Mitsubishi Corporation (9433) Earnings Call Transcript & Summary

Thank you for joining our press conference despite your busy schedule and also at such a short notice. I will be serving as your MC. I am Okamoto from the Corporate Communications Department of Mitsubishi Corporation. Lawson, KDDI and Mitsubishi Corporation have announced the Capital and Business Alliance partnership on the website. So first from the 3 companies, we will present the intention behind the [indiscernible] and from the media letting up to 4:50, we would like to receive your questions. After the Q&A session, we will also have time for the session, and we would like to finish by 5:00. So thank you very much for your cooperation in advance. So first, I'd like to introduce the representatives. Also from your right from KDDI Corporation, President and Representative Director and CEO, Mr. Makoto Takahashi; in the middle, from Lawson Incorporated President and CEO, Representative Director, Mr. Sadanobu Takemasu; and also to your left, from Mitsubishi Corporation, Representative Director, President and CEO Katsuya Nakanishi. Also, we have 3 speakers today for the press conference. Just a housekeeping note, if you would like to take a photo during the press conference, please take the photo from the rear of the venue or from the side. If you would like to take the photo from the front, please stay within the line indicated on the floor. So we'd like to go into the presentation. First, Mr. Katsuya Nakanishi from Mitsubishi Corp., please.

Thank you very much for taking time at a busy schedule to join us today at such a short notice. Thank you for the kind introduction. I am Nakanishi, President of Mitsubishi Corporation. I am pleased to announce that KDDI Lawson Mitsubishi Corporation have entered into a capital business partnership agreement, and that KDDI has announced the commencement of the tender offer for Lawson. So we would like to report on this news and also offer you some background. First, looking back our post initiatives with Lawson. We started the business in 2000 and turned the company into our subsidiary in 2017. Since then, we have been working with Lawson closely to boost our domestic convenience to our business, leveraging the group's value chain as well as to grow our overseas CVS business and also to strengthen our financial entertainment and other services. Most recently, we have been helping Lawson in its efforts to optimize logistics and inventory by introducing an AI-based demand forecasting system at the distribution centers and supplying renewable energies to stores and taking on the challenge of regional development in collaboration with local governments. Our support to Lawson is extended from the viewpoint of promoting EX and DX and regional revitalization. Lawson's business was impacted by the pandemic from 2020. However, the company's first measures to respond to changing consumer needs, such as store renovation and strengthening product lineups are showing good results and its overseas business is also becoming profitable with record high net income expected in fiscal 2023. At the same time, the retail business environment is expected to undergo further changes with advances in digital technology, diversifying consumer needs, future population decline and intensifying competition, including from players from different industries. That said, we have concluded that we need to support Lawson's further growth and provide new value to the customers together with the partner that has different functions than us and shares our vision and strategy. We are pleased to have KDDI as our partner. Since signing the capital and business alliance agreement with Lawson in December 2019, KDDI has been working with us to help us and grow even in the challenging environment under COVID and we have deepened the relationship of trust. We are convinced that KDDI, which stays in its KDDI Vision 2030 that the company aims to contribute to the realization of an affluent society with the power of connecting in Mitsubishi Corporation, which states in its corporate strategy 2024 that it will create value by connecting and linking or aligned. We would like to take on the challenge of delivering even greater value to consumers by combining Lawson's over 14,000 physical stores with KDDI's strong customer base and technology to provide new services that go beyond the concept of traditional convenience stores. We have stated that we are no longer a trading company. We believe that by combining the strength of each company through this capital and business alliance with KDDI, we can create a new type of CVS business for the future. And that is the very reason why we parties agreed to join hands. Now I'd like to handover to Mr. Takahashi, President of KDDI to explain the details of this transaction. Thank you very much.

Thank you very much. Next, I'd like to call upon Takahashi, the President and CEO of KDDI Corporation.

I am Takahashi, the President of KDDI. So as Mr. Nakanishi explained, we have decided to start the tender offer to hold 50%, as you can see in this diagram, the current status is shown on the left-hand side, we have 2.1% ownership. Together with the Mitsubishi Corporation, we would like to increase this to 50% in return. We will start the tender offer. And we started around April and acquisition cost, including the squeeze out is expected to be about JPY 497.1 billion. As Mr. Nakanishi mentioned, we have 2030 vision. And we try to evolve the power to connect life, living and heart. And that is something that we want to realize so that anyone can realize what they want to achieve in the society. Convenience stores, I'm sure that Mr. Takemasu will mention this later on, but already have become important part of the infrastructure playing important roles. We have a capability of telecommunication and DX. We hope that those capabilities will be fully utilized so that we can realize the future convenience store, connecting life, living and heart so that we can provide new values to the customers. Right now, what we didn't have much time to prepare, but we have created the following video that we'd like to show it to you. [Presentation]

