Seven & i Holdings Co., Ltd. Growth Strategy Presentation - March 9, 2016
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Seven & i Holdings Co., Ltd.
Growth Strategy Presentation
March 9, 2016Content Group Management Strengthening Governance Reform of Ito-Yokado Reform of Sogo & Seibu
Group Management
Seven & i Group Management
The Goal is to maximize Group value
Basic policy “Shared strategies and independent brands”
Holding company Operating Companies
Seven & i Holdings Seven-Eleven Japan (SEJ), Ito-Yokado
(IY), and Sogo & Seibu (SS), etc.
Reflect shareholder concerns Reflect customer concerns
1) Control overall governance 1) Fulfill responsibilities in each operational
2) Maximize enterprise value as the domain
Group’s listed representative 2) Realize autonomy, seek profit growth and
enhance asset efficiency
Realizing Group synergies●
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 1Pursuing Group Synergies
Drivers of Group synergy generation
(1) Group principle : “Responding to Change while Strengthening Fundamentals”
(2) Marketing capabilities: Perceiving changes in consumer behavior through abundant
customer-contacts
Foundation of Modernization and revitalization of small and
Seven-Eleven Japan medium sized stores
Reconstruction of Reconstruction through relisting and becoming
7-Eleven, Inc． a wholly owned subsidiary
Foundation of
Seven Bank Pursuing further convenience of SEJ
Synergies focused on products through team
Seven Premium
merchandising
The Omni-Channel Synergies focused on customer behavior and
Strategy Internet infrastructure
Group management is crucial to grasp broad trends in consumer behavior and raise gross
profit through purchasing power
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 2Group Growth Strategy Matrix
“Responding to Change while Strengthening Fundamentals”
Team
merchandising
IY expertise Development of YB and YMT* expertise
Seven Premium
Differentiation Increase
existing store Seven
through the Omni- SEJ’s Growth sales and Bank’s
expand store
Channel Strategy openings growth
Merchandising and
logistics project
Contribution Reconstruction and SEI absorbs SEJ’s
by SS growth of SEI management styles
Grow CVS operations making full use of Group’s resources
* YB (York-Benimaru) and YMT (York Mart) are Group’s food supermarkets Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 3SEJ Could Never Have Grown without Realization of Group Capabilities,
Including from IY and YB
■Total store sales (including Seven Premium sales) [left scale, bar graph] and operating income
[right scale, line graph] by fiscal year
4,500 SEVEN 240
(Billions Main growth drivers (as of January 2016) CAFÉ (Billions
of yen) Initiatives launch of yen)
for close-by,
4,000 Delicatessen 74 consecutive convenient 220
foods months YOY increases Special demand
associated with
3,500 69 Seven earthquake 200
Daily products consecutive Premium
months YOY increases launch Seven
3,000 Operating income Premium 180
(Right ) Sales
2,500 160
taspo effect Total store sales (Left)
2,000 140
Lehman Brothers’ collapse
1,500 120
(FY) 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 (Plan)
Existing
stores sales ▲0.2 ▲1.3 ▲0.2 ▲0.6 ▲0.7 ▲1.6 ▲1.9 ▲1.5 +5.2 ▲2.1 +2.2 +6.7 +1.3 +2.3 +2.4 +2.5
increase
Net
increase
449 458 630 613 523 484 425 299 264 455 479 773 1,067 1,247 1,142 1,100
Positive cycle: Social structure change⇒Product strategy change⇒Existing store sales increase
⇒Increase store openings
Aging society and increase in Seven Premium
Realize synergies
dual-career couples, etc. expansion
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 4Seven Premium Helps SEJ to be “Close-by, Convenient Stores” by
Incorporating the Strengths of Supermarkets
Convenience stores product lineups meet meal needs through product development using
supermarket knowledge and marketing capabilities
