Results Presentation
for First Six Months of Fiscal YearEnding February 29, 2020

October 8, 2019

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

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

I. 1H FY2019 Results
II. 2H/Full FY2019 Forecast

III. Progress of Medium-term Business Plan
and Future Initiatives

1

1H FY2019 Results (IFRS)

2Consolidated P/L (IFRS)Business profit of Department Store and Parco was below plan
Operating profit increased due to gain on sales of real estate
Positive effect of application of IFRS 16 on business profit andoperating profit was ¥2.2 bn in 1H
Interim dividend is ¥18 per share, up ¥1 compared to previous year
(Millions of yen, %)First six months offiscal year ending
February 29, 2020

YoY

Vs April forecast

Results
Change% change

Change% change

Gross sales

545,841(1,268)(0.2)(11,159)(2.0)

Revenue

225,664(1,542)(0.7)(3,336)(1.5)

Gross profit

104,659

(291)

(0.3)

(1,641)

(1.5)

SGA

80,915237

0.3(1,385)(1.7)

Business profit

23,743

(528)

(2.2)

(257)

(1.1)

Other operating
incomeOther operating
expenses

4,097

2,443

147.7

2,997

272.5

2,666

959

56.1

1,166

77.8

Operating profit

25,175

957

4.0

1,575

6.7

Profit attributable toowners of parent

14,367(1,543)

(9.7)

567

4.1

(Interim) 18

1

－

－

－

Dividend per share
(Yen)

3

Segment Information (IFRS)
Department Store: Sluggish sales of summer items due to unseasonal weather andincreased costs of system for payment processing in front of customers
Parco:
Opening of Kinshicho Parco and entertainment contributed
but Neuve A performed poorly
Real Estate:
Positive factors include good performance of Ginza Six, transfer ofshops around department stores and gain on sales of real estate
Credit and Finance: Revenue increased but cost increased due to employment ofspecialized HRs for medium-term growth(Millions of yen, %)Business profit
First six months offiscal year ending
February 29, 2020

Vs Aprforecast

YoY
Results

Operating profit

Change%changeVs Aprforecast

YoY
Results

ChangeChange%changeChangeDepartment Store

11,966

(523)

(4.2)

(734)

10,580(1,285)(10.8)(1,220)

Parco

5,381

338

6.7

(119)

5,865

158

2.8

(335)

Real Estate

3,371

327

10.8

171

5,729

2,872

100.5

2,729

Credit and Finance

1,060

(4)

(0.3)

160

1,089

13

1.2

189

Other

2,093

(14)

(0.7)

293

2,008

(123)

(5.7)

238

Total

23,743

(528)

(2.2)

(257)

25,175

957

4.0

1,575
4

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

Analysis of operating profit
CreditandFinance

Other

Real
EstateDepartment
Store

CreditandFinance

Adjustment
Adjustment
Other

Department
Store

Real
Estate
Parco

Parco

Up ¥957 mn (＋4.0%) YoY

LY
results¥1,575 mn above Apr forecast (＋6.7%)

1H FY2019
results

Apr
forecast 5

Daimaru Matsuzakaya Department Stores P/L (IFRS)Business profit of Department Store was down 1.1% YoY, down 0.2% excluding effect ofclosing of Yamashina store and transfer of shops around department stores
Business profit of Department Store decreased due to increased system costs andincreased extra depreciation, performance of Real Estate remained strong
Operating profit far above April forecast is attributable to gain on sales of real estate of ¥2.3 bn(Millions of yen, %)First six monthsof fiscal year
endingFebruary 29, 2020

Department Store
Results

YoY% change

Daimaru Matsuzakaya Department Stores
Total

Real Estate
Results

YoY% change

Results

YoY% change

Vs Aprforecast% change

Gross sales

316,622

(1.1)

8,873

4.9

325,369

(0.9)

(2.1)

[Of which: Real estate
rental income]

2,259

12.9

8,761

5.0

10,895

5.3

1.9

Revenue

118,064

(2.0)

