Aeon Mall Co Ltd

TSE:8905

Earnings Call Transcript 2021-Q3

[Yasutsugu Iwamura, executive]

I am Iwamura of AEON Mall. Thank you very much for attending results briefing of AEON Mall despite your busy schedule.

We have been holding briefings via conference call since April last year, when we held the briefing for the fiscal year ended February 2020. Starting from this time, we decided to hold an online briefing. We have participants also from overseas. We will consider hybrid briefings, combination of off-line and online briefings, so that our management situation will be understood broadly by many people. It is up to the infection status of COVID-19.

Without further ado, let me give you a summary of financial results for the third quarter of fiscal year 2020.

Please go to Page 3. For the 9 months ended November 2020, both operating revenue and profits exceeded plan. In particular, following the second quarter, operating costs reduced due to reinforcement and better efficiencies of sales promotion at each mall as a result of enhanced usability of totally renewed AEON Mall app, mall operation, web conferencing, and telework by headquarter and business division staff and digitalization initiatives in management.

The infection of COVID-19 is spreading significantly in Japan, and a state of emergency was declared for certain areas. And the future impact of COVID-19 is uncertain. Therefore, we have decided to leave the full year forecast unchanged.

Next page, please. This page shows quarterly operating income by segment. In Japan, after reopening, our specialty store sales recovered. The range of improvement in operating income increased in the second and the third quarters. In China, operating income was negative in the first quarter, as specialty store sales have been on a recovery trend. Operating income continued to improve in the second and the third quarters. In the 3 months of the third quarter, profit increased.

Business in ASEAN has been impacted by the spreading infection of COVID-19. Since the second quarter in Vietnam, where strict virus containment measures were in place, recent specialty store sales have trended higher year-on-year.

Next page, please. I will talk about revenue performance by segment. The accounting period for companies outside Japan ends in December and the cumulative third quarter is from January to September. I will mainly explain results of the third quarter and also talk about business datas of their fourth quarter, the period from October to December.

The business status at malls in China is shown in the slide. In China, economic activities were suspended temporality and COVID-19 was contained thoroughly before resuming economic activities. Therefore, after the measures were taken, the infections were small-scale and didn't spread widely.

We reopened specialty stores at all of the 21 malls on April 1. Prioritizing safety and security, we took the lead in launching a live commerce platform at AEON Mall properties, allowing our tenants to conduct live commerce. We also sponsored delivery promotions for restaurant tenants and held night markets using our large mall parking areas. In this way, we responded to changes in consumer behavior and government economic stimulus programs.

On July 20, we began reopening movie theaters, which had been closed due to government orders. By early August, theaters were once again open at all malls. As a result, specialty store sales of 19 existing malls for the third quarter, from July to September, were 94.0% of the same period in the prior fiscal year.

In the fourth quarter, we leveraged Double 11, China's largest e-commerce event held on November 11, to launch a special campaign through the year-end and New Year holidays. We also rolled out the latest digital promotions, including live commerce, hosted by nearly 30 of China's most popular retailers. As a result, most recent specialty store sales have recovered to outpace prior year results.

Next page, please. Next, I will explain business status in ASEAN. In Vietnam, customer traffic and sales at each mall fell temporality due to an increase in the number of COVID-19 cases in late July. In the third quarter, from July to September, specialty store sales at our 4 existing malls were 86.7% of the same period in the prior fiscal year. However, strict virus containment measures led to a quick recovery in customer traffic. In the fourth quarter, sales trended higher than sales in the same period of the prior fiscal year. Growth rate in December slowed down because customers from overseas who tested positive for COVID-19 used our mall, and sales dropped temporarily. However, sales are on a recovery trend.

In Cambodia, although COVID-19 had a minimal impact on operations, many foreign nationals living in Cambodia returned to their home countries, which limited specialty store sales performance for the third quarter to 85.4% of the same period in the prior fiscal year at our 2 existing malls.

In Indonesia, as the increase in the number of COVID-19 cases continue to grow, large-scale government social restrictions remained in place. As a result, customer traffic declined 50% like-for-like at our 2 existing malls.

Next page, please. Next, I will talk about business status in Japan. This slide shows business status of 83 directly managed malls, excluding malls for which we have contracts for property management with AEON Retail. In Japan, by May 28, all of our facilities were open for business. We introduced drive-in theaters, drive-in public viewings and other entertainment, meeting the needs of the new normal. In addition, we completely redesigned our AEON Mall app engine. The app encourages customers to time store visit to avoid peak crowding, use the restaurants during slower times, and take advantage of other services tailored to changes in customer behavior.

