Aeon Stock

My name is Yoshida from Aeon. Thank you very much for coming on busy schedules this afternoon.

I would like to talk about the new medium-term management plan that runs for 5 years starting from this fiscal year. fiscal year '26 to fiscal year '30. This is the agenda for today. There are two parts: First, I would like to talk about the background to how we built the new medium-term management plan based on the business foundation we built in the last midterm plan. Also, I will talk about the directionality of the reform we aim at achieving.

After that, I will talk about the business strategy that forms the new medium-term management plan as well as finance strategy, including cash allocation. So I hope to have 40 minutes of your time. First, the foundation of our new midterm plan is the previous midterm plan. So let me look back at what we have done there. From a quantitative perspective, the company came close to a targeted level of operating revenue.

On the other hand, we underachieved in profit, including impact of COVID starting of inflation, the business environment changed in a way that was not expected at the time we created the midterm plan. There was an increase in labor cost by JPY 140 billion and utility costs rose by JPY 50 billion. In total, the cost increased by approximately JPY 190 billion. The result at the end of the final year of the midterm plan reflects those unexpected happenings. However, the 5 reforms that we set out in the previous midterm plan, which is shown on the right side of the slide, made our group profit structure stronger.

What we especially focused on was enhancing three foundations and structure as business foundation for bringing evolution to the future product strategy. We are now switching to science-based merchandising. We are developing group-specific product analysis tools and rather than relying on intuition and precedent. We are switching to merchandising that enables comprehensive decision-making on assortment, pricing and sales promotion based on data.

This helps us form and the merchandising platform that maximizes not only the gross margin rate, but also the total gross margin. In addition, we are developing group common product master file based on international standard GSI. We aim to visualize product and supply chain data within the group and create a common data platform that enables us to get information real time on transaction volume. It would allow consolidation of demand at the group level, rather than an individual company level. It would also allow rationalization of supply chain.

Working on optimization of merchandise based on data analysis, as well as building a foundation for a more efficient supply chain allowed us to build the foundation that can bring growth in the next 5 years of the new medium-term plan. We enhanced our private brands as well which became the source of competitiveness under the inflationary environment. As you can see on the right-hand side of the slide, private brand sales, which was our KPI increase up to approximately JPY 1.7 trillion. Especially prominent was top volume, which posted double-digit growth getting to the size of JPY 1.2 trillion. Building an efficient supply chain, which is a one-stop shop from production to cells enabled us to have price competitiveness and the unique value of Aeon.ON both serve to win continuous support of customers.

These enabled us to thrive. Next is digital. As you can see on the slide, we worked on developing our structure based on the 3 areas. We have seen certain level of achievement for each initiative. For example, in digitization of stores, we reduced the number of cashiers by introducing self-service checkout machine as well as usage of apps and other devices for payment purposes. In addition, we utilize AI for placing orders and discounts which would like to improve productivity on site. In health and wellness, we realized business merger with [ Tohoku ] Holdings 2 years earlier than we planned.

As you can see on the slide, we now are the biggest domestic drugstore alliance. We are at a stage where we are already working on the integration process of 3 companies, including Aeon that would generate integration synergy. In the Aeon Living zone concept, we continue to work on reorganizing a local supermarket store business to become #1 in each region. As you can see on this slide, we identified core entity for each region. Restructured our scale so we can get economy of scale and completed building that structure. In addition, we made Aeon Mall and Endulge a wholly owned subsidiary paving way to build a group platform infrastructure that would enable us to optimize group assets and improve facility volume.

Last but not least, is Asia shift. In the previous midterm period, we were able to grow our business to JPY 930 billion, including China and AFM. We focused on Vietnam, which is growing rapidly. The accelerated openings of retail and developer businesses such as SCs, GMS as well as supermarkets. In Vietnam, business grew by 2.5x compared to the previous 5-year plan in area overall, exceeding sales of JPY 100 billion. In addition to these foundations, we rolled out in multi formats, including founding a financial subsidiary, launch and entertainment and service business to capture future growth opportunities.

The past 5 years were a period in which we were able to enhance our foundation for future growth. Based on the business foundation that we built through 5 reform initiatives in the previous midterm plan that I have talked about so far, we will work to convert opportunities brought by future market environmental shift, so to the growth of group overall and expand profitability. I would like to talk about how we recognize the business environment. The future changes may seem very difficult, but Aeon would like to recognize this on opportunity Food Retail business contributes by 60% in sales, continued inflation and labor shortage put pressure on gross margin.

On the other hand, cost continues to increase, suppressing the margin. This issue is a structural issue common to industry overall. Improvements that can be made with individual efforts of stores and companies are limited. On the other hand, for companies with sale, we can capitalize on structural superiority. I believe that we are now at a stage where the scale and business foundation that our group has been building can be converted into a competitive event. In addition, if we look at the growth areas of the market, Demand for health and wellness business are increasing regardless of age.

On the other hand, regional gaps and service provisions are becoming a social issue. Let's turn to growth opportunity overseas. Domestic markets growth is limited in large cities. On the other hand, in Assam, high-growth rate continues in many countries. This trend, I believe, would continue and further expand. Our company already has a certain level of presence in the growth market of the future in the form of drugstore alliance, business foundation in metropolitan areas as well as business rollout in Assam. We are in a position to accelerate growth, and we believe this is our biggest opportunity.

We believe the importance of our customer base of data will further increase. E-commerce and OMO are becoming the norm, and AI adoption is accelerating. In a world like this, competitiveness would be determined by how big and frequent your customer touch point is as well as how much you are able to continuously accumulate and utilize daily life data such as purchases, payments and health care-related information of the customers. Our group's customer base and data are critical assets that would generate growth opportunities for the future.

In addition to improvement of existing businesses, we have a variety of potentials, including creation of new products and services. Developing group portfolio with multiple growth drivers, scale and structure that would enable integrated functioning of customer base and data is critical. That would generate huge competitive edge in the coming business environment. Based on that recognition in the new medium-term plan, we will work to maximize the utilization of business foundation we have been developing and reliably converted to revenue and profit. This is the overview of the medium-term management plan in one sheet.

The basic policy is to allocate resources concentrated in the growth area and materialize structural reform of the business. Through this, we will aim to improve profitability and capital efficiency. I would like to make a supplementary comment about building high-margin portfolio that you see in a of this slide. We have health and wellness developer, entertainment and Vietnam businesses that are growth drivers. We will materialize multi-format growth that does not depend on one area. By expanding and increasing the weight of nonfood as well as services where margin is high, we will be able to turn the group profit structure into a high-margin model.

To do this, we will allocate the resources heavily in the growth area and work to reactivate the existing businesses at the same time. We have categorized our business in this 3 groups: Build businesses with leading market share, health and wellness, TV and entertainment.

Here consists of Aeon domestic operations on [indiscernible] Aeon Retail Development Business and Entertainment Service business. In addition, food retail, which includes the food sector of supermarket discounter and GMS. Under the next-generation growth business, we have ASEAN, which encompasses all businesses operating in the ASEAN region, such as retail and shopping center development. and the revitalization of existing businesses, we have GMS, which primarily refers to nonfood categories such as apparel and home fit and China retail and domestic financial service.

We recognize these three businesses as those that should achieve renewed growth by identifying their core areas and pursue a strategy of concentration and selection. Food retail is a business segment within the group with the largest sales volume and the greatest concentration of management resources such as stores and personnel. We view improving its profitability as a highly effective initiative for boosting the group's overall profit levels.

This is outlined separately in Section B. Third, as indicated in is the completion of business structure reform. We will restructure the business and capital structures, which have become distorted as a result of past business expansion into a form that aligns with our strategy. by eliminating factors that tinge earnings structures such as unprofitable businesses and redundant entities, we will enhance the quality of the entire portfolio. Finally, indicated as deep we will transform our financial structure.

In an environment of rising interest rates, we will shift towards a management approach that places particular emphasis on cash flow and capital efficiency. By implementing these 4 strategic pillars, we plan to achieve our quantitative targets for fiscal 2030 and lay the groundwork for sustainable growth beyond that. These are quantitative targets for fiscal 2030. What does this mean? We anticipate that operating revenue JPY 15 trillion will give us the top market share in the domestic retail industry. In addition to expanding our scale, this medium-term management plan places particular emphasis on profitability and capital efficiency.

Our targets are operating profit of JPY 530 billion, operating profit margin of 3.5% and ROE of 8.5% or higher. There would be a milestone to sustain our growth. Furthermore, by increasing EBITDA to over JPY 1 trillion. We will establish a financial foundation capable of consistently generating sufficient free cash flow. This will enable us to continue to make necessary growth investments within the scope of operating cash flow. We will balance business growth with financial soundness, thereby laying the groundwork for long-term sustained growth.

The graph on this slide breaks down the EBITDA mentioned earlier by major business segments. In this MTP, we have defined this 5-year period as a time to transition through a structure capable of generating sustainable cash flow by leveraging the advantages of our multi-format business model and combining multiple distinct sources of cash generation. In high value-added areas, we will promote integration with services directly linked to daily life, primarily agent. So DB and Entertainment to build up EBITDA at a relatively high profit level.

Meanwhile, in the food retail sector, in addition to accelerating growth in my basket, a key growth area, we will restructure operations to convert group scale into profit through reforms and business infrastructure such as logistics and PC, thereby strengthening the foundation for sustained cash generation. In Asia, we will capture high-growth market centering on Vietnam while pursuing growth with a focus on investment efficiency through multiformat expansion, including the financial and service sectors.

We believe that having these 3 business segments complement one another, we will enhance our resilience to environmental changes and realize a repeatable cash generation structure. Here is our approach to investment allocation. Anticipating a future environment of rising interest rates, we are prioritizing management within the cash flow level and established priorities for investment allocation. Given the expectation that construction costs will continue to rise, we will prioritize investment enhance the value of existing assets in our DB business as well as investments in growth businesses such as drugstores and Vietnam.

In the food retail, we will shift and prioritize investment towards building the infrastructure necessary for profit structure reform. In terms of our investment approach, we will manage ROI for each investment type for growth investments. We will prioritize profitability at the business level. For infrastructure investment, we will secure returns by improving profitability across all formats within the food retail sector. We will also secure around JPY 500 billion as strategic capital. For example, we are considering M&A opportunities aimed at acquiring capabilities upstream in the supply chain, such as companies, disusing manufacturing and processing technologies and know-how related to food retail.

And from here, I will explain the details of our key strategies in order. First, as shown on the slide, b, is the food retail business, which is a starting point for group growth and structural transformation. Regarding food retail, rather than improving product, store operations and formats individually we will proceed interconnecting them each other. There are four main implementation measures. First, as a quick win, shown as B1. We will revamp the gross profit structure centered on PB private label and the national brand products.

Regarding revamp of the cost structure outlined in B2, we aim to improve productivity by leveraging infrastructure such as logistics and process centers that are highly automated through AI and robotics, which offer structurally different productivity lens compared to the conventional systems. These measures are expected to begin having a significant impact on profit study in the middle of the midterm plan. Based on these measures, as outlined in B3, we are designing a strategy that combines the development and shift to the new supermarket model, creating both quick wins and midterm profit generation.

Before, we have identified Redtail area as a priority region. As for the infrastructure development supporting the implementation of these measures, as you can see, we have already begun building the foundation such as a product master development since the previous midterm plan. Regarding execution framework, we have shifted the focus of optimization from individual companies to regional units and then to group level. In addition, by establishing specialized organizations, responsible advanced data analysis I will now explain the key points of each of these execution measures.

First, we are revamping our products and gross profit structure. We will further scale up the expansion of PB products and consolidation of national brand demand. We will not limit the benefit of these efforts to cost reduction alone. Instead, we will transform our structure to a [indiscernible] price competitiveness and securing total gross profit. First, for PB, we will expand top value sales to approximately JPY 2 trillion and gradually increased its share of total sales from 15% to 30% in aiming to make BB the top market share brand in Japan by 2030. We expect cost reduction benefits to materialize relatively early on as we work to increase sales of individual items, particularly key SKUs and expand our product lineup in untapped growth areas.

For NV products, we will increase the proportion of group-wide joint procurement to 45%. We will drive efficiency across the entire supply chain, including stabilizing manufacturers production plans and streamlining logistics to expand opportunities for cost reduction. We expect these effects to show up gradually with cost savings contributing more significantly over the medium term. Our plan is to generate approximately JPY 130 billion to JPY 140 billion in gross profit and cost reductions in FY '30 single year compared to FY '25. The key point is to strategically invest a substantial portion of the funds generated into pricing.

How can we use these price investments or price investments effectively to generate high returns. We will strengthen our common data infrastructure and systems for analyzing and utilizing that data. Next is the revamp of our cost structure. During the previous midterm plan, we had store the centered on cash registers on an individual company and store basis. Going forward, however, we will transition to a phase where we enhance productivity structurally by designing initiatives, including the allocation of infrastructure investment under group leadership. In the first part, we will focus on changing the structure to one that can generate positive outcome quickly.

More specifically, we will enhance existing facilities, consolidate raw materials and utilizing outsourcing to build the foundation for utilizing process centers. Another is consolidating processing sites for products like Delhi to large stores and have them supply to the nearby smaller stores like a mini processing center. This would enable a more efficiency in production process and improve assortment and freshness in smaller stores. We have already introduced this in some areas like Kyushu, and we are seeing fruitful results, and we would like to strategically expand it to other areas.

Based on these initiatives, we will promote the start of operation of new facilities from the middle phase and turn the group's scale to better productivity and profitability and transition to harvesting fees from that point. For the coming 5 years, we have secured an investment of around JPY 300 billion to JPY 400 billion for logistics and process center-related infrastructures. We will take a phased out approach and expect some positive effects from the first space. In the latter phase, we will harvest the profit.

And we would like to do the DX in JPY 70 billion to JPY 80 billion. And we would like to spend JPY 10 billion for the store X. Next is conversion to a new supermarket model. We will change our gross margin and expense structure to materialize better price competitiveness. Based on that, we will build a new supermarket model that minimizes in-store processing and capital expenditures. Value proposition from this initiative is a combination of price competitiveness and fresh and high-quality perishables and delicatessen agricultural and fishery products tend to be region specific. We want to make these products a destination for our customers.

The targeted sales flow ratio for these products is 35% or more, and we will make these products reason for customers to come to shop in our stores. The concept revenue model for the new super market is, as you see on the slide. We will convert the existing stores to the new model in a phased out approach. We plan to invest approximately JPY 300 billion in the coming 5 years for reactivation of existing stores. In food retail, we will focus especially in metropolitan areas. In fiscal year 2030, we will aim to have in the metropolitan area and operating revenue of JPY 2.4 trillion, which is 1.6x more than we make now and targeted shares approximately 15%.

Going forward, more people will be living in a metropolitan area, and we will work to create touch points with our next generation of main customers, which are young generation. At the core of the strategy is USMH, which already makes operating revenue of more than JPY 1 trillion in the metropolitan area. Discount stores tends to be stronger in the competition, and they are growing. However, in the face of that, USMH will, through its supply chain and reform centering on PC and distribution, improve the profitability level of existing supermarkets.

On top of that, my basket already has stable revenue model. All stores are directly operated because of this accelerated store opening is possible. And we would like to we would like to enhance products related to ride and locate. We will aim to make JPY 800,000 cells per day for each store and improve margins. And we would like to multiply that with 2,500 stores. On the other hand, green beans will focus on building a profitable structure in the coming 5 years. It will serve as the foundation for our online business, and it will be developed as growth engine in the mid- to long term. We aim to establish green beans a first online food retailer in the metropolitan area.

In fiscal year 30, we target having 4 million members, which is 4x more than now. Our group has multiple formats that can be coordinated on a common platform. This is a competitive edge for our company. From here, I would like to talk about something different, which is shifting to a high profitability portfolio, which is Item A in our main strategy. This is an area where the weight of the profit is high. At the core is food retail, I talked about earlier as well as health and wellness, developer and entertainment businesses.

