Aeon Mall Co Ltd

TSE:8905

Earnings Call Transcript 2021-Q1

[Yasutsugu Iwamura, executive]

Good morning, ladies and gentlemen. I am Iwamura of AEON Mall. Thank you very much for attending results briefing of AEON Mall for the first quarter of fiscal year ending February 2021, despite your busy schedule today. I will report on our business conditions.

Due to the COVID-19 pandemic, our business results were very harsh. COVID-19 changed rules in businesses, including industrial structures, and is impacting consumption behavior and lifestyle of individuals significantly. Lifestyle under a crisis situation is steadily changing into a new normal. Behavior and consumption and purchasing trends of consumers will change in an accelerated manner.

However, in a shift to a new normal, various issues will become clear. I will talk about our future initiatives later. We take this situation as an opportunity to advance transformation. To respond to changes in a social environment in a post COVID-19 era, we will use our assets, meet needs of customers and provide solutions to issues of communities to create new customers. The introduction has become slightly long, and now I will explain results for the first quarter. Please turn to Page 3.

Results for the first quarter are as shown in the slide. The COVID-19 pandemic had a negative JPY 30 billion impact on performance versus plan before the COVID-19 outbreak. Let me move on to results by segment. Next page, please.

Firstly, I will talk about business data of China. For reference, the accounting period for companies outside Japan ends in December, and the first quarter is a period from January and March. I will also explain business status of their second quarter, the period from April to June, so that you can understand more recent situation. Business data in malls in China is as described on the top of the slide. We closed specialty store zones of 3 malls in Wuhan due to quarantine in Wuhan City on January 23. 11 out of 21 malls in China were closed in mid-February. Malls which continued operations were almost closed due to strict restriction in going out. However, the malls were reopened gradually from late February. All of the 21 malls were reopened on April 1.

As for sales after reopening, sales in April was 62.2% of the same period of the previous year and 83.5% in May, showing a recovery trend. Sales for goods in May recovered to 94.1% of the same period of the previous year. Due to administrative guidance, cinemas are closed nationwide. Business suspensions for amusement facilities and children's classrooms are still continuing in some regions. In addition, restrictions on entry to food and beverage businesses are still continuing.

In June, the number of infected people in Beijing started to increase again. However, as the authorities have restricted more strongly the movement of citizens and implemented other preventive measures, we assume infected areas will be limited. Currently, recovery of sales in the Beijing area is slowing down. However, excluding such areas, specialty store sales are showing a steady recovery trend. Next page, please.

Next, I will discuss business status of ASEAN. In Vietnam, to prevent spreads of infection, the government enacted strict social isolation measures, severely restricting travel outside the home. On March 28, we closed operations of specialty stores of 4 malls out of 5 malls. In Vietnam, a strict virus containment measures were taken. Spread of infection subsided early on.

On April 24, our malls were reopened. Thanks to thorough infection control measures taken by the government, people have a high sense of security about resumption of daily life. Specialty store sales in May of existing 3 malls, excluding AEON MALL Tan Phu Celadon, which was expanded and renovated in a prior fiscal year, recovered to 92.6% of the same period of the previous year. As is the case with China, sales of goods were favorable. For reference, cinemas and amusement facilities were closed in April, but reopened on May 10. In Indonesia, we temporarily closed 2 malls on March 31 in conjunction with large-scale social restrictions imposed in Jakarta. Compared to China and Vietnam, increase in the number of infected people didn't stop in Jakarta. Therefore, it took time for us to reopen the malls, and we reopened the 2 malls on June 15. However, extension of large-scale social restrictions, PSBB, to July 16 was announced on July 2. As we are still in a transitional period for all-out resumption of economic activities, we are carefully watching social trends and continuing business activities.

In Cambodia, we didn't close our malls, but continued to operate malls with shortened business hours, although the government took measures to restrict the admittance of foreign visitors. Next page, please.

Next, let me explain business status in Japan. This slide shows business status of 84 directly managed malls, excluding malls for which we have contract for property management with AEON Retail. The business data of the malls is shown on the top of the slide.

We temporarily closed specialty stores at malls in Tokyo and 6 other prefectures on April 8. We temporarily closed specialty stores at all the malls on April 18. After gradual lifting of the declaration of our state of emergency, we reopened, almost, gradually from May 13. By May 28, operation of all the facilities was resumed.