8,820

5.2

126,759

(1.6)

(2.6)

Gross profit

69,272

(0.9)

4,676

7.7

73,823

(0.4)

(1.4)

SGA

58,112

(0.3)

1,304

0.4

59,292

(0.3)

(1.0)

Business profit

11,159

(3.9)

3,371

10.8

14,530

(0.9)

(3.1)

Operating profit

10,857

(1.3)

5,729

112.3

16,585

21.1

18.5

Profit7,460(10.6)

3,507

139.0

10,967

11.8

20.5

6

Daimaru Matsuzakaya Department Stores
Trend of Sales to Inbound Tourists
In 1H, tax-free sales increased 14.6% YoY to ¥32.3 bn, both number of customers andaverage spend per customer increased
Temporarily decreased partly due to rapidly falling yuan in August but up 19% in September
Sales to inbound tourists remain “one of pillars of medium-term growth”<Daimaru Matsuzakaya Department Stores tax-free sales and the number of customers>(Millions of yen)

Sales (Millions of yen)(People)Number of customers (People)

7
Year / Month*Gross sales basis

Daimaru Matsuzakaya Department Stores
Spending by the Affluent
Greatly changed systems by reorganizing and using ICT for operations to further
strengthen service to the affluent
It took certain time to establish new organization and new operations at beginning of
period for the reason above, but after that, recovered
In 1H FY2019, newly developed 7,016 gaisho accounts, which generated sales of¥5.9 bn in 1H“Gold Card”
for gaisho customers

8Daimaru Matsuzakaya Department Stores
Analysis of Operating Profit (IFRS)
Mainly effect ofapplication of
IFRS 16

1H FY2019
Analysis of operating profit
Mainly gain on sales of real estate

Decreasein rent
expenses

Increase indepreciation

Decrease in grossDecrease inprofit due topersonnel
decrease in
expensesrevenue

Increase inoperational
costs

Increase in
Increase inadpackaging/delivery
expenses
expenses
Increase inprofit margin

Mainly increase in
extra depreciationof north wing of
Shinsaibashi store

Decrease in
otheroperatingexpenses

Increase in otheroperating income(Millions of yen)

Decrease in
otheroperatingexpenses

Decrease inoperational
costs

Decreasein rent
expenses

Increase in otheroperating income
Decreasein other
SGA

Decreasein other
SGA

Increase indepreciation

Increase inadexpenses

Decrease in grossprofit due todecrease inrevenue

Decrease inpersonnel
expenses
Increase in
Increase inpackaging/delivery profit margin
expenses

Mainly increase in costs of system forpayment processing in front of customers

Up ¥2,888 mn (21.1%) YoY
LY
results¥2,585 mn (18.5%) above April forecast

1H FY2019
results

Apr
forecast

9

B/S and CF (IFRS)
Total assets increased ¥238.2 bn YoY partly due to recognition of “right-of-use assets” onbalance sheet
Interest-bearing liabilities increased ¥249.4 bn YoY partly due to recognition of “leaseliabilities”
Free cash flows were ¥37.4 bn, securing more than ¥20 bn even if effect of IFRS 16 is
excluded<Consolidated statements of financial position><Cash flows>(Millions of yen, %)First six monthsof fiscal year ending

Results

February 29, 2020

YoYchange(Millions of yen)First six monthsof fiscal year ending
February 29, 2020

Results

YoYchangeTotal assets

1,267,853

238,280

Operating cash flows

42,77020,317[Of which: Right-of-use assets]

215,742

215,742

Investing cash flows(5,289)7,582

Interest-bearing liabilities

423,798

249,420

Free cash flows

37,481

27,900[Of which: Lease liabilities]

231,960

231,960

Financing cash flows(2,122)

12,476Equity attributable toowners of parent

407,573(5,127)