Based on the overwhelming scale that we have, our customer base as well as property assets, we will aim to grow profitability in the high value-added service area. I will talk about our main initiatives one by one. This slide gives you an overview of initiatives on the health and wellness business. This is the biggest driver of the profit in the new medium-term management plan. Because [indiscernible] medium-term management plan has already been made public, I would like to touch upon only the highlights today. The new [ Tuteja ] Holdings has nationwide network of 5,600-plus one-stop shop stores where customers combine medication and daily necessities. Customer touch points are more than twice the amount competitors have.

In these stores, there are 50,000 health professionals, including pharmacists and registered sales clerks. They can provide comprehensive support to customers about childbirth and childbearing as well as about elderly and long-term nursing care. This would enable the widening of customer touch points increasing the frequency of visits to the stores and their continuous use for the stickiness to the store.

We will work area by area to bring customers who are using multiple formats of Aeon into the health service. This is an initiative to share customers within Aeon Group. In addition, we would like to expand the business from just selling products to peripheral categories such as food, prevention of illness, wellness and lifestyle support. We will work to increase the ratio of value-added services. By implementing this, we will improve the profitability of health and wellness overall.

Next is Drug and Food store format. In order to provide daily life infrastructure services in rural areas, it is indispensable to enhance the assortment of food products. Since last year, we have started working on converting [indiscernible] stores to drug and food retail format. This fiscal year, we will accelerate that process. This format will have a 250 to 300 silos in size and the ratio of food products within the store is approximately 40%. This is a model to drive customers into the store through provision of daily necessities.

In the 10 pilot stores last fiscal year, we saw an increase in customer count as well as sales and margin level was improved. We now have a clear path to investment recovery. we have been able to different ourselves in the locates and dairy category. We are able to differentiate from other players in terms of assortment, pricing and quality. Even though food was increased to 40% of the products in the store by utilizing operational know-how of Aeon's food retail stores, we have been able to reduce the stores burden, enabling the balancing of revenue and profit.

Next is developer and entertainment business. The current situation is, as you see on the slide. The number of visitors as well as profitability growth is going beyond the pre-COVID levels against the backdrop of changes in the environment. People are wanting to go to locations where they can gather casually and enjoy themselves. The values we provide are being monetized. Taking a closer look at the recent consumption behavior of consumers. They are looking for a cool place to gather where they share comfortable space with each other against backdrop extreme heat in the summer and high electricity costs.

Also, the family with kids want their children to play in a safe environment. Also because of inflation and variety of products and increasing gas prices, people are spending less time traveling for and spending more time near their homes because of those facilities that meet this demand would have higher volume. Based on changes in the environment, our shopping centers are not just commercial facilities anymore. It is a platform to provide consumers locations together and experience what they want to experience. The assets are becoming more valuable.

As you can see on the slide, we see robustness in the specialty store sales centering around cinemas, amusement and services. we are seeing direct impact of conversion of existing stores to a place of experience and gathering in the form of increase in its profitability through activation of the facilities, the profit level went up approximately 10%. The structure of developer and entertainment business apparently is changing. We will capitalize on this in the coming 5 years by growing the business and generating profit. Expenditure for leisure made for experience something and generating time volumes increasing.

Even under declining populations. Cinema amusements, live entertainment, music and video streaming services and IP, which are included in the domestic entertainment market are expected to have large room for growth. In addition, social challenges such as the normalization of extreme trials in prices, regional disparities and disparities and children's experiences are structurally persistent. We anticipate that demand for safe, comfortable gathering places where people can come together and engage in activities will continue to grow over the medium term.

As another key focus, we will incorporate functions that address the calendars faced by local residents and government, such as daily living support hub for learning and communities and public services. To establish our shopping center as central hubs for community life. As rising construction costs raised the barriers to new development. Our company owns some of Japan's largest commercial assets which were built at low cost in the past. We view these properties whose relative value has increased due to inflation as the foundation for our growth.

By embedding the profitability improvements currently being realized into our portfolio assets which comprises approximately 6.8 million square meters of total leased area. We aim to achieve those dynamic profit generation and enhanced value as a local leading infrastructure. We will consolidate these functions into Aeon Mall, which has been listed by achieving 100% ownership, we will be able to flexibly reallocate store assets within the group. Thereby maximizing asset value. We believe that enhancing customer traffic and improving asset values will also lead to higher rents. We are establishing a framework to drive growth and generate revenue from our existing assets.

Next, two covers the building of next-generation growth businesses, anticipating future contraction in the domestic market, we believe that it is essential to increase our revenue share of the overseas special Vietnam, and I will show you the video regarding Vietnam. This shows the Aeon one center, which opened last year. As you can see, the sales floors are bustling with people and the accent is very lively. Vietnam is the most critical market accounting for approximately half of profit growth within ASEAN. We will accelerate growth by allocating approximately 60% of our total investment to Vietnam in the coming 5 years.

We will systematically accelerate store opening from the early stages of the transition to modern retail to quickly establish a solid business foundation and market share. In addition to our existing expansion strategy center malls. We will promote the dominant expansion of supermarkets in the two major metropolitan area, [indiscernible] as well as in regional core cities to expand their physical store network. As a result, we plan to pull our operating revenue over the next 5 years.

Furthermore, building on the customer base cultivated through our retail and development -- developer businesses we will gradually expand into a multi-format business model that includes service sectors such as finance and entertainment. Specifically, Aeon Entertainment, Vietnam, will partner with local company beta media to optimize locations, operations and the customer experience for the Vietnamese market, delivering high-quality Japanese style services. In addition to Sete operations, we will strengthen the distribution of Japanese films and Anima to diversify penetrant.

Moreover, [indiscernible] consumer finance market is projected to grow to approximately JPY 30 trillion by 2030. Starting with PTF, which we made a subsidiary last year, we will expand our credit-based code payment business. By combining the convenience of copayments with features such as plate options, we aim to capture the growing middle class as their incomes rise. By driving revenue growth in high value-added areas, we will achieve operating profit growth exceeding 3x of the sales. In the medium to long term, we aim to establish ourselves as a top tier retailer in Vietnam.

Next is Slide 3. Revitalization of existing business. Since we have already announced our midterm plan for the financial sector today, I will focus on GMS business. Under the previous MTP, we enhanced our cash generation capabilities by improving our productivity through store DX and operational reforms, reducing inventory turnover days and expanding our food and HPC segments. The right side of the slide illustrates our approaches to GMS reform building on these achievements.

Regarding the first point, enhancing one-stop value, we anticipate a steady increase in demand for customers to minimize the number of store visits and complete all their daily necessities in the single trip. Given the ongoing kind of decline in growth rate and aging population, analyzing single-person households. Regarding the challenges in the apparel and home furnishing, we will address the mismatch with customer needs and work to redirect customers from the food sector to these areas.

And we would like to expand the revenue from cross-selling. Another key point is transforming our stores into destinations that generate reason for customers to visit. As mentioned earlier, at the developer business, the experience entertainment and wellness sector has the potential to drive store visits. Encourage longer stays and promote to repeat this business. By integrating these growth areas into our GMS assets, we will convert them into new opportunities for customer acquisition and revenue generation to achieve this new midterm management plan will shift the focus to restructuring DMS assets with a core emphasis of apparel home furnishing.

First, we will create areas for experience such as those for children food that combined company operated stores or specialty stores to enhance the motivation for store visits by making Aeon's wholly owned subsidiary, we will enable flexible zone planning and great areas that serve as hubs for attracting customers. Second, we will accelerate our SBA initiatives focusing on the basic product categories such as underway on general merchandise. By supplying products to supermarkets and small format stores, we will consolidate procurement lots across the entire group to improve cost efficiency and strengthen our price competitiveness. This will lead to expanded the sales and profits of JPY 15 billion or so.

Third, we will reorganize our apparel sales floor by rolling out specialized zones that have proven popular with customers such as double focus, which was developed as a dedicated space for younger consumers. Sales growth has already been confirmed at pilot stores, and we plan to increase the likeliness of our success by refining the model as we expanded. Furthermore, for categories with no prospect of improved profitability, we will assess their viability during the MTP and to undertake redesign that includes the reallocation of assets to growth areas and collaboration with other companies.

Raising the GMS segment's profit level is a key challenge for the group, and we will take steps to more than double them over the next 5 years. Now is the key strategy business structure reform. Under this [indiscernible], we will transition the initiatives shown on the side to a full-scale results generation phase by eliminating unprofitable companies and consolidating businesses and functions. We aim to improve net income and capital efficiency.

While onetime costs will be incurred due to the restructuring of the target companies, we anticipate an improvement in profit of approximately JPY 30 billion. We also expect an improvement in ROE through measures such as result and negative equity. We aim to complete this initiative within the first 2 years of this we will proceed with portfolio restructuring to enhance the group's profitability, capital efficiency and capacity for growth investment. Well before the term sustainability began widely used, E.ON took a pioneering approach to initiatives such as 3 plant campaigns, encouraging customers to bring their own shopping backs and in-store recycling, working hand-in-hand with the customers and local communities to drive these efforts through daily shopping and participatory activities centered around the stores, we have expanded these initiatives to society as a whole.

In fact, we believe that our achievements such as achieving the interim targets set in decarbonization vision announced in 2018, we achieved them 7 years ahead of schedule in 2023. They were made possible only through the support and participation of our customers. Furthermore, we recognize that our ability to leverage our nationwide store network and diverse business assets to implement these initiatives on a large scale and on an ongoing basis is a unique strength of OM, by combining anticipate our initiatives that leverages our direct connection with consumers was the scale of our group. We aim to create social impact in ways that only our company can achieve. We will, over a long time, contribute to our corporate social value.

Lastly, I would like to share our fundamental management philosophy. In today's world, there is a growing trend towards valuing Western Star shareholder-oriented management that prioritize short-term profits. While this approach is not necessarily wrong in itself, Aeon's management philosophy, aims to balance solving social issues with corporate growth and to become an indispensable presence in our communities. We believe this will lead to sustainable management in the long run. By leveraging the group's diverse businesses and scale, we aim to build a society where consumers can live with peace of mind, free from concerns about rising prices and barriers and qualities. Through this value creation, we expect to gain greater support from our customers as a result to enhance the group's profitability.

We will then reinvest and circulate these profits into new growth areas, driving sustainable corporate growth. Furthermore, this will expand the range of social issues we can address. This is a fundamental philosophy underlying TP. In today's dramatically and repeating go, we believe that multi approach allows us to leverage our strengths through mutual complementarity through this we aim to simultaneously achieve business structural reform for sustainable growth and management based on values rooted in our philosophy, thereby enhancing the group's social and corporate value over the long term. Thank you for your attention. This concludes my presentation.

We would like to proceed to Q&A session.

In the previous midterm plan, you talked about private brand. And also, you talked about the group synergy and you concentrated on talking on those things. In the new medium-term plan for the coming 5 years, where is the area where you're most passionate about? Where is the area of where you need to work on?

I felt that it's different from the previous midterm plans because you would be conducting the structural reform, but you would be focusing on the growth area as well and you will be taking on new challenges in the growth areas. So I feel that each initiatives that you have to work on has high hurdle that you need to overcome but towards working on achieving the midterm plan. Where is the area where you would like to concentrate most on?

As I have said at the beginning, in the previous midterm plan, we were able to form certain level of foundation, we would like to capitalize on that. And we will work on the private brand as well. We will accelerate the initiatives. And we want to become the private brand, which is overwhelmingly supported by the consumers. I emphasized multi-format in this presentation today. We need to take a balance of that. The environmental changes in the market is very rapid. So single format is difficult to do. So we want to have a multi-format which is well balanced and that would bring us forward.

I didn't talk much about developer business in the last midterm plan. However, due to inflation, the volume of the property is drastically changing. So our facilities are becoming older and about the location is good. So if we can capitalize on that, maybe it would be conducive to making more profitability. As for health and wellness, we have scale. So we want to enhance that. And another is a fan. In terms of Vietnam, the growth is very definite. That's what we feel. So even when we go to rural cities, we are able to get to more than expected figures. So the purchasing power Vietnam's people are increasing.

There is an increase in the middle income population. So we would like to grow significantly in Vietnam in the coming 5 years. So we -- so we want to keep our focus in those areas that I have talked about.

You did not refer to the financial services business this time. If you say Aeon finance and developer was your good business. I think the developer is doing good business, but the financial services seems to be a bit stagnant. In this new MTP, I evaluate finance service area from a stock price vision as well as how are you going to support and push accelerate this business?

Financial. Overseas is quite favorable. Domestic Financial Service business is a bit stagnant. So this time, in midterm plan, we have separated out the domestic part, financial services. We have a customer base at the holdings and how are we going to leverage that in the financial sector. financial service business itself is a listed company, so it is doing independently, so to speak. But to this, how are we going to share the customer base that we have at the holdings and other places with this company, the financial service companies, this is important.

We have retail a place. That should also be fully leveraged and used. And also the younger generation, the customer contact point and how are we going to provide financing to those younger generation. Of course, we need some technique, but I think there are several ways for us to accelerate the financial service domestically.

So in new MTP, you see that this is able to grow further?

Yes. Overseas Malaysia and so forth, thanks for the efforts. We are having a good job there, but domestic is a big segment. So we will be doing something for this domestic business.

I would like to ask about the improvement of profitability of the food retail as well as the pricing strategy. Gross margin generation, cost reduction are what you would be working on. And you would be investing the amount that has been freed up through cost reduction would be invested into the pricing strategy initiatives. But what I'm concerned about is that there may be more price competition. So in terms of the pricing strategy compared to the past you will be focusing more on the improvement in the margin? Is my understanding correct? Or based on the competitive environment, what kind of positioning would you be aiming at in terms of pricing? And also, I would like to ask your take about my concern about the price competition?

So as you have rightly mentioned, we will be aiming at pricing our products properly. And currently, the market is in a very difficult situation. consumers are concentrating into discount stores. enhancing of the private brand means that we will be securing appropriate margin through cost reduction, know-how that we would acquire. So for example, now we will be thinking about how we would be able to create packaging which uses less plastic.

So in the past, we had put a plastic sheet within the package to make it more beautiful, but we would take that out or we would reduce the number of colors from 4 to 3. For example, we will work to reduce the cost so that we can secure the margin and continue to have appropriate pricing so that consumers would be able to buy them. So in terms of your thinking, in terms of the margin, you would be thinking relatively to what the competitors are doing. But rather than drastically decreasing your price, you will be capitalizing on the supply chain as well as economy of scale so that you would be able to relatively improve your competitiveness.

So it's not bringing down the price drastically. So drastically decreasing the price. Well, well, in terms of private brand, we would be able to control the supply chain. There are about 7 steps. And we would look into which steps that we would be able to change to reduce the cost. So for example, this water, it's JPY 58, 52, top volume natural water. So it's in square form. So there is no gap between the other bottles, and we would be able to improve the distribution of the transport efficiency. So because there is a large number of water that we transport.

So by increasing the number of bottles that we would be able to fit in the truck, we would be able to reduce the cost. So through this, we would like to suppress the at a price in the store because consumers are taking a severe look at our product prices.

Earlier, you talked about the strategy for Greater Tokyo. Grain beans growth, you have referred to that. When you look at the current status, we have oil price increase and sort of truck drivers, the logistics cost is inflating or seems to inflate. And under such circumstances, how are you going to absorb and increase and accelerate green beans, how are you going to sort this out? Wouldn't that be a limitation?

Yes, this is going to be additional cost, as you said, green beans, we are not selling in the regional segment only in the populated areas like Tokyo, Greater Area. So because the logistics and the transportation, if you make it more than several units of trade, it will cost to several and pay you. So if we have populated area, then you're using AI, we and design what would be the most optimal transportation or delivery costs. So we're trying to have more members so that one truck can deliver more people and in a smaller area. So that is how we're trying to absorb the cost in [ Huawei ].

