Seven & i Holdings Co Ltd

TSE:3382

Earnings Call Transcript 2022-Q3

[Yoshimichi Maruyama, executive]

Greetings, everyone. My name is Maruyama, director and Executive Officer at Seven & i Holdings. We ask for your continued support and understanding in 2022 as well. Thank you for taking the time off your busy schedules to participate in today's financial results presentation for the third quarter of fiscal year 2022.

In today's presentation, we will be covering the year-to-date results through to the end of the third quarter and the revision of the full year forecast for fiscal year 2022. First, I will be discussing the year-to-date results through to the end of the third quarter.

Please turn to Page 4. Here is a business overview of the Seven & i Group. The 4 charts show year-on-year change in existing store sales for each business category. The broken lines start in February of 2021 and indicates a comparison with 2 years earlier. In terms of domestic operations in the third quarter, the end of September marked the end of the fifth wave of COVID-19 in Japan. And then the state of emergency that had been in place at nationwide was lifted. This represents a transitory period as we did our best to address changes in consumer psychology and habits resulting from these factors. So we continued facing a challenging situation.

I would now like to direct your attention to the line graph on the upper left corner, showing the results for our Convenience store operations. The orange lines show the results for Seven-Eleven Japan. The business recovery starting in October has proven limited in scope with a year-on-year decrease in sales at existing stores during the third quarter in isolation. The green lines show the results for 7-Eleven, Inc. As in Japan, we executed measures involving merchandise assortment adapted to changes in the way consumers shop at convenience stores as well as a focus on expanding delivery services. These efforts bore fruit, allowing us to continue delivering year-on-year sales growth as well as growth compared to 2 years ago.

I would now like to discuss the line graph on the upper right-hand side of the page, dealing with the Superstore business. We continued seeing strong demand for food products, thanks to stay-at-home demand amidst the prolonged impact of the COVID-19 pandemic on society.

Next is the line graph on the bottom left-hand side of the page, corresponding to the Department store and Specialty store business. The Department store and Specialty store business has been the most affected by the COVID-19 pandemic. The lifting of the state of emergency has translated into a steady recovery trend for this business. But rather than being overly optimistic, we continue executing further improvements to the cost structure and the review of the business model.

Last is the EC business on the bottom right-hand side of the page. This business registered an expansion throughout the COVID-19 pandemic. The light blue lines show the results for [ dart store ] Nishi-Nippori. Ito-Yokado online supermarket. While sales growth has plateaued somewhat starting in the month of October, this business continued delivering year-on-year growth.

Please turn to Page 5. I would now like to discuss the consolidated financial results for the third quarter. Regarding the year-to-date results, through to the end of the third quarter. As I mentioned on the previous page, domestic operations faced a challenging business situation, however, 7-Eleven, Inc. incorporated revenue associated with Speedway and also registered a strong performance at existing stores as a significant sales driver. These factors translated into sales and profit growth. As a result, revenues from operations through to the end of the third quarter stood at JPY 6,144 trillion. This represents a year-on-year increase of 43.8% and an overperformance of 1.3% versus the forecast. Operating income stood at JPY 302.9 billion, a year-on-year increase of 6.1% and an overperformance of 2.0% versus the forecast.

In addition to a significant decrease in special losses associated with the COVID-19 pandemic, a decrease in expenses related to structural reform and impairment losses et cetera, translated into a net income attributable to owners of parent performance of JPY 174.8 billion. This represents a year-on-year increase of 33.5% and an overperformance of 9.4% versus the forecast. These represent a significant recovery. Additionally, EBITDA too stood at JPY 558.5 billion , a year-on-year increase of 16.4%.

Please turn to Page 6. This page discusses year-on-year changes by business segment. In terms of both revenues from operations and operating income, regarding revenues from operations associated with the overseas convenience store business, we registered an increase in merchandise sales at existing SEI stores and an increase in fuel sales volume. Additionally, an increase in revenues associated with Speedway also made a significant contribution.

