Earnings Call: Q2 2022

Oct 6, 2021

Thank you very much for participating in today's results briefing. Last week on October 1st, the government lifted the state of emergency and also lifted priority countermeasures implemented to halt the spread of COVID-nineteen infections. We've already seen traffic jams on the expressways over the last weekend, so I think people will be moving about and engaging in more activities up ahead. In preparing for a greater influx of people, we believe that ensuring safety and providing peace of mind in our facilities will grow more important than ever before. We're therefore continuing to double down on infection prevention measures based on our existing protocol for infectious disease control. We are also urging our employees to get vaccinated by offering days off work when they receive their shock and so on. We have plans to get even more creative with our use of digital tools in the running of our online results briefing and your understanding in this will be much appreciated. Even though the 1st year of the period covered by our new medium term management plan has only just commenced, I'd like to talk a bit about the situation in the first half of the fiscal year. And then after that, Chief Officer in Charge of Finance and Accounting, Takeshi Miyazaki, will report on our first half financial results along with some information about initiatives undertaken so far. Firstly, regarding the operating environment, although we assumed at the start of the fiscal year that progress in the vaccination rollout would bring COVID-nineteen infections under control, the greater than expected spread of new variants and their high levels of infectiousness meant the government's declared state of emergency was repeatedly extended and became drawn out longer than we had anticipated. Earnings in some businesses in the 2nd quarter were impacted much more than others as a result of this. Also during this period, it appears that more and more people were working from home, eating ready made meals or dining at home, going about their day to day activities in the suburbs and provinces instead of inner city areas and making a conscious effort to stay healthy. We need to approach our business operations on the assumption that we will be coexisting with COVID-nineteen for the rest of this fiscal year at the very least. Also, we believe we must further accelerate our digitalization in connection with the infection countermeasures I just mentioned and in order to establish a business foundation suitable for the world of the future. We announced our new medium term management plan on April 9. The plan calls for transformation in 5 areas: digitalization, merchandise, health, regions and Asia. We are currently pushing ahead with initiatives in these areas based on our growth strategy, which also includes environmental considerations given the rapidly growing importance of this area. Looking at regions first, this year we proceeded to reorganize our regional operations in Chugoku, Shikoku and Tohoku after doing the same in Hokkaido, Kinki and Kyushu last year. Our objective in this so called shift to regions is to enhance our competitiveness through pursuing management that is deeply rooted in regional communities. For the Chugoku and Shikoku regions, in September, we announced the merger of Fuji Company Limited with Max Value Nishi Nihon Company Limited. For now, we are pushing ahead with a management integration project on the way to setting up an interim holding company next March that will have both Fuji and Max Value Nishi Nihon as subsidiaries. As explained during the announcement, we will aim to create numerous synergies from the integration such as the realignment of distribution networks in response to heightened market dominance resulting from a combination of the company's store networks, procurement cost economies of scale and merchandising reforms based on the effective utilization of local private brands and processing centers through the use of regional networks. In Tohoku last March, we established Eon Tohoku by merging Max Value Tohoku with the food business of Eon Retail in the Tohoku region. We have now integrated the Tohoku business unit of Eon Retail that operates the apparel, household and recreational and health and beauty care businesses. Eon Tohoku is now making a fresh start by switching to a general merchandise store management structure that will enable it to demonstrate its true strengths as a general retailer. The population decline in regional areas tends to garner a lot of attention these days, but we think enhancing our share of wallet by combining brick and mortar stores with online retailing after building business up to a certain size will be a key element in our so called shift to region strategy. Up ahead, we think it will be crucial that E. ON's regional companies not only encourage change in regional communities, but also lead regional communities forward. As for merchandise, last month we announced a price freeze on our top value product line. 1 of the growth strategies in our new medium term management plan calls for the creation of unique value with a supply chain focused outlook. In other words, providing customers with value through our products that only E. ON is capable of generating. You could say that our private brands are the face of E. ON, embodying our ideology and philosophy. From environmental and health and wellness points of view, there is growing demand for independently developed products. So we need to keep on evolving our private brands in order to cater to this need. I also think this will differentiate us from other companies. As manufacturers currently continue to hike prices, I believe it is the perfect time to have consumers and the market learn more about the