Earnings Call: Q4 2024

Apr 15, 2024

I am Wakabayashi of J. Front Retailing. Thank you very much for joining us despite your busy schedule. I will now explain the overview of FY 2023 results and FY 2024 forecast. J. Front Retailing's consolidated gross sales for FY 2023 were JPY 1,151.9 billion, and revenue was JPY 407 billion, and both marked double-digit increase year-on-year. As a result, business profit increased 78.4% to JPY 44.3 billion. Operating profit increased 125.9% to JPY 43 billion, and profit attributable to owners of parent increased 110.1% to JPY 29.9 billion. All these profits made significant increases. Compared to the forecast announced in October, gross sales were JPY 20.9 billion higher. At the individual profit levels, business profit was JPY 1.8 billion higher. Operating profit was JPY 3 billion higher, and profit attributable to owners of parent was JPY 2.9 billion higher. We aim to exceed the pre-COVID operating profit level of JPY 40.2 billion in FY 2023, the final year of the previous medium-term business plan, and fully restore our business performance. Having exceeded this goal, we decided to pay a year-end dividend of JPY 20 per share, up JPY 3 from the initial plan, and JPY 4 year-on-year, for an annual dividend of JPY 36 per share, including interim dividend. In other words, we decided to restore the pre-COVID level in dividends. Slide 4 shows the changes in major KPIs during the previous medium-term plan period. ROE of 8.1% was achieved, more than one percentage point higher than the medium-term plan target of 7.0%, and ROIC was 5.1%, which also exceeded its target. Interest-bearing liability is temporarily increased to over JPY 300 billion with a measure against the COVID-19 pandemic. We have substantially reduced the amount through improved business performance and structural reforms. I continue next with a summary of segment results. Performance was driven by the department store and SC businesses. Department store business performed well throughout the year, especially in luxury items. In Japan, sales among Gaisho customers continue to be firm, especially among young, affluent customers who showed active purchasing behaviors. The same trend was even more pronounced at our GINZA SIX luxury mall. In addition, inbound sales have been accelerating quarter-on-quarter, starting in Q1. In February 2024, we recorded the record-high monthly sales. In SC business, SHIBUYA PARCO and Shinsaibashi PARCO, which opened during the COVID-19 pandemic, achieved their expected potential and their revenue increased substantially, and other core stores further strengthened their resilience. Moreover, PARCO's inbound sales, which were not so prominent before COVID-19, have grown to the level of exceeding JPY 25 billion. Developer business has remained steady. Orders for hotel interiors have been brisk in J. Front Design & Construction, and J. Front City Development Co.,Ltd. recorded a gain of JPY 3.5 billion on the sales of newly constructed condominiums. In payment and finance business, cards used to be issued separately within the group, but we are progressing to consolidate to the JFR Card. In addition to the upfront costs associated with this change, we were also affected by cost increase related to increased card fraud. Slide 7 shows the status of Daimaru Matsuzakaya Department Stores by store. Comparable store sales maintained double-digit sales growth in the second half of the year, with the three core stores in Shinsaibashi, Kobe, and Sapporo achieving double-digit growth even compared to FY 2018. In particular, the Sapporo store achieved a significant sales increase of more than 30% in Q4 due to the effect of renovation in the luxury goods area. The sales of the Tokyo terminal store in Q4 also recovered to the level exceeding FY 2018. One of the drivers of department store performance is spending by affluent consumers. Gaisho sales in department store business continued to increase, exceeding JPY 200 billion in FY 2023. In addition, app users are contributing to an increase in per-customer spending, with sales via app reaching JPY 270 billion. Also on inbound sales at Daimaru Matsuzakaya Department Stores, another driver of revenue growth reached JPY 67.3 billion, up 12% from the previous high of JPY 60 billion in FY 2019. The figure expands an even further to JPY 72 billion if sales at Hakata Daimaru are included. In terms of sales by country, China is the highest at 52%. Considering the fact that China was over 80% in FY 2019, we are assuming that it still has more room for further growth. This slide shows SG&A expenses of Daimaru Matsuzakaya Department Stores for the second half of FY 2023. Compared to the previous year, expenses rose JPY 1.6 billion due to wage increases and proportional expenses associated with increased sales. Still, the company was able to appropriately control the total cost, even though sales were significantly higher. This slide shows the transaction volume for PARCO by store. SHIBUYA PARCO and Shinsaibashi PARCO stand out with a major growth in inbound sales. The overall growth was mainly driven by those urban stores. Next, the consolidated balance sheet is shown on this slide. Interest and bearing liabilities, excluding lease liabilities, was JPY 213.9 billion, down JPY 35.1 billion from the end of the previous period. The next slide shows consolidated cash flow results. Free cash flow was JPY 104.1 billion, up JPY 52 billion year on year. Next, I would like to explain the forecast for FY 2024. Please refer to page 14. We expect a favorable environment for prime consumption to continue in Japan, especially in the luxury market, amid growing inflation accompanied by wage increases. As for the inbound sales, we expect a further growth considering the momentum seen in March and the anticipated increase in inbound flights in the near future. On the other hand, the challenges specific to our group are as follows. In the department store business, we expect investment costs to rise significantly, mainly driven by large scale renovation of the eight floors of Matsuzakaya Nagoya store. As a result, it is inevitable that there will be a temporary decrease in sales floor space. Also, a rebound from one-time gains recorded in the previous year in the sales of residencies recorded in the developer business and the gain on sales of fixed assets recorded in the SG business is expected to have a temporary impact on profits. Based