Seven & i Holdings Co Ltd

TSE:3382

Earnings Call Transcript 2023-Q2

[Yoshimichi Maruyama, executive]

Greetings, everyone. My name is Maruyama, Director and Managing Executive Officer at Seven & i Holdings. Thank you for taking the time off your busy schedules to participate in today's presentation for the second quarter of fiscal year 2022. I would now like to explain about the results in the first half of this fiscal year and the revision of the consolidated forecasts for the full fiscal year.

This page contains today's executive summary. Both revenues and income in the first half of this fiscal year outperformed year-on-year and our announced forecasts. While a rise in energy costs did indeed impact operating results, we were able to absorb these higher costs and grow profits, allowing us to meet the forecast. Above all, for both Seven-Eleven Japan and 7-Eleven, Inc., existing store sales recovered to and exceeded pre-COVID sales.

Additionally, we continue making solid progress in terms of the PMI of Speedway and we will be discussing this process and results in greater detail later on in this presentation when discussing our group's management strategy. In light of these factors, we have made an upward revision of the consolidated forecasts for the full fiscal year.

Page 5 shows the consolidated results highlight for the first half of the fiscal year. Revenues from operations for the first half stood at JPY 5,651.5 billion for a year-on-year increase of 55.0%. Operating income stood at JPY 234.7 billion for a year-on-year increase of 26.1%. While net income attributable to owners of parent stood at JPY 136.0 billion for year-on-year increase of 27.8%.

7-Eleven, Inc. was one of the driving factors behind these results. We registered headwinds in the United States in the form of a decrease in consumer confidence, resulting from the highest inflation levels seen in the past 40 years as well as an increase in costs, such as personnel costs.

Against this backdrop, we carried out initiatives to strengthen the management foundation by executing a sales expansion for fresh food and private brand merchandise, resulting from value chain enhancements and achieving improvements in cost efficiency resulting from 7-Eleven, Inc.'s Cost Leadership Committee. From the start of the fiscal year, we incorporated the contribution of the integration of Speedway. And additionally, fuel gross profit margin continued at elevated levels, allowing us to beat sales and profit forecasts.

Next is Seven-Eleven Japan. In Japan as well, we faced the impact of exogenous factors pertaining to an increase in utility expenses and raw materials and ingredients, resulting from geopolitical issues and the rapid and pronounced weakening of the Japanese yen in the ForEx market. However, we motivated customers to visit stores through sales promotions, focused primarily on event initiatives, the promotion of high added value merchandise development and the renovation of sales floors.

With the objective of conveying the high-added value quality of our merchandise, we carried out initiatives within these 3 pillars. And at the same time, we were blessed with favorable weather conditions this summer, and these factors allowed us to exceed the sales and profit forecast.

Furthermore, another factor was the continued weakening of the Japanese yen, which translated into a high contribution to consolidated results from foreign currency to revenue and profit. Operating income increased by JPY 48.5 billion year-on-year, of which the foreign exchange impact was JPY 14.5 billion.

Earlier, I mentioned how foreign exchange had, had a positive year-on-year impact on operating income of JPY 14.5 billion. This positive impact was almost entirely offset by the rise in energy costs. As I mentioned earlier, while a rise in energy costs translated into a headwind, we executed initiatives at each operating company, primarily in terms of convenience store operations in Japan and overseas.

And this allowed us to offset these higher costs and to deliver an increase in operating income, both year-on-year and also in excess of the forecast. We expect this increase in utility expenses to continue this fiscal year and beyond and to be a significant factor impacting our results. As such, we view the need to reduce the resource usage as much as possible as an important management issue to tackle and will, therefore, be executing measures toward this end.

On Page 7, I will be discussing revenues from operations and operating income by operating segment. The year-on-year results variance is a comparison between the results for the current fiscal year according to the new accounting standard and the results for the fiscal year before that according to the old standard. On Page 24 in the appendix, we have included a version of this comparison for the metric of revenues from operations, which was particularly impacted by the change using the previous standards for both fiscal years. We welcome you to refer to this comparison.

Regarding Domestic and Overseas Convenience Store operations, as I mentioned earlier, both Seven-Eleven Japan and 7-Eleven, Inc. delivered strong performances. Revenues from operations decreased significantly in the Superstore operations and Department Store and Specialty Store operations due to the adoption of the new accounting standard. However, on an actual results basis, this decrease was less pronounced.