As for monthly trend in the third quarter, specialty store sales in September were 79.7% of sales in the same period of the prior fiscal year because there was rush demand in September last year before the consumption tax hike. Sales in October were 103.3% due to a reaction to consumption tax hike. Sales in November were 93.7%, partly due to the third wave of COVID-19 in the middle and late November. I think new sales measures for this [ era ] of the new normal, a hit movie in cinemas, attracting customers, innovations of 8 malls and space expansion of 2 malls were all effective.

In December, the year-end and New Year holidays were impacted by the spreading infection of COVID-19. Full year forecast incorporates the recent sales trend.

Next page, please. This slide shows year-on-year comparison of specialty store sales by industry and by business type at 83 existing malls. In comparison by industry, comparison is made with SC sector and department stores.

In September and after, specialty stores at our 83 malls exceeded those in SC sector and department stores.

By business type. After reopening sales of home appliance, furniture and interior accessories were strong. And live specialty stores and sales of miscellaneous goods, hobby items, food, amusement and cinema were strong as small and medium-sized specialty stores.

Please go to Page 14. As I explained in the briefing, for the first half, there was difference in operation of the AEON COVID-19 prevention protocol at each mall. Therefore, all the directors, including myself, thoroughly implemented measures for safety and security for customers and staff involved in management and operation of most visited malls and listened to opinions of employees to grasp issues to address in the short and mid- to long-term, planned and implemented measures with a sense of speed and made efforts to adapt to the new normal promptly. We confirm the situation of malls and verified behavior under our vision for 2025 announced in April 2018 and 3-year medium-term management plan starting in this fiscal year.

This slide shows a summary of policies for future initiatives and concepts. Consumer and customer behavior changes are shown in the middle, on the left of the slide. Our management philosophy, AEON Mall is a life design developer, creating the future of community living, is described on the bottom.

Due to the global pandemic of COVID-19, lifestyle communication methods, works and purchasing behaviors are changing dramatically. In such a situation, we are promoting development of unique malls in each area to meet environment changes caused by COVID-19 by promoting viewpoints of localization and digital transformation to realize our management philosophy.

Now I will talk about the status of the initiatives. Next page, please. Aiming at realization of society in which epidemic prevention becomes a part of our life, AEON Group established AEON COVID-19 Prevention Protocol with opinions and supervision of many experts in June 2020. It was revised in November to reinforce measures to prevent airborne infection and others. We installed AI-based thermometers at building entrances and increased internal air circulation in malls and adopted entry restriction standards based on in-store customer management system data. To improve epidemic prevention measures, we are reviewing conventional mall design and introducing new equipment to provide value beyond safety and security.

In the beginning, disclosure about infection of employees of specialty stores of malls based on the strict standard of AEON Group and our company impacted the mall performance significantly. Regarding these initiatives, our strict attitude in operation to provide safe and secure environments is appreciated by people in the communities.

Next page, please. While working on management and operation of malls to meet changes of consumption behaviors in the new normal, we promoted improvement in environment inside the malls and building of mall operation, assuming measures to prevent infection. In December, we opened AEON Mall Ageo, the first mall under the COVID-19 pandemic in Ageo City, Saitama Prefecture. For AEON Mall Ageo, the latest epidemic prevention measures of our company were highly evaluated. The mall became the first commercial facility in Japan to receive WELL Health-Safety Rating, global rating for COVID-19 measures.

At AEON Mall, as a part of initiatives for epidemic prevention, ventilation inside facilities is reinforced. Our ventilation systems are used for efficient ventilation. Fresh air is introduced all the time to maintain air circulation in malls. At AEON Mall Ageo, circulators were installed in all the stairwells in the mall. Besides, in the upper part of our stairwell, high side light windows are open to reinforce air circulation. AEON Mall Ageo signed agreement for regional operation with Ageo City and is making efforts to be more community-based.

In addition, the mall is working on development of mall in the new normal through initiatives of digitalization here and there. As shown in the material, as a case of digitalization, we introduced guide robots, distributing floor guides. By watching status of congestion inside the mall, we are planning collaboration for delivery of drinks to break rooms. The robots were introduced from the viewpoint of reducing infection risks of COVID-19 and customer experience.

We replaced paper-based bulletin board for customer feedback with digital signage for the first time. Customers are requested to write opinions and requests on the tablets installed in the mall. So far, in some cases, information was shared only partially because information was paper-based. By digitalizing customer feedback, we can manage feedback as data in an integrated fashion in the whole company. We will analyze and utilize the data for fine-tuned management and operation of malls.