Ratio of Equity attributableto owners of parent

32.1(率差） (8.0)(Ratio of equity to total assets)10

2H/Full FY2019 Forecast

11

2H FY2019 Business Environment Recognition
The global economy will become more uncertain
due to “trade friction” and increased geopolitical risk
Last-minute surge in demand before consumption tax hikeand subsequent reboundReduced tax rate, government-led point rewarding,free day care services and kindergarten classes

Unavoidable “polarized consumption,” “budget-minded consumer
spending,” “increasing urban-rural divide”
Social structure transformed by digitalization
Values shift from “possessing” to “sharing”
12Positioning of 2H FY2019
2H FY2019
Beginning of second half of“FY2017-2021 Medium-term Business Plan”“Stage to accelerate structural reform”
for dramatic growth of the Group

Overhaul earnings structure
by changing business model, taking measures forrural stores, revising HR systems, etc.
13

2H Consolidated Forecast P/L (IFRS)Gross sales and revenue will increase in each segment including Department Store and Parco
Profit will increase due to application of IFRS 16 and even under former standards
Plan annual dividend of ¥36 per share, up ¥1 YoY, 9th consecutive ordinary dividend increase(Millions of yen, %)Second six monthsof fiscal year ending
February 29, 2020

Forecast

YoY
ChangeVs April forecast% change

Change% change

Gross sales

621,158

43,115

7.5(9,842)(1.6)

Revenue

266,335

33,702

14.5(4,665)(1.7)

Gross profit

109,740

2,294

2.1

(1,960)

(1.8)

SGA

83,984(2,219)(2.8)(2,216)(2.6)

Business profit

25,756

4,514

21.2

256

1.0

Other operating income

3,102

1,519

96.0

802

34.9

Other operating expenses

7,033

881

14.3

4,133

142.5

Operating profit

21,824

5,152

30.9

(3,076)(12.3)

Profit attributable toowners of parent

11,432

(16)

(0.1)

(2,768)(19.5)(Year-end) 18

0

－

－

－

Dividend per share (Yen)14

Major Differences from April Forecast
That Will Affect 2H Performance
Special factors that could not be factored in during internal/external discussions in April
because they were undecided

Special factors

Effect on
profit(Billions of yen)

Effect of IFRS 16
Cost
and
SGA

＋0.5

Revision of retirement benefit and pension systems due to extension ofretirement age to 65＋3.5

Extra depreciation of exterior wall of “north wing” of Shinsaibashi store▲0.4

Structural reform costs for rural stores▲0.1(Total effect of cost and SGA)

Other
operatingincome/expenses（単位：百万円、％）＋3.4

Gain on sales of real estate＋0.8

Shinsaibashi store’s contribution for construction of subway
passageways▲1.9

HR system reform▲1.0

Structural reform costs for rural stores

▲0.6

Other

▲0.2

(Total effect of other operating income/expenses)▲3.0 15

Segment Information Forecast (IFRS)
Department Store: Expect spending by the affluent to remain strong
but carefully review business conditions of each store
Parco:
Real Estate:

Shibuya Parco due to open on November 22, Kinshicho Parco
opened in 1H, etc. will contribute
Costs will increase due to transfer of north wing of Shinsaibashi store to
Real Estate Business segment after opening of main building(Millions of yen, %)Business profit
Second six monthsof fiscal year ending
February 29, 2020

Operating profit
Vs Aprforecast

YoY
Forecast

Vs Aprforecast

YoY
Forecast

Change % change Change

Change % change Change

Department Store

16,533

3,868

30.5

733

11,119(1,210)(9.8)(3,081)

Parco

5,118

1,438

39.0

118

6,634

6,895

－

134

Real Estate

1,228

(789)

(39.1)

28

1,270

(537)

(29.7)

670

639

(635)

(49.9)

(441)

660

(624)

(48.6)

(440)

Other

2,906

1,409

94.1

(164)

2,891

1,515

110.1

(169)

Total

25,756

4,514

21.2

256

21,824

5,152

30.9

(3,076)

