J. Front Retailing Co., Ltd. (3086) Earnings Call Transcript & Summary

Hello, everyone. I'm Ono of J. Front Retailing. Thank you very much for joining our IR Day despite your busy schedules. Today, to explain human resources strategy, I will first provide an overview under the theme of human resources strategy for value co-creation. When I was appointed President in March of this year, I made it my mission to build the foundation for sustainable growth beyond 2030 with a focus on the HR strategy at the center. Up to last year, we had been discussing the HR strategy, but we returned nearly to square one to revisit that strategy again. Today, we will discuss the key policies going forward, which are in line with our vision for 2030 and our concept of our Value Co-creation Retailer Group announced in April this year. Let me explain our transformation to a Value Co-creation Retailer. This transformation focuses on 3 co-creation values, co-creation of excitement, co-prosperity with communities and coexistence with the environment. Through these values, we aim to create a culture that contributes to society. With our stakeholders, we will become a retailer that embodies this value, which is the 3 years of the medium-term business plan, which started this year as a transformation period. Based on these principles, we are deepening the retail business and evolving the group synergies. As regards group synergy, we aim to create synergies in 3 domains: area, customers and content, as described in second item of Section 3. And through them, we unite the JFR Group and to support our transformation to a Value Co-creation Retailer Group. In these initiatives, the most critical foundation is our organization and human resources, with our employees positioned as the most important Value Co-creation partner. I'd like to look back on our previous record to explain about the human resources strategy. This charge covers from 2008, shortly after the establishment of JFR, to the current fiscal year forecast. Blue bars show profit, and red bars show personnel cost. And the red line shows the number of employees. There are 2 key points to note in this chart. One is that profit growth is limited by the decline in our employees and personnel cost. And another is the unrealized synergy with PARCO. Regarding the first point, for the 7-year period from 2008 to 2015, we have been growing profit through personnel cost reductions. Of course, it may be too simplistic to describe the management at that time only through this lens. But at least, we cannot deny that it contributed to profit growth. However, in the subsequent years, we have seen that reducing employees and the personnel cost to increase profit has reached its limit. And this approach will be increasingly challenging going forward. The second point is unrealized synergy with PARCO. PARCO joined the group in 2012 and became a wholly-owned subsidiary in 2019. But we have not seen a significant positive impact on the profit of the group. This indicates a lack of synergy, not only in strategy and business, but also in organization and human resources. I think these 2 are the biggest challenges over the last 15 years that have prevented the group from fully leveraging its organization and human resources to drive corporate growth. Of course, they were also recognized as issues in the past. And in 2017, we set the new group vision, Create and Bring to Life "New Happiness" and identified the 5 principles, the JFR way, as a code of conduct, including introduce new ideas and try without fear of failure. These ideas were not wrong, but we have not seen sufficient improvement yet. When we revisited the HR strategy this time, I thought we needed to confront these challenges head on. Our strategy is centered on 2 themes: breaking free from past success experiences and realizing the combined strength of the group. The second theme speaks for itself, and the other presenters will elaborate on it. So I'd like to focus on the first thing. When we talk of past success experiences, we are referring to the business reforms of Daimaru Matsuzakaya. The reforms were initiated by former Daimaru in late 1990s. They achieved a drastic rationalization of operations through scientific analysis of department store sales by classifying the sales floors, dividing procurement and sales functions and the standardizing process through manuals. As a result, we were able to significantly reduce the number of staff on sales floors. And we achieved one of the highest levels of profitability in the industry through improved cost efficiency. These reforms were proven to be effective. And besides this contribution to sales growth, it mainly enhanced cost management capability, which has been our strength for a long time. I do not dismiss this achievement, but everything has side effects. Manuals and vertical segmentation may have prevented cross-organizational collaboration and the pursuit of new challenges. Additionally, the deeply ingrained cost consciousness mindset might have led to excessive risk aversion. Above all, they might have created an environment which made it hard for employees to find partners and fulfillment in the work. These are all hypothesis. And as I said, corrective actions have already been taken. But I have a concern that strong attachment to past success experiences may be hindering meaningful improvement. I'd like to establish a new pathway for growth beyond 2030. Based on these insights, we will implement 3 transformations. The first is shifting from human resource management to human resource development. Instead of managing human resources as a cost, we will develop human resources both in terms of their mindset and capabilities by investing resources to make them the growth driver of the company. Second, we shift from an operations orientation to market orientation. We improve human productivity, not through cost reduction, but by driving top line growth. Human resources will change in line with that transformation. Finally, company-specific optimization will be transformed into group optimization. We did not have a unified HR strategy across the group. For the first time, we have established this approach, aiming to enhance the collective capabilities of human resources across the group while effectively leveraging the strengths of each company. Finally, I'd like to emphasize that we will strive for Value Co-creation by the company and employees. This means the company and employees will mutually contribute to their respective growth as partners. The company we're investing and provides support the growth of its employees, enabling them to realize their will. In turn, this will eventually lead to the growth of the company. We'd like to create such a model that is unique to our company. This concludes my presentation. Next, Ms. Imazu, an Executive Officer of J. Front Retailing, will present on the JFR Group Human Resources Strategy.