Besides, we will introduce 320-inch large-sized signage on the external wall of the facility, disseminate various information, play video suitable for each season and fulfill contents to be enjoyed by customers visiting the mall. Also, at GMS, digitalization is promoted.

The current situation is by no means satisfactory. We will learn from these initiatives, continue improvement for further evolution. We will roll out the initiatives in openings of 4 new malls and space expansions and renovations of 2 existing malls in Japan. We will also build new mall concepts and enhanced quality of service functions. And as the new normal, we will promote further the strategy to become the dominant mall in each region, not only in scale, but also in operation.

Next page, please. I will explain sales measures for the new normal. Due to temporary closing of schools and teleworking, we were forced to experience, because of the spreading infection of COVID-19, an evolution and enhancement of device of communication environment. The majority of our life is connected online and there's a new normal. On the other hand, as a real life, our conventional ordinary life became extraordinary. Value of real worlds, different from the past, is reviewed. Under such circumstances, how we can provide customer experience for customers will lead to big business opportunities. Our company is implementing measures, integrating real and digital worlds. Recent specific initiatives are shown in the slide.

I think personality of people will attract more attention and sites where attractive people are working will be more important as convenience is enhanced by digital world. In live commerce, we are currently working on, as a demonstration experiment, we don't use influencers who are influential on [ SMS ]. Instead, store managers and employees who are working in specialty stores appear on live commerce. We want customers to know character of staff of specialty stores and visit stores. We position live commerce as a channel to create an opportunity for people to become our customers through customer service. We are expanding new channels by integrating real and digital worlds. We will welcome not only digital transformation and customer experience, but also employee experience, which contributes to enhancement of motivation of employees as we promote enhancement of new value of real sites. Please pay attention to our initiatives.

Next page, please. On top of the measures I explained, we will continue to promote the strategy also overseas to become the dominant mall in each region. Provision of value meeting needs of customers in each region will enable sustainable existence of malls. As a result, sustainable management of our company will be possible. Our facilities will go beyond the framework of shopping malls and be equipped with multifunctions. In this way, we would develop facilities which can provide one-stop solutions for regions. Relocation and opening of an entire branch office of Uki City to inside AEON Mall Uki on December 7 last year is an example of reinforced functions of a mall.

There are cases in which government service centers opened their centers in our malls, but this is a first government branch office relocated to a mall in Japan.

In Indonesia, on November 7, AEON Mall Jakarta Garden City began to offer one-stop integrated administrative system and administrative function of the special capital region of Jakarta. Opening a driver's license renewal center is also planned for greater convenience to local residents. As a business case, our collaboration with local communities, the initiative of AEON Mall Matsumoto is shown on the slide. We will continue to implement various measures so that each of our malls will be rooted in each community.

Next page, please. In the cumulative third quarter, in Japan, in addition to renovation of 8 malls, we conducted floor space expansion and renovation at AEON Mall Takasaki and AEON Mall Kochi. In China, we renovated AEON Mall Wuhan Jinqiao in June and conducted expansion and renovation of AEON Mall Wuhan Jinyintan in July. In these facilities, we introduced functions on merchandising to meet the new normal. We also introduced functions to create communication to promote multigeneration exchanges among customers and between specialty stores and customers. In this way, we developed new malls and offered new value in local markets.

Next page, please. Overseas, in October, we opened certain zones of AEON Mall Sentul City, our third mall in Indonesia, ahead of the grand opening. In December, we opened AEON Mall Hai Phong Le Chan, our sixth mall in Vietnam, in Hai Phong City in Vietnam. I will introduce to you AEON Mall Hai Phong Le Chan today. Hai Phong City, where AEON Mall Hai Phong Le Chan is located, is about 100 kilometers to the east of Hanoi City.

It is the third largest city under central government control following Hanoi City and Ho Chi Minh City. Large-scale infrastructure development has been progressing and economic growth has been realized. Going forward, further economic growth and development is expected through industrial development in the area. AEON Mall Hai Phong Le Chan is the largest mall located in the urban area in Hai Phong City. Out of 190 specialty stores, 15 stores and new Vietnam and 90 stores and new to Hai Phong City. We work our merchandising to meet local needs for shopping, food and drink, entertainment and others.

In particular, the food court has 300 seats on the area of 1,400 square meters. In addition, the mall has kids' rooms and provide rental services of strollers and wheelchairs. The mall also provides free WiFi and has facilities unique to malls from Japan, such as charging stations for mobile phones and electric vehicles. Customer traffic per year is expected to be 13 million. During the first week after opening, 540,000 customers visited the mall, and we had a good start.