Credit and Finance16

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

Analysis of operating profit
Real
EstateCredit Other Adjustment
andFinance

Adjustment Other

CreditRealandEstateFinance
Parco

Parco

DepartmentStore

Up ¥5,152 mn (30.9%) YoY

LY
results¥3,076 mn (12.3%) below Apr forecast

2H FY2019
forecast

Apr
forecast 17

Daimaru Matsuzakaya Department Stores
2H Forecast P/L (IFRS)Gross sales: Down 0.6% YoY in Department Store, up 5.1% YoY in Real Estate
In spite of additional costs such as extra depreciation of “north wing” and ad expenses tostrengthen promotion of mobile app, costs will decrease due to decrease in rent expenses
due to application of IFRS 16 and revision of retirement benefit and pension systems
Real Estate will increase costs due to transfer of north wing of Shinsaibashi store to Real
Estate segment after opening of main building(Millions of yen, %)Second six monthsof fiscal year ending
February 29, 2020

Department StoreYoY

Forecast % change

Daimaru Matsuzakaya Department Stores
Total

Real Estate
Forecast

YoY% change

Forecast

YoY
Vs Apr forecast
Change% change

341,177

(0.6)

9,126

5.1

350,130(0.5)(5,670)

4,241

90.2

9,039

5.5

13,204

25.1

(706)

Revenue

124,335

(1.1)

9,079

5.5

133,240(0.7)(1,760)Gross profit

72,627

(2.6)

3,223

4.8

75,676(2.4)(2,124)

SGA

57,387

(9.5)

1,995

88.5

59,207(8.0)(3,193)Business profit

15,240

36.4

1,228

(39.1)

16,469

24.8

1,069

Operating profit

10,642

(2.1)

1,270

(35.4)

11,914(7.2)(1,386)

Profit6,839(12.5)

392(59.0)

7,232(17.5)

Gross sales[Of which: Real estate
rental income](968) 18

Daimaru Matsuzakaya Department Stores
Forecast by Store
Shinsaibashi store will decrease revenue in 2H because 65% of new main building, which opened on
September 20, is 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 in October<Daimaru Matsuzakaya Department Stores major stores gross sales YoY % change>

Fiscal year ending
February 29, 2020

1H results

2H forecast

Full year forecast

Daimaru Shinsaibashi

5.8

(2.3)

1.6

Daimaru Umeda

(0.4)

1.0

0.3

Daimaru Tokyo

0.1

0.7

0.4

Daimaru Kyoto*1

(0.4)

0.2

(0.1)

Daimaru Kobe*2

(3.8)

0.1

(1.8)

Daimaru Sapporo

0.3

3.0

1.8

Matsuzakaya Nagoya*3

(1.1)

0.3

(0.4)

Matsuzakaya Ueno

(3.8)

1.1

(1.4)

Matsuzakaya Shizuoka

(4.3)

(0.2)

(2.2)

Total all stores

(1.1)

(0.6)

(0.9)

Total existing stores*4

(0.2)

0.3

0.1
19

*1 Sales of the Daimaru Kyoto store excluding effect of transfer of some shops around it to the Real Estate Business: Up 0.0% in 1H, up 1.1% in 2H, up 0.8% in FY*2 Sales of the Daimaru Kobe store excluding effect of transfer of some shops around it to the Real Estate Business: Down 1.7% in 1H, up 1.1% in 2H, down 0.2% in FY*3 Sales of the Matsuzakaya Nagoya store excluding effect of change of the 2nd floor of its south wing to be operated under lease: Down 0.1% in 1H, up 1.2% in 2H, up 0.7% in FY.
*4 Sales of existing stores exclude effect of transfer of shops around the Kyoto store and Kobe store and operation of the 2nd floor of the south wing of the Nagoya store under leaseand sales of the Daimaru Yamashina store, which closed on March 31, 2019.

