SANYO SHOKAI LTD. Cumulative Third Quarter of 2018 Financial Results Future Growth Strategy. October 30, 2018

Transcription

1 Cumulative Third Quarter of 2018 Financial Results Future Growth Strategy SANYO SHOKAI LTD. October 30, 2018

2 Contents Cumulative Third Quarter of 2018 Financial Results Future Growth Strategy 1

3 Consolidated PL: Jan-Sep 2018 Cumulative Operating income/ebitda were up about 500m due to improved gross profits and a reduction in SG&A expenses, while operating income was still in the red due to the significant impact of a decline in sales Units ( 100m) Q1-Q3 Actual Year-on-year % vs PY Net sales % Gross profit % SG&A expenses 5.2 Operating income Ordinary income Net income EBITDA

4 Major Financial KPIs: Jan-Sep 2018 Cumulative Although gross profit margin has improved greatly year-on-year, the SG&A expense ratio has declined. As a result, operating margin and EBITDA% improved by about 1% Q1-Q3 Actual Previous Year vs PY 49.0% 45.7% Gross profit margin +3.3% 54.4% 52.1% SG&A expense ratio +2.4% Operating margin -5.5% -6.4% +0.9% Net income margin 3.8% -3.3% +7.1% EBITDA% -4.1% -5.1% +1.0% 3

5 Consolidated PL: Q (Jul-Sep) Sales and gross profit are showing an improving trend yoy, while active investments in marketing with the aim of expanding sales resulted in increased SG&A expenses and lower operating income/ebitda yoy Units ( 100m) Q3 Actual Year-on-year % vs PY Net sales % Gross profit % SG&A expenses +2.4 Operating income Ordinary income Net income EBITDA

6 Consolidated PL: Q (SG&A Breakdown) Aiming to expand net sales in Q4, the peak sales period, more active marketing investment, which had been suppressed to date, and an additional investment of about 200m over the previous year Q3 SG&A Expenses (Units: m) 2018Q3 2017Q3 vs PY Personnel expenses 4,359 4, Outsourcing fees Rent expense for real Advertising expenses Logistics expenses Depreciation Repair expenses Sales commissions Taxes and dues Other ,423 7,

7 Consolidated BS Cash and deposits declined before Q4, the peak sales period, mainly due to increased delivery of products June 30, September 30, Difference Cash and deposits 25,953 18,942-7,011 Notes and accounts receivable 5,016 4, Merchandise and finished goods 11,388 15,333 3,945 Other 1,507 2, Total current assets 43,864 40,932-2,931 Buildings and structures 2,350 5,198 2,848 Land 7,335 7,335 0 Other 2,969 1,247-1,722 Total tangible fixed assets 12,654 13,780 1,126 Intangible fixed assets 3,211 3, Investment securities 15,598 16, Lease and guarantee deposits 2,337 2, Other Total investments and other assets 18,292 18, Total fixed assets 34,158 35,757 1,599 Total assets 78,022 76,690-1,332 June 30, September 30, Difference Notes and accounts payable 6,955 8,522 1,567 Income taxes payable Other 10,398 5,783-4,615 Total current liabilities 17,946 14,508-3,438 Long-term loans payable 3,057 8,072 5,015 Deferred tax liabilities 2,649 2, Net defined benefit liability 2, ,152 Other 996 1, Total fixed liabilities 9,127 12,181 3,054 Capital 15,002 15,002 0 Capital surplus 10,060 10,060 0 Retained earnings 19,905 18,460-1,445 Treasury shares Total shareholders' equity 44,718 43,272-1,446 Unrealized gains on other investmen 5,948 6, Remeasurements of defined benefit Other Total other accumulated compre 6,133 6, Non-controlling interest Total net assets 50,948 50, Total liabilities and net assets 78,022 76,690-1,332 6