Within this, Superstore operations, which had been able to grow by capturing demand for food for home cooking, saw this special demand dissipate. On the other hand, our Department Store and Specialty Store operations had been negatively impacted by people generally refraining from going outside, temporary store closings and shorter operating hours. We have been seeing a recovery centered primarily around high-priced merchandise.

Gross revenues from operations, on the basis of the previous accounting standard, decreased by JPY 25.5 billion for Superstore operations on a year-on-year basis. Conversely, Department Store and Specialty Store operations delivered a year-on-year increase of JPY 41.3 billion.

In terms of operating income, exogenous factors such as an increase in utility expenses and rising prices for raw materials and ingredients weighed heavily on results. As such, profitability improvements from the business restructuring of Superstore operations weren't enough to offset these costs, resulting in a year-on-year decrease in operating income. On the other hand, we made progress in profitability improvements in our Department Store and Specialty Store operations. And this allowed us to close operating income in the black.

On Page 8, I will be discussing the factors for year-on-year change in operating income for both Seven-Eleven Japan and 7-Eleven, Inc. The vertical bar graph on the left shows the results for Seven-Eleven Japan. Energy costs for the first half of the fiscal year increased by JPY 7.5 billion. Even including this increase in costs, Seven-Eleven Japan nevertheless delivered a year-on-year operating income increase of JPY 3.5 billion, exceeding the forecast. However, had energy costs stayed at levels comparable to the same period in fiscal year 2021, we would have realized an operating income increase of JPY 11.1 billion.

The vertical bar graph on the right shows the results for 7-Eleven, Inc., which delivered a year-on-year operating income increase of JPY 87.9 billion. A significant growth driver here was strong performance from fuel operations, with merchandise, et cetera, also made a positive contribution of JPY 74.6 billion, thanks to initiatives to enhance fresh food and positive effects from the integration of Speedway.

On the other hand, selling, general and administrative expenses increased significantly due to inflation and other factors. We will aim to improve profitability through the promotion and advancement of initiatives within the Cost Leadership Committee.

Page 9 contains an overview of the results for existing stores for Seven-Eleven Japan. As shown on the graph on the left, due to effects of event initiatives and other factors, existing store sales growth stood at 1.7% year-on-year in the first quarter and at 3.7% in the second quarter. Moreover, as shown in the dotted line, existing store sales actually exceeded fiscal year 2019 levels, pre-COVID-19.

Additionally, against the backdrop of rising prices for raw materials and ingredients within the scope of Team MD initiatives, we carried out to the development of merchandise with price and value propositions that are understood by customers.

In the first half of the fiscal year, gross profit margin improved by 0.1 percentage points year-on-year. The table on the right shows the results in terms of the number of customers and average spending per customer for existing stores in the first half of the fiscal year. Average spending per customer grew both year-on-year as well as compared to fiscal year 2019.

However, while there are signs of an economic recovery from the COVID-19 pandemic slump, working from home becoming a more ingrained aspect of society and the impact from the seventh wave of COVID-19 cases in Japan means the number of customers continues to be depressed compared to fiscal year 2019 levels.

In response to these changes in the overall environment, we seek to offer exciting initiatives and merchandise and provide a merchandise assortment capable of addressing our customers' increasingly diverse needs. In doing so, we seek to motivate customers to specifically visit 7-Eleven stores to deliver sales growth resulting from a recovery in the number of customers.

Page 10 discusses the effects of efforts carried out in the first half of the fiscal year at 7-Eleven Japan. Allow me to discuss the initiatives underpinning the aforementioned existing store sales growth and gross profit margin improvement for Seven-Eleven Japan in the first half of the fiscal year.

As you can see in the vertical bar graph on the left, we have been carrying out high-quality events on a monthly basis, newly motivating customers to visit our stores and resulting in an increase in daily sales of 1.1% or JPY 7,000. Additionally, 2022 marks the 15th anniversary of the launch of Seven Premium.

In fiscal year 2021, we refined the number of merchandise items. And starting this fiscal year, we have been executing a renewal plan. The sales trend for Seven Premium main dishes registered a year-on-year increase in August. And furthermore, we registered a gross profit margin improvement of 0.4%.

