イオン（8267） – AEON Report 2021

Thriving withCommunitiesEnriching Peopleʼs Lives and Local Communities for TomorrowAEON REPORT 2021Thriving with CommunitiesPursuing peace, respecting humanity, and contributing to local communities, always with the customerʼs point view as its coreAeon Basic PrinciplesPeaceThe CustomerPeopleCommunityThe word aeon (AEON) has its origins in a Latin root meaning “eternity.”The customersʼ beliefs and desires comprise the central core of our philosophy. At Aeon, our eternal mission as a corporate group is to benefit our customers, and our operations are thus customer-focused to the highest degree.“Peace” Aeon is a corporate group whose operations are dedicated to the pursuit of peace through prosperity.“People” Aeon is a corporate group that respects human dignity and values personal relationships.“Community” Aeon is a corporate group rooted in local community life and dedicated to making a continuing contribution to the community.On the basis of the Aeon Basic Principles, Aeon practices its “Customer-First” philosophy with its everlasting innovative spirit.AEONʼs Corporate CommitmentAEON creates a future of limitless promise‒ an aeon ‒ by transforming daily life with our open, dynamic approach.Thriving with Communities 　Aeon Basic PrinciplesEditorial PolicySince its founding, Aeon has put its “Customer-First” policy into practice and maintained the belief that the eternal mission of a retail business is to contribute to customers and communities without limit while achieving happiness for its employees. Based its basic philosophy rooted in these values, Aeon has worked to create a corporate culture that anticipates and adapts to change as a corporate group that continually innovates. In a rapidly changing management environment with the spread of COVID-19, rising customer awareness in the climate crisis, and other factors, practicing management in accordance with these basic principles is more important than ever. We issue the Aeon Report with the aim of having all stakeholders gain an in-depth understanding of these Aeon values, our management stance, as well as the direction and implementation of sustainable management in a rapidly changing management environment. Aeonʼs integrated report comprises two parts, the Aeon Report and the Aeon Sustainability Data Book.https://www.aeon.info/en/ir/library/aeon-report/＊Aeon Sustainability Data BookThe Data Book offers a detailed look at our sustainability initiatives from the perspective of both the environment and society and complements the Aeon Report as a factbook. ContentsValue Creation StoryHuman Resources 3 　Aeonʼs Overview by the Numbers45 Message from Chief Human Resources Officer 5 　Message from the President47 　Promotion of Employee Health and Human Resources Development 7 　Value Creation Model 9 　Financial and Non-Financial HighlightsGovernance49 　Board of Directors and Executive OfficersManagement Strategy51 　Messages from Outside Directors11 　New Medium-term Management Plan 53 　Corporate Governance17 　Message from Chief Officer of Digital59 　Compliance (corporate ethics)21 　Financial Strategy61 　Risk Management23 　Growth Strategies by Business63　 Aeonʼs BCP31 　TOPVALUSustainability35　 Sustainability66 　Information SecurityData Section67 　Financial and Non-Financial Data37 　Message from Chief Sustainability Officer69 　Corporate Data/Major Group Company’s Integrated Report39 　Responding to Climate Change Through Scenario Analysis43 　Creating a Recycling-Oriented SocietyThe word aeon (AEON) has its origins in a Latin root meaning “eternity.” The Aeon Groupʼs eternal mission is to benefit its customers. By fulfilling this mission, we hope to sustain the Groupʼs development and prosperity forever.●Abbreviations that frequently appear in the report　GMS: General Merchandise Store　SM: Supermarket　SC: Shopping CenterNSC: Neighborhood Shopping CenterCVS: Convenience StorePB: Private Brand1758Origins of the Basic PrinciplesThe basic principles, which are at the core of Aeonʼs corporate activities, were clearly set out in 1989 to coincide with a change of the Groupʼs name. Those principles are grounded in the merchant philosophy that we have cultivated since our founding.Making customers the starting pointThe founding of Aeon traces back to Okadaya in 1758. Okadaya was a merchant dealing in carrying poles. From these beginnings in stocking the goods that customers need and engaging in trade to provide them, today the Aeon Group has expanded across Japan and into Asia. Pursuing peaceOkadaya was one of the first businesses to hold reconstruction sales following the Second World War, and from the sight of a visiting customer grabbing at the flyers that were handed out, with tears in his eyes, the principle that “retail is a symbol of peace and that retail can only prosper in a peaceful society” was born. Respecting peopleAeonʼs predecessor JUSCO was created by a merger of three companies, and it created an environment in which willing people could take on challenges equally, regardless of race, age, nationality, or gender. Based on the belief that “education is the greatest welfare,” Aeon has cultivated a corporate culture of respecting people.Contributing to local communitiesThe creed of the three companies that merged was “contributing to local communities.” Retail is an industry deeply rooted in the community, and based on the philosophy that a retail business cannot grow without contributing to that local community in which it operates, we have worked with local governments around Japan to create a society in which we are in harmony with the community. Continue to innovateThe founding philosophy of Okadaya, “give the central pillar wheels” is one of the teachings that has been handed down to this day. In step with changes underway in society, we have boldly transformed ourselves and expanded our fields of business in order to propose more convenience and enriching ways for customers to live, with some 300 Group companies providing support as a corporate group that continues with constant innovation.This report references the International Integrated Reporting Framework provided by the International Integrated Reporting Council (IIRC) throughout.Reporting PeriodFY2020 (March 1, 2020‒February 28, 2021)*＊For operating companies with different fiscal years and for certain initiatives, the relevant time periods for each item reported are stated.Reporting ScopeThis report covers pure holding company Aeon Co., Ltd. and its 287 consolidated subsidiaries and 27 equity method affiliates as of the end of February 2021.＊If the scope of reporting differs from the aforementioned, this is stated for each item reported.DisclaimerThis report includes plans for the future of the Aeon Group, as well as predictions and forecasts about business results. These statements are based on the Groupʼs judgments and opinions based on the information available at the current time. Due to various future issues, results may differ greatly from those published in this report.＊For the purposes of this report, “Aeon” is used to refer to Aeon Co., Ltd. and the approximately 300 companies that comprise the Aeon Group. “Aeon People” collectively refers to the employees working across the Aeon Group. 