Previous lineup Since Seven Premium proposals (2009 onward)
Convenience Convenience
stores stores
Ready- Meal
to-serve needs
Meal
Ready- needs
to-serve
Supermarkets Supermarkets
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 5SEI Could Never Have Grown without Becoming a Wholly Owned Subsidiary
■Trends of merchandising sales [left scale, bar graph] and operating income [right scale, line graph] on a dollar basis
17,000 750
(Millions of (Millions of
dollars) SEI absorbs SEJ’s management styles 637 dollars)
(plan)
15,000 650
Development of
merchandising Logistics strategy Aggressive 564
13,000 M&A 550
Operating income [right scale]
11,000 450
380
Became a wholly
owned subsidiary
9,000 350
229
7,000 250
192
Merchandising sales [left scale]
5,000 150
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
(plan)
Number of
total stores 5,756 5,829 5,823 5,784 5,799 5,829 6,050 6,088 6,196 6,389 6,610 7,149 8,118 8,292 8,297 8,550
Number of
franchised 3,118 3,173 3,276 3,338 3,422 3,508 3,828 4,041 4,220 4,649 5,064 5,437 5,870 6,219 6,390 6,678
stores
Franchise
ratio (%) 54.2 54.4 56.3 57.7 59.0 60.2 63.3 66.4 68.1 72.8 76.6 76.1 72.3 75.0 77.0 78.1
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 6Strengthening Governance
Concept of Governance (1):
Realize Sustainable Growth and Medium- to Long-Term Enterprise Value Increase
●Approaches and key indicators for achieving goals
Goal Approach Key indicators
Operating income increase
Medium- to long-term Realize synergies
ROIC
enterprise value increase Increase capital efficiency
ROE (ROA)
Credit ratings
Maintain a sound financial
Sustainable growth Owners’ equity ratio
structure
Interest-bearing debt ratio
Net income Net sales Total assets
ROE ＝ × ×
Net sales Total assets Owners’ equity
＝ ROA × Financial leverage
Business management of operating companies based on ROA and consolidated financial
leverage
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 7Concept of Governance (2):
Realize Sustainable Growth and Medium- to Long-Term Enterprise Value Increase
●Current ROE (FY2015) and target
ROE ROE
Current Target
7.9% 10%
■Governance for operating companies
Set increasing operating income as the most important indicator, since this is the
result of our core business
Support each company’s sales strategies and create synergies
1. Operation
across the organization
Investment
2. Make investment decisions based on a standard of ROIC 6%*
decisions
*(Operating income + interest income) × 0.6 + dividend income / (non-current assets + investment and financing)
1. Strengthen operation 2. Streamline investment
Increase operating Increase ROE
profit margin Increase capital efficiency
Increase operating income
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 8Strengthening Governance
Matters currently under consideration
Setting of targets with set
Specify when achieve the target of ROE 10%
deadlines
PDCA cycle for achieving Deciding, executing, confirming on funds allocation
numerical targets and operating strategy
Implementation process example
Plan
Involvement of
independent outside Policy
directors
See Do
The holding company will strive to realize a structure capable of allocating the
management resources (funds) of the entire Group
As a result, we will create a framework that can generate cash flow that will enable
continuous dividend increases
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 9Maintain a Sound Financial Structure (Sustainable Growth)
Capital policies
Credit ratings Maintain current rating
Owners’ equity ratio Manage the owners’ equity ratio of around 45%
*Maintain around 55 % in retail business
Interest-bearing debt ratio Manage within 0.5 times
*Conduct fund procurement through large-scale investments, etc. using optimal methods considering management trends, financial
status, market environment, etc.