Next is operating income. While the domestic convenience store business delivered a strong performance through to July, unseasonable weather in August and the lackluster recovery in customer footfall following the lifting of the state of emergency, meant only a slight year-on-year increase in existing store sales. Additionally, a late sales recovery for high-margin products such as deep fried foods and frozen food products translated into a worsening in terms of gross profit margin. These factors translated into a year-on-year decrease in operating income. In the Overseas convenience store business, an increase in merchandise sales and gross profit margin improvement and a significant increase in fuel sales, coupled with the maintenance of high margins for fuel translated into a significant year-on-year increase in operating income.

In the Superstore business, as I mentioned at the beginning, a continued to trend toward the normalization of supply and demand has led to a year-on-year decrease in gross profit margin. In light of this, we also resumed sales promotion activities. These factors translated into a decrease in operating income. On a consolidated basis, we registered a year-on-year increase in operating income of JPY 17.2 billion.

I would now like to discuss the results for each business segment. First are our domestic convenience store operations starting on Page 7, revenues from operations increased by JPY 13.6 billion year-on-year and stood at JPY 661.9 billion. On the other hand, operating income decreased by JPY 5 billion year-on-year and stood at JPY 177.2 billion. EBITDA decreased by JPY 3.4 billion year-on-year and stood at JPY 237 billion.

Please turn to Page 8. Allow me to discuss the results for Seven-Eleven Japan, the main operating company in the domestic convenience store business. Allow me to direct your attention to the graph on the left, which represents the quarterly trend in existing store sales growth and GPM. The graph on the right shows sales, the number of customers and average spending per customer for existing stores on a year-on-year basis.

For the third quarter in isolation, sales as existing stores struggled, registering a year-on-year decrease of 0.8%. GPM on a year-on-year basis, too, decreased by 0.7%. The main factors for these decreases were insufficient merchandise assortments addressing changes in the flow of people following the lifting of the state of emergency and changes in consumer behavior. Another factor was the negative impact of COVID-19 on the procurement of ingredients from overseas, which in turn negatively affected sales. We are aware of this and are currently executing fundamental strategies and initiatives centered around merchandise and merchandise assortment sales promotions and sales areas.

Starting in December, sales have been trending higher. So we are in the process of strengthening initiatives in order to further solidify this trend. We will be discussing these initiatives in greater detail later on in this presentation.

Please turn to Page 9. The graph on the left shows the trend in the year-on-year change in SG&A expenses year-to-date through to the end of the third quarter. Sales promotion efficiency improved following the migration to sales promotions via the 7-Eleven app. This allowed us to greatly reduce advertising expenses. Additionally, we adopted stricter requirements for the opening of new stores and carried out the closure of unprofitable stores. These measures allowed us to curb fixed expenses like land and building rent.

In light of these, while SG&A expenses through to the end of the third quarter grew year-on-year due to special factors, an increase in fuel costs and an increase in fees associated with cashless payments in comparison with 2 years earlier, shows a reduction in SG&A expenses. As a result, as shown on the waterfall chart on the right, Operating income through to the end of the third quarter decreased by JPY 4.9 billion year-on-year to JPY 177 billion. EBITDA stood at JPY 235.7 billion, a year-on-year decrease of 1.4% or JPY 3.3 billion.

Next, starting on Page 10. I would like to discuss our operations in the Overseas Convenience Store business. Revenues from operations increased by JPY 1,834.3 billion year-on-year to JPY 3,520.7 billion. Operating income increased by JPY 44.9 billion year-on-year to JPY 124.7 billion. EBITDA increased by JPY 98.4 billion year-on-year to JPY 256.2 billion.

On Page 11, I would like to discuss changes in the way consumers shop at convenience stores in North America, changes which arose during the COVID-19 pandemic. These are cumulative figures between January and November of 2021. The bar graph on the upper left-hand corner shows sales by time period. Working from home has become a widespread practice leading to sales associated with the warning time period to remain mostly flat compared to fiscal year 2019. On the other hand, as you can see, sales during the lunch and dinner time periods increased in fiscal year 2020 and then registered further growth in fiscal year 2021.

