaru Matsuzakaya Department Stores sales by merchandise category (YoY % change) >(%)

Cosmetics

LuxuryJewelry
Total LFL sales

Year / Month*Figures for cosmetics are those released based on department store commodity classification. Figures for luxury and jewelry aretotal of nine flagship stores managed internally by the Company..

9

FY2017 Daimaru Matsuzakaya Department Stores (IFRS)
Total LFL gross sales increased for 12 months in a row driven by spending by inboundtourists and the affluent
Increased gross profit offset increased advertising and other costs associated with openingof Ginza Six and Ueno Frontier Tower
Operating profit, business profit and profit increased by double digits, above October forecast(Millions of yen, %)Fiscal year ended
February 28, 2018

Results

YoY
ChangeVs October forecast% change

Change% change

Sales revenue

257,451

15,269

6.3

1,951

0.8

Gross profit

148,481

6,112

4.3

781

0.5

SGA

121,917

1,674

1.4

(383)

(0.3)

Other revenue

3,940

3,758

－

1,840

87.6

Other expenses

2,207

(34)

(1.5)

307

16.2

Operating profit

28,297

8,231

41.0

2,697

10.5

Profit19,248

4,319

28.9

1,548

8.7

Gross sales

673,154

26,164

4.0

3,854

0.6

Business profit

27,158

5,033

22.7

958

3.7
10

FY2017 Daimaru Matsuzakaya Department Stores (IFRS)FY2017 Daimaru Matsuzakaya Department Stores
analysis of operating profit by factor
Decrease in Increase
profit margin in labor
cost
Increase in(mainly operational
Increase in gross profit
bonus) cost, repair
due to increase incost, etc.
sales revenue
Increasein ad cost

Increasein otherexpenses

Increasein otherexpenses

Increase in otherrevenue including
gain on sales ofreal estate

Increase in otherrevenue including
gain on sales ofreal estate

Labor cost
reduction

Increasein ad cost

Increase in gross profit
due to increase insales revenue

Decrease inprofit margin¥2,697 mn (10.5%) above Oct forecast

Up ¥8,231 mn (41.0%) YoY

LY
results(Millions of yen）
Supplies
cost
reduction

LY2017
results

Oct
forecast

11

FY2017 Consolidated Results (B/S, CF) (IFRS)
Equity attributable to owners of parent increased ¥26.9 bn to ¥395.5 bn, equity ratio was 38.7%
Interest-bearing debt decreased ¥21.7 bn to ¥184.2 bn, D/E ratio was 0.47
OCF increased ¥23.3 bn YoY partly due to profit increase and gain on sales of reserve floor area forredevelopment of Shibuya
ICF: Decreased outflow ¥8.9 bn due to revenue from asset sales while acquiring assets forredevelopment
FCF: Reduced interest-bearing debt by redemption of commercial paper, etc. while issuing bonds<Consolidated statements of financial position><Cash flows>(Millions of yen)

(Millions of yen)

Fiscal year ended
February 28, 2018

Results

YoYchangeFiscal year ended
February 28, 2018

Consolidated
total assets

1,022,348

17,279Interest-bearing debt

Results

YoYchangeOperating cash flows(OCF)

57,07923,315

184,202 (21,750)

Investing cash flows(ICF)(19,030)

8,922

Equity attributable toowners of parent

395,519

26,948

Free cash flows

38,04932,237Return on equity
attributable to ownersof parent (%) (ROE)

38.7

(率差）
(RD) 2.0

Financial cash flows(FCF)(31,048)(28,951)
12

FY2018 Forecast (IFRS)13

FY2018 Consolidated Financial Forecast (IFRS)Sales revenue will increase mainly in strong Department Store Business and Real EstateBusiness“Business profit” will increase but operating profit will react to gain on sales of assets andgain on sales of businesses recorded in previous year
Planning ¥2 increase in annual ordinary dividend per share, 8th consecutive ordinary
dividend increase(Millions of yen, %)Fiscal year ending
February 28, 2019

YoY

1H
forecast

Change% change

YoY

Full year
forecast

Change% change

Sales revenue

234,000

(510)

