image

Management Policy

Corporate Strategy

(1) Basic Management Policies

The Company's basic principle is "Customers First." Our business philosophy is "AEON MALL is a Life Design Developer (Note) that works with communities and produces ways of living for the future."
Our guiding principle is to contribute to the improvement of people's life styles and the development of regional communities based on this management philosophy by pushing forward with creating malls at home and abroad that express the characteristics of their respective areas from the standpoint of localization.
(Note)"Life Design" refers to expanding various types of functions that anticipate the life stages of a region's customers by going beyond the framework of a commercial facility, and is defined as a way to design "ways of living for the future," which encompasses not only shopping but also meeting people and nurturing culture, among other activities.

(2) Target Financial Indicators

To enhance profitability and strengthen its financial base, the Company considers a return on invested capital (ROIC) of 6% or higher, an equity ratio of 30% or higher, and a net debt equity ratio of around 1.0 to be its priority financial indicators.
Various indicators for the fiscal year ended February 28, 2018, are as follows.
Return on invested capital (ROIC): 4.6%
Equity ratio: 33.2%
Net debt equity ratio: 0.9
(Note) Return on invested capital: Operating income x (1 Effective tax rate) / (Average equity for the beginning and end of the fiscal year + Average amount of interest-bearing debt for the beginning and end of the fiscal year) Equity ratio: Equity / Total assets Net debt equity ratio: (Interest-bearing debt Cash and deposits) / Equity

(3) Medium-Term Management Strategies and Priorities

The Company will work to build a robust corporate structure that achieves both sustainable growth and high profitability through five growth initiatives: (1) Capturing Asian growth opportunities, (2) Development of latent sources of domestic demand, (3) Becoming the overwhelmingly dominant mall in each region, (4) Capturing urban growth opportunities, and (5) Implementing the optimal financing mix and organizational structures to support growth.

(i) Capturing Asian growth opportunities
In China and ASEAN, where we are aggressively expanding our business operations as growth drivers, specialty stores at our existing malls continue to post double-digit growth in tandem with the growth of the market. In addition to expanding profits from existing malls, the time it takes for new malls to become profitable is becoming shorter, and their profit improvement is accelerating. We expect them to generate positive operating income and make a real contribution to profits in the year ending February 28, 2019.
We will continue to open malls that dominate the competitive landscape and improve our branding in the region, and seek to expand earnings with the resulting increase in customer traffic and enhanced tenant leasing terms.
We will also build solid business foundations that will drive the profit growth of the Company by establishing a structure for rapid decision-making and high growth through the enhancement of our expertise in management and operations as we operate more malls overseas, the localization of mall management, and the cultivation of human resources who can perform globally.

(ii) Development of latent sources of domestic demand
We will strive to stimulate new demand in Japan by acquiring new customer segments and uncovering potential consumer demand by responding to customer needs across a wide range of age groups and regional characteristics.
In addition to pursuing localization by further expanding activities unique to community-based malls, we will expand the roles and functions of the mall in the region by meeting the diversified needs of local residents through the enhancement of public functions such as administrative functions, post offices and libraries. In this way, we will seek to deepen our existing market areas.
To expand our target age group to include seniors in addition to families, our traditional target segment, we will carry out our "Happiness Mall" initiative based on the four pillars of Health, Wellness, Community and Opportunity to develop malls into community hubs where people meet and interact.
We will also work to further strengthen customer drawing power by taking advantage of social networking sites to attract more customers, upgrading mall infrastructure using digital technology, and conducting mall management together with specialty store companies.

(iii) Becoming the overwhelmingly dominant mall in each region
Competition among commercial facilities in Japan is intensifying, partly because of the expansion of e-commerce, and we must establish an overwhelmingly dominant position in each region amid the industry shakeout. To achieve that, we will further increase our competitive advantage in the shopping mall market in Japan through the aggressive implementation of floor space expansion and renewals at existing malls and the opening of carefully selected new malls in areas where there is no mall, based on in-depth area marketing.
In response to diversifying customer needs, we will not only open malls in the conventional mall format, but create new formats starting with regional innovative commercial facilities.
We will work together with specialty store companies to help them overcome the problems they face, such as labor shortages, by expanding efforts to increase employee satisfaction through initiatives such as establishing on-site daycare facilities and enhanced break rooms for employees.

(iv) Capturing urban growth opportunities
OPA Co., Ltd., which develops urban shopping centers, will strengthen its profitability by opening new shopping centers and improving the profitability of existing ones through fundamental renewals, including scrap-and-build renewals. In addition, it will seek to establish branding as reborn OPAs with measures such as promoting conversion from business formats that overemphasize apparel.

(v) Implementation of the optimal financing mix and organizational structures to support growth
We will work to build a solid financial base to support our medium- to long-term growth strategy by improving investment and asset efficiency and maximizing cash flows. We will also promote diversity management for the purpose of cultivating diverse human resources that will drive corporate growth and strengthen the management system and the governance function for the sharing of business know-how in Japan and overseas as well as for faster decision-making.

(4) Policy on the Selection of Accounting Standards

The Group will prepare consolidated financial statements by Japanese standards for some time to come so that the comparison of consolidated financial statements for different periods and the comparison of financial statements of the Group and other companies will be possible. We will consider the application of international accounting standards, considering situations in Japan and overseas.