I'll explain about the JFR Group Human Resources Strategy. First, I'd like to stress the employees are the most important asset for the JFR Group and serve as a source of value creation and the key driver for us to become a Value Co-creation Retailer. This idea remains unchanged and will continue to be so in the future. On the other hand, there are 3 challenges related to human resources. The first is a personnel shortage across the group. Today, employees aged 50 or older account for almost 50% of the group's workforce. And in 2030, about 20% are expected to retire. To achieve sustainable growth, we need to secure the human resources required for business growth in the changing environment of an aging population, declining birth rate and increasing workforce mobility. The second issue is the attributes of our employees. According to the results of various surveys, our employees have a high level of will and motivation. But there are issues with creativity, sociability and the nurturing abilities. And the same trend has been observed for the last few years. To realize the Value Co-creation and implement transformation as a group, it is necessary to address their weakness while leveraging their strengths. The third challenge is a lack of a group-wide human resources policy and system to connect diverse human resources and drive group's synergy. To expand the playing field for talented employees from each company to the entire group, it is essential to establish a group-wide policy and system. We have formulated a group-wide HR strategy to solve these issues and leverage the capability of individual employees in the entire group so that our goal of Value Co-creation Retailer can be achieved. This slide shows an overview of the group HR strategy. We believe there are 3 key points in this strategy. First is the alignment between management strategy and human resources strategy. To achieve the goal of becoming a Value Co-creation Retailer in 2030, we have identified what we need in terms of HR, human resources, and organizational aspects and reflected them in the Human Resources Strategy. Second, as mentioned before, we formulated a group-wide human resources management policy that served as a shared set of values across the group. Third is the development of a framework for HR portfolio transformation. This will allocate human resources to the growth domains of not only each company, but in the entire group. Based on these principles, we take actions in 6 aspects: cultivating Value Co-creation capabilities, pursuing management reforms, focusing on areas for improvement, recruitment and acquisition of human resources, DE&I and promoting women's empowerment and building a group platform. I will elaborate on KPIs in later slides. But in in terms of expected outcomes in 2030, we improved the total score in the engagement survey from 4.42 in FY 2023 to over 5.00 in 2030. In addition, we plan to improve the market orientation score of the group's own business orientation survey from 3.85 in FY 2023 to over 4.5. We also aim to improve per capita productivity 1.5 fold versus FY 2023. In considering the significant transformation required for the JFR Group's HR strategy, we spent more than 6 months focusing on the policies we should adapt and the shift in value needed for Value Co-creation and how we should grow by leveraging the strength of our employees that have been developed over many years. As a result, we reaffirmed that the source of the company's Value Co-creation lies in the capabilities of each employee and that the company's role is to maximize and translate them into organizational power. At the same time, we are committed to evolving into a Value Co-creation Retailer by combining the capabilities of diverse employees. To that end, the type of talent we seek includes people who are driven by their own wheel and those who transcend and link organizations and enjoy their work. To realize those desired behavior and mindset, we formulated a human resources management policy to guide us. Reflecting these ideas, we have formulated a group-wide human resources management policy powered to involve others' mindset to enjoy challenges. Based on this human resource management policy, we operate the HR management cycle to recruit, develop, assign and evaluate employees throughout the group. Next, let me explain the key actions we will focus on going forward. First, we nurture employees' ability to co-create value. Let me reiterate that realizing the 3 co-creation values we aim for, co-creation of excitement, co-prosperity with community and co-existence with environment depend on human resources. So we believe it is vital to nurture human resources. Previously, in the JFR Group, we tended to focus on the performance in our HR assessment. And we mainly developed skills and knowledge that lead to performance. Of course, we did not neglect actions and mindset. But our evaluation access was skewed more to skills and knowledge rather than actions and mindset. However, for them to be able to aim at growing on their own, they need to go beyond organizations, they need to be connected, and they need to enjoy the work. We believe it is essential to focus on mindset and behavior to create an environment and system that will enable employees to actively communicate their own will, connect with others across organizational boundaries and find joy in their work. To achieve this, we will define our own evaluation criteria focused on the behaviors and the mindsets essential for value corporation, such as connecting with others, enjoying work, and of course, respecting others to foster connections. Alongside the performance outcomes, we will position individuals who embody both these behaviors and mindsets as Value Co-creation human resources within the JFR Group. And by 2030, we aim to increase the proportion of such talent to 30% across the entire group. Next page, please. As a specific initiative, although this is just 1 example, we are now working on secondments to start-up companies in collaboration with CVC and the JFR MIRAI CREATORS Fund to connect with diverse human resources and foster shared values. Additionally, we will accelerate and expand the scale of our core digital human resources project, a cross-group training