1AEON REPORT 2021Okadaya during the Meiji eraAEON REPORT 20212Carrying polesFlyers for big salesJUSCOUniversityThe business creed of Futagi Co., Ltd., one of the three companies that mergedThriving with Communities Aeon’ s Overview by the NumbersThriving with Communities Aeon’ s Overview by the NumbersAchieving sustainable growth by expanding our businessdomain by capturing changes in the environment for the entireAsia marketAeon regards the whole of Asia, including Japan, as a market and fulfills its role as an infrastructure supporting peopleʼs lives in each region. By creating and enhancing the synergy between countries, regions and multiple lines of business with a focus on retail,Aeon responds to the increasing uncertainty in society to enhance its resilience and achieve sustainable growth. ●Countries in which Aeon operates●Total number of shopping customers annually●Number of stores＊14 Approx. 4.4billionTotal 19,288stores/locations＊Total number of passengers passing through the cash register of major group companies (Figures are for FY2020)＊Total of consolidated subsidiaries and equity-method affiliates (Figures are for FY2020)JapanGMSSMDSHCCVS Services Business Specialty Store Drugstore Financial Services Mall-type SCNSCOther Retail StoreChinaGMSSMCVSServices BusinessFinancial ServicesMall-type SC Other Retail StoreSouth KoreaCVSMalaysiaGMSSMDSServices BusinessFinancial ServicesMall-type SCOther Retail StoreThailandSMServices BusinessFinancial ServicesOther Retail StorePhilippinesCVSServices BusinessFinancial ServicesIndonesiaGMSServices Business Financial ServicesMall-type SCVietnamGMSSMCVSServices BusinessFinancial ServicesMall-type SCOther Retail StoreCambodiaGMS SMServices BusinessFinancial ServicesMall-type SCIndiaFinancial ServicesMyanmarGMSSMFinancial ServicesLaosFinancial ServicesSingaporeDrugstoreAustraliaTasmania operated farm19,288 stores/locationsGMS (General Merchandise Store) SM (Supermarket) DS (Discount Store) HC (Home Center) CVS (Convenience Store)Services BusinessSpecialty StoreDrugstore Financial ServicesMall-type SC (Shopping Center) NSC (Neighborhood-type Shopping Center)Other Retail StoreTasmania operated farmNumber of stores/locations operated by consolidated subsidiaries and equity-method affiliates＊1 Including SCs operated under the name of Aeon Mall as well as those with total leased area of over 20,000㎡＊2 NSCs operated under the name of Aeon Town(as of the end of Feb. 2021)●Consolidated operating revenues1.4% ofJapan GDP＊Figures are for FY2020● Electronic money transaction volumeApprox. ¥8,603.9billionApprox. ￥2,250 billion Approx. 46.13 million peopleOf which, approximately16.68 million overseas members● Aeon card, etc. credit card holders＊Figures are for FY2020＊Figures are for FY2020●Group employeesNo. 1 companyin JapanApprox.570,000●Total WAON e- money cards issued　＊Figures are for FY2020Approx. 85.95 million＊Figures are for FY2020●Shopping center area＊1＊2Japan 7,929 k㎡ Overseas 2,251k㎡Equivalent of approx. 20 Tokyo Disneyland sites (510,000 m2)Total 10,173k㎡＊Figures are for FY20203AEON REPORT 2021AEON REPORT 20214Thriving with Communities Message from the PresidentThriving with Communities Message from the PresidentSeizing Unprecedented Major Changes in the Environment as Opportunities for Substantial GrowthFormulating a Medium-term Management Plan Using Backcasting Starting from Aeonʼs Ideal State for 2030An era of drastic change has arisen from the spread of the novel coronavirus (COVID-19). Companies must seize these unprecedented changes in the environment as excellent opportunities for dramatic growth and move forward to promote bold reforms. Aeonʼs recently formulated Medium-term Management Plan (FY2021-FY2025) (hereinaf-ter, the “new medium-term management plan”) encapsulates our various thoughts for realizing “Aeonʼs Ideal State.” This new medium-term management plan was devised from a shared understanding of the environment within the Group and was created through an interactive process that involves aligning the directions and goals of the holding company and the operating companies utilizing the opinions of people on the frontlines. We took this approach because we placed emphasis on ensuring that our strategies resonate and are consistently implemented at worksites by formulating a plan that all employees understand, accept, and regard as their own personal matter. As another key point, upon clarifying Aeonʼs Ideal State for 2030, we ascertained the issues we must achieve by 2025 by using a planning method called backcasting. We aim to establish a foundation for sustainable growth toward 2030. Instead of a conventional three-year plan such as those implemented to the present, we will execute a five-year plan to realize bold reforms of our business structure rather than merely focusing on extensions of existing businesses.Sharing an Understanding of Important Environmental Changes with Everyone in Anticipation of the Post COVID-19 EraThe spread of COVID-19 has significantly affected our business. Nevertheless, I believe that our multi-format structure, which is one of the characteristics of the Group, as well as our business development in ASEAN and China worked as supplement functions that mitigated the damage and subsequently enabled us to demonstrate our resilience. During this challenging time, we place the utmost value on ensuring on-site safety and assurance. Our frontline employees were highly motivated to prevail amid various situations and supported by customers as well as reaffirmed the strength and importance of these workplaces. A multitude of changes, which include accelerating digitization, the impact of climate change, the rise of the Asian region, and the disappearance of boundaries between manufacturing and retail industries will significantly pick up speed amid the spread of COVID-19, and will directly affect our business in many ways. First of all, we were cognizant of the important environmental changes affecting Aeon, grasped the implications of these changes, and determined five transformations that we must attain by 2025.Restoring Vitality and Raising the Growth Potential of the Entire Group through a Revival of Strong RetailingCombined, the Shopping Center Development Business, Financial Services Business, and Health & Wellness Business accounted for 80% of the Groupʼs total operat-ing profit before the COVID-19 pandemic. Going forward, we are committed to placing the entire Aeon Group onto a growth track by raising the composition ratio of the retail businessʼs profit and restoring vitality. In reviving the retail business, we believe that providing unique products will be the source of corporate compet-itiveness. With the boundaries between different business catego-ries and channels disappearing, it will be crucial to strengthen product development, which serves as the face of a corporation, in order to differentiate us from the competition. Conventional private brand products have been supported by customers because they can be offered at more reasonable prices than those of national brands. Going forward, we will put forth even more support behind the TOPVALU private brand that embodies Aeonʼs corporate philosophy, expanding the range of products to incorporate areas and functions not covered by the national brands. We will also enhance our offerings of eco-friendly products and products designed to benefit health and wellness. We will become the cornerstone linking customers, producers, suppliers, and all stakeholders, and create convenient, delicious, innovative, and unique products in aiming to realize unparalleled product development and marketing.Deploying Aeonʼs Unique Assets Not