As for digital initiatives, we introduced more than 100 units of digital signage, including 12.7 meters by 7.04 meters digital screen on the external wall, 9 meters wide and 5 meters long digital screen in [ night house court ] and touch panel-type signage for information search. Digital signage was introduced to provide information for mall usage, including floor map search and for prevention of COVID-19 infection.

We also installed AI cameras to analyze data of visiting customers such as data by gender and by age, and car registration number, although it is still in the testing stage.

The opening ceremony was also attended by Japanese Ambassador to Vietnam. He expressed gratitude to corporation of Hai Phong City in opening of the mall. Development of AEON Mall Hai Phong Le Chan progressed very smoothly in partnership with Hai Phong City and the Government of Vietnam.

In March 2017, the first meeting was held between AEON Mall, Vietnam and Hai Phong City. After that, in September 2017, we signed a Memorandum of Understanding regarding investment in construction. In May 2018, a groundbreaking ceremony was held. And in December last year, the mall was opened. Compared to other overseas properties, this mall was opened in a shorter period of time.

For initiatives overseas to promote mall opening, reinforcement of collaboration with governments is an important factor. In October last year, AEON Mall signed a comprehensive MOU for investment in business promotion for shopping mall development in Ho Chi Minh City with the government of Ho Chi Minh City. The comprehensive MOU is to enforce mutual cooperation between Ho Chi Minh City and AEON Mall, promote development of shopping malls, and contribute to enhancement of quality of products and services provided for citizens.

In the same way, in June 2017, we signed a comprehensive MOU for investment in business promotion in Hanoi City. AEON Mall Ha Dong, which was opened in December 2019, was developed based on mutual corporation. Also in Ho Chi Minh City and Hanoi City, we will reinforce mutual corporation for further mall opening and work on regional revitalization and creation of new services for customers.

In Indonesia, AEON Mall Sentul City signed an agreement for corporation on regional revitalization with the government of Bogor Province, where the mall is located. The purpose of this agreement is to provide improved convenience and information to Bogor residents, serving as a center for the community. By making effective use of resources of both parties and through collaboration, we will promote regional revitalization.

In ASEAN, we will continue to consider Vietnam as the most important area and accelerate mall opening. According to forecast of IMF, International Monetary Fund, global economy will plunge into negative growth of 4.4% in 2020 due to the impacts of COVID-19. However, according to the latest report regarding economic situation in Vietnam announced on December 21 by World Bank, GDP growth rate in Vietnam in 2020 is expected to be positive 2.8%.

Vietnam is forecasted to be 1 of the 3 countries in East Asia, along with China and Myanmar, to keep positive growth. Besides, growth in 2021 is expected to improve significantly to about positive 6.8%. In this way, Vietnam receives positive evaluation by maintaining positive growth due to effective containment measures of COVID-19 and strategic trade policies and measures to promote economy. We are planning 35 malls in ASEAN in fiscal year 2025. Of the same, 20 malls are planned in Vietnam.

To realize the plan, we have been promoting regional collaboration and business partnership. At present, we are invited by regions for mall opening, and property development is progressing steadily.

Also in China, our stance in operation during the COVID-19 pandemic is highly appreciated, and there has been progress in search and securing of new properties.

Next page, please. This slide shows our initiatives of the environmental conservation and social contribution activities for the third quarter. Our ESG initiatives have been highly evaluated by external organizations. We received a higher rating than the last time from CDP, a nonprofit organization that conducts international environmental research and information disclosure in recognition of our strategy and response to climate change. Besides, in GRESB real estate assessment, we received a 5 star, which is the highest rating. GRESB was created in 2009 by a group of major European pension funds. Institutional investors from around the world, including Japan, participate in GRESB. Real estate assessment is a benchmark regarding ESG initiatives of companies and funds in real estate sector. Going forward, through initiatives in growth strategies and ESG, we will maximize economic value and social value we create.

Next page, please. As we released in December 2020, for our Urban Shopping Center Business, we intend to pursue initiatives tailored to the characteristics of each location and improve the profitability and efficiency of the facilities in question.

To be more specific, as of March 1, we will establish new OPA. The newly organized OPA will specialize in the management and operation of urban facilities mainly located in transportation terminals, creating new value through a concentration of management resources.

We will absorb certain community-based facilities and urban shopping centers owned by OPA for which AEON Mall has reinforced an increased efficiency of regional sales strategy. In consideration of characteristics of AEON Mall facilities in regions, we will transform merchandising to meet market needs in total and maximize asset value through redevelopment of certain properties.

That concludes my presentation. Thank you very much for your attention.

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