Results Presentation for
Fiscal Year Ended
February 28, 2019

April 9, 2019
J. Front Retailing Co., Ltd.
YAMAMOTO Ryoichi
President and Representative Executive Officer

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

I. FY2018 Results
II. Application of IFRS 16 and FY2019 Forecast
III. Progress of Medium-term Business Plan
and Future Initiatives

1

FY2018 Results (IFRS)

2Consolidated P/L (IFRS)Core Department Store and Parco struggled partly due to effect of natural disasters andprior costs and business profit decreased
Operating profit decreased in reaction to gain on sales of real estate and shares ofsubsidiaries recorded in LY and loss on business liquidation recognized by Parco
Annual dividend is ¥35 per share, up ¥2 compared to ordinary dividend excludingcommemorative dividend of ¥2 in LY(Millions of yen, %)YoY

Vs Oct forecast

Fiscal year ended
February 28, 2019

Results

Gross sales

1,125,153(13,828)(1.2)(24,847)(2.2)

Revenue

459,840(10,075)(2.1)(15,160)(3.2)

Gross profit

212,396

(539)

(0.3)

(4,204)

(1.9)

SGA

166,882

194

0.1

(218)

(0.1)

Business profit

45,514

(733)

(1.6)

(3,986)(8.1)

Other operating income

3,237(5,730)(63.9)

537

19.9

Other operating expense

7,860

2,192

38.7

4,160

112.4

Operating profit

40,891(8,655)(17.5)(7,609)(15.7)

Profit attributable toowners of parent

27,358(1,128)(4.0)(3,142)(10.3)

35

*0

－

－

－

Dividend per share (Yen)(Annual)Change% change

Change% change*Since annual dividend included commemorative dividend of ¥2 for the 10th anniversary of the founding of the Company in the previous year,
annual dividend increased ¥2 in the current fiscal year compared to ordinary dividend in the previous year.

3

Segment Information (IFRS)
Department Store: In spite of strong spending by inbound tourists and the affluent, affected byunseasonal weather and increased system costs
Parco: Sales of clothing and rural stores were sluggish. Reacted to strong performance ofentertainment in LY
Real Estate: Full operation of “Ginza Six” and “Ueno FT.” Transfer of shops around Daimaru
Kobe store
Credit and Finance: Revenue increased but costs increased due to strengthening oforganization, card renewal and change of commission rate
(Millions of yen, %)Business profit
Fiscal year ended
February 28, 2019

Operating profit
Vs
Oct forecast

YoY
Results

Results
Change % change Change

Department StoreVs
Oct forecast

YoY

25,154 (1,135)(4.3) (1,696)

Change24,194 (2,465)% change

Change(9.2) (1,256)

8,723 (1,561) (15.2) (1,277)

5,445 (6,307) (53.7) (5,355)

Real Estate

5,062

2,242

79.5

462

4,664

533

12.9

504

Credit and Finance

2,338(465) (16.6)

8

2,360

(382)

(13.9)

10

Other

3,605

(885) (19.7) (1,625)

3,507 (1,237) (26.1) (1,733)

Total

45,514(733)

40,891 (8,655) (17.5) (7,609)

Parco(1.6) (3,986)

4

Segment Information <Analysis of Operating Profit> (IFRS)(Millions of yen)

Analysis of operating profit
Department
store

Department
store
Parco
Real
EstateCreditandFinance

CreditandReal
Finance Estate
Adjustment

Adjustment

Other

Other

Down ¥8,655 mn (17.5%) YoY

LY
results

Parco¥7,609 mn (15.7%) below Oct forecast

FY2018results

Oct
forecast 5

Daimaru Matsuzakaya Department Stores P/L (IFRS)Gross sales were affected by system costs and extra depreciation in spite ofstrong spending by inbound tourists and the affluent
Department Store: Business profit decreased due to prior costs
Real Estate: Remained strong with double-digit growth of profit
Performance of Department Store below October forecast was greatly affectedby natural disasters including typhoons and warm winter(Millions of yen, %)Fiscal year ended
February 28, 2019

Department Store

Results

Daimaru Matsuzakaya Department Stores
Total

Real Estate% change
YoY
vs Oct% change

Results

YoY% change

forecast% change
vs Octforecast

Results

YoY% change% change
vs Octforecast

Gross sales

663,523

0.6

(1.6)

17,14825.0

0.3

680,428

1.1

(1.5)

Revenue

246,233

0.8

(1.9)

16,99526.6

0.0

262,984

2.1

(1.8)

Gross profit

144,448

0.7

(1.3)

7,419

43.0

6.0

151,624

2.1

(0.9)

SGA

121,660

1.6

(0.2)

2,357

(0.5)

(1.8) 123,774

1.5

(0.2)

Business profit

22,787

(4.0)

(6.6)

5,062

79.5

10.0

27,8494.8(4.0)

Operating profit

21,864

(9.5)

