Aeon Mall Co Ltd

TSE:8905

Earnings Call Transcript 2022-Q3

[Yasutsugu Iwamura, executive]

Good morning, everyone. I am Iwamura of AEON Mall. Thank you very much for attending our results briefing, despite your busy schedule today. . Without further ado, let me give you a summary of financial results for the third quarter of fiscal year 2021. As fiscal 2020 results were significantly impacted by COVID-19, AEON [indiscernible] performance revenue and other numbers in comparison with results for fiscal 2019, which was not affected by COVID-19.

Please turn to Page 3. COVID-19 infections remained uncontained, even during the third quarter, certain malls in Japan, China and ASEAN were forced to close temporarily or short-term operating hours due to request from the governments and regulations. We continued operation under various restrictions.

As a result, as shown in the material for the 9 months, in comparison with the same period for fiscal 2019, operating revenues was 97%. Operating income was 67.1%. Ordinary income was 64.6% and net income, attributable to owners of parent, was 70%. The results were very severe. Progress rate, in comparison with full-year plan, is also very severe, in consideration of the current sales trend in each country.

Please turn to Page 4. The table indicates operating revenue, gross profit and operating income for the 9 months, compared to the same period of fiscal 2019.

Please confirm that and go to Page 5. I will explain sales performance by country. Firstly, China. The top graph shows specialty store sales at existing malls, of fiscal 2020 and 2021 versus 2019. The blue line shows sales of fiscal 2021, and the gray line shows sales of fiscal 2020.

Until the second quarter, pre-COVID-19, growth trend continued and good performance was maintained. However, due to the outbreak of COVID-19 throughout China, in late July, we closed certain malls in Hubei province in August. Sales in August were temporarily impacted and were 83.8% of fiscal 2019. However, due to the government's intensive containment measures, spread of infection ended early as sales in September recovered to 103.5%.

During the National Day, major holiday period in October, as travel restriction was implemented in a country, consumption demand increased in local areas. Sales were strong in [ 116% ] of fiscal 2019.

In November, infection of COVID-19 started again in Beijing. As a result, sales in December were 97.6% of fiscal 2019, showing slight downward trend. However, in China, as the impact of COVID-19 tends to be contained in a short period of time, we expect the trend will recover early.

Please turn to Page 6 for status of ASEAN. This slide shows sales performance of Vietnam. In Vietnam, in the second quarter, infections started in the southern area, mainly Ho Chi Minh, in May and spread throughout the country. In Ho Chi Minh and Hanoi, where we have malls, strict lockdown was implemented, resulting in temporary closure of specialty stores at our malls.

As a social segregation measures by the government continued until the end of September, 3-months sales for the third quarter were 6.7% of fiscal 2019, which was quite severe. In October, specialty stores resumed operations, although rules that prevent unvaccinated employees of specialty stores from serving customers in stores, still remained. Sales in December were 84.8% of fiscal 2019, showing a steady recovery.

Also in Cambodia and Indonesia, sales trends haven't recovered to the level of fiscal 2019. However, due to improved vaccination rates in each country, the number of new COVID-19 cases is on the downward trend. With safe and secure anti-infection system in place, we will take measures not to miss recovery of consumer sentiment expected, going forward.

Please turn to Page 7. Next, sales performance in Japan. In Japan, a state of emergency was declared in April. Although business restrictions were eased, target areas were expanded and declaration of emergencies were implemented intermittently until September 30.

However, in October, when the declaration of the state of emergency was lifted, sales started to improve in the action to continued self restraints from going out. Sales in October were 98.3%, November, 92.8% and December, 94.6% of fiscal 2019. We, generally, outperformed as a industry and department industry. In January, sales started at the level of fiscal 2019.

Please turn to Page 8. For fiscal 2022 onwards, it is difficult to forecast sales for overseas and Japan due to worldwide spread of the Omicron variant. However, due to progressing vaccination in various countries, reinforced initiatives to normalize economic activities, effects of [ overall ] drugs expected to be approved.

The impact of COVID-19 will be eased, even if infection spread again. On that assumption, we expect it is possible to recover sales trend to pre-COVID-19, fiscal 2019 level.

Overseas fiscal year ends in December. In light of almost-finalized overseas results for this fiscal year and results for the first 9 months, I cannot deny, consolidated results for this fiscal year are quite challenging, compared to the forecast.

