Banca Monte dei Paschi di Siena SpA
MIL:BMPS
Banca Monte dei Paschi di Siena SpA
In the heart of Italy's enchanting Tuscany region lies the centuries-old Banca Monte dei Paschi di Siena SpA, often regarded as the world's oldest bank, with roots dating back to 1472. This storied institution, born in the aftermath of the Black Death to provide aid to its economically deprived population, became a bedrock of financial stability in medieval Italy. Its longevity can be attributed to its policymakers' foresight in adapting through dynamic market conditions and evolving economic landscapes. Traditionally, Monte dei Paschi served as a local financial house, channeling its resources into the region's agricultural and artisan sectors. Over time, as the face of banking transformed, the institution expanded its services, embracing retail and commercial banking, wealth management, and corporate finance, capturing an influential share of the Italian financial tapestry.
Monte dei Paschi's business model thrives on generating income primarily through interest on loans and credit facilities extended to individuals, SMEs, and large enterprises. Like a meticulous weaver of financial fabrics, the bank crafts a balance between traditional banking operations and modern financial services. It generates significant revenue streams from transactional banking services, investment solutions, and advisory offerings for personal and corporate clients. However, it has not been without its tribulations, with significant financial challenges in recent decades demanding state interventions to stabilize its operations. Despite these hurdles, the bank has persevered by aligning its strategies with contemporary financial reforms, seeking to regain its historical stature while navigating the complex web of the European banking environment.
Earnings Calls
In the third quarter of 2024, 7-Eleven reported revenues of JPY 9,069.5 billion, achieving 105.7% year-on-year growth. However, operating income fell to JPY 315.4 billion, a significant decline from prior periods. The company experienced a loss of JPY 56.7 billion due to store closures and restructuring efforts aimed at enhancing profitability. Despite ongoing challenges, including the inflationary consumer environment and the impact of a system outage, sales trends are improving. The company targets same-store sales growth of 1.5% and plans to reduce operating expenses significantly by Q4 2024, aiming for a stable recovery by 2025.
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[Interpreted] Once again, good evening. I am Maruyama of Seven & i Holdings. I would like to ask for your cooperation this year. Thank you very much for your understanding and support for our group. And I would like to take this opportunity to thank you all. Also, thank you very much for participating in this presentation briefing out of your busy schedules.
I would now like to talk about our third quarter results of 2024. Please turn to Page 2. This is the executive summary for today. In 2024, it was a year that we have -- we were facing a change of the consumption environment that we have never experienced, but each business managers have played central roles in dealing with materialized issues in the first half. And after repeating trials and errors, we are now seeing results reflected in the numbers. Furthermore, we believe that we are starting to have confidence that these initiatives have become effective not only in short term but in the medium and long term as well.
For our group, 2024 is positioned -- was positioned as a very important year to enhance our enterprise value and shareholder value in the medium to long term. And it is a year of combination of several years of selection and concentration efforts. Especially the third quarter in 2024, based on our initiatives, we have promoted our strategy to streamline our low-profit business and as well as assets for our future growth based on our action plan announced on April 10.
These initiatives will complete within this fiscal year and should lead to our profit growth in 2025 and onwards. However, even as we strongly promote this reform, we will be achieving the full year net profit plans of 2024.
Also, we are making steady progress for group structural optimization towards our group's maximization of enterprise value and shareholder value. Secondly, as we have a strategic streamlining of business and assets, we will also have a positive outlook of building a solid management foundation towards strong profit growth in the future.
2024 is a year -- a turnaround year for our significant growth for the group, both operation-wise and management-wise, and we believe that we are close to dawn, and let me elaborate on what we mean.
Please turn to Page 3. This is the agenda for today. First of all, I would like to explain our third quarter results, and then after that, the situation of our major business strategies and the initiatives to improve profit from 2025 and onwards will be explained. And as for our North American CVS business, 7-Eleven, Inc., this will be explained by Stan Reynolds, President; and Global CVS business will be explained by Mr. Wakabayashi, CEO of 7-Eleven International. And lastly, I will explain our Domestic CVS business as well as optimization initiatives for group structure.