program, where teams learn design-oriented and data analysis skills. We will also promote measures to transform our corporate culture, such as expanding RED, an open call corporate culture transformation program to support the realization of employees well across the group. Next page, please. Next, I will discuss management transformation. As Mr. Ono mentioned earlier, we have achieved growth over the years through the process of sales reforms by effectively managing our organizations and operations and by honing our skills and abilities to execute tasks accurately and efficiently. As a result of emphasizing high operational execution capabilities and management skills in our managerial personnel, we found ourselves in a situation where the ability and the skills of managers to engage with their subordinates, hold meaningful dialogues and nurture their development have not been sufficiently cultivated. However, to nurture and leverage the potential of each individual employee for Value Co-creation, the primary role should not lie with the HR department, but with the managers who engage with their team members daily. Going forward, we will strengthen the development of management skills by improving the abilities of managers in the areas such as employee evaluation and feedback scales and by fostering mindset changes. Additionally, we will address issues such as overly broad management scopes, driving management reform on both the human and organizational fronts. Next page, please. Next, I will explain the transformation of the human resource portfolio. Rather than continuing to allocate human resources solely at the individual company or the business unit level as we have done in the past with department stores and shopping centers, we intend to manage human resource allocation at the group level moving forward. Through this approach, we aim to further enhance productivity in areas where improvement is needed by leveraging measures such as the driven operational efficiency and human resources development. We will reinforce the allocation of human resources across the entire group in business areas. We would like to strengthen in the future, including businesses with already high productivity and new businesses. As illustrated, the transformation of the human resource portfolio involves reallocating approximately 10% of resources from the retail business, including department stores and shopping centers to non-retail businesses such as developers and financial services by 2030. Next page, please. Now let me address the recruitment and acquisition of human resources. Given the current situation, simply replacing the anticipated decrease in workforce numbers with new hires and nurturing the Value Co-creation and human resources internally will not be enough. We will also strengthen efforts to acquire talent from outside the organization. By enhancing the group's recruitment system and expanding channels, we plan to hire approximately 2,000 people in total by 2030. This includes expanding all recruitment channels such as new graduates and mid-career recruitment to secure talent in terms of both quality and quantity. Next page, please. To foster organizational transformation by combining the strength of diverse human resources especially for value corporation, we are committed to activity, promoting diversity, equity and inclusion, or DE&I. The majority of employees in our group are women. Having a large number of highly talented female employees is one of our strengths. Furthermore, as you will hear later about the human resources at PARCO and those seconded from the department store to PARCO, having diverse talent within companies that operate wide range of businesses is also our strength. Each company within the group has unique characteristics in its employees and organizational culture, reflecting the nature of its business. The presence of these diverse companies provides an opportunity to leverage the strength of the human resources, which we believe will further drive our growth. Currently, the group's human resources exchange ratio stands at approximately 12%. The ratio of female managers is 23%. And the ratio of women in senior positions, including department heads and executives, is approximately 13%. We see further potential for growth in these areas. In the future, we aim to improve these figures through strategic placement of specialized human resources within the group, expanding transfers based on individual will and motivation and strengthening the development of female talent. Next page, please. We believe that an established and a solid foundation is essential to implement these initiatives effectively and quickly at the group level and achieve tangible results. Currently, we aim to standardize certain aspects of the diverse human resource systems and frameworks across our companies. This will enable employees to take initiative and contribute autonomously across the group based upon their own will and motivation while being evaluated using a common set of criteria. Specifically, as shown here, we will strengthen the recruitment of corporate talent, standardize evaluation of policies, expand initiatives such as open call transfers and revise secondment roles to facilitate smoother human resource exchanges between companies with different systems. Currently, dozens of employees transfer across the group annually, and we aim to further enhance this process. Next page, please. To ensure these initiatives are carried out effectively, we have established a human and capital investment amount for the 6-year period from 2025 to 2030. By focusing on initiatives such as enhancing training and recruitment as well as improving employee compensation, we aim to invest 5% of the sales cash flow over the next 6 years into human capital. We also aim to increase the labor distribution ratio to 30%. As a result, we aim to increase productivity per employee by 1.5x or higher compared to FY 2023 by FY 2030. As the JFR Group, we are committed to overcoming this challenging environment through our human resources and growing as a Value Co-creation Retailer Group. We will continue to pursue various initiatives moving forward, and we kindly ask for your continued support. This concludes my presentation.