on these effects, consolidated growth sales are expected to increase by 4.1% compared to the previous year. On the other hand, we forecast the business profit will increase only slightly to JPY 44.5 billion and the total operating profit will decrease by 12.9% to JPY 37.5 billion due to the absence of one-time gains. Regarding dividends, however, the company is working on a plan to increase the dividend payout ratio to over 40% during the three-year medium-term business plan, which started in FY 2024. The interim dividend will increase by JPY 4 compared to the same period of the previous year to JPY 20 per share, and a dividend is expected to be JPY 40 per share. The forecast by segment is shown on this slide. In the department store business, we forecast an increase of approximately JPY 2 billion as we factor in expected growth in affluent and inbound consumption, along with a significant increase in investment costs such as a large-scale renovation of Matsuzakaya Nagoya store. In the shopping center business, sales and earnings are expected to grow mainly at major stores. At the operating profit level, we expect a decrease due to the rebound from the gains on asset sales in the previous year. In the development business, there will be a significant impact from the absence of gains from the residencies sales as in the previous fiscal year. In the payment and in the finance business, we are working to consolidate groups and card issuing operations and to develop new business opportunities for our future growth. Due to the upfront costs, both business and operating income are expected to decline for the two segments. This slide shows the sales forecast for the major stores of Daimaru Matsuzakaya. Double-digit revenue growth is expected at Shinsaibashi store, where inbound demand is forecast to grow significantly and Sapporo store where renovation impact will be significant. Growth at Matsuzakaya Nagoya store is expected to slow down due to the impact from the reduced sales floor space during the large-scale renovation work. The projected SG&A expenses of Daimaru Matsuzakaya Department Stores are shown in this slide. SG&A expenses are expected to go up mainly due to the large increases in renovation costs, as well as the increased personal costs associated with the wage increases and increased bonuses. The consolidated balance sheet forecast is shown on this slide. As for the consolidated cash flow forecast, we plan to secure a positive free cash flow despite an increase in capital investment due to the extensive renovations of sales floors and absence of proceeds from the asset sales as in the previous year. JFR is committed to achieving growth with profitability and optimizing equity capital to improve the mid to long-term capital profitability. Based on this policy, JFR decided to conduct a share buyback program of up to JPY 10 billion. The maximum number of shares to be repurchased is going to be 8 million, and the ratio to the total number of shares issued, excluding treasury shares, is expected to be approximately 3%. This concludes my explanation. Thank you indeed for your kind attention. I am Ono. I was appointed as the President of J. Front Retailing in March this year. Thank you very much for joining us despite your busy schedule today. I now will explain the new medium-term business plan. Please turn to page 23. This is a summary of the review of the previous medium-term business plan. In the previous medium-term business plan, we focused on real and digital strategy, prime life strategy, developer strategy, and management restructuring to achieve full recovery from the COVID pandemic and re-growth. As a result, we marked the higher consolidated operating profit than the initial plan and optimized interest-bearing liabilities through the promotion of restructuring and investment control, achieving a full recovery in profit and loss and balance sheet. Among the individual initiatives, we felt the strong potentials in the group synergy. In particular, initiatives taken by Daimaru and PARCO in Shinsaibashi area, Osaka, was a typical case. There are many other areas with similar potentials, and it is the uniqueness and the strengths of our company group. But we have some room for further improvement in the speed and manner to promote them. The key for the mid to long-term growth is how we create synergies in many aspects. Next, I will explain the current business environment awareness. Our mid to long-term issues for individual customers are rejuvenating our major customers and responding to further globalization. In addition, as a group having department stores and PARCO, we believe that our mission is to transform ourselves into a retailer that satisfies the heart, from one that merely offers high-quality items. As for the market, the gap between urban and local area is expected to be widened, but diverse attractiveness of respective local areas will be further highlighted, including those for inbound needs. There are many things that only our group, which is based on major cities throughout Japan, can do centered on department stores and PARCO. With this business environment awareness in mind, we identified what we value for FY 2030 to continue to exist as the indispensable company in the society. Three, three, one. We concluded that to pursue three values and three synergies as one united group is the answer. First, let me explain the three values. We identified three values to create with our stakeholders toward FY 2030. The first one is co-creation of excitement. We create and share excitement with customers and employees. The second is co-prosperity with local community. The company cannot exist without community. By leveraging the group capability more than ever, we aim to become an integral part of the prosperity of the local community. The third is symbiosis with the environment. As a company group having touch points with many customers, we establish culture in which everyone can contribute to creating a society in which people live in harmony with the environment. Through these values, we will evolve into a value co-creation retailer group that continues to provide the three types of co-creation values with overwhelming support from high quality and highly enthusiastic consumers in Japan and overseas. High quality and highly enthusiastic consumers mean all consumers who enjoy high quality and uplifting consumption and experiences that