Seven & i Holdings Co Ltd
TSE:3382
Seven & i Holdings Co Ltd
Seven & i Holdings Co., Ltd. stands as a towering figure in the retail and service industry, a result of its strategic diversification and transformative growth over the years. Originating in Japan, it has expanded its reach globally, primarily remembered for its convenience store giant, 7-Eleven. This subsidiary, which started modestly, has grown into an ubiquitous presence in urban and suburban landscapes worldwide. Catering to the fast-paced needs of modern consumers, 7-Eleven offers a broad array of products—from everyday essentials to freshly prepared foods—ensuring that convenience and variety remain at the forefront of its customer experience. The company's widespread presence and well-oiled supply chain networks are pivotal in its ability to capture consistent streams of revenue.
Beyond its hallmark of convenience, Seven & i Holdings has diversified its portfolio, stepping into various retail formats such as supermarkets, department stores, and specialty shops, allowing it to cater to a broader consumer base. This diversification is further augmented by its ventures into other sectors, including financial services and IT solutions, which dovetail with its retail operations, fostering a comprehensive ecosystem around consumer lifestyles. Such integrated operations not only enhance its income streams through multi-channel retailing and service offerings but also bolster customer loyalty by providing seamless shopping experiences. The strategic interweaving of its varied business components enables Seven & i Holdings to thrive in a competitive market, adapting to the ever-evolving demands of the global consumer landscape.
Earnings Calls
In the latest earnings call, the company reported a significant year-on-year decrease in segment profits, primarily driven by inventory losses totaling JPY 59.4 billion. Excluding these impacts, profit dropped to JPY 72.8 billion. However, an upward revision of JPY 60 billion for the earnings forecast was announced, now projecting net income of JPY 15 billion for the fiscal year. Sales of core fuel products surged by 98.8% as the market recovers from COVID-19, and a growth rate of 98.2% is expected in the upcoming quarter. The company is also focusing on ESG initiatives as part of its long-term strategy.
Management
Ryuichi Isaka is a prominent Japanese businessman who has held significant positions within Seven & i Holdings Co., Ltd., a major Japanese retailing group known for its extensive convenience store operations and ownership of the global 7-Eleven franchise. Isaka has had a long-standing career with the company, having joined in 1980. Over the years, he climbed the corporate ladder and developed a reputation for his expertise in retail management and operational efficiency. Isaka eventually became the President of Seven-Eleven Japan Co., Ltd., a subsidiary of Seven & i Holdings. His leadership was instrumental in expanding the 7-Eleven brand and optimizing its supply chain operations, which significantly contributed to the company’s growth and profitability. In 2016, Isaka was appointed as the President and Representative Director of Seven & i Holdings Co., Ltd. His leadership focused on advancing the company's digital transformation, expanding its e-commerce capabilities, and enhancing the customer experience. He has also been involved in strategies to integrate and streamline the operations of the group's diverse business units, aiming to build a more cohesive and efficient retail empire. His tenure has been marked by efforts to innovate and adapt to changing consumer habits, particularly in the convenience store sector.
Mr. Junro Ito serves as an executive at Seven & i Holdings Co., Ltd., a prominent retail group based in Japan. While specific details about his career path and personal history might not be widely publicized, executives at Seven & i Holdings typically have extensive experience in retail management and strategy. His role would likely involve overseeing various aspects of the company's operations, contributing to strategic decision-making, and ensuring the alignment of business practices with the company’s goals. Seven & i Holdings is known for managing a wide range of businesses, including convenience stores, supermarkets, and department stores, such as the famous 7-Eleven chain. Executives like Mr. Ito play a crucial role in maintaining the company's competitive edge and leading it toward sustained growth and innovation in the retail sector.
Yoshimichi Maruyama is a prominent executive known for his leadership role at Seven & i Holdings Co., Ltd., a major Japanese retail holding company. As an executive at Seven & i Holdings, Maruyama has been involved in steering the company through various strategic endeavors to enhance its market position and operational efficiency. Seven & i Holdings, best known for its 7-Eleven convenience stores, has aimed to expand and innovate under the leadership of its executives, including Maruyama. His contributions have been integral in adapting to market changes and consumer demands in the constantly evolving retail landscape. If you have specific questions about his initiatives or roles, please let me know!
Tamaki Wakita is an executive at Seven & i Holdings Co., Ltd., a prominent Japanese diversified retail group known for its global convenience store network, including the renowned 7-Eleven brand. Wakita has served in key financial and strategic roles within the company, contributing to its operational and financial strategies. His leadership is integral to the corporation's efforts in expanding its market presence and improving operational efficiencies. Mr. Wakita's expertise in financial management and strategic planning supports Seven & i Holdings' ongoing growth and adaptation in the competitive retail landscape.