stance we take with our top value private brand. By offering a product lineup and low prices that help customers out and coordinating these products with our sales force, I'm hoping that our customers can gain an understanding of the value of the top value product line. As for our initiatives in the area of health, we are planning to open Iantownmakuharinishi on the 21st of this month as a general health and wellness center for the local community. With the Wellesia Yank Yoku drugstore tackling the food and drugstore format as the anchor store, this new Eon town facility will aim to become a local community hub that can meet people's daily shopping needs, including both food and medicine needs, which are equally important aspects of the wellness market as well as medical and health care needs supported by clinics, including an adjacent hospital and fitness facilities. The drugstore industry has continued to grow at an extremely fast rate, but the market is also becoming quite saturated. To advance to the next stage of growth, I think we need to establish a business that sets us apart from the competition in the same retail format. With Wellcia, I believe we can leverage the assets of the E. ON Group, namely product procurement and distribution functions to create a powerful model for the Food and Drug business. In the area of digitalization, in September, we launched I. E. ON, a comprehensive smartphone app for all E. ON services. It comes equipped with E. ON Pay functionality, the group's new payment method, enabling users to make cardless payments with their smartphones. To coincide with the release of I. E. ON, we are converting all Tokimeki points accumulated with E. ON cards into Waon points. Having Wahon points as the sole type of Ehon Group points will make it easier for customers to earn them and we intend to harness the features of the I. E. ON app to strengthen the role of points so that it is much easier for customers to redeem them. There is still much room for improvement in the app, particularly with regard to usability. So we plan to add more features going forward in an effort to turn it into a shared group wide touch point. In the online supermarket business, we are actively responding to online grocery shopping demand, mainly by expanding our delivery time frames and our capacity to accept orders. Monthly sales are up roughly 20% to 30% year on year. Also at E. ON Retail, the weighting of online food sales has now exceeded 5% of total food sales. The pandemic has accelerated the shift to online shopping, which is now well entrenched in our daily lives. As customers are choosing to shop either online or at brick and mortar stores according to what best suits their needs in each particular situation, The very concept of these different channels is disappearing for the customer. We need to create a situation where online and offline stores are fused together from the customer's perspective instead of the conventional idea of shopping channels in which we sought to maximize both online and offline store sales. By doing this, I believe we must set our sights on enhancing customer share. We are also stepping up our digitalization efforts in ASEAN countries. E. ON Malaysia is currently launching an online supermarket business powered by the platform of U. S.-based boxed.com. We had been considering the use of Boxed's platform since we invested in the company in 2018. So we decided to get the ball rolling in Malaysia by employing their e commerce platform, which offers UI, UX features such as product searching and recommendations and also integrates functions such as order management, warehouse inventory control and delivery management. We hope to leverage the knowledge and systems acquired from the rollout in Malaysia to speedily introduce the same platform in Vietnam, Indonesia and other ASEAN countries in the future. Lastly, environmental considerations, an area that is growing increasingly important in terms of our operating environment. The Japanese government, manufacturers, investors, the business community and other parties have taken the initiative over the past 6 months to implement measures geared towards reducing their environmental footprints, but even still, the situation is changing rapidly. For 30 years now, we have continued to tackle environmental problems as part of our contributions to society. We have planted more than 12,000,000 trees in Japan and other countries in Asia. And even though it is considered quite normal now, it was 14 years ago that the Higashiyama Nijo store became the first to start charging customers for the use of plastic shopping bags, thanks to the understanding of the local community. In terms of the next stage of how we pursue social contribution in collaboration with customers and the community and above all, how we tackle environmental issues. We want to become a leading company in this space by incorporating the concept of green transformation directly into our business strategies. By fully integrating the environmental activities we have carried out thus far into our business operations, we will aim to contribute to the building of a better society as an environment friendly E. ON. Thank you very much for taking the time to attend E. ON's earnings briefing today. I would like to present an overview of our 2nd quarter consolidated operating results. In the first half of fiscal year twenty twenty one, we recorded operating revenue growth and sharp increases in operating profit and ordinary profit of JPY 43,800,000,000 JPY 49,900,000,000 respectively, partially as a result of the absence of the extensive and severe restrictions on economic activities and widespread temporary suspensions of our businesses in Japan and overseas seen in the previous year. Profit attributable to