So as you saw, we are trying to connect and create the future convenience store connecting life, living and heart. And we have had the internal discussion and we were getting excited about creating new value for the customers. And we are hoping to create those new services as you saw in the video. So as you can see on this slide, Lawson and KDDI in total, we have in the case of Lawson, they have about 14,600 stores, and we have 2,200 AU shops. So in total, that is 17,000 direct contact with other customers. During the pandemic, the people shifted to the remote connection, but people appreciate the real connection and I'm sure that you're feeling the importance of the physical connection. So we would like to fully utilize the digital technologies to offer new valuable services to our customers. So that's how we are extremely excited about this. So as an example of combining real and digital, utilizing telecommunication and DX capability, the customers who are inside the convenience stores can receive the services from the experts who are far away. So this is something that we are thinking about. The one on the left is the household budget inquiries, for example, banking service or insurance services, you can consult about how you can invest, for example. In the middle, this is the medication inquiries so that people can receive their medicine online. And also the support for the smartphones will be another example. So by utilizing the remote capability, we believe that we can increase the value of those physical stores, which are close to our customers. The one on the right-hand side, you see the van or small vehicles where -- which are acting very actively in the area that was hit by the major earthquake in Northern Peninsula. So for example, in the parking area of the convenience stores, those cars can go around to provide various services, and that would lead to the resolution of the -- some of the challenges that we are faced within the society. Now using the latest technologies and by utilizing them, we are thinking of creating the more smart daily services. So for example, using the XR or Avatar to provide the customer service or to use drones to make the remote delivery or Lawson has a lot of purchasing data and we can combine that with our customer data. So -- and by using the AI technology, we can optimize the value chain and deliver products more quickly. So those are the things that we would like to continue to imagine. Another important thing is the green perspective to support the sustainable lives and to connect the people in the local and regional areas already, Lawson is working on the solar power generation and operation of the EV charging stations. So through this partnership, we are hoping to accelerate those efforts. And also by combining the convenience store and telecommunication, for example, StarLink, at the time of the emergency, we can use the convenience stores as a hub for disaster prevention or mitigation. If we can do so, it will be a wonderful example. So until now since 2019, we have been working closely with Lawson and Mr. Takemasu is one of the visionaries, so he shares about his future vision. And the future convenience stores are quite exciting and some of the examples that I talked about are very simple examples that we can think of right now. By utilizing the assets of the 3 companies, we want to launch the new initiatives one after another. So in the area of the real digital and green, we would like to continue to create the new convenience stores together with Mitsubishi Corporation and Lawson. Thank you for your attention.

Thank you, Mr. Takahashi. Now I'd like to handover to Mr. Takemasu, President of Lawson.