fulfill their emotional attachment and values. Next, I will explain three synergies. The first is the area synergy. The distinctiveness and the strength of our company group is that we have a well-balanced distribution of Daimaru, Matsuzakaya, and PARCO in major cities throughout Japan. In particular, in seven key cities of Sapporo, Tokyo, Nagoya, Kyoto, Osaka, Kobe, and Fukuoka, we secure the assets in surrounding areas of stores, which can be further developed. In the medium-term business plan, starting from this fiscal year, we will first materialize the synergy in Sakae, Nagoya area, as we will elaborate later. Our strength is that we have seven highly potential areas with diverse retail businesses, and that enables us to compete in a unique way that is available only with us. The second is customer synergy. Department stores of Daimaru Matsuzakaya excel in offering prime products and services, while PARCO excels in approaching younger generation by exploring new entertainment and culture. In the Shinsaibashi area, stores of these different customer mix invigorate customers' style creation and successfully create new values in the area. GINZA SIX and SHIBUYA PARCO, where consumption by young affluent consumers is becoming more active, started to create group synergies in the Tokyo metropolitan area through collaboration with Gaisho business of department stores. Going forward, in addition to deepening these customer base, we will strengthen building the relationship with overseas customers and MZ generation. We aim to be a lifetime partner of choice through connection with customers across stores, operating companies, and areas. The third is a content synergy. Our company group has a strength in retail business based on the physical stores. Given the limited space for the further store expansion in Japan, it is not easy to double or triple retailing business only based on the existing formats. I think it will also be necessary to implement a new business model in the retail business going forward with a key driver of content. Our group has connoisseurship and procurement capabilities of Daimaru, Matsuzakaya, and PARCO, relationship built in each area, and the network of suppliers and creators. As a group, we will promote their combinations and develop and own content. By owning content through M&A and other measures, we link them to expanding earnings in digital domain, sales development in commercial facilities outside the group, and farther down the road, we link to overseas export and store development at overseas partners and commercial facilities. We realize new growth businesses which are not constrained by the physical stores' floor space. Based on this, we position the current medium-term business plan as a phase of change for the rapid growth in 2030. In this three-year period, we have boldly taken challenges of deepening and evolving and exploring the future as a retailer group. While we will be in the investment phase, we will be keenly aware of the capital profitability and take on bold challenges at passing points toward the dramatic growth. This is the overview of the current medium-term business plan. Based on the deepening of retail and the evolution of the group synergies, we combine management bases of human resources, system, and card. I will elaborate on them later. This slide shows numerical plan. Consolidated business profit targeting FY 2026 is JPY 52 billion, up 17% compared to FY 2023. This medium-term plan is in the investment phase, as mentioned before, but we aim to achieve ROE of 8% or more and ROIC of 5% or more. Both are not one-off target, but structurally sustainable ones. Ratio of women in management position aims to be 30% or more in FY 2026, and ROE target in the long term is 10% or more. This chart shows business profit by segment. We aim to grow profit mainly driven by department store and SC businesses. Developer business aims to grow profit even with the upfront investment. In payment and finance business, we expand customer base by ensuring the steady promotion of integration of the group card with unified issuer. Next slide is about a deepening of retail business. First, in department store business, the current key drivers in consumption are offering customers, mainly Gaisho customers and inbound customers. In Gaisho business, young customers in their 20s to 40s have high purchasing powers, and they significantly push up the spend per customer. To further expand these young affluent customers, we enhance the introduction of new content and digital touch points. In the Tokyo metropolitan area, we strengthen collaboration between Gaisho and PARCO and GINZA SIX. Among app users, we learned that there are certain numbers of users with high purchasing power who do not have our group card. We position them as semi-Gaisho customers and strengthen information and service offerings to retain these customers. Through these initiatives, we aim at JPY 300 billion sales of Gaisho and semi-Gaisho in FY 2026, with the increase of JPY 57.9 billion compared to FY 2023. Next is expand the customers and upgrade the CRM by evolving additional touch points. With the spread of our apps, communication with customers has evolved dramatically, both in terms of quantity and quality. As of the end of February 2024, the number of app users has reached 2,190,000, and the revenue from the registered app users has reached JPY 269.3 billion. In the current mid-term business plan, we will significantly increase the number of app users while further advancing the app functions. To be exact, we will improve customer analysis by leveraging artificial intelligence in order to enhance the quality of our communication and promote purchasing. We will also newly build a new mechanism to encourage customers who do not yet have our own group card to obtain one while further increasing the amount of money spent per customer. For further inbound business growth, we will strengthen our customer programs that use digital technology by deepening our collaboration with our partner companies. In addition, we will promote the conversion of affluent overseas customers through reciprocal flows of customers with the Central Group in Thailand, and other companies, as well as customer collaboration with the CVC Investee, WealthPark. We will strengthen CRM to achieve inbound sales of JPY 100 billion level. As I have already mentioned, we intend to firmly promote initiatives