Seven & i Holdings Co Ltd

TSE:3382

Earnings Call Transcript 2022-Q4

[Yoshimichi Maruyama, executive]

Greetings, everyone. My name is Maruyama, Director and Managing Executive Officer at Seven & i Holdings. I will be discussing the fiscal year 2022 results as well as the fiscal year 2023 forecast. We have a large number of items in today's agenda. So for the sake of brevity, allow me to present you with the relevant highlights.

I will be starting with the fiscal year 2022 results. Please turn to Page 4. I will be discussing the fiscal year 2022 consolidated financial results highlights. In fiscal year 2022, we continued to challenge ourselves to address significant changes in consumption behavior against the backdrop of the prolonged impact of the COVID-19 pandemic and changes to the economic climate.

In addition to the incorporation of revenue associated with Speedway, a strong performance at existing premerger 7-Eleven, Inc. stores also significantly drove overall growth, allowing us to grow both sales and profits. As announced together with the results for the third quarter, we raised the full fiscal year guidance.

Regarding the revised guidance, our domestic operating companies struggled due to the impact from an increase in the number of cases prompted by the spread of the Omicron variant starting in January of this year. Additionally, soaring raw material costs and higher prices for utilities negatively affected operations. As a result, we fell short of the profits target. However, we are making steady progress towards achieving the targets for the medium-term management plan.

Revenues from operations stood at JPY 8,749.7 billion for a year-on-year increase of 51.7%. Operating income stood at JPY 387.6 billion for a year-on-year increase of 5.8%. Structural reform progressed with a decrease in structural reform expenses and impairment losses. Additionally, special losses related to the COVID-19 pandemic also decreased, leading to a significant improvement in special losses. As such, while this number fell slightly short of the revised forecast, net income attributable to owners of parent improved significantly and stood at JPY 210.7 billion for a year-on-year increase of 17.6%. Furthermore, EBITDA stood at JPY 751.4 billion for a year-on-year increase of 19.9%.

Please turn to Page 5. Shown here are KPIs for each of the 4 main operating segments, namely EBITDA, which is a quantitative growth indicator; and ROIC, which is an efficiency indicator; as well as the growth percentage for revenues from operations, which forms the base of this.

In fiscal year 2022, EBITDA for the domestic convenience store operations segment exceeded JPY 300 billion with ROIC coming in at 18.2%. As such, while both the scale and efficiency remained at elevated levels, initiatives towards regrowth remain a challenge that needs to be addressed. We struggled due to a slow response in addressing changes in consumer behavior in the third quarter, and this became an opportunity for us to review our strategy towards regrowth. In addition to the evolution of existing businesses, we will also challenge ourselves in terms of initiatives to achieve innovation.

Regarding overseas convenience store operations, we registered the positive effects of the integration of Speedway of merchandise sales growth at existing premerger SEI stores, improvements in GPM and an increase in revenues from the fuel business. These translated into a significant increase in EBITDA and growth rates. In the near term, we will accelerate the repayment of interest-bearing debt, which had increased significantly as a result of the acquisition of Speedway. Through this, we will work to improve capital efficiency.

Regarding superstore operations, especially at Ito-Yokado, we seek to complete structural reform during fiscal year 2023, which we have been carrying out to improve efficiency and growth. Beyond that, we will be focusing on further improvements in efficiency and initiatives toward growth. Additionally, this business segment plays a central role in the group's food strategy. So we will be enhancing initiatives that will increasingly contribute to growing corporate value in terms of product procurement and development.

Regarding department and specialty store operations, this operating segment struggled against the backdrop of a challenging business environment brought about by the COVID-19 pandemic. Based on our approach to the business portfolio, we will be accelerating the strategy of selection and concentration towards increasing corporate value.

In fiscal year 2022, we completed the partial sale of Francfranc's shares as well as the full sale of Oshman's Japan. Regarding Sogo & Seibu, we are carrying out a strategic review.

Please turn to Page 6. I will be discussing the financial KPIs for the MTMP, which we announced in July of 2021 and the progress of the initiatives as of the end of fiscal year 2022. A surge in COVID-19 cases in January and February, resulting from the spread of the Omicron variant, impacted the Seven & i Group not just at the profit level, but also in terms of the balance sheet and cash flow.