Daimaru Matsuzakaya Department Stores
Analysis of Operating Profit (IFRS)
Mainly effect ofapplication of
IFRS 162H FY2019
Analysis of operating profit
Mainly Shinsaibashi store’scontribution for constructionof subway passagewaysand HR system reform

Decrease Increase inin rent depreciation
expenses

Decrease in grossprofit due todecrease inrevenue

Decrease inpersonnel
expenses

Increase inpackaging/delivery
expenses

Increase inadexpenses

Increase inoperational
costs

Increase in
otheroperatingexpenses

Decreasein other
SGA

Increase in
otheroperatingexpenses

Decrease
Increase in in rent
operational expenses
costs

Increase inadexpenses

Decrease in grossprofit due todecrease inrevenue

Decrease
Increase inin other Decrease inpackaging/delivery
SGA depreciation
expenses
Increase inother operating
incomeDecrease in Decrease inpersonnel
profit margin
expenses

Increase inother operating
incomeDecrease inprofit margin

Down ¥918 mn (7.2%) YoY
LY
results(Millions of yen)

¥1,386 mn (10.4%) below April forecast
2H FY2019
forecast

Apr
forecast

20

Full Year Consolidated Forecast P/L (IFRS)Revised downward gross sales, revenue, operating profit and profit attributable to owners ofparent from Apr forecast but keep business profit unchanged from April forecast
Plan annual dividend of ¥36 per share, up ¥1 YoY, 9th consecutive ordinary dividend increase(Millions of yen, %)Fiscal year ending
February 29, 2020

Full year forecast

YoY
Change% change

Vs April forecast
Change% change

Gross sales

1,167,000

41,8473.7(21,000)(1.8)

Revenue

492,000

32,1607.0(8,000)(1.6)

Gross profit

214,400

2,004

0.9

(3,600)

(1.7)

SGA

164,900(1,982)(1.2)(3,600)(2.1)

Business profit

49,500

3,986

8.8

0

0.0

Other operating income

7,200

3,963

122.4

3,800

111.8

Other operating expenses

9,700

1,840

23.4

5,300

120.5

Operating profit

47,000

6,109

14.9

(1,500)(3.1)

Profit attributable toowners of parent

25,800(1,558)(5.7)(2,200)(7.9)(Annual) 36

1

－

0

－

Dividend per share (Yen)21

B/S and CF Forecast (IFRS)
Balance sheet and cash flows will greatly change due to application of IFRS 16
Total assets will increase ¥230.4 bn YoY due to recognition of right-of-use assets on balance sheet
Interest-bearing liabilities will increase ¥244.1 bn YoY partly due to recognition of lease liabilities
Free cash flows will be positive at ¥2.9 bn even if effect of IFRS 16 is excluded<Consolidated statements of financial position><Cash flows>(Millions of yen, %)(Millions of yen)

Fiscal year ending
February 29, 2020

Results

YoYchangeTotal assets

1,260,000

230,427

Operating cash flows

83,00048,130[Of which: Right-of-use assets]

202,000

202,000

Investing cash flows(54,000)(27,164)

Interest-bearing debt

418,500

244,122

Free cash flows

29,00020,967[Of which: Lease liabilities]

220,000

220,000

Financing cash flows(16,000)

5,274

Equity attributable toowners of parent

415,000

2,300

Ratio of equity attributableto owners of parent

32.9

(率差）

Fiscal year ending
February 29, 2020

Results

YoYchange(7.2)(Equity ratio)

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

百貨店
事業

23

Progress of Business Portfolio Transformation“Real Estate Business” is growing steadily by contribution of “Ginza Six,” “UenoFrontier Tower,” etc.
Realized great growth as a group with business innovation in existing fields(Billions of yen)

Percentage of “operating profit” (before application of IFRS 16)
Credit and
Finance
Other

18%
Credit and Finance
Other

Real Estate

12%

Real Estate

Parco
Parco

Department
Store

Department
Store

(FY)
Forecast

Forecast

24

New Main Building of Daimaru Shinsaibashi
Store Made Its Grand Opening
Embodied direction of new department store business model with bold “hybrid structure”