Good afternoon, ladies and gentlemen. Thank you for your support, as always. And also thank you for joining us despite bad weather. I am Takemasu from Lawson. As Mr. Nakanishi and Mr. Takahashi discussed, we are talking about the convenience store of the future. So I don't have anything else to add to be frank. But with KDDI, we got the proposal, and we took it very seriously to consider the opportunities. And we believe that we should really capture this opportunity to work together to create the convenience store of the future. So there are 4 key points. With Mitsubishi Corporation for about 20 years and also with KDDI for about 5 years through our capital business partnership, we have been working very closely to identify how we can be useful and helpful to the local residents in the market. And through this kind of collaboration, we have been able to build a dual relationship of trust with Mitsubishi Corporation and also with KDDI. Also 3 companies together were able to overcome the challenges of COVID, and we were able to create a very strong bond. And we believe that this bond is very strong, which has been strengthened through digital relationship of trust. And also looking at the corporate culture, all of us want to contribute to the good of society, and we are up to taking on these challenges as we contribute to the society. We were able to share these key words together with KDDI in the past initiatives. The corporate culture and the atmospheres could be respected mutually. So that was the second point. And the third point was we both want to be a strong company in each of the industries and the sectors. And the fourth point is that as Mr. Takahashi discussed just now, we have a vision for the future of the society. And we have the aspiration to contribute in building the future of the society. We can all bring out our competitive strength on the table and work together to create a better society. Also from these perspectives, we decided to receive the proposal from KDDI so that we can collaborate more closely to pursue our path for the future. And on top of that this is what we aspire to become or create. Some of you may be familiar with this. We have Lawson challenge [indiscernible], we have the 5-year midterm business plan. So this fiscal year '23 is the third year under this current midterm business plan. Looking at our quantitative targets, we want to achieve the target 2 years ahead of the schedule. So we're motivated to accelerate the achievement of the target. And thanks to our effort together with KDDI and Mitsubishi Corporation in this very challenging environment under COVID, we have been able to come up with great initiatives to perform well. And in the remaining 2 years under the current midterm business plan, we want to present ourselves as the new type of convenience store. Traditionally, we have been perceived as the physical store or physical Lawson base. But not just that, we would like to contribute from the technology perspective. And we also want to offer a global service. That's how we aspire to be and that's how we would like to start FY '24. As the global real tech convenience Lawson Group, what does this mean? Obviously, we have the real stores. We have the stores where the customers can come and do their shopping. This is very important and very core for us. And so that will be for the daily use. And we have experienced during COVID, also when people are committing to their offices or going to the school and when there is increased traffic, the convenience store were performing well. And we also expanded our frozen food offering at the convenience store, and we have evolved so that our store can be used for the daily service purposes. Also we embrace that concept with our physical store. And then on top of that, we would like to offer the quickest e-commerce you see on the right-hand side. The traditional is the players would have a big distribution center, and they will have that big hub to deliver their products to their consumers. So even for the big players, the quickest delivery time is 2 hours after the order placement. But we have 14,000 physical stores that can be leveraged on. And this can also be positioned as the e-commerce center and then in just 15 minutes, we can deliver the product that the customers order because we have 3,000 SKUs in the stores, and you can place the order and it can be quickly delivered to the customers. So the speed is going to be a competitive edge as we try to enter into the EC market. So that said, we have this daily use, and then we have this quick e-commerce. We want to have both of those 2 elements as a competitive edge as we pursue further business strategy. And then we ask the entertainment business and supermarket business. And everything needs the financial services. So we have the Lawson Bank. And as a group, we want to globalize this financial service as well. But for the delivery, we have to improve the usability of the physical store. But for everything, this technology at the base is indispensable. So technology is going to support everything in my view. Also, when we were thinking in that way, we received this very proposal from KDDI and we thought that everything will be connected and the real tech convenience store can be feasible, communication, telecommunication and IT digital other capabilities that the KDDI have proposed to offer. And that really matches with what we need as we try to pursue our future strategy. This is going to be a great support and great strength for us. There's a global real tech convenience Lawson Group as we try to roll out this concept, we will get further support and capacity from KDDI to accelerate their efforts. And also in the normal times, we want to support a very efficient, productive daily lives, including delivery. If you can get whatever you want in 15 minutes, that would be great. And if there is an emergency or crisis, we want to serve as the social infrastructure so that we can offer peace of mind to the residents. So telecom and technology are going to be indispensable. So we have the -- can offer the convenience and efficiency during the normal times and also security and comfort during the time of crisis. So that's what we would like to create and offer together with KDDI. So KDDI mentioned about life, living and heart. We want to connect that. And I think that concept really resonates with our ideas. And also the KDDI are trying to do something for the benefit of the others. And KDDI also has a spread of taking on challenge. Also they have taken on a new challenge and formed the company KDDI to enter the market, and then they've expanded -- they offering financial services, DX and entertainment and now they are continuing to pave their ways into the new market. And we felt that this organization as a shareholder and as a partner will be great for us as we also try to strive to take on new challenges. And so that will be all from my side. Thank you very much for your attention.

Mr. Takemasu, thank you very much. So we heard from 3 speakers. Now we would like to entertain questions. [Operator Instructions] The reporter sitting near the entrance.

Ishikawa, I'm freelance writer have a question to Takahashi-san. So Lawson, I think NTT DOCOMO also invest in Lawson. So you mentioned that whether you can work together with them as well, I'd like to know.

It's not a difficult question, but it's TOB. So basically, 50% is what we achieved. So it will be a squeeze out. So at that time, we want the shares to be sold. So when we invested in 2019. We wanted to invest more than DOCOMO. And then after that, we have built a good relationship with Takemasu-san. So I do not have any intention of fighting against DOCOMO from the convenience store, the pay and other settlement or payment method is important, as important as au Pay. So I would like to be close to Lawson and we would like to have a closer relationship with Lawson. So we have no intention of competing or going against DOCOMO. Thank you.

Also next person at A5, the journalist close to the entrance.

Yes, my name is [ Simone ] from NHK. I would like to ask a question to Mr. Takahashi from KDDI. So you are going to be engaged in the management of the Lawson business as a core partner. So what do you think is the strength and the weakness of those and which does not exist in the other 2 CVS chain in Japan?