(5.3)

4,664

12.9

16.6

26,529

(6.2)

(2.1)

Profit16,154

(2.3)

(3.8)

2,425

(10.9)

21.3

18,579

(3.5)

(1.2)
6

Daimaru Matsuzakaya Department Stores
Trend of Sales to Inbound Tourists
Temporarily decreased YoY due to typhoons in September and China’s new EC law
in January but expanded cosmetics area and stronger promotion had a positive
impactTax-free sales were ¥58.8 bn, up 22.9% YoY, 8.9% of total sales of all stores<Daimaru Matsuzakaya Department Stores tax-free sales and the number of customers>(Persons)(Millions of yen)
Sales (Millions of yen) Number of customers (Persons)

7
Year / Month*Gross sales basis

Daimaru Matsuzakaya Department Stores
Spending by the Affluent
Spending by the affluent remained strong, total gaisho sales of 9 flagship sales
increased 1.8% YoYStronger lineup of products that have high asset value and promotion using closed
website had a positive impact
In FY2018, newly developed 15,049 gaisho accounts, which generated sales of¥11.9 bn
“Gold Card”
for gaisho customers

8Daimaru Matsuzakaya Department Stores
Initiatives for Women’s Volume Zone Clothing
Reduced women’s clothing area and instead created newly curated spaces
Newly curated space “KiKiYOCOCHO” in Sapporo store performed well, up 55.5%
compared to LY sales in the same location
Larger “KiKiYOCOCHO” opened in Nagoya store in March.
Brake on shrinkage of volume market in each store

Newly curated space in Nagoya store“KiKiYOCOCHO”
Combining cosmetics, food and drink, and accessories

9Daimaru Matsuzakaya Department Stores
Trend by Store
Causes of sales slowdown in 2H are reduced operating hours / temporary closing due
to natural disasters and sluggish sales of clothing due to warm winterKobe store increased sales 1.1% YoY excluding effect of transfer of shops around it
to Real Estate Business
Daimaru Yamashina suburban store, which had performed poorly, closed on March 31,
2019<Daimaru Matsuzakaya Department Stores major stores gross sales YoY % change>
Fiscal year ended
February 28, 2019

1H

2H

FY

Daimaru Shinsaibashi

9.3

0.2

4.4

Daimaru Umeda

2.1

1.0

1.5

Daimaru Tokyo

3.1

2.6

2.8

Daimaru Kyoto

0.6

(0.6)

(0.0)

Daimaru Kobe*1

(4.4)

(5.5)

(5.0)

Daimaru Sapporo

4.4

1.3

2.7

Matsuzakaya Nagoya

1.4

1.2

1.3

Matsuzakaya Ueno

3.6

(0.6)

1.5

Matsuzakaya Shizuoka

(2.4)

0.4

(1.0)

Total all stores

1.4

(0.2)

0.6

Total existing stores*2

2.5

0.7

1.6

10

*1 Sales of the Daimaru Kobe store excluding effect of transfer of some shops around it to the Real Estate Business were up 1.0% in 1H, up 1.1% in 2H, and up 1.1% in FY.
*2 Existing stores exclude the Daimaru Urawa Parco store, which closed on July 31, 2017 and effect of transfer of shops around the Kobe store to the Real Estate Business.

Daimaru Matsuzakaya Department Stores
Analysis of Operating Profit (IFRS)
Decreasein rent
expenses

Increase in grossprofit due toincrease inrevenue

Decrease inpackaging/delivery
expenses

Analysis of operating profit

Increase indepreciation(Millions of yen)

Increase in
Decrease inadprofit margin expenses
Decrease inpersonnel
expenses

Increase inoperational
costs

Decrease in otheroperating income

Increase inother SGA
Decrease in
otheroperatingexpenseDecrease in
otheroperatingexpense

Down ¥1,768 mn (6.2%) YoY
LY
results

Decrease indepreciation
Increase in
Decrease in
Increaseadother SGAin rent
expenses
expenses

Decrease in grossprofit due todecrease inrevenue
Increase inprofit margin

163

Increase in
otheroperatingincomeDecrease inoperational
Decrease incosts
packaging/delivery Increase in
expensespersonnel
expenses¥571 mn (2.1%) below Oct forecast
LY2018results

Oct
forecast

11

B/S, CF (IFRS)
Equity attributable to owners of parent increased ¥17.1 bn to ¥412.7 bn, ratio of
equity attributable to owners of parent was 40.1%
Interest-bearing liabilities decreased ¥9.8 bn to ¥174.3 bn, D/E ratio was 0.42
Operating CF was partly affected by absence of gain on sales of reserve floor area
for redevelopment of Shibuya Parco recognized in LY<Consolidated statements of financial position><Cash flows>(Millions of yen, %)(Millions of yen)

Fiscal year ended
February 28, 2019

Results

YoYchangeFiscal year ended
February 28, 2019

Total assets

1,029,573

7,225Interest-bearing
liabilities

174,378

Equity attributable toowners of parent
Ratio of equity attributableto owners of parent

