Seven & i Holdings Co., Ltd. (3382) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for taking the time off your busy schedules to attend today's financial results presentation. My name is Isaka, President and Representative Director of Seven & i Holdings. Today's presentation will be conducted in teleconference form in order to help curb the spread of the novel coronavirus. We apologize for any inconvenience this may cause. Additionally, as announced in the recent press release, many uncertainties associated with the global spread of the novel coronavirus make it extremely difficult to adequately and rationally estimate future conditions for each operating company of the Seven & i group. For this reason, we have decided to postpone the announcement of our second medium-term management plan, which had previously been scheduled for today. We have also decided to set the business results forecasts for the fiscal year ending February 2021 to undecided. We will continue assessing the impact of the novel coronavirus and promptly disclose a forecast as soon as one can rationally be derived. We ask you for your understanding. Please turn to Page 3. First, I would like to discuss the recent impact of the novel coronavirus. The graph at the top shows an approximation of year-on-year change in existing store sales of our main operating companies for February and March. The table at the bottom shows preliminary year-on-year results for March divided into the first and second half of the month. As you are aware, sales at our department stores, Sogo & Seibu, and our restaurant chain, Denny's, declined significantly. On the other hand, our food supermarket, York-Benimaru, delivered significant sales growth due to bulk purchases. Additionally, while this information cannot be found in the slides, sales at York Mart grew by just over 10% year-on-year during the month of March, showing double-digit growth. At Ito-Yokado II, food sales were up 7.5% year-on-year in March while large-scale facilities struggled as consumers try to avoid crowds. Convenience stores have a product lineup consisting primarily of everyday essentials, so the convenience store industry is fairly insulated in times of crisis. However, Seven-Eleven stores near office areas and sightseeing spots have been affected by lower customer footfall. On the other hand, stores in residential areas delivered positive growth. Compared to Japan, the coronavirus has been spreading faster in the United States, which declared a national emergency over the outbreak on March 13. Shelter-in-place orders have been issued for major cities like New York and Los Angeles. Existing store sales at 7-Eleven, Inc. grew 3% year-on-year during the period between March 1 and March 15, continuing a growth trend from the months of January and February. Sales dropped significantly since mid-March, resulting in a year-on-year drop of 4% for the month of March as a whole. Given the rapidly evolving nature of this outbreak, we have set our results forecasts as undecided as uncertain figures could become a source of confusion for investors. Please turn to the next page. While in-store sales have struggled, we have observed a change in the shopping habits of customers staying at home during this outbreak. The graph shows approximate year-on-year changes in mail order and delivery sales. We registered a significant increase in customers purchasing everyday necessities in bulk over the Internet and an increase in meal kit purchases. Seven Net Shopping registered an increase primarily in book and game sales, et cetera, from customers staying home. Regarding Ito-Yokado Net supermarket, we apologize for any delays in fulfilling customer orders. We have been able to fulfill nearly 100% of customer orders at Dark Store Nishi-Nippori which registered a year-on-year sales increase of 2.4% in February and 7.1% in March. We registered growth in meal kits, retort pouched foods and frequent used products. The e-depart store, Sogo & Seibu's online shopping site, also continued earning our customers' support and showed growth in cosmetics sales. Sales were up 0.1% year-on-year in February and 6.9% in March. The loft also saw sales growth in cosmetics, cooking appliances, et cetera. Akachan Honpo saw sales growth in disposable diapers, disposable wipes and milk and weaned foods. While this information cannot be found in the slides, Seven-Eleven Japan offers a net convenience store service in the Hokkaido and Hiroshima regions. This service has also shown very significant sales growth, and so has the 7NOW delivery service offered by 7-Eleven, Inc. which we offer at approximately 1,000 stores in urban areas in the United States. Delivery volume has increased between 50% and 100% to an average of 18 deliveries per store per day. We believe this outbreak will have a drastic and permanent effect on shopping habits, and we