AEON Mall Co., Ltd. (8905) Earnings Call Transcript & Summary

Once again, my name is Iwamura from AEON Mall. Today, I will explain the overview of the financial results for the second quarter of fiscal year 2023, and then I will provide an update on the progress of our midterm management plan. Please go to the Page 3. In the second quarter, our operating revenue reached a record high. Our operating income, ordinary income and net income attributable to owners of the parent all increased year-on-year. On the other hand, all profit levels fell short of the first half plan. Please go to the next page. Operating income for the first half deviated from the plan by roughly JPY 3 billion. The factors behind the deviation between the Japanese and overseas businesses are outlined on this slide. In the second half of the fiscal year, we'll work to increase revenues and reduce cost to achieve that plan. As for revenue measures, both in Japan and overseas, we'll review and strengthen our customer attracting events. In addition to their ongoing execution, we will actively rent out event spaces and expand revenues by fully utilizing the more assets, including using our parking lots. As for cost measures, since electricity costs have recently soared, we'll promote cost compression by creating locally produced renewable energy for local consumption by promoting solar power generation and reducing power consumption through efficient operations. Next page. This slide shows year-on-year changes in profit and loss by segment. In Japan, operating revenue increased by JPY 10.2 billion due to positive year-on-year growth in specialty store sales at both malls and urban shopping centers. In China, operating income was down JPY 260 million year-on-year, but excluding the impact of JPY 1.6 billion in fixed costs during the temporary closure period in the previous year due to the spread of COVID-19, which was transferred to extraordinary losses, operating income increased by JPY 1.3 billion in real terms. Next page. The table shows a year-on-year comparison of specialty store sales in existing malls by country. First in China, although there are concerns about a slowdown in economic growth due to the sluggish real estate market, our malls, especially in Jiangsu and Hubei province, have maintained a strong performance with first half specialty store sales at 129% year-on-year. Customer traffic is recovering, and sales are increasing mainly in food, beverage, amusement and cinema sectors. Next in Vietnam. From around the second quarter, high inflation in Europe and the U.S. caused a poor performance of the manufacturing sector due to a decline in demand caused by concerns over economic slowdown. This has a dampening effect on purchasing appetite, especially in the southern part of the country. Nevertheless, due in part to the strong performance in the first quarter, capturing purchasing demand due to debt, the Chinese New Year, specialty store sales in the first half reached 109.7% year-on-year, landing on a near double-digit growth. The service sector such as tourism industry showed signs of recovery, resulting in gradual improvement with July and August sales reaching 98% and 99.2% year-on-year, respectively. Lastly, in Japan, the improvement in customers' willingness to leave the homes following the downgrade of COVID-19 to a Class in 5 May resulted in the first half specialty store sales exceeding the previous year's level by 107.6% year-on-year. Since July, the heat wave has continued across the country and the need to curb soaring electricity bills increased. As a result, the need to use our malls as a cool shared spots increased. In July, specialty store sales exceeded 110.6% year-on-year, which was a double-digit growth. In August, typhoon landed during the O-bon vacation period, which affected customer traffic in some areas. However, numerous events were held at each mall to coincide with a summer vacation period to encourage customer visits, resulted in 108.1% year-on-year. Next page. With regard to Domestic Business, which has a significant impact on consolidated results, I'd like to explain the initiatives implemented in the second quarter to attract more customers. In our Domestic Business, we are implementing measure to further stress and customer attract in the evening and late hours. AEON Mall Narita to coincide with a 3-day weekend in July, we had an evening gourmet fair to attract more customers after 4:00 p.m. in the evening. A limited number of coupons were distributed for JPY 100 for certain menu items at our food and beverage outlets, which led to increased customer attraction during these evening hours. As inbound demand recovers in Japan, activation of the nighttime economies are attracting attention. And we also intend to promote efforts to attract more customers to our malls during the evening and late hours at each mall as well. In addition, soaring gasoline prices have become social issues. We are using AEON MALL App to distribute discount coupons in partnership with local gas station, thereby promoting the app's use as well as providing any incentives to visit our malls. For detailed performance figures, please refer