I would like to ask about Item B2 you would be making improvement to PC and PC ratio of 70% is what you are aiming at. For materializing this, how would you be advancing the existing facilities? And also, how would you be reallocating the PCs? And what is micro PC, the mini PC that you talked about? Could you talk more specifically about the pathway of getting to 70% PC ratio?

The new PC in order to be built, it would take about 2 years. And currently, PCs are being allocated according to the optimization of each company. So there are 4 companies into U.S. So we are now rearranging the PCs within the group and to improve the production efficiency. So we will be rearranging the existing PCs. And in terms of the micro PC, it is about consolidating the processing in larger scale stores to distribute it to smaller scale stores. We are doing a pilot in Qs, and we are seeing fruitful results.

And while we are improving the efficiency of the existing PCs, we will build new PCs during that time and make the overall structure stronger.

Earlier, you mentioned that M&A, the growth, there is a -- so far, you have been doing it and growing in new MTP. What is the width and target of the M&A or new ideas, if any?

It is not the specific names. But so far, we have been doing the area claim wise. That means that we were rolling out horizontally. But as you say, vertical integration in the upper side upstream then upper stream of the supply chain. We have to do M&As. For example, getting together with processing companies and work together. And that will create higher speed in case of digitalization, I think clearly, we are behind the others. So if there is a digital companies and the product, if it's combined, then the business will go up, then I think we can think about that pairing.

So we have been wider. We have more wider option or targets now.

So you've been horizontally targeting. But that means that not any more targets in the horizontal arena?

No. For drug stores, yes, so we have limited number of companies. But the supermarket, we have more smaller regional-based supermarkets. So they would probably should have to consolidate or else they cannot invest in private brands and digitalization. So I think in that sense, we will be seeing activities there, and I'm monitoring that as well.

I would like to ask about health and wellness. [indiscernible] has been integrated and domestically, you now have big share in terms of revenue. Going forward, how will you be working on overseas, for example, in Vietnam, how would Sudha be entering into the overseas market. From what time point there is an acceleration in the acceleration in the opening of the stores?

Sudha already have stores in Vietnam already. So we have strategies about the overseas and so we have experience of being in Vietnam for 11 years. And we are providing information about which location will be best [indiscernible] to go into and also sharing of the supply chain. We are working to share where we can in terms of the infrastructure. So if you start from scratch, it would be very difficult, but we already have a foundation in Vietnam, so they are capitalizing on that.

Into your management plan, what was the page number of the slide, 31, you're going to consolidate the unprofitable companies. Can you elaborate on this point earlier in the Jet conference, it seems to be that going to be doing more but there is a stock price like Pact. So what is the concrete coverage the so to speak, overlapping area and where you intend to actually sell? And in the past, I think you had the consolidations and you had listed companies. How are you going to do the consolidation and partnership with your companies of subsidiaries? Because of the changing environment. Can you elaborate on that a bit?

Well, this business restructuring, I have mentioned earlier that as Aeon 3 consecutive periods, we had debts and also we have seen some unprofitable companies for 3 consecutive periods, and we will focus on that. So GFO is a company, one of them. that goes under that criteria. So which field, as mentioned, food developer, health and entertainment. In those areas, strategically contributing area, we want to make investment and we want to reinvest and rebid and grow and not that kind of companies like Aliant's life insurance. It was not necessarily related to our core business. So that will be released. So I think as an EO, whether we would like to grow that business or not. That is the criteria that we have selected the target companies.

In terms of food, retail. You talked about improving the profitability, and I would like to deep dive into that. In your presentation, you talked about JPY 300 billion to JPY 400 billion for the investment in the food retail for improving the profitability. [ Tsukada-san ] has talked a lot about this in the past 3 things.

So improving the improving labor productivity is what you have been working on. And in the previous year, KVI value item. It was expanded too much. And what happened was the gross margin had dropped. You are working on digital transformation as well as AI. But even in companies like you, you have not been able to respond appropriately to the market situation change. So what I want to say is you -- I think going forward, it would be it would take about 2 to 3 years to be profitable after starting to invest.

So during that time, if the discounters or other competitors if they had started a competition war. There may be a possibility that the margin will drop. And you may not be able to improve your operating margin. Maybe that may occur in 1 to 2 years out of the 5 years of midterm plan. I don't think that the profitability would be going up very drastically in a short amount of time. Could you rebunk me?

So I think you're talking about the time lag of becoming more profitable? In terms of Delegates, the existing processing centers. So we will rearrange it and make it more efficient. So we would like to improve the profitability of delicatessen through that initiative. We would like to work on that right away. Also, we would work to increase the ratio of top volume and improve the gross margin. and also the consolidation of the demand so that we can place a larger volume orders to the manufacturers.

In terms of private brand, we have mega item concept currently, 1 billion items can be sold in 100,000, and we would like to increase that number to 1,000. And this would be conducive to improving the gross margin. So from the second half of this year, we are hoping to see some fruitful results from the initiatives that we are doing. And in the morning tea had made an announcement to install the pricing change. And so the private brand has price elasticity that would enable us to have a bigger margin. And we will make use of that. So another is increasing the stickiness of the private brand, increase the fans amongst the consumers for top volume. I think that will be a critical point for us. I don't know whether I was able to answer your question.

At least for this fiscal year or next fiscal year in your plan, I believe that you would be booking extraordinary losses. And I hear that it's JPY 30 billion for this fiscal year. So considering your earning power, EPS would not be going up. And if this continues a year or 2 and if you try to increase the ROI you need to have increase in 4 to 50 years. Is my understanding correct? So maybe it would be best for Shikata-san to answer.

So in terms of your question. So we are hoping to complete our initiatives in 2 years. And the and the losses for taking that initiative is in between JPY 10 billion to JPY 15 billion and first 2 years. And in the -- the middle phase of the midterm plan, we would like to derive through full results.

In the past few years, I think the consumers' mindset is now harsh. During the NTE, you may be difficult for you to assume the consumer mindset because of the Middle East situation, maybe now that our consumer mindset is at one time down or do you think it will be longer because we can assume some inflation is. So what do you see the midterm consumer mindset?

Well, currently. Well, when we compare that with last year, I think last year, rice inflation was very much also vegetable prices were also higher. So year-on-year, I think we have some differences clearly coming out in the March May. And when you -- yes. Compared with last year, June comes to a favorable trend. But I think the consumer mindset is not bad. I think it's selective they will buy what they need to buy. And I think those products are selling well. Quality and price balance is required for the product to be sold.

And also, the angle cooperation is 29% at this point of time in that sense, then food I think people do not want to spend more in the wallet. If it goes higher, then there is no more money spent for leader and hobby. So I think, therefore, from that, we're not reducing our margin but not increasing price, I think that's what I think benefits the customers and the customer will select us. Or else, if we don't do that, I think the customer decline is a big impact to our business. So I think that's what we should be doing. And one is perishables. Grocery. You can buy it online. So that means that shorter selling period products have higher value. And I think we need a presence there. So the consumers will not say that they don't want to buy anything. They are very selective. That's my sense, what I feel.

And one more thing to confirm. You mentioned about the packages and logistics. I think so far, you were following decarbonization and plastics. But I think -- do you think that, that is now a point of competition has gone into a point of competition.

Yes. And yes, so far, we have been focusing on decarbonization. For example, Aeon, while we do PPA, the solar panels are being established, and we are using that electricity in that mall. And I think that's environmentally friendly I think, situation. And if the electricity price is higher, then that will become a good for us. So we do not want to use more plastics and deliver that to a product. That means that environmentally free plus because I think it's beneficial in the current situation where oil prices are rising. So I think we want to further pursue that. For example, this is using a recyclable PET, PET bottle.

And in this Middle East conflict, this is beneficial for us. I think positive for this. So far, we have not intended to do so, but now this is beneficial for us in another sense.

I would like to ask about the balance sheet cash allocation. You talked about operating cash flow, but company your size in promoting the structural reform, well, Shikata-san talked about extraordinary losses. But I'm sure that there would be added cash in. And also if you don't have any good M&A opportunities, you may be repaying the debt. So the balance sheet 5 years from now. Well, you have you would be able to leverage ROE because your equity ratio is low. So also by selling the assets how would cash allocation would look like? And what would be the best way for Aeon in terms of the balance sheet from 5 years from now? If you could talk about what the best balance sheet would look like for E.ON aside from financial services. And I was wondering if the ideal can be reached within 5 years' time? Or it would take longer.

This is Egawa, and I would like to respond to your question. As you pointed out, within a consolidated subsidiaries, we have Aeon Financial Services. And because of that, we -- our balance sheet tends to be bigger at JPY 15 trillion and the 50% is that is AFS and the equity ratio is 7% to 8%. And what is the past for us? That was your question.

The slides that we have shown you today and what we wanted to say is that we will be making stringent selection in investment and invest in the areas that would be more profit generating for us. And also, we will be investing more in infrastructure like the processing sector. We will be investing in areas where there will be generation of cash flow EBITDA target is JPY 1.1 trillion. And as for ROE, 8.5% or above, and you may think that it's low, but this will be a passage towards a more stable profitability and growth. In the past midterm plan, as Shikata-san has mentioned, the extraordinary loss control was not done so well. But in this midterm plan, we would like to do that more appropriately and stringently.

So I would like to focus on the cash flow. So your company, as I have been in charge of looking at your company for a long time, and it seems is that your interest in bearing that has significantly increased. And the reason behind that is nongeneration of enough free cash flow. So I hope that free cash flow would become positive and you would be able to improve the balance. So I hope that not only the P&L, but the balance sheet would improve in this midterm plan. You have mentioned about the GMS and in apparel and others. You mentioned that if it's unprofitable, then you're going to discontinue those businesses. Is there any category or business that is on the table now at this point of time?

Well, today, I would like to refrain from naming some. But by category, yes, it is not that we're going to quit whole apparel. There are various segments under apparel, and there is a PL and the management going on. So those segments are profitable or not creating profit, we would first identify whether it could be designed to generate growth or profit or not, and then we would decide what to do with that business. So this is, so to speak, sorting out the businesses. If we just continue ongoing with the existing business, and if you are just sticking to the concept that we need to keep everything on, then I think we cannot revive our business. So that is what I wanted to say.

In that sense from now? You're going to select the categories?

Yes, yes, from now on. Yes.

You talked about utilization of existing assets. And I think that you would be focusing on renovation, renovating drastically your existing stores. So compared to the past 5 years and coming 5 years, you would be focusing more on the renovation rather than newly developing facilities. So for example, ratio of the investment is changed. And I don't know what is the threshold for large investment and renovation the facilities, which are 20 to 30 years old. I think that you would be renovating those. And I was wondering what kind of scale that you're thinking in terms of the investment in renovation, the GMS stand-alone stores and also GMS with specialty stores.

We would like to utilize EO mall network to restructure those facilities for leasing and like the one that we have done in [indiscernible]. So KSA had bought the building. And after [indiscernible], we have gone in. And that building is very different from GMS and the customer base is different. So the existing Sudhanuma store has not seen drop in the customers. So we will be rearranging our stores according to the customer base in those areas. And in the past, everything was considered from the perspective of optimization for each company. So rather than doing that, we would like to utilize the malls know-how and introduced entertainment, amusement so that we can provide more value to the community.

As I have said, the our properties asset value is increasing and also the -- and now the newly building a store cost 1.8x more. And the we will not be able to generate profit unless it is a very good location. So investment in existing assets is very effective. So that's the area where we would be focusing on this fiscal year. So that's the message that we have. And we will be investing in these areas.

So in the past, you were investing in building new stores. And that portion probably will be decreased. Would there be a drastic difference in the ratio of new stores and renovation?

Well, it's not that we will be spent -- we would not be spending in new stores, but we will be spending more in the existing store renovation. So in terms of the shopping centers, it's becoming saturated in the market, and also there are -- so there are shopping malls, which are not located in good locations. But now the growth of the new shopping malls is in single digits. We already have the most in good locations. And we want to change the characteristics of the -- those shopping halls.

I have a question to Yoshida. Earlier, you mentioned about consumer mindset. Yes, because of the Middle East conflict people are rather in the saving mind. And short term, you are going to be doing a food retail restructure the consumer mindset and consumer behavior may change. And in the short term, I think you have to respond differently from a long-term response or addresses. So is there any difference there? And what is the short-term and long-term difference?

Basically, short-term measures, not rather, but we have to make a supply chain looking at the medium long-term trend or else you will have not a continuity. Because consumer, we want them to repeatedly come to our stores. So that's what we want to create. So we have 3 layers of top value, best price is rather reasonable, focusing on price mainstream, and we have additional. So 3 layers of top value. We want to establish this. Basically, table, your tables will be filled to stock value. That's we want to have and as many households as possible. We want to have that.

For example, 1 month, something would sell well, but we do not want that end. We want to consumers to continue to come to our stores. So best price in this environment, yes, we're selling well. because in the 3 layers, this is price-sensitive customer coming to this. But if things changes and maybe people want to spend more for the environment friendly, then they may come to the green beans. So we have 3 layers and waiting for the customers to come.

I'm Egawa, in charge of Finance and Business Management. Thank you very much for taking the time out of your busy schedules to join our IR Day. I would also like to express our sincere gratitude for your continued support of our company. We are currently in the final year of our medium-term management plan covering fiscal years 2021 through 2025. In addition, we plan to announce our new medium-term plan for fiscal year 2026 to fiscal year 2030 in April.

While today is not the occasion to discuss the specific details of that new plan, we believe it is important before it begins to first share the perspectives that form the basis of our thinking. This includes our current view of the environment, how we interpret the changes around us and the key challenges we recognize as the starting point for future discussions. Over the past 5 years, the environment surrounding the retail industry has changed significantly, diversifying consumer behavior, the rapid advancement of digitalization and shifts in cost structures following the COVID-19 pandemic. These factors have substantially altered the fundamental assumptions on which our group operates.

In response to these changes, Aeon has worked as an integrated group to advance structural reforms and strengthen profitability. Today's sessions will focus on the GMS business, the supermarket business and merchandising and logistics. We understand that these areas are of particular interest to many analysts and investors. These are also core businesses and functions that have a major impact on the group's overall capital efficiency and corporate value. For that reason, the executives responsible for these areas will take the stage and provide their perspectives directly.

In today's session, we'll look back on the 5 years of the current medium-term plan, share the management challenges we recognize today and discuss how we intend to address these issues as we move into fiscal 2026 and beyond.

From the standpoint of finance, it's extremely important that business leaders face these challenges directly and clearly explain how they intend to address them. This is essential for maintaining and further strengthening the trust we have built with the capital markets. Discussing growth without a clear recognition of issues would, in our view, make it difficult to advance in a direction that improves capital efficiency or enhances corporate value. For that reason, today's speakers will talk not only about past achievements, but also about areas where results were not sufficient as well as issues that remain challenges today as openly and candidly as possible. As the executive responsible for finance, my role is to continuously assess whether the initiatives of each business are leading to improved profitability, stronger cash generation and returns that are appropriate relative to invested capital and reflect those assessments in our management processes. In that sense, today's discussions represent an important step in that ongoing evaluation.

Through today's IR Day, we hope you will gain a clear sense of where the Aeon Group stands today, the challenges we recognize and how we are preparing for the next stage of our growth. Although our time today is limited, we have scheduled Q&A sessions after each presentation. Your candid feedback and questions provide extremely valuable insights for strengthening both our management and our dialogue with the capital markets. We would greatly appreciate your honest views. That concludes my opening remarks. Thank you very much.

I'm Furusawa, and I oversee the GMS business. Thank you for joining us today. First, I would like to express my appreciation for your continued support. Today, I'll outline our future initiatives for the GMS business. As shown on the screen, I'll cover 3 areas: the evolution of GMS, our recognition of key challenges amid environmental changes and our strategic initiatives going forward. While I'll refer primarily to Aeon Retail as a concrete example, the issues are common across the GMS operating companies and many initiatives will be pursued collectively.