owners of the parent returned to the black, improving sharply by JPY 62,100,000,000 due to reduced COVID-nineteen related extraordinary losses and other factors. That being said, operating results in the 2nd quarter fell short of forecasts amid a weaker than initially expected operating environment with consumer sentiment depressed by the spread of the Delta variant and the states of emergency being prolonged and expanded to cover larger areas. I will go back to this subject in more detail later on. Consolidated operating results by segment shown here are arranged in descending order of year on year operating profit improvement. The 5 segments shaded in blue recorded strong profit improvement, having recovered from the year earlier impact of store closures and shortened opening hours due to the states of emergency and consumers staying at home. The 3 segments from the discount store business downward at the bottom of the table posted profit declines due to the absence of the steep year earlier increase in demand, but their profits are above the pre COVID-nineteen levels of the first half of fiscal year twenty nineteen having steadily implemented growth strategies such as new ways to respond to growing dine in demand, opening new stores and increasing the number of drug stores able to process prescriptions. We do not disclose earnings forecast by segment or quarterly segment forecasts, but the Financial Services business made far greater progress than expected, while the supermarket business, discount store business and health and wellness business were more or less on track, and the general merchandise store business, shopping center development business, services and specialty store business and international business, which were impacted by restrictions on activities as a result of the states of emergency and other factors posted below expected operating results. Here, I would like to explain the differences between the first half results and our initial forecasts. At the beginning of this fiscal year, we expected COVID-nineteen case numbers to increase in the Q1 and then begin to decline in the Q2. However, infections spread rapidly because of the new variants, which led to stricter operating restrictions in Japan and overseas than we had expected. Consequently, we had to close stores and reduce opening hours to a far greater extent than we anticipated in our initial scenarios. The state of emergency was prolonged and expanded to cover a larger area, which meant many consumers were fraying from traveling to their hometowns over the Bonn holiday period in August, significantly impacting summer sales. The impact of these factors on opening hours reduced business opportunities by approximately 71,000,000 hours in total with an estimated negative impact on gross operating profit of over 10,000,000,000 yen. Amid this business environment, shopping mall specialty store sales and sales of products associated with outings were weaker than expected due to deteriorating consumer sentiment. Reflecting on the first half of fiscal year twenty twenty one, there were restrictions of some kind in place almost throughout the whole period. May August, in particular, were under states of emergency from beginning to end. Although the states of emergency this year were smaller in scale than the first one last year, they lasted for extremely long periods and their impact was prolonged in fiscal year 2021. Next, I will discuss the performance of each segment. First, the Financial Services business, which recorded the strongest profit improvement. Profit in the past 3 years is shown on the left. We can see that profit has recovered to pre COVID-nineteen levels. On the top right, you can see that credit card shopping transaction volume exceeded pre COVID-nineteen levels at 102% of the figure for the first half of fiscal year twenty nineteen. Although transaction volume related to travel and public transport is still recovering, promoting transactions in growth businesses such as online supermarket sales and harnessing the strengths of the E. ON Group to increase transactions at supermarkets and drugstores contributed to the transaction volume recovery. Bad debt expense, which had been a cause for concern amid the pandemic, decreased sharply, dropping by JPY 27,100,000,000 year on year and falling below pre COVID-nineteen levels. This was due to government assistance measures such as Malaysia allowing partial withdrawals from the state pensions, wage subsidies paid to individuals and allowances paid to SMEs as well as progress with a credit system that is responsive to fluctuating COVID-nineteen related restriction levels, which helps you increase the proportion of normal receivables. The general merchandise store business halved its loss from a year earlier, although performance has not recovered to pre COVID-nineteen levels due to ongoing restrictions on outings amid a resurgence of infections. Operating revenue increased from a year earlier driven by the food categories, which adapted to continued dine in demand. Apparel, Household and Recreational and Health and Beauty Care categories fell short of year ago profit levels due to the impact of consumers staying at home. But sales of categories were efforts for me to enhance the response to health enhancement and stay at home demand such as gardening supplies, video games and other entertainment and Sporxium's home fitness goods recorded robust sales growth. The bottom right of the slide shows a breakdown of profit improvement at E. ON Retail. These figures are adjusted for the impact of the transfer of E. ON Retail's group wide merchandise procurement function in the second half of fiscal year twenty twenty. Of the JPY 16,300,000,000 profit improvement, JPY 20,800,000,000 is at the gross operating profit