(0.2)

485,000

15,085

3.2

Gross profit

106,300

1,312

1.2

217,900

4,965

2.3

SGA

82,000

(210)

(0.3)

168,400

1,712

1.0

Other operating revenue

1,100(4,586)(80.7)

2,300(6,667)(74.4)

Other operating expenses

1,400

(384)

(21.6)

3,300(2,368)(41.8)

Operating profit

24,000(2,680)(10.0)

48,500(1,046)(2.1)

Profit attributable toowners of parent

15,300(1,015)(6.2)

30,5002,014

7.1

Gross sales

557,000(1,304)(0.2)

1,165,000

26,0192.3

Business profit

24,3001,522

6.7

49,500

2,658

5.7

－
17

－
2

－

0.0
2

－

ROE (%)
Dividend per share (Yen)*(RD)
7.5 （率差）
35*YoY changes and YoY % changes in dividend per share are comparisons with ordinary dividend excluding commemorative dividend of ¥2.

14

FY2018 Segment Information Forecast (IFRS)
Department Store Business: “Business profit” will decrease due to increased system cost, operating
profit will decrease in reaction to gain on sales of assets
Parco Business: Operating profit will decrease in reaction to reversal of impairment loss in previous
fiscal year but “business profit” will increase
Real Estate Business: “Business profit” will increase due to full operation of Ueno Frontier Tower but
operating profit will decrease in reaction to gain on sales of real estate recorded in previous year
Credit and Finance Business: Profit will decrease due to increased security cost
Other: Profit will increase significantly thanks to design and construction business, etc.
(Millions of yen, %)Fiscal year
endingFebruary 28, 2019

Business profit

Operating profit

Full year
YoY
1H
YoY
%
changeforecast
forecast % change

1H
Full year
YoY
YoY
forecast % change forecast % change

11,7700.7

25,880(2.2)

11,260 (12.7)

24,900

(6.6)

Parco

5,700

(0.5)

10,750

4.5

6,400

(4.2)

11,750(0.0)

Real Estate

2,700

47.8

4,100 26.1

2,300

38.3

3,300 (20.1)

Credit and Finance

1,164(11.6)

2,760

(1.5)

1,158 (11.4)

2,750

0.3

Other

2,910

28.2

5,830

29.8

2,900

7.3

5,800

22.2

Total

24,3006.7

49,5005.7

24,000 (10.0)

48,500(2.1)

Department Store15

FY2018 Consolidated Financial Forecast (B/S, CF) (IFRS)
Equity attributable to owners of parent will increase ¥21.4 bn to ¥417 bn, equity ratio will be 39.4%
Interest-bearing debt will increase ¥8.7 bn to ¥193 bn due to new funding
OCF will decrease ¥19 bn to ¥38 bn partly in reaction to gain on sales of reserve floor area forredevelopment of Shibuya in previous year
ICF: Outflow will increase ¥25.9 bn partly due to increased capital investment
FCF: Inflow will increase ¥28.5 bn because deficiency in free cash flows will be covered by new funding<Consolidated statements of financial position>(Millions of yen)

<Cash flows>(Millions of yen)

Fiscal year ending
February 28, 2019

Forecast

YoYchangeFiscal year ending
February 28, 2019

Consolidated
total assets

1,059,000

36,652

Operating cash flows(OCF)

38,000(19,079)

Interest-bearing debt

193,000

8,798

Investing cash flows(ICF)(45,000)(25,970)

Equity attributable toowners of parent

417,000

21,481

Free cash flows(7,000)(45,049)

Financial cash flows(FCF)(2,500)28,548Return on equity
attributable to ownersof parent (%) (ROE)

39.4 (率差）(RD) 0.7

Forecast

YoYchange

16

パルコ
事業

百貨店
FY2018 Environment
Recognition and Specific Measures
事業

百貨店
事業

17

Review of and Issues in 1st Year of Medium-term Business Plan
“Transformation of business portfolio” made steady progress
due to healthy growth of Real Estate Business<Operating profit by segment (% share)>(Millions of yen)
Credit and Finance