Let me begin with the evolution of GMS. From fiscal year 2019 to fiscal year 2024, operating revenue increased to 115%, supported by business expansion through mergers and integrations. However, the operating margin improved by only 0.3 percentage points. We clearly recognize this as a challenge. Prior to 2018, we undertook the GMS structural reforms, but we were unable to build merchandise assortments that resonated with customers. This led to issues such as inventory accumulation, longer inventory turnover days and increased markdown losses. In response, beginning in fiscal year 2019, we launched a revival plan, prioritizing structural reforms directly linked to profitability, including inventory optimization and cost structure reform while responding to COVID-related challenges. This helped establish a more resilient foundation.

From fiscal year 2023, we shifted our focus toward revitalization and renewed growth. While continuing structural reforms, we worked to increase traffic and sales by expanding and enhancing food and health and beauty care sales floors, which offer shorter turnover cycles and faster capital recovery. At the same time, we began developing new sales floor models for apparel as part of our demand reform initiatives, and we accelerated the revitalization of existing assets. These efforts were positioned as reforms aimed at the next stage of growth. As a result of these initiatives, we have entered a phase in which we can accelerate the growth of the GMS business.

From fiscal year 2025, I assumed responsibility for my predecessor, Executive Officer, Mr. [ Ide ]. Since taking office, I believe that accelerating GMS growth requires a clear understanding of environmental changes and a decisive response to them. We view these changes both as risks to business continuity and as opportunities for business growth, and we intend to address both proactively. Among the key challenges we recognize, several require particular attention. Even food, which has driven growth to date, may face market contraction amid population decline and demographic aging. We must take this possibility seriously.

For food to continue growing, it will be essential to capture share from adjacent industries, including food service. At the same time, unless we rebuild the nonfood areas of apparel and home furnishing, we will not be able to fundamentally improve the retail profit structure, which remains the core of the GMS format. In addition, as the central consuming generation shifts toward younger customers, winning support from younger customers is an absolute requirement for sustainable growth. Alongside productivity improvement, securing new sources of earnings and developing new formats that incorporate them is an urgent priority. We share this recognition across the entire GMS organization and are moving with a unified sense of purpose.

Based on this, the vision we aim for in the GMS business is to realize a new comprehensive offering. We'll create a new one-stop value proposition that integrates products, sales floors, services, experiences and spaces. We believe that one-stop convenience has become a distinctive strength unique to us. And by maximizing this value, we can establish a clear competitive advantage. Within each category of this new value, our aim is to become a strong specialist that comes first to customers' minds. By adding to deliciousness and enjoyment, the value sought by local customers will become a community gathering place rooted in each region. This vision forms the backbone of our new GMS strategy. Specifically, we'll promote: one, reform of the profit structure in the retail business; two, maximizing earnings of the shopping center developer business; three, establishing new earnings businesses; and four, building the foundations that enhance execution.

We'll take a zero-based approach and reexamine long-standing practices and assumptions, identifying what to stop and what to change and carry out fundamental remodeling. Using the resources and personnel thus generated, we will drive reforms in both the retail and shopping center development businesses as dual engines. We recognize that reinvesting the profits generated by these reforms into new earnings businesses, our next growth engine and thereby shifting the portfolio is critically important.

From here, I'll outline the direction of each reform. The first and main pillar is reform of the retail business profit structure. Our top priority is reforms in apparel and home furnishing. Beginning with apparel, we recognize the fundamental issue lies in an overall lack of marketing capability. In particular, we have not sufficiently understood our customers or fully grasped the competitive environment. We must begin by acknowledging and reflecting on this shortcoming. Based on this recognition, we have identified 3 major directions for reform. Through innovation in sales floor models, product reform and the creation of new earnings streams, we aim to transform the overall profit structure of apparel and acquire new customers.

For the sales floor model, we'll evolve our approach from the customers' perspective, enhancing specialization across both merchandise and sales floor presentation. At the same time, we'll optimize selling space in line with shifts toward growth categories. In particular, we'll reinforce seasonal and occasion-based category events, one of the core strengths of GMS, and accelerate their rollout to existing stores. In addition, we'll strengthen our merchandise strategy along 2 axes, SPA and exclusive products. We'll continuously develop and launch SPA products in the basic category as well as introduce new merchandise development initiatives. We'll also strengthen the development of products and services tailored to multi-format operations. Furthermore, by creating and expanding new revenue sources and growth areas such as the share rental business, we will reform the profit structure and improve overall apparel earnings.

As one concrete example of these initiatives, the new sales floor model, which began with Funabashi in fiscal year 2023 has been expanded to 32 stores by fiscal year 2025. In November last year, we implemented a comprehensive revitalization at Aeon Style Kurashiki. As a result, apparel sales increased to 120% year-on-year and sales per square meter improved significantly, leading to a market enhancement in sales floor productivity.

As for product reform, in December last year, we launched the Topvalu X accelerant recovery wear innerwear. In this month, we are expanding the series with loungewear. We'll work to capture a leading market share going forward. Sales volumes have grown steadily since launch, and we intend to continue developing and rolling out a steady stream of products that combine compelling price and value.

Regarding the establishment of new sources of earnings, we'll develop product concepts centered on the basics domain that enhance the convenience of one-stop shopping, enabling customers to casually purchase fashionable items even in small stores and within food sales floors, and we'll expand these initiatives by leveraging our scale.

Next, turning to our initiatives in home furnishing. The fundamental issue is that Aeon Retail has not sufficiently defined the scope and positioning of this area. Similar to apparel, a lack of marketing capability has created a needs gap with customers, resulting in a continued loss of shares to competitors. We will clearly decide what Aeon should consistently develop and proceed with reforms to both the sales floor model and products to change the profit structure of home furnishing. First, we'll firmly determine the appropriate assortment domains and SKUs and optimize sales floor area. In parallel, we need to rebuild the price matrix that earns customer support. Based on this, we began verifying a sales floor model in fiscal year 2024 that reorganizes departmental domains to match the market.

We are also pursuing new initiatives and reallocated floor space, for example, expanding into the entertainment domain, and we'll take on the challenge of developing merchandise that attracts new customers. For our core HOME COORDY, we will accelerate SPA product development to evolve into a highly specialized format. We aim for a 100% composition of PB and exclusive products, and we will rebuild the brand concept accordingly. By strengthening the structure centered on the strong price competitive hero items, we'll work to expand both sales and profits. As a concrete example of home furnishing initiatives, starting in fiscal year 2024, we began verification at Aeon Style Dainichi, and the model has expanded to 7 stores by fiscal year 2025. At Dainichi, sales rose to 130% year-on-year and sales floor efficiency per square meter also improved.

The newly introduced entertainment domain is helping us acquire younger customers, functioning as a traffic driver to the upper floors. We believe this can generate positive spillover effects for the entire facility. Alongside the expansion of the enhanced leisure model, we are also building home HOME COORDY street within the general merchandise areas and the food sales floors, deploying high-frequency HOME COORDY items such as kitchenware and sundries to strengthen one-stop shopping value and enhance customer convenience. Through these product reforms, we'll clarify focus areas, rebrand and strengthen SPA product development with the goal of achieving 100% PB and exclusive products.

Next, food and health and beauty care. We have been addressing these challenges since before last year, and we have been building destinations centered on fresh and delicatessen where we can compete and differentiate ourselves. With deliciousness as the absolute premise, we'll pursue experiences and enjoyment that only the GMS can provide.

As a sales floor that embodies this strategy, in the meat category, we introduced a new MEAT PARK sales floor, combining the fun of choosing experiential elements and convenience, starting last October at Aeon Style Itabashi. Sales there have increased significantly to 130% year-on-year.

In health and beauty care, to differentiate ourselves from drugstores, we are building a beauty destination and attracting younger customers. We'll enhance the experiential value unique to physical stores and strengthen the development and rollout of distinctive private brand and exclusive products. We introduced this enhanced beauty sales floor in October at Aeon Style Dainichi as well, where beauty sales have grown to 115% year-on-year, with a particularly strong increase in younger customers. As I mentioned earlier, the key is to horizontally deploy the critical success factors of these sales floor models to existing stores.

We'll continue to refine them through repeated verification and improvement, always from the customer's perspective. Through these product reforms, we aim to elevate the value we provide to the point where we become the first brand that comes to mind for customers in each category.

By way of example, as a category positioned to capture share from the food service market, we have made pizza a company-wide focus this fiscal year. In fiscal year 2025, sales have expanded to 150% year-on-year as we actively work to capture share from the home delivery pizza market. We are confident in the outstanding quality and taste of this product, and we sincerely hope you will have the opportunity to try it.

As demonstrated by the pizza example, our most important objective is to continuously create categories in which we become top of mind for customers, not only in food, but across our business. Going forward, key food categories include yakitori, fresh desserts, cut fruit, service counter seafood and sushi. In nonfood, we see opportunities in areas such as school supplies, umbrellas and various fashion accessories. The functional accelerant line mentioned earlier is another example. Our core product development principle is how many reason-to-visit items we can create, items that give customers a reason to choose our stores, and we will advance these efforts proactively.

We will then further refine our expertise in categories where we can be top-of-mind for customers and selectively evolve them into strong specialty format businesses. For example, in the growing share rental market, we operate LULUTI, a rental dress business, Doublefocus, a merchandise line to acquire younger customers, and Aeon Smile, a life support service addressing the needs of an aging society. In light of environmental changes, these specialist businesses grounded in customer perspective and market trends have begun to produce results. These are integrated merchandising and sales specialist businesses, and we will strengthen their creation and development as part of the reform of the retail profit structure, thereby changing the overall profit structure of the retail business.

The second reform is maximizing earnings in the shopping center developer business, which we will drive in tandem with the retail business as twin pillars. Our key challenge is improving the profitability of our older box type stores, which account for nearly 60%. However, these properties are located in strong trade areas with established customer bases. We believe that revitalizing these assets presents a significant opportunity to transform our profit structure.

Our reform directions are threefold: revitalization, rebirth and selective scrap and build. Based on market conditions and regional needs, we'll remodel entire facilities and create community gathering places. Most recently, at Ichikawa Colton Plaza, which we inherited from Daiei, we reopened it last November in a rebirth format. By developing new sales floors that align our latest Aeon Retail merchandise with local demand, sales have increased by approximately 30%, reaching 130% compared with pre-succession levels.

Through fiscal year 2024, we have introduced the [indiscernible] format in 14 locations, mainly for new stores and box type revitalizations. Built around the concepts of community, commodity and one-stop convenience, while further study is needed on profitability, the format has gained solid customer support, although further refinement of profitability remains an important task. To further establish this model, we formed a dedicated project team this fiscal year to revisit it once more. We are planning additional pilots from fiscal year 2026. And while checking and establishing profitability, we aim to expand to around 40 locations by fiscal year 2030 and position it as our next growth format.

The third reform is the establishment of new earnings businesses. As a concrete example, let me discuss our retail media business. We have not been fully utilizing our store spaces, GMS asset as a revenue-generating asset for the future, and we believe it is important to put them to work for earnings. Our direction is to leverage all assets, spaces, sales floors, customer traffic, shopping centers, our membership base, apps and e-commerce, and organically connect them, enhance advertising value and strengthen the business of converting space in profit. Anchored in our physical stores, we will link advertising, sales floors and information to improve customer experience value, increase product sell-through and feed insights from data analysis and sharing in the next initiatives.

As one example, our collaboration this fiscal year between our prepared foods Karaage brand, [indiscernible] and Coca-Cola produced approximately double year-on-year sales for both parties. The co-purchase rate also rose sharply, contributing to branding and the growth in sales and profits for both. In this way, we will build a win-win ecosystem that circulates benefits among customers, business partners and ourselves and expand the business.

The fourth reform is building the foundations to enhance execution. Given the declining working population and persistently rising costs, it is clear that the traditional business model will no longer be sustainable. We recognize that we are reaching the limits of prior cost structure reforms. As I mentioned in the framework of the GMS reforms, it is essential to revisit long-standing practices and assumptions from a zero-based perspective and remodel business operations to raise productivity.

We see 4 major directions for reform, reducing indirect costs, cutting headquarters and head office costs, digital transformation of the supply chain, incorporating new domains such as RFID, radio frequency identification, strengthening training systems by expanding the job scope per employee and accelerating in-store digitalization to eliminate on-site pain points and improve operational efficiency. The labor hours created through these initiatives will be shifted to customer value-creating activities and tasks such as customer service and new businesses. Through this, we will drive growth.

Finally, on March 18, we will showcase our initiatives at Aeon Mall Tsudanuma South, which will grand open as a store that incorporates the key elements of the new GMS model with reforms in products, merchandising and sales floors. While we are still in a transitional phase and in the midst of evolution, we would very much like you to see the sales floors and products firsthand and experience our initiatives directly. That concludes my explanation of the GMS initiatives. Thank you for your attention.

In the GMS business, profitability has been sluggish for several years. Among top line growth, margin mix improvement and structural cost reform, which area is the highest priority?

Our highest priority is a fundamental redesign of the sales floor and the earnings structure, especially in apparel and home furnishings. Today, sales area allocation, actual demand and customer needs are misaligned. Correcting this mismatch is by far our most critical task. At the same time, we are working to improve gross margin by redesigning our product development process and optimizing sell-through, markdowns, pricing and inventory turnover. These end-to-end processes will be rebuilt using AI and related technologies.

As labor and other costs continue rising, we'll mitigate those pressures while steadily improving the profitability of our existing businesses. Ultimately, we aim to shift the profit structure of the retail business itself.

You plan to revamp the apparel sales floor. Will you reduce sales area? How the roles with specialty stores and product mix direction evolve?

We are not planning a major reduction in sales area. The focus is on refreshing the assortment. We are underrepresented in brands for younger customers. So we will broadly expand casual categories, casual wear, accessories, footwear and bags, innerwear and loungewear, while reducing areas with persistent underperformance. Regarding roles with specialty stores, some categories operate as stand-alone specialty formats, while others such as GFoot and Topvalu collection operate on integrated sales floors. Rules will differ by department with some strengthened as SVA type areas and others organized around trend-driven assortments. Our direction is a unified and coherent sales floor.

At Aeon Mall Funabashi, we shifted layouts from industry-based classifications to scenes and occasions. This revealed gaps between our assumptions and customer needs. We are addressing these one by one, including rebalancing space. Aeon Style Kurashiki added missing categories, loungewear, casual wear for older adults and men's daily wear, and optimized the layout based on customer feedback. We will continue evolving this model.

You have improved productivity using self-checkout and AI ordering. Where do you see the next areas of medium- to long-term productivity gains?

Over several years, we have built the foundation for a more efficient model. AI ordering, AI pricing and self-checkout have delivered major labor hour reductions. Hardware investments are now largely complete, so we will pivot to software and operational improvements. Priorities include increasing AI ordering accuracy and employee proficiency, enhancing online supermarket operations, order picking, assortment, UI, UX and reducing indirect costs at headquarters. A dedicated DX and operations reform team has been established. Process center development will take time, but by advancing initiatives in parallel, we expect further productivity gains.

I'm Hide responsible for the Supermarket business. While the supermarket business spans a wide range, today, I'd like to focus on one of its strategic pillars, the capital region strategy. Before doing so, I'll briefly look back on the overall business and then highlight the key initiatives of U.S.M.H, where I have assumed the role of President and CEO since May as well as selected points on our strategic small format operator, My Basket.

Looking back over the past 5 years, operating revenue in the supermarket business has exceeded JPY 3 trillion annually, supported by organic growth and business integrations with Fuji and Inageya. However, operating profit varies among the companies. While some have steadily delivered higher revenue and profit at the segment level, we still see stagnation due to factors such as a rising SG&A ratio. There remains considerable room to improve both gross profit and SG&A, and it is essential that we accelerate reforms while enhancing execution.

As for our view of the environment, we recognized dramatic changes such as inflation, demographic change, including population decline, climate and geopolitical shifts and a weaker yen. Against these dramatic changes, we'll proceed with a clear understanding of the challenges, clarify our current position and issues and execute reforms.

