Q1：You reassessed Group strategies and updated the Medium-Term Management Plan in March 2023. Could you tell us about the process and background of these moves?

Promoting business portfolio reforms for sustained growth in corporate value, based on dialogue with stakeholders

Let’s start by reviewing how our previous reforms went.

Seven & i Holdings has long maintained the basic policy of formulating and steadily implementing management strategies to contribute to sustained growth in corporate value while reflecting the issues and needs identified in repeated dialogue with diverse stakeholders. Based on this policy, since 2018 we have laid the groundwork for global growth in our overseas convenience store (CVS) operations through acquisitions including Sunoco LP and Speedway LLC. At the same time, we have made progress on reforming our domestic business portfolio through a process of business streamlining and refocusing based on a Groupwide approach. We aim for growth with more of a focus on quality, by means such as strengthening relations with franchisees through dialogue while also enhancing attentive management based on individual stores and locations to keep CVS operations on a track toward further growth.

The key to growth is building a supply chain to generate strengths in food

The six outside directors appointed in May 2022 participated in this reassessment of Group strategy, together with independent outside advisers hired to ensure the fairness of the process. The Board of Directors, a majority of whom are outside directors, repeatedly discussed strategic options such as IPOs and spin-offs in individual business segments as well as thoroughgoing reforms to the Group business structure, leaving no possibilities excluded.

Through a process that at times included passionate debate and pointing out unpleasant facts, the Board reaffirmed the fact that the Group’s strengths are in the field of food. These strengths power domestic CVS operations’ appeal to consumers and contribute to not only high daily sales but high profit margins as well. The process also showed that in overseas CVS operations too there is a strong correlation between the share of sales made up of original food products, including fresh foods and private-brand products, and appeal to consumers.

Through these discussions, we revised the Group vision for 2030 identified when we formulated the MTMP, to focus even more on the element of food: “a world-class food-focused retail group that leads distribution innovation through a global growth strategy with the 7-Eleven business as its core and the active use of technology.”

We believe that our strength in food is backed by the diverse tangible and intangible capital that the Group has built up over the years, including our value chain, shared infrastructure, brand power, and store loyalty.

Among our businesses, the superstore operations serve as a major force driving our strength in food. The superstore operations offer wide-ranging product lines unrivaled by CVS operations and boast outstanding procurement capabilities in areas including networking with a wide range of suppliers of products from perishables through processed foods. Based on these procurement capabilities, for our Seven Premium private brand, launched in 2007, the Group develops diverse product lines while leveraging marketing information from points of contact with consumers in Group stores. In addition, our unique product choices including fresh foods realize delicious flavor and product lineups that are unmatched by the competition. This is the result of team merchandising that brings together high levels of technologies and knowledge in various fields to develop products that emphasize quality, safety, and deliciousness, together with our diverse supplier teammates.

In CVS operations as well, it is not just growing the number of stores but also building supply chains to generate strengths in food, as noted above, that have proven to be keys to growth. Although we were, in fact, the last CVS operator to expand its store network to reach all of Japan, our insistence on building reliable supply chains before advancing into new territories has earned us the support of consumers in each region by demonstrating our strengths in food. We are confident that this strategy of progress by linking supply chain development with opening stores will help us to secure unrivaled advantages in global markets as well.

Q2：Could you describe some key points of the recently announced action plan intended to achieve the MTMP?

Steady progress of domestic and overseas CVS operations and further acceleration of thoroughgoing reforms to superstore operations

In FY2023, while consumer activity is recovering in Japan thanks to the reclassification of COVID-19 as a Class 5 infectious disease and other developments, there are concerns about lower consumer confidence as a result of factors including lower disposable income in addition to continuing increases in energy costs. While there were expectations of a recovery in consumer confidence for a time in the United States as gasoline prices fell, some observers expect a recession in the U.S. economy in the second half. As such, conditions are unpredictable. In light of these considerations, we expect to have no choice but to do business under conditions that will remain very challenging in FY2023.

Even under these circumstances, domestic CVS operations maintain planned profit levels and North American CVS operations show large-scale growth in profit levels thanks to the effects of the Speedway merger and enhancement of original products that have high gross profit margins. Driven by these domestic and overseas CVS operations, both EBITDA and free cash flow recorded higher than anticipated growth. We consider the Group’s strengths in food to be behind this growth in profits as well.

At the same time, in March 2023 we announced thoroughgoing business reforms to superstore operations, including an exit from the in-house apparel business as well as consolidation and reorganization of Group companies with a focus on the Tokyo metropolitan area. We will move ahead steadily with these measures in line with a three-year time limit and under monitoring by the Strategy Committee, which consists of outside directors only, and the Board of Directors.

To reflect this steady progress based on the results of domestic and overseas CVS operations and indicate our unwavering commitment to thoroughgoing business reforms in superstore operations, in March 2023 we revised our FY2025 targets upward.