Specialty store sales for June was 87.7% of the same period of previous year. Sales of goods in specialty stores in June recovered to 100.2% of the same period of previous year. It was partially due to clearance sale of tenants and pent-up consumption after voluntary restraint. But I think it was also because accessibility of our malls located in living areas, structure of facilities with large-scale and comfortable space, and our disease control measures were appreciated. I think our malls are supported by customers as facilities for communities or places for exchanges with family members and friends.

I think another contributory factor was our malls selected as consumption destinations associated with distribution of special cash payments from Japanese government. So far, I talked about sales trends of Japan and overseas after June. After reopening, gradual recovery trend is seen in each country. However, as we recognize, there are still many issues. We will continue to watch consumption behavior of customers carefully.

Besides, in anticipation of life with COVID-19 in a post COVID-19 era, we will encourage consumer spending through preparation of sales measures and formulate facility renovation plans at an early stage. As I said in the beginning, I will talk about our future initiatives next. Please go to the next page, Page 7. As for response to COVID-19, we've been responding even to situation requiring quick response by sharing purposes of our decisions among us as situation changes on a daily basis. However, we strongly recognized again that we would take a bigger blow than our expectation when a crisis risk like this time occurs on a global level, as reflected in business results.

Some of behavior changes of people for the past few months in life with COVID-19 are just temporary phenomena. However, many people got to know attractiveness and comfort of services provided online through responses to the phenomena.

Thanks to telework consequent to the COVID-19 pandemic, we were relieved from commuting and discovered new value, new good things, how to spend time, such as time to spend with family. On the other hand, we reaffirm the value of conventional behavior, how good and how significant it was.

We also knew limitations of what we can do and limitations of satisfaction when our behavior was restricted due to the COVID-19 pandemic. I think what kinds of customer experiences we can provide for customers in addition to material value will be more important in a post COVID-19 era.

I think real human relationship in communities will be more important than ever before during times of uncertainty in which already new risks exceed our imagination, as we see in abnormal weather phenomena, which are happening frequently in recent years, such as the recent heavy rain which hit the Kyushu area.

As we are living in this time and age, we will think about what is the value we provide for communities and what solutions we can provide for society beyond our conventional business domains by going back to the starting point. We will set our mission statement about how we make efforts and what kinds of value we generate as a company. And we will plan and implement various measures to provide new value co-created from sympathy and sharing with business partners and people in communities at a real basis.

At present, we are forecasting behavior change of customers in a post COVID-19 era based on the life with COVID-19 and discussing specifically how we should use our assets and respond to a new normal. To implement planned measures with a sense of speed beyond borders of division, we understand issues and develop countermeasures. By involving members of the Board of Directors and organizations for execution, we continually exchange information with the understanding that there is no growth without change. We respond to the situation like this in an appropriate manner and contribute to solution of social issues by creating 3 values of economy, society and environment for all the stakeholders.

We intend to promote the initiatives and enhance corporate value by building corporate governance to bring out our strengths to the full. I will explain medium to long-term measures some other time. Before that, let me talk about near-term measures. Next page, please.

AEON established AEON COVID-19 anti-infection protocols indicating standards for anti-infection measures to prevent spread of COVID-19. The protocols were established to realize a society in which awareness about anti-infection becomes a part of our daily life through not temporary, but ongoing implementation of anti-infection measures and to further enhance awareness about safety and security.

With opinions and supervision of many experts, AEON established the protocols to protect health and lives of customers and employees, and realize safe and secure lives in communities. For realization of safety and security of communities, understanding of customers is also important. Therefore, we will continue education activities for that.

In reopening all malls with a recognition that our malls are social infrastructure, we've been taking measures for safety and security to prevent spread of infection on the major premise that the highest priority is given to the safety of our customers and mall employees, including tenant staff. However, many measures which are currently implemented are provisional measures. So we will verify purposes of establishment of the protocols and look at behavior of customers as a result of the implementation, and then we will renovate existing stores and change design of new stores so that stores will fit the post COVID-19 era. Next page, please.

Specifically, we installed AI thermometers at entrances and reinforced air ventilation inside malls. We also installed acrylic panels, vinyl curtains to prevent airborne infection in sales force and back office. Besides, with the standard of entry control based on data of a customer count system, since June 30, we've been reinforcing air ventilation function inside malls through more advanced measures.