Other
18%
Credit and Finance
Other

Real Estate
12%

Real Estate
Parco
31.2%

Department
Store
53.3%

Parco
26%

Department
Store
44%

(FY)
(Target)18

Review of and Issues in 1st Year of Medium-term Business Plan

Major achievements
Opened big projects “Ginza Six”
and “Ueno Frontier Tower”“Real Estate Business” grew steadily
Good start as first step of “transformation of business portfolio”

Urgent issues
Response to ICT and Credit and Finance Business lacks in speed
Insufficient tangible results
Recognizing need to “shift gears”

19Recognition of Business Environment
Business environment is changing at furious speed

Rapid progressof IoT era

Advent of eraof living 100
years

Gradually
accelerating
population
decline

展

展

展

・
・
・

・
・
・

・
・
・

Currently facing “big turning point”

20

Recognition of Business Environment
Increasing “uncertainty” for businesses（＋）

Increasing business risk（－）

Positive risk

Negative risk

(Opportunity)(Threat)

Gap between companies widens
depending on risk management

21

Identification of 138 Risks
Occurrence of wars/conflicts
Aggravated terrorism issues
Occurrence of economic crisis / financial crisis
Occurrence of trade issues
Surge of emerging countries
Rise in consumption tax
Promotion of tourism-oriented country policy
Reduction of corporate tax and measures for encouraging
investment
Promotion of business using National Strategic Special Zones
Promotion of outsourcing of operation of public facilities toprivate sector
Promotion of sharing economy
Economic trends
Development of financial markets
Changes in interest rate / share price / exchange rate
Polarized income
Expansion of the affluent
Decrease in disposable income
Increasingly diversified consumption pattern
Consumption shift from goods to services/experiences
Rise in persistence and health consciousness
Spread of cheap goods/services
Low birthrate / longevity (declining population)
Return to urban areas (population concentration) anddepopulation in rural areas
Growing population in America / Southeast Asia
Increase in single-person households (aged/young people)
Increase in double-income / single-parent households
Escalation of and increasing interest in environmental issues /poverty issues
Growing shortage of energy resources
Evolution of AI (artificial intelligence) / robots
Expansion of EC business
Evolution of payment/order-related technologies
Expansion of use of big data
Fiercer competition in attracting inbound tourists
Fiercer competition from outside the industry
Fiercer competition in customer retention
Fiercer competition in maximizing user experience
Success/failure of analysis/rebuilding of business portfolio
Success/failure of development and progress management of
mid- to long-term plan
Success/failure of management of companies acquired throughM&A
Success/failure of penetration of mission statement / vision
Success/failure of brand strategy
Success/failure of hostile takeover defense measures
Success/failure of innovation
Opportunity loss due to prolonged examination period
Pressure of unreasonable expectations from inside/outside thecompany
Delay in decision-making due to lack of adherence towithdrawal criteria

Loss of funds due to excess investment
Impairment due to gap between plan and result
Revision of real estate-related laws / tax systems
Changes in assessed land values or building construction costs
Entry of competing companies / changes in surrounding environment
Inadequate safety management of buildings and equipment
Soil pollution / asbestos
Changes in rent
Bankruptcy of landlord
Decline in rent / increase in vacancies
Non-payment of rent and bankruptcy of tenants
Success/failure of exit strategy (purchaser)
Changes in employee age structure
Growing labor shortage and fiercer recruitment competition
Success/failure of acquiring specialists for IT, etc.
Success/failure of working style reform
Success/failure of response to diversity
Success/failure of operation of retirement benefit / pension system
Success/failure of succession plan
Increase/decrease of audit accuracy
Success/failure of reform of Board of Directors
Success/failure of provision of remuneration and incentives
Success/failure of risk management
Success/failure of operation of internal control system over financial
reporting
Success/failure of strengthening of the Group governance
Success/failure of fair disclosure / ESG information disclosure
Success/failure of sustainability policy
Success/failure of social contribution activities
Success/failure of waste reduction and promotion of recycling
Leakage of hazardous materials (CFC, PCB, etc.)
Success/failure of global warming prevention activities
Misstatements in financial statements
Impairment of assets (including goodwill)
Success/failure of business revitalization / withdrawal based on
revitalization/withdrawal criteria
Application of new accounting standards (lease standards)
Success/failure of response to tax system revision
Success/failure of timely disclosure
Success/failure of management of cash and deposits / interestbearing debt
Success/failure of funding
Rating changes
Success/failure of strategic investment based on investment criteria
Success/failure of examination of business portfolio and optimal
capital structure
Exchange rate fluctuations
Inadequate business continuity plan for disaster recovery
Disaster-stricken store facilities / business partners
Transportation infrastructure suspended by disaster