level. Sales recovery and improved gross profit margin and an upturn in rental income from tenants were contributing factors. We have kept expenses below year earlier levels other than promotional spending, which increased from levels in the previous year when we refrain from engaging in promotional activities in response to the pandemic. I will briefly touch on the progress CN Retail has made with its revival plan. Online supermarket sales saw continued strong growth and were up 21% year on year and up 43% from 2 years earlier. We expanded our capacity to accept orders in order to enhance customer convenience and work to capture demand through initiatives such as running advanced reservation campaigns for special products for festivals and events. Click and Collect orders reached a record high in August, exceeding 10,000 per month for the first time, indicating that the service is steadily winning the support of local customers. In the apparel category, which is still recovering, we optimized the sales floor space breakdown between business and casual wear in response to changes in the market. We are working on bolstering the expanding casual apparel category, including the Sporxiom sportswear range, the ethical fashion brand, self-service and the trend oriented casual wear brand, Essim, for women who want more than just basic casuals, which are all recording sharp sales growth. In terms of cost restructuring, EON Retail completed the introduction of the AI pricing system, AI Kakaku in the delicatessen category and this helped to reduce losses on price reductions. We also trim losses on price reductions in food categories as a whole by strengthening control of operations from sales planning through to sell out. We will continue to expand the use of effective digital tools in the second half. As stated on this slide, we have also continued to reduce inventory through rigorous purchase control and reduction of SKUs. Although performance of the shopping center development business improved year on year, resurgences of COVID-nineteen in Japan and ASEAN countries means it is still working toward a recovery. In China, which has managed to bring the spread of COVID-nineteen under control, specialty store sales have exceeded pre COVID-nineteen levels. We forecast a similar recovery in other areas where progress is being made with vaccination. Restrictions on activities are being lifted and economic stimulus measures are being implemented. In addition to implementing infection prevention measures, which are now par for the course, We have remodeled existing malls and opened new malls in preparation for when restrictions on activities are lifted so that consumers can rediscover the charms of shopping at brick and mortar malls. We remodeled existing malls in China. At E'an Mall Wuhan Jinqiao, which was refurbished in response to the growth of the local area and reopened in April 2021, We added 45 new stores, including restaurants and facilities for families with small children and also relocated and remodeled 20 stores. In Japan, we opened EON Mall Haksan in July. In addition to conventional restaurants and food courts, EON Mall Haksan has a conceptual restaurant zone designed to provide an experience only brick and mortar malls can offer. In January 2021, we made a joint declaration with the municipal government of Hakusan City in Ishikawa Prefecture regarding the Hakusan Forest program, which is aimed at regional revitalization. And in May, we also concluded an agreement on regional contribution and collaboration aimed at further revitalizing the region and improving public services. In this way, we are advancing measures to deepen collaboration with municipal governments in the communities in which we open facilities. The health and wellness business posted profits exceeding pre COVID-nineteen levels. Prescription drug sales grew as the number of people undergoing medical examinations returns to normal levels and the number of drug stores able to process prescriptions increases. The gross profit margin on prescription drugs recovered as the number of prescriptions filled increased with the number of people undergoing medical examinations returning to normal levels. As a result, the prescription drug section compensated for the absence of the one time year earlier spike in demand in the retail section. The increase in the number of drug stores able to process prescriptions accelerated from the second half of fiscal year twenty twenty onward as a result of aggressive hiring of pharmacists with the number and proportion of such drug stores surpassing initial targets. Progress with opening new stores was also faster than expected. In addition, Pupure Himawari, which has 130 stores in the Chugoku and Shikoku areas and annual sales of over JPY 50,000,000,000 will join the E. ON Group in December 2021, further increasing the scope of our business. Profits of the supermarket business and discount store business were down due to the absence of the expanded dine in demand and other factors relating to the nationwide state of emergency in the previous year, but profits are still significantly higher than pre COVID-nineteen levels. The table in the middle of this slide shows fresh produce and delicatessen sales at the group's 11 Delicatessen category, which was enhanced in response to continuing dine in demand, was higher than in fiscal year 2020 fiscal year 2019. To ensure that we can continue to earn the patronage of customers after the impacts of COVID-nineteen fade and to ensure that we can maintain and improve profitability, group companies are implementing community focused initiatives and pursuing measures to improve productivity. To give an example, more than 500 United Supermarket Holdings stores have introduced the Scan and Go self