Aeon Mall Co Ltd

TSE:8905

Earnings Call Transcript 2024-Q4

[Yasutsugu Iwamura, executive]

Good afternoon. This is Iwamura, AEON Mall. Today, first, now I will explain the financial results for fiscal year 2023, then I will cover the progress we are making in our medium-term management plan. Please go to Page 3. In FY 2023, we achieved a record high operating revenue and secured growth in profits across the board year-on-year. Extraordinary loss improved JPY 11.1 billion year-on-year, while net income attributable to owners of parent increased 57%. Please see the next page. This slide shows changes in profit and loss by segment year-on-year. For Japan, operating revenue increased JPY 12 billion due to the positive year-on-year growth in specialty stores at malls and urban shopping centers. Operating costs at existing malls in Japan remained roughly the same as the previous period. While we had anticipated an increase in cost due to the soaring electricity unit prices, we made a switch to market price-linked electricity and promoted the installations of solar power generation systems, which pushed down the sourcing cost pushing down the electricity bill by JPY 1.7 billion year-on-year. However, personnel costs went up due to the revision in wages as well as the increased SG&A due to the events we held in order to increase the number of visiting customers. Overseas business achieved a record high operating income of JPY 10.5 billion. As for China, the operating income was down JPY 90 million year-on-year. But here, may I remind you that we transferred fixed costs of JPY 2.9 billion to extraordinary losses generated by the temporary business suspension due to the COVID-19 pandemic in the previous years. So if we are to exclude this factor, operating income would go up by JPY 2.8 billion in real terms. In Vietnam, though we were affected by the slower economic growth stemming from the sluggish external demand and the power shortages, its operating income grew JPY 800 million as the existing malls achieved steady profit growth. Next page, please. This graph shows existing mall specialty store sales by the country, year-on-year basis. First, in Japan, thanks to the downgrade of COVID-19 to a Class 5 disease on May 8, 2023, customers became a lot more willing to go out. Full year specialty store sales improved 5.6% year-on-year. Throughout the year, we continued our events at each mall to attract more customers. We also [ leverage ] in AEON Mall apps [indiscernible] to carry out market data-based activities to create motivations for our customers to come and do shopping at our malls. We carried out a large-scale promotions and variety of initiatives to attract more customers during the Black Friday and the year-end and New Year sales seasons. Revenue shows a recovery trend, partly helped by the increased average spending per customer due to the increased cost of living. Next, China. Despite given the concerns about the declining economic growth due to the sluggish real estate market, our malls continue to maintain a good performance, especially at the malls in Jiangsu and Hubei provinces. Full year specialty store sales grew 30.3% as planned year-on-year. The number of visitors has been on a recovery trend and sales have increased mainly in food, amusement and cinema. Moving into the new fiscal year. We continue to have its firm business and January through March sales at specialty stores shows the growth of 6.6% year-on-year. Finally, Vietnam, specialty store sales for the full year were up 4.4% year-on-year. Since April, unemployment rate among the young people increased due to the bankruptcies of export product factories in the South, but compared now to pre-COVID FY '19, high growth continued posting up 41.9%. The latest, January through the March sales for existing mall specialty store shows positive trend of recovery up 8.2% year-on-year. By the way, we have disclosed the details for sales by category, by country on Pages 6 to 11. So please look at them for your reference. Now please go to Page 14. Now allow me to explain on our medium-term management plan and numerical target. We announced our 3-year medium-term management plan last year, starting from FY 2023 as the first year. We are now revising down our operating income forecast for the final year FY 2025 from JPY 85 billion to JPY 69 billion. For FY '23, we had assumed that both at home and abroad, we would move into the post-COVID era.

Domestic sales would be on par to FY 2019 and overseas would go back to the traditional double-digit growth level. But the number of customers did not recover, particularly in Japan to the level we had assumed resulting into deviation vis-a-vis our plan.