In order to further enhance our merchandise assortment of food, which is one of the Seven & i Group's strong points, 7-Eleven Japan and Ito-Yokado carried out the evolution of merchandise and services of sales promotion, store operations and logistics and procurement. We have termed this initiative, SIP, which stands for Seven-Eleven Japan Ito-Yokado partnership. Going forward, we will be continuing these initiatives towards the sustainable growth of both companies.

Page 11 contains an overview of the results for existing stores for 7-Eleven, Inc. As you can see from the vertical bar graph on the left, in terms of existing store sales growth, the recovery in mobility was slower and less pronounced than expected due to the impact of the Omicron variant in the months of January and February. We adapted to increased demand at convenience stores for food for home cooking and to changes in the way customers use these stores.

In addition to the effect of merchandise assortments consumed at home by families, we registered a recovery in the sale of fresh food and beverages, thanks to a recovery in the movement of people starting in March. As such, existing store sales growth for the first half of the fiscal year increased by 4.9% year-on-year and by 12.3% compared to the results for fiscal year 2019, significantly exceeding pre-COVID-19 levels.

However, the number of customers stood at 87.5% of fiscal year 2019 levels. In light of this, we believe there is a need for further efforts to enhance fresh food and to provide the value of a new customer experience, allowing us to motivate customers to visit stores.

The integration of Speedway weighed down on the mix in terms of gross profit margin and the impact of the introduction of merchandise to Speedway stores continued through to the second quarter. However, from June onward, the negative impact on the mix resulting from the integration of Speedway has dissipated and thanks to initiatives to enhance fresh food and the sales promotion of private brand, gross profit margin has recovered steadily starting in July.

On Page 12, I will be discussing initiatives for further growth for 7-Eleven, Inc. The most important factor here is diversification to produce an exclusive merchandise assortment, and we will be accelerating the introduction of high-quality fresh food and proprietary beverage merchandise.

Fresh food saw existing store sales growth of 14.5% and 12.7% for proprietary beverages. These categories have, therefore, made a positive contribution in driving overall sales. Additionally, in terms of challenging for a new business model, in anticipation of the shift to EVs, we will be taking a proactive approach towards advancing our restaurant operations and delivery service.

Page 13 contains an overview of the results for Ito-Yokado in the first half of the fiscal year. The vertical bar graph on the left shows the year-on-year change in operating income. While results were primarily impacted by rising prices for raw materials and ingredients, merchandise gross profit margin for the first half of the fiscal year nevertheless improved by 0.1%.

Under normal circumstances, we would strategically manage the tenant mix and increase sales and carry out a large-scale reduction in selling, general and administrative expenses leading to an improvement in profitability. However, in the first half of the fiscal year, we faced rising energy costs.

And furthermore, while last fiscal year we were able to register special losses related to COVID-19. This fiscal year we registered these under selling, general and administrative expenses. In addition to these impacts, we were unable to offset the impact of rising prices for raw materials and ingredients. So ultimately, we registered a year-on-year decrease in operating income of JPY 2.7 billion.

Against the backdrop of this challenging environment, we have been carrying out store structure reform starting in fiscal year 2016. As of the end of the first half of fiscal year 2022, we had carried out to the refurbishment of 76 stores. We carried out various verifications, leading to an improvement in the accuracy of refurbishment and were able to verify that existing stores including tenants that underwent refurbishments are driving growth in sales and the number of customers.

With that being said, this was not enough to absorb the impact of a decrease in gross profit margin from operations resulting from the tenant mix and an increase in costs prompted by exogenous factors. Toward improving operational efficiency, we will seek to introduce store content matching the needs of each trade area and we further believe supply chain enhancements leveraging group infrastructure and further productivity improvements to be essential.

I would now like to discuss the revision of the full year forecasts for fiscal year 2022. On Page 15, I will be discussing the revised consolidated forecasts for fiscal year 2022. Results for fiscal year 2022 have been strong, even amidst a challenging business environment, primarily centered around convenience store operations in Japan and the United States.

As such, while results revision in the first quarter were based on exogenous factors such as a weakening yen and rising energy costs, the revisions carried out this quarter reflected the forecasts in terms of business results.

Regarding revenues from operations, the amount of revision comes to JPY 1,233 billion for a post-revision forecast of JPY 11,646 billion. For operating income, the amount of revision comes to JPY 32 billion for a post-revision forecast of JPY 477 billion.