8 Other: Extraordinary Losses Due to Call for Voluntary Retirement In the documents disclosed on September 21, the amount of extraordinary losses was planned to be notified in the announcement of Q3 financial results. However, due to the fact that: 1. There is a possibility that this voluntary retirement will fall into mass retirement 2. If this happens, the total unrecognized actuarial difference will be recorded as a loss and other factors, this has led to a difficulty in providing a reasonable estimate of the losses at this point. Therefore, the outlook for results will be notified again after December, once the voluntary retirement trend becomes known. 7

9 Contents Cumulative Third Quarter of 2018 Financial Results Future Growth Strategy 8

10 SIP-2017: How to Proceed from H2 of 2018 We would like to explain the growth strategy and restructuring reform measures as well as revised 2019 plan towards improvement in H2 of 2018 and 2019, the last fiscal year of SIP-2017 Report details at the H financial results announcement Revised 2019 plan development Review of 2019 quantitative forecasts based on amendment to 2018 full year projections Continue direction of growth strategy (strengthening branding, direct management and digital) Implement measures to achieve revised plan Growth strategy Restructuring reforms Measures to leverage existing business and implementation and investment planning for accelerated direct management and digital strategies The main challenge is a focus on top line growth Active investments in branding/marketing, IT/digital and new store openings/renovations Reform cost structure to achieve surplus even with current sales base Pressure on fixed costs (more streamlined) Dramatic review of organization, personnel and evaluation system to ensure strategic success Clarify areas responsible for not delivering on projections Active promotion of external professional personnel 9

11 Direction Sanyo Should Move In Corporate Principle We create social value by providing fashion and apparel that enrich the lifestyles of customers everywhere Create Customer Value and Maximize Customer Value Create and offer "products, sales area environments, customer service and communications that is consistently valued by customers by responding to their needs and expectations Promote digital transformation (DX) for value creation and maximization Aim for the realization of a sustainable society through business development that takes sustainability into consideration Products Customer service Customer Commu nication DX promotion Realization of a sustainable society Sales area environment 10

12 Future Sanyo Vision <Priority Strategies> i. Become a premium brand through enhanced branding and marketing using world-class craftsmanship as a strength ii. Promote digital transformation in all areas of the value chain iii. Actively seek to accelerate growth through M&A/capital and business alliances <The Ideal Future State of Sanyo Shokai> Japan Premium Fashion Company Realize overwhelming manufacturing based on Japanese craftsmanship - Locate all or some manufacturing processes in Japan and engage in high quality manufacturing based on craftsmanship unique to Japan Offer high quality and high value-added products at affordable prices - Provide new value at an optimal price, positioned between luxury and affordable, not found in existing brands or companies 11

13 Future Growth Strategy Actively invest in the three priority strategies towards becoming a Japan Premium Fashion Company Become a premium brand Digital transformation M&A/capital and business alliances Overview Strengthen original brands Strengthen direct managed businesses Active branding and marketing investments Business management that takes sustainability into consideration Strengthen EC Improved efficiency and sophistication of planning, production, retail, logistics and marketing areas through the use of digital Analytics/MD Order/customization Accelerated growth through M&A/investment utilizing a sound financial base Premium brand Digital capabilities Omnichannel etc. Growth investments A&P to sales ratio 5%- Assumed investment scale (up to 2020) Over 10bn 12

14 Become a Premium Brand (1): Strengthen Direct Management Accelerate the opening of direct managed stores focused on the corporate brands and original brands. Aim to improve brand value in addition to active marketing investments Corporate brands Original brands S.ESSENTIALS Nihombashi Takashimaya S.C. 2018/9/25 New store opened EPOCA THE SHOP Marunouchi 2018/9/14 Reopened after renovations Sanyo Yamacho Nihombashi Takashimaya S.C. 2018/9/25 New store opened LOVELESS SunnySideFloor Shinjuku Flags 2018/10/5 New store opened Grand Front Osaka 2018/10/5 New store opened 13