Also in overseas, in light of the number of malls opened during COVID-19 as well as actual situations in the current fiscal year, showing the difference of profitability depending on the country and the area [indiscernible]. Based on FY 2023 actual performance, we are now taking additional measures and revising our forecast for FY 2025. For the past several years, we have missed our forecast, and we have received a variety of opinions and requests from our investors as for our forecast accuracy. As a result of the series of discussions entirely together with our outside directors, now the latest plan shows risk scenarios we have taken. For your following information, in March, we have achieved our budget, and this trend is still continuing in April as well. So we are here now to make further efforts to improve our profit and by executing our tourism initiatives for the current fiscal year, we intend to achieve our revised plan for FY 2025. Next page, please. This shows our plan for FY 2024. Consumption in each country is normalizing, and we expect the vacant floor space is getting improved going forward and now operating income forecast is up 18.5% year-on-year at JPY 55 billion. By segment, Japan is JPY 43 billion and overseas being JPY 13.5 billion. By region, China is JPY 8 billion, and ASEAN is JPY 5.5 billion in our plan. Please go to the next page. This slide shows our new mall openings plan during our 3-year medium-term management plan. Though this year seems vary depending on the country. But with the change in opening schedule, we revised our plan. As for Japan, due to the rising construction costs and the shortage of construction workers, we revised our construction plan and we decided to postpone 1 property originally scheduled to open in FY 2025 to FY 2026. No opening is scheduled in FY 2024. But we intend to improve our profit by putting our management resources into the existing malls to expand floor area and better utilize existing land as well as our efforts to create more comfortable space. In China, we revised the opening schedule due to the delays in community development surrounding the property sites resulting from the deteriorating real estate market. In Vietnam, though we are concluding our cooperation agreement with each local government, and we are making a steady progress in building pipelines. But due to the changes in land bidding process and others, it took us a longer time to get development promise from the local governments. We now have revised our opening schedule. Under those circumstances, for overseas, we have now revised the number of openings from 50 to 44 malls in FY 2025. But may I remind you that it just means the timing for opening has been postponed. And including construction to be started by FY 2025. The number of malls will be more than 50. We will continue our efforts to open our malls in the growth areas. You will find the details reflecting those changes of capital investment plan, funds acquisition plan and our targeted performance indicators. I hope this will help you for your reference. Now please refer to Page 21. In this section onwards, I will explain the progress of the initiatives based on our 3-year medium-term management plan growth policy. Please go to Page 25. The first growth policy. Discover and commercialize business opportunities in overseas growth markets. For overseas business, we will further advance our efforts to open new malls in priority areas in these 3 years as well as possible to aim at further profitable growth. In China, we plan to open 2 malls in 2024. Second mall in Zhejiang AEON Mall Hangzhou Qiantang Xinqu and then first mall in Hunan Province AEON MALL Changsha Xingsha. Zhejiang Province and Hunan Province are adjacent to the junction and Hubei Provinces where our existing malls are enjoying a strong growth. And it has been decided to open our second AEON Mall in Hunan Province and Changsha Xingsha new area. We'll continue to promote new mall openings, mainly in Jiangsu and Zhejiang and Hubei and Hunan areas where market growth is expected. Next page, please. In March this year, we opened our fifth flagship mall in Indonesia AEON MALL Delta Mas. The property is located in the suburbs of the Jakarta and with a total leased area of 86,000 square meters and [indiscernible] 300 specialty stores. It is the largest property in our Indonesian operations. In Indonesia, we are greatly affected by the COVID-19, but we renovated the existing 4 malls and we put further efforts in holding events. Now it is clear that the number of visiting customers are increasing and the issue of vacant floor space has improved. So we'll further increase the number of our visiting customers, so we could further improve our profitability. Next page, please. In Vietnam, our most important area for opening the new malls, we will accelerate 2 open dominant malls in the surrounding cities in the southern area sitting around Ho Chi Minh City and the Northern area sitting around Hanoi and the Central area, including Da Nang, the third large economic zone in Vietnam. As shown here, we are progressing in signing comprehensive MoUs on shopping mall development to scale pipeline and to open new malls. In FY 2024, we are planning to open AEON Wall Hue, the seventh mall in Vietnam and our first mall in the central area of Vietnam.

Going forward as well, we will continue to secure a pipeline of new openings and new malls in the regional cities. By doing so, we'd like to make our contributions to the sustainable growth and the community development of Vietnam, who is achieving a remarkable economic growth. Now Page 29, please. The second growth policy, pursue business model innovation in Japan. Amid accelerating changes in customers' consumption behavior and purchasing habits, we will promote reform of our existing business models in order to strengthen our ability to attract customers and improve profitability in our Japan business.

Although we will not open new malls in Japan in 2024, we will focus on improving the profitability of existing malls by effectively utilizing the existing assets. As latest case is expanded floor space and renovations, we opened AEON Lake town OUTLET. And in April, we will reopen AEON Mall Ota, including the floor space will increase the rental space, which will grow profit. But more than that, well, the consolidation of the commercial facilities in Japan is underway. It is quite important for us to keep an eye on the scale of our facilities as well as on the quality of values to be offered. So we can become a clear dominant #1 player in the region so that we can further expand our market share by strategically increasing floor space and working on renovation and expanding various functions, we aim to become a facility that continues to be chosen by both our tenants and customers in the local community. Next page, please. In order to remain as a mall and that is supported by customers, it is essential to diversify the value we offer in accordance with the local market. This slide shows a list of renewed properties in March and April. By attracting the specialty stores, our customers are looking for, we can not only increase the freshness of the mall, but we can enliven the mall and create a comfortable common areas and space, which will encourage our customers to visit our mall and increase their staying time.