to make this uncontrollable market more controllable, even if just a little. Thus, department stores are expected to further expand earnings centering around affluent customers and inbound sales. Among those, the deepening of the Nagoya store through a large-scale remodeling will be epoch-making. Matsuzakaya Nagoya store has already enhanced strength on the luxury and watch operations in the previous medium-term management plan, which resulted in firm results. This time, we plan a major renovation covering a total of eight floors and will incorporate new features such as restructuring fashion for next-generation customers, including MZ customers, and renewal of the lifestyle zone. We will collaborate with renowned architects in order to radically improve experience values at physical stores, where we'll stimulate the five senses and create cozy store spaces. Next is a deepening of PARCO. In the current mid-term plan, SHIBUYA PARCO, Nagoya PARCO, Ikebukuro PARCO, and Shinsaibashi PARCO are positioned as the four priority stores. We will strengthen IP content and expand luxury goods through collaboration with the department stores. SHIBUYA PARCO and Shinsaibashi PARCO, which are performing well, will undergo their first major renewal since being rebuilt. Through selection and concentration based on the investment effect, we aim to secure results and achieve a business profit of JPY 10 billion in FY 2026. Among this, Nagoya PARCO will undertake a major renovation of its east and west buildings to promote the number one concentration of pop culture in the Tokai region and rebuild the fashion zone for the MZ generation in order to attract customers from a wide area. In Sakae, a new landmark involving our group will be launched in FY 2026. Nishiki Sanchome District 25 project will create a multi-use complex consisting of four uses, commercial facilities, a hotel, offices, and a cinema. The JFR partner group will develop new commercial facilities and combine the experience of our department stores and PARCO, with floors ranging from the second basement level to the fourth floor of the building. By sequentially advancing these developments in each key city over medium to long term, we'll realize the expansion of group synergies, combining Daimaru Matsuzakaya and PARCO in seven cities. We will promote a business model that grows together with the local communities in each area. In addition to the initiatives at the three facilities in the Sakae area, we will implement other measures such as collaboration with outside companies and the local government. As a result, the total transaction volume of the Sakae area is expected to exceed JPY 200 billion at the time of full operation of the developer properties, which will greatly contribute to the liveliness of the area. Furthermore, following Nagoya, another plan with significant potential is our participation in the Tenjin Big Bang in the Fukuoka area. In Kyushu, the development of the transportation network is well underway and expanding the trading area in real terms, and inbound consumption is expected to further grow in the future as Kyushu serves as entrance to East Asia. By combining the group's knowhow into this project, we aim to create the best mixed-use facilities in Kyushu. We'll begin making major investments in the current medium-term business plan, aiming to open the new facilities in FY 2030. Next, allow me to touch upon contents. As I mentioned earlier, we want to link our own contents to growth business toward 2030, and in the current mid-term business plan, we will first develop, possess, and commercialize such contents. For department stores, we are planning to develop MD content centering around food culture, and for PARCO, we will develop IP content centering around subcultures. On top of our aggressive M&A activities, we will work to integrate the knowledge of department stores and PARCO while executing our plans with speed. As one of the mechanisms for content development and ownership, PARCO will also promote collaboration with the CVC investees and utilize the recently announced business succession fund. IP content to be owned by PARCO includes gaming area. Here, we can make the best use of the esports business we acquired with its information and its networking opportunities. Be it local or online, with our IPs, we would like to advance our competitive contents while keep an eye on M&A and the group's collective knowledge and wisdom. Next, I will touch upon the idea of the group becoming one team. In order to maximize synergy and effects, it is extremely important to integrate group human resources. PARCO and the holdings have been promoting considerable personal exchanges, and we have recently appointed a former PARCO colleague to head a flagship store of Daimaru Matsuzakaya. This shows how serious we are. We will continue to actively promote such drastic personal exchanges. We'll also now aggressively invest in human resources. Employees are our most important value creation partners. I believe that one of my missions is to create a cycle in which employee will use the company's resources to realize what they want to do, which in turn leads to company's growth. To this end, I will discover, hire, inspire, and develop human resources. Yes, this will take some time, but I will carry it out in my responsibility over a time horizon of 2030. Next, I would like to talk about the progress of card integration. We have decided to consolidate cards for some of the group's commercial enterprises, which were previously provided by external issuers into the JFR Card, and we are currently in the process of completing this process. We launched the new GINZA SIX Card on April 9, 2024, and going forward, we are considering to expand the card to PARCO and Hakata Daimaru in the future. In this process, in the current medium-term business plan, with the increase in upfront cost to launch new cards, the growth in profit would slow down temporarily, but we will build a stronger earnings foundation on the mid to long-term basis. In addition, we are also working on the integration of group's business systems. Specifically, we are integrating accounting systems, payment systems, groupware, and human resource systems. With this standardized operation systems for the entire group, we should be able to further advance the benefit of the human resources exchanges, which I talked about earlier. In addition, along with the