Now I would like to explain the third quarter results of 2024. Please turn to Page 5. This is the highlight of our consolidated results of third quarter 2024. Revenues from operations was JPY 9,065.5 billion (sic) [ JPY 9,069.5 ], which is 105.7% year-on-year and 99.7% of the revised plan. Operating income was JPY 315.4 billion, 76.9% year-on-year, minus JPY 94.6 billion from the previous term and 102.3% vis-à-vis the revised plan. Net profit was JPY 63.6 billion, 34.9% of the previous term or minus JPY 118.5 billion, 101% of the revised plan.
Operating income vis-à-vis the previous year, although we were in a very difficult situation both in the United States and America due to the deterioration of consumption environment, our measures materialized and showed effects and we are in a recovery track and we were able to achieve our plan. We were able to achieve our plans for each profit, but towards the final year of our medium-term 2025 and 2030, we have been promoting business and asset streamlining for low profitability business. And the net income was -- as a result, net profit ended up in JPY 63.6 billion, which is a large decline from the previous term.
Please turn to Page 6. These are revenue from operations, operating income and EBITDA for each segment and the details. The overseas CVS numbers are after amortization of goodwill. As for the domestic and overseas CVS business, which is a major factor of the decline in operating income, while the consumers' behavior is largely changing and although there were some challenges in terms of trials and errors in sense of speed, we are able to develop strategies, both in the United States as well as U.S. based on the consumption environment.
As for Domestic CVS, we started present value initiatives from last September, and we are able to also inject over-the-counter products, which is unique to our value chain and are able to confirm recovery, both in terms of customer number and same-store sales. As for overseas CVS business, although impacted by the consumption environment in the United States, we analyzed customers' needs and conducted value offer measures, which is reflected in our strategy. And we are reinforcing our original proprietary product development, delivery service, 7NOW. And these measures are showing results, which is improved -- showing in results an improvement both in customer number and sales, and we would like to further enhance these strategies.
Please turn to Page 7. These are the results of each segment comparing with our plan. The operating income and EBITDA in the domestic CVS business, overseas CVS business and superstores were slightly below plan. However, in our banking business, we were able to achieve our plan and overall achieved our plan.
Next on Page 8, let me explain special losses on this page. So over the past few years, our group has been selecting and concentrating various businesses and assets to maximize our group's enterprise value and shareholder value. We have positioned fiscal 2024 as a culmination of these efforts and have further accelerated our selection and concentration based on the action plan announced in April last year. In the first half of the year, we recorded a loss of JPY 45.8 billion due to the impairment loss of restructuring Ito-Yokado stores as well as a restructuring of the Last-Mile strategy in the superstore operations.
Furthermore, in the third quarter, we recorded a loss of JPY 56.7 billion due to the closure of unprofitable stores and the impairment loss associated with the system integration of York Holdings in order to improve the profitability of SEI. These one-off special losses account for JPY 133.4 billion of the cumulative special losses of JPY 178.9 billion for 9 months.
Please turn to Page 9. As shown in the lower part of the figure, all one-off special losses currently foreseeable, including the one-off special losses recorded during the first 9 months explained earlier are expected to total JPY 149.6 billion for the full year, with approximately 90% of this amount having been recorded by the third quarter. On the other hand, one-off special gains are expected to total JPY 114.3 billion, including special gains from the sale and leaseback of SEI.
We will record a large amount of special losses this fiscal year as well. But these one-off special gains and losses are intended to complete the liquidation of less profitable businesses and assets by the end of this fiscal year in accordance with our action plan, with the aim of maximizing corporate value and shareholder value. Going forward, we'll focus on accelerating our growth strategy based on our strong management foundation.
Please turn to Page 10. As mentioned above, taking into account the various factors I've explained and the progress being made, we believe that we'll be able to achieve each profit item in the full year earnings forecast we presented in October 2024 without any changes.