Results

YoYchangeOperating cash flows

34,870(22,209)(9,824)

Investing cash flows(26,836)(7,806)

412,700

17,181

Free cash flows

8,033(30,015)

40.1

(率差）
(RD)
1.4

Financial cash flows(21,274)

9,774(Ratio of equity to total assets)

12

Application of IFRS16 andFY2019 Forecast

13Application of IFRS 16
Operating leases kept off balance sheet underformer IFRS are reported on balance sheet

Applicable to leased stores including “Daimaru
Umeda store,” “Daimaru Tokyo store,”“Ikebukuro Parco,” and “Nagoya Parco”

Affect B/S, P/L, and CF
14

Key Impacts of Application of IFRS 16 (1) B/S
Operating leases are recognized as right-of-use assets, consolidated total assets
increase ¥216 bn, ROA and ratio of equity attributable to owners of parent
decrease but ROE increases after application
AssetsRight-of-use
assets, etc.

235

IncreaseLeaseliabilities

216

245

Liabilities
561
Assets1,029.5

Assets1,010.5【End of FY2018】 【Beginning of FY2019】＜End of FY2018 / Former standards＞

Ratio of equity attributableto owners of parent

6.8%
4.0%
40.1%

Increase
230

Liabilities
546

EquityEquity
468.5

ROE
ROA

(Billions of yen)

Liabilities

Equity454.5

Decrease
14【Beginningof
FY2019】【End of FY2018】＜End of FY2018 / New standards＞

ROE
ROA
Ratio of equity attributableto owners of parent

7.0％
3.3％
32.2％

Figures at the beginning of FY2019 are estimates made before audit and may change in the future.

15

Key Impacts of Application of IFRS 16 (2) P/L
Leases on balance sheet increase depreciation while decreased rent expenses
increase operating profit ¥3.5 bn(This increase is offset by increase in interest expenses and has little impact on profit before tax)

【FY2019 forecast】
Operating profit

Decreasein rent
expenses
32

Operatingprofitunder
formerstandards
45(Billions of yen)

Profit before tax

Increase indepreciation(28.5)

Decreasein rent
expenses
32

Operatingprofitunder newstandards
48.5

Profit before
tax under
formerstandards
45.5

Increase in
賃借料減
depreciation320(28.5)
Increase ininterest expenses(3.5)

Profitbefore tax
under newstandards
45.5

16

Key Impacts of Application of IFRS 16 (3) CF
Rent expenses are replaced with non-cash depreciation, repayments of leaseliabilities, and interest expenses. Accordingly operating cash flows increase andinvesting cash flows decrease.
(Billions of yen)

【FY2019 forecast】
Operating CF
Decrease in
rent
expenses
32

Operating
CF underformerstandards
51.5

Financing CF

Increase ininterest
expenses(3.5)

Operating
CF undernewstandards
80

Investing CF
under former
standards
11.5

Increase in
repaymentsof leaseliabilities(28.5)

Investing CF
under newstandards(17)

17

FY2019 Business Environment Recognition
The global economy seems to be at a “turning point”
and uncertainty about the future is heightened“Uncommon weather” occurs every year and is becoming “common”
Consumption tax hike planned in October 2019
Increasingly “polarized consumption” and“budget-minded consumer spending” are unavoidable
Social structure transformed by digitalization

Values shift from “possessing” to “sharing”
18Positioning of FY2019

FY2019Turn-around point of“FY2017-2021 Medium-term Business Plan”“Turning point”
for dramatic growth of the Group19

Opening of Two Big Projects“Two big projects” as symbols of “turning point” will start operations
New main building of
Daimaru Shinsaibashi store

New Shibuya Parco

Planned to open
late September 2019

Planned to open
fall 2019Show direction of “new business model” of retail for the future20Increase Revenue and Profit in Spite ofMany Cost Increase Factors（－）

Two big projects’ contribution to profits will be limited
because both will open in 2H（－）

Upward pressure on costs on various occasions
against backdrop of labor shortage and rising material costs（－）

Rising costs for reinforcement of infrastructure supporting
increasing digitalization and future growth（＋）

Expansion of gross profit（＋）

HR structure reform by changing business model（＋）

Overhaul of all operation processes and work style reform

The Group will put all efforts to increase revenue and profit

21

Consolidated P/L Forecast (IFRS 16)
Gross sales and revenue will increase in each segment such as Department Store and Parco
Profit will increase under former standards as well as increase due to application of IFRS 16
Planning annual dividend of ¥36 per share, up ¥1 YoY, 9th consecutive ordinary dividend
increase(Millions of yen, %)Fiscal year ending
February 29, 2020