Now as an example of our efforts toward Value Co-creation, I would like to introduce distinguished individuals leading PARCO's content business. First, Daisuke Kobayashi, Executive Officer of PARCO Company Limited, will provide an explanation of PARCO's content business and the Power Born from the Intersection of Emotions and Information.

My name is Kobayashi. Once again, thank you indeed for your precious time. On the cover, it says Power Born from the Intersection of Emotions and Information, which may sound a bit abstract. However, we pride ourselves on being a company and business that has focused upon in a concept of value-creating human resources, as mentioned earlier, and have pursued this idea to the fullest. I would like to begin by explaining how the value creating human resources are being nurtured within our business. Furthermore, although we have been involved in the entertainment business for many years, we are now approaching content business with a renewed mindset. We are considering new ventures that will help us shape the future of our group. And I would like to explain about those initiatives. Next slide, please. First, how do we nurture creative human resources at PARCO? Those who have a strong awareness of value creation. We believe that this is both a process and something we have already achieved through our track record. This process is rooted in our unique and corporate culture. PARCO opened its first store in Ikebukuro in 1969, followed soon after by Shibuya PARCO in 1972. And Shibuya PARCO was renovated and reopened in 2019. At that time, the founder of the company emphasized that we were not great in a commercial facility. Instead, we are creating a culture facility with theaters and spaces where we will conduct business under the same roof. This, we believe, was the foundation of PARCO's business model. The reason we have chosen to build our business around culture, or if I may say, it's like a [ shielding asset ] with the culture, is because we believe that the culture and arts have the power to create new concepts. They have the inherent ability to constantly renew and update existing ideas, which is a fundamental force behind our approach to business and commerce. For us, as we continue our commercial activities in the city, the only way to grasp new values and driving forces is by moving alongside culture. With this mindset, we have conducted our business alongside culture, which continuously reveals to us something new and different. As a result, we believe that our human resources have 3 key attributes: the ability to discern quality that transcends generations, the sense of the times that naturally integrates with the sensibilities of the next generation and the development power to incorporate common commerce within the culture. We believe that these abilities, combined with the sensibilities and networks with the creator that are needed for the next era, will enable us to create the next market from the global perspective. Next slide, please. I would like to share with you in 3 parts, how this value-creating human resources approach the content business and how they contributed to its development. First, I would like to share the evolution of our content business and the mindset behind it. Next, rather than focusing on the uniqueness of PARCO's business or its position within the group, I believe the key point here is how as a whole, the group can possess our distinctiveness that goes beyond new market differentiation. Third, I would like to share some concrete examples of what a business with such characteristics is aiming to do going forward. Next page, please. First, in this slide, we have presented our perspective, or rather, our viewpoint in a macro sense, showing the big picture. At the bottom, you can see various genres listed, including theater, music, movies and games. Over the years, along with the history of PARCO, we have continuously showcased and impressed these entertainment cultures. What we aim to do by embracing these cultures was to first incubate artists and reach out to build communities for them. This means that we believe we can foster the culture of the city. What we gain from this is the trust and empathy of the next generation. Once we gain that empathy, the next step was to create hubs such as theaters, live houses and art galleries and build the cultural landmarks that would permeate into the city. We have referred to this as theater-style community development. It's not just about drawing people to PARCO or our business locations. It's about enhancing the overall appeal of the city and thinking about how we can contribute to that through our business. In other words, by enhancing the appeal of the city and contributing to the increase in real asset value, we believe we can create a good cycle that will allow us to continue our business sustainably and cyclically. In addition, with that foundation, our approach to information dissemination is not just about drawing people into the hubs, but also proactively sharing information externally. As we consider the future, we believe that expanding the market can be achieved by building on this culture of foundation. Next page, please. This chart shows the evolution of our cultural initiatives and from the opening of the PARCO in 1973, illustrating the progression of our cultural hubs. Last year, we launched in PARCO Games, marking our entry into the gaming business, and we are now broadly pursuing this new venture. Starting from theaters and moving on to games, we began creatively reaching into culture through the perspective of curation. Since the 2000s, we have engaged with the culture in ways that align with the times, focusing upon collaboration. From 2020 to 2030 and into the future, I believe we are entering a new era of creativity again. Next page, please. This is the page I most want to share with you today, as we are managing such a wide variety of entertainment and cultural genres. We operate in the theater, publishing and art and culture, which means galleries and alike. We also now operate music, movies and even movie theater business. We take pride in having started food IP entertainment back in 2012, 10 years ago. However, even with the many tenants we brought into the older Shibuya PARCO, there one inevitably in some areas where things just didn't quite align. The conversation started internally, wondering if we could somehow fill that space. At that time, we were not in discussions with [indiscernible], who