believe there is a need for businesses to anticipate and adapt to the type of changes I have just mentioned. We will promptly carry out a number of tests starting with last-mile initiatives and devise a management plan allowing the Seven & i Group to retain the support of our customers. The details for this plan will be announced in a timely manner. Please turn to the next page. Here, we show the consolidated financial results highlights for fiscal year 2020. We registered a year-on-year decrease in revenues from operations, the second item from the top, due to a decrease in gasoline sales at 7-Eleven, Inc. and to a reduction in the number of Ito-Yokado stores. However, operating income stood at JPY 424.2 billion, up 3.1% year-on-year, meeting our plan. Net income attributable to owners of parent, too, was up 7.5% year-on-year to JPY 218.1 billion, thanks to a decrease in extraordinary losses. This metric also met our plan. Furthermore, this was the best performance ever for the metrics of operating income and net income attributable to owners of parent. Return on equity, ROE, improved by 0.3 points year-on-year to 8.5%. Please turn to the next page. Operating income changes by segment were as follows. As you can see, the domestic and overseas convenience store segments drove growth. We registered year-on-year overall operating income growth of JPY 12.6 billion. I will be discussing the Superstore segment in greater detail later on, but Ito-Yokado achieved a profitability improvement in the fourth quarter, allowing for year-on-year growth in the Superstore segment. We had originally forecast the JPY 6.5 billion operating loss in the Financial Services segment. However, discontinuing 7pay and an earnings improvement at a Seven Bank overseas subsidiary, et cetera, translated into a year-on-year increase of JPY 700 million. Please turn to the next page. The results for the major operating companies were as follows: I will be discussing each operating company in greater detail later on, but Seven-Eleven Japan broke new records for the metrics of operating income and net income attributable to owners of parent for the ninth fiscal year in a row. 7-Eleven, Inc. was negatively affected by foreign exchange rate fluctuations. So while 7-Eleven, Inc. fell slightly short of our plan in Japanese yen terms, it still delivered record profits. In U.S. dollar terms, it exceeded our plan. Ito-Yokado registered JPY 6.5 billion in operating income, achieving the plan and finished fiscal year 2020 in the black in terms of net income attributable to owners of parent for the first time in 6 years. York-Benimaru registered an operating income increase. This was, however, accompanied by a JPY 1 billion decrease in net income attributable to owners of parent, primarily on account of water and other types of damage caused by Typhoon Hagibis. Sogo & Seibu struggled as operating income decreased by JPY 3 billion year-on-year, down to JPY 170 million. In the fourth quarter, which is normally characterized by strong sales, we registered a significant decrease in sales and customer footfall as a result of the consumption tax rate hike and the novel coronavirus outbreak. Despite this, Sogo & Seibu still posted a small operating profit. We recorded costs associated with Korea change support measures, a provision for losses resulting from store closures and other cost structure reforms. These translated into a net loss attributable to owners of parent of JPY 7.5 billion. Next, I would like to discuss each operating company. Please turn to Page 9, which shows the factors in year-on-year change of operating income for Seven-Eleven Japan. For the item of sales, we registered JPY 1.5 billion in existing store sales growth and JPY 15.4 billion from an increase in stores. The product category of cigarettes negatively affected the gross profit mix. However, this was offset by gross profit improvements in fast food, so gross profit made an overall operating income growth contribution of JPY 3.5 billion. We recorded anticipatory expenses for growth in fiscal year 2021, leading to a year-on-year increase in SG&A expenses of 7% during the fourth quarter. However, for fiscal year 2020 as a whole, we succeeded in curtailing SG&A expenses, which increased by only 2% year-on-year, the lowest level in the company's history. This allowed Seven-Eleven Japan to grow operating income by JPY 8.8 billion. Please turn to the next page. I would like to discuss gross profit margin trends. The red line shows the gross profit margin trend for fresh foods and daily foods, and the blue line shows the trend for processed foods and miscellaneous, including tobacco. Gross profit margin for processed foods and miscellaneous struggled, starting with an increase in cigarette prices in October 2018, but it had staged a recovery by the third quarter of fiscal year 2020. On the other hand, the