Watts Co., Ltd.

(2735; Tokyo Stock Exchange First Section)

Operating Results for the Six Months of
the Fiscal Year Ending August 31, 2018
and Progress of the Full-Year Plan
April 16, 2018 (Monday)
Fumio Hiraoka, President and CEO

Contents
Financial
Results

Operating Results for the Six Months of
the Fiscal Year Ending August 31, 2018
and Progress of the Full-Year Plan

P2 – P16

Forecasts
Mid-term Plan

Reference1

Financial
Results

Our core 100-Yen shop business struggled in 1H due toabnormal weather, etc., and missed the targets(Millions of yen)

Financial highlights

FY8/17 2Q

FY8/18 2Q (Current period)

Ratio to sales

Ratio to sales

Ratio toforecast

YoY

Sales

23,484－23,886－101.7％

97.5％

Gross profit

8,868

37.8％

9,207

38.5％

103.8％－

Selling, general and administrative
expenses

8,224

35.0％

8,613

36.1％

104.7％－EBITDA

813

3.5％

761

3.2％

93.7％

－

Operating profit

643

2.7％

593

2.5％

92.1％

82.4％

Recurring profit

695

3.0％

602

2.5％

86.6％

80.3％

Net income attributable to owners ofparent

489

2.1％

379

1.6％

77.5％

82.5％

Net income per share (Yen)

36.13

－

－

28.00

 Sales rose by only 1.7% YoY due to weakness in 100-Yen shop same-store sales, mainly due toabnormal weather.
➡P5 Gross profit increased by 3.8% as the gross margin improved by 0.7 percentage points.
➡P12
 Operating profit decreased by 7.9% as a result of higher SG&A expenses. This is due to a large increase
in rent and personnel expenses associated with an increase in the number of shops, and an increase in
the use of temporary staff when opening shops.
➡P13
 Net income attributable to owners of parent decreased by 22.5% YoY as the Company recorded thegain on income taxes-deferred in the same period of the previous fiscal year due to the reorganization of2
the company.

Financial
Results

Aiming to further improve the Watts brand in Japan,
and further increase sales in overseas business

Domestic 100-Yen Shop BusinessOpening/closing

Opened 81 shops against the full-year plan of 108 shops and closed 32 shops
against 75 shops. The number of shops at the end of the period was 1,136 (netincrease of 49 shops)➡P6

Watts brandshops

Establishment of the “Watts with” model which opens at an investment based on
the sales size accelerated shop openings and renovations. As a result, the numberof Watts brand shops increased by 95 to 352.
➡P7

Domestic Other Business
Buona Vita
Søstrene Grene

A life-style goods shop offering comfortable life. Decreased by 4 shops to 21 shops.
Focused on development of existing shops such as by carefully selecting shop
➡P8
opening locations and improving product lineups.
Denmark’s life-style goods shop. Opened up to 4 shops. Raise brand recognitionand expand its scale of operation to make the business into profitable➡P9

Overseas BusinessGroup sales
Number ofoverseas shops

Sales of overseas business were 119.8% YoY, expanding its ratio to consolidated
sales from 4.6% to 5.4%

➡P10

The number of shops that are selling WATTS products was 62 (down by 4 YoY),
and more than 100 shops including local partners’ shops.

➡P11
3

Domestic 100-Yen shop business remains the primarysource of sales. However, its ratio to consolidated sales
declined due to the growth of the overseas business, etc.

Financial
Results(Millions of yen)
Sales by Business Type
Domestic
100-Yen shops

Overseas
Business

FY8/17 2Q

FY8/18 2Q (Current period)

Ratio to sales

Ratio to sales

YoY

Directly-managed

19,67083.8％

20,22184.7％

102.8％

Wholesale, Other

1,655

7.0％

1,410

5.9％

85.2％

Subtotal

21,325

90.8％

21,632

90.6％

101.4％

Directly-managed

459

2.0％

526

2.2％

114.6％

Wholesale

623

2.7％

771

3.2％

123.7％

1,083

4.6％

1,298

5.4％

119.8％

889

3.8％

956

4.0％

106.5％

177

0.8％

ー

ー

ー

23,484100.0%

23,886100.0％

101.7％

Subtotal
Buona Vita

Lifestyle products
business

Søstrene Grene
AMANO

Other

Total

 Sales of domestic 100-Yen shop business increased by 1.4% YoY. However, its ratio to consolidated
sales decreased by 0.2 percentage points due mainly to the decrease in wholesale sales of franchised
shops and growth in overseas sales.
 The ratio of overseas business to consolidated sales increased by 0.8 percentage points to 5.4%.
4

100-Yen Shop same-store sales were 98.9% YoY,
Aiming to achieve full-year targets by renovating andrevitalizing sales floors

Financial
Results

FY8/18 (current period)

105.0%
101.3%

103.2%

101.8%

100.7%Sep.