The fundamental transformation of the superstore operations is progressing steadily, but cumulative EBITDA as of Q3 of fiscal 2024 fell short of target. At Ito-Yokado, in addition to the deterioration of gross profit margin due to pricing raw material costs such as rice and the impact of rising costs, including soaring electricity bills, the continued record high temperatures in Q3 led to a slump in demand for fall/winter clothing and the resulting decline in shopping habits. However, in Q4, which is the peak sales period, we will aim to achieve our full year target by advancing efforts to improve gross profit.
Please turn to Page 12. This slide shows the progress of major KPIs in the fundamental transformation of the Greater Tokyo superstore operations. Overall progress is proceeding roughly as planned. We'll continue to advance our transformation efforts towards achieving our targets of EBITDA of more than JPY 55 billion and a ROIC of more than 4% for fiscal 2025.
This concludes our explanation of our third quarter results. And next, let me invite 7-Eleven, Inc. to explain the major business strategies. Let me pass the floor to President Reynolds.
Thank you. My name is Stan Reynolds, and I'm the President of 7-Eleven, Inc. I want to spend a few minutes discussing 7-Eleven, Inc.'s Q3 results and highlight some of the short- and intermediate-term tactics we are leveraging to drive traffic, sales and margin. I'll then conclude with an overview of our key priorities for 2025.
Next slide. 7-Eleven's Q3 results were below prior year and expectations. The inflationary environment persists and the consumer continues to be under pressure. And we were impacted by CrowdStrike in the third quarter as the CrowdStrike outage resulted in a disruption to the point-of-sale systems in the majority of our Speedway stores. However, we are now seeing directional improvement in sales and traffic. In the following slides, I want to highlight the short- and intermediate-term tactics we have taken which are producing results.
Our management team at 7-Eleven has a track record of growing operating income at a 13% CAGR over the last 18 years. We're disappointed in 2024 results but are seeing improvement and we're continuing -- committed to returning to growth.
Next slide. Since the CrowdStrike disruption in July, we've accelerated our efforts to drive traffic and sales while balancing margin. And we're seeing improved trends with November same-store sales slightly positive. For the -- we do project negative December same-store sales. However, driven by the calendarization of December versus the prior year, we lost 1 Friday, which is our high sales day and expect that to have approximately 1.1% negative impact for the month. However, excluding this impact, we project our December sales, excluding cigarettes, to be positive.
While the decline in cigarette sales negatively impacted our sales, our proprietary products, including fresh foods, proprietary beverages, and private brands are driving improvements in overall sales and customer traffic. The proprietary products category delivers a margin of 40.5%, outperforming the overall system margin of 33.3%. We believe continued focus on executing our short- and intermediate-term tactics will continue this positive sales growth.
Next slide. I'll now take you through our short- and intermediate-term tactics, which have 4 key areas: first, value and traffic-driving; second, growing proprietary products, which have a much higher margin than national brands while providing value to the customer; third, growing 7NOW delivery to drive traffic and sales; and fourth, our cost leadership initiatives. Let's start by diving into how we are driving sales through value offers and traffic-driving initiatives.
Next slide. We know that delivering quality products at a compelling price is key to increasing traffic. Our food offerings provide outsized value and are resonating with customers. For example, our buy 5, get 5 free bone-in chicken wings offer saw a 24.7% increase in APSD sales in September and a 25.2% increase in October. Additionally, our $3 large coffee and ring donut offer drove sustained increases in APSD sales across the month of October since its launch.
We are also quickly adapting to changes in customer preferences to meet evolving wants and needs. For example, we have made strategic investments in expanding our tobacco backbar offering of new modern nicotine products as 53% of adult smokers are looking to switch from cigarettes to noncombustible products. As a result, we've seen sales and trips increase in the category and are benefiting from higher margin on these products as well. And these modern nicotine sales are making up 50% of our loss in sales from the decline in cigarettes.
Next slide. Next, growing our proprietary products continue to be a top priority for 7-Eleven. To accelerate our growth, we have strategically invested in store enhancements. This includes our food and beverage modernization program that offers our customers a wider assortment of bacon store and hot food items and specialty coffee. We are expanding this program, which is currently in almost 5,000 stores to an additional 2,500 locations by Q1 2025. And early results have shown an APSD sales lift of $145 per day versus prior year in just the first 3 months.