With financial stability as the core focus, aim to also increase capital efficiency
Reference: Trends on owners’ equity ratio
60 0.6 Owners’ equity ratio (left scale)
54.6 55.7 55.0 53.5 54.0
Estimated owners' equity ratio excluding financial
services (left scale)
50 0.5 Interest-bearing debt ratio (right scale)
0.43 0.45 0.45
0.41 (times)
(%) 0.40 *Financial services
40 0.4 ATM, credit card, electronic money
(pursue settlement functions)
45.6 45.4 44.4 43.6 43.9
30 0.3 insurance, and lease services
(FY) 2011 2012 2013 2014 2015
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 10Establishment of a Voluntary Nomination and Compensation Committee
Establish the Nomination and Compensation Committee as a voluntary advisory committee
to the Company’s Board of Directors
*Integrated committee
●Goal
Ensure objectivity and transparency for important matters relating to personnel and
compensation
Committee Kunio Ito, Director (Independent Outside Director):
chair Nominated by the Board of Directors
Committee Chairman and Chief Executive Officer (CEO) , President and Chief Operating
members Officer (COO), Independent Outside Directors (Two members)
*Observer: One Internal Audit & Supervisory Board Member and one Outside Audit
& Supervisory Board Member, without voting rights
●Deliberations
Deliberate on the following and report to the Board of Directors
7&i HD ： Representative Directors, Directors,
Formulation of basic policy Executive Officers, Audit &
Nominations and standard Supervisory Board Members
Clarify reason for nomination
Subsidiaries ： Representative Directors*
Formulate basic policy and standards relating to executive compensation, discuss
Compensation
and confirm compensation proposals
*SEJ, IY, SS, YB, YMT, Seven & i Food Systems Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 11Reform of Ito-Yokado
Earnings and Direction of Ito-Yokado (IY)
Base on individual store management, move away from mainly corporate general
merchandise stores and change the earnings structure
Thoroughly Downsize apparel Strengthen Ario Leverage potential Utilize the
reinforce food and household (shopping center) in the Tokyo Omni-Chanel
goods in line with format metropolitan area Strategy
individual store
characteristics
IY earnings Environmental changes
Apparel and Decrease in floor-space efficiency and gross Consumption environment
household profit margins resulted in a sharp increase in ・Further shortening of product life
goods loss cycles
・Emergence of Internet drives
Breadwinner, mainly in the Tokyo demand for increased specialization
Food
metropolitan area
Internal issues
Profit growth through increase in Ario stores Break Away from Conventional
Tenants and shift from corporate to emphasizing Chain Store Concept
tenanting existing stores ・Uniform companywide
merchandizing
Continuing to make profit in Tokyo, Chiba, ・Reliance on wholesaler
Regional merchandizing
Saitama, and Kanagawa prefectures, loss in ・Increase in disposal loss and sales
characteristics
regional areas promotion expenses
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 12Thoroughly Strengthen Food
IY’s competitive advantages
Dominance in the Tokyo High store density in Tokyo, Chiba, Saitama, and
metropolitan area Kanagawa prefectures
Private brand strategy backed by unrivalled marketing
Member of the power
Seven & i Group Omni-Channel Strategy
Thoroughly strengthen food leveraging advantages
Develop thoroughly regional Strengthen fresh foods and Demonstrate price
food products prepared meals superiority
Aim to create shopping centers that enhance customer attraction through food and
leverage tenant mix aligned to individual store catchment areas
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 13Comparison of Gross Profit YOY between Independently Managed Stores and
All Stores
At the initial 9 independently operated stores, the effects have begun to show in the
food business
Jan. 2014 Start independent operation at Ario Ageo
110 Initial 9
(%) Dec. 2014 Expand to 9 stores independently
105
managed stores 106
105 105 May 2015 Expand to all stores
104 104
104 103
103 101 103
101 100 101
100 102
98 99
98 99
98 98
95
96
92 Yearly difference in gross profits
91 All stores
90 for foods show effects
85
FY2015 Mar. 2015 Apr. 2015 May.2015 Jun. 2015 Jul. 2015 Aug. 2015 Sep. 2015 Oct. 2015 Nov. 2015 Dec. 2015 Jan. 2016
Finally, food gross profit of all stores has exceeded the previous year’s performance
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 14IY’s Target Status
Start by conducting steady restructuring aimed at business structural reforms●
●Steadily close stores that are unable to earn profit through food
Close 20 stores for FY2017
February
FY FY2017 – FY2021
2016
No. of 182 40 cumulative store closures
stores
20 store closures
stores 142 stores
Impact on profit / loss after Impact on profit / loss
20 store closures for FY2017 after 40 store closures
Approx. 11.0 billion yen
Special loss Will record approx. 4.0 Special loss Approx. 20.0 billion yen
billion yen for FY2016
Revenue from Approx. (77.0) Revenue from Approx. (160.0)
operations billion yen operations billion yen
Operating Operating
Approx. 1.9 billion yen Approx. 4.0 billion yen
income income
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 15IY’s Target Status
Status after Business Structural Reforms●
Status of 142 stores in 2020
Structural reform to Ario Approx. Over 16,500 ㎡ , including existing
1
shopping center format 45stores 17 stores
General merchandise stores Approx. Under 16,500 ㎡, attract tenants to suit
2
+ introduction of tenant mix 60stores catchment area
Approx.