Let me turn to our regional shift initiatives. As we have previously explained, our group has been promoting management integration with the aim of becoming the #1 retailer in each region, rooted in the daily lives of local customers and contributing to local communities, and we've advanced management integrations accordingly. Food has strong regional characteristics, and we have managed our business with careful attention to such differences. As already communicated, the East-West reorganization of the supermarket business will take place on March 1. MaxValu Kanto, Daiei's Kanto business, and Aeon Mall have integrated management in the East, while Daiei and KOHYO have integrated management in the Kinki region at the same timing. We plan to provide further details through a formal announcement.

Within our regional shift program, the most important priority is the capital region strategy. Needless to say, the Tokyo Metropolitan area remains a growth market with an outlook for population increase and a high proportion of younger consumers. Trends change rapidly and new needs emerge daily. The market also evolves quickly and competition is intense. In this market, through a multi-format approach, U.S.M.H's 4 chains with physical stores, My Basket, and the online business, Green Beans, we intend to address the full spectrum of customer needs and expand our share.

This slide shows the basic business policy introduced this fiscal year when I assumed responsibility for the GMS business. In the face of significant environmental change under inflation, we are executing a growth strategy centered on building stores that earn customers' support, together with the supporting foundations and cost structure reform. We have also specified focused items under both the growth strategy and the profit structure reform. In particular, this fiscal year, we have emphasized value, defined as quality relative to price, B equals P over Q. We are pursuing both elements and implementing price strategies commonly across companies.

Each company has revised its price structure and strengthened sales through KVC, key value categories, and KVI, key value items. Recognizing that cross-format competition will intensify further, we have also begun establishing new growth formats. Allow me to reflect on U.S.M.H, which is central to the metropolitan strategy. Since its launch in 2015, U.S.M.H has worked to build common functions and infrastructure so that its 4 companies: Maruetsu, KASUMI, MaxValu Kanto and newly added in fiscal year 2024, Inageya, can each leverage their strengths.

We have undertaken a variety of new initiatives. However, in terms of group synergies, our efforts remain largely superficial. As a result, we failed to translate them into growth and competitiveness. We take this to heart. Accordingly, upon my appointment in May, we launched a 100-day reform plan, and within the first 100 days, set strategic directions for reform. From March onward, we will advance reforms in tandem with organizational function reviews and reorganization. Specifically, we will unify KVI, KVC across the 4 companies, jointly procure new seasonal and topical products and leverage the Aeon Group's best resources to drive traffic and basket size.

Starting in Maruetsu, we are introducing WAON POINT, thereby capturing demand within the Aeon Living Zone and expanding membership. While strengthening collaboration among the 4 U.S.M.H companies, we are also deepening ties with Aeon Holdings. As shown here, we are particularly moving towards shared use of logistics centers, shared use of points and as Mr. Furusawa noted earlier today, initiatives in retail media.

Looking ahead to the next fiscal year, which starts in March 2026, we'll further develop our basic policies and promotion framework through 3 reform strategies. First, for area strategy, we'll shift from company or banner-based strategy and management to area-based management. Second, for store strategy, given the variety of store sizes in the metropolitan area, we'll build store models aligned to 100 subo, approximately 330 square meters, 300 subo, approximately 990 square meters, and 500 subo plus, approximately 1,650 square meter formats.

For structural reform, we'll move away from company-specific or U.S.M.H-specific partial optimization toward overall optimization. In fiscal year 2026, we'll begin functional integration, reviewing functions and, in parallel, moving toward Aeon Group standardization across product, logistics, IT, HR and accounting, including back-office integration. At U.S.M.H, we are firmly executing new growth models outlined in the basic supermarket business policy. This fiscal year, across both urban and rural areas, we are focused on strengthening fresh and delicatessen and on revitalization with a low price emphasis. In our sales floor and operations reforms, we have reset categories in line with market growth rates, narrowed SKUs by raising per SKU productivity and reviewed staffing and store organization. As a result, the top line has grown sharply, and we are seeing solid traction in sales.

As I will note later, by advancing upstream supply chain reforms from logistics to process centers, we will work to increase total gross profit while raising the top line and, in parallel, reduce SG&A.

Another concrete initiative is the redevelopment of the Aeon Food Style format. This is an approximately 300 subo model, primarily for dense urban areas. Last month, we opened MaxValu Express Sagamiono. Initial results have been steady from the first month. That said, the current deployment is under the MaxValu banner, and we position Sagamiono as a zero number pilot store. The site is a little over 200 subo, smaller than the 300 subo concept, so not all elements are in place. Going forward, centering on fresh and delicatessen, we will pursue merchandising that leverages the strengths of the 3 companies: MaxValu Kanto, Daiei and Aeon Market. The 300 subo Aeon Food Style model aims to deliver a sense of freshness, energy, fun and affordability.

We will strengthen fresh, tasty and especially convenient delicatessen offerings and enhance proposals targeting family households. Over the next 5 years through fiscal year 2030, we intend to complete revitalization across the entire Aeon Food Style chain. This fiscal year, we are prioritizing the 23 wards of Tokyo and preparing to revitalize around 20 stores. We plan to announce details of the first new Aeon Food Style store shortly, ahead of the March opening, and we invite you to see it.

For U.S.M.H overall, in fiscal year 2026, we are planning roughly 15 new stores and a little over 40 store renewals. These plans are currently under validation.

Let me turn to My Basket, which plays a key role in our metropolitan multi-format strategy. Since opening its first store in 2005 as a small trade area format that delivers low prices and quality every day to urban consumers, My Basket has pursued reforms focused on sales floor efficiency and increasing shopping frequency under 4 concepts: near, low price, clean and friendly. It has since grown into a format capable of stable growth and profit generation. As at the end of February 2025, My Basket has exceeded 1,200 stores.

To improve management and logistics efficiency, brand recognition and the reproducibility of this store model, we have limited the trade area to the metropolitan region and pursued dense area-based openings rather than scattered isolated dots. We are reinforcing our dominant presence, particularly in Tokyo's 23 wards, Yokohama and Kawasaki, areas with little scope for large-format openings, while also expanding into Saitama, Chiba and the Tama area. Looking ahead, we will raise new store openings from the current level of about 100 per year currently to 150 and then 200 per year. And as already announced, we will establish a 2,500-store network by fiscal year 2030.

From next fiscal year, we'll strengthen the organizational capabilities for site development and construction to support this high velocity opening plan. In addition to new openings, My Basket is also revitalizing existing stores, many now more than 5 years old. As with supermarket and the food sections of GMS, priorities include expanding frozen food space, expanding delicatessen and rolling out self-checkout systems, including cash capable and cashless units. For example, since My Basket launched 20 years ago, household spending on frozen foods has expanded to roughly 2.4x its level at the time. In response to the significant market shift and rising customer demand, we are resetting categories. By introducing both cashless and cash accepting self-checkout systems and redeploying labor from register operation to customer service, even small stores can support customers effectively with lean staffing.

A further strength of My Basket is its use of group assets that would be difficult for a stand-alone operator. In addition to handling competitively priced private brand products, My Basket optimizes its assortment by leveraging best sellers from Aeon Group's GMS and supermarket businesses. Using the group supply chain, it has begun receiving popular delicatessen items from Aeon Food Supply's crafted delicatessen line, thereby improving daily sales and sales per square meter.

Leveraging group scale, we are also reducing costs on national brands, including logistics. From this fiscal year, we have further advanced group-wide joint promotions and joint products such as Black Friday, tailored for supermarkets and for My Basket, aligned with seasonal events to enhance differentiation. We'll continue to customize and deploy group assets to raise customer satisfaction and lower costs.

Store operations are equally critical. My Basket pursues simplification, standardization and 3-shift operational optimization, enabling each part-time and hourly associate to perform their complete tasks. This supports lean staff store operations and enables high velocity openings. One core mechanism for operational standardization is our initial training center. These are store adjacent facilities that handle recruitment, onboarding orientation and pre-assignment training. We previously operated 3 locations: Yokohama, Shinjuku and Iidabashi. But in light of store expansion, we have opened a new hub in the Funabashi area to better serve employees in Tokyo's Eastern wards and Chiba. Over 2 days, the training center provides classroom instruction, register training, work rules and customer service education and on-the-job training in the co-located store, including register operation, customer service and shelf maintenance tasks such as front-facing and replenishment.

I have covered key points of the U.S.M.H initiatives and of My basket. Importantly, this applies equally to the supermarket business as a whole. We'll intensify the development of strong hero items and signature products while reallocating and developing talent across U.S.M.H companies. We'll integrate functions across the supply chain, joint promotions, joint procurement products, commercial flow integration and optimization and maximize group synergies through the use of shared Aeon assets and services such as Topvalu and iAEON.

Over the next 2 years, we'll make the necessary investments in digital systems to standardize processes and lift productivity. Aeon, U.S.M.H and each company will coordinate closely to promote reforms, and, together with My Basket and Green Beans under the Metropolitan strategy, will return cost reductions to more customers, and through a reinforced supply chain mechanism, deliver value products sustainably.

Because the supply chain program includes elements that require time, not all effects will appear immediately. We believe the initiatives in the metropolitan area will extend beyond the metropolitan strategy and diffuse across the group. In this medium-term plan, we'll firmly advance logistics reform and the process center strategy and make information systems and digital investments, including productivity improvements to further amplify group synergies at Aeon Food Style and Shinsei Daiei. We'll continue to fulfill our accountability through earnings announcements, shareholder meetings and other reforms where we can report progress.

That concludes my presentation. Thank you very much.

What will be different in the next medium-term plan given past challenges of low profitability businesses?

Low operating margins remain our biggest challenge. The last 5 years have shown the limits of our previous approach. We'll scrutinize new store investments and prioritize revitalizing existing stores. Inflation has raised construction costs and breakeven sales. The Aeon Group holds benchmark assets in the Tokyo Metropolitan area centered on U.S.M.H, assets competitors cannot easily replicate. We will leverage this strength to maximize value. Revitalization must extend beyond the front end into the supply chain, digital, logistics and process centers, so margins and SG&A become structurally manageable.

U.S.M.H was formed over 10 years ago, yet profitability remains challenged. How will you drive cultural and organizational transformation?

Past initiatives were individually optimized and urgency was not fully shared. We identified negative legacies, including investments without returns. Upon taking office, I launched a 100-day reform plan and strengthened communication via monthly joint morning meetings. We clarify what must change and how the organization should evolve. I also explained Aeon Group's DNA and philosophy monthly, reinforcing shared understanding. Senior management is aligned. As the mindset spreads, we are confident U.S.M.H will be reborn.

Why is My Basket strongly supported? What challenges lie ahead in expanding to 2,500 stores?

Price competitiveness is the biggest driver, supported by convenience. To double the store count, infrastructure, process centers and back-office functions must be expanded. Rising costs require improvements as well. We will leverage group assets to generate synergies across My Basket, supermarkets and health and wellness companies.

My Basket generated around JPY 8 billion. Is the model complete? And are you considering franchising?

We are not considering franchising. Despite strong recent performance, the model is not yet mature. Process center capacity is insufficient for larger scale. So rapid acceleration would not be appropriate. We will continue reforms while anticipating change.

What organizational updates support cross-company growth at U.S.M.H?

Some headquarters functions were consolidated, but full integration is needed. Historically, 5 headquarters existed in parallel. We aim for a single integrated system. Information infrastructure has been insufficient and logistics was siloed by company. Investments in logistics, process centers and digital will create a shared platform.

I'm Tsuchiya, responsible for merchandising and logistics. Thank you for being here today, especially in the rain. Following last year's IR Day, I would also like to offer remarks again this year. I'll first review progress under the current medium-term plan and look back on fiscal year 2025, and then briefly outline our merchandising and logistics policies. This slide shows progress on the key merchandising and logistics initiatives in the current medium-term plan.

First, on aggregating demand for national brands. Aeon product procurement is on track to exceed JPY 1 trillion in total procurement for the first time this year and continues to grow. Second, on creating and proposing unique value products, as planned, private brands are set to reach JPY 2 trillion in sales this year, of which Topvalu will account for JPY 1.2 trillion, fully in line with the plan. Third, in building group food hubs, operations began at the Craft Delica Funabashi facility in June 2024. And we strengthened functions further by launching the new Niigata process center in April 2025. Fourth, on optimizing the supply chain. We are prepared to introduce a group-wide common product master. This is scheduled to go live in August 2026.

Let me first reflect on fiscal year 2025. As you know, cost push inflation amid ongoing socioeconomic, climate and geopolitical factors increased essential living expenses and, in our view, weighed on quality of life. We aim to help alleviate that burden and help customers regain richness in daily living, eating well, staying healthy and enjoying life. Under inflation, our product work focused on the dual axis of price and value. On price, we executed price reductions, increased pack sizes and reformed the procurement process for private brands. These price and pack size initiatives increased sales for both national brands and private brands and earn customer support.

Regarding the PB procurement process reform, we revisited how we source, scan the world for supply sources and examine the entire 7-step supply chain process to eliminate waste, asking which country offers the optimal option for each case and conversely, where another country might be superior and change procurement accordingly. As one example, best price tissues without our cartons removed were among the first products under that reform. By significantly improving the margin rate and reshaping the sales floor, we expanded gross profit. As shown here, gross margin rate rose by 13%, and we are showing this approach across teams as we develop our Topvalu product developers in world-class talent. We'll continue these efforts in fiscal year 2026.

A second example on value concerns cocoa. With cocoa bean prices surging and broader issues around the cocoa industry, we codeveloped with an overseas supplier, a chocolate-like product that does not use cocoa. In June last year, we launched Choco ka, which uses sunflower seeds as its main ingredient. Although it contains no cocoa beans, it offers a taste, sweetness and smoothness like that of chocolate. It has earned strong repeat purchases. Roughly 8 months after launch, full-scale launch began in summer. Cumulative sales surpassed 1 million packs.

We'll continue to meet diverse needs and deliver fun and excitement in daily life. For baby food, the Fun Fun Smile series draws on learnings from Sweden, a country advanced in child care. These products carry JAS organic certification and are developed largely in line with Codex standards. We expanded the lineup, such as easy-to-use weaning ingredients to support busy parents. Rice was a major topic in 2025. When the government announced the release of reserved rice through discretionary contracts last May, the group immediately bid for 20,000 tons. Beginning in June, we started sales in 4 stores nationwide and then expanded handling across 26 group companies. Many customers told us they were finally able to buy rice again. As rice distribution volumes decreased from 2024 and continued tightness was expected, we also imported U.S. grown Calrose rice. After pilot sales began in January last year, we rolled out Calrose rice Karoyaka nationwide in June. In 2025, we focused strongly on how to ensure stable rice supply for customers amid tight market conditions.

Turning to logistics. In fiscal year 2025, to secure stable product supply within the group and optimize logistics efficiency, we launched 3 cross-docking centers and 1 process center. These initiatives have shortened store delivery distances and improved center operational efficiency. To further support metropolitan area stores, as Mr. Ide also mentioned, we started up a dedicated small supermarket distribution center in Kawaguchi, Saitama, in December 2025. Here, robots depalletize cases in sequence, which are then stored in shuttle racks for sequencing, and using our in-development warehouse execution system, automatically compute cart loading. Items are discharged in a calculated order and robots stack them.

With [ rivers ] that pick 2 cases from vertical and horizontal directions, stacking is faster than manual work, an important advance amidst tightly work conditions. Robotics projected handed over from my predecessor has been progressing smoothly.

Estimated results for fiscal year 2025 at Topvalu and Aeon product procurement are as follows: Topvalu sales are expected to reach JPY 1.2 trillion. Including specialty PBs and unique products, we are on plan. Joint procurement by Aeon product procurement is expected to exceed JPY 1 trillion for the first time, both figures surpass last year's levels.