1H
forecast

Gross sales

YoY

YoY

Full year
forecast

ChangeChange% change

557,000

9,891

1.8

1,188,000

62,847

5.6

Revenue

229,000

1,794

0.8

500,000

40,1608.7

Gross profit

106,300

1,350

1.3

218,000

5,604

2.6

SGA

82,3001,622

2.0

168,500

1,618

1.0

Business profit

24,000

(271)

(1.1)

49,5003,986

8.8

Other operating income

1,100

(554)

(33.5)

3,400

163

5.0

Other operating expense

1,500

(207)

(12.2)

4,400(3,460)(44.0)

Operating profit

23,600

(618)

(2.6)

48,500

7,609

18.6

Profit attributable toowners of parent

13,800(2,110)(13.3)

28,000642

2.3

Dividend per share (Yen)(Interim) 18

1－(Annual) 36

1－% change22Segment Information Forecast (IFRS 16)
Department Store: Boosted by strong spending by inbound tourists and the affluent, store
renovation, and close-out sale of north wing
Parco: Boosted by opening of Shibuya Parco / Kinshicho Parco, renovation of major stores,
and anniversary project
Real Estate: Costs will increase due to transfer of north wing of Shinsaibashi store to Real
Estate Business segment after opening its main building(Millions of yen, %)Full fiscal year ending
February 29, 2020

Business profit

Operating profit

YoY

YoY

Forecast

Forecast
Change% change

Change% change

Department Store

28,500

3,346

13.3

26,000

1,806

7.5

Parco

10,500

1,777

20.4

12,700

7,255

133.2

Real Estate

4,400

(662)

(13.1)

3,600(1,064)(22.8)

Credit and Finance

1,980

(358)

(15.3)

2,000

(360)

(15.3)

Other

4,870

1,265

35.1

4,830

1,323

37.7

Total

49,5003,986

8.8

48,500

7,609

18.6
23

Daimaru Matsuzakaya Department Stores
Forecast P/L (IFRS 16)
Gross sales: Up 1.1% YoY in Department Store, up 4.4% YoY in Real Estate
In spite of additional costs such as operational costs for introducing terminal for payment
processing before customers and ad expenses for introducing mobile app, costs will
decrease due to decrease in rent expenses after application of IFRS 16 and progress of HR
structure reform
Real Estate will increase costs due to transfer of north wing of Shinsaibashi store to Real
Estate Business segment after opening its main building(Millions of yen, %)Daimaru Matsuzakaya Department Stores
Total

Fiscal year ending
February 29, 2020

Department Store

Real Estate

Forecast

YoYchangeYoY% change

Forecast

YoYchangeYoY% change

Forecast

YoYchangeYoY% change

Gross sales

670,500

6,977

1.1

17,900752

4.4

688,100

7,672

1.1

Revenue

247,700

1,467

0.6

17,700705

4.1

265,100

2,116

0.8

Gross profit

145,200

752

0.5

7,800

381

5.1

152,700

1,076

0.7

SGA

119,200(2,460)

(2.0)

3,400

1,043

44.2

122,300(1,474)(1.2)

Business profit

26,000

3,213

14.1

4,400

(662)

(13.1)

30,4002,551

9.2

Operating profit

23,700

1,836

8.4

3,600

(1,064)(22.8)

27,300771

2.9Profit15,750

(404)

(2.5)

1,550

(875)

(36.1)

17,300(1,279)(6.9)
24

Daimaru Matsuzakaya Department Stores
Forecast by Store
Shinsaibashi store will decrease revenue in 2H because 65% of new main building, which will open late
September, will be operated under fixed-term lease
Expect all flagship stores to increase revenue but carefully forecast rural/suburban stores
Attract inbound tourists, hold events for the affluent, etc. to counter consumption tax hike planned in October<Daimaru Matsuzakaya Department Stores major stores gross sales YoY % change>
Fiscal year ending
February 29, 2020

1H

2H

FY

Daimaru Shinsaibashi

5.9

(2.2)

1.8

Daimaru Umeda

1.8

3.8

2.9

Daimaru Tokyo

2.4

2.2

2.3

Daimaru Kyoto

2.1

3.2

2.7

Daimaru Kobe*1

(0.9)

1.3

0.2

Daimaru Sapporo

3.4

3.5

3.4

Matsuzakaya Nagoya*2

1.1

0.9

1.0

Matsuzakaya Ueno

0.9

5.8

3.3

Matsuzakaya Shizuoka

1.5

1.4

1.5

Total all stores

1.1

1.0

1.1

Total existing stores*3

2.1

1.8

1.9
25

*1 Sales of the Daimaru Kobe store excluding effect of transfer of some shops around it to the Real Estate Business will be up 1.3% in 1H, up 2.4% in 2H, and up 1.9% in FY.
*2 Sales of the Matsuzakaya Nagoya store excluding effect of change of the 2nd floor of its south wing to be operated under lease will be up 2.3% in 1H, up 1.7% in 2H, and up 2.0% in FY.
*3 Sales of existing stores exclude effect of transfer of shops around the Kobe store and operation of the 2nd floor of the south wing of the Nagoya store under lease and sales of the Daimaru
Yamashina store, which closed on March 31, 2019.