Possessed by Online PlayersThe Shift to Digital Markets will serve as our foundation in promoting all strategies and is our highest-priority initiative. We must evolve from conventional sales bases centered on brick-and-mortar stores and product sales toward provid-ing seamless experiences integrating store-based and online shopping formats and transform into a company that is the most convenient and appealing to customers. The network of over 19,000 stores that Aeon has built over the years is an asset. Aeonʼs strength is its ability to combine that network with digital services to offer experiences other than shopping such as health and wellness and entertain-ment. Aeonʼs card membership base consisting of 46.13 million people and the more than four billion store visits its customers make annually also represent significant assets. Fully utilizing data obtained from these assets will enable Aeon to develop appealing products and unique services.Towards the Betterment of the Planet and Local Communities, We Will Work with All Stakeholders and with Customers in Particular in Taking an Environmentally Focused Aeon to the Next StageSince the 1990s Aeon has been among the first companies to focus on environmental issues and has pursued a number of initiatives over the years, such as reducing CO2 emissions from its stores, promoting the procurement of sustainable products, reducing food waste and the use of plastic bags, and supporting tree planting activities. Today, however, efforts to address environmental issues such as climate change and the loss of biodiversity are even more urgent, and have become a pressing challenge for the entire world. In the year 2030 when the environmentally conscious generation Z will account for the core of consumers and the workforce, interest in and demands for environmental action and green policies will have grown even stronger, with Green Transformation (GX) likely becoming a business strategy and the shape of business activity itself. Together with all stakeholders, particularly our customers and employees, we will actively work to be at the forefront of efforts to reduce the impact on the global environment through our business activities. At the same time, putting sustainability management into practice will require the ongoing enhancement of our global CSR foundations. In 2004, Aeon was the first retailer in Japan to announce its participation in the United Nations Global Compact, and we have since promoted initiatives such as the Aeon Supplier Code of Conduct (CoC). In 2018 we also made revisions to the Aeon Basic Policy on Human Rights, which covers all stakeholders including customers. In these ways, we are striving to create a sustainable society through our business. Aeonʼs Growth is Linked to the Enrich-ment of CommunitiesAeonʼs Ideal State for fiscal 2030 is to become a group of companies that implements a sustainable, circular economy focused on management in which Aeonʼs growth in local communities directly leads to the enrichment of local community life. We view our customers from the two perspectives of being consum-ers as well as being community residents. For our customers as consumers, we ensure customer satisfac-tion with our unique products and services. For customers as community residents, we aim to serve as a presence that together with the community revitalizes local economies and solves social issues. Further, based on the belief that we can only provide customers with services that bring them health and happiness when our employees are also healthy, we maintain a stance and implement health and productivity management as a cornerstone of our corporate activities. Additionally, by combining digital payments and communication with residents with regional bases such as via shopping malls, which are the core of peopleʼs lives, we will enhance the services and social capital required in each community. We will also provide convenience and enrichment in all life settings, and create “Aeon Living Zones” that will be indispensable to communities. The words “Aeon Living Zones” embody our intention to take the viewpoint of consumers and our desire to create peaceful and enriched lives together with the people of local communities. A retail company is one that exists together with customers. With this in mind, we will promote our business activities with a strong desire to link actual growth to the enrichment of the communities we serve and become a company for which there are expectations of further growth and that is supported by community residents.Akio YoshidaDirector, President and Representative Executive Officer5AEON REPORT 2021AEON REPORT 20216Thriving with Communities Value Creation ModelThriving with Communities Value Creation ModelStrive to Shape a Future Filled with Dreams and Grow with CommunitiesEnvironmentalChangesDemographictrends Penetration of digitaltechnology inevery aspectof lifeIntensificationof barrier-freecompetitionRisingawareness ofthe environmentand healthINPUTVarious formsof capital that providethe source forAeonʼs sustainable growthHuman capital●Group employees: Approx. 570,000Manufactured capital ●19,288 stores/locations＊1(Domestic: 14,806, Overseas: 4,482)Financial capital●Consolidated operating revenue: ￥8.6039 trillion●Shareholdersʼ equity: ￥924 billion Social and relationship capital●Shopping customers annually: 4.4 billion＊2●Opinions and inquiries from customers: 115,122＊3●Agreements concluded with local municipalities: 125Natural capital●Number of trees planted: 12,226,872●Promotion of sustainable procurementof marine produce, livestock products, agricultural produce and forest products Intellectual capital●Expertise in store and product development●Product and service quality control＊1 Total of consolidated subsidiaries and 　　　equity-method affiliates＊2 Total number of passengers going through 　　cash registers of major group companies 　　in FY2020＊3 To Aeon headquarters in FY2020 Recirculate the Value We Provide to Continuously Improve Corporate Valuen st i oc t aeE x p a n d support for Aeonʼs growthSustain ab ilit y Co mp assThree indicators Aeonʼs GrowSUSTAINABLE PLANEtThBusiness ModelLifestyle business that enriches peopleʼs lives and communitiese Employep li e r s Civic organizatiopuSCustomersʼ LivestionsGovernmentucts Stor e sns Educational institus Services Prod HE EnricHEAhRTFUL COMMUNITYment of communitiesALTHY & EMPO W E R E D P E Economic revitalization and contributing to s o l v i n g p roELPOb l e m s f o r cu nitiesmmoAeon Group Medium-term Management Plan （FY2021-2025）Aeon Sustainability Basic PolicyCorporate Governance Basic PolicyAEON Basic PrinciplesOUTCOMESProviding various forms of value that supportcustomersʼ lives and the growthof local communitiesCustomersEnrichmentSafety and securityConvenienceComfortCommunitiesCreating job opportunitiesContributing to regional recreationEmployeesCreating workplaces whereemployees can work withpeace of mind and vitalityGlobal EnvironmentPreserving natureʼs bounty 7AEON REPORT 2021AEON REPORT 20218Thriving with Communities Financial and Non-Financial HighlightsThriving with Communities Financial and Non-Financial HighlightsFinancials (FY2020)＊As of end of February 2021Non-Financials (FY2020)＊As of end of February 2021Operating RevenueOperating Profit MarginReduction of Plastic Bags Used at Cash RegistersTrees Planted¥8.6 trillion1.8％Increased 1.7 times compared to 10 years ago by aggressive overseas expansion and M&A in growth areas. We aim for ¥11 trillion in FY2025.Due to the impact of COVID-19, the operating profit margin tempo-rarily decreased from 2.5% in the previous fiscal year. We will focus on improving management efficiency and aim for 3.5% in FY2025.Approx.2,940millionCO2 emissions 90,564 tonsAeon has been undertaking a bring your own shopping bag campaign for around three decades. Since 2007, we have called for ending the free distribu-tion of disposable plastic bags, and have been supported by many customers.Approx.12.22millionAs an initiative rooted in the local community, in 1991 Aeon began the Aeon Hometown Forests Program that involves tree planting activities in the area of its opened stores. In the years since, the program has come to embody Aeonʼs basic principles.Overseas Operating Profit RatioReturn on Equity (ROE)Aeon Happy Yellow Receipt CampaignTotal amount donatedTohoku Restoration SupportTotal number of employees participating in volunteer activities15.8％ー7.