Let me touch on the relationship between Topvalu growth and overall figures. For the period from March 2025 to January 2026, total sales for the group were 104% of the prior year. Breaking this into the Topvalu and national brands, Topvalu sales were up 7% year-on-year and customer traffic up 1.2% year-on-year, thus driving overall results. As noted last year, Topvalu's margin rate has continued to rise. Versus March 2025, the latest February figure shows an increase of 0.7% overall. Especially in best price, where we pursued cost structure reforms to reduce COGS, margin rate expanded by 1.5%. We believe that expanding Topvalu lifts both sales and profit.

Our policy framework is to create store sales floors through products that make customers say, this store is fun, exciting and a good deal by delivering competitively priced value-rich products. We will pursue 3 initiatives: one, promoting scientific rational merchandising; two, strengthening price strategy; and three, delivering value products and communication. First, to promote scientific rational merchandising, we will establish a group common product master. As noted last year, we are integrating dispersed product IDs across the group and mapping them to the international GS1 standard. This unified master will raise data accuracy for product information customers seek and expand what we can communicate, benefiting not only product analytics, but also customer-facing information.

Consolidating registration work currently done separately by each company will improve group-wide efficiency and allow teams to focus more on their core work. We plan to start with 16 group companies around August to September 2026 and expand further in 2027. Here is the rollout schedule for the common product master. In August 2026, we'll introduce it for grocery, liquor, daily frozen and H and BC across 16 group companies. From 2027, we'll extend target categories to nonfood and expand participating companies. From fiscal year 2028 onward, our goal is to have it operating across all categories and preparations are underway.

Second, on price strategy, we will reexamine the group supply chain and build an overall optimization scheme. Rather than simply cutting retail prices, we'll understand cost structures across the entire supply chain and act to realize value pricing. This started with Topvalu, and we'll broaden this approach so that everyone can execute it. We'll advance assortment commonization and commit to greater logistics consolidation. By repeatedly verifying results after execution, we'll establish the optimal group-wide scheme.

Next, let me outline initiatives at the 3 function companies that underpin price strategy. Aeon Topvalu will work to grow sales from JPY 1.2 trillion in fiscal 2025 to JPY 2 trillion. Specifically: one, expand sales by clarifying competitive approaches by domain; two, strengthen adaptation to each format, such as drug stores and small supermarket; three, expand best price in the fresh to deliver value pricing; and four, offset cost increases by jointly procuring fresh delicatessen ingredients group-wide.

First, we'll clarify 4 competitive domains for Topvalu. In the upper right quadrant, where support for national brands has declined and the Topvalu mix is 30%, for example, frozen vegetables and frozen fruit, where Topvalu accounts for around 90% of category sales at Aeon stores, we will compete strategically with Topvalu, raise mix ratio, revisit procurement processes and improve profitability. In the lower right quadrant, where NB support has declined, but the Topvalu mix remains low, we will expand sales floors and supply and compete across the entire category, including NB. Our goal is to raise the Topvalu mix and develop these into upper right quadrant categories. Because Quadrants 1 and 2 are growth domains for Topvalu, we will prioritize these in fiscal year 2026 and strengthen competitiveness. In the upper left quadrant are categories available only from Topvalu. Choco ka fall here.

Next, adaptation for growing in-group formats, drug stores and small supermarket. In drugstores, following the integration of Tsuruha Holdings and Welcia Holdings, we are developing dedicated products and rebuilding the logistics setup. For urban formats, we are developing Topvalu items tailored to single-person households, including small-sized packs. For example, at My Basket, we are incorporating customer feedback such as make seasoning smaller so I can use them up. On sourcing ingredients for fresh delicatessen, as a countermeasure to rising input costs, we will expand group joint procurement for ingredients used in process centers.

By consolidating procurement routes currently handled separately by each company's process center, we expect cost reductions. Beyond joint procurement of ingredients, we'll also review the entire supply chain for fresh delicatessen from product sourcing and manufacturing to logistics and sales.

Turning to Aeon product procurement. We'll focus on 4 areas: one, supply chain reform; two, forward buying; three, commercial flow reform; and four, a new ECR and frozen strategy by region. Through these, we will pursue JPY 1.5 trillion by fiscal year 2030.

On logistics reform, centered on Aeon Global SCM, also touched on by Mr. Ide, under today's cost environment, logistics costs will continue to rise if left unaddressed. We must share information that visualizes not only inventory and sales, but also future procurement plans. In tandem with the function companies, we'll strengthen and optimize joint procurement capabilities, secure capacity and drive labor saving as we scale, including investment in new centers and promote DX, including robotics.

The prime DX goal here is inventory reduction. As inventory rises, logistics costs rise. We will invest in DX to optimize inventory levels.

Finally, on value products and communication, let me share some Topvalu examples. Last year, together with Aeon Retail and MaxValu companies, we ran Cool Day Action, our extreme heat countermeasure campaign during a summer that was long and hot. As part of this, Topvalu implemented a heat countermeasure HQ promotion. Managing extreme heat is increasingly challenging. What sells in mid-summer is changing and as autumn shortens, some autumn items sell less. We are visualizing these changes through data and focusing on what to make and when to sell. This year, we will further evolve products and successfully launch new items such as drinkable ice slurries to be frozen before drinking and ready-to-eat frozen crispy chicken skin.

A small, but telling example are Topvalu ice bar that splits into 2 sticks. Younger customers asked whether Topvalu had invented such a breakthrough product. In fact, this type of product has existed since the Showa era. It reminded us that items from past decades are new to today's generation.

Second, our environmentally conscious initiatives. In line with Aeon's environmental guidelines, Aeon Topvalu targets a 30% reduction in fossil-based plastics by fiscal year 2030 versus fiscal year 2018. In fiscal year 2025, all products in development were environment conscious. We will continue drawing on external expertise to advance downsizing use of recycled materials and paper conversion. One of our biggest successes was making PET bottles rectangular. By changing the shape, we increased the number of bottles per case and reduce case size for the same volume leaders, thereby cutting costs and environmental impact. We will keep building such wins one by one.

To communicate product value, we'll leverage group capabilities, specifically the skills of Aeon Demonstration Services. Without high-quality execution at the point of sale, service is incomplete. Aeon Demonstration Services aims to be a true professional organization that conveys product strength through demonstrations at a consistently high level. In 2026, we'll triple the number of so-called super pro demonstrators to 620, strengthening the team, and through customer experiences, driving both customer traffic and average spending per visit.

Lastly, and as announced in the news release today, fiscal year 2026 marks Aeon's 100th year as a corporation. Aeon has continuously adapted to environmental change and pursued innovation with the aspiration to contribute to society. For this centennial milestone, we'll prepare offerings that embody Aeon's essence and convey our gratitude to customers who have walked with us. We look forward to sharing our thanks with many customers. That concludes my explanation of our merchandising and logistics strategies. Thank you very much.

What has changed in PB strategy? How will operating company PBs be positioned?

Mainstream and Green-Eye PBs are growing 7% to 8% annually. Best price is growing even faster. We strengthened margins through disciplined cost measures and improved structure. Green-Eye continues to gain support, especially among younger customers. Value-added items such as Choco ka will continue. Standard items will be unified under Topvalu, while specialized areas such as high health value items will remain under each company's PB.

What is the long-term target for food PB mix? How will pruning and renewal be balanced?

Mix targets will be disclosed in the next medium-term plan, but the direction is to increase the mix. We must avoid a sales floor that feels entirely Topvalu and boring. The goal is a floor chosen because Topvalu is present. PB penetration varies, so we are building common logistics and system platforms to enable expansion. Reforms are progressing and PB handling is increasing.

What is the status of regional PB development?

Regional PBs remain a priority. Maxvalu Tokai has established a self-sustaining model, which is being rolled out in Aeon Kyushu and Aeon Tohoku. Regional buyers are learning PB development methodologies, including Topvalu processes.

How will logistics be segmented and shared? What is the schedule for capacity investments?

Logistics is a top priority. The schedule will be included in the medium-term plan. Distribution center roles will be clarified. Small format areas will focus on peace picking with narrow SKUs. Broader assortments require separate designs. System integration, ordering, forecasting, inventory optimization will build a common platform. Process centers, while requiring a multiyear commitment, will be developed with urgency. Labor shortages constrain in-store deli production, while central kitchen quality has improved. Our pack usage will be expanded.

How much impact will AI have on supply/demand, ordering and inventory optimization?

AI forecasting began with overseas stores Topvalu items. Despite initial resistance, AI proved more accurate than manual forecasts. AI is expanding in the procurement and will extend into logistics planning. Step by step, we are moving from individual optimization to end-to-end supply chain optimization.

My name is Yoshida, and I'd like to thank you for joining us today for the earnings briefing. First, I would like to begin by offering my sincere apologies. As publicly announced on September 1, we confirm the mislabeling on the expiration date, such as rice balls and 25 MINISTOP stores, a subsidiary of our company. As a company engaged in the food business, ensuring food safety and security is one of our most important responsibilities.

I apologize for the actions that betrayed the trust of our customers and many others. MINISTOP is implementing comprehensive measures to prevent any recurrence. And as a group, we will make every effort to strengthen governance and restore your trust.

Today, I'll provide an overview of our first half financial results and progress on our key initiatives, followed by a detailed report on the first half performance from Mr. Egawa, our Executive Officer in charge of Finance and Business Management. As you can see on this slide, we delivered strong performance in the first half. We achieved growth in both revenue and profit at all levels. Operating profit reached a record high for the first half, continuing the strong momentum from the first quarter. Regarding net profit attributable to the parent company, the first quarter recorded a loss due to factors such as losses related to the M&A of a financial subsidiary in Vietnam and onetime tax impacts associated with domestic restructuring. However, the second quarter saw a recovery, resulting in a net profit for the first half overall.

Turning to the current consumer landscape. Some reports point to an upward trend in the economy and resilient personal consumption, citing factors such as the Nikkei stock average, reaching a new high. GDP growth driven by personal consumption and upward revisions to personal consumption in the monthly economic report. However, we believe the actual economy from the consumer perspective has not yet reached that phase.

As a retailer, Aeon is always in close touch with consumers. In addition to analyzing consumption trends, we place great importance on hearing directly from both our frontline employees and customers. We are committed to understanding the real economic situation in people's daily lives and responding to their needs.

The CPI for food, which makes up the larger share of household spending has remained around 7% to 8%. This doesn't indicate healthy growth, but rather reflects the fact that people have little choice but to accept price increases.

This is often referred to as the polarization of consumption. During this year's Obon holiday period, however, spending was more cautious with fewer people traveling or returning home and more people choosing affordable nearby and quick activities. On the other hand, as exemplified by supporting favorite artists or characters, there is a strong desire to spend on leisure and hobbies, reflecting a tendency to seek relief from stress and anxiety. We observed that many people face this dilemma, experiencing not only financial but also significant mental stress.

In daily life, people want to maintain their standard of living as much as possible. During leisure time, they want to enjoy hobbies and entertainment without worrying about high prices. We aim to meet these needs through our business activities while also expanding corporate profits.

In response to heightened cost consciousness in daily life, we'll continue improving products, focusing on our private brands. Since the latter half of last fiscal year, our group policy is focused on emphasizing affordability through TOPVALU best price, which helps us ensure overall gross profit. TOPVALU sales exceeded JPY 590 billion in the first half, setting a new record high and continuing double-digit growth. During the half year period, we renewed 460 items. We enhanced value through price reductions and extra volume promotions, offering customers more for less.

We are also developing alternative products that provide new value for items affected by issues such as price surges and supply shortages. For example, our new alternative product called Is It Chocolate? made from sunflower seeds instead of scarce, expensive Cacao has been very well received. This month saw price increases on over 3,000 national brand products for the first time since April. However, as announced at our recent press conference, we implemented price cuts on 60 TOPVALU items starting October 1.

Furthermore, we plan to launch a price reduction campaign next week for national brand products, showing the benefits of bulk purchasing across the group. Aeon Mall plays a central role within the group in providing leisure and special outing experiences. We have actively created reasons for families with children to visit, not only serving as a summer escape.

The second quarter marked the hottest summer on record. Aeon Mall has promoted its role as a cooling shelter, which serves as a heat refuge facility. Efforts include expanding Mokuiku Hiroba, a wooden playground where children can play safely and free of charge and introducing Chikyu no niwa or Garden on Earth, an indoor playground operated by Aeon Fantasy where children can learn about nature and sustainability through play. These initiatives focus on providing safe and comfortable spaces for children to play during extreme heat.

By actively holding events that met local needs we served as an alternative for those unable to travel or go on outings. This drove the number of customers in the second quarter, up by 3% year-on-year, with Specialty Store sales also rising by 6% to boost overall revenue. These initiatives drove revenue and profit growth across all stages of the business in the second quarter, following the first, marking a record high operating profit for the quarter. This month, we opened 2 new domestic malls for the first time in 2 years. Aeon Mall Suzaka in Nagano Prefecture and Aeon Mall Sendai Uesugi in Miyagi Prefecture. While these 2 malls differ significantly in location and scale both have enhanced entertainment and community functions. Following the strong results in the first quarter, creating spaces, not just for shopping, but for enjoyable and immersive experiences.

By increasing foot traffic to malls, we aim to boost not only the malls profits, but also the revenues of the GMS stores, Specialty Stores and Service providers within the facilities as well as companies like Aeon Financial Service, which handles card payments. This will drive growth not only for the malls, but also for other group businesses, including GMS, Specialty Stores and Financial Services.

At My Basket, which we are strategically strengthening, we are expanding market share by leveraging its proximity to customers and relatively affordable prices even as the number of customers at convenience stores and supermarkets struggles to grow amid the rise of the frugal mindset. It has achieved revenue and profit growth across all profit levels, generating stable earnings.

By strengthening offerings like rice balls, bread and prepared foods, leveraging its price advantage over convenience stores, both the number of customers and average per customer have increased, driving up average daily sales. We opened 64 new My Baskets in the first half, expanding our total to 1,262 stores as of the end of August. We are also reinforcing our store development organization and aim to expand by opening more than 200 stores annually starting in fiscal 2026. The GMS business made the largest contribution to our first half profit growth. Although it recorded a JPY 200 million loss in the first half, this represents an JPY 8 billion improvement in profitability compared to the previous year.

Aeon Retail, in particular, achieved a significant improvement in performance and reduced its operating loss by JPY 4.5 billion. In addition to further streamlining our cost structures through new DX tools and company reorganization, we are also addressing the challenge of enhancing profitability. Under the strategies of strengthening our food business and specializing in nonfood sectors, we are increasing the expertise of each sales floor and working to enhance appeal.

We are also promoting a vertically integrated SPA model for TOPVALU in apparel and home furnishing. By improving factory utilization rates through consolidation of factories and materials, we achieved cost reductions exceeding JPY 2 billion in the first half, exceeding our initial targets. Unlike many companies withdrawing from the GMS format, we are committed to evolving it. Amid increasing time constraints for dual-income households and narrowing mobility ranges for the growing elderly population, we see strong potential in offering one-stop access to daily essentials like food, clothing and household goods. We believe the GMS format's value proposition should be pursued.

We're announcing the effects of our cost structure reforms, which began in the second half of last fiscal year, particularly on the expense side. We are moving forward with 2 key initiatives. The first is improving work efficiency through ongoing digital transformation in stores and better use of process centers. The second is streamlining operations through new management tools and stronger focus on labor hour efficiency at the store level. Work our management is now more closely tied to operating gross profit rather than overall revenue. Labor productivity has improved by approximately 5%, even in our retail businesses, including GMS, supermarkets, discount stores and health and wellness, which have been significantly impacted by higher wages.

While current performance remains solid, we expect that price will become an even more important factor for customers when choosing stores and brands. Cost increases primarily in labor and utilities will undoubtedly continue. Even as costs rise, we believe it's important to avoid passing on cost increases to customers and instead find ways to lower prices sustainably. Structural reforms are necessary to generate the resources needed to offer better value and effectively leveraging the scale of the group is key to enhancing competitiveness.

While TOPVALU is performing well, we believe there is still significant room for growth. There are disparities in the TOPVALU sales mix among group companies, and we will work to correct this. Furthermore, companies that have recently joined the group, such as such as Fuji are rapidly advancing TOPVALU's introduction with sales exceeding 200% year-on-year.