gross profit margin for daily products continues on a strong trend of year-on-year growth. We continued innovating in order to improve the freshness salable period of our products, leading to improvements in production efficiency and to lower costs. This, in turn, has translated into a gross profit margin improvement for daily products. Please turn to the next page, which shows existing store sales growth and the trend in the cashless payment ratio. The green line shows the cashless payment ratio trend, and the red line shows the year-on-year existing store sales growth trend. Starting with October 2019, customers can now pay for products at 7-Eleven stores using virtually all forms of smartphone barcode payments. This coincided with an initiative by the Japanese government, offering a 2% point return for cashless payments. The cashless ratio was already high at 35%, thanks to initiatives related to nanaco and the introduction of a wide variety of barcode payment options led to a year-on-year recovery in existing store sales. In terms of the cashless payment ratio, nanaco maintained the same composition ratio and other cashless payment options increased in share. The introduction of barcode payment options in particular, led to an increase in the cash flows payment ratio, which grew by approximately 9 points to 44.1%. Next, please turn to Page 12, which shows yearly trends in business conditions for franchised stores. The green line shows the existing store sales trend and the pink line shows the trend in disposal loss, which makes up a large portion of operating expenses for franchised stores. Lastly, the orange line shows the trend in profit per store. We implemented a number of measures, such as the development of new products like 7 PREMIUM and SEVEN CAFÉ, the placement of more sales display cases and the introduction of a new layout and policy changes, such as the head office bearing 15% of the cost of disposed products and a 1% reduction in royalty fees. Thanks to the sequential implementation of these measures, franchised store profits have grown almost every year. However, we are aware that franchised stores will be facing increasing challenges going forward with rising minimum wages and an adverse business climate. As shown here, 5,000 additional stores are scheduled to transition to the new layout by the end of fiscal year 2021, bringing the total to 15,000 stores. Regarding the issue of disposal loss, May 11 marks the start of the nationwide expansion of the ethical project. We will offer 5% of the purchase value in nanaco points to customers buying products nearing expiration that are at risk of being discarded, reducing disposal losses and franchised store expenses. We have seen benefits through our trial in Hokkaido and in Kyushu, namely an increase in average per store day or APSD of approximately JPY 2,000 and approximately JPY 2,000 in disposal losses. We also carried out a review of 7-Eleven charge royalties from March 2020 and strengthened our support for franchised stores. Please turn to the next page. We are also carrying out structural reform at Seven-Eleven Japan in order to offer returns to all stakeholders. To this end, we will implement stricter standards for store openings and accelerate the closure of unprofitable stores. In terms of advertising expenses, we will aim to shift away from mass consumer promotions like offering rice balls for JPY 100 or 7-Eleven fare, to more effective sales promotions by offering incentives tailored to individual consumer preferences. In terms of head office personnel, in addition to measures started in fiscal year 2020, such as optimizing accounting staff and optimizing personnel allocation for store development. We formed an organizational reform project, trimmed down costs under the newly established administration division and changed the cost structure. We wanted to improve profitability by implementing these changes. The graph at the bottom shows the trend in the head office SG&A expenses ratio and an operating income margin. We discussed this topic in the spring of last year when I referred to this as an alligator mouth pattern. While it's not much in fiscal year 2020, the SG&A expense ratio decreased by 0.1 points, while the operating income margin increased by 0.1 points. This is a sign of improvement. And going forward, we will be carrying out efforts to further continue these structural reforms. Next, I would like to discuss 7-Eleven, Inc. Please turn to Page 15. Page 15 shows factors in year-on-year change of operating income. Merchandise made an operating income growth contribution of JPY 16.3 billion. Sales for U.S. existing stores grew 2.4% year-on-year, while gross profit margins improved by 0.6 points year-on-year. Gasoline made an operating income growth contribution of JPY 12 billion, primarily thanks to an improvement in the metric of cents