Grand
openingon

Sep 20＜ストアコンセプト＞

Delight the World
世界が憧れる心斎橋へ

25

Characteristic Customer Structure of“Shinsaibashi Store”“The affluent,” mainly gaisho customers, and “foreign tourists” generate 60% of sales

It is extremely important to draw out maximum potential of “two promising pillars”
Daimaru Shinsaibashi store
sales percentage by customer

Gaisho(credit sales)
Domestic and otherInbound(tax-free sales)*Figures are actual percentages in FY2018.

Categories that can be grown by
inbound tourists and the affluent:
Maximize profit by
kaitori / shoka shiire
Other categories:
Attract more customers and makerevenue more stable and more
efficient26

Greatly Strengthened Cosmetics and Luxury
Cosmetics

Floor area

New

+95

+28

%

brandsLuxuryFloor area

New

+15

+11

%

brands27

Restructured “Fashion Floors”
婦人アパレル
面積･ブランド数

Narrowed down both floor area and number ofbrands of women’s apparel to around 60%

Broke away from traditional merchandiseclassification such as women’s wear and men’s wear
圧縮

大丸心斎橋店
新本館
Used experience and know-how at Ginza Six（4～10階）（1～3階）

28

Better Met Demand for Experiential Consumption
Created department store quality “Food Hall”

Created Pokemon Cafe and Jump Shop totransmit Japanese culture29

Store Environment Merging “Tradition” and “Innovation”
Created special space that merges beauty of W. M. Vories’ architecture before rebuilding
and modern design30

Innovative Low-Cost Operation
Change HR structure to completely different one from traditional
department stores by introducing fixed-term lease boldly

Fixed-term
lease

HR
structure

65

- 250

%

posts
*Other:Reduced facility, admin, logistics
and hygiene management costs

Realized new low-cost operation that
supports highly profitable operation
31*Figures are comparison to current “north wing.”

Shinsaibashi Store after Opening of Main Building
Mainly luxury and cosmetics, which were strategically strengthened, sell better than plan
Almost 100,000 customers visit on holidays, young customers who did not visit before are
increasing

32

As Scalable Business Model“Main building” opened on
September 20, 2019

“Main building” will be fully
operated in FY2020

Expect profit to increase ¥2 to
2.5 bn compared to FY2019

Establish new scalable “business model” by repeating PDCA

Apply this to Nagoya store and other flagship stores

33

Connect Main Building and North Wing as One
North wing

New main building

Planned to open in fall 2020

Opened in September 2019

Specialty
shop mall

Daimaru
ParcoOpen “north wing” as Real Estate Businessand connect it to main building in fall 2020
Expect profit to increase ¥2 bn or more
(Revenue impact on Daimaru Matsuzakaya Department Stores)

34

“Next-generation Commercial Space”
New Shibuya Parco
Rebuilding using special urban renaissance district and redevelopment projectIncrease experiential content by opening Japan’s first “Nintendo Tokyo,”expanding Parco Theater, etc.

Deepen Parco brand by re-proposing fashion and creating future-oriented floors using ICT

35

Develop Shibuya Parco’s Own Identity
Initiatives in collaboration with designers and creators to propose fresh stimulation andexcitement as experiential value
Specialty shops with high quality deign, art and entertainment at the core

※写真はイメージです。

※写真はイメージです。

© Sou Fujimoto Architects

36

Merge E-commerce and Real StoreCreate omnichannel space “Parco Cube” for both e-commerce and over-the-countersales on 5th floor of Shibuya Parco
As next store with enhanced function of showroom, it will mainly carry strategic items
and limited items
Customers can buy products available online but not in the store with no stresson the spot anytime※写真はイメージです。

※写真はイメージです。

37

Evolution of Parco Brand
Grand
opening on

Nov 22

193 unique andattractive shops

Evolve Parco brandas flagship store

Spread brand powerover other stores
38

Credit and Finance Business Initiatives for Growth
Rebuild Credit and Finance Business strategy with 5 pillars