The shipment volume from Craft Delica Funabashi, our process center in the Kanto region that started operations last June, is expected to grow to more than JPY 10 billion this fiscal year. Progress in the first half has been largely on track with this plan. As a result, the gross profit margin for delicatessen products at Aeon retail stores in the Kanto area has improved by 1.8 percentage points compared to other regions, contributing to gross profit improvement. We are currently expanding this model to other regions, rolling out the SPA model for food products to other regions. This fiscal year, with an [ Aeon ] on our next medium-term management plan, we are pushing forward with deeper and more transformative structural reforms, focusing on building a more competitive business structure.

As part of this effort, the full acquisition of Aeon Delight and Aeon Mall was completed in July, and we are now moving into the phase of creating synergies. The new drugstore alliance between Tsuruha, Welcia and Aeon is also progressing as planned. To achieve early synergies post-merger and realize new growth strategies, Welcia has begun piloting a new format called Drug & Food. This model retains wealthier strengths, including its prescription dispensing capabilities and core drug offerings, while integrating Aeon Retail's food merchandising expertise, logistics systems, leveraging Aeon Global SEM and My Basket store operations. This integration enabled rapid implementation.

Two pilot stores opened in late August, testing the format under different market conditions. Designed as a model to convert existing stores and enhance profitability, the initiative is progressing favorably.

In August, we announced that we had signed a basic agreement to begin discussions on the management integration of supermarket operations in the Greater Tokyo area and the Kansai region. The plan is for the following integration that take place in March next year. In the Greater Tokyo area, Maxvalu Kanto, Daiei's Kanto operations and Aeon Market will merge their operations.

In the Kansai region, Daiei will concentrate its management resources and Kansai and integrated its management with KOHYO. As a result, the revenue scale of U.S.M.H in the Tokyo metropolitan area is expected to exceed JPY 1 trillion. We will further advance management leveraging this scale which will give us the #1 share in the area and work to develop a new store format that offers both affordability and quality.

In the Kinki region, the integrated company with annual revenue of about JPY 300 billion will take the lead in expanding market share. While solidifying its foundation through this integration, it will develop new growth strategies. Amid rapidly changing business environment, the need for us swift operational review and structural transformation is growing. We intend to continue reorganizing group companies and streamlining business operations, focusing on leveraging scale and optimizing management in each region to reshape the group's profit structure. That concludes my remarks.

My name is Egawa, and I'm responsible for finance and business management. Thank you all for joining us today at the financial results briefing for the first half of the fiscal year ending February 2026.

Let me begin with an overview of our consolidated results for the first half of the fiscal year. During this interim period, efforts such as expanding sales of our private brand, TOPVALU and various initiatives leveraging group assets implemented during the record-breaking heat wave proved successful. Operating revenue reached JPY 5,189.9 billion, a 3.8% increase compared to the same period last year. This marks the fifth consecutive period of record-breaking results.

Regarding profits, we focused on further improving profitability by implementing pricing strategies aligned with customer needs, enhancing labor productivity through store DX and advancing cost structure reforms.

As a result, operating profit increased by JPY 19.5 billion year-on-year to JPY 118.1 billion, setting a new record high for an interim period. Ordinary profit increased by JPY 16.6 billion year-on-year to JPY 106.4 billion. Regarding net profit attributable to the parent, while the first quarter recorded a loss due to factors such as the impact of tax effect accounting related to business restructuring, we recovered in the second quarter. Cumulatively, profit turned positive, and we secured higher earnings. This shows the 5-year trend for key performance indicators. As you can see, operating revenue and operating profit have shown steady growth.

Next, let me walk you through our segment performance. Operating revenue increased year-on-year in all reporting segments. On the profit side, the GMS business significantly reduced its operating loss, while the Supermarket, the Health & Wellness, the Shopping center Development and the Services and Specialty Store businesses all achieved double-digit growth, contributing to the overall increase in operating profit.

Before we move on to the segment-by-segment overview, let me first highlight the sales performance of TOPVALU, which significantly contributed to the growth in both operating revenue and operating profit. Amid rising prices and an increasing frugal mindset among consumers, Aeon strengthening sales of TOPVALU products, particularly its price focused, best price line in order to support customers' daily lives and household budgets.

As a result, the group recorded double-digit growth in sales compared to the same period last year. As described above, in addition to the price-focused best price brand, our mainstream TOPVALU line, which emphasizes value, the Green Eye brand also recorded solid net sales growth. We are seeing growing customer support for our products, thanks to very strong balance of price and quality.

Moving forward, we'll continue to refine our product development and expand our value sales to further strengthen that trust.

Now I would like to explain the results by segment. Let me begin with the GMS business. Although we remained in the red with an operating loss of JPY 200 million in the first half, we achieved a substantial improvement of JPY 8 billion year-on-year. During the 3 months of the second quarter, record-breaking heat persisted creating a challenging consumption environment as consumers were framed from nonessential outings. However, thanks to various cooling initiatives launched under the Cool Day action campaign and strong sales in the food category, same-store sales remained solid. Furthermore, the apparel division, which faced challenges in the first quarter, began to recover. This turnaround was driven by initiatives, responding to temperature changes such as the summer apparel sale implemented in June and the expansion of late summer merchandise offerings in August.

On the profit side, while costs for raw materials, logistics, labor and energy continue to rise, accelerating store DX enabled us to partially offset the impact of these increases. Labor productivity at major companies reached 105.8% year-on-year, while total labor hours were 96.2% of the previous year's level. By a corporate entity, Aeon Retail achieved a JPY 4.5 billion improvement in profit compared to the same period last year.

Let me walk you through the details of this company on the next slide. Aeon Kyushu saw increased growth investments such as new store openings and large-scale revitalization projects. However, profitability improved due to increased operating revenue primarily from food sales, productivity gains from DX and cost reductions from energy saving investments, leading to higher profits. Aeon Hokkaido and Aeon Tohoku saw profit declines. Weak nonfood sales led to lower gross profit margins, which could not absorb increased SG&A expenses.

Can Do saw both increased revenue and profit. This was driven by steady sales of JPY 100 goods amid heightened awareness of the need to maintain living standards as well as expanded sales of high preference items across the entire GMS business, progress in pricing strategies, store DX and construction reforms has been yielding results in strengthening profitability.

However, we recognize that further promotion of vertically integrated operations, similar to the SPA model in the underperforming nonfood sector, as well as the expansion of specialty store formats and stronger brand and product development remain key challenges. This slide provides an overview of Aeon Retail. Although this first half recorded an operating loss of JPY 3.6 billion. This represents a JPY 4.5 billion improvement compared to the same period last year. This outcome exceeded expectations and reflects solid progress.

Notably, profitability improved significantly at stores revitalized through aggressive investments since fiscal 2023, leading to substantial profit growth and helping to reduce overall operating losses. On the sales front, our inflation responsive pricing strategy, including expanding TOPVALU sales and strengthening prices centered on key value items proved effective. Same-store sales remained robust at 102.1% compared to the same period last year. Furthermore, following the reorganization of the company structure implemented at the beginning of the period, we reduced overlapping tasks between regional offices, and we deployed over 300 corporate staff to the field. This reinforced frontline capabilities and reduced head office expenses.

As a result, the SG&A ratio improved by 1.5 percentage points compared to the same period last year, enhancing management efficiency.

Furthermore, stores accelerated DX initiatives to improve labor productivity. This included introducing self-checkout registers for nonfood items and expanding the scope of the AI power demand forecasting and ordering system, AI order to additional departments. Next, let me discuss the Supermarket business. Operating profit for the first half increased by JPY 2.8 billion year-on-year to JPY 12.9 billion. Throughout the period, same-store sales and the number of customers remain generally robust due to expanded sales of TOPVALU products and price appeal for key value items. However, August saw a slight decrease due to the decline in demand for disaster prevention-related products following the Nankai Trough earthquake temporary information issued last year.

For My Basket, our urban compact supermarket format, we expanded our store count to 1,262 locations as of the end of August. We are seeing tangible growth and customer preference for this store model, which effectively meets the needs of urban residents.

At MINISTOP, we deeply apologize for the significant concern and inconvenience costs to our customers and stakeholders by the recent discovery of improper labeling of certain in-store prepared foods. However, during this interim period, our strong fast-food segment contributed to both sales and profit growth, resulting in increased revenue and earnings. At U.S.M.H, we are advancing structural reforms to enhance management efficiency including establishing centralized purchasing systems across subsidiaries and integrating back-office functions to realize scale advantages, which have been difficult to achieve.

Next, let me talk about the Discount Store business. Operating profit for the first half decreased by JPY 300 million compared to the same period last year. Amid rising demand for discount formats due to inflation, we focused on expanding TOPVALU sales while developing and promoting the private brand products unique to the Discount Store business. This resulted in steady growth in both same-store sales and customer traffic. AEON Big recorded increased net sales and profits, while Big A, which also smaller stores in the Tokyo metropolitan area saw increased net sales but decreased profits.

During this interim period, the company implemented revitalization projects at 51 stores, including the brand integration of [indiscernible] into Big A. This profit decline was mainly due to temporary cost increases associated with these growth investments. But we expect the effects of these investments to materialize in the second half of the fiscal year.

Moving forward in the second half, we'll continue to strengthen our pricing strategy while further accelerating the introduction of private brand products to secure gross profit margins. Concurrently, we will review pricing strategies for national brand products and rigorously manage prices. Furthermore, we aim to secure profit growth by promoting store operational efficiency through improvements to management systems and material handling processes as well as revisions to delivery methods.

Let me now turn to the Health & Wellness Business. Operating profit for the first half increased by JPY 4.2 billion year-on-year to JPY 22.7 billion. At Welcia both product sales driven by food items and prescription dispensing, supported by an increase in the number of prescriptions filled performed solidly, leading to higher revenue. Furthermore, profitability improved through expanded sales of private brands such as TOPVALU and Karada, Kurashi Welcia. Along with enhanced store operational efficiency, resulting in a roughly 20% increase in operating profit compared to the same period last year.

Next, I'll explain the Financial Services Business. During the first half, revenue increase due to steady growth in various transaction volumes and receivables balances, both domestically and internationally. However, operating profit decreased by JPY 500 billion compared to the same period last year, primarily due to increased expenses associated with the expansion of operating receivables in the Malay region.

In the Domestic business, while financial income from the banking business increased, operating profit rose only slightly due to factors such as higher deposit interest expenses. Regarding Aeon PAY, both membership numbers and transaction volumes grew steadily, contributing to the strengthening of our customer base. Regarding overseas operations, in the Mekong region, revenue decreased in Thailand, a core country due to a decline in transaction volumes for personal loans and other products against a backdrop of delayed economic recovery.

However, overall revenue for the region increased due to business expansion in Cambodia and the consolidation of Post and Telecommunication Finance Company Limited in Vietnam as a subsidiary. On the profit side, earnings increased as efforts to refine credit standards and strengthen collection systems reduced credit-related expenses. In the Malay region, against the backdrop of a robust economic environment, consumer loans and credit card businesses performed well in Malaysia. However, higher credit loss provisions and related costs associated with the expansion of consumer loans led to higher revenue but lower profits. We plan to strengthen cost control from the second half of the fiscal year onwards.

In the Greater China region, despite a sluggish economy, operating revenue remained flat year-on-year due to strength in credit screening and ongoing credit management. However, significant profit growth was achieved through cost containment including reductions in credit-related expenses and promotional costs. We'll continue to pursue growth in transaction volumes and operating receivables both domestically and internationally. Concurrently, we will advance the refinement of credit management through digital technologies such as AI and strengthen our debt collection framework.

Next, let me discuss the Shopping Center Development business. Operating profit for the interim period increased by JPY 5.5 billion year-on-year to JPY 32.8 billion. Aeon Mall, our core subsidiary, achieved record high interim operating revenue and operating profit. Domestically, in addition to actively revitalizing existing malls, as explained earlier by President Yoshida, enhanced cool share events during the intense heat wave and strong performance by amusement and cinema companies boosted mall foot traffic. Furthermore, increased duty-free sales driven by demand from visitors to Japan also contributed to the growth in revenue and profit. Overseas operations across all countries resulted in increased revenue and profit with the overall overseas business achieving record high profits.

Next, I would like to discuss the Services & Specialty Store business. Operating profit for the interim period reached JPY 16.8 billion, an increase of JPY 2.4 billion compared to the same period last year. Aeon Delight saw increased revenue and profit due to steady growth in new facility management contracts and energy saving-related construction projects.

Aeon Entertainment saw a significant expansion in operating profit due to increased attendance driven by hit films across Japanese, international and animated titles. At Aeon Fantasy, our core price and metal departments, which have high proportions and profitability performed well domestically.

Additionally, in China, where the company had been struggling, profit improvement measures proved effective, significantly reducing losses. As a result, consolidated operating profit increased substantially, rising to more than 1.2x the level recorded in the same period last year. Furthermore, amid Japan's prolonged heat wave, indoor play facilities gained customer preference as safe and secure places for children to play. This contributed to attracting customers to stores and also help generate synergies within the group.

Next, let me discuss the International Business. Operating profit for the first half was JPY 4.8 billion, a slight decrease compared to the same period last year. At Aeon Malaysia, although sales increased due to event initiatives, operating profit remained flat due to increased costs associated with growth investments and store revitalization. At Aeon and Vietnam, sales remain strong in both existing and new stores against the backdrop of economic growth and higher profit was secured by offsetting increased expenses from accelerated store openings.

In China, amid a sluggish consumer mindset due to economic stagnation, insufficient adaptation to changing customer demand led to decreased sales and profits. Within this context, Aeon Hubei, which continues to perform well, expanded its business steadily against the backdrop of advancing urbanization, resulting in increased profits.

Despite ongoing challenges in China, we will strive to improve profitability in the second half by strengthening sales efforts around major sales events such as respect for the A-Day, Mid-Autumn Festival and Christmas, while strictly controlling labor and promotional expenses.

Finally, I would like to explain the full year earnings forecast. At this point, there are no changes to the full year earnings forecast. In the second quarter, following the trend from the first quarter, our pricing strategies responding to changes in customer consumption behavior accelerated DX initiatives and cost structure reforms proved effective. As explained, both operating revenue and operating profit reached record highs. For the second half with major sales events such as Aeon Black Friday in the third quarter, Christmas and year-end, New Year in the fourth quarter ahead, we will aim to achieve the full year earnings forecast by further accelerating the existing trends and addressing challenges specific to each segment.

Regarding net income attributable to owners of the parent company, we anticipate the impact of fully consolidating Aeon Mall and Aeon Delight, along with the consolidation of Tsuruha and the expected gain from step acquisition accounting. However, at this point, we have conservatively determined that it is not appropriate to incorporate these effects into our earnings forecast. Furthermore, we plan to advance structural reforms and upfront investments this fiscal year. Should the likelihood of fluctuations in net income increase, including due to these initiatives, we will disclose this information at an appropriate time. This concludes our explanation of the first half results for the fiscal year ending February 2026 and our performance outlook.

Thank you very much for your attention.

Could you elaborate on the objectives and current progress of your structural reforms?

This is Shikata. I'll take this question. Aeon has grown into a JPY 10 trillion revenue company through a series of mergers and acquisitions and today comprises over 300 group companies. However, when we look at each entity individually, disparities in growth potential become apparent. My mission as we visit our business portfolio and identify ways to enhance the performance of each company, ultimately transforming our overall profit structure.

We are pursuing this through 2 key approaches. First, as a result of past mergers, we have identified overlapping functions and businesses across group companies that have remained unaddressed. These redundancies are placing a burden on capital efficiency and profitability, and we are now working to consolidate them. Second, we are conducting a thorough assessment of underperforming companies particularly those with recurring losses, do you understand the root causes and determine whether structural reforms are feasible or whether the industries they operate in have future growth potential.