expressed interest in holding a special exhibition. Coincidentally, the space that needed to be in the field was a vacant dining area, which provided the perfect opportunity for this collaboration, having been involved in the exhibition business for many years. We would often borrow on various IPs and artwork for displays. We apply the same concept to the dining space by introducing IP into it, creating collaboration of cafe where customers could enjoy the experience. This is how we envisioned the business model. This was the beginning of what is now known as the first Content Cafe also referred as Collaboration Cafe. Over the course of 10 years, this business has grown considerably, and it has become 1 of our key initiatives. There are many providers of entertainment and culture, but no one matches us when it comes to the wide variety of categories and the number of physical locations. We have physical locations from movies, games and music to publishing, which is unheard of even among the major entertainment companies. Each of the categories have their own special experiential values. You can experience a powerful live feeling that captures the essence of life at a theater or an unbelievable sense of unity and energy in just an hour of a music performance. Or at the Collaboration Cafe that I just mentioned, you can express your passion for whatever or whoever you are a fan of in the form of consumption. These are the types of experiences that give people emotional fulfillment. All companies may try to provide in-depth experience in their own area of business. But as a group, we provide that kind of experience throughout a collection of business categories. What is required now is to create new crossover experiential value by going beyond the limitations of single categories. This will open new markets and be the key to shaping the future of entertainment. This is not about quick collaborations, such as simply using characters for movies. We believe there are new services that only we can develop based on our accumulated understanding and experience, and new content markets will emerge from these innovations. Next page, please. This is a visualization of our content business. On the left is our current business. On the right is the future. In each of the business categories I touched upon, we have worked with top runner experts in the field to create culture. For example, in area of theater, we have created the value of the PARCO Theater in Shibuya, which led to the branding of the theater complex itself and attracting a large audience. There was focus on bringing people to our locations. But now we can create a more centrifugal force to bring our IP outside without sacrificing our centripetal force of drawing people in. In the past, our approach to IP was to host live performances at our location typically as one-off events, or at most, they toured once. The business cycle was generally seen as complete once the cycle was finished. Moving forward with different content for next time. We changed that mindset to one where each one of the contents we have created so far is considered an IP in its own right, something that can be delivered outside of Japan. By transforming our mindset, we believe the totality of what we have created so far should be marketable as IP, which leads to the creation of new content business. As mentioned earlier, gaming business and other IP-related content business models launched in recent years are very well suited to be portable content projects. We are committed to strengthening our business from this perspective. Next page, please. Let me share with you a specific initiative. This is an example of IP-centric experience type and time-type consumption of entertainment, developed in collaboration with Kodansha. Kodansha is a company long known for developing and curating ideas, while we have been creating cities through fashion. These 2 companies tied up as a team to weave a new era together and create new IP combining their strength. Kodansha has developed ideas and learned about people through words. PARCO has created ideas and learned about people through fashion. Worlds and stories that arise from the city is what we want to spread, starting with original mangas. Next page, please. The original manga stories vary. But basically, they are about young people in cities. Topics are ones that are familiar in daily Life, like music, food, fashion, lifestyles and life. We will create IP and spread them through a media mix approach. Next page, please. This is what the content business team is hypothetically thinking about now. There are many things in Japanese culture that are highly appreciated. In pop culture; manga, anime and characters are attracting attention. Looking back, in the '70s and '80s, when we were young, the content we admired came from London, Paris and New York. We admired not only the cities, but the music and movies born there. We remember those days when we were drawn to them and follow them intently. That was the starting point of the global content business. Over the years, that business has shaped the times. And now in the 2020s, we have music from Seoul, Korea, webtoons, images, animation and music from Japan, and original Manga. In the world of content culture, the eyes of the world are in East Asia, including Tokyo, as the place that creates value. Not only our company, but the group as a whole has started various collaborations with Korean companies and content for pop-ups and other projects. We are looking to expand this initiative to build East Asian culture unity, fostering a brand from East Asia as a way to shine globally. We also intend to reach out to creators worldwide to create a top global creative community. In today's seamless era of new content, where design and visuals transcend national borders, I believe we can establish top creative unity in East Asia, so we should be able to attract global creative communities to this region. After that, in around 2030, the group has the vision for our IP business to establish the international content studio, which is not just a facility to bring people in, but a creative studio that can send content and messages out. I have talked a great deal about our will. But it's not just about our own will. We intend to work with many stakeholders in the city, including creators. So that together, we can build a big will for all of us and contribute to the development of the group. That concludes my presentation. Thank you.