０％We will build an optimal format for each area and aim for overseas profit growth with a target of 25% Overseas Operating Profit Ratio in FY2025.The result of the temporary impact of COVID-19 and the measures to strengten the management structure to improve profitability over the medium to long term. By a V-shaped recovery , we aim for 7% or more in FY2025.Approx.¥4.32 billionIf customers post the yellow receipt issued on the 11th of every month to the box of the local organization they want to support, 1% of the total amount will be donated.Approx. 398,000We deployed volunteer employees to disaster afflicted areas starting with work to remove debris and clean up houses from FY2021. Our volunteers are currently working closely with communities on activities such as helping to revive agriculture. Debt/EBITDA RatioDividends per ShareFemale Manager RatioPercentage of Outside Directorsin the Board of Directors3.6 timesBy achieving both business growth and a sound finan-cial balance, we aim for 2.5 times or less in FY2025.＊Excludes Financial Service Business. Adjusted in consideration of the equity credit of hybrid corporate bonds and hybrid loans. Set off with interestbearing debt and cash.¥3626.1%57％Aeon has set a target of a consolidated dividend payout ratio of 30% or more while maintaining the dividend amount above the previous year, and will strive for further earnings growth and shareholder returns.Currently nearly 9,000 women are active in managerial positions across the Aeon Group, and we will focus on further promoting diversity to achieve our goal of increasing the ratio of female managers to 50%.We have called upon outside directors from various fields, who now make up a majority of four of the seven members of the board. The chairs of the Nomination Committee, Compensation Committee, and Audit & Supervisory Board are all outside directors.9AEON REPORT 2021AEON REPORT 202110Sustainable Growth withCommunitiesBecoming the No.1 Company Contributing to Local CommunitiesIn 2020, customersʼ actions, awareness and values underwent drastic changes due to the spread of the novel coronavirus disease (COVID-19) along with social changes that had already been emerging accelerated under the pandemic. We regard these environmental changes as an opportunity for the Aeon Group to achieve exponential growth, and accordingly, formulated the Aeon Group Medium-term Management Plan (FY2021-FY2025; referred to as the “new Medium-term Management Plan,” hereafter) with the aim of shifting to sustainable growth in the lead-up to 2030.Thriving with Communities New Medium-term Management PlanAEONʼs Ideal State for 2030 Helping to enhance the value of local communitiesAeonʼs growthSustainable,circular economy-focusedmanagementEnrichment of local community lifeExpectations and support for Aeonʼs growth・Establish business foundation for growth by FY2025 on the way to achieving Group vision・Emphasize operating profit margin as a percentage of operating revenue by focusing on improving management efficiencyIn the new Medium-term Management Plan, we will focus on improving management efficiency to achieve stable and sustainable management from FY2025 onward, and we will continue to focus on operating profit margin as a percentage of operating revenue. On the investment front, in the first half of the year we will enhance our ability to generate cash flow by implementing short-term measures and promote the develop-ment of operating foundations by making investments in the future. In the second half of the year, we will work to establish operating foundations that will support sustainable growth on the way to 2030. Target levels for FY2025●Operating Revenue ¥11 trillion　　●Operating Profit ¥380.0 billion　　●Operating Profit Margin 3.5%●ROE over 7% ●Debt/EBITDA (excl. Financial Service Business)＊1 under 2.5　　●Digital Sales ¥1 trillion●Private Brand (PB) Products Sales＊2 ¥2 trillion　　●Overseas Operating Profit Share 25％＊1 Adjusted in consideration of the capital of hybrid corporate bonds and hybrid loans. Set off with cash.＊2 Total sales amount of Aeonʼs private brand Topvalu products, Local PB Products, Specialty PB ProductsPositioning of the new Medium-term Management PlanEstablish a new business foundationResolve “gaps,” implement short-term measures, and start measures requiring upfront investment2019 2020 2021 2022 2023 2024 2025 　FY11AEON REPORT 2021AEON REPORT 202112Thriving with Communities New Medium-term Management PlanThriving with Communities New Medium-term Management PlanUsing Environmental Changes as a Golden Opportunity to Further Accelerate the Speed of ReformsThe new Medium-term Management Plan looks five and even 10 years into the future, clarifying Aeonʼs Group-wide vision and indicating the direction we will take to achieve sustainable growth. Changes Affecting AEONʼs Business EnvironmentThe environment surrounding the Aeon Group has been significantly transformed due to the COVID-19 pandem-ic. In an era of such drastic changes, when formulating our new Medium-term Management Plan amid these circumstances, we started by identifying the environ-mental changes and business opportunities that will significantly impact our business and deserve our atten-tion. Looking ahead from a medium-to long-term perspective, we recognize that we will face environmental changes that differ in scope to what we have experienced in the past. To respond to these changes, we will change the term of the new Medium-term Management Plan from the usual three years to five years, tackling major struc-tural changes to the business after painting a clear picture of what we see as the destination. Process of Formulating the New Medium-term Management PlanSetting growth strategies and targetsby backcasting towards Aeonʼs ideal state for 2030.Recognizing the environmental changes that are important for AeonStrategic implications for Aeon based on environmental changesAeonʼs Ideal State for 2030Five Reforms to be achieved by 2025FY2025 targets to be achieved through Five ReformsKey Environment Understanding for AEONImplications for AEON (Opportunities)123456Digital technologies and AI are prerequisites for remaining competitive●Accelerating digitalization of entire society 　toward “Society 5.0”●Expansion of cashless economy●Further penetration of IoT and AI into societyCreation of new earnings sources through increasing online customertouch pointsIntensification of cross-industry competition●Elimination of barriers between brick-and-　mortar store business formats●Emergence of new competitors in online ecosystems●Expansion of private-brand firms and D2C＊ by manufacturersAcceleration of development and merchandising of unique original products based on customer needsHeightening of new health needsAcceleration of regionalrevitalization●Shift in eating habits 　(new focus on boosting immune system, etc.)