cooperation among operating companies, we'd like to promote to revitalize internal and external communication. Next, about our financial strategy. We recognize our current WACC being 4%-4.5% and cost of shareholders' equity being 7%-7.5%. When we go beyond these capital costs, we can contribute to create corporate values. In order to surpass those in capital costs, we had adopted ROIC management for each business. We'll establish a management structure that can stably and continuously generate ROIC of 5% or more and ROE of 8% or more on the mid to long-term basis. Next, I will explain cash allocation. In the current medium-term business plan, we will have cash inflow of JPY 220 billion from operating activities and JPY 5 billion from asset sales and other activities and a reasonable amount of cash on hand and deposits. For business evolution and maintenance, we have allocated JPY 125 billion and JPY 50 billion for growth investment and JPY 45 billion or more for shareholder returns. For growth investment, we are considering M&A in order to acquire contents. This shows the details on CapEx. We will aggressively invest in renovations, particularly in the Matsuzakaya Nagoya store, to generate results as soon as possible. Large-scale development investment related to Fukuoka Tenjin project is expected to begin in the second half of the current medium-term business plan. Next, I will explain our shareholder returns. We have previously set our dividend payout ratio at 30% or higher, but have decided to raise it to 40% or higher in order to promote management that is more conscious of the capital cost and the stock price. We will also flexibly approach treasury stocks on the premise of maintaining and improving our stable financial conditions. Earlier today, we issued a press release announcing the implementation of share buybacks up to JPY 10 billion. In the current mid-term business plan, we also adopted a TSR or the total shareholder return as one of the KPIs to determine executive compensation. We will continue to steadily promote management that is conscious of the capital cost and the stock price. Lastly, I am convinced that if we can realize the three, one key phrases I have mentioned, three values, three synergies, and one team, it would lead to our vision and the future of create and bring to life new happiness. To realize this goal, it is necessary for all the members of the group to be passionate and move into the same direction. The future will come closer only when the strength of each individual and each operating company are multiplied together, not merely added together. One of my major missions is to make the JFR Group one team full of enthusiasm. While deepening dialogue with our stakeholders, we will generate a variety of ideas, take on challenges over and over again, and as one team, open up a new future for the JFR Group and contribute to the creation of a better society. Thank you indeed for your kind attention. Now we would like to take questions. I am Takahashi of Mizuho Securities. Thank you for your presentation. Let me ask two questions. First, as this is almost our first meeting with us, though of course I viewed your press conference, I would like to ask President Ono and President Munemori to talk about their aspirations. Though they were included in the medium-term business plan, I am particularly interested in how you view the strengths of the company and how you plan to let them fulfill their potentials. We have been taking communication with President Kawase for about a year, but I would like to know how you plan to proceed management in the new structure. I would like to have a comment from three of you respectively. Thank you. Thank you, Mr. Takahashi. I am Ono of J. Front Retailing. Going forward, I think there will be more opportunities for us to compete by leveraging the comprehensive capabilities of the group. Talking about the strengths of the group that you referred, I believe that nationwide network of Daimaru, Matsuzakaya, and PARCO stores, covering 7 core cities from Sapporo to Fukuoka, is the definite strength of the company. We are able to have strong connections with customers in each area. In the north, Daimaru Sapporo store's permanently strong condition has been sustained and it will continue going forward. In Kyushu, as mentioned in the presentation today, we have a new facility in Fukuoka, and in Nagoya, we will grow substantially in the Sakae area. In Kansai, despite the strong competitors, we will be able to compete in the Keihanshin area. In Tokyo metropolitan area, department store business is slightly tough, but we have the unparalleled commercial facilities of GINZA SIX and the SHIBUYA PARCO. As we have diverse presences throughout the nation, we would like to enhance our presence in each area, manifesting their distinctiveness. Finally, the nationwide store network will benefit us not only on the demand side, but also on the supply side as well. Because we explore and pick up the attractive items in each area and promote them eventually to the world. Throughout the entire group of J. Front Retailing, we further appeal Japan to the world. Bearing that in mind, I would like to promote the future group management. I am Munemori of Daimaru Matsuzakaya Department Stores. I think that we need to solve the issues of department store and enhance its strengths. Looking at the immediate results benefited by inbound sales and the spending by affluent consumers, performance has been very strong, but there are some issues with department stores. Talking about sales by customer, Gaisho sales have been growing, and we would like to continue to grow them, as well as inbound sales, which have been growing as well. On the other hand, so-called middle-class purchasing power has been decreasing due to the aging population. So we would like to capture new customers. In other words, we need to have a department store strategy to capture MZ generation. This is customer-based perspective. Second, from the product-based perspective, we would like to continue to grow the growing luxury items, such as watches and artworks in this fiscal year as well. But in luxury products, we may have the similar items with other department stores. We have 15 physical stores from Sapporo in the north to Hakata, Kyushu in south, and we have invariable local human resources working there. So we will leverage the local unique strengths through local