Let me introduce the next speaker. Ms. Yamanaka Ayako from PARCO Company Limited will explain PARCO's Content Business, Gaming Development and Co-creation through group HR exchanges.

I am Yamanaka from the Gaming Business Development Department of PARCO Company Limited. Today, I will share some insights about the group's HR exchanges, including secondment based on my current job and past experiences. Starting with my profile. I joined Daimaru Matsuzakaya in 2018. So I am in my seventh year with the company. During the first year, I worked in department store sales. In 2019, I applied for an internal group recruitment opportunity to join the new business division of J. Front Retailing, where I explored new business possibilities in the entertainment sector. This experience led to the next phase from 2021 in the content business entertainment division of PARCO, where I was involved in the planning and production of exhibitions. In 2023, I moved to the newly established Gaming Business Development department, where I am engaged in events, publishing and distribution of game IP. Next page, please. The Gaming Business Development department, which I belong to, has the mission to become a game IP holder and develop rights using IP. This is a department dedicated to the gaming business within PARCO. These are the 3 main business activities. First, is the Game IP Holder Business, which develops and produces games. Second is the Game Publishing Business, which sells games that are developed. Third is the Gaming Events Business, which develops the rights of the games. By covering the full gamut from game IP development, to gaming events and ultimately to the expansion and development of rights, we envision a large-scale business expansion from upstream to downstream. Leveraging the know-how I gained from my previous experience with exhibitions, I am currently working on the promotion of the gaming events business and preparation for the game publishing business. Next page, please. This is an example of our current business initiatives. There are several projects, including gaming events and the gaming category called TRPG. We worked with PARCO Theater to stage the first live audience performance of a popular TRPG work. Through performances and events like this, we will build a network with creators in the gaming industry and establish our position within the gaming sector. Next page, please. As I mentioned, I am still a Daimaru Matsuzakaya employee, but I have been seconded to both J. Front Retailing and PARCO. So based on my experience of secondment and HR exchanges, let me share some insights. First, the strength of each group company and the attractiveness of each company is something I can feel and sense on the ground myself. The strength of Daimaru Matsuzakaya include reliability, which can provide peace of mind as a core value. It also has the attitude of pursuing the profitability of each business. On the other hand, the strength of PARCO are its sense of speed and flexibility that keeps up with the times and its sense of balance that considers the profitability of the whole business. Both have attractive features, but conversely, that means the strength of one company indicates room for improvement for the other. So I believe what is important is to share this information and turn this into shared knowledge of where each company can make improvements on. Second, there is a need for opportunities to access information and experience the culture of group companies other than one's own. Of course, we already have briefing sessions and joint initiatives. But going to the company and working with the people there allows one to see for themselves the organizational structure, who is in which organization and who is responsible for what, which I believe is very important. As I have been seconded to multiple companies, I have been asked by people working in one company about who to go to in the other company for this kind of potential project, not only in the entertainment business, which I am responsible for, but in other areas as well. So each company sees some appeal in the other company and is interested, which leads me to the third point. It is important that persons on secondment become the hub of communications between group companies. Second is, like myself and HR exchanges, can play a role here. These will allow group companies to do business with each other, knowing the faces of their counterparts, which will produce huge synergies for the group in the future. That concludes my presentation.

Now let us move to the second main topic for the day. The current state and issues with company governance from the perspective of the Board Chairperson. The speaker is Director Hiroko Koide, Chairperson of the Board of Directors of J. Front Retailing Company Limited.