scanning self checkout system. Max Value Tokai, which has been strategically operating small scale supermarkets, opened its 1st small scale supermarket in Mie Prefecture, formerly the area served by Max Value Chubu before the integration of the 2 companies. In this way, management integration has resulted in the sharing of know how and has accelerated initiatives to increase area share. At MyBasket, we implemented initiatives to improve the accuracy of placed orders and have installed cashless self checkouts at 372 stores as of August 31, 2021. MyBasket is also accelerating moves to dominate the small scale urban supermarket market and is targeting more than 1,000 stores in total by the end of fiscal year 2021. With regard to our outlook for the second half of fiscal year twenty twenty one, a major difference in our assumptions from those of our initial forecast is that Japan's vaccination program looks set to finish earlier than anticipated. Vaccination of all those wishing to be vaccinated looks set to be completed in the Q3, which should lead to some restrictions on activities being lifted. We think the movement of people over the New Year holiday season will recover more than we initially expected, returning to fiscal year 2019 levels. As the operating environment improves, we will work to achieve an earnings recovery by continuing to steadily implement measures based on the 5 growth strategies of our medium term management plan. I will now talk about progress with the 5 growth strategies of the medium term management plan, the strategic significance of which Mr. Yoshida explained at the beginning of this briefing. Last month, we announced the integration of Fuji and Max Value Nishi Nihon. In March 2022, we will establish an interim holding company that will have both Fuji and Max Value Nishi Nihon as subsidiaries, followed by a merger in March 2024. In September 2021, the new EON Tohoku was established by integrating EON Retail's Apparel, Household and Recreational and Health and Beauty businesses with EON Tohoku, which was formed by integrating the former Max Value Tohoku with Eon! Retail's Food Businesses. We have restructured Eon!tohoku into a company that can harness its comprehensive strengths to adapt quickly to the rapid changes in the business environment caused by the pandemic. Also in September 2021, ahead of the integration in March, Fuji and Wellcia both opened stores in EON town, Kawanoe, Fuji's first store in an Eon Group Shopping Center and Wellcia's first store in Shikoku. In October 2021, Eon Mall is scheduled to open Eon Mall Nagoya Noritake Garden, a next generation mixed use office retail complex. In September 2021, EON Group's Tokimeki points were merged into the Waon point system, creating a point system that's easier to understand and making points easier to earn and use. Also in September, we launched a comprehensive E. ON Group app called I. E. ON. We aim to increase our share of wallet by enabling customers to use the app as an online and offline gateway to the group services. We believe the customer convenience will be enhanced even more by using I. E. ON to make the most of the newly revised Wahon Point system. We will continue looking at ways to further develop the app as a primary method for enhancing our customer relations management. The app provides a centralized means to keep track of customer behavior in order to better provide better product and service proposals. In countries where progress is being made with digitalization, we will further accelerate digitalization initiatives. EON Malaysia has enhanced its e commerce site by adopting the e commerce platform of U. S. Company boxed.com. EON Mall Indonesia is collaborating with a major e commerce platform to engage in joint promotions, advance new business initiatives and improve customer convenience by opening new stores that integrate online and offline approaches. This month we are opening EON town Makuhari Nishi, a new Wellcia concept store developed as part of initiatives to evolve the health and wellness business. The store proposes ways for consumers to lead richer lifestyles through food and health. This involves collaboration with local medical services, use of the latest technologies such as robotic pharmacy systems, lockers for collection of medicine, health consultations using a community space and an expanded range of fresh food items. We launched 38 new product items in the Celliant autumn winter range, bringing the total number of product items to 210. Wearing Cellion products helps with recovery from fatigue. We are also bolstering promotions of our protein related products in response to the growing demand for health food products. E. ON announced a price freeze on top value brand food products with a declaration that prices would be left unchanged until the end of 2021. Our aim is to help keep living costs down for our customers in response to increasingly cautious customer spending. Despite the recent spate of food price hikes due to skyrocketing ingredient prices, we are committed to supporting our customers through maintaining low prices by making cost reductions employing a variety of rational means, including streamlining of distribution, procurement of ingredients from optimal sources in Japan and overseas and bulk purchasing. In addition to keeping prices down, we are also actively developing products that meet changing customer demand, such as greater demand for products with health benefits due to increased health consciousness. Examples of new products and product ranges are shown on this slide. We're taking steps to encourage more customers to shop offline and online at E. ON stores by developing uniquely E. ON like products like these. In the Q1 of fiscal year 2021, our progress was at the top end of our initial