We consider FY2023 to be a year of laying solid groundwork for achieving these targets, through growth into one of the world’s leading retail groups with a focus on food. The makeup of Japanese society continues to change amid developments such as the aging of the population, the rising number of single households, and the growing presence of women in the workforce. What’s more, the global pandemic has led to changes in people’s work styles and behaviors. These factors are spurring further growth in demand for purchasing products such as perishables and fresh foods close to home. Furthermore, demand for safety, peace of mind, and good health is growing as well. We believe that these changes are resulting in significant opportunities to demonstrate the strengths of our domestic and overseas CVS and superstore operations, which provide the food that people enjoy every day.

Formulation of a capital reallocation plan for medium- to long-term growth

In reassessing Group strategy, we also are identifying clear guideposts on capital reallocation.

It will be important to strive to recover capital through thoroughgoing transformation in the area of priority structural reforms while continuing to grow the operating cash flow that we have built up through now centered on domestic and overseas CVS operations. We also will allocate generated cash flow with a focus on strategic investment in overseas CVS operations, which drive Group growth, while continuing to make investment decisions grounded in capital efficiency for medium- to long-term growth. We plan to allocate to investment in superstore operations cash flow generated within superstore operations themselves, without allocating cash flow from CVS operations to SST operations.

We also plan to provide returns to shareholders, including purchase of treasury stock, dynamically with the aim of increasing return on equity (ROE) and earnings per share (EPS), targeting a total return ratio of 50% or more cumulative from FY2023 through FY2025.

Q3：Some shareholders submitted a shareholder resolution to the 2023 Annual Shareholders' Meeting. What is your view on the results?

Building even stronger relations of trust with shareholders and investors by enhancing dialogue toward long-term value creation

Behind this shareholder resolution was a demand to separate some operations from the Group. As I noted earlier, food is the source of the Group’s competitive strengths, and the knowledge and know-how of procurement and product development that the Group has built up in the field of food, including superstore operations, plays a major role in creating long-term value.

For this reason, we believe that haphazardly separating some businesses could impede our efforts to maximize corporate value, and this in turn could harm returns to shareholders.

On the proposal on appointment of directors, which was the specific point at issue, the company proposal garnered much more support than the shareholder proposal. However, we take seriously the fact that there was some solid opposition to the company’s proposal. While we have valued dialogue with stakeholders under our Corporate Creed of aiming to be a sincere company trusted by stakeholders, 2023 Annual Shareholders' Meeting provided an opportunity to rethink how we handle dialogue—particularly with investors. Reflecting on the fact that although we have discussed our practical vision for the future extensively in the Board of Directors we have not communicated it fully to investors, from now on we will discuss our future vision in as specific terms as possible, attaching roadmaps and evidence.

Together with actively holding IR Days and other opportunities in which I will take the lead in discussing our understanding of the issues and our future vision, we will have the persons responsible for overseeing individual businesses and chief officers in charge of corporate functions (CxOs) describe strategies in specific terms. This is part of our efforts to improve communication, including enhancement of investor relation (IR) and shareholder relations (SR) activities and strengthening the IR and SR organizations.

Q4：Please tell us about Seven & i Group’s sustainability initiatives, as an organization with a focus on long-term value creation.

Enhancing efforts to address material issues and human capital management

In addition, to ensure the sustainability of the value chain in which we demonstrate our strengths in food, we have formulated the Seven & i Group Human Rights Policy and the Seven & i Group Business Partner Sustainable Action Guidelines, and we carry out human rights due diligence through corporate social responsibility (CSR) auditing and other means.

Simultaneously with such activities to improve the quality of management, over the past few years we on the management team have focused in particular on efforts to increase employee engagement. As we have seen, today the Group is in the midst of large-scale reforms. To ensure the success of these reforms, we will need to develop measures to respond to the aspirations of Group employees who want to grow more and to take on new challenges with a positive approach, while working together in solidarity toward our goals. But it is a fact that the progress of Group reforms can make some employees wonder about their employer’s future. I believe that at a time like this internal communication to empower employees plays an important role, and soon after the announcement of the results of reassessment of Group strategy we held a briefing for employees on the superstore operations, which are slated for thoroughgoing reforms. Of course, it takes more than a single briefing to alleviate employees’ concerns. Still, we believe that continued direct communication, while also demonstrating to employees the visible results of specific measures and actions, will lead to improved engagement that will enable the Group’s further growth. I intend to guide the helm of management while keeping at heart the need to generate such results by bringing together the power of individual employees as my most important mission as a manager.

Q5：Do you have a message for stakeholders?

Realizing sustained growth based on our Corporate Creed of trust and sincerity

As I noted earlier, the Seven & i Group’s Corporate Creed calls for being a sincere company trusted by stakeholders. This creed is something that must remain unchanged no matter how much the times or the business environment may evolve. We will continue to realize sustained growth through repeated and thorough dialogue with stakeholders in the future as well.

From a look at recent developments such as the effects of the global pandemic and international disputes, we can expect conditions of dramatic change and future uncertainty to continue. Amid such circumstances, we will continue to contribute to our communities, in Japan and around the world, as one of the world’s leading retail groups with a focus on food, while steadily achieving the MTMP.

We ask for your continued support and understanding.