Direction of Restructuring and New Business Plan...Title Microsoft PowerPoint -...

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Direction of Restructuring and New Business PlanSANYO SHOKAI LTD.October 28, 2016


SANYO SHOKAI's Current Condition

The Company earnestly considers its recent earnings and stock price an indication of its true strength.

Stock priceEarnings

59 71

102

66

(68)

21 36

63

26

(95)

1,076 1,064 1,110 974

700

(1,000)

(500)

0

500

1,000

1,500

(100)

(50)

0

50

100

150

FY12 FY13 FY14 FY15 FY16e

営業利益当期純利益

Net sales

(hundred million yen)

* Consolidated earnings forecast announced July 29.

※

(closing-price basis)

* Closing price on Oct. 26

※

1

443円

166円

100

150

200

250

300

350

400

450

14/10 15/4 15/10 16/4 16/10

Operating income

Net income

443 yen

166 yen *


Issues the Company Faces

1. Reducing the number of employees to a number commensurate with the Company's true strength

2. Discontinuing brands and withdrawing from sales areas that generate weak earnings and growth

Formulating a new growth

strategy

The issues that the Company faces can be distilled down to the following.

Short-term issues

3. Reducing the Company's assets

Medium-term issues

2


Progress in Implementing the SANYO INNOVATION PROJECT

The projectA

nnouncement schedule

July 2016Today

February 2017

New business plan

announcementDirection of Restructuring

and New Business Plan

Retraction of Five-year

Medium-term Business Plan

Establish Business Restructuring Committee

The Company launched the SANYO INNOVATION PROJECT (referred to below as "the project"). We will earnestly restructure and announce the state of progress in December and a new business plan in February.

December 2016

Progress in restructuring

Business strategy: 2 subcommittees and 6 working groups

Finances, etc.: Examine necessary measures that can be brought forward

Business Restructuring Committee (chaired by President Sugiura)

3


State of Efforts Related to the Project

Examine reforms and improvements related

to merchandising, sales, and operations

Growth Strategy Subcommittee

Restructuring Subcommittee

Business Restructuring

Committee

Six working groups Examine growth

strategy for existing and new businesses

The Company is currently conducting a company-wide open debate, which includes involving young leaders responsible for the next generation and front-line employees.

Support from outside advisors

Sales WG

Operational Reform WG

Existing Business WGNew Business

WGE-commerce

(EC) WG

Merchandising Reform WG

Young leadersFront-line employees

When necessaryOperating officersEach WG leader

Every other weekDirector

Operating officer

Monthly

4


Measures Implemented up to Now

1 Call for voluntary early retirees

2 Decide on five brands to discontinue

3 Reduce inventories

Reduce shareholdings

Cut compensation for corporate officers

Generated 4.6 billion yen in proceeds from sales.

Posted reserves of 2.8 billion yen by June 30, 2016.

Paul Stuart SPORT, VINVERT (A/L)

allegri, FRANCO PRINZIVALLI (expect to discontinue by February 2017)

Found 250 voluntary early retirees during the fiscal year.

Repay some compensation (15%max.) (starting from July 2016).

Efforts have already been launched to implement the following five measures, which can be taken in advance, considering the current issues.

1

2

3

4

5

5


Benefits From the Project Up to Now

It has already been decided to implement the following measures related to the project.

Rework the brand portfolio

Improve the efficiency of sales

staff

Discontinue two additional unprofitable brands

Eliminate 170 sales areas

Raise employee efficiency at sales areas that are maintained

Amount of projected cost cuts

270 million yen

500 million yen

Expected to be completed by

Aug. 2017

Aug. 2017

350 million yen

Aug. 2017

Reduce the number of unprofitable sales

areas

*

* Trial calculation of projected cost reductions starting from when the measures are expected to be completed in FY2017 and based on current forecasts for FY2016.

6


Expected improvement in operating income

19.0

3.1

11.8

2.75.0

3.5

45.0

2016 SS discontinued

brands

Total impact2016 AWdiscontinued

brands

2017 SSdiscontinued

brands

Greater cost effectiveness by withdrawing from unprofitable sales

areas

Greater employee efficiency at sales

areas that are maintained

Greater labor cost efficiency due to voluntary early

retirements

7.3

Brands maintainedGreater efficiency at

unprofitable sales areas

17.917.0 4.7

Expected Cost Reductions

Trial calculation of cost reductions for FY2017 (compared to current FY2016 forecasts, hundred million yen)

It is projected that restructuring up to now will result in total cost reductions of 4.5 billion yen.

Reduce work force and discontinue brands

* "SS" refers to spring and summer (Mar.–Aug.) goods, and "AW" refers to autumn and winter (Sept.–Feb.) goods.7


Additional Measures to Improve Asset Efficiency while Reducing Costs

Sell off additionalshareholdings

Sell off additional unutilized assets

Review investment projects

Reduce the number of companies that the Company

has shareholdings in 20 companies → 11 companies

Dispose of employee recreation facilities, works of

art, and golf club memberships by March 2017

Temporarily freeze construction of the new head office annex building through

February 2017

The Company will make decisions on implementing the following additional measures.

Secure 5.0 billion yen through various efforts

such as increasing asset efficiency

8


Direction of the New Business Plan


Reinforce development of growth channels

and categories

Redefine the Company's strengths

and reinforce its weaknesses

The Company aims to expand growth channels and categories in response to changes in the external environment.

External environment (market, competition)

Internal environment (SANYO SHOKAI)

Growth Orientation that Matches Changes in the Environment

Shrinking the department store channel, the Company's main sale channel Aging customers Outflow of customers, primarily

youth, to other channels (shopping centers, fashion

buildings, EC, etc.)

Shrinking marketfor mid-range apparel, the

Company's main field Apparel market driven by low-cost

SPA players Expansion of non-apparel field

(apparel accessories and daily life general merchandise)

Earnest, detailed manufacturing by craftsmen (strength) Technology and know-how to

continue to create basic items with high quality, such as the 100nen coat

Strong production infrastructure, including the Company's own factories in Japan

Inability to respond to changes in customers and market (weakness) Manufacturer's spirit that "if you

make quality products, they will sell" has become a hindrance; weakened ability to respond to changes in customers and markets

Direction the Company

should move in

9


Awareness of Issues Related to Growth Orientation and Reform Policy

Issues related to current conditions

Fundamental issues

Business structure that overemphasizes apparel and department store channel

Product structure that overemphasizes mid-range and high-end apparel

Overemphasis on department store channel and little know-how of retail

Quality manufacturing by craftsmen, the Company’s strength, that is not in line with the customer perspective

Reform Policy

The Company plans to transform the business structure, which is a fundamental issue for the Company.We are also reworking the two new businesses.

Transform business restructure and establish new business field

Strengthen growth channel development and category expansion while focusing on apparel and department store channel

Formulate and implement growth measures that add a customer perspective to "manufacturing by craftsmen," the Company's strength

Planned efforts

10

Developm

ent

Failed to achieve projections for the two new businesses

Failed to achieve projections for the newly launched MACKINTOSH LONDON and BLUE LABEL/BLACK LABEL CRESTBRIDGE businesses

Rework the two new businesses.MACKINTOSH LONDON business Improve profit structure by thoroughly managing the

profitability of individual stores Raise the total sell-through rate by reworking product

merchandising

BLUE LABEL/BLACK LABEL CRESTBRIDGE business Develop new sales channels other than department stores Capture new customers by revamping product

merchandising

Being implemented


Direction of the New Business Plan

Business field

Sales channels used

Department stores Directly managed stores

(directly managed stores, EC, etc.)

Apparel

Non-apparel

Current conditions

Direction the Company should move in

The Company is striving to generate growth by expanding its presence in the non-apparel field and the directly-managed-store channel while maintaining its presence in the apparel field, its current core business field, and the department-store channel, its main sales channel.

Overseas

Strengthen the corporate brandExpand channels

for existing businesses

Strengthen expansion of life

style–store business

Accelerate growth of the EC and

digital business

Inorganic growth, including M&As

11


Future Efforts Related to the Project (1)

Oct. Feb.

• Be sure to implement decided upon restructuring

Dec.

• Items related to formulating the new business plan to be examined (see next page)

Confirm the number of voluntary early retirees and complete procedures

Discontinue selected brands

Improve the efficiency of sales staff

Move forward with reducing the number of unprofitable sales areas

Move forward with liquidating shareholdings

Move forward with disposing of unutilized assets

— Dec. 2016

— Feb. 2017 + Aug. 2017

— Aug. 2017

— Mar. 2017

Expected to be complete by

New business plan

announcement

Progress in restructuring

12


Future Efforts Related to the Project (2)

Items related to formulating the new business plan to be examined

Improve earnings by minimizing inventories Standardize and raise the sophistication of

merchandising processes Re-examine the appropriate number of employees

taking into consideration discontinued brands and stores withdrawn from

Work out investment and withdrawal standards Simplify and increase the efficiency of the

organization Rework the employee evaluation system

Business restructuring

Strengthen governance

Expand channels for existing businesses

Accelerate growth of the EC and digital business

Strengthen expansion of life style–store business

Strengthen the corporate brand

Inorganic growth, including M&As

Growth strategy

Sell off additional strategic shareholdings

Make effective use of or sell off additional properties

Examine strengthening the board of directors' functions

• Board of Directors composition• Establish an advisory board• Terms for directors, etc.

Examine transforming the company into one with a nominating committee, etc.

Financial strategy, other

13


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 ofinformation 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 useexpressions 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.

Disclaimer

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