Improvement of bottom line of existing business

Strengthening of card products
Launch of merchant acquiring services
Review of system platform
HR development and building of organization
39

Progress of Credit and Finance Business Strategy
Review of card products
Plan to completely renew and create cards that appeal to the young as well as
existing customers
Consider introducing new point program in addition to Daimaru Matsuzakaya points
Full renewal of cards is scheduled for next year 2020
Launch of merchantacquiring services
JFR Card concluded license agreement directly with “Visa” and “Mastercard” in July this year
Firstly review agreements of Daimaru Matsuzakaya Department Stores to contribute to cost
reduction, and then expand business

Build relations with customers through “settlement”
40

Develop various finance services using settlement data

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

Use of settlement data

Settlement

FinanceAs first step, grow operating profit to ¥5 bn in next Medium-term Plan or later

Further promote initiatives for growth as the Group’s pillar

41

Future Progress of Medium-term Business Plan
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 be fully operated,
Real Estate Business will grow steadily“Operating profit” growth curve forecast (before application of IFRS 16)
Operating profit(Billions of yen)

Business profit(FY)
Forecast

Forecast

Forecast

Plan to update figures in the Medium-term Plan in April next year factoring in effect of IFRS16, etc. 42

Strategic Investment and Return to Shareholders
for Growth (before application of IFRS 16)<Allocation 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

Return toshareholders¥60 bn or more
Expansion ofequityImplement capital policy well balanced among strategic investment,
improvement of return to shareholders and expansion of equity
Realize management structure that can achieve 8% ROE continuously

43Balance-oriented Capital Policy
Continue return to shareholders based on profit allocation according to performance andtargeting dividend payout ratio of at least 30%
Purchase 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

44*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>・Opened Shinsaibashi store from ESG perspective
・Formulated “Principles of Action for Suppliers”
・Hold explanatory meetings for suppliers (late Oct)・・・

Ensure understanding among all suppliers andemployees to enhance action levels
45For Enhancement of Corporate Value
Practice of corporate credo “Service before Profit = CSVSocialvalue

×Economic
value

With empathy from stakeholders, we will speed up
the Group business structure reform

Medium- to long-term enhancement of corporate value

46

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.
On the other hand, policy changes and the enforcement and easing/abolition of laws andregulations 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.
by transferring 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), etc. due to the evolution of technologies, itwill become a threat.
On the other hand, if we can combine technologies with existing businesses and change them toa 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” is sure to come in the near future. It is essential to respond to
this big change, and since increased competition from competitors is inevitable, the change will
become a threat if we fall behind in responding to it.
On the other hand, 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 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.
On the other hand, new growth opportunities will expand if we can redefine the potential of theGroup’s strong affluent market, expand the scope of activities of gaisho divisions in terms of quantityand quality, and provide high-end services as well as products. With regard to the struggling middle
class market, 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 sametime, it is important 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 an extension of the past consumption and develop products, services, and selling
methods that respond to new consumption behaviors of new customers to accurately capture thesechanges in consumption.

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.
On the other hand, 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 increase sales and opportunities for theGroup’s sustainable growth will expand.

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.
On the other hand, 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 great threat.
On the other hand, if we can stimulate various potential demands through initiatives to shareproducts, 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.

47

Risk Recognition (2)Risk associated with impairment

Risk associated with exchange rate fluctuations

The Group has fixed assets for the purpose of business activities including land and buildings forstores. 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.
On the other hand, 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.
On the other hand, 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.
On the other hand, 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.
On the other hand, 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.
On the other hand, we can minimize the impact of stock value fluctuations by appropriately
managing the portfolio of shareholdings.

48

https://www.j-front-retailing.com

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.
Perspectives on slides 35 and 38 and photos in the upper left and lower right of slide 36 were provided by Takenaka Corporation.