●Heightened health and wellness needs●Continued rise in nursing and healthcare expenditures●Changes in lifestyles / range of activities●Acceleration of regional revitalization●Population decline and strained finances of 　local governmentsMeeting wellness needs ranging fromdisease treatment and prevention to pre-symptomatic treatmentExpansion of community-rootedbusiness fields and acceleration ofshift to regional marketsDemographic changes in Asia●Continued rise of Asia●Millennials and Gen Z becoming core consumer demographics●Population ageing and rise in number of single 　person householdsCapturing new customer segmentsand markets with good growth prospectsRise in importance of sustainability-related considerations●Global warming, constant abnormal weather●Shift to management that incorporates environmental costs●Evaluation of corporate environmental measures　 (ESG investment)Helping to make eco-friendly lifestyles a reality through diverse business formats競合認識＊Direct to ConsumerFive Reforms to be Achieved by FY2025In the new Medium-term Management Plan, we will further accelerate four shifts in addition to regional, digital, and Asia, which we have been working on to date, and the investments that support them, and have identified Five Reforms aimed at building the business foundations to achieve sustainable growth from FY2025 and beyond. Each Group business is already working to revamp existing business models, and the Group will work together to seize new growth opportunities by establishing new growth models, enhancing profitability, and concentrating the management resources generated from those efforts on new growth areas.1Acceleration and Evolution of the Digital ShiftWe expect that the digitization of society and our daily lives will advance at an accelerating rate, with the pursuit of convenience through a fusion of the online and offline and the importance of data continuing to rise. By pursuing a fusion between digital technologies and our strengths, including multi-format store networks, products, customer data, payment methods, and infrastructure, we will provide customers with the value of convenience and highly satisfy-ing experiences. To standardize our membership base across the Group, develop smartphone apps, and accelerate system development to promote digital transformation, we established AEON Smart Technology Co., Ltd. In China, we will develop cutting-edge systems through the Aeon Digital Management Center, provide digital services to Group companies operating in Asian countries, pursue the transfer of know-how, provide new customer experiences that utilize digital technologies, boost business productivity, and promote the development of digitally-minded human resources. To strengthen the digital business, we have already launched efforts in conjunction with the U.S.-based Boxed, Germany-based SIGNA Sports United GmbH, and UK-based Ocado, and will achieve business growth at an accelerated pace in both the B2C＊1 and B2B＊２ fields to establish new pillars of Group growth.＊１ Business to Consumer　 ＊２ Business to Business An “on-premise delivery cat-type robot” automatically runs through the mall to make various on-premise deliveries such as distributing informational materials. (Aeon Mall Kawaguchi )AEON wallet incorporating both e-money and point card functions Launch of Aeonʼs Integrated App Service to Earn Points, Make Smooth Payments and Assist in Daily LifeFrom September 1, 2021, Aeon launched iAEON, which combines the various services provided by Aeon Group companies and makes them available through a single app.Main Features●Links store information, products and 　　services with customersʼ own lifestyles.●Makes it easier and more convenient 　to use and exchange WAON points.● In addition to Mobile WAON, the app 　　　provides a smooth shopping 　experience for code-based payments 　with AEON Pay.Acceleration ofdigital business●Expand e-commerce, online supermarket, and omnichannel sales●Build next-generation e-commerce platform with OcadoDigitalization of stores,head office/headquarters●Improve customer experience through self-checkout, etc.●Improve efficiency of store operations●Improve efficiency by reviewing workflow and leveraging digital technologyDevelopment of commondigital infrastructure●Personalize sales promotion through apps and loyalty programs●Create new revenue sources such as through advertising by utilizing customer data●Improve profit margins through data integration and data infrastructure development13AEON REPORT 2021AEON REPORT 202114Thriving with Communities New Medium-term Management PlanThriving with Communities New Medium-term Management Plan2Establishment of Unique Value by Supply ChainIn addition to competition that transcends the boundaries of offline business formats, borderless competition is intensi-fying among net-based companies and the trend of D2C where manufacturers and producers sell directly to end consumers. We recognize that providing unique products and services will be the source of business competitiveness in this climate. As well as Aeonʼs shared Group-wide private brand (PB) Topvalu, we will work to develop specialty PB products developed by specialized Group businesses and local PB products mainly consisting of fresh foods and delicatessen products from local operating companies. Towards achieving this, we will orient towards a model that manages and streamlines the supply chain on a total basis from upstream to downstream, and proactively offer unique value that differentiates us from the competition. Our local operating companies will maximize their strengths by maintaining close ties with local communities, while for global procurement and national brand (NB) products, we will accelerate demand aggregation utilizing the Groupʼs economies of scale. We will also start building a next-generation process center model to achieve a level of value comparable to restaurants. Topvalu ‒ The Aeon brand that creates and provides unique value that reflects customer feedbackCreate and propose uniqueprivate brand (PB) productsExpansion of demand aggregationfor national brand (NB) products●Expand PB products (Topvalu, Local PB, Specialty PB)●Aggregate demand for NB products by AEON GLOBAL MERCHANDISINGEstablish the Groupʼs food hub function●Strengthen menu development function and production capacity of food processing centers to supply products across businessesSupply chain optimizationPlanning and Product Strategy▶Sourcing and Upstream Supply chain▶Demand Forecasting▶Inventory Mgt.▶Warehouse Mgt.▶Transport Mgt.