Allow me to direct your attention to the bar graph on the upper right-hand corner, which shows product categories with sales growth. While the amount volume is low for these categories, products consumers would previously purchased at their local supermarket like take-home ice cream, frozen food, et cetera, are now being purchased at convenience stores. We believe this example is illustrative of changes in purchasing habits on the part of consumers when it comes to convenience stores, adopting a two-pronged approach towards addressing these changes, namely in terms of merchandise and merchandise assortment, allowed us to increase average purchase units and the average unit price per item resulting in higher average spending per customer as shown in the vertical bar graph on the bottom left-hand corner. As such, we succeeded in significantly growing APSD for existing stores compared to both fiscal years 2019 and 2020. Simultaneously, there has been a steady improvement in terms of merchandise at GPM.

Please turn to Page 12. The aforementioned changes in the way consumers use convenience stores have also had a positive effect with sales at existing stores, excluding Speedway increasing. Additionally, while Speedway, which by comparison has lower GPM, weigh down on merchandise GPM for the third quarter in isolation. A recovery in customer footfall and improvement in sales of nonalcoholic beverages and fresh fruit products at existing SCI stores contributed to a year-on-year increase in GPM of 0.1 points through to the end of the third quarter.

For the third quarter in isolation, registered a year-on-year decrease of 0.4%. However, for existing SEI stores in isolation, GPM improved by 1.0%. The line graph on the right shows the year-on-year trend in terms of sales, the number of customers and average spending per customer for existing stores. Through to the end of the third quarter, while the number of customers has not returned to fiscal year 2019 levels, average spending per customer has delivered a significant growth of 23.6%.

Sales, too, have grown by 7.7% compared to fiscal year 2019. Additionally, both the number of customers and average spending per customer have increased on a year-on-year basis, with sales growing by 7.0%.

Page 13 discusses the topic of fuel. The graph on the left shows the trend in the price of crude oil while the graph on the right represents the trend in fuel sales volume and gross profit on a per store basis. The WTI crude oil price was on an upward trend in the period between January and September, which corresponds to the period through to the end of the third quarter. However, a recovery in customer footfall and the inclusion of Speedway stores, which have average fuel volume sales, approximately 50% higher than at existing SEI stores translated into a year-on-year increase of 24.6% in fuel sales volume per store. This also represents an increase when compared to fiscal year 2019. Furthermore, fuel gross profit remained at comparatively elevated levels, delivering a year-on-year improvement in cents per gallon of JPY 0.024. As a result, fuel gross profit through to the end of the third quarter increased by USD 1.16 billion year-on-year.

Please turn to Page 14. In light of the aforementioned factors, year-to-date operating income for SEI through to the end of the third quarter was as follows. In addition to a positive effect resulting from an increase in merchandise sales at existing SEI stores, a higher profit contribution on the part of Speedway translated into a year-on-year increase of JPY 71.5 billion. Operating income, therefore, stood at JPY 167.1 billion and performance exceeding both plan as initially announced back in July and the revised plan announced in October. Additionally, EBITDA stood at JPY 251.2 billion, a year-on-year increase of 60.5% or JPY 94.7 billion.

Please turn to Page 15 and which contains the breakdown of the results for existing SEI stores, including and excluding Speedway for the period through to the end of the third quarter. The results for Speedway are included for the period between May 14 and September 30. Merchandise APSD for Speedway stood at USD 5,556, greater than the USD 5,517 at existing SEI stores. However, the results for existing SEI stores include the results for the first quarter, which is characterized by lower merchandise APSD on account of seasonality factors. As such, for the third quarter in isolation, merchandise APSD is actually higher at existing SEI stores. On a comparative basis, Speedway has lower merchandise gross profit margins. As such, incorporating Speedway weighed down on GPM. However, GPM improvements at existing SEI stores translated into a year-on-year improvement of 0.1% for SEI as a whole. Thanks to store size and superior locations, fuel gallons sold per day per store for Speedway were approximately 50% greater than for existing SEI stores.