1H total

101.8%

100.8% 101.0%

101.5%

98.2%

99.9%

97.5%

96.5%

95.0%

101.8%

99.5%
99.8%

90.0%

103.2%

101.9%

100.6%

100.0%

FY8/17 (previous period)

Because the number of customers
decreased significantly to 95.3% YoY,
due to the impact of typhoons that hit
twice during the weekends andprolonged rains during the month.

Sluggish sales due to heavy snowfall ineastern Japan and nationwide cold waves.
The number of customers were 97.8% YoY
in January and 97.3% YoY in February.

Oct.

Feb.

Nov.

Sales

Dec.

No. ofcustomers

Jan.

Spending per
customer

YoY

101.8％

100.7％

101.1％

Current period

98.9％

98.4％

100.3％*March 2018: 100.1%

Mar.

Apr.

May

Jun.

Jul.

Aug.

 Spending per customer exceeded theprevious year's level, but this was below the
full-year target of 101.0%, as the number ofcustomers was weak due to the frequentabnormal weathers and other factors.

5

Financial
Results

Openings of new 100-Yen shops continued to perform well
The number of shops was 1,136 at the end of 2Q

Opening

Closing

1,087
1,008

Opening/closing plan vs. results

No. of shops at the end of period

1,136

1,101 1,120

1,028

2Q opening plan
55 shops→ Opened 81 shops(75.0% to the full-year plan)

130

113

108

102

81
55
64

82

FY8/15

FY8/16

FY8/17→ Closed 32 shops(42.7% to the full-year plan) New shop openings performed well, and
75

71

32

2Q closing plan
41 shops

41

FY8/18 2Q FY8/18 2Q

FY8/18(Forecast) (Forecast)achieved the 1H target (exceeded 26 shops
compared to the plan), although the large
number of new shops is consignment typewith relatively small sales scale.
 There is still scope for opening consignment
shops which account for 68 shops of 81
shops.

6

Financial
Results

Watts brand shops: the number of shops increased to 352
due to new shop openings and renovations of existing shops

352

ClosingRenovation

257

Opening

20

184

No. of shops at theend of period

11
12

20

115

March 2018 Watts Namba Marui Shop (Osaka)

78

22

57
1

15

63
48

50

20
7

-2

-1

-1

-3

FY8/15

FY8/15

FY8/16

FY8/16

FY8/17

FY8/17

FY8/18

2Q

4Q

2Q

4Q

2Q

4Q

2Q

 The share to total number of shops (1,136 shops)
is 31.0%.
 Established multiple shop opening models
according to sales. Prepared to open 100 shops
annually.
 To open shops mainly Watts brand; renovations
will be made with reviewing the possibility ofrecovering its investment.
7

Financial
Results

Buona Vita: Selected locations of shops to focus on
upgrading existing shops and improving profitability

Opening
Closing
No. of shops at the end of period

25
23

21

21

22

9
6
4
4

4

FY8/15

FY8/16

5

July 2017 KOBE HARBORLAND umie shop

31

FY8/17

FY8/18FY8/182Q(Forecast) Closed 4 shops and totaled 21 shops
 Same-store sales remained at 99.4% YoY,
although the Company is gradually replacing a
product range tailored to each store.
 Slowed the pace of new shop openings to
improve profitability at existing shops.

(Result)

8

Financial
Results

Denmark's "Søstrene Grene", a life-style goods shop
offering North European items, has 4 shops mainly in Tokyo

November 2017

Søstrene Grene PRIMETREE AKAIKE Shop Operated by a joint venture company “Hilmer Japan Co., Ltd.”. A brand company which operates
more than 180 specialty shops offering North European items mainly in Europe holds 40% shares.
 Opened the first flagship shop in Omotesando on October 28, 2016. Then opened shops inDiverCity Tokyo Plaza and also in Marui Kichijoji. In November 2017, opened a shop in“PRIMETREE AKAIKE,” a shopping mall in Aichi Prefecture.
 Sell North European items at reasonable prices and introduce about 100 new items every week.
 Not achieved to be profitable, but profits have been improving. Using SNS to improve brandrecognition and promote multi-store expansion, with the aim of making the business into profitableearly.
9Financial
Results

Growth in directly-managed shops in Peru and wholesale
sales in Vietnam
New supply locations, such as the Philippines, also
contributed to the growth