For net income attributable to owners of parent, the amount of revision comes to JPY 17 billion for a post-revision forecast of JPY 264 billion. We have, therefore, raised the forecast for each of these line items. I will be discussing the main breakdown in the next slide.

In terms of significant factors, there were growths in revenues from operations and operating income for 7-Eleven, Inc., which is making steady progress in enhancing the business foundation amidst a challenging business environment and an increase on a yen basis resulting from the weaker yen.

In terms of operating income at 7-Eleven, Inc., the forecast remains unchanged at JPY 230 billion. However, taking into account this incorporates an increase of JPY 8 billion in energy costs, which we recorded under eliminations and corporate in the first quarter, this actually represents an increase of JPY 8 billion in terms of earnings power.

Additionally, regarding eliminations and corporate, by distributing this increase of JPY 8 billion in energy costs among our various operating companies and by carrying out a review of costs, primarily DX strategy costs, we have revised the forecasts to an improvement of JPY 15 billion in operating income.

Page 17 contains a breakdown by operating segment. As I mentioned earlier, the main factors behind this upward revision resides primarily in the Overseas Convenience Store operations and eliminations and corporate. On the other hand, in light of first half results, we have revised downward the forecast for Superstore operations by JPY 6.8 billion.

Page 18 deals with the revised forecasts of operating income for major operating companies. As I mentioned earlier, in the second half of the fiscal year, we expect an increase in utility expenses of approximately JPY 8 billion at Seven-Eleven Japan. By enhancing various initiatives in the face of such cost increases, we seek to achieve our operating income target through an increase in sales and gross profit margin.

7-Eleven, Inc. will continue carrying out initiatives to enhance fresh food, secure revenue through a strong performance in fuel operations and accelerate cost structural reform. In light of these factors, we have revised upward the operating income forecast.

Taking into account the current business environment Ito-Yokado faced in the first half of the fiscal year, we have revised the forecast downward. Additionally, York-Benimaru is being impacted by a reactionary decrease following an increase in demand for food for home cooking seen in the previous year.

However, in the second half of the fiscal year, we will seek to secure sales and gross profit margin by enhancing private brand and promoting and expanding sales of high value-added merchandise starting with delicatessen. We will also be executing measures to improve productivity. And for these reasons, we have left the forecast unchanged.

This concludes my presentation. I will now be yielding the floor to Mr. Isaka, President and Representative Director, who will be discussing the Seven & i Group's management strategy.

[Ryuichi Isaka, executive]

Greetings, everyone. My name is Isaka, President and Representative Director of Seven & i Holdings. I will be discussing the Seven & i Group's management strategy in line with the management's message we announced back in April.

Back in April, we announced our plans to evolve into a world-class global retailer group, and we are making steady progress towards achieving the targets for the medium-term management plan. We will continue working to further accelerate the execution of medium-term management plan initiatives.

Page 3 summarizes Seven & i Group's assessment of management issues. We will move to execute to the initiatives shown here as soon as possible, allowing us to become a world-class global retailer group. Today, within the management issues shown here, I will be discussing primarily the progress made in accelerating profit growth through domestic and overseas convenience store operations collaboration and strengthening convenience store and superstore operations competitiveness centered on grocery business strategy as well as the policy and outlook going forward.

I will first be discussing our overseas convenience store operations, starting with a progress report on the PMI of Speedway. The EBITDA target for fiscal year 2022 is USD 450 million, and we have made very strong progress toward achieving this target.

In the first half of the fiscal year, we realized synergy benefits of USD 270.5 million, exceeding the forecast by USD 94.5 million. Initiatives related to merchandise sales and margin proceeded according to plan with cost optimization efforts delivering stronger-than-anticipated results in the domain of economies of scale.

We have made strong progress in terms of the PMI of Speedway with synergy realization driving 7-Eleven, Inc's. growth. Going forward, we will continue advancing initiatives toward maximizing synergy effects.

Page 5 discusses our approach and outlook in terms of improvements to operational efficiency to 7-Eleven, Inc. We have established the ratio of selling, general and administrative expenses to total gross profit and the EBITDAR margin as KPIs for cost efficiency and profitability.

While accelerating inflation has led to a business environment characterized by an increase in various costs, this year we newly established a Cost Leadership Committee, reexamining all expenses carried out at 7-Eleven, Inc. and making progress in optimizing costs.