Many of you may wonder why we don't revise forecast. We verified the numbers. [ Sales indices ] are high in December and January. Sales are on a recovery trend. So we think it is best to focus on maximizing sales in this period, and recover the shortfall as much as possible.

That is why we didn't revise the forecast this time. Although the remaining period is limited, we will make efforts to expand sales by carefully assessing future trend of customers and making detailed sales measures, in order not to miss demand.

Pages from 9 to 13 shows specialty store sales by business type, income statement, balance sheet and cash flow statement. Please confirm them.

Next, regarding measures we are promoting for sustainable growth, I will talk about 5 major tasks and vision, in promotion of growth measures.

Please turn to Page 15. Firstly, we aim to achieve profitable growth in our overseas business and accelerate new mall openings. At present, our overseas business is impacted by spreading infection of COVID-19. However, acceleration of new mall openings in China and ASEAN, is still a major pillar of our growth strategy.

In China, we are implementing area-dominant mall openings, mainly in 4 areas, including Beijing, Tianjin and Shandong, Jiangsu and Zhejiang, Hubei and Guangdong. By adding in-land Hunan province, which is showing remarkable economic development as a new development area, we are securing candidate sites for malls to have 29 malls, as of 2025.

For existing malls, through active revitalization, including renovation and expansion of Tianjin Zhongbei, we will refresh all malls strategically and reinforce earning power.

Please turn to Page 16. ASEAN has the 15th largest population of 98 million. We position Vietnam as a top-priority investment area. Vietnam is a promising market in the mid- to long term due to expansion of domestic demand associated with economic development and others. In Vietnam, we signed memorandum of understanding for more development, with local governments through our mall openings.

We've been making proposal for development to contribute to regional economic development. These initiatives were recognized. Recently, we have many approaches by local government for mall openings.

In the Japan-Vietnam Investment Conference held in Japan, in November last year, we newly signed a mutual agreement for project promotion in Thanh Hoa province with [indiscernible] in the southern part of North Vietnam and the mutual agreement for project promotion with [indiscernible] province in the northern part of Central Vietnam.

We consider such trust relationship with the government of Vietnam and local governments as assets. To contribute to development of local economy, we will build systems for cooperation, for more development and steadily secure land for properties to have targeted [ 16 malls ] in 2025.

Please turn to Page 17. In Indonesia, even during the COVID-19 pandemic, we steadily opened new malls. In October, we held a grand opening for the third mall, Sentul City. In November, the fourth mall Tanjung Barat, partially opened. Besides, as a digitalization initiative, we collaborated with [ Jindong ] Indonesia, a major e-commerce platform operator in Indonesia.

On top of brick-and-mortar stores, [ Jindong ] Indonesia offers a virtual [ AEON ] mall on its website, shares a platform for live video streaming, increases efficiency of product distribution and provides new convenience to customers through the fusion of the Internet and the real world.

Please turn to Page 18. When we started overseas expansion as a commercial developer, we promoted development and management and shopping malls as a business model in each country. However, through business development, we began to see regional, social and country issues in each country.

So by utilizing our cultivated know-how, business is already successful in advanced countries, and international opportunities, we started new businesses beyond the framework of commercial facilities.

In Cambodia, as a future growth strategy, following [ more ] business, we decided to establish a new company, AEON Mall LOGI PLUS, to work on multifunction Logistics Center business . In Cambodia, [ 14 ] companies are investing in establishment of production sites in process, there were issues such as improvement of international ports and highways and shortage of bonded warehouses and customs clearance sites.

Improvement of international deepwater ports and highways, is ongoing. By opening and operating a multifunction logistics center, equipped with bonded and customs clearance functions, in a new [ board ] area, we will expand our business, solve issues in the region and contribute to economic development.

Besides, by using these warehousing functions, we will support small-scale commercial, logistics and foreign companies.

In collaboration with our Mall business, which already established overwhelming top position, we will provide integrated services in domestic commercial logistics. Also, by reinforcing existing business, we will provide combined value for customers in Cambodia.

Please go to Page 19. The second major task and vision, is to maximize the appeal of brick-and-mortar malls through customer experience.

As consumer behavior and purchasing habits change at an accelerating pace, we strive to improve our ability to continuously attract customers by diversifying and deepening customer experiential value we offer and maximizing appeal of brick-and-mortar malls.

For this initiative, it is important to develop new customers through [indiscernible] market analysis and create incentives to visit malls and frequency and visits, three combined services to offer.