As you can see, operating cash flow fell slightly short of the forecast, coming in at JPY 630.8 billion. In particular, in light of the sales situation resulting from the Omicron variant in January and February, with limited merchandise volume. This led to a decrease in accounts payable as of the end of the fiscal year compared to the plan. This, in turn, led to profit levels exceeding the original plan. However, operating cash flow fell slightly below the plan.

While free cash flow exceeded the plan by JPY 105.8 billion, this was heavily influenced by the fact that CapEx remained at low levels compared to the plan. As such, we evaluate the progress in this area with a single circle icon as opposed to a double circle icon. While these were impacted by a weaker yen, an overperformance in net income and in the repayment of interest-bearing debt allowed us to exceed the plan for ROE and ROIC. However, the foreign exchange rate as of the end of the fiscal year moved significantly toward a weaker yen compared to the average value during the fiscal year. As such, while the repayment of interest-bearing debt exceeded the plan, debt-to-EBITDA ratio results were unable to exceed the level within the plan.

Next is the fiscal year 2023 forecast. Please turn to Page 8. Before discussing the fiscal year 2023 forecast, I would like to summarize the seismic changes that have been seen in the external environment. As of last July, when we announced the new MTMP, we were already aware of changes in the social structure as well as changes brought about by COVID-19. However, we are currently faced with global inflation. This is especially true in the domestic market in terms of soaring raw material costs as well as utilities costs resulting from surging energy prices. Furthermore, there have been seismic changes in consumer psychology as a result of the COVID-19 pandemic. Within this external environment, the outlook going forward is even more uncertain than before.

Now allow me to discuss the fiscal year 2023 forecast keeping in mind the factors and backdrop I just mentioned. Page 9 contains the consolidated financial results forecast. We adopted a new accounting standard for revenue recognition starting in the current fiscal year. This translates primarily to changes to sales and revenues from operations. As such, for reference purposes, we include gross revenues from operations according to the previous standard.

Among other factors, Speedway will be making a full contribution. So we expect a year-on-year increase in revenues from operations on a new accounting standards basis of 10.3% for an increase of JPY 903.2 billion. Using the previous accounting standard, we expect a year-on-year increase of 18.6%, for an increase of JPY 1,624.2 billion.

The operating income forecast is of JPY 430 billion for a year-on-year increase of 10.9%. For net income attributable to owners of parent, we expect JPY 240 billion for a year-on-year increase of 13.9%. We expect EPS before the amortization of goodwill of JPY 381.72 for a year-on-year increase of 19.5%. The EBITDA forecast is of JPY 882.3 billion for a year-on-year increase of 17.4%. We are, therefore, expecting a significant increase.

Page 10 contains a breakdown of the revenues from operations and operating income forecasts on a per segment basis. Furthermore, the new accounting standard forms the basis for the revenues from operations figures shown here. For a comparison with the figures using the previous accounting standard, please refer to the appendix materials on Page 37.

On a consolidated basis, the forecast for revenues from operations is JPY 9,653 billion. We estimate the negative impact resulting from the adoption of the accounting standard for revenue recognition at JPY 721 billion. However, we will be incorporating the results from Speedway for 4.5 months longer than in the previous fiscal year and realizing merchandise sales growth from existing premerger SEI stores.

As such, revenues from operations in the overseas convenience store business are expected to increase by JPY 1,455.6 billion. As such, even according to the new accounting standard, we expect to grow consolidated revenues from operations by JPY 903.2 billion. We expect overseas convenience store operations to drive total consolidated operating income growth growing by JPY 42.3 billion year-on-year to JPY 430 billion.

Later, I will be discussing Seven-Eleven Japan's vision toward regrowth and initiatives at 7-Eleven, Inc. Additionally, we are forecasting an operating loss of JPY 77.3 billion from eliminations and corporate. We expect this loss to expand on a year-on-year basis, and I will be discussing the reason behind this later on.

Please turn to Page 11. I will be discussing the financial results forecast of our major operating companies. Year-on-year, the existing store sales growth forecast for Seven-Eleven Japan is 2.5%, with merchandise GPM variance of 0.2% to the upside. We expect operating income to increase by JPY 6.9 billion to JPY 230 billion. I will be discussing these later, but new initiatives we carried out are already bearing fruit starting in March, and things are progressing according to plan.