As an initiative to prevent spread of infection, all the entrances were opened for ventilation. However, with guidance from experts, we are now reinforcing ventilation by controlling air balance inside malls mechanically after recovering normal operation of entrance doors. We have been trying to make our facility safe and comfortable for all of our customers.

Also, in the era of COVID-19, in a post COVID-19 era, we intend to make maximum use of excellent equipment introduced inside malls and introduce other equipment to reinforce measures to prevent infection. The measures with the use of these performances are industry-leading measures and highly evaluated by many prefectural governments. I assume these risk responses provide peace of mind for customers and contribute to recovery of sales. Next page, please.

Let me move on to business measures. In China, COVID-19 subsided earlier than in Japan, and we are working on new measures in the era of COVID-19. As IT technologies related to retail services in China are remarkably advanced in comparison with other countries, we are implementing various initiatives through business in China and rolling them out to Japan and ASEAN. We started live e-commerce in China.

Simply put, live commerce is an interactive version of teleshopping. Viewers can do the shopping while asking sellers questions or commenting in real time. Also, in Japan, we will start live commerce experimentally this month to deliver live characters and thoughts of employees working in real stores for the purpose of promoting new communication with customers. In addition, as a measure for nighttime economy promoted by the Chinese government, we hold outdoor customer attraction events to avoid 3 Cs, closed spaces, crowded places and close contact. We use mall parking lots to hold nighttime markets and summer festivals. These policies are mainly for cinemas, amusement facilities and restaurants that have been particularly affected by COVID-19. We are providing support for them. By working actively on initiatives, not only in China, but also in countries and regions in which we have presence, we will revitalize regional economies. Next page, please.

In Japan, we newly launched the AEON Mall members app with enhanced functions. New functions include route guide from home to mall and route guide inside malls. Through these new functions, we provide stress-free shopping environment. This app also provides services such as timely issuing of discount coupons to support operation of specialty stores by dispersing peak hours of mall visit and promoting use of restaurants during idle time in line with behavior change of customers. We are working on various initiatives. The initiatives include issuing of discount coupons after purchase of takeout food, and coupons for special services to be used in idle time and additional point returns.

Going forward, we will add functions such as display of degree of congestion inside malls so that customers can visit malls with peace of mind. Besides, we will start online content distribution as home entertainment menu for customers to enjoy events conventionally experienced at our malls also at home as well as distribution of contents to propose lifestyle. Next page, please.

From the viewpoint of diversity management, we have been working on work-style reform, improvement of HR system in response to changes of life stages of employees, including stages of child care and nursing care and reduction of overtime work. We also have been opening nursery schools to support mall employees, including our employees and tenant staff who work and raise children.

In addition, we established diversity promotion task force with specialty stores to examine issues of working environment at malls, and are trying to enhance working environment at malls. We are actively promoting digitalization for mall operation. In March this year, we introduced a system enabling interactive communication and significantly reduced the burden of back-office operation of tenant staff. Through these initiatives, we provide working environment in which they can focus on sales activities as a result of labor-saving for specialty stores. This system is useful as a tool for communication with tenants, as the situation changes daily due to the COVID-19 pandemic.

For the purpose of speedy response to reinforcement of management and on-site capabilities, both in Japan and overseas, we have been using teleconferencing. In life with COVID-19, in order to enhance convenience further, we built IT infrastructure, including environment for remote meetings for individuals in an accelerated manner.

As a result of these initiatives, we made it possible to achieve an approximately 70% reduction in work at the office in staff division. We are currently verifying not only labor productivity of each individual, but also team productivity. We will clearly separate digitization from digital transformation and aim to build optimum business process by working on them strategically. Besides, we are engaged in social contribution activities without slacking off despite the COVID-19 pandemic.