966（Millions of yen）
Directly-managed sales

99

151

169

638

Wholesale sales

256

226

419

282
208
74

1,298

915
623

645

529

320

386

748

771

410

270

149

1,083

1,213

228

459

465

526

FY8/12 1H FY8/12 2H FY8/13 1H FY8/13 2H FY8/14 1H FY8/14 2H FY8/15 1H FY8/15 2H FY8/16 1H FY8/16 2H FY8/17 1H FY8/17 2H FY8/18 1H

 Directly-managed shops gain foothold while focusing onwholesale sales to neighboring countries (collaboration
with local partners).
 There are about 40 fixed-price shops with sales floors
consisting of the Company’s products which include 19
shops in Myanmar, 11 shops in Mongolia and othercountries.

October 2017 Lurin Shop (Peru)

Overseasbusiness

FY8/171H

FY8/181H

Sales

1,083 million yen

1,298 million yen

YoY

119.8％

10

The number of own-brand shops was 62.
Including shops of local partners, there are more than 100
retailors dealing our items.

Financial
Results

Opening

Opening
Closing
No. of shops at the end of period

66

62

71

59

Number ofshops

Closing(End-Feb.
2018)

Thailand

3

1

33

China

－

5

4

Malaysia－

1

4

Vietnam

－

2

12

Peru

2

－

9

Total

5

9

62

 Same-store sales in Thailand are recovering, and
35

13

28
18

8
12
9
3

4

FY8/15

FY8/165

5

FY8/17 FY8/18 2Q FY8/18(Result) (Forecast)

the Company will continue to focus on products
while aggressively opening new shops.
 Malaysia transferred its sales subsidiary to a local
partner in April. As the main market, the Company
will continue to expand mainly wholesales.
 China shrank its direct-managed shops andfocused on pop-up shops.
 Peru's directly-managed shops remained strong.
Started wholesales to Mexico in the previous fiscal
year.
11

Financial
Results

Measures to reduce procurement costs began to bear
fruit and gross margin improved by 0.7 percentage points YoY

Gross profit

Gross margin

38.5%
38.0%

37.8%
37.5%

8,360

8,579

8,868

9,207

FY8/15

FY8/16

FY8/17

FY8/18

2Q

2Q

2Q

2Q
(Current period)

In the 100-Yen shop business Gradually replace stock of higher value-added
products mainly in the Watts brand shops.
 Reduce high cost rate food and continue toraise the daily-use product sales ratio.
 Composition ratio of directly-managed shops
continue to rise because of not expanding
franchised shops and wholesaling.
In other domestic businesses Aim to expand the sales share of Buona Vita
and Søstrene Grene (which is capable ofearning a relatively high gross margin).
In the overseas business Recently, because the wholesale with low
markup rate compared with directly-managed
shops is expanding, the Company will carefully
assess appropriate gross margin.

12

Financial
Results

Gross profit increased by 3.8%, but it was not enough tooffset the increase in SG&A expenses, and operating
profit was 92.1% YoY.

（Millions of yen）
Amount ofincrease YoY in
gross profit

Amount of increase
YoY
in rent

169
338

Increased due to the steady
opening of 100-Yen shops andthe increase in the number of
Søstrene Grene shops
Amount of increase
YoY in personnel
expenses

159

Operating profit

Gross profit increased by 3.8% YoY due
to a 1.7% increase in sales and 0.7
percentage points improvement ingross margin

Almost the same as in the previous
fiscal year due to optimization of
expenses for Watts shop openings andrenovations, although shop openings
exceeded the plan.

Amount ofdecrease YoY in
equipment cost28

Increase/decreasein other expenses

88

Increased due to increase in the number of parttime employees associated with new shop
openings, and rising hourly wages due toincrease in minimum wage and labor shortage

643

Decreased by 50 million yen

Previous period

92.1％ YoY

Operating profit
593

Current period

13

Financial
Results

Fixed assets gradually increased as a result of new shop
openings and renovation of existing shops.
Shareholders’ equity ratio slightly increased from 49.7% to 51.6%.
（Millions of yen)

Consolidated
Balance Sheet

FY8/182Ｑ(Current)

FY8/17

ChangePct. change

20,084
15,276
5,727

19,717
14,717
5,473

-367
-559
-253

Down1.8％

2,201

1,911

-289

Down13.1％

Notes and accounts payable-trade

6,506
842
4,807
257
683
590
453
2,488
334
10,210
8,824
6,325

6,684
647
4,999
257
741
651
486
2,515
345
9,674
8,269
6,288

178
-194
191
－
58
61
33
27
11
-536
-554
-36

Current portion of long-term loans
payable

648

653

4

349
252
1,249
1,386

241
86
999
1,404

187
1,198
9,873
9,969
440
1,637
8,029
-137

Total assets
Current assets
Cash and deposits
Notes and accounts receivabletrade
Merchandise and finished goods
Other current assets
Fixed assets
Land
Buildings and structures
Tools, furniture and fixtures
Investment securities
Guarantee deposits
Other fixed assets
Total liabilities
Current liabilities