I'm Hiroko Koide, and I have been serving as the Chairperson of the Board of Directors since May of this year. The topic of our presentation is Board Chairperson's Perspective of the Current Stated Issues with Company Governance. Can I have the slides, please? As you know, we transitioned to a company with the Nomination Committee in 2017. Since from 2022, the majority of Board members have been Independent Outside Directors. And 3 out of 10 Directors are females. Our governance structure is quite advanced by focusing on our diversity. This year, in addition to the existing 3 Committee Chairs, the company, for the first time, selected a Chairperson from its Independent Outside Directors to enhance the effectiveness of the both supervisory function. In addition, to ensure that the Chairperson can effectively fulfill her role, the Board of Directors office has been strengthened and an Executive Officer has been selected to head the office. In addition to the evolution of the organization, we have been working on several initiatives over the past 6 months to strengthen the Board's effectiveness based on last year's Board effectiveness evaluation. To begin with, there are 2 issues that was identified from last year's evaluation. The first one is to strengthen monitoring of the current medium-term business plan. In the previous medium-term business plan, the Board did not adequately monitor the progress and the results of the planned execution. Based on this reflection, we have clarified the KPIs for the newly started medium-term business plan and have established regular opportunities for the Board to monitor the progress of the plan. The second issue is the need for robust discussion on growth strategies and thorough preparations and analysis for that discussion. To do this, it is necessary not only to focus on the internal matters, but also to analyze the environment and the competitors more thoroughly by looking outside the company. And the report also stated the importance of making a more in-depth proposals and strategies, decisions based on factual evidence. Therefore, during the past 6 months of this fiscal year, we have focused our efforts on the following 3 initiatives. The first initiative is to enhance agenda setting for more substantive discussions. I, the Chairperson and the Board of Directors' Office have developed a rough annual agenda for the next year. This includes the monitoring of the medium-term business plan, as I mentioned earlier, and strategies that impact the entire group, such as the human resource strategy and customer strategy that explained today. Additionally, when looking at stores, the focus has shifted beyond a single location to strategies for entire areas. The second initiative is to improve the quality of the Board materials and proposals in order to have more substantive discussions at Board meetings. The quality of materials and proposals from the executive side is critical. Rather than trying to cover all the information, it is more important to ask why an issue should be discussed at the Board meeting in the first place and what decisions need to be made. And also when analyzing the situation, the focus should be on the big picture, such as the reason why something is happening, what needs to be done and what risks are involved and whether there are risks that can or cannot be taken. I also have conveyed specific requests to the Board through the Board of Directors' office to prepare materials that will lead to better discussions. Although we have seen some improvements in the past 6 months, further quality improvements are expected. In the case of resolution on the major issues, we included as an agenda item multiple times, allowing sufficient debate before making a decision. The third pillar of our efforts is to build a relationship of multiple trust among Board members. For example, a relationship of mutual trust, confidence and appropriate attention is necessary between the President and the Chairperson, between the directors and the executive side and between the directors themselves. I believe that is of utmost importance to build these 2 things in order to have more constructive discussions in the Board meetings. This year in particular, we had some changes, including a change of presence in the holding company, the presence of some operating companies and the change in the Board Chairperson. We also established a new Board of Directors office and the retirements and appointment of several outside directors. The members have changed dramatically. So we are getting to know each other better, not only in the boardroom, but also outside of the boardroom. Over the past 6 months, we have set up a variety of opportunities to do so. Among these initiatives, we all have felt some good changes. Since the establishment of the new structure, the impact of some of the initiatives are gradually emerging, based on the Board effectiveness evaluation for the current fiscal year, which I received last month. The President, the Chairperson and Head of the Board of Directors office have formed a new collaborative structure. And after the Board meetings, we always take time to summarize the discussions of the day's Board meetings, identify issues in the operation of the Board and determine what actions we should take to improve the Board meeting. Then we exchange opinions very openly about what kind of actions we should take in the future. Even though the roles of the President and the Board Chairperson are different, we share the company's direction toward a single major goal and we work together. We also communicate what is discussed there to the executive side as needed, which I feel is highly effective for aligning perspectives between oversight and execution. This has gradually led to the strengthening of the management of the Board of Directors. The second point is to expand mutual understanding and better communication among outside directors. Before each monthly Board meeting, we hold an executive session where only independent outside directors join. These sessions have no formal agenda and are conducted in a casual manner, with a focus on discussion. After the pre-Board briefing sessions held before each Board meeting and at their own meeting, directors can share their own impressions of what was explained or suggest areas that might require a deeper discussion. This is a forum where directors can freely exchange ideas and engage in open dialogue. And during these discussions, we also share the Board's agenda for the next 3 or 4 months and exchange opinions on what the key topics for discussion should be. Additionally, we share information from the 3 committees as needed. This helps to improve the quality of discussions among the Board members. The fourth point is to create opportunities for deeper understanding of the business while each individual director studies on a daily basis, obtains information from the media and Internet, reads books or attends study groups. This year, we are trying to encourage them to spend more time on company site visits. They will spend more time on company site visits. In addition to discussing business matters during these visits, we have also created opportunities for the directors to freely interact and exchange opinions with department managers and other mid-level employees, as well as top leaders. This helps us gain a direct understanding of what is happening on the site. And we are trying to increase the number of these opportunities to receive firsthand information, such as what motivates employees in their daily work and the insights they gain. The recent Board effectiveness evaluation report pointed out several issues that need to be addressed to further improve the effectiveness of the system. I would like to focus on 3 major issues. The first and most important issue is to further improve the effectiveness of Board meeting discussions. The report emphasized the need to set more medium- to long-term strategic agenda items in order to enhance corporate value and to discuss issues from a broader perspective. In other words, we should reinforce the awareness that this is not a Board of Directors of an operating company, but rather, of a holding company. We need to clearly define what should be discussed and resolved at the Board of Directors meetings, as well as the appropriate level of detail. And we have been discussing the need to reexamine the submission criteria of proposals. This would involve not only monetary thresholds, but also taking into account such factors as their strategic importance and the potential impact on the future of the company. And as a holding company, we need to thoroughly discuss important issues that will gradually affect the corporate value of the entire group. Of course, the strategic aspects of the medium-term business plan should be included. In addition, potential M&As and other major investment projects, and more importantly, the business portfolio transformation such as withdrawals from certain businesses should be included on the agenda. We would also like to discuss the realization of our management that is conscious of cost of capital and stock prices as part of the agenda. The quality of the discussion is also very important. And since the discussion involves a diverse range of human resources and the diverse Board of Directors, the breadth of the discussion is very important. While it is important to have opinions from a variety of different perspectives in Board meetings, it is not so good to spread out the discussion too much. It is necessary to dig deeper into important points. Although it is challenging, it is important to find the balance between the two. And the Chairperson must also facilitate the process to ensure the discussion leads to clear direction setting. I'm a relatively new Chairperson. So I'm still learning a lot, but I strongly feel that the Chairperson needs to be more innovative in managing the proceedings. Wide range of opinions are expressed at the Board meetings, but sometimes we are so focused on the discussion that there is a lack of clarity about what the next actions are, who is responsible and the time line for each action. We will make this part of the process more visible so that the executive side can execute them effectively and in a timely manner. The second issue is the demonstration of leadership by the executive team, which relates to the quality of the proposals made at the Board meetings, the speed of the actual execution and the need for the executive team to continue to improve the awareness of the governance. As was mentioned earlier, in the human resource strategy, I think it is difficult to make changes without a combination of mindset transformation and the capability to execute. We have very high expectations for the improvement under the new management structure to drive these changes forward. As was mentioned in the human resource strategy earlier, reform and change involve pain. But I believe that now, it is a time to break away from the thinking and behavioral patterns associated with the corporate culture of the past. I understand that it is not something that can be done easily. I believe that it is precisely because I'm an outside Director and the Chairperson of the Board that I can more easily point out and offer advice from an outside perspective, such as suggesting something is strange or we should really be considering other aspects as well. After all, rather than seeking growth as an institution of the past, there's a real need in this day and age to create new growth scenarios, such as making connections horizontally within the group and connections with the outside world. I'd like to encourage the Board of Directors to break away from conventional mindset and patterns of success so that new ways of thinking and new ideas can be emerged. There are still many issues to be addressed. But as Chairperson, I work hard to address these 3 issues in order to improve the effectiveness of the Board of Directors and ultimately increase corporate value. Thank you very much.