▶ Sales●7-step supply chain optimization3Advancement of Health & Wellness for A New EraIn addition to disease prevention and treatment, customer healthcare needs are expanding into new areas such as pre-symptomatic treatment due to rising health conscious-ness and interest in boosting the immune system. To respond to this trend, we make suggestions to custom-ers to fulfill their needs from various angles beyond simply selling products, and aim to become a leading company developing a new health and wellness market. Actively develop drug stores centered on “dispensing,” “counseling,” “midnight business,” and “nursing care”Operate the 3FIT sports club in response to growing health consciousnessExpand Health & Wellnessbusiness domain●Expand Welcia business●Provide drug-related products and services for prevention and treatment and have Group companies 　　develop and provide customers with products, services, and sites with a focus on newly 　emerging health needs●Provide customer experiences that exceed the level of experiences that can be provided by AEON alone 　by forming strategic partnerships with external firms in addition to Group companies4Creation of the AEON Living ZoneAs the next step in the shift to regional markets, we aim to construct AEON Living Zones rooted in their respec-tive communities by combining Aeonʼs strength in multi-format store networks and businesses with digital infrastructure. To cater to customers looking to make their lives more convenient and enriching, all businesses will be integrated to seamlessly provide hubs that form the core of a living zone beyond simply offering products and services. Through our business activities we will continue to contribute to customers as consumers and residents, and strive to become the No.1 group of companies in each region where we operate.Nagoya Noritake Garden, a new facility combining commercial space and offices (opened October 2021)Provide products, services, and infrastructure to help enrich peopleʼs lifestyles●Provide community-rooted products, services, and lifestyle infrastructure as the next step in the shift to regional markets●Create bases to form the core of the Living Zone that supplement social capital needed in each community●Construct digital infrastructure for the Living Zone by increasing the number of app users and expanding the cashless payment network5Further Acceleration of the Shift to Asian MarketsThe middle-income class in Asia is expected to continue growing in the future, and we recognize that capturing new customer segments will be essential to the Groupʼs growth. We have already been working to accelerate the rate of Group store openings and expand our areas of operation to further the shift to Asian markets, but since digital growth in Asian retail markets will match or even surpass that of offline counterparts, in Asia we will promote the development of offline and online businesses in parallel to accelerate business growth. We look at all of Asia as one market, and will capture business from growth markets expected to keep growing in the future by clearly identifying the targets for the investment of our Group management resources and leveraging our collective Group strength to accelerate the shift to Asian markets.Aeon Mall Guangzhou Xintang (China), which newly opened in May 2021Self-checkout terminals in Aeon Hong KongChinaVietnamMalaysia●General Merchandise Store Business initiatives using cutting-edge digital technology●Take on the role of transferring know-how and technology to Japan and Asia as the Groupʼs 　　　cutting-edge R&D organization●Accelerate multi-format expansion at shopping centers and in the General Merchandise 　　Store Business and Supermarket Business●At the same time, advance digital initiatives and devise optimal area specific strategies●Raise value of existing stores by refurbishing aging shopping centers and stores●Expand horizontally in Asian countries by developing digital business as an earnings pillar 　based on our partnership with U.S.-based Boxed15AEON REPORT 2021AEON REPORT 202116Thriving with Communities Message from Chief Officer of DigitalThriving with Communities Message from Chief Officer of DigitalAcceleration and Evolution of the Digital ShiftThe acceleration and evolution of the digital shift, which also underscored in the new Medium-term Management Plan, is a high-priority initiative for the Aeon. We recognize the importance of data, and to turn that data into opportunities for business growth, we will strive to achieve a digital transformation that greatly changes the rules of retail.Aiming to Create Aeon Living Zones and Maximize Customer ExperiencesAeonʼs basic principle of focusing on the customer will never change, regardless of the era or environment in which we operate, and that also applies to digitization. Digital technolo-gies are only a means to an end, and our primary aim is to utilize customer lifestyle data to advance our products and services to improve customer convenience and satisfaction. Our greatest strength in promoting digitization is the fact that we maintain many physical stores that serve as direct points of contact with customers. A major theme of our approach is that we enhance these real-world strengths with digital technologies in the course of operating a wide range of business types and providing various services as part of the lifestyle business. First, we will promote the digitization of our physical stores and provide highly convenient and satisfying services that better match the lifestyles of customers. In addition, we will support all manner of situations in customersʼ lives by fusing offline with online, thereby creating new value inspired from the perspective of real-world sites that are not a part of dedicated online businesses. For example, Aeon Malls not only include retail stores but facilities such as clinics and govern-ment offices, and by also offering them online, customers will be able to access healthcare and government services from their own devices with peace of mind. The WAON electronic money provided by Aeon that is integrated with Individual Number Card Points is already being used by many customers. Technological changes will further evolve Aeonʼs DNA of “constant transformation,” and by finding new value, we will aim to establish Aeon Living Zones and maximize customer experiences. Yuki HabuExecutive Vice President and Executive Officer of DigitalYuki Habu joined JUSCO Co., Ltd. (currently, Aeon Co., Ltd.) in April 1991. In September 2004, she was appointed General Manager of Aeon South China Co., Limited. She later served as President of Beijing Aeon Co., Ltd. and CEO of the China business before assuming her current position from March 2020. She serves concurrently as the President and Representative Director of Aeon Smart Technology Co., Ltd. Digital Shift 1Digital Shift 2Our Vision With the Shift to Digital Markets( 　 )The Five Reforms to be Achieved by FY2025Acceleration and evolution of the digital shiftEstablishment of unique value by supply chain-oriented approach Advancement of Health & Wellness for a new eraCreation of Aeon Living ZonesFurther acceleration of the shift to Asian markets( Creating Aeon Living Zones and Maximizing Customer Experiences )●Making full use of offline assets and providing highly convenient OMO* customer experiences fused with online technologies●Having Aeon support every situation in customersʼ lives●Continually transform through technology to bring an evolution to Aeonʼs DNA＊Online Merges with OfflineBuilding a New Customer-Focused EcosystemWhen considering an overall digital strategy, it is necessary to clearly define the fields in which to compete. As the Aeon is comprised of companies operating various business types in different indus-tries, we carefully examine areas of profitability, where we can acquire customers and where to create new domains. We also broadly classify our businesses into three areas: (1) businesses that will solidify