15 Become a Premium Brand (2): Strengthen Branding and Marketing Active branding and marketing investments, which were suppressed to date extensively expand launches across the company in addition to each brand AW2018 Coat Promotion Plan Launch across all brands, mainly around coats, which are the strength of Sanyo, after November, that is the peak season for winter items Marketing Measures Circular in the morning paper on Friday, November 16, 2018 Plan to distribute 2.8m copies nationwide, mainly in the Asahi Shimbun, The Chunichi Shimbun, Nishinippon Shimbun, etc. Increased tabloid printing of 100k copies expanded to target stores nationwide Appointed Anne (actress and model), who is popular across generations, as the main model (advertising period: Nov 16 - Dec 31) Channel Measures Open "The COAT Station" print media collaboration limited-time store in 17 major stores nationwide Create a special page in SANYO Style MAGAZINE and strengthen appeals and sales on the digital side 14

16 Become a Premium Brand (3): Sustainability Begin deployment of APOLIS under the GLOBAL CITIZEN concept Prohibit the use of real fur from the perspectives of sustainability and animal welfare APOLIS (Global Citizen) Founders Raan and Shea brothers were motivated to build a business model which forms a bridge for the economic development of developing countries that they traveled to around the world Active mission to create global scale employment as global citizen 2018/10/20 APOLIS launch event Prohibit the use of real fur (from AW2019) Prohibit the use of real fur from AW2019 products from the perspective of respecting the dignity of animals Prohibit the use of all fur, including mink, fox, rabbit, raccoon and kangaroo etc. in all brands and all products (including partial use and in miscellaneous goods) 15

17 Digital Transformation: Overview Promote active digital transformation in all areas of the value chain Focus areas and themes: "Personalization, Seamless, Customized, Use of AI" Downstream (customer contacts) Upstream/midstream (product supply base) Store front/sales Personalized customer service Seamless purchasing experience More efficient store operations Planning/Merchandising Improve planning precision using AI Strengthen response during the period using data CRM/Marketing Seamless brand experience MROI visualization Expansion of membership base/create fans Sanyo Digital Transformation Production/Procurement Digital PO/customization Reduction and improved efficiency of manufacturing cycles E-commerce (EC) Seamless purchasing experience Development of new business models Malls, D2C, subscription etc. Logistics/Warehousing Improved work efficiency Profit center development 16

18 Digital Transformation: Business Alliance with ABEJA Concluded a business alliance with ABEJA, Inc. to realize a new customer experiences using AI ABEJA, Inc. company profile Name of company Representative Address Capital Business content URL ABEJA, Inc. Yousuke Okada, Representative Director 10F NBF Platinum Tower Shirokane, Minato-ku, Tokyo 5,399,974,043 (including capital reserve) AI social implementation business using deep learning Logo 17

19 Digital Transformation: Business Alliance with ABEJA Aiming to realize a seamless and personalized customer experience Examples of new customer experiences aimed for with ABEJA business alliance User EC browsing history and GPS information Store visit App beacon/ Facial image Store staff Mr./Ms. A XXXX Past purchase history Staff-owned terminal Customer profile Past purchase history EC site and app browsing history Recommended products etc. In addition, aim to provide services that lead to persuading customers to make purchases through the offering of benefits such as coupons and points based on customer behavior and triggers in stores *For facial images, the Act on the Protection of Personal Information, the IoT Acceleration Consortium and the Camera Image Utilization Guidebook Ver. 2 formulated by the Ministry of Economy, Trade and Industry and the Ministry of Internal Affairs will be complied with and statistics created, and handled after anonymization and other measures. 18

20 M&A/Capital and Business Alliances: Target Company Concepts Achieve consistency with the Future Sanyo Vision, focus on premium brand/digital with aggressive M&A/capital and business alliances Future Sanyo Vision Investment candidate concepts <Priority Strategies> i. Become a premium brand through enhanced branding and marketing using world-class craftsmanship as a strength ii. Promote digital transformation in all areas of the value chain iii. Actively seek to accelerate growth through M&A/capital and business alliances Premium brand A highly regarded brand for creativity/originality in Japan and overseas A brand/company highly regarded by users, with craftsmanship as a strength A brand/company that launches brands with sustainability/ethicality at their cores <The Ideal Future State of Sanyo Shokai> Japan Premium Fashion Company Realize overwhelming manufacturing based on Japanese craftsmanship - Locate all or some manufacturing processes in Japan and engage in high quality manufacturing based on craftsmanship unique to Japan Offer high quality and high value-added products at affordable prices - Provide new value at an optimal price, positioned between luxury and affordable, not found in existing brands or companies Digital A company that launches business models that differs from existing EC Subscription, D2C, C2C reservation sales, value appeal model, etc. A venture with the capability of accelerating innovation in each area of the value chain MD/production/storefront/logistics/ market 19