Inadequate first response to disaster
Inadequate safety management of buildings and equipment
Outbreak of plague and infection
Occurrence of traffic accidents
Virus infection / information leakage due to external cyber attacks
Internal information leakage
Late report of / inadequate response to incidents
Improper posting / information leakage by employees (SNS)Loss of credibility from customer’s tweet (SNS)Improper posting from the Company’s official account (SNS)Product defect and food poisoning
Incorrect/false labeling of quality / expiration date
Leakage of personal/customer information
Improper/unclear sales recording / charging
Customer’s bankruptcy/insolvency
Accidents and customer troubles due to inadequate/incomplete
operation rules
Dependence on particular customers (customer segments)
Improper treatment of business partners
Infringement of intellectual property rights
Unfair/illegal transactions
Late/short delivery of goods
Bankruptcy of business partners
Inadequate management of contractors
Cargo increase / growing labor shortage at logistics companies
Delivery time restrictions / redelivery reduction
Late delivery / misdelivery / loss or damage of goods
Product liability
Inadequate quality control (PB goods, buildings, etc.)
Less precisely planned order
Delay/failure of development
Rise in production costs
Late response to technical innovation
Late response to equal pay / equal work
Lack/failure of human resource development plan
Fraud / illegal act of board members / employees
Inadequate response to human rights issues
Inadequate health management / mental health management
Improper contracting / outsourcing / worker dispatching
Inadequate staffing
Legal violation
Transactions with antisocial forces
Inadequate regulations/rules
Lack of notification/license
Leakage of confidential information / insider information
Occurrence of litigation/lawsuit
Lack of consciousness of prevention of incidents/accidents andcompliance22Six Priority Risks for FY2018
Identified 15 business risk items of the Company and defined 6 priority
items for current fiscal year (highlighted in bold letters)
1) Risks associated with rising consumption tax, post-Olympic recession2) Risks associated with changes in customers, particularly, low birthrate and longevity
3) Risks associated with maturing of existing businesses
4) Risks associated with human resources / HR structure5) Risks associated with competition from new entrants
6) Risks associated with consumption shift from products to services/experiences
7) Risks associated with advanced technologies
8) Risks associated with return to urban areas and shrinkage of rural/suburban areas
9) Risks associated with polarized income10) Risks associated with expansion of foreigners
11) Risks associated with increasing importance of CSR
12) Risks associated with progress of sharing economy13) Risks associated with conversion of business partners
14) Risks associated with misconduct
15) Risks associated with disasters, etc.

Promoting initiatives to address growth strategy, finance strategy and
ESG issues toward transformation of business portfolio

23Growth Strategy

I. Multi Service Retailer Strategy
II. Urban Dominant Strategy
III. ICT Strategy toward Era of IoT

24

Growth Strategy (1) - Multi Service Retailer Strategy
Strength of the Group
Holding good customer assets
through several retail brands

Now

Contact with customers mainly in “retail” such as real stores,
only a small part of customer’s life

FutureNeed to create “systems” to strengthen
lifelong engagement with customers

25Growth Strategy (1) - Multi Service Retailer Strategy～ “Era of living 100 years” ～Providing new products and services to relieve customers’ “frustrations” and “concerns”
on various occasions and milestones for their entire lives beginning from birth<Example>
Entry into infant childcare business (= Established JFR Kodomo Mirai Co., Ltd.)