Existing SEI stores saw an increase in merchandise sales and improvements in GPM. And this translated into a significant year-on-year increase of 18.1% in operating income on a U.S. dollar basis. Furthermore, the contribution to consolidated results excluding amounts associated with the amortization of goodwill in the third quarter stood at JPY 25.8 billion for Speedway and at JPY 97.4 billion for existing SEI stores. Lastly, SEI total contribution was JPY 123.2 billion.

Page 16 deals with the Superstore business. Revenues from operations increased by JPY 6.7 billion year-on-year to JPY 1,337 billion. However, operating income decreased by JPY 9.7 billion year-on-year to JPY 10.1 billion. Lastly, EBITDA decreased by JPY 8.5 billion year-on-year to JPY 33.6 billion.

Page 17 shows year-on-year change of operating income for the main operating companies in the Superstore business segment. Last year, we curbed sales promotion activities against the backdrop of the COVID-19 pandemic. However, in the current fiscal year, we have since resumed these activities. Additionally, last fiscal year, we were able to classify fixed expenses as special losses from temporary store closures. So we registered a reactionary move in the opposite direction. These factors translated into a year-on-year decrease in operating income at our domestic operating companies. Furthermore, in addition to these, another factor leading to a year-on-year decrease in operating income at Ito-Yokado was the fact that the company incurred SG&A expenses associated with the institutionalization of its human resources strategy within the scope of structural reform efforts.

Excluding these special factors, structural reform efforts are steadily starting to bear fruit. Compared to 2 years ago, we registered sales growth at our food supermarkets. However, as I mentioned at the beginning, a trend toward the normalization of supply and demand has translated into a worsening in GPM resulting in a decrease in operating income. In the fourth quarter and toward next fiscal year, we will improve our merchandise assortment and services to meet the needs of the commercial areas we serve. At the same time, we will be working to improve management efficiency, thereby achieving better business results.

Page 18 deals with the Department and Specialty Store business segments. Revenues from operations increased by JPY 18.7 billion year-on-year to JPY 510.2 billion. While we registered an improvement of JPY 4.5 billion year-on-year, we still registered an operating loss of JPY 10.2 billion. Lastly, while we registered an improvement of JPY 4.3 billion year-on-year, we still registered a negative EBITDA of JPY 800 million.

Page 19 shows year-on-year change of operating income for the main operating companies in the Department and Specialties Store business segment. We registered a year-on-year improvement of JPY 4.5 billion in this business segment. This business segment has been particularly affected by the COVID-19 pandemic and the climate of uncertainty remains. Last year, starting with Sogo & Seibu, we were able to classify a large amount in fixed expenses as special losses from temporary store closures. So we saw a reactionary move in the opposite direction this year. With that being said, we have been able to improve losses.

In addition to our recovery in customer footfall, we believe this was thanks to advances in terms of improvements in management efficiency at the operating companies that make up this business segment.

Next, I would like to discuss a revision to the full year forecast. Page 21 contains the revised consolidated financial results forecast. In light of the results for the third quarter and the latest forecast for the fourth quarter, we have decided to raise guidance compared to the revised forecast announced in October. The group's total sales forecast has been raised by JPY 414 billion, and so has the revenues from operations forecast by JPY 413 billion.

In terms of profit, the operating and ordinary income forecast have been raised by JPY 20 billion and JPY 25 billion, respectively. The net income attributable to owners of parent forecast, too, has been raised by JPY 25 billion. In light of this, we have also raised the EPS and EBITDA guidance. Furthermore, starting in the third quarter and going forward, we now list EPS before the amortization of goodwill alongside the regular metric of EPS. So we invite you to peruse the table shown on Page 21.