our foundation, (2) businesses that will undergo significant transformation, and (3) businesses that will be the source of a new competitive advantage. By focusing our resources on these three areas, we will build a new customer-focused ecosystems on a Group-wide basis.Building a New Customer-Focused Ecosystem with Technology2Create a technology-based Health & Wellness platform Retail Business &Shopping Center DevelopmentBusinessDigital S o l u t i o1nHealth &WellnessBusinessCustomers, Data,and TechnologyCustomers, Data,and TechnologyCreate a FINTEC-based financial platformFinancialServicesBusinessCustomers, Data,and TechnologyAeon Co., Ltd.Group-wide customer and data management, maximizing value and promoting the utilization of technologyTOPVALUCustomers, Data,and TechnologyCustomer focus34Provide amazingly convenient customer experiences through OMO, making physical stores fully digitalDevelop private brand product development capacity in ASEAN countries, China, and Japan17AEON REPORT 2021AEON REPORT 202118Thriving with Communities Message from Chief Officer of DigitalThriving with Communities Message from Chief Officer of DigitalRealizing Digital-Driven Operations Across the Aeon GroupAeon companies are managed autonomously and have each established their own missions and numerical targets. We have decided to pursue digitization based on three models used where appropriate for each circumstance: Aeon Co., Ltd. will take the lead regarding efforts that are more effective and show greater invest-ment efficiency if undertaken on a Group-wide basis and through inter-business initiatives, Aeon Co., Ltd. and operating companies will collaborate in areas where the Group lacks experience or has limited knowledge, and individual operating companies will take the lead on their own independent initiatives. Within this system, we have placed particular emphasis on the involvement of top management at each operating company, with their respective presidents taking the lead. By having top management gain in-depth insight and experience digital technologies through actual operations, we aim to change their thinking from a zero-based perspective. Then, while trying out these technologies in regular business operations, they will make adjustments while moving quickly towards the best methods. This kind of agile, speed-focused process has become necessary. On the other hand, having various things moving quickly also carries risk. It is necessary to constantly review the process to make sure things are not being pushed through too quickly and that the fundamental approach is being adhered to, and at times it will be necessarily to stop to verify the results. To perform these promotional and organizational efforts, a DTO* has been assigned to each Group company. The DTO at Aeon Co., Ltd. will check the entire Group from a cross-sectional perspective. At individual companies, the president or a person in a position directly under the president will take full responsibility for internal digital infrastructure while considering the digitization of the Group. Through these activities, we hope to achieve digital-driven operations across the Aeon Group.＊Digital Transformation OfficerNew Online Business Initiatives Developing a Next-Generation Online SupermarketDeveloping a Sports E-commerce Service Aeon Next Preparation Co., Ltd.In November 2019, Aeon entered into an exclusive domestic partnership agreement with UK-based Ocado, and in Decem-ber of the same year, Aeon Next Preparation Co., Ltd. was established to prepare for the opening of a next-generation supermarket by 2023. Construction has also begun in Honda, Chiba Prefecture, on the first customer fulfillment center (CFC), a centrally consolidated warehouse using AI and robotic technologies that will serve as the core facility of this endeavor, aiming to provide a new shopping experience combining transportation and delivery that thoroughly maintains the cold chain in pursuit of customer convenience. Aeon Signa Sports United Co., Ltd.In January 2020, Aeon established a joint venture company to operate a sports e-commerce service in Japan with Germany-based SIGNA Sports United GmbH, which runs Europeʼs leading sports e-commerce platform. Aeon will fully utilize SIGNAʼs expertise in building and operating a sports e-commerce platform and its strong ability to deliver suggestions to customers to provide products that serves the needs of customers who demand high levels of expertise, and also contribute to the promotion of sports in regional areas, create communities, and help advance the health of its customers.Digital Shift 3CFC overview and conceptual image of its interiorUsing AI and robotic technologiesOperating three businesses in the categories of Bike, Tennis and Outfitters(cid:28) (cid:27)(cid:29)(cid:31) (cid:30)Establishing Digital InfrastructureChanging Tokimeki Point to WAON POINTFrom September 2021, Tokimeki Points earned based on the amount spent using Aeon Cards are standardized as WAON points, which are earned based on cash and WAON electronic money spending. With this point integration, Aeon aims to further promote cashless transactions, develop digital infrastructure in Aeon Living Zones, and expand its customer base. Steps in the Shift to Digital Markets Ahead of FY2025Accelerating Growth (2024-2025)Vision for FY2025●Provide further added value with a customer focus and expand revenue●Develop new customer-focused businessesDigital Shift 4One trillion yen in online salesExpansionof appuser baseHigherpercentageof cashlesspaymentsSocial Value Created through the Shift to Digital MarketsOne of the elements of value that Aeon is able to provide to customers is convenience. I also believe that convenience in turn enriches the lives of customers. While each person has a differ-ent idea of how enrichment should be defined, from the custom-ersʼ perspective, I think there is always tremendous value in providing the right product at the right time, in the right quantity. Imagine being able to shop at Aeon any time and from anywhere. By giving even stronger support to these qualities through the shift to digital markets, I believe we will eliminate customersʼ troubles and concerns, enrich their lives, and create social value, thereby leading to further advancements at Aeon in the future. Building Infrastructure and Achieving Short-term Results (2021-2023)●Establish digital points of contact with customers●Strengthen connections with customers●Establish infrastructure to utilize wisdom Group-wide●Establish mechanisms to promote Group-wide digital transformation●Embody the ecosystem of our future visionPromoting Workstyle Reforms through the Use of Digital TechnologiesCurrently, we are also working to visualize management figures common across the Group using digital technologies. Our aim is to integrate databases, develop dashboards, and allow everyone from senior management to field staff to see how much a certain store is selling in real-time. Achieving this will allow use to check basic figures at any time and from anywhere. In addition, we currently have multiple staff sharing the same PCs, but if a screen was installed in the staff room, information can be shared with staff whenever they come and go. Instead of the current way of doing things being the norm, if we can get everyone to think that new ways of doing things could be possible through digitization, and if we are able to collect those ideas, we could work with people to solve those challenges together, leading to major reforms. To accomplish this, we need to start simply by having people interact with user-friendly systems and open their mindset to the possibilities of digital technologies, realize that they too can utilize those systems, and develop an interest. We can then work from that as a basis for eliciting further ideas. Even as Executive Officer of Digital, since it is necessary to develop systems while always envisioning the situations in which those systems will actually be used, I regularly visit our stores to gather information. The front lines of our operations are a really good source for various feedback, so I try to listen carefully and offer ways to solve the issues that come up with digital technologies. 