Daimaru Matsuzakaya Department Stores
SGA Forecast (IFRS 16)
Operational costs will increase ¥1.1 bn YoY due to renewal of POS systems and introduction ofterminal for payment processing before customers
Ad expenses will increase ¥0.6 bn due to opening of new main building of Shinsaibashi store
and introduction of mobile app
Personnel costs will decrease ¥0.9 bn due to HR structure reform and rent expenses will significantly
decrease due to application of IFRS 16<FY2019 Daimaru Matsuzakaya Department Stores SGA changes forecast>
Ad expenses

Personnel
expenses

Rent
expenses

Packaging/delivery
expenses

Operational
costs
Other

Packaging/delivery
expenses
Rent
expenses(Millions of yen)
Operational
costs
Other

Ad expenses

Depreciation
Depreciation

Impact of IFRS16

1H
LY
results

Personnel
expenses

Impact of IFRS16

2H
FY2019forecast 26

B/S and CF Forecast (IFRS 16)
Balance sheet and cash flows will greatly change due to application of IFRS 16
Total assets will increase ¥243.4 bn YoY due to recognition of right-of-use assets on balance
sheetInterest-bearing liabilities will increase ¥259.6 bn YoY partly due to recognition of lease liabilities
Investing outflow will increase ¥32.1 bn partly due to opening of new main building of Shinsaibashi
store and Shibuya Paco
<Consolidated statements of financial position><Cash flows>(Millions of yen, %)Fiscal year ending
February 29, 2020

Forecast

YoYchange(Millions of yen)
Fiscal year ending
February 29, 2020

Forecast

YoYchangeTotal assets

1,273,000 243,427

Operating cash flows

80,000Interest-bearing
liabilities

434,000 259,622

Investing cash flows(59,000) (32,164)

Equity attributable toowners of parent
Ratio of equity attributableto owners of parent

420,000

7,300(率差）(7.1)
33.0 (RD)45,130Free cash flows

21,00012,967

Financial cash flows(17,000)

4,274(Ratio of equity to total assets)27

Progress百貨店
of Medium-term Business Plan
事業
and Future Initiatives

28

Progress of Business Portfolio Transformation“Real Estate Business” is growing steadily with opening of “Ginza Six” and “UenoFrontier Tower”
Parco Business reports loss on business liquidation in FY2018 due to decision toclose Kumamoto Parco and Utsunomiya Parco(Billions of yen)

Percentage of “operating profit” (before application of IFRS 16)

Credit and
Finance
Other

49.5
41.7
Credit and Finance
Other

56

45
40.8

18%
Real Estate

12%
Real Estate

Parco
Parco

Department
Store

Department
Store

(FY)
Forecast

Forecast

29

Future Progress of Medium-term Business Plan
“Business profit” hit bottom in FY2018 and profit growth curve will accelerate toward final FY2021
FY2020: New main building of Shinsaibashi store and Shibuya Parco will be fully operated
Credit and Finance Business will reverse its course
FY2021: North wing of Shinsaibashi store and Shinsaibashi Parco will open
Real estate Business will grow steadily“Operating profit” growth curve forecast (before application of IFRS 16)
Operating profit(Billions of yen)

Business profit

56

49.5
45

40.8

(FY)
Forecast

Forecast

Forecast

30

Initiatives for Growth Strategy

I. Innovation of Department Store Business Model
II. New Openings Including New Shibuya Parco
III. Expansion of Real State Business Segment
IV. Credit and Finance Business Strategy
V. ICT Strategy
31

Innovation of Department Store Business Model
Opening of new main building of Daimaru Shinsaibashi store (late September 2019)
Create new store incorporating beauty of Vories’ architecture throughout the store andcombining “tradition” and “innovation”
Create new commercial space providing physical store’s unique “experience value”
Cater to a wide range of customers as well as strengthening services to the affluent andinbound tourists to whom sales are already strong<Store concept>

Delight the World
Globally adored Shinsaibashi□ Greatly increase floor space and number of brandsof luxury, cosmetics, depachika (department store
basement food floor) and drinking/eating□Cosmetics zones on some floors in addition to mainfloor
□ About half of depachika and drinking/eating are
new brands
Merchandising combining product sale anddrinking/eating conscious of experience-based
consumption□ Revise traditional store planning such ascomposition by gender/item and actively introduce
new brands
32*The photo is for illustrative purpose only.