Joseph Michael DePinto is an accomplished executive known for his role in leading 7-Eleven, Inc., which is a subsidiary of Seven & i Holdings Co., Ltd., headquartered in Japan. As President and CEO of 7-Eleven, Inc., DePinto has been instrumental in expanding the brand's reach and modernizing its operations. He took over the leadership of 7-Eleven in 2005 and has since been pivotal in reinforcing its status as a leading name in convenience retailing on a global scale. DePinto's strategic vision has focused on innovation, customer experience, and digital transformation, aligning with the growth and competitive needs of the modern retail environment. Under his leadership, 7-Eleven has expanded its footprint through strategic acquisitions and franchise development. DePinto also emphasizes community engagement and sustainability, guiding the company to adopt practices that not only drive growth but also positively impact society. Before his tenure at 7-Eleven, DePinto held various executive roles in other major companies, gaining experience that contributed to his leadership at the convenience store giant. His career track is marked by a commitment to driving growth through operational excellence and deep consumer insights. His educational background includes a Bachelor of Science from the United States Military Academy at West Point and an MBA from the Kellogg School of Management at Northwestern University, reflecting a blend of leadership training and business acumen.
Seiichiro Ishibashi is a Japanese business executive associated with Seven & i Holdings Co., Ltd., which is a major retail company headquartered in Tokyo, Japan. The company is best known for its retail chains, including 7-Eleven convenience stores, Ito-Yokado supermarkets, and Sogo & Seibu department stores. As of the most current information, Seiichiro Ishibashi serves in a prominent role within the corporate structure of Seven & i Holdings. His responsibilities likely involve overseeing strategic planning, operations, and various business initiatives to ensure the company's growth and alignment with market trends. Seven & i Holdings is known for its significant influence in the retail sector, both domestically and internationally, and plays a vital role in shaping convenience store culture and retail innovation. Ishibashi's work typically centers around enhancing operational efficiency, expanding the company's market presence, and leveraging technology to improve customer experiences. His contributions are crucial for maintaining the company's competitive edge in the ever-evolving retail industry.
Koichiro Otaka is a prominent business executive known for his significant role at Seven & i Holdings Co., Ltd., a major Japanese diversified retail group. Otaka has been influential in steering the company through various challenges and opportunities in the retail sector. Under his leadership, the company has focused on expanding its convenience store operations and improving its digital retail strategy to adapt to changing consumer behaviors. Seven & i Holdings is best known for operating the 7-Eleven convenience stores, among other retail businesses. Otaka's strategic vision has been pivotal in enhancing the company's market position both in Japan and internationally. His leadership style often emphasizes innovation, customer satisfaction, and operational efficiency.
You don't have any saved screeners yet
My name is Sakai. I would like to explain our financial results using our presentation materials.
The first slide is a summary of our financial results. Segment profits in the third quarter of financial year 2020 decreased by JPY 74.1 billion year-on-year to JPY 13.4 billion. The significant remaining inventory impact losses of JPY 59.4 billion were a major factor in the year-on-year decrease. Profit, excluding inventory impact, decreased by JPY 23.9 billion year-on-year to JPY 72.8 billion due to reduced income from the resources segment, among other factors. We also reported a significant year-on-year decrease in net income to a net loss of JPY 7.5 billion.
This slide shows our forecast for the fiscal year. This time, we revised our crude oil price assumption upward to $51 in light of the recent uptrend and performed a review of our operating environment. And as a result, we revised our earnings forecast upward by JPY 60 billion.
The profit forecast, excluding inventory impact, was revised upward by JPY 20 billion to JPY 65 billion. No change has been made to the interim and fiscal year dividend forecast of JPY 60 per share each for a total annual dividend of JPY 120 per share.
The next slide provides additional information on inventory impact. Price trends of Arabian light oil are shown. The crude oil price remained basically flat from second quarter to third quarter. And third quarter inventory impact losses of JPY 59.4 billion were also similar to the level reported in second quarter. As a result of the increase in the crude oil price in fourth quarter, inventory impact losses for the full fiscal year are expected to decrease to JPY 10 billion.
I would now like to move on to our key topics for the fiscal year. First is the impact of COVID-19. Third quarter sales of the 4 core fuel oil products increased relative to the first half due to recovery from COVID-19 effects with a growth rate of 98.8%. Continued recovery from COVID-19 is expected in fourth quarter with an expected growth rate of 98.2%. Jet fuel is forecasted to continue to face a difficult environment.
In other segments, demand for some functional materials and resource prices are recovering due to recovery in automotive production, in line with economic normalization in various countries worldwide. On the other hand, the international markets for petroleum and basic chemicals remain extremely challenging.
At NSRP, refinery utilization continues to be stable. However, earnings performance continues to struggle due to weak product markets in Singapore as well as time lags in inventory impact from the sharp fall in the crude oil price in January-March 2020.
Please turn to the next slide. Other topics include the planned launch of the new service station brand, apollostation in 2021, and the construction of a new high-efficiency naphtha cracking furnace at Tokuyama plant, which is set to commence operations in February 2021.
In December 2020, we were selected to become part of MSCI Japan ESG Select Leaders Index, which is a stock index for ESG investments. We will continue to strengthen our ESG initiatives in order to contribute to a sustainable society going forward.