BirthInfancy

Schoolage

Accumulation of stereotyped
information

Gettingjob

Use of ICTMarriageChildraising

Secondlife

Accumulation of
non-stereotyped information

New customer base to strengthen lifelong engagement with customers“Lifetime Service Hub”
Creating value further beyond customers’ expectations

26

Growth Strategy (1) - Multi Service Retailer Strategy
Accelerating initiatives of 3 priority associated businesses
Credit and Finance Business

Staffing business

JFR Card

Dimples’Design and construction business

J. Front Design &Construction

Reshuffled top management of each of 3 companies＋
Doubling as Executive Officer of J. Front Retailing
Strengthening business execution system to generate tangible results earlyAppointed top management of JFR Card from outside the Group
Growth of existing card business＋Clarification of direction of finance area

Developing specific business model through various trials

27

Growth Strategy (2) - Urban Dominant Strategy
Opening of “Ginza Six” and “Ueno Frontier Tower” in 2017 drew new crowds to local areas
Accelerating preparation to open “main building of Daimaru Shinsaibashi store” and “newShibuya Parco” in fall 2019
Expanding “real estate GINZA
rental area”
SIX mainly in urban areas e.g.
around flagship stores
上野フロンティアタワー
OpenedApr 2017

OpenedNov 2017

渋谷パルコ建替え

心斎橋店本館建替え
Fall 2019(planned)

Fall 2019(planned)

28*The photo is for illustrative purpose only.

Growth Strategy (2) - Urban Dominant Strategy
Daimaru Shinsaibashi store rebuilding of main building / transformation of business model of north wing
Planning to open in fall 2019 as model most representing innovation of “new department store model”
Transforming adjacent north wing to business model with real estate rental as its main business after
opening main building
Connecting main building to north wing in 2021 and create more than 80,000 m2 hybrid commercial facility･29*The photo is for illustrative purpose only.

Growth Strategy (2) - Urban Dominant Strategy
Converting business model of north wing of Shinsaibashi store into “real estate rental” after
completing new main building
Core tenant “Parco” will occupy B2F to 7F. Real Estate Division will operate higher floors
Creating greater synergy in the Group through joint development of Daimaru Matsuzakaya
Department Stores and Parco
North wing
(Theater / event hall)

Nagahori -dori

New main building
Real Estate Division*There are some exceptions.

Connecting to north wing after
rebuilding new main building(planned for spring 2021)
Hybrid commercial complex
with more than 80,000㎡ floor area

Zero Gate

Parking

Shinsaibashi

LUMIERE
PARIS(North)White Avenue

Parking

BAG'n'NOUN

CHANEL

Daimaru
Shinsaibashi
Store(Main)(South)JOURNAL
STANDARD

Commercial
complex

Shinsaibashi 161

Daimaruinteriorbuilding
Musee Air･

Shinsaibashisuji

Parco

10F
9F
8F
7F
6F
5F
Department store
4F(Daimaru Shinsaibashi store)
3F
2F
1F
B1
B2

lucian pellat-finet

Midosuji

14F
13F
12F
11F
10F
9F
8F
7F
6F
5F
4F
3F
2F
1F
B1
B2

<Map around Shinsaibashi store>

air OSAKA
Sanrio gallery
agnes b.
ROSE BUD

acca
Nike Osaka

Deuxieme Classe

30

Solution to Structural Issues of Existing Department Stores
Correcting composition of sales floor area occupied by excessive women’s clothing(Reducing women’s clothing area 30% during current Medium-term Business Plan)

Women’s
clothing

Developing/operating newareas of our own curation

New categories
New areas of our own curation
Meeting service/experience
consumption demands

Introducing brands thatmeet service/experience
consumption demands

Expanding real estate
rental area

Planning to reduce 10% mainly in Umeda, Sapporo and Nagoya stores in FY2018(compared to FY2016)31