full year forecast range. But as we have explained today, progress was slower than expected in the second quarter. This meant that overall progress in the first half was at the bottom end of our initial forecast range. As I mentioned earlier, the operating environment is showing signs of turning around with vaccination rates increasing faster than we had initially assumed. The E. ON Group will continue to work as a team to meet our full year forecast by steadily putting into action measures based on our medium term management plan. That's all from me. Thank you very much for your attention. I have two questions. First, regarding the freeze on top value prices for the rest of this year, I think there must be a variety of challenges relating to the supply chain, including difficulty in procuring products, rising purchase prices and higher logistics costs. Given these conditions, what procurement issues do you foresee from a slightly longer perspective, for example, from next year onward? Personally, I think progress is being made with the UN initiatives and that places you in an advantageous position, but I'd like to hear what your thoughts are. My second question concerns the announcement merger with Fuji. Is this part of an aggressive M and A strategy to pursue deals in Japan and abroad? Or will you be considering potential deals on a case by case basis? As for your first question, you're referring to our pricing of private brand products, but the biggest issue we see for our private brand products is how to create a highly unique and distinct private brand that is fundamentally customer oriented. The key will be how well we grasp the needs of customers when developing our private brand products. In particular, we will propose new categories for food products. For example, in the ready to eat instant foods category, we will create a whole group of products that can be prepared quickly. Alternatively, for customers who prefer organic foods or foods that do not include certain ingredients, we will establish dedicated sales corners that clearly indicate product categories and develop products for those sales corners. Of course, we will make every effort to hold down prices in our top value best price range. However, for our mainstream top value products, we have asked product managers to focus on developing customer oriented products with uniquely E. ON like characteristics. Products that fit that description will be gradually released from around the start of next year. Recently, we have launched a number of new products, including a coffee product that meet customer demand for products that do not include certain ingredients, which we call free from products. We will continue to launch products like these to help bring us into closer contact with customers. As for procurement, thus far we are meeting our requirements through our own sources. Regarding your second question, we will use M and A and other means to expand business in growth areas or areas where we lack a presence. Rather than taking a case by case approach, we'll be keeping an eye on business areas with a view toward capturing market share in growth areas. In particular, we will focus more on the health and wellness, local community and environment areas that I mentioned earlier on because we expect consumer interest in these areas to continue growing. I understand that the general merchandise store results over the past 3 months reflect rebounds from the previous year's results and headwinds created by various external factors, including the increase in COVID-nineteen infections and unfavorable weather. However, looking solely at the results for the 2nd quarter, losses expanded on both year on year and quarter on quarter basis. President Yoshida pointed out this profit fluctuation earlier, but I would like to return to that and ask if you think profit stabilization and sustained growth is possible given the changes in the consumption environment brought about by the pandemic? As President Yoshida pointed out, I think one key factor will be the integration of online and offline approaches. Could you please provide us with more details on this? Regarding our general merchandise store business, the food categories are doing very well. Among the many reasons for this is our introduction of the AI pricing system, AI Kakaku, which has improved gross profits, especially in delicatessen items by enabling more precise management of product price reductions. 2nd is our online supermarket business, which has increased our total food sales and now accounts for about 5% of food sales. Another is the use of so called scan and go smart shopping system, which has reduced staff time spent working at cash registers and enables staff to devote more time to maintaining sales floors, restocking shelves and generally improving sales floor operations. However, as you just pointed out, lower sales of apparel, household and recreational products and furniture on the 2nd and third floors of our general merchandise stores cannot be blamed on the weather. Nonetheless, the current environment is difficult. That said, we significantly reduced and optimized inventories last year, so we have been able to minimize the impact of sluggish sales this year on profits. One future challenge we are now working on is how to increase the ratio of online sales of the apparel, furniture and household and recreational products on the second and third floors of our stores. A month ago, we established a new unit within E. ON Retail to oversee this effort and we will keep striving to raise our e commerce sales ratio. I also have two questions. 1st, were second quarter results affected by any factors other than the pandemic and spread of the Delta variant? Were there any areas that were lacking due to what might be considered factors relating to specific individual group companies? 