Accrued income tax

Consumption tax payable
Other current liabilities
Fixed liabilities
Liabilities relating to retirement
benefits
Other fixed liabilities

Net assets
Shareholders’ equity
EquityRetained equity
Retained earnings
Treasury stock
Accumulated other comprehensive
incomeNon-controlling interests

 Merchandise and finished goods increased by 178

Down3.7％
Down4.4％

million yen due to aggressive shop openings andrenovations of 100-Yen shops, while optimizing
inventories of Søstrene Grene.
Retained earnings increased by 175 million yen.
Shareholders’ equity ratio was 51.6%.

Up2.7％
Down23.1％
Up4.0％－
Up8.6％

Liabilities and net assets

Assets(Millions of yen)

20,084

19,717

Down1.1％

Current

Current

Up3.3％

liabilities

liabilities

8,824

8,269
Fixed liabilities

Up10.4％20,084

19,717Up7.4％

Down5.3％
Down6.3％
Down0.6％

Current

Current

Up0.7％

assetsassets

-108
-165
-249
18

Fixed liabilities

Down31.0％

15,276

14,717

1,386

1,404

199

11

Up6.1％

Total

Total

1,205
10,042
10,144
440
1,637
8,204
-137

7
168
175
－
－
175
－

Up0.6％

net

net

assetsassets

9,873

10,042

Down65.6％
Down20.0％
Up1.3％

Up1.7％
Up1.8％

Fixed

Fixed

－

assetsassetsーUp2.2％

4,807

4,999

－

4

36

31

Up639.9％

-100

-138

-37

－

Previous period Current period

Previous period Current period

14

Financial
Results

Investment C/F increased due to aggressive shop
openings and renovations
Operating C/F secured 344 million yen（Millions of yen)

Consolidated Cash
Flows

FY8/172Ｑ

FY8/182Ｑ
Pct. change(Current)

Cash and cash equivalents at beginning of period

5,030

5,727

696

Net cash provided by (used in) operating activities

588

344

-244

Income before income taxes and minority interests

649

591

-58

Depreciation and amortization

170

169

0

Decrease (increase) in accounts receivable- trade

233

291

57

Decrease (increase) in inventories

-230

-160

69

Increase (decrease) in accounts
payable-trade

-14

2

16

-177

-329

-151

-43

-219

-176

Net cash provided by (used in) investment activities

-259

-391

-132

Payments for acquisition of tangible fixed assets

Income taxes paid
Other cash flows from operating activities

-181

-320

-139

Payments for lease and guarantee deposits

-63

-78

-15

Proceeds from collection of lease and guarantee
deposits

61

45

-15

Purchase of investment securities

-48

－

48

Other cash flows from investment activities

-27

-37

-10

Net cash provided by (used in) financing activities

0

-197

-197

Proceeds from long-term loans payable

599

400

-199

Repayment of long-term loans payable

-396

-394

2

Cash dividends paid

-202

-203

0

14

-9

-24

5,375

5,473

98

329

-244

-573

Effect of exchange rate change on cash and cash
equivalents
Cash and cash equivalent at the end of period* Free cash flows（Millions of yen）

344

391

197

9

5,473

5,727
Cash and cash equivalents decreased by
253 million yen

Cash and cash

Effect of exchange

Cash and cash

equivalents at

Operating C/F

Investing C/F

Financing C/F

rate change onequivalents at end

beginning of period

cash and cashof period

equivalents Due to shop openings and renovation, inventory assets increasedby 160 million yen. 320 million yen was used for acquisition of
tangible fixed assets and 78 million yen was used for lease andguarantee deposits.
Operating C/F was 344 million yen due to income taxes paid of
329 million yen and decrease in other deposits of 158 million yen.
Decreased by 244 million yen from 2Q of the previous fiscal year

15

Financial
Results

Both sales and profits did not reach the 1H plan
Aiming to achieve full-year targets through solid growth measures
100-Yen shop businessProgress rate to full-year forecasts
100%



90%

Other domestic business

80%



70%



60%


40%

48.2%

20%

40.9%



39.6%

41.0%

The company in Malaysia, which had been an unprofitablearea, was transferred to a local partner company. Enhancing
management guidance and product follow-up as a franchisor.
Improved product procurement capability by reforming
logistics networks. Expanding the popular product line-up to
boost sales

New subsidiary

10%0%Buona Vita：Reviewing price ranges at some shops topromote sales strategies tailored to their locations
Søstrene Grene：Aiming to enhance brand recognition byproactively using SNS. Accelerating the development ofmultiple shop

Overseas business

50%

30%

Establishing shop model that will be able to overcome
competitors in urban areas. Brush up Watts brand from thelaunch of Watts Namba Marui and Watts Kobe Marui in
March.
Enhancing products by leveraging procurement know-how ofReal Co., Ltd.