At the malls, newly opened this year in Japan, we implemented the initiatives, described in this slide. AEON Mall Nagoya Noritake Garden added a large-scale medical clinic, which is also open on weekends and holidays and includes health checkup center. The mall has a health-and-wellness [ zone], with a concentration of health-related stores and proposes healthy lifestyles for local customers and office workers.

AEON Mall Kawaguchi not only established relaxing in more environments but also added fresh-food specialty stores, offering meat, vegetables and fish, by creating a zone to satisfy needs for food in diversified lifestyles and sense of value. The mall is trying to increase frequency and mall visits. At community-based facilities, we will add daily functions and create more fans through activities cautious of regional characteristics, we will gain a share in each area.

As a biggest duty, as a developer, is to secure stable customer traffic, we'll continue to strengthen initiatives to create incentives to visit malls.

Please turn to Page 20. In creation of facilities in malls, of course, we create open space to avoid [indiscernible] and introduce greenery actively, both inside and outside, to feel nature. We introduced ideas to appeal to the five senses, including biophilic space designed for customers to fill and ease in life.

We are creating facility environment, which will be a place for relaxation for customers to stay for many hours, hoping to provide peace of mind for customers by appealing to natural human desires for peace and comfort. AEON Mall Hakusan created a [ treeline ] pass in the center of the main mall, providing an indoor space, in which customers can relax in a lush-green environment.

The entire food zone in AEON Mall Nagoya Noritake Garden, faces the lush outdoor landscape. Outdoor and terrace [ sitting ] offer relaxing spaces, in which customers enjoy the natural environment in the 4 seasons. In this way, by appealing to the five senses of customers, we create environments they want to visit many times.

We think shopping malls should be places for relaxation, for regional customers, where people are connected and new communities are created, developed and spread. We aim at malls, continued to be selected by customers in the mid- to long term, by considering not only merchandising reform but also design a facility environment.

Please turn to Page 21. The third major task and vision is to build next-generation malls and pursue the urban shopping center business. For next-generation mall development, we analyze markets from various perspectives and diversify development patterns according to the characteristics of local communities. In this way, we proposed new lifestyles for communities and provide solutions to community issues.

As an initiative for complex development in a new format of office and retail commercial facilities, we opened AEON Mall Nagoya Noritake Garden in October. Here, we established an office brand, BIZrium [indiscernible]. Through integrated development of office and retail, commercial facilities, we provide new lifestyles and additional value for office workers.

Also, overseas, in a central district of Hanoi, Vietnam, we'll open the first overseas BIZrium, as an office and retail commercial facility, at AEON Mall Hoang Mai, scheduled to open in our after fiscal 2023. We will maximize real estate value, both in Japan and overseas, through development of office and multifunctional and diverse models, according to regional characteristics and needs.

Please turn to Page 22. As a new multiuse-facility format, we will promote a next-generation multiuse commercial facility, with a customer fulfillment center at Hachioji Interchange [ North ] property. This customer-fulfillment center is operated by AEON NEXT, an AEON Group company. With state-of-the-art AI and other technologies, the center will operate online supermarket business, offering unprecedented services and provide new value for communities.

The purpose of a multiuse facility is not mixed-use development itself. The starting point of the plan is to solve community issues through further market analysis. One, it is optimal to add noncommercial functions. According to community needs, we implement mixed-use development, beyond the framework of commercial facilities, to enhance value of real estate in an optimal way for us and communities.

Please turn to Page 23. The fourth major task and vision, is to pursue digital transformation for solution of social issues to realize digital transformation by people and passion and people. We established DX promotion department as a dedicated department and are accelerating initiatives through collaboration with internal and external partners.

In the era, when social issues are becoming complicated and consumption environment are changing rapidly, resources and know-how of one company are not enough to meet needs and wants of the society. It is important to diversify and deepen value to be provided through co-creation with external partners. As a specific initiative, we implemented the AEON MALL Co-creation program to create innovative businesses and services, in collaboration with a variety of companies.

We invited start-up companies in creating businesses together for new future of living, through the combination of [ AEON ] management resources with external technologies and networks. From 123 applicants, we selected 3 companies, we believe have high business potential and synergies with us. I extend my appreciation to many applicant companies. I also found big potential again to expand our business domains through co-creation.