Regarding 7-Eleven, Inc., it will be benefiting from the positive effect of synergies with Speedway, and we expect significant growth in terms of existing store sales and merchandise GPM. As a result, we expect an operating income growth of JPY 80.8 billion to JPY 305.7 billion as SEI makes a powerful contribution to growth for the overall Seven & i Group.

Regarding the forecast for Ito-Yokado, it is premised on some degree of improvement in terms of the number of COVID-19 cases. As such, we anticipate an improvement in existing store sales and merchandise GPM. However, in light of the negative impact of a surge in the cost of utilities and of raw materials, we are forecasting JPY 4 billion in operating income or a year-on-year increase of JPY 2.3 billion.

Regarding York-Benimaru, at the start of fiscal year 2023, we carried out the merger of Life Foods, which was a delicatessen manufacturer in one of our subsidiaries. We therefore expect a significant improvement in GPM. As such, the operating income forecast is JPY 19 billion for a year-on-year increase of JPY 4.2 billion.

Regarding Sogo & Seibu, we are expecting a recovery from the current elevated number of overall COVID-19 cases in Japan. Additionally, the merger with Seven & i Asset Management Company Limited, which owned the real estate assets for our Seibu Ikebukuro location has the benefit of reducing rent costs. As such, we are forecasting a year-on-year increase in operating income of JPY 6.5 billion to JPY 3 billion.

Please turn to Page 12. Starting on Page 12, I will be discussing our vision toward regrowth for Seven-Eleven Japan, which is a significant growth business for the Seven & i Group. Over this extended period of time, corresponding to the ongoing COVID-19 pandemic, we have been making up for a decrease in the number of customers with an increase in average spending per customer. We view our recovery in the number of customers as a top priority. And simultaneously, we would like to maintain average spending per customer at the current elevated levels or even increase this even further. As such, we will aim for sales growth by responding to various customer needs.

In order to achieve this, we will be linking up the assortment of high value-added merchandise with sales promotion. And through this, putting in place a sustained motivation for consumers to make the decision of Let's go to 7-Eleven. At the same time, through the expansion of the 7NOW online convenience store service, we will be carrying out to new customer acquisitions and accelerate initiatives toward innovation, such as growing businesses, leveraging purchasing data possessed by the Seven & i Group.

Naturally, we also view as indispensable an extensive merchandise assortment addressing diverse needs as a factor supporting growth for physical stores and for 7NOW. So we are carrying out initiatives to this end. Furthermore, regarding the nationwide expansion of 7NOW, the test initiatives we have carried out up to this point revealed the ability to grow sales and secure profits. As such, we would like to provide a new customer experience on a nationwide basis, starting 1 year ahead of schedule in fiscal year 2026. By making progress in these initiatives, we will be advancing to a new growth stage for 7-Eleven.

On Page 13, I will be discussing initiatives for further growth for 7-Eleven, Inc. We have been working for some time on delivering an exclusive merchandise assortment. Quality improvements centered primarily around fresh food allowed us to grow sales for this category by 14.5% year-on-year in 2021. We also carried out similar initiatives to enhance merchandise assortment of proprietary beverages and our private brand, and these efforts have borne fruit.

Team MD forms a supporting base for this, and we have plans to expand this to Florida, Seattle and Chicago in fiscal year 2022. In the first half of fiscal year 2023, we are partnering up with Warabeya Texas for the beginning of operations of a large-scale distribution center with commissary plants. We have high hopes that through these, we will have a system in place allowing for the delivery to a greater number of stores of products of even greater quality in an even more efficient manner.

Regarding digital technology utilization, we possess a member base of over 70 million people combining 7Rewards and Speedy Rewards loyalty program members. Going forward, we will be growing the number of active members by further improving a variety of services.

Our 7NOW delivery service is now available at approximately 4,000 stores, and this service has shown a very strong growth rate of 47.3%. Through the integration of Speedway, more than 50% of the nation's population live in areas within approximately 2 miles from our stores. We will be leveraging this powerful store foundation to incorporate delivery needs rather than waiting for customers to visit our stores. Through this, we will be growing the composition ratio of delivery sales to total sales.

Last is the restaurant business, a defining characteristic of which is the high APSD and the GP rate. We will be enhancing operational systems and offer high-quality products in a stable and efficient manner. Through this, we believe there is potential for further growth.

Furthermore, in anticipation of the shift to EVs, we also have hopes for these services as a way for customers to spend time in a pleasant way as they wait for their vehicles to charge.