to Page 8 through 12, which disclose the status of specialty store sales and financial statements. Please go to the page 14. I would now like to explain the progress of various initiatives under the 3-year medium-term plan from 2023 to 2025, which was announced at the year-end financial results in April in line with the policies on the slide shown here. Next page. The first of the 3 growth measures in our midterm management plan is to discover and commercialize business opportunities in overseas growth market. In our overseas businesses, we will achieve further profit growth by steadily opening new stores in priority areas over the next 3 years. In China, we are moving forward with opening new stores in the inland province of Hubei, which is a priority area for our China business. In Wuhan, Hubei province, we have opened 3 malls, forming an area of dominance. As a percentage of gross operating income, this area accounts for 40% of the total [ chain ], and we'll continue to open new malls in Hubei province and adjacent Hunan province to expand profits further. In Hubei, we reopened our flagship store AEON MALL Wuhan Jingkai in July this year, increasing the total lease area by approximately 20,000 square meters by converting the fourth parking lot into stores and introducing a total of 28 new stores and renovating existing floors from first to third floors. The new AEON MALL Wuhan Jiangxia is scheduled to open in November, further enhancing the company's presence in Wuhan. In the neighboring Hunan province, in addition to the provinces, the first mall, AEON MALL Changsha Xingsha is scheduled to open in 2024. We decided to open the second mall in Hunan, AEON MALL Changsha Xiang Jiang. Next page, please. The second growth measure is to pursue business model innovation in Japan. As our customers' consumption behavior and purchasing habits continue to change at an accelerated pace, we will promote innovation of existing business models to strengthen our ability to attract more customers and improve profitability in our Domestic Business. By effectively utilizing the flat parking lots of existing malls and idle lands, we will develop nONIWA, a commercial facility with an integrated outdoor plaza, offering a new lifestyle to community. As a first of its kind, the new HANYU nONIWA will open in the west side flat parking lot of AEON MALL Hanyu. The soft opening will be on October 14 this year with a focus on outdoor sports component, followed by the completion of nONIWA next year with the opening of outdoor sauna, glamping facilities and other experienced zones. This society will be operated using effectively 100% CO2-free electricity as a measure to protect the environment. We are also promoting reuse and recycling initiatives aiming to reuse the resources generated from a renovation of the west side flat parking lot and to use 100% recycled materials for our payment materials. Please go to the next page. The society faces increasingly diverse and complex issues in each region. We will focus on local community and conduct through market analysis and research rather than a one-size-fits-all approach across the country. We will develop businesses that respond to the challenges and the needs of each region. In terms of the future direction of mall development, we will strive to propose new values by promoting the creation of diverse development patterns that matches location characteristics of the areas where the malls will be opened. JIYUGAOKA de aone, scheduled to open in fall this year, is a 2-minute walk from Jiyugaoka Station, and we'll open in the largest commercial area of Meguro City, where many unique specialty stores and restaurants are located. The green terrace of approximately 1,000 square meters will be arranged to host a variety of hands on social events throughout the year, such as yoga and food market. This project will create a hillside pathway and a place of relaxation where residents and visitors of Jiyugaoka can stroll through the town and spend time in a calming atmosphere. In addition, we will use Tama Cypress, a tree grown in Tokyo as wood decking for pathways and stairways to promote local production for local consumption of the materials. This December, we will open CeeU Yokohama on the site of the former Daiei Yokohama west exit store in Yokohama City's Nishi-ku. We will strive to create a generous pedestrian space by placing a public open space setback inward from the exterior walls line to Yokohama [ VIVRE ] and [indiscernible] street size as well as creating a piloti-shaped plaza in front of the main entrance that can host local events and be used as an integrated space with adjacent Yokohama VIVRE. This will help revitalize the Yokohama west exit area and create more excitement. In addition, we will use lumber from Kanagawa Prefecture for the walls of elevator holes to promote local production for local consumption materials and operating facility using effectively 100% CO2-free electricity to prevent global warming and help realize decarbonized society. Next, please. The third growth measure is to create new business models that break-free from existing business frameworks. In times of rapid