content. As an example of combining local and luxury, in Kyoto store, we are creating new value through the original brand made by the collaboration of Italian high brand and local traditional Japanese indigo dyeing. It is how we strengthen local content. Third, we need to enhance new content development, as mentioned before with the issue of MZ generation. In autumn last year, we started a new content development department, and already in one year, it has been decided to launch more than 70 new content items or brands, including the pop-up stores. The initiatives made a strong start. Amid the trend of increased uniformity of department stores and increased sense of crisis, we would like to focus our effort on creating our unique value so that we can remind people of our distinctive feature at Daimaru Matsuzakaya and further improve the business results. Thank you. Thank you also for giving me an opportunity to speak. I took a position of President one year ago, and after a year, I recognized again that the sense of crisis I felt a year ago is a strength of PARCO as another side of the coin. What was the sense of crisis I felt a year ago? The impact of the COVID pandemic was still lingering on in April last year. Our employees have been frustrated as they were not able to do anything exciting, draw public attention, and attract customers to stores. In the last year, they vented pent-up energy. Young employees honestly talked about what they thought was exciting, and they had capabilities to engage people around them. The people who were engaged, including influencers and creators, had enthusiasm. The ties among creators, local people, and employees of PARCO can create new cultural values, which were presented in Shibuya as an example. This is the strength of PARCO. In terms of management efficiency, we may have another solution for the more reasonable use of Shibuya, but we were able to create unique value. As Mr. Wakabayashi mentioned before, SHIBUYA PARCO didn't have very many inbound customers until 2019. But now, inbound sales account for over 32% of sales of SHIBUYA PARCO. Our cultural values, supported by the creativity of younger employees, have reached a level that is appreciated globally. As Mr. Ono explained before, we can communicate such global content and events to the world, and I believe that this is the greatest potential of PARCO today. Thank you. Thank you very much. The second question is for President Ono. You explained the current medium-term business plan in detail, but I would like to ask about the longer perspective, for example, for 2030 or going forward. I think you are going to spend for investment in Tenjin Big Bang, which opens around 2030. Where do you expect to see the prominent profit growth by segment or by any other category? Listening to you, I imagine presumably content-related growth is expected, but let us know the color of the area of expectation, please. Thank you. By segment, of course, partly due to the upfront investment in line with our business plan, developer business will substantially grow around 2030, as you mentioned. As I have been talking before, I think the synergy creation in the group is important, and we need to ensure that in each area. I talked about cases in Nagoya and Fukuoka, but in other areas as well, one of the key points is how we will promote store development and reinvestment in the hard area, and how we can combine that with the soft area enhancement within the group or beyond. As for content, in our approach across extensive areas, we will pick up local content in each area and lead them to generate profit globally and in the digital domain. We would like to create and expand the two cycles of enhancing our presence in each area and doing business in the new growth domains. We understood. Thank you. Thank you. I am Tsuda of Daiwa Securities. I'd like to ask President Ono and Mr. Wakabayashi a question. You talked about content in PARCO. Recently, media reported the previous alliance with Hyundai Department Store in South Korea and an agreement with Central Group in Thailand. I assume the inbound sales at PARCO, GINZA SIX, and the department stores of Daimaru Matsuzakaya in the last fiscal year were over JPY 100 billion. I'd like to know your thoughts on overseas business. Do you consider attracting overseas customers through alliances or earning fees through know-how and content rather than making overseas investment? I think there is one big store in China to which you lend your brand. How do you think about the overseas business, including bringing more inbound customers? This is my first question. Thank you. Overseas, there are both inbound and outbound activities. Let me talk about the outbound first. In terms of content expansion, it is too risky to have overseas stores of Daimaru Matsuzakaya and PARCO with the current format. But for example, by having confectionery content within the group, we can expand the business in commercial facilities outside the group and expand overseas going forward. When we sell Japanese sweets overseas, that would enhance the recognition of the JFR Group, and that would positively affect the inbound sales as a secondary benefit. This is the image we envision for creating such cycles in MD and IP content in outbound initiatives. On the inbound front, we need to deliver results in a shorter period. As I mentioned before, currently, I think the inbound market is too uncontrollable. So first, it is essential to make it more controllable. There are two initiatives. One is to work with the overseas partners to direct customers to each one's stores. As mentioned by Mr. Tsuda, unlike peers, we do not have overseas stores with our capital input. Because of this, we are able to expand in diverse countries and areas. We'll be able to use this paradoxical strength. Another one is to convert visiting customers to loyal customers. We expand this policy to cover inbound customers as well. So we will promote exchanges with overseas partners as well as better response to the individual customers and their management. Rather than a large investment in tangible fixed assets for the future, I see an increase in investment in intangible fixed assets, including content, IP, and CVC funds. If you are not increasing fixed cost much, and when the equity ratio is over 30%, that will be enough in terms of financial level as well. If we aim to achieve 10% of ROE in the future, it will be