Please turn to Page 14. I will be discussing the expected synergy with Speedway for fiscal year 2022. As we have mentioned on previous occasions, projected synergies in the third year stand at between USD 600 million and USD 650 million. Realized results for fiscal year 2021 greatly exceeded the initial forecast. And in light of this, in fiscal year 2022, we expect to reach synergies of USD 450 million, corresponding to approximately 70% of the target for the third year.

There are no significant changes to the structural composition as we intend to promote an expansion of merchandise assortments at Speedway stores, including the introduction of private brands and the expansion of in-store cooking to approximately 1,200 stores. By accelerating these initiatives, we will be focusing on unlocking synergy effects greatly exceeding the initial forecast as soon as possible, primarily centered around merchandise.

Next, please turn to Page 15, which deals with the aforementioned negative impact on operating income of elimination and corporate expenses. This impact is expected to increase in fiscal year 2023, significantly on account of expenses for our group strategy. And I would like to discuss these factors.

A major factor is a year-on-year increase of JPY 15.3 billion in DX expenses, within expenses for our group strategy as well as an increase of JPY 6.8 billion in expenses related to security and system development.

In terms of the major initiatives related to DX, this pertains to the further development of our delivery business in Japan by building up our last-mile DX platform. The operation of our online convenience store, 7NOW, has allowed us to have this system in place. However, we will be further evolving this framework through the use of AI and other means to improve operational efficiency and sophistication. Furthermore, to expand customer contacts, we will develop a group-wide platform for 7iD member data so that it can be used in a variety of future initiatives.

In order to achieve seamless interoperability and access among websites and apps within the Seven & i Group ecosystem, we will offer a single unified sign-up framework, so that we can execute these initiatives in a safe manner. We are working to reinforce a group common platform and security in order to further enhance our defenses against cyber attacks and incident response capabilities.

Additionally, Seven & i Holdings consigns system maintenance and operation for some of its operating companies, and this includes system development costs associated with addressing the so-called 2025 Digital Cliff. As we mentioned last July at the time of the announcement of the new MTMP, we expect to reap in earnest the fruits of the various initiatives based on our group strategy toward the latter half of the MTMP period or perhaps after that. For this reason, we request your understanding that the burden of this anticipatory investment will be felt during this fiscal year and the next.

On Page 16, I will be discussing future business opportunities through the utilization of 7iD's system platform. Please turn to Page 16. 7iD is a common ID system for the Seven & i Group and boasts approximately 23 million members. We believe we can accumulate very valuable consumer data from purchases at over 21,000 7-Eleven stores nationwide in Japan as well as other stores like Ito-Yokado, both in terms of quality as well as quantity.

First, by leveraging this data to carry out one-to-one marketing, we seek to better understand our customers and further expand contacts with each individual customer and grow both stores and online services. Additionally, we are carrying out research from a variety of perspectives such as the pursuit of new business opportunities with the group platform as advertising value. Furthermore, we have hopes for a variety of new initiatives, including making inroads into new businesses by offering access to the 7iD system platform to players outside the Seven & i Group. As such, we would like to make capital investment decisions based on a long-term perspective.

Please turn to Page 17, where I will be discussing the progress outlook for the consolidated financial KPIs based on the plan for fiscal year 2023. We expect cash-generating capabilities for EBITDA to grow further, especially centered around the overseas convenience store operations. EBITDA is, therefore, expected to increase by JPY 130.8 billion year-on-year to JPY 882.3 billion. We expect net income to grow by JPY 29.2 billion year-on-year to JPY 240 billion. So we anticipate an improvement of 0.4% and JPY 33 for ROE and EPS, respectively.

We will be accelerating the repayment of interest-bearing debt, improving the debt-to-EBITDA ratio and bringing it below 3x, to 2.9x to be precise, as we will work toward achieving a recovery to financial health and soundness as soon as possible.

Please turn to Page 18. Last is shareholder returns. As we have mentioned in the past, the Seven & i Group's basic shareholder return policy is based on the stable and continuous improvement of dividends per share and on implementing flexible shareholder returns, taking into account the level of free cash flow and stock prices. The dividend forecast for fiscal year 2023 is of a year-on-year dividend increase of JPY 3 per share to JPY 103 per share. However, based on our basic policy, we will be adopting a flexible approach, depending on how things evolve.