The operating environment is summarized on the next slide. Crude oil price, Australian coal spot price and exchange rates are shown here. The current year is shown in red, while the previous year is shown in gray. Please refer to this slide at a later time.
Our income statement is summarized on Page 8. Net sales decreased by JPY 1,349.4 billion year-on-year, mainly due to a fall in the Dubai crude oil price. With respect to changes in operating plus equity income, which was explained at the beginning, NSRP played a major role in the JPY 15.2 billion year-on-year decrease in equity income. Extraordinary income decreased by JPY 20.5 billion year-on-year to a loss of JPY 9.1 billion, mainly due to reversal of step acquisition gains from the business integration.
Segment information is provided on the next slide. Specific figures are as shown here.
Page 10 shows a step chart. A breakdown of changes in each segment is provided in the next several slides.
First is the petroleum segment. The bar graph on the left represents sales volume. Sales volume decreased by about 1.8 million kiloliters in the first half on a year-on-year basis, for a total impact of JPY 19.8 billion. The right graph shows refining margins, with margins, including impact of time lag shown in red and excluding such impact shown in gray. A year-on-year improvement of JPY 0.9 per liter was observed for a positive impact of JPY 20.7 billion.
Other factors, including synergies and affiliates had a positive impact of JPY 38 billion. A breakdown is provided as follows: JPY 9.7 billion increase from integration synergies; JPY 15.5 billion increase from affiliates; JPY 11.2 billion decrease from equity income; JPY 16.5 billion decrease from reduced jet fuel sales volume; and JPY 40.5 billion increase from internal fuel costs, et cetera. Internal fuel costs can be further broken down into JPY 19.6 billion from a decrease in internal fuel costs due to a decrease in oil prices and JPY 18.7 billion from cost reductions.
Next is the basic chemicals segment. Income from basic chemicals decreased by JPY 19 billion year-on-year, mainly due to pricing factors resulting from reduced margins. Margins for each product are as shown here.
The functional materials segment reported a JPY 10.7 billion decrease, mainly due to reduced lubricant demand due to the COVID-19 pandemic and a decrease in polycarbonate margins.
Power and renewable energy reported a JPY 1.2 billion decrease, mainly due to reduced sales in the solar business and pricing factors.
Please turn to the next slide. Profits from oil exploration and production fell by JPY 7 billion. The decrease was mainly due to the JPY 10.5 billion decrease from the fall in the Brent crude oil price and time lags relating to sales volume.
Profits from coal decreased by JPY 23 billion, mainly due to a JPY 19.2 billion negative impact from the fall in the coal price.
Our balance sheet is provided on Page 14. Total assets decreased by JPY 15.7 billion year-on-year to JPY 3,871.2 billion. Net assets decreased by JPY 46.8 billion due to net losses and dividend payments, amid a decrease in working capital due to decreases in accounts receivable and inventory as a result of a fall in the crude oil price.
The decrease in interest-bearing debt only fell by JPY 8.3 billion as increases from dividend payments and working capital provided to NSRP were offset by a decrease in working capital from a decrease in the crude oil price.
Our summary of earnings forecast begins on Page 15. We increased our Dubai crude oil assumption to $51.5 from January onward. The foreign exchange rate assumption remains unchanged at JPY 105 to the dollar.
Next is the income statement. The net sales forecast was revised upward by JPY 200 billion to JPY 4.5 trillion. The operating income forecast is JPY 95 billion, while forecasted inventory impact was reduced by JPY 40 billion to a loss of JPY 10 billion.
As equity losses are forecasted at JPY 40 billion, segment income has been revised upward by JPY 60 billion to JPY 55 billion, which amounts to an upward revision of JPY 20 billion when excluding inventory impact.
Extraordinary loss was revised downward by JPY 18 billion, factoring in impairment losses in the resources segment, resulting from a review of long-term price assumptions. As a result of the above, net income was revised upward by JPY 35 billion to JPY 15 billion.
The next slide shows profits by segment. An overview of changes in each segment will be explained using the step chart on Page 17. Segment income in the petroleum segment was revised upward by JPY 23 billion, excluding inventory impact.
First, a review of forecasted sales volume led to a JPY 2.6 billion increase. Affiliates expenses and other factors led to a JPY 20.4 billion increase. This can be broken down into JPY 11.3 billion from cost reductions, JPY 5.6 billion from upward revision of affiliates profits and the remainder from an increase in jet fuel sales volume, et cetera.
Basic chemicals was revised upward, mainly due to expected expansions of SM margins, while functional materials was revised upward by JPY 1 billion due to anticipated recovery in demand for performance chemicals, particularly from automotive production.
On the other hand, power and renewable energy was revised downward by JPY 7 billion due to a surge in GE PX prices following a crunch in power supply.
No revisions have been made to the forecast in the oil exploration and production and coal segments.
That concludes our overview for our third quarter results and earnings forecasts. Thank you for your attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]