Growth Strategy (2) - Urban Dominant Strategy

Rebuilding of Shibuya Parco
Creating next-generation commercial space by rebuilding “Shibuya Parco,” origin of Parco’s
uniqueness
Increasing opportunities to connect with companies through multi-use complex building
and providing advanced tenant services
Evolving store brand by applying various new initiatives and know-how to other stores≪Creation of new Shibuya Parco≫■Creating next-generation commercial space by rebuilding
Shibuya Parco■Bringing together new initiatives that have never been
applied to conventional shopping complexes to provide
evolved values such as “growth space for businessowners” and “new inspiration for urban consumers”
・Increasing opportunities to newly connect with companies throughmulti-use complex building
・Creating advanced tenant services in anticipation of developments
in e-commerce・Partnership on creation of Shibuya Entertainment City, expansion ofsoft content
・Increasing Parco brand’s global presence32

Growth Strategy (2) - Urban Dominant Strategy
Scheme of “Udagawa-cho District 14/15 Category 1 Urban Redevelopment Project”
Income and expenditure of
Udagawa-cho District 14/15 Category 1 Urban Redevelopment ProjectDecember 2015
Tokyo Metropolitan Government approved urban planning
project of special urban renaissance district→ Floor-area ratio increased(Allowable total floor area increased)

Proceeds from disposal ofreserve floor area
Approx ¥46.4 bn

Total floor area for the project

Entitled
floor area

Floor area to be given
to right holders before
the project according totheir rights

Reservefloor area

Project cost,land maintenance cost,
construction cost,etc.

Floor area otherthan entitledfloor area

August 2016

Compensation cost
Suspension of business,relocation cost, etc.

Execution of urban development project was approved

Office area
*Concluded transfer
agreement concerning
office floor with
Hulic Co., Ltd.

Store area
*Parco will acquire

Office cost, etc.
May 2017
Started construction and concluded transfer agreement
concerning office floor

Expenditure

Income33

Growth Strategy (2) - Urban Dominant Strategy
Further expanding real estate rental area in urban areas with growth potential as a group<New openings in FY2018:
Real Estate Business

7 in total>
Parco Business・Mar 2018 Nanzenji area, Kyoto“Blue Bottle Coffee”

・March 2018 Tokyo“Harajuku Zero Gate”

・Spring 2018 Karasuma area, Kyoto(next to Kyoto Zero Gate)・2018 Kyoto
Full opening of “Kyoto Zero Gate”

・Summer 2018 Okachimachi area, Tokyo・Fall 2018 Kobe
“Sannomiya Zero Gate”

・Summer 2018 Kyoto area

Considering another5 projects around flagship stores during current fiscal year

34

Growth Strategy (2) - Urban Dominant Strategy
Example of initiative to revitalize area in cooperation with local community - “Shitamachi Front”

Urban Dominant Strategy in Ueno area is fully in progress under the name of“Shitamachi Front”
Creating new culture and lifestyle in addition to existing appeal of the area
Contributing to revitalizing the area by providing information and holding events inconjunction with the community site “Ueno ga Suki” and adjacent “Okachimachi
Panda Hiroba”
Opened on November 4, 2017･

Okachimachi
Panda Hiroba

35

Growth Strategy (3) - ICT Strategy toward Era of IoT
Rebuilding “department store digital strategy”
by actively incorporating knowledge from outside the Group“Provision of new customer experience” and“sophistication of sales measures”
Store
Mobile app,settlement of
payment before
customers, etc.

Gaisho
New SFA,sales activity using
ICT, etc.

InboundMobile payment,
use of SNS, etc.