In terms of investment as well, we have raised the hurdle rate and established stricter investment criteria. Thanks to these initiatives, we are confident we can reduce the ratio of selling, general and administrative expenses to total gross profit for fiscal year 2022. And we'll be working towards achieving the target we have set for ourselves for fiscal year 2025.

Additionally, EBITDAR has increased steadily, but sales increased due to higher fuel prices, so we expect the EBITDAR margin to decrease for the full fiscal year 2022. However, we will work to achieve our target for fiscal year 2025 by realizing growth in convenience store operations through merchandise assortment centered primarily around food and through the aforementioned improvements in cost efficiency. We would like to grow not just in terms of scale but also aim to increase management efficiency and deliver sustainable growth.

Starting on Page 6, I will be discussing fuel operations in the U.S. First is a discussion of the market environment for fuel operations in the U.S. The graph on the left shows the trend in U.S. fuel volume and sales price per gallon with the green bars representing fuel volume and the red line representing the trend in sales price.

While fuel volume decreased in 2020 due to the COVID-19 pandemic, 2021 saw a recovery trend, although it still remains at a level lower than in 2019. In terms of sales price, while a decrease in demand in 2020 led to a decrease in price per gallon, in 2021, this number exceeded 2019 levels.

The graph on the right shows the trend in U.S. fuel gross profit amount in cents per gallon with the orange bars representing the trend in fuel gross profit amount and the red line representing the trend in cents per gallon.

Approximately 65% of convenience store operations in the United States are small-scale businesses operating 10 stores or fewer with fuel sales being the main profit source for these companies operating convenience stores.

In case of a decrease in fuel volume, the industry trend is to adjust prices in order to secure acceptable margins. 2021 saw a number of cost increases, giving rise to the need of absorbing these through fuel operations. As a result, the fuel gross profit amount continues trending at relatively elevated levels.

Given the existence of these market mechanisms, a decrease in fuel volume has not translated into a direct decrease in profits. With that being said, we believe that over the medium to long term, there is a need for us to carry out measures to prepare for the widespread adoption of EVs going forward.

Page 7 discusses the adoption status as it pertains to electric vehicles in the United States and the measures to be carried out by 7-Eleven, Inc. within this scope. As we have mentioned repeatedly on past occasions, we believe that the global trend is towards decarbonization and the United States is no exception to this trend.

However, the speed of this shift to EVs is expected to vary by region. So we believe that adapting to these changes requires us to keep a close eye on how things evolve and use that information to guide the measures we execute.

Overall, EV penetration remains low, only at 0.5% in the U.S. However, California residents are said to have a greater degree of awareness when it comes to sustainability matters. And EV penetration stands at 1.6% in the state of California.

In part due to challenges in the procurement of semiconductors and other parts, installation of the 7-Eleven EV port network is running behind schedule. We are currently piloting EV charging infrastructure at 25 stores. For the time being, we will be enhancing our measures to address the shift to electric vehicles while evaluating the results of these pilot tests.

Over the medium to long term, against the backdrop of change in the market environment surrounding fuel operations, we would like to leverage our strengths in the form of fresh food and restaurant operations, which has great synergistic potential combined with EV charging stations and earn patronage from customers. Achieving this requires fresh food. And in the next few slides, I will be discussing our approach toward enhancing and expanding operations in this domain.

Shown here is an example of an initiative carried out in 7-Eleven Hawaii, Inc. 7-Eleven Inc. entered the Hawaiian market in 1990, bringing with us a Japanese approach to merchandise development with support from Warabeya and enhancing fresh food offerings.

As a result of our efforts, fresh food sales contribution to average daily sales per store grew from 16.1% in 1990 to approximately 30% in 2021. This is an increase of approximately 15 percentage points. And additionally, average daily sales increased approximately 3.2 fold during the same period. We have a strong commitment toward carrying out a similar initiative in the North American market.

In 2017, in Dallas and with support from Warabeya, we started executing initiatives to enhance value chain resilience and strengthen fresh food. By leveraging a number of technologies, we manufacture high-quality merchandise in an efficient manner and have expanded the supply of new merchandise.

As a result of this, average daily sales of fresh food in the DFW region have grown by approximately 40% between fiscal year 2020 and the second quarter of fiscal year 2022. Warabeya Commissaries' sales contribution to fresh food sales in the DFW region increased from 10% to 21% and has proved to 7-Eleven, Inc. upper management that strengthening fresh food is a very important factor in terms of contribution to sales.