Now we will proceed to Q&A session.

I'm Shigeoka of Daiwa Securities. Thank you for your presentation. I have 3 questions. First, could you provide more information about talent mobility across the business domains within the group? How many people move in a year, as Yamanaka-san did? Please tell me the current number. Is it about several dozens? And what is your expected number in 2030?

I'll answer your question. Currently, the number of people who are seconded between group companies or business domains is about 900. We conduct open recruitment twice a year. And every time, about 30 or 40 people apply for transfer. And the number of applications is steadily increasing year-by-year. The number of posts for application is also increasing. And in 2030, we'd like to double the proportion of intergroup exchanges to 20%, as mentioned before, which is double the current level.

Thank you. I can imagine the HR exchange between Daimaru Matsuzakaya and PARCO. But are you going to promote exchanges between clearly different business domains?

Already, employees of Daimaru Matsuzakaya are seconded to various business domains, including card companies, developer companies. And the PARCO employees are also seconded to developer companies and shared service companies. So the cases of secondment are gradually increasing. And the exchanges are not limited to the retail segment. We'd like to provide every member of the group with the opportunity to experience different business domains, including in nonretail businesses. Of course, it is up to the will of the employees, but we'd like to increase human resources who have experience of different businesses.

A follow-up question, please. Besides assignment to different businesses, do you already have many study groups or get together meetings? Or regular communication opportunities within the group, across the companies? Or do you plan to increase them further?

Yes, we already had various group-wide projects such as the core digital talent initiative that I mentioned. These involve members from different business across the group or collaborating teams. Going forward, we plan to continue not only these study groups, but also expand the initiatives aimed at culture transformation, increasing group-wide efforts, cross functions.

Thank you. Second, I'd like to ask about the organizational structure. You said that there are opportunities for group-wide exchanges and the project across companies. But let me know the structure. These cross-functional organizations or teams, specifically, how are they structured from an organizational design perspective?