Let me also report that we were selected as a DX-certified operator, based on DX certification system stipulated by [ METI ], on January 1 this year. We plan to make a press release on this topic at the later date. So please confirm with that.

We'll continue to take on a challenge of creating new businesses by utilizing external know-how.

Please turn to Page 24. The fifth major task and vision, is to pursue medium-term strategies, accelerate reforms based on ESG perspectives. I will explain our initiatives, based on ESG perspectives. To achieve our decarbonized society, toward which social momentum is enhancing, we formulated AEON Mall decarbonization vision.

We set a target to reduce total CO2 and other emissions in Japan to 0 by 2040. To achieve this target, we will not only buy CO2 credit, but also create renewable energy locally for local consumption to transform ourselves from a CO2 credit buyer to a company creating energy.

First of all, we will begin with on-site and off-site solar power generation supply electricity. We will also consider multiple methods of power generation, including the use of storage batteries, wind, power and hydrogen energy, to operate under 100% of renewable energy locally for local consumption, by 2040.

We will also create renewable energy locally for local consumption, with local communities and customers, by pursuing vehicle to AEON Mall, which is an evolution of the traditional vehicle to home. To be specific, as a customer-participatory initiative, we ask customers to supply surplus electricity generated at home and renewable energy stored in EVs to the mall.

We are considering to provide visibility in an environmental-contribution index and to award points according to the amount of this charge. Both in Japan and overseas, we will work on achievement of a decarbonized society to enrich life of customers. By turning environmental awareness of each customer, a major player in a community interaction, we will build decarbonized societies together for communities.

Please turn to Page 25. For issues of waste and resources, we, clearly, embrace the concept of circular economy in mail operation and build a mechanism for resource circulation in a community, through discovery of new systems or partners. Shifting from reduction of waste to assumptions of reducing to 0. And recycling everything, we will build recycling-oriented community economic zone.

To create a recycling-oriented society, we pursue the 6Rs with stakeholders, including customers, AEON store association members and local communities will achieve circular malls through initiatives such as plastic-free initiatives, food, recycling and clothing collections.

Please turn to Page 26. Let me explain clothing collection. We implemented ] for achievement of circular mallls and 6R initiatives. In Japan, we implement clothing collection project called Happy Clothes Relay. We donated a portion of the clothing, received from customers at 7 malls, to local children through our malls in Cambodia.

Using scale merit in Japan and overseas, we will work on initiatives to pursue the 6Rs and contribute to realization of sustainable society by considering what is important for the Earth and the future and acting with customers.

Please turn to Page 28. We issued JPY 20 billion of our first-ever sustainability-linked bond in November last year, to solve social issues and for environmental considerations. The sustainability-linked bond was issued this time as a sustainability finance initiative, toward the creation of decarbonized societies and was issued on terms that vary according to whether we achieve predetermined sustainability targets or not.

As I explained, our business is not only for commercial functions of mall management and operation, but also for solution of community issues and achievement of sustainable societies. Also for financing, we pursue sustainable finance and contribute to achievement of sustainable societies.

Please turn to Page 29. In October last year, we selected the Prime Market from the New Market categories of the Tokyo Stock Exchange. Lastly, I will briefly explain management structure we want to achieve as a company listed on the Prime Market.

By continuing to provide solutions to regional and social issues, we aim at becoming a company establishing a position through social infrastructure functions to be our central facility for the local community. To achieve that, we recognize shared aspirations and co-creation toward our ideal feature with our stakeholders, including customers, local communities partner companies, employees, shareholders and investors, are indispensable.

For that purpose, we think corporate governance is most important to consider positions of all the stakeholders, pursue disciplined ESG management and make transparent, fair, quick and strong-minded decisions.

The next page shows a summary of committees established for stronger governance. We continue to build a governance structure required by the market.

That concludes my explanation with [ clients ]. Following the last fiscal year, also in this fiscal year, partly due to the impact of COVID-19, our performance is faced with very severe trends, as I explained.

Today, I mainly talked about new initiatives beyond the conventional framework of commercial facilities, such as entry into new businesses in Cambodia, power generation business in Japan, and creation of new businesses in DX. I think we've been steadily [ showing fees ] to secure mid- to long-term sustainable growth.

With these initiatives, by building business scheme early for monetization, we will build resilient management structure, in which we will be able to aim at growth, even in highly-uncertain environments. That concludes my explanation. Thank you very much for your attention.

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