per gallon. In terms of SG&A expenses, we registered an increase in-store days following the acquisition of Sunoco on January 23, 2018. Additionally, we saw an increase in rents associated with the sale and leaseback of a number of Sunoco stores. Overall, SG&A expenses, et cetera, had a negative operating income impact of JPY 16.2 billion. Furthermore, in terms of foreign currency exchange impact, the Japanese yen appreciated by JPY 1.41 against the U.S. dollar. This had a negative operating income impact of JPY 1.5 billion. Overall, we delivered an increase in operating income of JPY 10.5 billion. Excluding foreign currency exchange impact, 7-Eleven, Inc. achieved its operating income plan. Please turn to the next page, which shows the contribution of existing store merchandise sales and merchandise gross profit margin. The orange line shows quarterly existing store sales and the vertical bar graph shows gross profit margin variance. In the fourth quarter, for the month of October, we registered a slight year-on-year sales decrease as a reaction from the lotto's high carryover in October 2018. However, the sale of fresh food and alcoholic and nonalcoholic beverages drove growth. So for fiscal year 2020 as a whole, existing store merchandise sales grew 2.4%, allowing us to meet our plan. As I mentioned at the beginning, following the end of the fourth quarter, and while sales have struggled starting in mid-March, we registered year-on-year growth of 3% in January and February. In terms of gross profit margins as well, we saw growth from fresh food and 7-Select products. Additionally, the integration of Sunoco led to a margin improvement of 0.2 points. And a reduction in the impact of 7 Rewards led to a margin improvement of 0.1 points, allowing us to meet our plan. Please turn to the next page, which shows gasoline gross profit. The orange line on the top graph shows a year-on-year comparison of gallons sold per store, and the vertical bar graph shows the year-on-year difference in cents per gallon per store. We registered a significant increase in sales volume for fiscal year 2019, thanks to the acquisition of Sunoco. This was followed by a slight year-on-year decrease in fiscal year 2020. On the other hand, we saw a significant improvement in cents per gallon in fiscal year 2020. Cents per gallon only fell slightly during the fourth quarter, despite a sharp decline in the price of crude oil during the same period in fiscal year 2019. The bottom graph shows the trend in gasoline gross profit for the company as a whole on a quarterly basis. As you can see, this metric trended above the previous fiscal year, even after the Sunoco acquisition ran its course. In fiscal year 2020, gasoline gross profit grew at a healthy pace of 7% year-on-year and exceeded the plan by 4.6%. Please turn to Page 18. The top graph shows a breakdown of the number of stores over time. Starting in fiscal year 2011, we accelerated the number of strategic mergers and acquisitions. The total number of stores stood just below 10,000 at the end of fiscal year 2020. The vertical bar graph at the bottom shows APSD, and the orange line shows merchandise gross profit per store per day. We delivered steady APSD improvement not just by increasing the total number of stores but also through improvements to product appeal and by renovating the stores we acquired and converting them into 7-Eleven franchised stores. We have also improved gross profit margins by expanding the selection of fresh food and private brand products. As a result, annual merchandise gross profit per store has gone up into the right. This figure stood at USD 643,000 for fiscal year 2020. Please turn to the next page. By continuing to implement the measures I have described so far, 7-Eleven, Inc. has greatly increased operating income. The vertical bar graph shows operating income, and the orange line shows the composition ratio of its contribution to the Seven & i Group, which has grown to represent 25%. Going forward, we will carry out efforts to further improve profitability at 7-Eleven, Inc. as a growth driver for the Seven & i Group. Next, I would like to discuss Ito-Yokado. Please turn to Page 21, which shows factors in year-on-year change of operating income. While we struggled in terms of top line growth, by improving gross profit margins and curtailing SG&A expenses, we were able to deliver JPY 6.5 billion in operating income and meet the plan. Ito-Yokado also finished fiscal year 2020 in the black in terms of net income attributable to owners of parent for the first time in 6 fiscal years. Page 22 shows factors in year-on-year change of operating income for the fourth quarter. The fourth quarter in particular made a strong operating income contribution. We opened 3 more stores than in the previous fiscal year. This translated into a decrease of approximately JPY 400 million in