better for you not to increase the denominator of shareholders' equity. Please let us know whether your thoughts on financial leverage and the investment in tangible and intangible fixed assets have changed significantly from the time you made the medium-term business plan. Thank you for your question. I think it was an essential question about the financial perspective of the three-year medium-term business plan. It is sometimes difficult to draw a clear line between tangible and intangible fixed assets investment. By talking about the growth investment of JPY 50 billion shown on page 54 of cash allocation, it includes strengthening content, including owning content, as explained by President Ono. So it can be regarded as an intangible assets investment, according to Mr. Tsuda's expression. On the other hand, for business evolution, investment for department stores and SC, and the developer business will be required. Its source is operating cash flows, as shown on this slide. As of today, we expect the investment amount will be JPY 125 billion. This is based on the current assumption, and the financial department would like to have a proper control of investment to achieve the policy of growth with profit. If we find a good opportunity to meet the target, regardless of the cash allocation shown this time, we will try to increase investment. Is it correct to say that the investment policy has changed from the previous one? When you become one team of J. Front Retailing Group, including PARCO, are you going to optimize cash allocation comprehensively rather than prioritizing investment in department stores, as you have department stores, PARCO, and other businesses? This time, you plan to integrate interior design and building maintenance businesses as well, and you also increase the return to shareholders prominently as well. Is it correct to understand that you are changing as such? Yes, your understanding is correct. We are not dividing the investment strictly by segment. For example, investment in the developer business is substantial in this 3-year period. This is not merely an investment in the developer business. We expect a synergy effect from this investment on department store and SC businesses as well. Thank you. Thank you. Now I see a hand up online. Kanamori-san, would you please unmute and then ask your questions? Thank you. This is Kanamori from SMBC Nikko Securities. I have 3 questions. Short answers will do it. My first question is about your share buyback of up to JPY 10 billion that you announced today. You had as much as JPY 71.3 billion in cash on hand and deposits as of the end of the fiscal year. By looking at the trend of your cash and deposits, I believe you were able to operate with about JPY 40 billion in normal times, although you must have increased your cash on hand during the COVID-19 pandemic. With this in mind, how much cash on hand do you need? If I am not wrong, you could have bought back more of your own stocks, or perhaps the investment that you make for your medium-term business plan take priority over cash outflows. I appreciate if you could expand on these aspects. Thank you. This is Wakabayashi. I am happy to respond to your question. The appropriate level of cash and deposits on hand has remained unchanged at about JPY 30 billion, so I understand. The balance on hand as of the end of the fiscal year just finished was more than JPY 70 billion. So you could say we had a surplus of just over JPY 40 billion. At this time, part of the cash will be used for the dividends and share buybacks in order to strengthen shareholder returns. Besides that, as we have talked about earlier, the money could be used for the CapEx as well. Money has no color, so to speak, but we would like to carefully assess how to use it from the viewpoint of directly linking it to earnings. That is all I could say. Thank you. If I may, I have a follow-up question, my second question. I would like to confirm your investment amount. According to page 55 of the presentation materials, the CapEx for the new fiscal year is JPY 65 billion, but page 7 of the fact book shows JPY 44.5 billion as the consolidated CapEx or JPY 44.9 billion, including right of use and assets. I would like to know the reason for this difference. Furthermore, I would appreciate it if you could also share with me the amount of depreciation for the 3 years of the medium-term business plan. Please give me the depreciation amount for each fiscal year. Yes. This is Wakabayashi, and I am happy to respond to your question. You are asking about the difference, the investment amount of JPY 175 billion shown on page 55, and the amount shown on page 7 as for FY 2024 in regards to the investment amount. The difference comes from the assets to be recorded and expense we incur. So it is then a difference in terms of the expenses. This is my response to your first question. I hope you are with me. You also asked another question concerning depreciation amount. Depreciation has been, I would say, approximately JPY 25 billion. We expect to make a substantial new investment, and so the depreciation amount in here reflects that. JPY 25 billion every year? Yes, you are right in terms of the ballpark figure. If I am not wrong, the year you just finished shows in its cash flow that the depreciation seems to be a little bit larger. If I may, I will get back to you after we have checked in more details. But again, the level could be around between JPY 25 billion to JPY 30 billion. On top of that, we have depreciation on the leasing side. I understand. Looking at the past 2 years in terms of the cash flow statement, depreciation is about JPY 50 billion or less. In the last fiscal year it was JPY 46.5 billion. Is the number you are assuming based on the cash flow statement? That is correct. The figures you are aware of includes the depreciation of the right-to-use assets. Therefore, the total would be around JPY 50 billion. So I would say your understanding is correct, looking at the total. Kanamori-san, this is Inagami. Although the amount goes up and down year to year, I would say that including the leasing depreciation, the amount will be around JPY 50 billion or less in FY 2024, FY 2025, and FY 2026. Understood. Thank you. Now allow me to confirm on the business profits for the 3 years. As a last question, I would like to inquire about the segments. You have disclosed the profit by segment in the final