Well, I guess I'm not in a position to talk about that from my side, but we've been in discussion from 2019. And I think the speed of decision-making process I think Lawson excels in that sense. So they are an easy business partner to work with among the among the 3. Among the 3 of the competitiveness, I'm sure Takemasu-san knows this better than myself. But for the real tech convenience store vision, I think Lawson is most advanced with that concept. And they are identifying telecommunication as the tech component. And in terms of globalization of the business, I think among the 3 players, I think we are on the same page in pursuing the concept.

Next, B2, person close to the window, please.

[ Nakamura ] from Nikkei. I have a question to Takemasu-san. So it sounds like from now on, KDDI is going to take the leadership including the top appointment. I'm sure that Takemasu-san will be continuing. I'm sure that it will be difficult to decide a leader. What will be the governance going forward -- governance structure?

Nakamura-san, well, basically, we, the Lawson, the most important thing is our customers. And what I always tell is that the stores and merchants and crews and all the employees and also the suppliers, partners, they are also for customers. So how can we make a contribution to the society for customer to provide convenience and in case of emergency, how can we provide the safety and security. So together with the KDDI and Mitsubishi Corporation, we want to pursue that. So that is the true nature of us, Lawson. So I think that Mr. Takahashi and Mr. Nakanishi agreed with wave thinking. So if -- well, we do not expect that something would happen, which will not contribute to that. And I'm sure that 2 companies will support us whenever we need it. So first, Lawson in our own area in the sector we have to do our job. And so that we can realize the governance which is convincing to all the parties. So I hope that the 2 companies will discuss that. And us, we would just work hard for customers. Are you talking about myself? We are not yet talking about that, the future. So basically, we want to contribute to the customers and the leaders of this structure should be chosen based on that. So everything will be centering around customers. And that is what it should be and what we will do. So in the area of the telecommunication, of course, we would try to take the initiative or leadership. But this in the area of the retail and in the area of the retail, we do not have much knowledge or experience. So the retailers to provide more value, they can utilize telecommunication, and that is where we have our expertise. So that's our stance. And so we don't really need to talk about who takes the leadership among the 3. So this time, the President will be coming from Mitsubishi Corporation as it did until now.

Thank you, Nakamura-san. Also I'm cautious of time. I would like to take the last one or two questions. [Operator Instructions] Table at C1, the person close to the window. Please ask a question.

I'm [ Ishino ] freelance journalist. Earlier, Mr. Takahashi mentioned the settlement and also PayPay. Lawson, you have a deep point and Ponta point, and I think you offer either of the points to the customers. But with this kind of ownership, are you going to take the deep point service out. You mentioned about the data linkage in the presentation. But I guess from KDDI's perspective, you don't want the data to be shared with NTT data. So what are you going to do about that.

So Mr. Takemasu, can you respond to that question?

Yes. Basically, I think it's a choice for the customers. And the service that will be chosen by the customer is what we would like to provide. And that's what matters. Because from the product side, we should not be like a product out. So for the settlement also for PayPay, we want to make sure that the users, customers will not feel the inconvenience. But I'm sure that there's going to be strong support coming from [indiscernible] staff for au Pay, but basically, we will continue to offer the best choices for the customers. so Ponta, I think you would like to reinforce the Ponta system because we have this 3 some partnerships. So we would also like to have a discussion of that strategy. Thank you.

So this is going to be the last question. C4, the journalist sitting near the window.

Okay, I'm a freelance. I have a question to Mr. Nakanishi. Earlier, it was said that you were struggling with the idea of how to support or make the additional support. So with this partnership, is this positive or kind of reactive if you can talk about that.

Well, of course, there is nothing negative or reactive about it. In December last year, we changed the organization and SLC is a new group that we established and as I explained at that time, from the consumer perspective, the challenges and needs will be grasped. So we will combine the real and digital to create Smart Life. So that is the SLC group we established. So the core of this would be Lawson in this partnership or agreement. We complement with each other, and that is important or absolute necessity when we choose the partners. And we have to choose the partner we can trust. And when we cannot do anything much on our own, we need to find a partner. And with the partner, we can create synergy to do something. So by adding those new pieces, we can start to work together. So that's what we plan to do with SLC. And we believe that we can increase the value and this is something that we'll be fully committed to. So we will be engaged in it actively and strongly believe in that. Thank you very much.

So with that we would like to end Q&A. If you have additional questions after the press conference on this floor, we would take additional questions. So we are going to now move to the photo session. [Statements in English on this transcript were spoken by an interpreter present on the live call.]