Sales

Operating profit Ordinary profit

Net income
attributable toowners of parent

On April 2, 2018, acquired all shares of Real Co., Ltd. andmade it a consolidated subsidiary. Real operates four shops in
Osaka and Hiroshima, which are community-based discountshops. Their strength is its extensive line-up of daily
necessities. Expectations for synergies with the 100-Yen shop
business.

(Net income)16

Contents
Financial
Results

Business Forecasts for the Fiscal Year
Forecasts
Ending August 31, 2018 andMid-term Plan
Medium-Term Management Plan

P18 – P29

Reference17

Forecasts
Mid-term Plan

Customer needs for 100-Yen shops continue to diversify
and remain firm while overseas market will become
even more important* Information as of the time the medium-term management plan was formulated Due to hourly wage hikes resulting from improvement in employment situation,Japan

recovery in consumer confidence is expected but inflation is likely to remain limited.
 There are risk factors such as the Bank of Japan’s exit strategy but the price of crude oil is
expected to remain stable and the foreign exchange market looks less likely to swing towards one
direction unless there is an emergent event.
 There will be rush demand before the consumption tax rate hike planned in October 2019 and thesubsequent downturn.
 Toward the Tokyo Olympics in 2020, infrastructure-related investment is likely to become much
more lively. Demand for reconstruction of facilities of high economic growth period (60’s & 70’s) isalso expected.

Slowly begin to realize that the economy is recovering
Needs for 100-Yen shops is growing despite greater diversification
 The United States economy is expected to continue to slowly expand, but there may be a sense ofOverseas

uncertainty depending on how the policies of administration are executed.
European economy except United Kingdom is expected to be strong. The negotiations over thewithdrawal of the United Kingdom from the European Union might become a destabilizing factor.
In Asian economies, there are concerns over a slower rate of growth in the Chinese economy,
which is expected to have a ripple effect on other emerging economies.
However, there is concern that geopolitical risks have been revealed in East Asia and the Middle
East.

Overseas market is important, while the size of the domestic market isunlikely to grow significantly

18

Forecasts
Mid-term Plan

The growth strategy for the domestic 100-Yen shop is
the brushing up of Watts brandGrowth strategy
100-Yen shop

Recover profitability by promoting business models of both type of tenancy andconsignment

business strategy

Overseas business strategy
Other businesses strategy

Formulate and deploy country-specific business models to quickly achieve a 10% shareof salesCultivate businesses that complement the domestic 100-Yen shop business, including
by tapping into M&A needs

 Tenant shops strategy

Growth strategy
for domestic 100-Yen
shop business

Brush up Watts brand by revising both facilities and operations.
For facilities:
Renovate shop package and expand “Watts” and “Watts with” shops and “WATT’S new”
proposal type sales floors.
Develop a more sophisticated order placement support system using POS system and reflect
merchandising.
For operations：Renovate shop operations to create invigorated atmosphere and work to improve productivity.
Review employee training in pursuit of higher levels of customer satisfaction.
 Consignment shop strategy
Review shop packages to achieve better value for money and replacements with attractive
merchandise.
 Strengthen competitiveness of products to meet customer needs.

19Forecasts
Mid-term Plan

Overseas business: adopt a steady and stable stancetowards each of the countries
Domestic and other businesses: being careful and bold

Growth strategy
foroverseas business









Growth strategy
for other business

Thailand: Steady shop openings and improvement in sales of existing shops
Vietnam: Development of new locations of shops and improvement in sales of existing shops
Malaysia: Fundamental review of business model
China: Focus on conducting pop-up shops and opening shops operated through an agent
contract, not on directly managed shops
Peru: Active opening of directly-managed shops and development of markets in other Latin
American countries
Reduction of procurement cost by using distribution system in China
Development of new target areas based on the thorough market research Buona Vita
Select locations of shops to create more profitable businesses.
 Søstrene Grene
Establish brand strength and open 30 shops in Japan early by dispatching
information using SNS and increasing media exposure.
 Develop M&A projects that are likely to generate synergies with the core
100-Yen shop business.