19AEON REPORT 2021AEON REPORT 202120Thriving with Communities Financial StrategyThriving with Communities Financial StrategyThrough improved management efficiency and investment in growth areas, we will establish operating foundations while striving to maintain a sound financial balance.Review of Previous Medium-term Management PlanIn our previous Medium-term Management Plan, we set four shifts, specifically the “regional shift,” “digital shift,” “shift to Asian markets,” and the “investment shift” to support them, and the Aeon Group companies made a concerted effort to take on these initiatives with the utmost priority. In terms of the regional shift, we have completed the management integration of the GMS Business and Supermarket Business in six regions around Japan to achieve further advances through community-based management. As part of the digital shift, we pursued coordina-tion with companies possessing cutting-edge expertise and technologies such as UK-based Ocado and U.S.-based Boxed, while also promoting digital transformation (DX) at our stores to improve customer convenience, including the introduction of smartphone based self-scanning and self-checkout systems, self-service cash registers, and digital signage. We also strengthened our online sales infrastructure and promoted the fusion with physical stores, such as by expanding stores supporting online supermarket shopping and the store pickup service for online supermarket orders. In terms of the shift to Asian markets, we accelerated the opening of shopping malls that would become the largest in the region in an effort to establish the mall business in Asia. The overseas contribution to operating profit went from 6% in FY2016 to 16% in FY2020. However, there were delays in the progress of Group-wide initiatives such as the establishment of business models based on digital technologies, the building of new supply chains, and the allocation of investments into these growth areas, and issues with improved profitability remained. Management Indicators in the New Medium-term Management PlanIn the new Medium-term Management Plan, we plan to make significant improvements to financial indicators by expanding operating profit, and will endeavor to achieve business growth while establishing a healthy financial balance. Additional-ly, we will enhance our ability to generate cash flow and strengthen the allocation of investments in digitalization, supply chain reformation and overseas areas to build operating foundations to support sustainable growth. FY2019 Results 　　　 FY2020 Results 　　　 FY2021 Forecast 　 　　 FY2025 PlanOperating Revenue (billion yen)　Operating Profit (billion yen)Operating ProfitMarginOrdinary Profit (billion yen)Profit Attributable to Owners of Parent (billion yen)8,604.2 　　　　　　　 8,603.9　　　　 　　　 8,620.0 　　　　　　 11,000215.5　 　　　　　 　 150.5　 　　　　　 200‒220　 　　　　　 3802.5%　 　　　　　 　 1.7%　　　　 　　　 2.3‒2.5%　 　　　　　　3.5%205.8　　　　　　 　 138.8　　　　　　 190‒210　 　　　　　 −　26.8　　 　　　　　 -71.0　　 　　　　　 20‒30 　　　　　　　 −ROE　　　　　　　　　　 2.5%　　　　　　　 　-7.0％　 　　　　　　 −　　 　　　　　　Over 7%Debt/EBITDA＊　　　　 3.3 times　 3.6 times　 − Under 2.5 times＊Adjusted in consideration of the equity credit of hybrid corporate bonds and hybrid loans. Set off with interest-bearing debt and cash. Excludes Financial Services Business.Transforming the Group PortfolioIn addition to achieving further growth in the Financial Services Business and Shopping Center Development Business that have supported profit growth to date, we will transform into a highly profitable operating structure by a digital shift, merchandise and supply chain reforms, and the shift to Asian markets in the Retail Business. In terms of the digital shift, we will continue to promote initiatives aimed at improving customer convenience, including the expan-sion of existing online supermarkets and online shops, the development of cashless and contactless payments, and the ability to pick up online orders at physical stores. Additionally, by launch-ing full-scale operations of a next-generation online supermarket utilizing Ocado solutions, we will build the image of Aeon being synonymous with online deliveries. We will also develop a digital infrastructure to turn the payment and purchase data held by each Group business into the Groupʼs competitive strengths. In transforming the merchandise/supply chain, we will create and propose “unique value available only from Aeon” by expanding private brand products, strengthen the further consolidation of demand for national brand products, and aim to achieve ¥2 trillion in sales of private brand products by FY2025. In the shift to Asian markets, given that digital growth is surpass-ing the growth of physical retail in the Asian retail market, we will accelerate the speed of growth by promoting the expansion of the physical store network and development of digital retail in parallel.Allocation of Investments in Growth Areas and Enhancing Monitoring　In the new Medium-term Management Plan, we expect to make investments worth ¥400-450 billion per year on average and will allocate investments to infrastructure-related areas such as digital technologies and logistics as well as new stores overseas on a priority basis. Additionally, by monitoring the progress and efficiency of investments for each business and measure, we will flexibly review investment plans over the course of the plan. In addition to improving investment efficiency, we will secure free cash flow by expanding operating profit and aim to strike a balance between establishing business foundations and growth investment based on sound finance. Strengthening Governance FrameworkTo achieve the management indicators set forth in the new Medium-term Management Plan, we will steadily iterate on a monitoring cycle of executing growth strategy through execu-tive bodies and monitoring implementation through the Board of Directors. Based on this framework, during the first half of the new Medium-term Management Plan we will improve the ability to generate free cash flow by implementing short-term measures while making future-oriented investments to promote the establishment of business foundations. During the second half of the plan, we will establish the business foundations that will support sustainable growth in the lead-up to 2030.Transforming the Group portfolioOperating Profit Share●Increase retail business profit share in group portfolio by improving the profitability of the Retail Business through reforming digital infrastructure, products, and supply chainFY2025FY2019RetailBusiness＊135%Non-RetailBusiness＊265％Non-RetailBusiness48％RetailBusiness52％Operating profit ¥215.5 billion ¥380.0 billion＊1 Retail Bus