21 Revised 2019 Plan (Consolidated) Achieve a surplus in operating profit through growth of net sales and lowering of SG&A expenses (Requires refinement after finalization of 2018 projection) 2019 projections 2018 projection 2019 initial plan vs 2018 projection vs 2019 initial plan Financial Figures ( 100m) Net sales Gross profit SG&A expenses Operating income Major Financial Indicators Gross profit margin 49.2% 48.8% 50.0% 0.4% 0.8% SG&A expense ratio 48.4% 51.4% 46.9% 3.0% 1.5% Operating margin 0.8% -2.6% 3.1% +3.4% 2.3% 20

22 Impact of Implementing Measures: Sales (Consolidated) Project consolidated sales increase by about 1.5bn from the accumulation of specific measures for each channel (Requires refinement based on 2018 projection) Sales impact of implementing measures Department stores Directly managed EC/Digital Existing business New business S&B of direct managed store Sanyo EC Slight decreases are assumed year-on-year in consideration of the current market environment Launch new ladies brand for department stores and directly managed stores 20 stores scheduled for launch in AW19 Increased sales at 9 new stores after AW18 Reduction in sales with the closure of 5 stores after AW18 Change in renovated stores launched in AW19 Strengthen existing business with branding/marketing investments Increase sales with expanded digital content Increase single brand EC by creating brand sites Plan to launch 4 brands by May 2019 Increase sales with launch of mall business in AW18 Outlet store /Other 1 External EC Existing business Growth is expected with current sales progress based on the market environment Effective utilization of outlet store channels by existing businesses Promotion of product sell-through rate/early liquidation New store openings Sales increase due to 1 new store in AW18 1. Other - Wholesale 21

23 Impact of Implementing Measures: Profit (Consolidated) Optimize SG&A expenses through restructuring reforms and simultaneously engage in more active growth investments to generate profits Profit impact of implementing measures Increased gross profit Increase gross profit with net sales growth and improved gross profit margin Restructuring reforms (cost reduction) Growth strategy (additional investment) Optimization of personnel expenses Other efficiency improvements Strengthening A&P Digital reform Optimized staff allocation based on the voluntary retirement system End about 250 people expected Reduced real estate rents, in-house production to reduce outsourcing fees, automation of cleaning and security, and reduced logistics expenses etc. Strengthening marketing investment in advertising and sales promotions etc. Invest in improved efficiency and sophistication of planning, production, retail, logistics and marketing areas through the use of digital M&A/investment M&A/investment related investments Store investment Invest in the opening of 5 new stores in 2019 Strengthen direct managed businesses - invest in store renovations Open new business stores - invest in 20 store openings 22

24 Disclaimer This material was created to provide information related to the finances, business, etc., of SANYO SHOKAI LTD. and its affiliated companies; it is not a full declaration or guarantee and was not created to solicit investments. Decisions regarding investing in the Company should be based on one's own judgment, not the information provided in this material. In addition to historical results, this material includes the Company s outlook for the future, and the outlook may change on account of various social and economic developments. The Company bears no responsibility for losses incurred on account of the use of information provided in this material. As for the outlook included in this material, the Company is not obligated to revise it according to new information and future developments and to announce any revisions. This material does not include all the information the Company discloses to entities such as securities exchanges and may use expressions different than those used in disclosure material. Information in this material may be deleted or changed without notification. The Company has carefully prepared this material, and regardless of the reason, the Company bears no responsibility for incorrect information, troubles due to altered or downloaded information by third parties, etc. 23

25 Inquiries regarding this material: Nobuyuki Kida General Manager Corporate Management Head Quarter Tel: