Risks of Delays in the SFL Business Turnaround and Overseas Store Openings

「After deciding in 2019 to exit the business due to poor performance, the Company proceeded with its restructuring efforts and advanced the reorganization of the group so that it would no longer be included in the Company's consolidated results through an external sale.」

「Accordingly, the SFL Group, which is in the process of exiting the business, faces the risk that the exit plan assumed by the Company may be delayed. In addition, the timing of opening new overseas stores assumed by the Company may be delayed.」

「In addition, as previously disclosed, the group centered on the UK's SPEEDLOAN FINANCE LIMITED, hereinafter referred to as SFL, was transferred to Harvey & Thompson Limited, a major pawnbroker in the UK. The withdrawal from its 114 UK locations, including during the COVID-19 pandemic, was almost complete, and the business exit was nearly completed.」

「Next, as a result of proceeding with the exit from the SFL business, operating profit fell to zero, improving by ¥202 million in the first quarter, ¥80 million in the second quarter, and ¥2 million in the third quarter of the consolidated fiscal year, respectively, compared with the same quarters of the previous year.」

「As a result of proceeding with the exit from the SFL business, operating profit fell to zero, an improvement of ¥283 million from the same period of the previous year.」

「Next, as a result of proceeding with the exit from the SFL business, the effect was reflected in this year's revenue for the business, which fell to zero, a decrease of ¥641 million from the same period of the previous year.」

「Meanwhile, as previously disclosed, SFL is proceeding with its business exit. Operating profit was an operating loss of ¥285 million, an improvement of ¥252 million year on year. As a result, operating profit for the Group as a whole improved.」

「At 大黒屋, the company recorded extraordinary income of ¥120 million in compensation received in connection with the eviction of its Ueno store. At the same time, following SFL's withdrawal from the business, it recorded extraordinary losses comprising an impairment loss of ¥91 million, an allowance for doubtful accounts of ¥395 million and a provision for business liquidation losses of ¥420 million.」

「At the SFL Group, pawn lending and retail revenue declined as a result of the restructuring accompanying the review of its business portfolio. In addition, the discontinuation of the foreign exchange business and the downsizing of the remittance business reduced gross profit to ¥366 million, down ¥140 million year on year, or 27.8%. Selling, general and administrative expenses were ¥67 million lower year on year as a result of the restructuring, but the company still reported an operating loss of ¥202 million, a deterioration of ¥73 million year on year.」

「Although the economic environment in the UK, including the European economy, has been stabilizing, the SFL Group engaged in short-term high-volume, low-margin sales to secure cash and restrained funds for pawn lending and merchandise purchases ahead of the refinancing carried out on 23 October 2018. As a result, revenue for the fiscal year was ¥3,303 million, down ¥1,698 million year on year, or 34.0%.」

「At the SFL Group, the decline in revenue and gross profit margin resulting from the restructuring accompanying the review of its business portfolio caused operating profit for the cumulative nine-month period to fall to an operating loss of ¥538 million, compared with operating profit of ¥30 million in the same period of the previous year.」

「The SFL Group had reported operating profit through the third quarter of the previous fiscal year, but as a result of the decline in revenue accompanying the restructuring and review of its business portfolio, operating profit for the cumulative second-quarter period was a loss of ¥285 million, compared with operating profit of ¥1 million in the same period of the previous year.」

「At the UK's consolidated subsidiary SPEEDLOAN FINANCE LIMITED (hereinafter, the "SFL Group"), factors reducing earnings included lower retail sales due to the liquidation of inventory in preparation for refinancing after March, the temporary suspension of check-cashing, remittance and foreign currency exchange services, lower margins on gold purchasing and resale due to the decline in pound-denominated gold prices, and a decline in the balance of pawn receivables resulting from an increase in forfeited collateral.」

「Although the economic environment in the UK, including the European economy, has been stabilizing, the SFL Group had only recently completed restructuring, including its stores, and it was expected to take some time for revenue to recover. Revenue for the cumulative nine-month period was therefore ¥3,400 million, down ¥760 million year on year.」

「Partly as a result of the restructuring carried out in the previous fiscal year, the gross profit margin improved to 66.2% from 59.3% in the same period of the previous year, despite lower revenue. Selling, general and administrative expenses declined by less because the head office was relocated to London in May, but the operating profit margin improved substantially to 4.2% from 0.2% in the same period of the previous year. However, the company did not yet generate enough profit to fully cover its interest expense and ultimately reported a slight loss.」

「Although the SFL Group's business environment is expected to benefit from the stabilization of the European economy, including the UK, the temporary restructuring-related costs of ¥200 million incurred during the current fiscal year are expected to largely disappear once the restructuring has run its course. In addition, management efficiency is expected to improve as a result of the restructuring. Accordingly, the SFL Group's performance is expected to improve substantially, including an improvement in its gross profit margin, and the Group is expected to return to profitability.」

「In addition, temporary restructuring-related costs, mainly for workforce reductions, were higher than expected. As a result, the business is not currently contributing to consolidated performance, but is expected to contribute after the restructuring has run its course.」

「There is a risk that the recovery plan we envisage for the SFL Group, which is in the business recovery phase, may be delayed. There is also a risk that the opening of new overseas stores we envisage may be delayed.」