2nd, the year on year change in profits vary significantly among group companies in the general merchandise store and supermarket segments. I assume the differences reflect differences in each company's competitive environment and the pandemic's impact on their business. But what individual company factors were major causes of these differences? Were there any areas that could have been improved through cross group sharing of the know how of group companies that performed well? Regarding the first question, as I explained at the beginning, the impact from restrictions on people's activities was significant. Shopping malls are the platform for the entire E. ON Group. The group's specialty stores located in these shopping malls were, of course, affected. When authorities began requesting that people were fraying from going out to shopping malls as a means of curbing the overall movement of people in July, we restricted admission to our E. ON Malls and the impact of that was reflected directly in that quarter's results. Reason weather is another negative factor. Sales of long sleeve apparel remain subdued. With people staying at home as well, they haven't had much need to wear outer garments over these past 2 years. We have felt the decline in demand for outerwear, which I think simply reflects customers' needs. The numbers clearly reflect the fact that the spread of teleworking has reduced people's need to commute or buy shoes, outerwear and cosmetics. At the same time, travel has been completely restricted, which is also clearly reflected in sales of outerwear and suitcases. I think these changes in the consumption environment caused by the pandemic are reflected in the numbers. In short, we are being affected by 2 factors: the physical restrictions on people's movements and changes in customer needs. Although we need to respond to the changes in customer needs, the impact from the physical restrictions on people's movements will begin to diminish. Rather than expecting a return to pre pandemic conditions, I think we need to consider how we should respond to the customer needs that will emerge after the pandemic. As for your second question, all of our companies are pursuing their own initiatives, but I think regional differences in how the state of emergency and other measures to prevent the spread of infections were applied is a major factor behind the divergence in their results. For example, shopping malls in the Kinkie region were closed on weekends. Closure on weekends, the busiest 2 days of the week for shopping malls, definitely led to deterioration in those companies' results. Another factor is digitalization initiatives. Max Value Tokai is, for example, expanding its online supermarket business. Increasing the number of sales channels is one of our main strategies for dealing with the many changes in our operating environment. Max Valley Tokai's efforts are producing a steady improvement in its results, and we plan to promote such digitalization initiatives as a successful model to be followed by other group companies. Through such initiatives, we hope to curb and control the divergence in individual group company results. Two questions. First, how will the online supermarket operations provided by Ocado be combined with the current online sales of products delivered from existing stores? Please let us know what, if any progress has been made to date. For example, the development of packaged fresh foods and delicatessen items. I don't think you would initially expect the deliveries of online supermarket orders from existing stores to expand as much as they have. So I wonder if there has been any change in your plans. 2nd, I assume you will be requiring top value suppliers to reduce their impact on the environment. But how about national brands and other business partners, including wholesalers? Will they be required to comply with E. ON's own standards? First, regarding the tie up with Ocado, the construction of the 1st customer fulfillment center began as planned and the building's frame has now been completed. I think we can operate the Ocado model in parallel with deliveries direct from existing stores. The supply capacity of our online supermarket operation is well short of the demand. The merits of deliveries from stores and deliveries from a warehouse are completely different. So I think we first need to demonstrate the special features of both models and gain a better understanding of the breadth of the customer base for each model. E. ON has a variety of store formats, including large and small scale supermarkets and discount stores, all of which also provide online sales. I therefore think parallel operation of the two models will be fine initially. After a while, we will be able to conduct data analysis based on customer IDs and other factors, which I think will lead us to the next step where we determine how to best integrate these two sales channels. However, the first challenge for us is meeting the huge demand for online shopping. As for your second question, I'm afraid that at this point in time, I must refrain from providing information about how much participation we expect from our entire supply chain. We are currently proceeding with rather extensive internal discussions about environmental issues. Naturally, we will be proceeding with our own efforts to reduce emissions. As for the responses we expect from our business partners, that will need to be determined through discussions with them and we will be taking their views on the issue on board. We also need to work with our customers in a variety of ways to reduce our environmental impact. I think this will be an important part of preparations on the way to our green transformation.