operating income. However, structural reform we carried out at 61 stores, such as strengthening the category of food products, reducing sales floor areas for apparel and household goods and attracting quality tenants, generated an improvement in profitability of JPY 1.8 billion, driving overall growth and allowing us to achieve JPY 2.5 billion in operating income growth and meet the full year plan. I would like to discuss concrete store structural reform achievements in the next page. The top graph shows the comparison ratio of year-on-year changes in existing store sales for the month of February 2020. The section colored in navy blue corresponds to the 61 stores where structural reforms were implemented and the section colored light blue corresponds to stores not yet structurally reformed. The horizontal axis shows the year-on-year percentage growth range and the vertical axis shows the composition ratio percentage. As you can see, the navy blue bars for structurally reformed stores are concentrated in the positive growth range. The average year-on-year sales growth for structurally reformed stores for the month of February was 2.8% compared to a sales contraction of 1.2% for stores not yet structurally reformed. Structurally reformed stores drove growth and led to an overall improvement. Structurally reformed stores also showed year-on-year growth for fiscal year 2020 as a whole. Additionally, out of an overall contribution to operating income growth of JPY 1.8 billion, structurally reformed stores accounted for JPY 1.2 billion. From the current fiscal year onwards, we will accelerate horizontal deployment of this successful model. Page 24 deals with business structural reforms. We will start implementing the Tokyo Metropolitan area food supermarket strategy in June, as previously announced in October 2019. We will be transferring 20 Shokuhinkan, the food specialty store format of Ito-Yokado and the price stores, to a new company called York Company Limited, previously known as York Mart. York Mart Shokuhinkan, the price and forecast, which up until now, had carried out distribution and procurement as separate brands, will be integrated together to strengthen merchandising based on integrated manufacturing, distribution and sales and unlock synergies. Going forward, we will seek to improve profitability by streamlining the supply chain while collaborating with Ito-Yokado food business in the future. Please turn to the next page, which shows the 5-year structural reform plan for Ito-Yokado as a whole. We will be implementing structural reforms over the next 5 years at nearly all sustainable stores with ongoing operations. Out of 33 unprofitable stores, 2 stores have already been closed in fiscal year 2020, and we have plans to close 8 more stores during the current fiscal year. For the remaining stores, we will attempt to carry out collaborations with companies inside and outside the Seven & i Group. Should this prove impossible, we will make the decision to close stores, in line with what we announced back in October 2019. In terms of personnel initiatives, we intend on reducing the workforce by approximately 1,700 employees compared to fiscal year 2019 numbers, as previously announced. As of the end of fiscal year 2020, the workforce had been reduced by approximately 200 employees. We also registered a decrease in partner employees as a result of store closures, resulting in a personnel expenses reduction of JPY 7.4 billion. We will also be carrying out the transfer of Shokuhinkan stores and others, and our structural reform efforts are proceeding according to plan. Regarding the review of head office expenses, et cetera, we are targeting a 25% reduction by fiscal year 2025 from fiscal year 2019 levels in order to improve profitability. Next, I would like to discuss Sogo & Seibu. Page 27 shows factors in year-on-year change of operating income for fiscal year 2020. While we carried out efforts to reduce SG&A expenses through a reduction in personnel expenses resulting from career change support measures and the decrease in advertising and declaration expenses, et cetera, this reduction wasn't enough to offset a drop in sales and gross profit margins. We, therefore, registered a significant year-on-year operating income decrease down to JPY 170 million. In particular, results for the fourth quarter, which normally accounts for the majority of annual profits, were negatively affected by the consumption tax rate hike and by the novel coronavirus outbreak which started during the Chinese Lunar Year holiday, among other factors. This led to a significant decrease in sales and customer footfall, which in turn translated into a significant decrease in operating income. Please turn to Page 28. As announced in October 2019, structural reforms are proceeding according to plan. We will be closing an additional 5 unprofitable stores