We are actively building what we call Mokuiku Hiroba, which is a playground for children, where natural woods from the region are used. On the surface, you may not see its linkage to profit. But for customers with the small children, the free use of the playground is an incentive for them to visit the mall. And having customers staying longer at the mall, it may lead to increased sales at specialty stores. From the viewpoint of attracting customers, it is most important to make regular visits to the more habit as a fan of the mall, provide comfortable space and environment in the common areas is indispensable to increase the regular visiting customers. Next page, please. There are some sites and the parking lot inside the mall, which are not fully utilized. We'll convert them into a new value. Based on the actual usage, we'll create new business sites and secure revenue opportunities.

We'll develop noNIWA, a commercial facility and integrated with an outdoor plaza through effective use of flat parking lots and idle land in existing malls as well as develop new business opportunities through the capital and business alliance with Marimo condominium construction. This will enable us to propose a new lifestyle and increase the attractiveness of our mall, which will result in attracting more customers. Next page, please. In response to accelerate and changes in the external environment and the customer values, we have been working to deepen our value offerings in the existing business operations, but our response to these changes were not good enough, and some malls are suffering from not being able to generate cash flow due to the declined customer attraction and profitability. We have been working to increase the competitiveness and improve operational efficiency within the trade area, including investments to revitalize the business, but some malls are suffering from the prolonged deficit of cash flow. And now we are working on initiatives for fundamental structure reforms for those malls. In June last year, we decided to terminate the management and operations of Qualite Prix in June 2024. In order to implement drastic structure reforms of the several malls, we'll ensure the implementation of the structural reforms at those malls by the end of FY 2024. And with this, we expect to incur extraordinary loss of approximately JPY 6 billion for those structural reforms. Although we will record a temporary loss, we expect operating income to improve by JPY 400 million at the end of FY 2025 and by JPY 3 billion in FY 2030. Now please refer to Page 35. The third growth policy, create new business models and that break from the existing business frameworks. In the era of rapid changes and uncertainties, we are now focusing not only on advancing the existing businesses, but also on creating new businesses to create new values through a co-creation with our partners. Life Design fund, a corporate venture capital established last year, we'll bring together cutting-edge technologies and know-how through our investment in start-up companies. We combine both parties' expertise to effectively leverage company assets, our facilities and providing spaces more integrated with the local communities and achieving community co-creation. In November last year, we invested in Counterworks, which supports for retail and commercial facilities as our first project. The fund has a newly invested in orosy, which operates in wholesale and procurement marketplace for businesses and ATOMica, which operates a nationwide the social co-working business. Now Page 39, please. ESG initiatives are not merely a social contribution activity, but a commitment to survival as a company, that all stakeholders, including employees needed to be engaged for the future. We will strive to improve and solve social issues through the co-creation with our stakeholders and create economic and social values through the truly integrity ESG management, which is the basis of our 3-year medium-term management plan. And through its implementation, we aim to become a developer and a company that can grow sustainably together with the local communities. We have set the 3 directions for resolving environmental issues, achieve decarbonized societies, realization of circular molds, protecting biodiversity, and we are engaged in what we call AEON Mall's action. We participated in the Task Force on Nature-related Financial Disclosure or TNFD forum to analyze the impact our operations have on nature and address our nature-related risks and opportunities. We organized the results of our analysis and the company initiatives in accordance with the final TNFD recommendations published in September 2023. Our ESG Databook 2023 discloses these results. Please refer to this at your leisure time. Next page, please. In our journey to realize the decarbonized society, we aim to reduce the total amount of CO2 and other emissions from all of our business activities to 0 by 2040 by continuing to promote renewable energy initiatives. In February 2024, we acquired a certification under the SBT initiatives for our GHG emissions reduction targets for 2030. GHG targets are scientifically consistent with the level set by the Paris Agreement. In addition, AEON Mall Toyokawa, which opened in last April was the first mall with the total flow areas of over 100,000 square meters to receive ZEB Ready certification and was highly rated for high energy saving performance. It received the Minister of the Environment award in the decarbonization city development award sponsored by MLIT and the Ministry of Environment. Outside of Japan, we are also highly recognized for our initiatives paying good attention to the nature as well as our efforts for sustainable buildings. As you see here, AEON Mall Ha Dong in Vietnam and AEON Mall Meanchey in Cambodia have received high evaluations from their local evaluation systems. That's all for the slides.

As I explained earlier, for the full year, mall sales in Japan and overseas are generally improving, and we secured growth in operating revenue, operating income, ordinary income and net income attributable to owners of parent. In addition, as for the progress in the growth policy set forth in our medium-term management plan, we plan to open 4 malls overseas in 2024, the biggest number in the last 5 years. And in Vietnam, where profit growth has been remarkable, we are making a steady progress in securing a pipeline of new mall openings for 2025 and beyond. In Japan, in order to maximize our strength of having real locations, we'll aggressively invest in existing malls and actively promote floor space expansion and renovations. In addition, we are settling and moving into the implementation phase of new initiatives beyond the framework of our existing business, such as initiatives with Marimo and CVC. And we'll work to make them profitable as soon as possible. That's all for me. I would like to thank you for your kind attention.