This concludes my presentation. Thank you for your time.

[Ryuichi Isaka, executive]

Greetings, everyone. My name is Isaka, President and Representative Director of Seven & i Holdings. I would like to start by expressing my sincerest appreciation for your continued support and understanding regarding our operating activities.

Today, based on an unanimous decision by the Board of Directors, we announced a management message titled to become a world-class global retailer group, directed at Seven & i Holdings shareholders and to all stakeholders. We invite you to refer to the press release for more detail, but allow me to discuss the main highlights in the order outlined in the presentation materials.

Today's agenda consists of the 4 points shown here. First is our corporate vision. Please turn to Page 4. Since its founding in the 1920s, the Seven & i Group has been consistent in upholding our aim to be a sincere company that all stakeholders trust, namely our customers, business partners, shareholders, local communities and employees. This forms our corporate creed. This was born from our experience and has been a facet we have held steadfast to over the years. It forms the premise of our management that aims to answer the trust and support on the part of stakeholders.

The Board of Directors carried out a series of discussions regarding the basic group stance premised on this corporate creed and the ideal group image for 2030 toward the announcement of the new MTMP in July of last year. We would like to continue advancing a constructive dialogue with shareholders and incorporate the feedback from our diverse stakeholder base and achieve sustainable growth for our group and the improvement of corporate value over the medium to long term. This year, we have already carried out a number of dialogue meetings with shareholders and outside directors have taken part in some of these discussions.

We released this letter today with the objective of communicating to our shareholders and all stakeholders the current status of our group's operations and the philosophy going forward, including the results of these discussions.

Next, I will be discussing recent developments. Please turn to Page 6. In July of last year, the Seven & i Group released its new MTMP. Within the MTMP, by having each operating company execute initiatives in an integrated manner, we seek to achieve sustainable growth. At the same time, we also aim to promote the provision of social value. Additionally, we carried out the acquisition of Speedway through our overseas subsidiary of 7-Eleven, Inc. and are executing various strategies and initiatives towards becoming a world-class global retailer group.

On the other hand, we will be taking decisive action to implement comprehensive policies at major areas that require structural transformation. At the same time, for businesses for which we deem it difficult to continue carrying out within the Seven & i Group, initiatives toward realizing sufficient improvement in value, we are holding best ownership discussions and carrying out a structural review.

Within this scope, in July of last year, we announced the partial sale of Francfranc stake and the full sale of Oshman's Japan in February 2022. Furthermore, we had also continued to carry out structural reform in the department and specialty store operations business. But for Sogo & Seibu company, we have enlisted the services of financial advisers and are currently carrying out a strategic review.

Please turn to Page 7. These various strategic initiatives we have carried out up until now have also been well received by shareholders and the total shareholder return, TSR for short, performance over the 2 years between the end of February 2020 and the end of February 2022 was 57% and 41% for the 1-year period between the end of February 2021 and the end of February 2022. Both of these results are an overperformance over the average of the S&P 500, [ the topics ] and stocks representative of the convenience store business in North America.

Please turn to the next page. At the Seven & i Group, we will naturally be continuing the initiatives toward growth and structural reform we have mentioned up until now, but we also place sustainable management efforts such as ESG as the basis for our MTMP.

Above all, executing countermeasures to combat climate change has become a global priority issue. In 2019, we announced our declaration on environment, Green Challenge 2050, and we have been working as a cohesive unit to promote various goals, such as the reduction of CO2 emissions. Going forward, we would like to analyze the risks and opportunities associated with climate change and its countermeasures and contribute to achieving a sustainable society through global perspectives.

Next, I will be discussing key management focus areas and action plans. Please turn to Page 10. On February 8, 2022, Seven & i Holdings received a proposal from ValueAct Capital Management, which is also one of our shareholders. This proposal highlights the possibility for us to convert the 7-Eleven business we operate domestically and overseas into a champion in global CVS. We are sincerely grateful that ValueAct Capital directed their focus to our group's business operations.

Naturally, we aim to incorporate into management the feedback from our shareholders, including that from ValueAct Capital Management. So we carried out numerous discussions, also including the participation of outside directors. We would, therefore, like to disclose our action plans going forward, which incorporate the feedback we have received from shareholders.