… Details will be released around summerDepartment Store with Unprecedented Structure“Hybrid” business model
Completely seamless from customer perspective but
fixed-term lease accounts for about 65% of total floor
area
Build hybrid business model optimizing balance between
kaitori (Products are purchased on a no/limited returnbasis.), shoka shiire (Purchase of products is recorded at
the time of sale.), and fixed-term lease

Daimaru Shinsaibashi
New main building
Fixed-term lease(4F – 10F)

65％

(1F – 3F)

Apply the results obtained to other stores by customizingthem to suit the characteristics of the store/area(B1/2F)

33

Complete Commercial Complex with MoreThan 80,000 ㎡ Floor Area in 2021
Open new north wing with “Parco” as core tenant in spring 2021
Create commercial complex with more than 80,000 ㎡ floor area by connecting
new main building and north wing as one

Total of new main building and north wingMore than 80,000 ㎡
North wing

Real Estate
Division

Daimaru Shinsaibashi
New main building

Department store
Parco

34

New Phase of Customer Strategy

Expand customer touch points anddeepen CRM activities using mobile app

Ｐ

Install communication function as wellas promotion function and point giving
function*Demonstration test is going on at Daimaru Tokyo store
Planned to be released at all stores around early summer

35

Advance Gaisho Activities Using ICT
Introduced new ICT tool (SFA) in March 2019
Increase productivity by digitalizing operation processes inan organized manner

Customeranalysis

Receipt oforder /
Settlement

Sales progress
management
36

“Next-generation Commercial Space”
New Shibuya Parco
Rebuilding using special urban renaissance district and redevelopment projectOpen Japan’s first “Nintendo Tokyo” and increase experience-based contents by
expanding Parco Theater, etc.
Deepen Parco brand by re-proposing fashion and creating future-oriented store
using ICT≪Creation of new Shibuya Parco≫■Create next-generation commercial space byrebuilding Shibuya Parco■Bring together new initiatives that have neverbeen applied to conventional shopping complexes
to provide evolved values such as “growth
opportunities for business owners” and “newinspiration for urban consumers”
・Increase opportunities to newly connect with companies throughmulti-use complex building
・Create advanced tenant services in anticipation of developments
in e-commerce・Partnership on creation of Shibuya Entertainment City, expansionof soft content
・Increase Parco brand’s global presence37

Promote Scrap-and-Build Policy
Open “Kinshicho Parco,” “San-A Urasoe West Coast Parco City,” “Kawasaki ZeroGate,” etc. while decided to close Utsunomiya Parco and Kumamoto Parco
Promote scrap-and-build actions*The photo is for illustrative purpose only.
San-A Urasoe West Coast Parco City

*The photo is for illustrative purpose only.
Kawasaki Zero Gate

38
Kinshicho ParcoPromote Urban Dominant Strategy
Key areas for promoting
Urban Dominant strategy

Shinsaibashi
Ueno
Nagoya
Kobe
Kyoto
39

(Example) Urban Dominant Strategy of Nagoya Area
“Nihon Seimei Sakaemachi Building” (provisional)・・・(1)(1)(2)
2 underground floors, 6 aboveground floors, total
floor space of 6,343 m2
Master-leased by Daimaru Matsuzakaya Department
Stores for commercial development
Planned to open in November 2020
Development of Nishiki 3-chome District 25

・・・(2)(North)Hisaya-odori

Otsu-dori

Isemachi-doriMatsuzakaya
Nagoya(Main)

Daimaru Matsuzakaya Department Stores andNagoya City concluded basic agreement in January
2019 to mutually cooperate in developing the land
owned by them
Planned to complete construction and open in 2024

(South)NagoyaParco(West)(East)

Yabacho-dori(South)Wakamiya-odori

Promote Urban Dominant strategy for growing
with local communities in each key area40

Credit and Finance Business Strategy
The Group’s transaction value of more than ¥1 trillion and good customer assets as strengths
Customers
Client companies
Companies in the Group
Employees (the Group / clients)

Issue new card
(planned for FY2020)

Promote cashlesstransactions

Using settlement data

Settlement

FinanceFinancial services for B to B
and B to C including“insurance” and “financing”

41Credit and Finance Business Strategy
Promote employment of highly professional HRs well versed in settlement/finance
Strengthen organizational structure to speed up implementation of business strategy

Preceded by personnel and other costs until FY2019

Profit will increase from FY2020 onwards

Medium-term growth as one of the Group’s pillars by
expanding business scope in “finance” and “settlement”
42

Concept of “Lifetime Service Hub” (LTS-HUB)～ “Era of 100-year life expectancy” ～Provide new products and services to relieve customers’ “frustrations” and “concerns” onvarious occasions and milestones for their entire lives beginning from birth
Birth

Infancy

Department StoreDB

Schoolage

Employed

Parco
DB

Child
raisingMarriage

Secondlife

Other companies
in the GroupDB

Integrated customer database
Accumulation of
fixed information

Use of ICT

Accumulation of
unfixed information

43

Schedule of LTS-HUB Concept
FY2019
Accumulate new information collected by Department Store in integrated DB
Start demonstration test of using chat at Daimaru Umeda store and test the potential of
conversation data