I would now like to discuss the revised forecast for each business segment on Page 22. This page contains the revised forecast of revenues from operations by business segment. We have raised guidance for consolidated revenues from operations by JPY 413 billion, primarily against the backdrop of a strong performance associated with 7-Eleven, Inc. in the overseas convenience store business. The forecast for which we raised by JPY 439 billion.

Page 23 contains the revised forecast of operating income by business segment. The revisions are as listed on the table, but allow me to discuss each major operating company on the next slide.

Please turn to Page 24. Allow me to discuss the forecast for the major operating companies that make up the Seven & i Group. We have revised the existing store sales growth forecast to Seven-Eleven Japan to 1.1% and the merchandise GPM variance to negative 0.3%. Lastly, the operating income forecast has been lowered by JPY 16 billion to JPY 229 billion. Both existing store sales growth and merchandise GPM for 7-Eleven, Inc. have been showing results exceeding the forecast announced at the end of the first half of the fiscal year. In light of this, we have also raised guidance for the full fiscal year as well. The operating income forecast has been raised by JPY 33.1 billion to JPY 224.8 billion.

The revision to the forecast for Ito-Yokado and York-Benimaru are as follows. Taking into account the results through to the end of the third quarter, we have revised the existing store sales growth forecast for Ito-Yokado and both the existing store sales growth and merchandise GPM variance forecasts for York-Benimaru. However, the operating income forecast remains unchanged for both companies on account of the curbing of SG&A expenses, among other factors. Regarding Sogo & Seibu in light of a sales improvement deriving from recovery in customer footfall following the lifting of the state of emergency in October, we have raised the existing store sales growth forecast and also the operating income forecast by JPY 1.4 billion.

Starting on Page 25, Fumihiko Nagamatsu will be discussing Seven-Eleven Japan, for which we have lowered the full fiscal year forecast and which we believe is a source of concern for stakeholders. Mr. Nagamatsu, President of Seven-Eleven Japan, will be discussing the issues currently facing the company and solutions to address these. Additionally, he will be addressing the policy and strategy going forward within the context of the duration of the COVID-19 pandemic. I would now like to yield the floor to Mr. Nagamatsu.

[Fumihiko Nagamatsu, executive]

My name is Nagamatsu, President of Seven-Eleven Japan. Thank you for your continued support and understanding. I would like to use this opportunity to discuss the issues currently facing the company as well as solutions to address these.

First, allow me to direct your attention to the left-hand side of the page. Issues with the supply of chicken meat were an internal factor leading to a decrease in sales and gross profit in the third quarter. The supply chain for chicken products is located in Southeast Asia with plants supplying chicken for use in our products completely shutting down due to the COVID-19 pandemic. This was 1 of the factors, and I believe this underscored weaknesses in our approach to the supply chain on a daily operational basis. We lost access to the supply of chicken meat for use in 5 deep fried to food products in the category of fast food. Sales and profits for which are concentrated, especially during the fall and winter months.

Ingredients were also not available for 4 chicken product in the category of frozen foods which have registered strong sales over an extended period of time. These supply issues caused a downward pressure on sales of 1%.

In the category of deep fried products, supply for Nana chiki has resumed at all stores. Regarding the remaining 4 products, supply has not yet resumed across all stores. Although we expect this process to be completed by the end of March. In the category of frozen foods as well, supply is being resumed step-by-step with a time line for a full resumption by April.

I would now like to discuss external factors as shown on the right-hand side of the page. We divide 7-Eleven stores into 3 types of store locations: residential represented by the green line, suburban and intercity. Previously, we would refer to suburban locations as holiday or entertainment district locations. However, there has been an increase in consumption in suburban areas on the part of consumers from those areas so we refer to these as suburban locations. Additionally, we would refer to inner city stores as office locations. But here too, there has been an increase in demand from consumers living in inner city areas. So we have changed the naming convention.