Pages 10 and 11 contain an outline of this action plan with concrete plans starting on Page 12. Please turn to Page 12. The first item is business portfolio review and the acceleration of actions for operational optimization. Within the MTMP, we have clearly outlined our policy in terms of the business portfolio and are working to review the business portfolio along these lines and accelerate action toward operational optimization.

In particular, we continue carrying out discussions to maximize business synergies for the overall group for major areas that require structural transformation and from the perspective of capital efficiency and growth. In these, we are taking decisive action toward comprehensive reform while at the same time considering the review of best ownership.

Regarding operations of the business portfolio, our policy is to maximize group synergies through our global convenience store strategy and food business strategy centered around Seven-Eleven Japan. 7-Eleven, Inc. is the growth driver within the Seven & i Group. However, going forward, we will be accelerating profit growth through the realization of integration synergies with Speedway and through the implementation of business and profitability transformation for SEI. Additionally, we will seek to strengthen global convenience store collaboration and accelerate global expansion through 7-Eleven International LLC, which is a joint investment venture.

On the other hand, domestically in Japan, we will be enhancing our group food business strategy. Additionally, by linking Seven-Eleven Japan and each operating company in the superstore business, we will seek to enhance the development of our original products centered around our private brand of SEVEN PREMIUM as part of the group's original competitiveness and further accelerate the adoption of our last mile strategy.

Furthermore, Ito-Yokado's business restructuring is expected to be completed within fiscal year 2023 as we will be carrying out initiatives toward regrowth. In terms of areas that require structural transformation, we are carrying out a strategic review at Sogo & Seibu, and we will continue to review the business portfolio.

Starting with Page 13, I will be discussing 7-Eleven, Inc., which is a growth driver within the business portfolio. 7-Eleven, Inc. is responsible for our convenience store operations in North America, and this business went from USD 17 million in net income in fiscal year 2005 to USD 1.317 billion in fiscal year 2021. This is a very significant growth. And going forward, we also intend to deliver a CAGR in excess of 20% between fiscal years 2022 and 2025.

In terms of the direction going forward, we intend to strengthen the food business through establishing value chain management in collaboration with Seven-Eleven Japan and expand fresh food and private brand products. Furthermore, in addition to strengthening the food business, we will also be carrying out measures toward addressing the shift to a decarbonized society, including reducing dependence on the fuel business and strengthening measures to address the shift to EVs. Through this, we will be securing a sustainable business structure and improving profitability. Additionally, we view the domain of DX as a priority management issue in Japan and overseas.

7NOW is a delivery business allowing users to place orders through their smartphones. And in recent years, there has been a surge in consumer needs for this type of service. As such, in the United States, we already offered this service in earnest at approximately 4,000 stores and at approximately 1,200 stores in Japan.

Going forward, we would like to carry out global expansion based on the model we have developed in Japan and in the United States. Through this, we want to contribute to making it more convenient for customers in areas in which we have our stores and increase the value of the 7-Eleven brand as a global brand.

In terms of business promotion on a global scale, we are fully confident that it is possible for us to realize our growth potential by leveraging the business transformation methods we have applied in Japan and in the United States. We have recently established 7-Eleven International LLC through a joint investment venture between SEJ and SEI. As we announced, under 7IN, we will be enhancing our competitiveness through linkage between 7-Eleven in Japan and the United States and accelerating our global strategy.

By 2025, we would like to grow our store network outside Japan and North America to 50,000 stores. By 2030, we will aim to have a presence in 30 countries and regions, including Japan and North America. We are currently formulating a more detailed strategic map.

Please turn to Page 14. The graph at the top shows the ratio of SG&A to total gross profit. The SG&A ratio for 7-Eleven, Inc. is high compared to our competitors. This is a no small measure due to differences in our business model, namely the percentage of sites that also sell fuel, the proportion of directly operated stores and the proportion of owned real estate. As such, comparison with other industry players isn't particularly adequate. So this isn't simply a matter of aiming for levels comparable to our competitors.

With that being said, we will continue working toward achieving our desired profitability improvements for SEI. In concrete terms, in addition to unlocking integration synergies with Speedway, we will seek to accelerate business structural transformation through the promotion of SEI's 6-point plan. Through these efforts by fiscal year 2025, we intend to have improved the ratio of SG&A to total gross profit by 5%. Additionally, as a result, we seek to raise the EBITDAR margin by 2% by fiscal year 2025.