and reducing sales area space at SEIBU Akita and SEIBU Fukui. Against this backdrop, we will optimize the staff composition. We originally announced plans to reduce the workforce at Sogo & Seibu by 1,300 employees by the end of fiscal year 2023 compared to end of fiscal year 2019 levels. We have revised this number to 1,400 employees, and we will carry out further efforts to improve profitability. I would now like to discuss the Seven & i Group strategy. Please turn to Page 30. We intend on utilizing digital and financial strategies to improve user experience in order to generate new customer inflow, increase the frequency of store visits and increase the basket size. Through this, we would like to maximize customer lifetime value. Taking into account last year's 7pay incident, we will thoroughly strengthen the security foundation as part of our digital strategy. Concurrently, we will also review the cost structure associated with system development. Regarding our financial strategy, we have added smartphone payment to ATMs, improving the ease of use for our customers. We would like to add new functions, like facial recognition, through the introduction of fourth generation ATMs and provide added value by expediting the account creation process. Regarding credit card payments, we will carry out the proactive introduction of a type AB contactless payment service and improve the ease of use for our customers. Please turn to the next page which contains examples of user experience improvements using digital technology. Shown here are improvement measures to address pain points felt by customers and the benefits of these measures. We want to roll out, as soon as possible, credit card contactless payments for customers who find it bothersome to open and scan their smartphones at the register. We also proposed linking these cards to 7iD and are currently in talks with credit card companies. Through this, we hope to acquire new customers and increase the frequency of store visits. We also want to create a user experience, allowing customers to search for coupons without having to start our smartphone app. We are currently developing a system utilizing Beacon Technology that automatically shows coupons to customers when they enter one of our stores. Through this, we hope to increase the frequency of store visits and the basket size. Additionally, regarding last-mile delivery, we want to utilize online supermarkets and online convenience stores. It also set up delivery lockers at our convenience stores in an effort to create new use cases for our customers and increased basket size. Page 32 shows the milestones for these user experience improvement measures. The introduction of type AB credit card payments is scheduled to start in June of this year at Seven-Eleven Japan, in September at Ito-Yokado and York Mart; and in the fourth quarter at Sogo & Sebo. We believe this functionality will be useful for customers making purchases in food sales' floor areas, et cetera. Additionally, we are set to start conducting tests at Seven-Eleven Japan in June using our app and Beacon Technology to serve pop-up coupons to our customers. Within the context of last-mile measures, we are already carrying out tests for delivery lockers and package drop services. We would also like to conduct tests for online supermarket delivery lockers, not just at convenience stores but also in apartment buildings and other locations. We want to enhance our relationship with our customers by harnessing a variety of digital tools and expand services. Lastly, I would like to discuss corporate governance. Please turn to Page 34. We have carried out key measures to strengthen governance to date, such as the ones shown at the top of Page 34. Going forward, we will further strengthen governance. First, we will separate the Nomination and Compensation Committee into a Nomination Committee and a Compensation Committee. Additionally, we will adopt a structure requiring the majority of seats for each committee to be held by independent outside directors. Furthermore, representative directors will not be eligible to hold a seat in the Compensation Committee. Second, we will amend the articles of incorporation in order to lower the upper limit of directors and to allow directors other than the President to take the role of Chairperson. Third, we will be introducing the metric of CO2 emissions as a nonfinancial key performance indicator to executive compensation. Fourth, we will strengthen financial discipline by creating a CFO-equivalent position and seek investment efficiency, taking into account effective capital allocation and capital cost in order to maintain a sound financial position and improve capital efficiency. We will be transferring the corporate management department, which is in charge of budget control and budget control for each operating company, to the Corporate