year. Looking at the total profit, the current fiscal year, it will be flat, and the bar graph shows it would grow about the same in FY 2025 and FY 2026. But on the other hand, you will have a variety of events, right? In the SC business, PARCO will have many renovations in 2025, and the developer business will open the Nishiki Sanchome District 25 project in 2026. If I am not wrong, your profit may not grow in this period, or in this period, you will need to make investments over profit. I am assuming that there could be ups and downs depending on the segment in question. Of course, it will be ideal for you to have all the segments grow smoothly, but there could be ups and downs depending on the segment. I wonder if you could further expand on these aspects. In particular, PARCO will have many renovations in 2025, and if you believe you will generate profit in the Nishiki Sanchome in 2026, profit could slow down in certain segments to some extent in 2025 and 2026. Appreciate if you could expand on those aspects. Kanamori-san, this is Ohno. Allow me to respond to your question. As for FY 2025, which was mentioned earlier, we have not disclosed our forecast. But yes, we are now assuming the point you have just raised, including your concerns. We believe we will have a series of initiatives which will bloom fully in FY 2026. As shown in the slide, including slide 34, we would more or less like to keep an eye on the results in FY 2025 instead of assuming linear growth in FY 2024, 2025, 2026. Taking this into account, we are now assuming a large increase in profit in FY 2026. One of the factors is the situation in Nagoya. As you have stated, we are now assuming Nishiki Sanchome District 25 will generate its profit during FY 2026. Matsuzakaya Nagoya will be renovated in stages, so its full profit contributions will start from 2026. Well, there could be a partial contribution in FY 2027. With these assumptions, we are forecasting a firm growth in FY 2026. I hope you are with me in this regard. As for PARCO, I wonder if Kawase-san has anything you would like to add here. Thank you. Yes, the SHIBUYA PARCO will undergo a major renovation during FY 2025. Shinsaibashi PARCO had a difficult start due to the COVID-19 pandemic, but now the environment is positive, and during this point of time, we will proceed with contract renewals that will lead to a major renewal. Kanamori-san, as you have rightly mentioned, PARCO is carrying out many projects that will take effect in FY 2026 and FY 2027, rather than in FY 2025. Understood. Thank you indeed. Thank you. Our time is running out, but since I see a hand up, I would like the next question to be the last one. Sorry. This is Yamaoka from Nomura Securities. I have 2 simple questions. The first is about the synergy you have mentioned earlier. Please correct me if I am wrong, but I have the impression that we have not seen the synergy so far. I would appreciate if you could expand on your thoughts on where you could expect to see the positive changes that will create the synergies over the next 3 years or around 2030. There could be synergies among operating businesses. This is my first question. Yes, I am quite happy to respond to it. Yes. In regards to the synergy, we belong to the same group, but each business entity is responsible for its own quantitative performance. For example, there could be competition to attract a certain tenant. May I remind you that the one significant factor is that we have revised the overall organization at the beginning of the medium-term business plan. Instead of dwelling on the past, here, I would like to mainly talk about what is going to happen going forward. Munemori-san and Kawase-san and I are working very closely together, and we, the holding company, and the core operating companies, are trying to find the direction through top to bottom discussions on how to design each area first. I believe this will have a real effect in each area closer to the actual operations. Depending on the situation, the holding company may take more initiatives in each area and strengthen management in terms of how cooperation among areas should be carried out. If I may go back way into the past, we once launched the urban dominant strategy. I still believe that the idea was correct, but although the strategy was right, we did not necessarily have the capability to execute. There could have been a variety of challenges to realize synergies, but this time we intend to overcome them. This small lesson is what we are referring to as group synergy for the medium-term business plan. Thank you. Another question, if I may. Probably, this will go to Kawai-san. When thinking about ROE or the bottom line profit, other cost items, particularly impairment, are going to be relevant, if I may say so. So here, looking at the FY 2024 plan, current fiscal year, this could be a somewhat major factor. I believe that you must take into account possible impairment losses during the three-year business plan. Appreciate if you could expand on those cost-related aspects. Yes. This is Wakabayashi. I am quite happy to respond to your question. What you said is correct. There are, in fact, some differences in performance between urban and regional stores, whether in the department store or the shopping center business. Therefore, we need to continue factoring in a certain amount of restructuring costs. Also, we would like to establish a system and a cycle that allows us to set an appropriate amount of equity capital and post profits commensurate with the amount of equity capital, rather than reducing the denominator by using such a factor, if possible. If I may, I would like to go somewhat into details. I wonder if you have something special in the current FY 2024 plan. Well, we are not assuming anything concrete, but it is quite important for us to fully understand how the current earnings are generated as clearly as possible. Instead of just sitting doing nothing, we need to work on whatever we need to do as promptly as possible with a sense of urgency. The numbers you see do reflect such a mindset. Well understood. Thank you. Thank you. Now with this, I would like to conclude the Q&A session. If you have any further questions, then please contact our IR person in charge. Now, I would like to announce the closure of the financial results briefing for J. Front Retailing Company Limited. Thank you again for taking time out of your busy schedule