Overhauling department store e-commerce
E-commerce focused on gift, beauty and food instead of existing “full category”
36

Growth Strategy (3) - ICT Strategy toward Era of IoT
Radical overhaul of operation frames centered on paperless solutions using ICT
Sales

Order
ArrivalStorage

Back office

Sales

Settlement

Payment
Collection

Performance
management

Closing

Promote operation process reform using ICTAutomation/streamlining ofadministrative processing

Paperless
Introduction ofadvanced core system
Introduction of
new GW/WF

Tax

HR
Admin

Expansion ofscope of theGroup’s sharedservices

Radical reform of the Group’s operations

Introduction of RPA

Realizing BYOD (Bring Your Own Device)
Promoting improvement of environment for telework

Full-scale “working style reform” through operation reform using ICT

37

Finance Strategy ー FY2021 Quantitative Management Objectives<Financial strategy structure diagram>

Operating profit
FCF＞(Up ¥14.2 bn from FY2016)

0

Operating margin

ROE
Operatingmargin10％8%¥5.6 bn

Equity ratio

40％

Consolidated ROE

10%
8.0%
or higher

Reason behind ROE target of 8%
FY2021
ROE target

8.0%
or higher

Shareholders’ equity
cost recognized by
the Company＞ 6 - 7%38

Finance Strategy - Creation of Cash Flows and Strategic Investment<Use of total cash flows for FY2017 to 2021>
Investing cash flows

Capitalinvestment¥200 bn
Growthinvestment

Operating cash flows¥260 bn or more
Free cash flows

Shareholder
return¥60 bn or more
Expansion ofequityImplementing capital policy well balanced among strategic investment,
improvement of shareholder return and expansion of equity
Realizing management structure that can achieve 8% ROE continuously

39

Finance Strategy - Annual Forecast of Capital Investment
Investing ¥2.7 bn in M&A for growth out of aggregate investment of ¥200 bn for 5 years
Investment is expected to peak in FY2019 when new main building of Shinsaibashi store andnew Shibuya Parco will open
Free cash flows will turn significantly positive after passing investment peak in FY2020 andbeyond<Forecast for capital investment and share by business segment>(Millions of yen)
Other

M&A

Capital investment
Growth investment

Daimaru
Matsuzakaya(excluding
Real Estate)¥200 bn(Total for 5 years)
Parco
Business

Real EstateBusiness(FY)

40

Finance Strategy – Shareholder Return Policy
Continuing shareholder return based on profit allocation according to performance andtargeting dividend payout ratio of at least 30%
Increasing ordinary dividend ¥2 YoY in FY ending Feb 28, 2019, marking 8th consecutive
dividend increase
Purchasing own shares as appropriate in consideration of strategic investment, financial
condition, etc. as a whole(Yen)<Annual dividend per share (Yen)>

Commemorative
dividend
Ordinary dividend

41*Annual dividend per share is shown on a post-share consolidation basis.

ESG Initiatives
GPIF (Government Pension Investment Fund) announced selection of 3 ESG indices in July 2017

・FTSE Blossom Japan Index
・MSCI Japan ESG Select Leaders Index
・MSCI Japan Empowering Women Index

As financial information is not enough to assess sustainability and growth potential ofcompanies, non-financial information and ESG information are becoming more important

Great change in capital market trends

Recognizing as strong message to companies as issuing entities

42

ESG Initiatives
The Company has actively taken the initiative in corporate governance reform since 2015
Reform of Board of
Directors
Succession planning

G

Reform of executive
remuneration system

Changes in form ofcorporate governanceE

S

Enhancing and strengthening initiatives and information disclosure
concerning “E” and “S” in current fiscal year

Created “ESG Promotion Division” as dedicated unit in March
43

ESG Initiatives
Currently identifying materiality (important tasks) of the Company<Process of identifying and disclosing materiality>

Summarizing/analyzing results
Discussion by management(Management / Board of Directors meetings)

Identifying materiality
Disclosing information using various tools, etc.

Very highHigh
Materiality for stakeholders

Interviewing stakeholders

High

Very highMateriality for the Company

Promoting strategy incorporating ESG

44

Steady Implementation of Corporate Mission = CSV (Creating Shared Value)

Implementing corporate mission “Service before Profit”
Tradition

×

Innovation

Combination ofdifferent elements

Challenging
cultureRisktakingRisk
hedging

×

GovernanceSocial value+

Economic value

Realizing the Group Vision “Create and Bring to Life ‘New Happiness.’”
Developing into “Multi Service Retailer” beyond framework of retailing45

Website

http://www.j-front-retailing.com
http://www.facebook.com/J.FrontRetailing

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.