We are making progress in suggesting the execution of these types of initiatives to be carried out by our existing Mainland North American suppliers. Furthermore, in order to further accelerate these initiatives, we expect a Virginia commissary to go into operation in 2023 and the large-scale commissary in Ohio in 2024, Ohio being the location of Speedway headquarters.

Including the Dallas commissary, upon completion of these projects, we will have infrastructure in the form of new facilities covering approximately 3,400 stores. Through these activities, we are carrying out efforts to expand sales so that the sales ratio for fresh food at 7-Eleven, Inc., which stood at 15% for fiscal year 2021, can grow to reach 25% in fiscal year 2025.

Page 11 deals with the topic of private brand enhancement. Recently, the use of private brand merchandise has been a very effective strategy in countering inflation. For 7-Eleven, Inc. as well, we believe there is plenty of potential for profitability improvements through the development of high-quality private brand merchandise that is priced appropriately.

Private brand merchandise has a gross profit margin that is 22 percentage points higher than of national brand merchandise and the number of merchandise assortment items continues seeing a steady increase. Between fiscal years 2012 and 2021, private brand merchandise sales grew by 426%. This is a significant increase, and we will be realizing further strong growth toward fiscal year 2025.

Page 12 discusses 7-Eleven, Inc's. 7NOW delivery service. We offer 7NOW at approximately 4,400 stores as a service to address changing customer needs in North America. This service allows for inventory checks in real time through one's smartphone and to place orders with a delivery time under 30 minutes.

The addition of Speedway locations means this service now has a footprint coverage corresponding to approximately 95% of the U.S. And we will seek to leverage as a strength this service, through which we deliver in 30 minutes or less an attractive merchandise assortment through quick commerce. As such, within this scope during the current fiscal year, we aim to expand coverage to enable delivery across approximately 6,000 stores.

7NOW delivery sales have grown 11-fold from pre-COVID-19 in the first quarter of 2020. Going forward, we intend to utilize our store network to continue offering high-quality merchandise and services.

Starting on Page 13, I will be discussing Domestic Convenience Store operations. This operating segment has a history of approximately 50 years in Japan. Against this backdrop, the way customers use convenience stores has changed with the times and with changes in social structure. And our operations have a history of adapting to this shifting structure.

Originally, customers visited our stores to purchase fast food, that is food to be consumed immediately like rice balls and boxed lunches. Since then, we have seen social structural changes like declining birth rates and an aging population, greater workforce participation on the part of women, a decrease in the number of households and an increase in the number of single households, et cetera.

In light of these factors, in 2009 we adopted a concept of convenience stores as neighborhood stores offering great convenience, and have enhanced the development of merchandise as table meals and the range of merchandise assortment. Within this scope, we birthed a wide merchandise assortment, including frozen food and pouch delicatessen.

The sales contribution for this type of product went from approximately 5% of sales per day back in 2009 to currently over 10%. The past 2 years saw the further diversification of customer needs with people now looking to buy fresh food and merchandise for home cooking at convenience stores. We believe that it was Seven Premium that drove growth in terms of sales of food often used in home cooking.

Seven Premium has continued to deliver growth since its launch in 2007. This fiscal year, we refined the number of merchandise items and have been executing a renewal plan for approximately 1,200 items. As shown in the pie charts on the bottom right-hand corner, many of the members within Superstore operations are contributing to development within Seven Premium.

In fact, it's not an exaggeration to say that it was the knowledge and expertise from members within Superstore operations that made possible the successful development of 7-Eleven Japan's merchandise assortment supporting home cooking.

This fiscal year, we expect a decrease in the number of merchandise items and the year-on-year sales decrease. But upon the execution of this renewal plan, we intend to once again deliver year-on-year sales growth.

As previously mentioned, by combining 7-Eleven Japan's strengths with the contributions of operating companies within Superstore operations, we seek to maximize the synergies in the category of groceries. We seek to transmit to 7-Eleven, Inc. this expertise pertaining to growth, and then make a reality a continuous chain of value for the Seven & i Group, contributing to global growth.