During this fall and winter, in particular, despite the lifting of the state of emergency, not many people rushed to holiday or entertainment district locations. Last year, campaigns like the go-to campaign were in effect. So by comparison, the recovery was rather insufficient this year. On the other hand, while still lower than 2019 levels, inner city locations staged a significant year-on-year recovery rather than carrying out store operations overly dependent on people flows. We would like to have a structure allowing us to properly address demand on special days and offer merchandise assortments adapted to each location type. We are aware of these as pressing issues and needs.

Please turn to Page 26 and which features 1 of our countermeasures to address these issues. There has been a very significant increase in demand for one-stop shopping. So we would like to address these. One way we intend to do this is by increasing the number of items offered at our stores. We have increased the number of items by approximately 300 currently at approximately 6,700 stores and adds 10,000 stores by the end of the current fiscal year. By the end of the first half of next fiscal year, we expect to be able to increase this number to 15,000 stores.

The purpose of this is to reduce our dependence on people flows as we would like to build our stores as to be able to address the needs of customers visiting for the purpose of buying a specific product. Within this context, we have, for example, the initiative of vegetables with traceability, we leveraged our strengths as an operational group in the domain of distribution to introduce Ito-Yokado's vegetables with traceability initiative at 1,600 locations. This number is expected to grow to 4,700 locations next fiscal year. Offering vegetables, a product we had not offered before means consumers now visit our stores to purchase these. Additionally, particularly worthy of note is the fact that the number of items purchased is on the rise.

We also leverage our position as an operational group to integrate the Loft products as shown at the bottom of the page, particularly in urban and metropolitan areas. Furthermore, we offer DAISO products in order to address the needs of the price-conscious consumer. We offer these in the form of either 4 shelves deployment or 3 gondolas deployment. Regarding the former, we are making preparations to offer these at 20,000 stores next fiscal year, 10,000 stores during the current fiscal year.

In terms of the Loft products, we conducted trials by offering these at 20, 30 stores in urban and metropolitan locations. The results have been very positive so we will be expanding this initiative to 400 select stores. People spend more time at home and this sustained home demand comes in the form of a desire to purchase premium grade food products. In light of this, we would like to focus on taste and quality and choose commensurate price points following a premium special, regular ranking system. An example of this is a special rice ball salty grilled red salmon retailing for JPY 198 and which has been a best seller.

The unit price for this product category of special rice balls and the number of items per purchase has increased. The sales amount has also gone up. We have many similar examples across a variety of product categories like, for example, retort pouch curry products. So we would like to expand these initiatives.

Next is Page 27, which deals with Seven-Eleven Japan's overall approach. People flows are in the process of returning to a normal although we are now faced with the new Omicron variant of COVID-19. In early fall, the trend was to carry out holiday and recreational activities in small groups like families, as opposed to large groups. This presents a very challenging situation for stores with a business model dependent on customer footfall and flows. The need is, therefore, to build stores that customers visit with a purpose so that they make the conscious decision of: "Let's go to SEVEN." To achieve this, we will be executing initiatives in terms of merchandise and assortment sales promotion and the sales area.

In addition to the aforementioned high value-added merchandise, we also have plans to make available event merchandise on a monthly basis going forward. Our Hokkaido fares started on the 11th of January, and things have been going very well. We will be running a television advertisement campaign starting today. So we believe that we will be able to reap even more positive results.

Together with merchandise and assortment, we will be executing sales promotion as a way to attract customers to our stores. We will also make robust efforts to build attractive and effective sales areas within our stores. Lastly, staff will take a proactive approach toward interacting with customers in order to foster sales.

Starting in January, we are, therefore, integrating merchandise assortment, sales promotion and store operations. On Christmas Eve, in particular, we were able to reach a new sales record since the year 2000. In this day and age, consumers want to spend special days at home so Those are the needs that they want 7-Eleven stores to address. In December 2021, we were able to prove that record sales can be achieved by offering a merchandise assortment capable of adequately addressing these needs. We will be continuing these efforts with an Asian fair planned for the month of February 2022.