3 Food + tenants
15stores Food specialty store format
Shokuhinkan and
4 18stores
THE PRICE 18 existing stores
Business alliance with Group Of which,
supermarkets 15 stores Hokkaido, Tohoku
Create profitable formats while carrying out new store openings
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 16Reform of Sogo & Seibu
SS Reforms Pillar: Business Reform
Thorough business reform
Close unprofitable September 30, 2016 (Plan)
stores Sogo Kashiwa , SEIBU Asahikawa
*Will record a special loss of approx. 1.5 billion yen for FY2016
Reduce Head Office personnel (100 employees)
Promote Introduce merchandiser system to Merchandising Dept.
reorganization
Reduce the layers of management at Sales Dept.
(from 3 layers to 2 layers)
Use the reform as an opportunity to promote awareness reforms among
employees and change the approach to work
・Promote reform toward shopping centers utilizing tenants
・Strengthen regionally-retailer-managed merchandising:
Invigorate Limited Edition areamode
regional stores ・Utilize Omni-Channel:
Establish centers where customers can “view, touch, and try”
products not available in stores
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 17SS Reforms Pillar: Growth Strategy
The meaning for Seven & i Holdings of positioning SS as the entire
department store business
・Holds the highest location as a vital element in the market concentration strategy for the
Tokyo metropolitan area
・Complements the holding company’s branding capabilities
・Utilizes customer management systems
Draw out the SS’s competitive advantage and latent capabilities through the
Omni-Channel Strategy
Promoting new growth strategies = Expanding market share
Initiatives to cultivate areas using the Omni-Channel and utilize SS’s location
advantages
⇒Form a strategic area for nationwide deployment
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 18Choice of Format by Customer Objective
●Customers choose formats within their area depending on distance and frequency of use
Customer needs Catchment area Average frequency
7＆i HD (Way of use/characteristics) average distance of use
Special (fancy) shopping Relaxed and refined
SS 30 km radius 0.6 times / month
(Customer service, consultation shopping)
High quality daily shopping Daily needs and
IY 5 km radius 3.0 times / month
extras (Semi-self-service)
Close-by, convenient/daily shopping 18.6 times / month
SEJ 0.5 km radius
[4.2 times / week]
Immediate needs (Quick self-service)
Uniform management of customer information
⇒Implement meticulous personalized sales Utilize SS expertise of
promotions customer management
⇒Point promotion utilizing lifetime value*
*Profit for the Company ultimately derives from keeping individual customers for longer
Strengthen the Omni-Channel Strategy to nurture the entire Group’s market
concentration strategy
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 19Collecting customer needs as a group – an example of Beauty
●Capture high-quality customers at SS. Use customer data to encourage them to use IY and SEJ
Consultant – SS Semi-self service – IY Self-service – SEJ
Kirei Station Bi no Garden Seven Premium
Seven Lifestyle
Special needs High quality day-to-day Close-by, convenient
(consultant sales) (semi-self-service) (quick-self-service)
Capture high-quality customers
Databasing customer information
Customer data linkage
Seven & i Group meets all manner of customers living needs other than beauty
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 20Trends on Operating Income and Dividend per Share Since the Foundation of 7&i HD
100 400
(yen) ■ Interim ■ Year-End ■ Commemorative Operating income(right scale) (Billions
of yen)
80 8.0 350
60 38.5
38.5 300
36.5
35
33 33
40 29 28 29 250
27 28
20 36.5 38.5 200
29 31 33
25 26 27 28 28
0 150
(FY) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(forecast)
Net Income
（billion yen） 133.4 130.6 92.3 44.8 111.9 129.8 138.0 175.6 172.9 183.0
Dividend
per share 52 54 56 56 57 62 64 68 73 85
Payout Ratio
(%) 36.4 39.4 55.7 112.7 45.2 42.2 41.0 34.2 37.3 41.1
Aim to the continuous increase of dividend and free cash flow
Copyright (C) Seven & i Holdings Co., Ltd. All Rights Reserved. 21This document contains certain statements based on the Company’s current plans, estimates, strategies, and beliefs; all statements that are not historical fact are forward-looking statements. These statements represent the judgments and hypotheses of the Company’s management based on currently available information. It is possible that the Company’s future performance will differ from the contents of these forward-looking statements. Accordingly, there is no assurance that the forward-looking statements in this document will prove to be accurate.
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