FY2020
Expand into Parco and other companies in the Group, integrate and centralize DB
as the Group
Group-wide upgrading of data

FY2021
Group-wide full-scale operation→Expand opportunities to provide optimal products/services, develop new
businesses

44Strategic Investment
Capital investment will peak in FY2019, and subsequently free CF will turnsignificantly positive“Investment Project Review Committee” properly judges investment matters fromboth quantitative and qualitative perspectives<Forecast of capital investment and share by business segment>(Millions of yen)

(Millions of yen)
Other

M&A

Daimaru
Matsuzakaya(excluding
Real Estate)

Capital investment
Growth investment
Parco
Business¥200 bn(Total for 5 years)*Former standards
Real EstateBusiness(FY)
Forecast

Forecast

Forecast

45

Balance-oriented Capital Policy
Continuing shareholder return based on profit allocation according to performance andtargeting dividend payout ratio of at least 30%
Purchasing own shares as appropriate in consideration of strategic investment, financial
condition, etc. as a whole
Create structure that can achieve ROE of 8% continuously by promoting balance-oriented
capital policy(Yen)<Annual dividend per share (Yen)>

Commemorative
dividend
Ordinary dividend

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

(Plan)

ESG Initiatives
Started full-scale initiatives
to create sustainable society
under long-term quantitative goals<Specific actions>・Promote store planning from ESG perspective
・Develop KPIs to promote women
to managerial positions
・Efforts to acquire SBT certification

・・・

Ensure understanding among all suppliers andemployees to enhance action levels
47

Speed Up to Create Concrete Results
Uncertainty is “opportunity” and “threat”

Risktaking×

Risk
hedging

Management strategy
Governance

It is essential to nimbly keep up with speed of changes of the times

Gear up at the Group’s “turning point”
to promote the Group’s business structural changes

48

Risk Recognition (1)Risk associated with consumption tax hike and post-Olympic recession

Risk associated with evolving technologies

Multiple recessions such as consumption recession due to consumption tax hike in 2019 and postOlympic reactionary recession are likely to occur in the near future and they will become threats
unless we can develop measures early to meet last-minute demand and address restraint in buying.
In the meantime, policy changes and the enforcement and easing/abolition of laws and regulations
can become opportunities if seeing a different perspective. For example, free-of-charge education
financed by consumption tax hike can increase spending by young couple households e.g. bytransferring education costs to general spending. By thus seeing risks from a different perspective
and changing mindset, we can convert risks into the Group’s opportunities to acquire new consumers.

Technologies are evolving at an accelerated pace and there are many concerns such as cyberterrorism. Accordingly it will become a threat unless we ensure that we strengthen digital security
initiatives in line with the evolution of technologies. If we fail to keep up with improvement of
productivity using RPA (Robotic Process Automation) due to the evolution of technologies, it will
become a threat.
In the meantime, if we can combine technologies with existing businesses and change them to a
new business model, opportunities that lead to success will expand. If we can maximize customer
lifetime value by building a customer base using digital, establishing a business model using dataon payment, etc. that are linked with customer identities, which monetizes by creating a new value,
and increase over-the-counter sales by improving convenience by responding to the evolution of
settlement function at stores, opportunities for growth will expand.

Risk associated with changes in customers, particularly, low birthrate
and longevity
Low birthrate and longevity are the greatest change in environment that is sure to occur in the
future and the “era of 100-year life expectancy” is sure to come in the near future. It is essential torespond to this big change, and since increased competition from competitors is inevitable, thechange will become a threat if we fall behind in responding to it.
In the meantime, the senior market is sure to expand due to low birthrate and longevity. Growth
opportunities will expand if the Group can expand the lineup of products and services that meetchanging lifestyles early by building and using new customer information base using technologies
to respond to this big market change.

Risk associated with increasing importance of CSR
It is inevitable that CSR initiatives from an ESG perspective as a key element of corporate value
will become more important in the future and we will be required to address environmental, social,and governance issues. In particular, response to environmental issues is impossible to avoid as acompany and if the Group falls behind in promoting it, it will become a great threat.
In the meantime, if we can change our mindset to “CSV (Creating Shared Value)” beyond the
traditional concept of CSR and resolve social issues through business activities, we can increase
reputation among customers and investors as well as increasing sales and opportunities for theGroup’s sustainable growth will expand.

Risk associated with polarized income
The illusion that all Japanese are middle class disappeared and income is polarized. Accordingly
decrease of existing middle class is inevitable and it will become a threat unless we can change ourbusiness model.
In the meantime, new growth opportunities will expand if we can redefine the potential of the Group’s
strong affluent market, expand the scope of activities of gaisho divisions in terms of quantity andquality, and provide high-end services as well as products. With regard to the struggling middle classmarket, regrowth opportunities will expand if we can reduce space for traditional volume zone products
and introduce new products/services that meet the middle class market needs. At the same time, it isimportant to respond to “consumption polarization of one consumer” that one consumer takes various
spending actions. Growth opportunities will expand if we can pull out of customer segment as anextension of the past consumption and develop products, services, and selling methods that respondto new consumption behaviors of new customers to accurately capture these changes in consumption.