In addition to this, as shown at the bottom of the page, we will also be improving efficiency utilizing DX. We have started tests for self-service registers and smartphone registers. Reducing the need for manpower isn't the sole goal of these initiatives as we would like store personnel to make use of time savings in order to take a proactive approach to sales activities. Within this context, we intend to offer curry bread in the category of fast food at 15,000 stores by May of this year. Another product is smoothies. We are testing out this product and will aim to offer it at 5,000 stores by fall of 2022 following improvements.

Another topic, as shown on the bottom right, is online convenience store initiatives. We will be expanding these to 1,200 stores during the current fiscal year. Initially, heavy items like soft drinks sold well. However, now it's ready to eat items like deep fried products or oden. We have been seeing very strong sales for these types of products.

An example, I believe, is very illustrative is the recent airing of the TV show [ Job Toon ] with consumers actually ordering in real time, the products featured on the broadcast, our online convenience store initiatives make this kind of thing a reality and we would like to raise the experiential value of new customers going forward. Through this, we would like to grow sales during the remaining 2 months of the current fiscal year and into next year. This concludes my presentation.

[Yoshimichi Maruyama, executive]

This is once again Maruyama speaking. Please turn to Page 28, which discusses the topic of financing for the acquisition of Speedway. As previously mentioned, against the backdrop of a strong performance from 7-Eleven, Inc., we have already carried out to the repayment of USD 1.5 billion in bond issues and USD 1 billion in borrowings for a total of USD 2.5 billion. We would, therefore, like to convey to stakeholders that we are making robust progress toward restoring financial soundness.

Additionally, the group obtained a large portion of its financing at non-variable interest rates with interest rates themselves at historic lows. As such, we believe the impact from expected future rate hikes to be limited. In light of this, we decided to review the planned decision to execute a sale leaseback transaction as part of the group's financing operations.

Please turn to Page 29. In July of 2021, we announced a reduction in the planned amount associated with sale leaseback to be carried out as part of the financing for the acquisition of Speedway from an initial amount of USD 5 billion to USD 3 billion. This was a result of a decrease in financing costs. And we announced the first quarter of fiscal year 2022 as the implementation period.

However, following this announcement, we continued reviewing the adequacy of our SLB transaction. In light of the strong performance at existing SEI stores and strong progress in terms of PMI for Speedway. These factors allowed us to confirm the creation of synergies right from the early stages and consequently, we have decided to cancel the implementation of sale leaseback. We are hopeful that this will translate into a further improvement to cash flow and improved financial results. Furthermore, even canceling the sale leaseback transaction, we believe we can still follow the planned schedule for the repayment of interest-bearing debt.

Next, please turn to Page 30, which discusses the financial KPIs for the full fiscal year, which we announced in July of 2021. Allow me to discuss the various outlooks and progress status premised on the results forecast for fiscal year 2022. First, the EBITDA forecast is JPY 759.6 billion and expected overperformance of just over JPY 20 billion versus the original plan. Additionally, we expect operating cash flow, excluding the financial business of JPY 690.2 billion, a level of growth significantly exceeding growth in terms of EBITDA. This is primarily the result of tax benefits associated with the acquisition of Speedway.

On the other hand, we expect CapEx, excluding M&A, to fall significantly short of the target outlined in the original plan. As a result of this, we forecast the free cash flow level, excluding the financial business at JPY 305 billion, a significant increase. This is in part to the result of stricter investment criteria. However, there has been a delay in investments caused primarily by the COVID-19 pandemic in the Convenience Store business in Japan and overseas. For this reason, we chose to represent the progress status with a single-line circle.

As I mentioned earlier, we are expecting a significant net income over performance versus the plan. As such, we believe ROE, ROIC and EPS too will significantly exceed the plan. Going forward, we will continue carrying out adequate measures to further enhance initiatives towards achieving the targets set forth in the medium-term management plan. At the same time, we will be reporting on the progress status of these initiatives on a timely and accurate basis. For this reason, I request your continued support and understanding.

This concludes today's presentation. Thank you for listening.

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