Additionally, to help meet customer demand for innovative high-quality food products, we have partnered with Warabeya in Texas and Virginia to support over 2,000 stores. We've seen significant increase in APSD dollar sales for Warabeya categories and continue to expand the assortment with innovative new items launched in Q3 and Q4.
Next slide. Our restaurant and private brand offerings also continue to drive results and serve as a key differentiator. With more than 1,000 restaurant locations across 3 brands, we're able to meet the ever-changing taste of our customers. The benefits of this are meaningful as stores with restaurants drive 54% more traffic, 34% more APSD sales, and carry an additional 60 basis points of margin compared to our non-restaurant locations. We're able to further drive differentiation and value to customers through our portfolio of 900-plus private brand items.
In 2024, we launched 215 new items across high-growth categories that resonated with customers and delivered over $70 million in incremental sales. In addition to driving traffic and sales to our store, our private brands have a 51% margin, approximately 18% higher than national brands. We will continue to invest in our private brand portfolio and launch high-quality, high-value products that customers are seeking.
Next slide. We're also excited about the continued progress of our industry-leading delivery network, 7NOW, which is growing at a 24% rate on a same-store basis and delivers our popular products in an industry-leading delivery time of 28 minutes or less. The 7NOW delivery program offers value and quality products to our customers and helps grow our proprietary products as 25% of 7NOW top-selling items are our fresh food and proprietary beverage items. Since 2022, we've experienced consistent growth in the delivery business, and our goal is to hit $1 billion in sales through this channel by 2025.
Next slide. Additionally, we're focused on our cost leadership efforts. We've continued our disciplined and rigorous approach to taking costs out of the business, and we've stepped up our efforts and are targeting a $500 million cost reduction by the end of 2024. We also expect total 2024 OSG&A expenses to be down versus prior year, excluding expenses associated with the West Texas acquisition and 2023 onetime items. Looking ahead to 2025, we've identified new initiatives to reduce costs and improve efficiencies. We are targeting a 90 basis point reduction in OSG&A as a percentage of sales in 2025.
Next slide. Lastly, I want to touch on our plans for 2025. As we previously communicated, we are targeting same-store sales of 1.5%, merchandise gross margin of 34.1%, and a ratio of OSG&A to sales of 16.4%. To achieve these goals and drive long-term value creation, we are launching a company-wide program aimed at improving profitability and focus on 3 primary areas: growth, margin, and OSG&A. We will build a detailed execution plan to achieve significant savings in 2025, and we'll jump-start the program by implementing quick wins Q1 and Q2. We expect this focus on profitability to deliver a lasting positive impact to SEI's operating income.
This program is led by our CEO and me with members from our executive team leading each of the work streams. This profitability review program will be a comprehensive plan and supports our plans to significantly improve profitability in fiscal year 2025 and beyond.
In conclusion, we remain confident in our long-term strategy and optimistic about the future. And we appreciate your support and interest in our business. Thank you for your time today. I will now turn the presentation over to Ken Wakabayashi.
[Interpreted] Then I would like to talk about the global convenience store and the recent situation of our business. Next slide, please. First of all, 7-Eleven International consolidated performance, the year-to-date third quarter results. Revenues from operations compared to the fiscal 2023 largely grew. I think you can confirm that. Needless to say, from last April, Australia has been included in the consolidation. That is a major factor. However, we were also able to exceed our plan.
As for operating income compared to last year, it appears to be a decrease of USD 21 million. However, this is a onetime expense related to the acquisition, and if you exclude this factor, it would have been increasing profit. This year, 2025, Australia's performance will be fully reflected in the 1 full year of 7IN consolidated results, and so it will more contribute to EBITDA as well as operating income. As for Australia, we have explained in the R&D last October that our growth strategy is the pillar.