For reference purposes, on Page 15, we have included a discussion of the aforementioned differences in business models. As you can see from the slide, SEI's business structure differs from that of its competitors. While it is not adequate to make a direct comparison with its competitors, the integration with Speedway marks an opportunity for 7-Eleven, Inc. to accelerate business transformation with a special focus on growing profitability.

Please turn to Page 16, which deals with the strengthening of the convenience store and superstore business competitiveness centered on our group food strategy. Within the MTMP, we positioned the convenience store businesses in Japan and overseas as growth drivers. At the same time, we view the food business which accounts for just over 60% of domestic group sales as a strategic growth domain.

At the Seven & i Group, we aim to grow our share in the market for food products by strengthening competitiveness for the food business. We seek to go beyond individual industries to achieve group cohesion and will be nurturing and strengthening our brand. Above all, Seven Premium, our PB product line, which we first released starting in 2007, is a source for our competitiveness in a number of ways, such as in terms of potential for innovation, brand awareness levels, customer support, et cetera.

Development of Seven Premium products is in the original development process created by Seven-Eleven Japan. Ito-Yokado has an extensive capability of procurement across fresh food and processed food, et cetera. There is also diverse knowledge, know-how and information capabilities within the Seven & i Group as well as a long-lasting relationship with our customers built on trust. Combining all of these makes possible a unique brand strategy as a retailer service business, not seen by any of our competitors.

Furthermore, in terms of addressing delivery needs, which surged during the COVID-19 pandemic, the Seven & i Group already offers services in this area, namely Seven-Eleven Japan's 7NOW and the Ito-Yokado's online supermarket service. Going forward, we will seek to integrate centered around our group common ID in the form of 7iD and in an organic manner the store network operated by these 2 companies, [ app ] members and operational centers, et cetera. Through this, we will be carrying out an evolution toward our group's proprietary service, boasting great competitiveness.

On Page 17, I will be discussing Seven Premium, the Seven & i Group's private brand. Since the start of Seven Premium in 2007, we have upheld a commitment to quality for each individual product and have been able to steadily grow sales. Fiscal year 2022 sales stood at JPY 1.38 trillion, and this represents a size comparable to a top domestic food manufacturer.

Furthermore, sales of Seven Premium through the use of Seven-Eleven Japan channels account for just over 80% of the total. This is one of the main reasons Seven-Eleven Japan delivers merchandise sales greatly exceeding those of its competitors in the convenience store industry as a significant competitive advantage. On the other hand, in terms of development, the understanding of the industry, product procurement and production management knowledge found in the superstore business centered around Ito-Yokado is indispensable. As such, the operating companies in the superstore business take an ownership role in terms of the development structure. Regarding the product lineup, we execute a continuous review and improvement process and work together maintaining and improving our competitiveness.

Please turn to Page 18. Linkage between Seven-Eleven Japan and the superstore business isn't restricted to products. Delivery needs have surged due to the COVID-19 pandemic, and the Seven & i Group already offers SEJ's 7NOW service as well as Ito-Yokado's online supermarket and other services. 7NOW is currently available at approximately 1,200 stores nationwide, which we are aiming for full store coverage in fiscal year 2025.

At Ito-Yokado, in order to assure the delivery of attractive products, we are aiming for the start of operations at our Shin-Yokohama centers for our online supermarket by fiscal year 2024. Fiscal year 2025 will see the start of operations of the Nagareyama center. In order to leverage the strength of 7iD, our group common ID, we will seek to build up OpenID Connect by fiscal year 2024, allowing for users to connect to Ito-Yokado's online supermarket from the 7-Eleven app and place orders.

Additionally, in order to further evolve our delivery service, we are also working around the clock to build up a group common last mile platform. Going forward, we will seek to integrate, centered around our group common ID in the form of 7iD and in an organic manner, the store network operated by these 2 companies, app members and operational centers, et cetera. Through this, we would like to offer one of our group's proprietary services, boasting great competitiveness also in the last mile domain.

As Mr. Maruyama discussed in his presentation, by offering new experiences and values, we seek to grow the number of 7iD members and increase the use of frequency of new services. This, in turn, allows us to deepen our understanding about each individual customer, allowing for high-quality suggestions. As such, we, as a group, will be working toward building such a structure. In the future, we would like to put together a retail media network, allowing us to capture advertising revenue opportunities, like, for example, Walmart does in the United States.