20

Forecasts
Mid-term Plan

The trinity of 100 yen shops, overseas business, and otherdomestic business to drive the growth of the groupContinue to pursue
Structure to Sell
Better Products at
Lower Prices
 Low-cost opening and closingof shops
 Low-cost operation
 Best value-for-money dailyuse household items

Establish businessmodel for eachcountry Expand directly managed
shops by fully owned local
subsidiaries
 Establish joint venturecompany with local partners
 Develop new shops by
franchisee system

Brush up of Watts brand

100-Yen Shop business

Overseasbusiness

Otherbusinesses

 Shops and product lineups that
add more style to one’s life Establish shop opening model of“Watts” and “Watts with”
 Utilize POS system and improvereordering support system

Expand business andEnlarge source of
earnings
 Grow existing business andsecure profitability
 Capture new opportunities
including M&A

21

Forecasts
Mid-term Plan

The basis of the 100-Yen shop does not change: polishingup a “Structure to sell better products at lower prices”

Best value-for-money
practical-use
household items○ Open many small-to-medium shops
 Development of shops with average
size of 230㎡

 Holding minimum assets in shops andhaving conditions conducive to closing
shops in leasing contracts enable quick
shop closing.
⇒Achieve profitability even in locations whereother companies are unable to launch shops

Low-cost
opening andclosing of shops

Profit obtained from low-cost opening andclosing of shops and low-cost operation isinvested into the development of best valuefor-money products.



A private brand “Watts Select” offers an
overwhelming value-for-money householditems○ Eliminate unreasonable, useless For properties which have lesscompetition with other companies,
Watts can open shops with favorable
conditions.
○ Aggressive closing of unprofitable shopsand irregular matters○ Simplify and standardize

Structure to sellbetter products
at lower prices⇒ Put in manual Part-time worker runs daily operation
 Supervisor(corporate staff) manages
multiple shops
 Shop operations focus on good
customer service rather than routine
operations

Low-cost
operation
22

Forecasts
Mid-term Plan

- Business Model Restructuring Initiatives
New shop format "Watts Brand Shops"

Expansion of Watts brand shops

 The names of shops are "Watts" and "Watts with"
 Increased at a pace of 100 shops per year with new shop
openings and renovations
 Plan both to improve customer satisfaction and to maximize
sales and profit by establishing a shop model to suit thelocation and customer base, while leveraging our expertise in
low-cost opening and closing of shops and low-cost operation,
which we have cultivated through existing models “meets." and"silk”.
23

- Business Model Restructuring Initiatives
Forecasts
Mid-term Plan Introduction of sales floor revitalization measures and POS system
Revitalization of sales floors


Increase the number of fashionable
items, switching from the standard
lineup of consumables and generalmerchandises.

Implement headquarter-led sales
promotional campaign that each store
displays and features specific items
along with a theme for each month*The photo on the left shows an example.

Implement creative ideas at shopsthat reflect their respective locations,customer segments and othercharacteristics.

Introduction of POS system

 Accurately identify successful and unsuccessful items
 Introduction of ordering support system to avoid losing sales opportunities due toshortage of products
 Create sales floors that match seasonal and regional characteristics by sharing
sales data accumulated under the Watts brand with “meets." and "silk”.
24Forecasts
Mid-term Plan

Watts brand shops and new sales floor functions!
Develop proposal type sales floor “WATT’S new”

 Set a theme every 3 months and drastically change displays.
 Develop an area that allows customers to image a scene of life and appeal to young
females.
 Watts Namba Marui Shop and Watts
Kobe Marui Shop, which opened in
March 2018, are also displaying“WATT'S NEW” space.
※ Also available in Watts Seibu
Honkawagoe Pepe Shop and Watts
with Kitaurawa Aeon Shop.

25

Forecasts
Mid-term Plan

Started new initiatives using SNS
Raising its recognition from many people and stimulate theirbuying intentions

https://twitter.com/watts_sns
・Watts official twitter
Providing photos of recommended
products and announcements ofmonthly sales promotion.
Retweeting blogs and articles
containing 100-Yen shop
information.

https://www.instagram.com/watts_sns

・Watts official

Instagram
Like twitter, we will inform you therecommended products of our 100Yen Shops. Providing attractive
information so that more people will
follow.

 Launched our official SNS accounts in the
100-Yen Shop business!
 Aiming to acquire new customers as wellas increase the frequency of visits ofexisting customers

LINE@ is also available at several shops, whichusers can get information when you become
friend.
26

Forecasts
Mid-term Plan

Try out a variety of business in Japan to diversify ourrevenue sources and operations

Life-style goods shop
proposing Buona Vita
(comfortable life). Operates
21 shops as of the end of
February 2018.
Shown on the left is
Sannomiya OPA2 shop
opened in February 2017.