Risk associated with disasters, etc.
The Group’s head offices, major stores, etc. are located in Japan and if business activities are
suspended or large expenses are incurred for repairing facilities due to natural disasters
including earthquakes and tsunami, accidents including fire and blackout, misconducts including
terrorism, etc., it may have an impact on the Group’s performance and financial condition.
In addition, if system failures occur due to defects in software/hardware, computer virus,
hacking networks, etc., it will disrupt business operation and may have an impact on theGroup’s performance and financial condition.
In the meantime, if we can develop the Group’s BCP, create stores that can respond tonatural disasters, and develop the Group-wide digital security measures, we can minimize theimpact, and at the same time, we can advance our preparation for future disasters.

Risk associated with the development of sharing economy
With the development of sharing economy, increase in asset value due to sharing and use of owned
assets is a big consumption trend and this trend is sure to further expand in the future. Accordingly
the market involving product sale may be eroded, which can pose a threat.
In the meantime, if we can stimulate various potential demands through initiatives to share products
in addition to existing product sale and use of offices, show rooms, entertainment facilities, and public
facilities for use of urban locations owned by the Group, value in use of the Group’s assets will
increase and growth opportunities will expand.
Sharing economy has a great impact on employment and it can lead to work style reform by
establishing a system that accommodates personnel systems not based on employment for
professionals, etc.

49

Risk Recognition (2)Risk associated with impairment

Risk associated with exchange rate fluctuations

The Group has non-current assets for the purpose of business activities including land and buildings
for stores. If profitability declines or land prices fall due to worsening economic conditions and fiercer
competition concerning these assets, we have to recognize impairment and this may have an impact
on the Group’s performance and financial condition.
In the meantime, accelerating our efforts to increase the profitability of these assets with anawareness of impairment risk when promoting business activities can result in improving our ability
to generate cash flows.

The Group’s suppliers include many overseas brands that are affected by exchange rate
fluctuations. Accordingly product prices at stores may change depending on movement of
exchange rates and the Group’s performance may worsen. The number and purchase amountof tourists from overseas including China are affected by exchange rate fluctuations and store
sales may decrease.
In the meantime, we can enhance the appeal of stores, which will result in improvement of
the Group’s performance, by spreading the suppliers of overseas brands, appropriatelybalancing between overseas brands and Japanese brands offered at stores, and expanding
and improving product lineups and services for inbound tourists.

Risk associated with funding
The Group raises funds concerning new openings, renovation, M&A, etc. directly from financial
markets, which includes borrowings from financial institutions and issuance of bonds andcommercial papers. If financial institutions change terms and conditions including lending facilities
and credit lines due to changes in financial markets and other causes, rating agencies significantly
lower the Group’s credit ratings due to the Group’s worsening financial condition, or investor
motivation to invest declines due to economic recession, the Group will not be able to raisenecessary funds when necessary on terms and conditions deemed appropriate, which may result in
restriction of funding and higher funding costs.
In the meantime, by accurately managing our funds and appropriately building a portfolio ofborrowings from financial institutions and direct funding from financial markets, we can achieve
efficient and effective funding.

Risk associated with interest rate fluctuations
The Group has financing receivables and interest-bearing liabilities and changes in their interest
rates affect interest expenses and interest income and values of financial assets/liabilities and theGroup’s performance and financial condition may worsen.
In the meantime, we strive to reduce interest expenses, increase interest income, and expand
financial assets by appropriately managing the portfolio of long-term finance and interest-bearing
liabilities.

Risk associated with information management
The Group handles personal information provided by customers and receives confidential
information on other companies and such information may be leaked outside the Groupillegally or by mistake.
The Group’s trade secrets may also be leaked illegally or by mistake, and as a result, thismay have an impact on the Group’s performance and financial condition.

Risk associated with laws and regulations and their revision
The Group is subject to laws and regulations concerning opening of large-scale retail stores,
antimonopoly, subcontracts, consumer protection, various restrictions, and environment- andrecycling-related matters.
It is difficult to forecast the enforcement and changes of these laws, regulations, policies,
accounting standards, etc. and their impacts, and if the Group’s business activities are
restricted by these laws and regulations and their revision, this may result in cost increase andrevenue decrease and have an impact on the Group’s performance and financial condition.

Risk associated with stock market fluctuations
The Group holds shares in Japanese companies, etc. as part of financial assets and the portion
attributable owners of parent may decrease due to decline in stock value such as decline in stock
prices. Since this may decrease the assets of the affluent who are the Group’s core gaisho
customers, gaisho-related sales may decrease.
In the meantime, we can minimize the impact of stock value fluctuations by appropriately
managing the portfolio of shareholdings.

50

Website

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