On Page 19, I will be discussing the business restructuring and growth strategies of Ito-Yokado. By fiscal year 2023, Ito-Yokado will complete the business restructuring it had been carrying out up to the present. Its online supermarket will utilize centers. Its stores will be concentrated to the capital and metropolitan area and focus on regrowth strategies, such as vertically integrating the food business, which is Ito-Yokado's strength. This will make a positive contribution to the group's competitiveness and increased corporate value. At the same time, we will also be strengthening stand-alone profitability.

Some investors have suggested either the sale or the spin-off of Ito-Yokado as a way to contribute to an increase in group corporate value. However, as previously discussed, we have utmost confidence that the superstore business centered around Ito-Yokado and Seven-Eleven Japan being part of the same operational group, maximizes the contribution to future growth for the Seven & i Group, including Seven-Eleven Japan and its franchisees. Going forward, we will continue to further refine this core business model and further improve corporate value.

Please turn to Page 20. I talked about the first item in our action plans, namely portfolio review and the acceleration of actions for operational optimization, incorporating dialogue we have had with shareholders over time. In the current slide, I will be discussing the formulation of our strategic capital reallocation plan, which is the second item in our action plan.

Under a capital allocation policy based on thorough financial discipline, we believe it to be of the utmost importance to carry out financial initiatives toward realizing sustainable growth for the Seven & i Group and improving corporate value over the medium to long term.

Going forward, through group business growth centered primarily around the convenience store business, we will seek to grow operating cash flow while at the same time reviewing the business portfolio and through this take decisive action to implement comprehensive policies at major areas that require structural transformation and review a best ownership structure. Through this, we will also be advancing the reclamation of capital.

The free cash flow generated will be allocated in a concentrated manner to the convenience store business, which is a growth domain and growth investment towards digital transformation on the basis of investment decisions premised on capital efficiency criteria. Through this, we intend to catalyze a growth acceleration.

Additionally, going forward, we will be prioritizing strategic M&A expected to translate into an increase in corporate value over the medium to long term and investment toward future growth. On top of this, we will be taking a flexible approach to shareholder returns, including share buybacks as strategic capital initiatives toward improving return on equity and net income per share.

Next, I will be discussing the third item in our action plans, governance structure transformation. Please turn to Page 21. Starting last year, Seven & i Holdings held many discussions with shareholders and investors from both Japan and overseas, also with the presence of independent outside directors.

Within this process, we also received a variety of ideas regarding our governance structure. In light of these, we aimed to achieve sustainable growth in the global market and an increase in corporate value over the medium to long term. Against this backdrop, we considered the topic of Board composition and candidates for the Board. In concrete terms, we will seek to improve Board diversity, while at the same time increasing the number of independent outside directors as we will be shifting to a governance structure in which these account for the majority.

Within the process of doing this, the appointment of 5 new independent outside directors, for a total of 8, has been informally decided, and this is expected to become official during the 17th Annual Shareholders Meeting scheduled for May 26. We believe these candidates to be ideal for Seven & i Holdings in promoting its growth strategy as a global company.

Shown here on Page 22 is the skill matrix within the new Board composition. We leverage the feedback we obtained through our discussions and talks with shareholders and investors in the decision-making process in choosing individuals with corporate management experience, individuals with retail experience, individuals with experience in international business, individuals with finance experience, individuals possessing DX know-how, et cetera, in order to strengthen these areas.

Should these appointment proposals be approved during the upcoming shareholders meeting, the percentage of non-Japanese directors will increase to 28.6% and to 14.3% for female directors. Going forward, we would like to strengthen governance through this new structure and promote further growth strategies as a global company.

Page 24 contains the last slide. We carried out constructive dialogue with shareholders and worked towards sustainable growth for the Seven & i Group and an increase in corporate value over the medium to long term by incorporating feedback from a diverse group of stakeholders.

Taking into account recent dialogue with shareholders, we have established the following action plans going forward. First is reviewing the business portfolio and accelerating actions to optimize operations. Second is the formulation of a strategic capital reallocation plan. Lastly, third is governance structure transformation.

Going forward, we will continue to hear everyone's opinions and feedback with a sense of sincerity and carry out a variety of initiatives based on the MTMP, allowing us to grow to become a world-class global retailer group. Thank you for your time today.