Collaboration shop between Daikokuten
Bussan Company and Watts consisting of 100Yen shop and grocery“Søstrene Grene”, a joint venture
in a life-style goods shop offering
North European items.
Operates 4 shops as of the end of
February 2018.

Import and wholesale of European
taste lifestyle goods

27Forecasts
Mid-term Plan

Accelerate expansion by establishing optimal businessmodels tailored to each of the countries

 KOMONOYA

 小物家园 “KOMONOKAEN”

 Product supply by wholesale Number of shops (end-Feb. 2018)

Currently, wholesale operations were in the following countries:
China, South Korea, Taiwan, Myanmar, Singapore, Mongolia,
New Zealand, Australia, Mexico, Brunei and Philippines, etc.

Thailand（J/V, directly-managed）

33 shops

Malaysia (fully-owned, directly-managed)

4 shopsVietnam（J/V FC）

12 shops

The number of retailers including wholesalers that are selling
only WATTS products is more than “100 shops”

China (fully-owned, directly-managed, FC)

4 shops

Peru (fully-owned, directly-managed)

9 shops

Total 62 shops
28

3-year target: sales of 53.5 billion yen, operating profit
margin of 3.4%, and ROE of 9.6%

Forecasts
Mid-term Plan
6,000

Profit (million yen)

Sales

Operating profit

Recurring profit

Sales (million yen)

Net income

60,0005,000

50,0004,000

40,0003,000

30,0002,000

20,0001,000

10,0000

FY8/10FY8/11

FY8/12

FY8/13

FY8/14

FY8/15

FY8/16

FY8/17

FY8/18FY8/19FY8/20(Forecast)(Forecast)(Forecast)

0（Millions of yen)

3-year Plan
Sales

FY 8/16 (Result)

FY 8/17 (Result)

FY 8/18 (Forecast)

FY 8/19 (Forecast)

FY 8/20 (Forecast)

Ratio tosales

Ratio tosales

Ratio tosales

Ratio tosales

Ratio tosales

46,176

YoY－ 103.9％ 47,494

YoY－ 102.9％ 49,600

YoY－ 104.4％ 51,500

YoY－ 103.8％ 53,500

YoY－ 103.9％

Operating profit

1,205

2.6％

95.8％

1,209

2.5％ 100.3％

1,450

2.9％ 119.9％

1,600

3.1％ 110.3％

1,800

3.4％ 112.5％

Recurring profit

1,193

2.6％

94.4％

1,272

2.7％ 106.6％

1,520

3.1％ 119.5％

1,700

3.3％ 111.8％

1,900

3.6％ 111.8％

1.6％ 102.5％

839

1.8％ 116.8％

925

1.9％ 110.2％

1,050

2.0％ 113.5％

1,150

2.1％ 109.5％

Net income attributable toowners of parent
ROE

718

7.9%

-0.2P

8.7％

0.8P

8.9％

0.2P

9.4％

0.5P

9.6％

0.2P

Plan assumptions
100-Yen shop total at year-end (Shops)
Other shops total at year-end (Shops)
Other shops sales share
Of which overseas business total at yearend (Shops)
Overseas business sales share

1,028

20

1,087

59

1,120

33

1,155

35

1,190

35

81

22

95

14

100

5

129

29

156

27

8.6％

1.4P

9.3％

0.7P

10.1％

0.8P

11.2％

1.1P

12.0％

0.8P

59

24

66

7

71

5

91

20

111

20

4.1％

1.7P

4.8％

0.7P

5.9％

1.1P

6.0％

0.1P

6.7％

0.7P

29

Contents
Financial
Results

Forecasts
Mid-term Plan

Reference

About Watts GroupP31 – P36
30

Reference

Brands of Watts Group

Domestic 100-Yen shop business

Overseasbusiness

Other domestic
business31

Reference

Corporate Profile

Establishment
Meaning of the Company’s nameFebruary 22, 1995 (Currently the 24th business term)
Derived from “Wa! tto ikou”(Japanese catch cry to “go forth energetically”)

Market listing

Tokyo Stock Exchange First Section(Securities code: 2735)

Capital stock440.29 million yen (as of February 28, 2018)

Head office

Main business

Number of employees
Number of shops

5F,Sumitomo OBP Plaza Building, 4-70,
Shiromi 1-chome, Chuo-ku, Osaka-shi, Osaka Prefecture

Wholesale and retail of daily-use and household items(Mainly operation of 100-Yen shops)
3,187 employees (as of February 28, 2018) *Part-time workers included
1,224 shops (as of February 28, 2018) *Other shops included
32

Reference

Corporate History

Changed its corporate logo in 2015!
 2011 Advanced to Hokkaido（Opened shops in 47 prefecture）

2014
Exceeded 1,000 shops
Listed on TSE1

2009
Started overseas business
Advanced to Thailand 2002 Shares were publicly listed
2007（Current TSE JASDAQ）
Integrated with Ohthree Co., Ltd.