The pillar of our growth strategy is development of merchandise, opening of new stores, and store operation improvement and we are in progress as planned. As shown on the graph below, merchandise sales is steadily growing. And fast food, excluding tobacco as well as original proprietary beverages, these strategic categories, product assortment has been enriched and is leading to results. Going forward, we will conduct a verification for our initiatives through concept stores, pilot stores. And where we see results, we would like to horizontally deploy those initiatives to other stores as well.
This shows our role that we have showed you in the past on the left-hand side. We will fully utilize the capability of SEJ and SEI and would like to thoroughly execute strengthening of strengthening support for existing areas and accelerating expansion into new regions. And we would like to enhance our global brand value of 7-Eleven. That is our role. What I would like to emphasize is both for existing regions and new areas, we would like to actively consider strategic investments and financing for growing markets.
And it says equity model penetration on the right-hand side. But in 2022, 7-Eleven International started. And after that, in 2023, we have executed strategic investment in Vietnam and in 2024 in Australia. However, we have just started and the full-fledged initiative and growth is to be expected going forward. By 2030, we would like -- it's just that we are aiming at doubling our profit. But seen considerably, we will be able to achieve this target both by Australia and Vietnam alone, which has already been invested into. And by 2030, we will also be making new investments. So we believe that we can more than double our ordinary income.
In this slide, we are showing the results of the -- in Australia through our 2 initiatives. One is enhancing the product assortment of fresh food, and the other is to increasing the number of items in the store. As for fresh food, we enhanced our product assortment in 21 stores from April right after completion of acquisition through September and increased fresh foods SKUs to 80 items. And if we compare March before acquisition and September after acquisition in the 21 stores, we were able to improve both APSD as well as the fresh food mix.
And these initiatives, as shown on the upper right, we will -- we have expanded these initiatives to 60 stores by the end of December. And by the end of this year, we would like to expand this to 150, and the original fresh food items will be expanded to 100 items.
In the lower half, you see that we have introduced new shelves and pictures in 153 stores and are -- these are showing results already. The number of items per store was 1,500 before acquisition but now it is 2,200 and in 500 stores, and by the end of December this year, we will have 2,500 items in all stores.
Last October in IR Day, we talked about the initiatives in -- of our concept store in Brisbane that we opened that has 280 square meters. We would like to expand this. And today, I would like to talk about the pilot store that we have conducted renovation in our 100-square-meter stores in Melbourne. This store is called Tarneit North Store and at the same time, we conducted renovation. We also enhanced fresh food as well as increased the number of product items. Not only are we increasing number of items, but we would like to respond to the customers' needs and conduct a meticulous adjustment of product assortment.
Specifically, in this store, major customers are immigrants from South Asia. Therefore, we are not only simply increasing the number of items or increasing fixtures, but we would like to increase product assortments, which will be favored by Indian customers to lead to increase of sales. As you can see on the right-hand side, in the dotted line, after renovation for 1 week, sales declined slightly. This is because we increased the number of items significantly, and there were some items that ran out of stock at the vendor side. But after that, as you can see in the graph, sales increased significantly, and we are starting to feel confidence in this approach.
This is a pilot store, so we would like to deploy this kind of store in other cities, including Perth, Sydney, and Brisbane to show what kind of convenience store we would like to achieve to customers. Not only that, the 7-Eleven Australia team members who are working in the frontline will be learning and experiencing this pilot store for a better understanding.
And we will be introducing retailers' initiatives or other merchandise management methods so that we will be able to respond to the customers' needs. And this will be the major initiatives for this year's operation.
Next page, please. This is this year's target for Australian business. APSD, we aim at $7,000. You may feel that this is very aggressive. However, if you look at the growth of our daily merchandise sales, we believe that this is a KPI that is realistic. Merchandise gross margin, we expect to aim at an improvement of 20 basis points through focusing on fresh food and coffee or other proprietary beverages.
As for the number of stores, we will also close some stores as we open new stores. And in order to secure high-quality new stores, we will have to take time in examining best locations as well as dealing with regulations. Therefore, this year, we believe it will be a seeding year for a significant acceleration of opening new stores in the future. That is all for myself. I would like to hand over to Maruyama-san.