In terms of progress, we have already taken steps such as restructuring our supermarket operations in Eastern and Western Japan and making Aeon Mall and Aeon Delight wholly owned subsidiaries. Given the scale of our group, we are committed to driving improvements company by company.

Could you share your fundamental approach to managing Aeon's business portfolio? How do you view the diversity of businesses within the group? And could you also comment on how this ties into the Aeon Living Zone concept and the company's core philosophy.

This is Yoshida. I'll take that question. Given the current social environment, available solutions and our asset base, we believe there are 3 core pillars that should anchor Aeon's business portfolio going forward.

The first is food retail. Despite its inherently low-margin nature, food retail remains central to our portfolio due to its overwhelming store footprint added significant contribution to group revenue. In today's inflationary environment, the key challenge is how we can continue to deliver value to consumers while maintaining profitability.

The second is the Health & Wellness Business. This sector is supported by strong social demand and a large market size. Fortunately, through our alliance with Welcia, Tsuruha and Aeon, we have the scale to make this another strategic access of growth.

The third is a cluster of businesses centered on the Shopping Center Development and entertainment business, even in times of rising prices, people still seek enjoyment and emotional fulfillment. We see it as our role to provide those experiences. Together, these 3 pillars: food, health of body and mind and enjoyment should account for approximately 70% of our earnings. The profits generated from these core businesses will be reinvested into our overseas operations. In particular, we aim to shift the portfolio balance by increasing the weight of high-growth markets, such as Vietnam, positioning the international business as a stronger driver of future growth.

How do you view the strength of My Basket? It appears to be well received by consumers and new store openings continue steadily. It also seems to be favorably regarded by property owners. How do we evaluate its positioning? Additionally, as other companies are also planning to expand small-format stores, how does My Basket differentiate itself and generate sustainable profits in this space?

This is Yoshida again. I'll take this question as well. My Basket is positioned as a strategically important growth driver within Aeon's portfolio, particularly in the context of Japan's demographic shifts. While the overall population is declining, the Tokyo metropolitan area continues to grow due to urban migration and aging trends.

This makes it the most promising market in terms of population potential. In this environment, My Basket is a format that aligns well with both the business landscape and evolving consumer needs. Its success stems from a combination of convenience and value. While its proximity to consumers is similar to convenience stores, it offers a stronger sense of affordability and a product assortment closer to that of a supermarket, enabling one-stop shopping. One of its key strengths is the high share of TOPVALU products which allows us to deliver quality at significantly lower prices.

For example, while national brands sell a cup of instant noodles for around JPY 230 to JPY 260, our best price product is priced at about JPY 130, offering value that many urban consumers had not experienced before.

To further enhance its appeal, we are working across the group to optimize the supply of delicatessen products and prepared foods to My Basket, which we believe will lead to even higher daily sales per store. Unlike franchise-based convenience stores such as MINISTOP, which face challenges like aging store owners and succession issues, My Basket operates entirely under a directly managed model. This gives us full control over operations and scalability. The key challenge is maintaining operational consistency amid rapid expansion. We've addressed this through systematization, standardized manuals and the establishment of training centers.

With this infrastructure, we built a framework where new staff can be trained effectively in just half a day, enabling us to support a steady rollout of up to 200 stores annually. We are placing emphasis on business model development.

Please provide a more detailed explanation of the ongoing structural reforms. As Executive Officer, Shikata mentioned that the first quarter results briefing the focus at that time was on optimizing staffing levels around the cash registers and efforts to align staffing to appropriate levels had already started around the fourth quarter of the previous fiscal year. He also noted that there was still room for further cost reduction in areas such as shelf allocation work and in-store food preparation.

Could you elaborate on how much progress has been made in these areas as of the second quarter? While GMS has clearly improved its labor productivity, the pace of improvement in SM appears more limited. Should we expect that it will take more time for SM to show similar progress?

This is Shikata. Let me share my view on that. As part of our structural reform initiatives, we have taken a data-driven approach to labor cost optimization at the store level. If we break down the store labor costs into 3 roughly equal components: checkout operations, in-store food preparation and shelf stocking, backroom tasks, the first area we addressed was checkout. This segment is highly sensitive to fluctuations in customer traffic, making labor cost stabilization, particularly challenging.

By introducing self-checkout systems, we were able to structurally reduce labor costs in this area by approximately 10%, which represents 1/3 of the 30% allocated to checkout operations.

Our next focus is in-store food preparation, which accounts for another 30% of labor costs. In 2024, we launched the Craft Delica Funabashi process center to centralized food preparation. This facility now supplies 180 stores in the Kanto region, including not only GMS, but also My Basket and U.S.M.H. Starting in September, U.S.M.H stores began receiving shipments. And in the second half of the fiscal year, we plan to expand this initiative to supermarkets, streamlining logistics and reducing in-store workload.

The remaining 30% shelf stocking and backroom operations is being addressed through digital transformation. Aeon Retail has taken the lead by introducing handheld devices that allow staff to complete tasks on the shop floor without returning to the backroom. We've also automated work scheduling using AI, significantly reducing planning time.

As a result, labor productivity has improved to 105%, a 5-percentage point increase. While we continue to raise hourly wages by around 7% annually for part-time and hourly staff our productivity gains have outpaced labor cost inflation, which stands at 103%. We are committed to deepening these reforms further with the goal of applying these productivity-enhancing measures across all formats, including supermarkets, where improvements have been slower to materialize.

My Basket has increasingly taken on the role of a CVS scaler in urban markets, thanks to its convenience and value proposition. However, looking ahead, competition is intensifying. Players like OK Store and Lopia are pushing even lower price points and have significantly improved the prepared food offerings in recent years.

In addition, PPIH is expected to launch small format, fresh discount stores in the 3 major metropolitan areas within the next 3 years. Following its acquisition of Seiyu, Trial is also expected to enter the small format business, although on a slightly delayed time line.

Given that these formats and customer segments overlap with My Basket, how confident are you in maintaining market share over the next few years. What is your strategy to stay competitive in this increasingly crowded urban retail landscape?

Yoshida here. I'll take that question. We recognize that urban small format stores like My Basket are increasingly playing the role of CVS disruptors. However, looking ahead, competition is intensifying not only from players like OK and Lopia, which offer even lower price points and have significantly upgraded their prepared food offerings, but also from emerging formats, such as PPIH's small-scale fresh discount stores expected to enter major metropolitan areas within 3 years. Trial and Seiyu are also likely to follow with small-format strategies, in this context, we believe My Basket strength lies in its compact format.

Securing 3,000 square meters, store space in Tokyo is virtually impossible so the ability to operate profitably in the smaller footprints is a strategic advantage. To increase the share of TOPVALU products and improve operating margins we are redesigning the business model to enhance rent adaptability.

Without this, site selection becomes severely constrained. Our strategy is to build a high-density store network with new locations opening as close as 400 meters a park. Well, larger-format stores must consider competitive overlap My Basket competes on density and proximity. Even if there is some impact from competitors, dominance through store concentration remains key. This dominance also enables operational synergies.

As our store network expands, process centers become more effective. For example, My Basket can leverage U.S.M.H's process center, and those of Aeon Retail could also supply My Basket. Offering GMS level prepared foods and my basket stores would significantly enhance competitiveness. With over 1,200 stores and rapid expansion underway, we expect more competitive intersections with CVS formats. This may lead to new site opportunities as is often the case when formats evolve.

GMS gives way to discount store and so on. Ultimately, we believe that the key to winning in this space is not just a stand-alone store format, but the strength of the group network. By leveraging group synergies, we can elevate product quality, streamlined supply chains and build a more profitable, scalable model.

You mentioned improvements in labor productivity, but what specific initiatives have contributed to the profitability recovery in the GMS segment? We understand that efforts are being made to strengthen nonfood categories and promote community-based retailing in regional areas. Could you share any successful case studies, including those from outside metropolitan regions?

This is Shikata. I'll take this question. We are taking 2 main approaches to improve profitability in our GMS business, strengthening our food offerings and specializing our nonfood categories. First, in food, we're focused on expanding our TOPVALU lineup, which has driven both sales and customer traffic, achieving year-on-year growth of over 10%. In addition, we reinforced our delicatessen product offerings.

Since the COVID-19 pandemic, the boundaries between eating out and eating at home have blurred, leading to increased demand for ready-to-eat meals. Delicatessen products meet this need and offer high profitability from a business perspective. We've leveraged our process center, Craft Delica Funabashi to supply Aeon retail stores in the Kanto region and have begun expanding the supply chain to My Basket and U.S.M.H. We test new items and scale up successful ones using TOPVALU to attract customers and delicatessen to drive margin improvement.

Second, in nonfood, we've been advancing the specialization of apparel since last year. For example, we've introduced 2 branded specialty format, double focus, which targets younger consumers and self-service, which promotes ethical consumption. In the second quarter, we added 5 new stores, bringing the total to 23. These stores have shown improvements in both sales and profitability, and we plan to continue expanding this model.

In the home furnishing category, we're experimenting with enhanced leisure-focused formats with model stores in Sagamihara in Kanagawa Prefecture and Yono in Saitama Prefecture. These stores have shown improved sales per square meter, and we plan to introduce 3 more in the second half. Our strategy is to use strong food offerings to attract foot traffic and then guide customers towards specialized apparel and leisure categories, transforming the GMS format into a more profitable and customer-centric model.

Aeon Mall became a wholly owned subsidiary as of July 1. While a new mall was launched this fall, could you share any updates on renovation initiatives for existing facilities or the development of new small format brands?

This is Shikata. I'll also answer this question. With Aeon Mall becoming a wholly owned subsidiary as of July 1, our aim is to evolve it into a core entity within the group's real estate strategy. The newly opened malls in Suzaka in Nagano prefecture and Sendai Uesugi in Miyagi Prefecture are designed not only as retail spaces, but also as community hubs and entertainment destinations. Especially in light of recent extreme summer heat, these indoor venues have captured strong demand with foot traffic now exceeding pre-COVID levels.

Now that Aeon Mall is delisted, we have great flexibility in reallocating real estate assets within the group. Our strength lies in the breadth of real estate holdings across the AEON Group, while our challenge is that many of these assets remain underutilized. With the construction costs rising, the key is how we can unlock value from these properties. By applying Aeon Mall's expertise and development and operations to group-wide real estate assets, we aim to enhance asset value and contribute to a more integrated and profitable real estate strategy.

The first half appears to have progressed smoothly. But how would you assess performance relative to the full year plan? Could you also comment on any differences in momentum across business segments?

This is Egawa. I'll address your question. Overall, the first half of the fiscal year progressed smoothly, with solid cost control contributing to improved performance across the retail segments. Among the segments, Health & Wellness stood out, with both retail and pharmacy dispensing operations, exceeding expectations in terms of sales and profit.

The Shopping Center Development business also performed strongly benefiting from the successful customer engagement initiatives during the extreme summer heat. Foot traffic and Specialty Store sales surpassed projections, resulting in record high revenue and profit. GMS showed notable improvement its operating loss reduced by JPY 8 billion. While it is not yet fully back in the black, the pace of recovery exceeded our expectations.

On the other hand, the International business underperformed, primarily due to macroeconomic headwinds in China, which impacted results more than anticipated. Within the Supermarket business, performance was mixed. My Basket and MINISTOP delivered strong results, while other formats in the Supermarket business are expected to show improvement in the second half.

We've observed growing alignment across Aeon Group companies, particularly in the adoption of TOPVALU and WAON at the store level.

From your perspective as President, how would you assess the current level of group-wide awareness and shared mindset? Additionally, could you elaborate on areas where further integration or pursuit of group synergies may still be needed?

I'm pleased to hear that there's a growing sense of alignment and ownership among group companies within Aeon. This is something, I, Yoshida, am truly glad to see. Regarding TOPVALU, we're seeing a clear shift toward expanding its presence and communication with operating companies has become much more active. We've established a TOPVALU summit we're not only the holding company, but also presidents of operating companies participate directly in product development discussions. These sessions are highly interactive. Companies propose product concepts, consumption angles and volume expectations.

For example, during one tasting session, we discussed a chocolate product made with sunflower seeds instead of Cacao. The President of My Basket was present and noted that My Basket ended up being the top seller of that item. This collaborative approach has helped TOPVALU evolve into a brand with over JPY 1 trillion in annual sales. One of its key advantages is that it requires minimal branding investment unlike typical private brands, which often need significant marketing spend to gain recognition.

With TOPVALU, customer trust and awareness are already established, allowing products to perform well even without promotional costs. In this way, the company itself reinforces the sense of belonging to the Aeon Group.

We're also working to embed our core philosophy more deeply across the group. And I feel that this mindset is increasingly taking root. A good example is Fuji, which joined the Aeon Group and shifted from its original private brand to TOPVALU. As a result, sales of TOPVALU products in Fuji doubled, increasing by 200%. These kinds of outcomes demonstrate the power of group synergy and the potential for further expansion.

Labor costs were expected to rise by just under JPY 50 billion this fiscal year, with utility expenses increasing by around JPY 10 billion and logistics costs projected to remain flat. How does the first half progress compared to these initial cost assumptions?

Egawa speaking. I will answer this question. The outlook for labor, utility and logistics costs remains consistent with our initial assumptions. Labor costs were projected to increase by just under JPY 50 billion for the full year, but actual spending in the first half has remained below 50% of that estimate.

We now expect the full year increase to be around JPY 40 billion. For utility expenses, while the initial plan anticipated a JPY 10 billion increase, we are aiming to keep the full year impact within a range of JPY 0 to JPY 5 or JPY 6 billion. Logistics costs were expected to remain flat compared to the previous fiscal year, as previously disclosed.

While Green Beans appears to be incurring higher initial losses in the first half, Basket size remained strong at over JPY 10,000. And membership has reached 660,000. Would you consider this progress to be on track? How would you assess the current utilization rate of the Honda customer fulfillment center or CFC with new CFCs planned in Hachioji, Tokyo in 2026 and Kuki, Saitama in 2027, should we expect continued or even expanded losses due to upfront investment? What is your current outlook on profitability over this period?

This is Shikata. Let me respond to that. As reported, Green Beans has surpassed 660,000 members and is progressing steadily. One notable metric is the Basket size, which exceeds JPY 10,000, significantly higher than the typical JPY 7,000 seen in conventional online supermarkets.

Another key performance indicator we focus on is repeat usage. In online grocery, Basket size tends to grow with each purchase. And customers who shop 5x are highly likely to become regular users. Therefore, driving customers to reach that fifth purchase is a critical KPI for us. We are actively working to convert our 660,000 members into loyal customers. In autumn next year, our Hachioji CFC will begin operations. Unlike our first CFC in Honda, which started from scratch, Hachioji will benefit from Honda's operational know-how and an existing base of 660,000 members.

To enable the smooth vertical launch in Hachioji, we have already established a spoke there. Rather than waiting for the new CFC to open and then build a customer base, we are leveraging the existing Honda CFC to deliver consolidated volumes to the Hachioji spoke. This approach helps us expand membership in advance, allowing the new site to start with an existing Green Beans user base, thereby minimizing initial losses and ensuring a more efficient startup.

Yoshida speaking. I'd like to supplement Shikata's answer. Defining the utilization rate of the Honda CFC is somewhat complex. The robotic system was designed to accommodate 6 modules. But currently, only 2 are in operation. As demand increases, additional modules will be added incrementally. What this means the current utilization is below 40% compared to full capacity we have intentionally avoided installing excess modules upfront. The facility is designed is scale in line with actual operational needs, allowing us to optimize both capital efficiency and operational flexibility.

Following the development of the CFC in Kuki, what are the next steps in Green Beans expansion strategy?

This is Yoshida. Let me respond to that. Our top priority is to fully utilize the capabilities of the Kuki facility in Saitama. Green Beans is designed as a dedicated online grocery solution for the Tokyo metropolitan area. Together with My Basket, Green Beans serves as a strategic channel for approaching the food market in urban Tokyo. We would like investors to view this as a dual format strategy, leveraging both physical proximity and digital convenience to meet evolving consumer needs in the capital region.

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