and uncertain change, we are focusing not only on the development of existing business, but also on creation of new businesses to create new value. We believe that the people sought and each person's individuality are important in solving social issues. And we have set forth our DX vision of achieving digital transformation centered on people's thoughts. We believe that the essential value does not come from a technology-first approach in terms of what we can do with our latest digital technology. We believe that we can deliver this value to all our stakeholders by leveraging new technology based on humanity first approach that starts with the why and what value should we deliver to our community, partners, customers and employees. Based on our DX vision, we have been taking a new challenge, including development of a joint delivery service and [ start ] of corporate venture capital. Now we are pleased to announce the opening of our virtual store operated by AEON Mall within REV WORLDS, a new virtual city communication platform developed and operated by Isetan Mitsukoshi. REV WORLDS is a metaverse application that allows users to experience communication, shopping and event participation in virtual city by operating at their Avatars and other entertainment. Please go to the next page. We set 3 directions in our efforts to solve environmental issues, realization of decarbonized society, realization of a circular mall, preservation of biodiversity. Towards the realization of decarbonized society, we started an operation of the AEON MALL Machi no Hatsudensho, a low-voltage, distributed solar power generation facility via self-directed transmission in September last year. These initiative is the first step toward creating renewable energy locally for local consumption, which means that the mall produces its electricity for use in mall, emphasizing addressing social issues and efficiency. In addition to the solar power generation facilities introducing the first phase last fall, the second phase will begin operations this fall supplying approximately 120 megawatts of electricity generated at about 1,390 low-voltage solar power plants nationwide to about 50 AEON Mall facility across Japan via self-directed transmission. This electricity generated by our solar power plants will be equivalent to the power consumption of about 7 to 8 AEON Malls. These initiatives contribute to the environment and brings about a certain level of cost reduction also compared to the conventional sourcing from power companies. And in addition, we will promote a new solar sharing initiatives from this fiscal year. In Japan, the number of farmers is decreasing due to the aging population and lack of labor, and abandoned farmland is increasing throughout the country. Solar sharing is expected to promote agriculture through the systematic and efficient reuse of abandoned farmland and is also attracting attention from the perspective of contributing to the spread of renewable energy and revitalization of local economies this time by growing sakaki, a plant that grows in shady environment under solar panels. This project will contribute to the spread of domestically-produced sakaki in the domestic sakaki market, which is currently dominated by foreign imports. By promoting agriculture through a systematic and efficient use of abandoned land, we will contribute to revitalization of the local economy as well as the spread use of renewable energy. To address waste and resource issues, we have incorporated the concept of circular economy into our mall operation and are promoting initiatives to recycle resources generated in the mall, such as de-plasticization, food recycling and clothing collection. AEON MALL Makuhari Shintoshin, which will undergo renovation in November this year, is building an ethical mall. And in conjunction with the timing of this renovation, a new public lounge has been established to display ethical project created by students of Chiba University and clothing collection boxes permanently installed. We are promoting initiatives to increase the customers' awareness and interest in ethical initiatives. By raising interest in ethical consumption, which involves environmentally friendly products and services, we will work together with the community to realize a sustainable society. As I have explained so far, more revenue in Japan and overseas is generally improved in the second quarter. And operating revenue, operating income, ordinary income and net income attributable to owner of the parents all increased. In addition, progress in the growth measures outlined in the Medium-Term Management Plan, we are entering a phase, where we can provide new value to local customers with the upcoming opening of new nONIWA and AEON Malls. In the second half of the year, we'll focus on the value of our customer experience by maximizing our strength of having real locations and how they spend their time at the mall. We will also focus on implementing measures to attract more customers for Halloween in October and Black Friday in November to achieve our full year business targets. That's all from me. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]