[Interpreted] Thank you. So this is Maruyama. Let me explain about 7-Eleven Japan. Please turn to Page 30. So first, let me cover the status of sales and the number of customers. Despite a recovery from COVID-19, the domestic economy has experienced its first inflation in about 40 years, which has led to a major change in consumer sentiment, with customers becoming more defensive about their livelihoods.
In addition, the impression that 7-Eleven prices are high has spread to a certain extent among customers. And inability to adequately meet customer needs has led to a struggle in a number of customers, particularly in the first half of the year. In response to this issue, we have strengthened our efforts, setting the recovery in the number of customers as a top priority. As a result, the present value declaration launched in September has been effective, with customer numbers steadily improving and increasing even more strongly in December, driving the growth of same-store sales.
Please turn to Page 31. The pleasant value products, which drove the increase in customer numbers, consisted of 65 original products and 205 SKUs for Seven Premium, accounting for approximately 10% out of the total. We wanted to raise awareness among customers so we strengthened our appeal through apps and TV commercials. And these measures have been successful, and the customer purchase rate of pleasant value products has increased.
Furthermore, as shown in the right table, an addition to an increase in the frequency of store visits and purchase amounts by customers, a breakdown of the increase in store frequency shows that the frequency of store visit by younger generations, both male and female, has increased. And our pleasant value declaration is resonating with price-sensitive younger generations. Sales remained steady in December, and we plan to continue this pricing strategy while closely monitoring the consumer environment.
Please turn to Page 32. We are also strengthening our efforts to reduce the impact of our pricing strategy on gross profit margins and further improve them. Let me share an example of our efforts to strengthen our freshly baked counter products. First, in addition to our curry bread, which has been well received and has achieved a Guinness World Record, we are promoting the rollout of Seven Cafe doughnuts, utilizing our supply chain, including its manufacturing infrastructure. As of November 2024, we have rolled out these products in approximately 12,000 stores, and we plan to complete our nationwide expansion by the end of this fiscal year.
In addition, we'll accelerate the rollout of Seven Cafe Bakery, our new freshly baked products. We plan to expand this to approximately 10,000 stores by the end of next fiscal year. In this way, the expansion of high-quality counter products that only 7-Eleven with its unique value chain can provide will contribute to profits and increasing customer numbers and gross profits.
Going forward, 7-Eleven will continue to grow by increasing the frequency of store visits by existing customers through product development and product lineup adjustments in order to respond to various changes in the customer environment as well as by developing products and services that will attract new customers.
Lastly, I would like to talk about our initiatives to enhance both enterprise value and shareholders' value. Please turn to Page 34. The upper half show -- in the green shows our strategic investment in our convenience business. And the lower half shows -- in the light blue, shows our actions for group optimization, and we have been continuing with these 2 initiatives.
In this process, we have steadily implemented initiatives to maximize corporate value and shareholder value such as reforming governance to ensure that outside directors make up the majority and reevaluating the group's strategy through the reformed Board of Directors, as well as establishing a strategy committee composed only of outside directors in March 2023 and announcing an action plan based on the committee's recommendations.
With regard to the superstore business, in April 2024, we announced that we will begin considering realizing an IPO of the superstore business as soon as practically possible as one of the leading options for the sustainable growth of the superstore business.
As part of the action plan, we have also announced that we will establish an intermediate holding company, York Holdings in preparation for an IPO of the superstore business in October 2024. And we'll begin considering inviting a strategic partner to make the business an equity method affiliate in order to accelerate our growth strategy. We are currently in the midst of the process of moving forward with this process.
Please turn to Page 35. For more details, please refer to the separate press release that we are disclosing. York Holdings will acquire shares in the superstore business group companies in late February 2025. In this way, we are certainly moving forward with our optimal group structure realization, including CVS business, SSD business, superstore business, and financial business so that each of the businesses will be financially and strategically be independent, and we are committed in a medium- to long-term perspective for our growth and increase in value.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]