Specifically, we raised COVID-19 Children's Support Fund and promoted blood donation activities for blood for transfusions, which was in short supply at AEON mall locations nationwide, to coincide with reopening. We signed a partnership agreement to promote community health to help improve medical examination rates and promote health in local communities through implementation of medical examinations and educational activities at our malls. The details are as shown in the material. Next page, Page 13, please. We have been actively promoting initiatives for environmental preservation. We recognize the urgency in addressing climate change issues, and we were the first Japanese company to participate in EV100, implementing these and other measures for sustainable society. Let me introduce the recent case. AEON Mall declared our support for the proposals of the TCFD, the Task Force on Climate-related Financial Disclosures, which encourages companies and others to disclose information on risks and opportunities related to climate change. We will continue to analyze risks and opportunities posed by climate change on our businesses, reflecting the recommendations of the TCFD. Please turn to the next page.

We are also promoting initiatives for environmental preservation in our mall development. The slide shows a more tentatively named AEON Mall Hoang Mai, the 7th mall in Vietnam and the third mall in Hanoi. We have been working on this mall with Hanoi to get government approval for the purpose of solving the social issue of parking shortages in the heart of Hanoi, the capital of Vietnam, and for advanced use of urban areas in Hanoi.

On June 26, significance of the development was highly evaluated, and we and partner developer received an investment permit directory from Prime Minister Phuc. This development does not only involve more development, this development will also provide offices on large floors, which are in short supply inside the city, and the 3,000 car parking area, as parking areas are in short supply in urban areas. Besides considering the rising environmental awareness in Vietnam, the AEON Group plans to obtain certifications above gold rank in environmental standards, such as LEED and LOTUS as the first such efforts of AEON Group in Vietnam.

LEED is a globally recognized set of rating systems which certifies green buildings for their excellent environmental performance. LOTUS is an environmental function assessment system for buildings in Vietnam. By obtaining such certifications, AEON Group will contribute further to enhancement of environmental awareness in Vietnam. We already obtained certifications such as CASB in Japan and green building design label certification in China. Through continued mall development in consideration of natural environment, both in Japan and overseas, we will aim at creation of community malls which we'll develop in a sustainable manner and coexist with natural environment. We will also make efforts to provide solutions to social issues. Lastly, I will explain full year plan. Please go to Page 19. As I mentioned earlier, placing the highest priority on the safety of our customers, tenant staff and mall employees, we implemented safety and security measures to prevent the spread of infection, gradually reopening malls in China, ASEAN and Japan.

With economic activities reopening, even as we deal with COVID-19, we determined that we could provide a rational earnings projection for the fiscal year. As you see in this slide, we assume the impact of COVID-19 on our businesses will continue throughout the fiscal year ending February 2021 at levels that contract over time, both in Japan and overseas. Sales of goods are recovering quickly, both in Japan and overseas. However, recovery of food courts and restaurants and amusement facilities is low, partly due to suspension of operations as a result of regulations. We expect overall sales will gradually improve by the end of the fiscal year ending February 2021.

For fiscal year 2020, we forecast operating revenue at JPY 280 billion, operating income of JPY 30 billion, ordinary income of JPY 22 billion and net income attributable to owners of parent of negative JPY 4 billion. Negative annual impact of COVID-19 is expected to be JPY 54 billion. Negative impact on operating income will be JPY 34 billion and extraordinary losses will be JPY 20 billion. Please look at Page 20.

This slide shows new mall opening and revitalization plans. We are making concepts based on new viewpoints in anticipation of the impact of COVID-19 on our construction schedule in a post COVID-19 era. New mall openings and revitalizations may be delayed for up to 6 months. However, this is a temporary condition that should not affect our 3-year mall opening and revitalization plan. Next page, please.

Capital investment and funding plan are as shown on this slide. While interest-bearing debt will increase JPY 15 billion from the initial pre COVID-19 plan, year-on-year increase will only be JPY 50 billion. In March 2020, we secured JPY 30 billion from the issuance of corporate bonds to individuals. At the end of May, the balance of cash earned deposits was JPY 76.3 billion. We maintain a high level of liquidity on hand. We are not concerned about finances as we also have secured JPY 120 billion in credit lines, including overdraft lines and commercial paper printing facility. Please go to Page 23.

While our fiscal year 2020 earnings will be affected by COVID-19, we have not made any changes to our medium and long-term growth plans. As for shareholder returns, in consideration of ongoing stable dividends, we plan to pay fiscal year 2020 dividends of JPY 40 per share, flat year-on-year.

On Page 24 and following pages, management policies and 3-year medium-term management plan are shown. There are no changes to the content I explained in the results briefing held in April. That concludes my presentation. Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]