Exceeded 700 shops
 1997 Established distribution
center in Shiga Prefecture 1995 Established in Chuo-ku,
Osama , as a successor of
Hisamatsu Co., Ltd.

2005
100-Yen shops exceeded
300 shops

2002¥10b in sales
Went OTC

FY8/17

1998
Exceeded 100 shops
for 4 years
after establishment

Sales¥47.4bNo. ofshops

1,182 shops

1995
Established
Consolidated sales

No. of Group shops at the end of period

33

Reference

FY8/17

Shareholder Composition
Individual and others

Other companies

Foreign companies and others

Financial institutions

Securities companies

Treasury stock

37.54%

24.55%

23.18%

0.68%

11.52%
2.51%

1.05%
FY8/182Q

Total number ofshares issued
Number ofshareholders

37.34%

24.48%

21.50%

FY8/17 2Q

FY8/17

FY8/18 2Q

13,958,800
shares
5,060

13,958,800
shares8,316

13,958,800
shares
7,212-1,104

Other domestic
companies
Foreign companies
and others

35.46%
24.37%

37.54%
24.55%

37.34%
24.48%-0.2P-0.07P

22.72%
14.11%
0.83%
2.51%

23.18%
11.52%
0.68%
2.51%

21.50%
13.10%
1.05%
2.51%-1.68P+1.58P+0.37Pー

Financial institutions
Securities companies
Treasury stock

2.51%

YoY

－

Ownership ratio
Individuals and others

13.10%(Note) The figures are rounded to the third decimal place and may not add up to 100% when adding the ratios of each section.

 Shareholder benefit

program is conducted at
the end of the fiscal
year; the number ofshareholders tends todecrease at 2Q.

 Watts will secure return
capital for shareholders
by achieving goodresults.

34

Reference

Dividend Policy

The Company’s policy is “to maintain a stable dividend payment,”
considering the return of profits to shareholders.
Net income per share

Dividend per share

ROE（Return on Equity）

DOE（Dividend on Equity）

FY8/16

FY8/17

Net income per share (Yen)

51.73

53.04

61.96

68.28

Dividend per share (Yen)

17.00

15.00

15.00

15.00

Dividend payout ratio

32.9%

28.3％

24.2％

22.0％

Dividend yield

1.7%

1.6％

1.1％

1.4％

ROE (Return on Equity)

8.1%

7.9％

8.7％

8.9％

DOE (Dividend on Equity)

2.6%

2.2％

2.1％

2.0％

Dividend payout ratio

32.9%
28.3%
24.2%

8.1％
2.6%

7.9％

2.2%

8.7％

2.1%

22.0%
9.4％

2.1%

17.00 yen

15.00 yen

15.00 yen

15.00 yen

FY8/15

FY8/16

FY8/17

FY8/18(Forecast)

FY8/18(Forecast)

FY8/15*Dividend per share in FY8/15 includes a commemorative
dividend of ¥2.00 for the Company’s 20th anniversary of
establishment.
*Dividend payout ratio for each fiscal year is calculated basedon the stock price of accounting date.
(Dividend yield in FY8/18 is based on the stock price on
35
February 28, 2018)

Reference

Shareholder Benefit Program
Number of shares held

Description

100 to 999 shares

1,000 shares or more/
Holding 3 years or moreA

B

Package of our original productsA

B Shown above is products we delivered in FY8/17.
 We will plan more attractive benefits with reflecting your opinions and suggestions.

36

The data and future forecasts presented in this material are based on informationthat was available at the time this material was released. Changes in circumstances
can occur due to a range of factors and the Company gives no guarantee regarding
achievement of objectives and forecasts, or future operating results. Information
contained herein may change without forewarning. When using this data and referencematerials, please verify and confirm details against information that you have obtainedby other methods and exercise your discretionary judgment. Watts Co., Ltd. will in noway be held liable for any loss resulting from the use of this material.

Please contact us if you have any inquiry regarding this material.
Inquiries:
Hidehito Mori
(Executive Managing Director, Head of Corporate Planning Office), Watts Co., Ltd.

e-mail： ir@watts-jp.com
TEL ： 06-4792-3280