Finance and Accounting division. This will allow the corporate management department to decide, from the budget formulation stage, priorities in terms of investment and capital allocation and monitor progress in a centralized manner. This will make more visible the mid- to long-term investment effects and allow for more timely and accurate management decisions, while at the same time, further strengthening financial discipline at the Seven & i Group. Page 35 marks the last page of my presentation and shows the Seven & i Group's target status. This involves the enrichment of the food value chain and strengthening the digital and financial strategies to unlock group synergies. On top of this group synergy foundation lies the global convenience store business, opening the next convenience store, and the food supermarket business tackling the food challenges of today's day and age when people live to 100. Additionally, we will revitalize large-scale commercial facilities, which possess a fertile market. Furthermore, as I've mentioned at the beginning, we are seeing signs of a significant shift in customers' shopping habits. We will further improve last-mile services in order to address issues caused by the novel coronavirus outbreak and expand the number of contact points with our customers and promote sustainable growth for the Seven & i Group. I ask you for your continued support and understanding. This concludes my presentation. Thank you for listening.

Good morning, everyone. My name is Maruyama, and I'm in charge of Financial Affairs. I would like to discuss the Seven & i Group's medium-term financial policy. As President Isaka mentioned at the beginning, we have decided to postpone the announcement of the second medium-term management plan. We have also decided to set the business results forecasts for the fiscal year ending February 2021 to undecided. The same applies to financial policy, as we will make available specific numerical figures when we announced the new plan. Instead, I would like to discuss the thought process and direction associated with the company's financial policy. Please turn to Page 37. First, regarding our basic financial policy, we view 2 elements as necessary in order to deliver a sustained increase in corporate value. Increasing returns in excess of the cost of capital and enhancing the ability to generate cash flows. In order to achieve our basic policy, we will set medium-term goals for the key performance indicators of return on equity, return on invested capital spread, earnings per share growth rate and free cash flow levels and monitor the progress. Additionally, in order to guarantee the effectiveness of this policy, we set and manage KPIs, not just on a consolidated basis, but also for each operating company. In order to maintain the financial soundness of the company, we have set the debt-to-EBITDA ratio as a KPI, which we will monitor going forward. I would like to discuss 3 concrete financial measures within the context of our basic policy. Please turn to Page 38. First, we will enhance returns relative to the cost of invested capital. That is, carry out measures to increase the ROIC spread over the medium and long term. The Seven & i Group has posted significant extraordinary losses over the past number of years. We are aware this has had a detrimental effect on corporate value. Additionally, we believe it to be important to measure ROIC on a net income basis, also within the context of assessing the effects of structural reforms. We will do our utmost to abide by this. Second, in order to enhance the ability to generate operating cash flows, we will establish priorities regarding the allocation of funds to investments and shareholder returns on the basis of investment efficiency. Third, we will ensure discipline from the perspective of ensuring financial soundness by determining how to support growth strategy investments, particularly M&As, with the balance sheet. For investments that are in line with the Seven & i Group's strategic objectives and also show promise from an investment efficiency point of view, we will decide whether to proceed or not, also from the point of view of an optimal capital structure, even if said investment can lead to a temporary decrease in the group's financial soundness. Next, please turn to Page 39, which deals with our thoughts on the dividend policy. Regarding the consolidated dividend payout ratio target, our policy of providing stable dividends by maintaining a dividend payout ratio at the level of 40% of consolidated net income remains unchanged. However, we will be taking into consideration the level of free cash flow and consider flexibly conducting share buybacks. This concludes my overview of the financial policy. Thank you for listening. [Statements in English on this transcript were spoken by an interpreter present on the live call.]