Toward realizing global expansion, we established the 7-Eleven International LLC. In addition to the aforementioned initiatives centered primarily on food and groceries, this is an organization that seeks to leverage 7-Eleven Japan's strengths and 7-Eleven, Inc.'s brand governance, which has allowed it to protect its brand value over a period of many years, leverage strengths in contract management and the utilization of digital technology. Through these efforts, 7-Eleven International has the objective of enhancing coordination with existing licensees and expanding into new regions.

7-Eleven International's strategy is to enhance the foundation of existing operations and support store operations and development. Second, as a way of offering added value, it seeks to transplant Japan's value chain, making it possible the development of high-quality fresh food.

Additionally, we seek to offer new customer experiences by offering services, leveraging digital technologies like 7NOW and realize profitability improvements. Third, depending on the situation, we would like to carry out capital investment when it is deemed necessary.

The bar graph on Page 17 shows purchasing power parity adjusted average daily sales for 7-Eleven stores around the world. As you can see, average daily sales are high in regions where we have in place the aforementioned value chain of food and groceries. And the gap is widening compared to regions where this value chain is not present. We view average daily sales as the foremost indicator of customer satisfaction.

In July of this year, we carried out a field trip to 7-Eleven stores in Hawaii and to commissaries as well as study sessions. Approximately 70 members participated with members consisting of licensees from several countries, several manufacturers of daily products for the Japanese market and members from 7-Eleven Japan and 7-Eleven, Inc.

Dialogue with licensees underscored even more the high level of interest as it pertains to value chain know-how. Additionally, Japanese manufacturers, as well, deepened their knowledge as it pertains to operating commissaries overseas and have serious aspirations for overseas expansion.

We will seek to leverage the respective strengths of 7-Eleven Japan and 7-Eleven, Inc. to improve value at existing regions and expand into new regions aiming for 50,000 high-quality stores in regions other than Japan and North America by fiscal year 2025. In doing so, we will aim to improve value for the 7-Eleven brand.

Towards achieving improvements in operational efficiencies for Ito-Yokado on a stand-alone basis, we established fiscal year 2022 as the year in which we complete business restructuring and carried out efforts to this end. Progress in store and personnel initiatives has gone according to plan. And we also have plans to define policies for stores under reevaluation this fiscal year as well.

I will be discussing concrete figures at a later date, but I would like to use this opportunity to outline our philosophy and the effects of our growth strategy for Ito-Yokado on a stand-alone basis and improvements in operational efficiency.

The pillars of Ito-Yokado's growth strategy are the utilization of centers by Net supermarkets and the creation of infrastructure, allowing for the supply of high-quality fresh food in an efficient manner. Other pillars are further layout reform at physical stores and reform of MD. We will be starting building the infrastructure necessary for this and carrying out the digital transformation starting in fiscal year 2023.

In terms of our Net supermarkets, we have plans for the start of operations at 2 large-scale centers in fiscal years 2023 and 2024, respectively. In addition to efficiency improvements from this, creating a single sign-on system with Seven & i Group apps in 2023 also has advantages.

For example, 7-Eleven Japan's app has 18 million users. And we have high hopes this sign-on system will make it easy for members to have a stress-free shopping experience at Ito-Yokado's Net supermarket, thereby driving users and traffic to this service.

Central kitchens and process centers are also scheduled to become operational in 2023 and 2024. This will allow for store efficiency improvements and we will additionally aim for an expansion of merchandise assortments and top line improvements.

Furthermore, we seek to integrate food, pharmaceuticals and cosmetics as part of sales floor layout reform, allowing customers to compare products in an efficient manner before making a purchase so that they can review the merchandise assortment, enhancing competitiveness.

When we announced the medium-term management plan, we offered a ROIC target just below consolidated WACC. However, by executing these measures, we will seek to achieve further increases in EBITDA and margin improvements, and first get ROIC as a stand-alone operation to reach a level exceeding the cost of capital.

Last is Page 19, where I would like to once again reiterate the direction of our capital reallocation plan. We will aim to expand operating cash flow by realizing growth for convenience store operations in Japan and the United States. And through the generation of synergies in food and groceries, we will be directing the capital we obtained through the addition of the regular review of the operational portfolio towards strategic investment in growth domains like global convenience store operations and digital transformation.

At the same time, depending on free cash flow levels, we would like to carry out an agile approach to shareholder returns. For example, in the form of buybacks of treasury stock. We will be sharing with investors a concrete overview of the plan, including quantitative elements at the appropriate time.

This concludes today's financial results presentation. Thank you for your time.

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