Financial Results for the Fiscal Year ended February 28, 2011

Transcription

1 This is an abridged translation of the original Japanese document and is provided for informational purposes only. If there are any discrepancies between this and the original, the original Japanese document prevails. Financial Results for the Fiscal Year ended February 28, 2011 Aeon Co., Ltd. Company name Listings The First Section of Tokyo Stock Exchange Security code 8267 URL Representative Motoya Okada, President Contact Hidehiro Hirabayashi Vice President, Office of the President Telephone Scheduled dates: Ordinary general meeting of shareholders May 19, 2011 Commencement of dividend payments April 27, 2011 Submission of statutory financial report May 20, 2011 April 14, 2011 Supplementary materials to the financial results Fiscal year-end earnings results briefing held Available Yes (targeted at institutional investors and analysts) (Amounts rounded down to the nearest million) 1. Consolidated Financial Results for Fiscal Year ended February 28, 2011 (March 1, 2010 to February 28, 2011) (1) Operating Results (Percentage figures represent year-on-year changes) Operating revenue Operating income Ordinary income Net income Year ended February 28, 2011 Year ended February 28, 2010 million yen % million yen % million yen % million yen % 5,096, , , , ,054,394 (3.4) 130, , ,123 - Net income Net income per share Ordinary income to per share Return on equity fully diluted total assets yen yen % % Year ended February 28, Year ended February 28, Note: Equity-method investment gains (losses): Year ended February 28, 2011: (1,985) million yen Year ended February 28, 2010: (10,257) million yen 1

2 (2) Financial Position Shareholders Net assets per Total assets Net assets equity ratio share million yen million yen % yen February 28, ,774,628 1,219, , February 28, ,785,288 1,144, , Note: Shareholders equity: February 28, 2011: February 28, 2010: (3) Cash Flow Position Year ended February 28, 2011 Year ended February 28, 2010 Cash flow from operating activities 887,371 million yen 840,533 million yen Cash flow from investing activities Cash flow from financing activities Cash and cash equivalents at end of period million yen million yen million yen million yen 261,132 (105,517) (121,847) 306, ,096 (324,573) 11, , Dividends Dividend per share End- Total dividends Dividends to Record date or period End-first quarter second quarter End-third quarter Fiscal year-end Annual total paid (full year) Payout ratio (consolidated) net assets (consolidated) yen yen yen yen yen million yen % % Year ended Feb. 28, , Year ended Feb. 28, , Year ending Feb. 29, (forecast) Note: Year-end dividend for the fiscal year ended February 28, 2011: Ordinary dividend of yen Special dividend of 3.00 yen *Year-end dividend for the fiscal year ended February 28, 2010: Ordinary dividend of yen Commemorative dividend of 3.00 yen 2

3 3. Forecast of Consolidated Earnings for the Fiscal Year ending February 29, 2012 (March 1, 2011 to February 29, 2012) (Percentage figures represent year-on-year changes) Operating revenue Operating income Ordinary income million yen % million yen % million yen % Six months ending August 31, Full year 5,100, , , Six months ending August 31, 2011 Net income Net income per share million yen % yen Full year 40,000 (33.0) Note: Aeon does not disclose earnings forecasts for the first six months for the fiscal year. 4. Other Information (1) Changes affecting the consolidation status of significant subsidiaries during the period: Yes Excluded: one (The Talbots, Inc.) (2) Changes in accounting principles, procedures, and method of presentation, etc. 1) Changes in accordance with amendments to accounting standards: Yes 2) Changes other than the above: None Note: For details, see Material Changes to the Basis of Preparation of Consolidated Financial Statements on page 31. (3) Number of shares issued (common stock) 1) Number of shares issued at end of period (treasury stock included): February 28, 2011: 800,446,214 shares February 28, 2010: 800,446,214 shares 2) Number of shares held in treasury at end of period: February 28, 2011: 35,290,230 shares February 28, 2010: 35,319,696 shares 3) Average number of shares outstanding during the period: Year ended February 28, 2011: 765,144,983 shares Year ended February 28, 2010: 765,123,399 shares 3

4 For Reference 1. Non-consolidated Financial Results for the Fiscal Year ended February 28, 2011 (March 1, 2010 to February 28, 2011) (Percentage figures represent year-on-year changes) Operating revenue Operating income Ordinary income Net income Year ended February 28, 2011 Year ended February 28, 2010 Year ended February 28, 2011 Year ended February 28, 2010 million yen % million yen % million yen % million yen % 47, , , ,544 (83.0) 35,913 (96.6) 23, ,269 (24.6) 26, Net income Net income per share per share fully diluted yen yen (2) Financial Position Total assets Net assets Shareholders equity ratio Net assets per share million yen million yen % yen February 28, ,005, , February 28, ,099, , Note: Shareholders equity: February 28, 2011: February 28, 2010: 546,829 million yen 555,098 million yen *Audit status This report is exempt from the audit requirements of Japan s Financial Instruments and Exchange Act. As of this report s publication, the audit of the fiscal year-end financial results had not been completed. Appropriate Use of Earnings Forecasts and Other Important Information The above forecasts are based on information available to the company as of the date of the release of this document. Actual results may differ materially from the above forecasts due to a range of factors. For a review of the results of operations and earnings forecasts, see page 5 onwards. 4

5 Review of Operating Results and Financial Statements 1. Analysis of Operating Results Consolidated Results (millions of yen) Fiscal year to end-february, Operating revenue 5,096,569 5,054,394 5,230,786 5,167,366 Operating income 172, , , ,040 Ordinary income 182, , , ,326 Net income (loss) 59,688 31,123 (2,760) 43, Summary of Consolidated Operating Results In the fiscal year ended February 28, 2011, corporate earnings, primarily in export industries, looked to be recovering against a backdrop of national economic stimulus measures and high growth in Asia s emerging economies. Consumer spending, however, continued to reflect a murky economic outlook marked by a confluence of factors including an ongoing deflationary climate and sluggish employment situation in Japan, a persistently strong yen, resource price inflation, and the financial crisis in Europe. To build an earnings foundation geared toward generating further growth, Aeon Co., Ltd. and Aeon Group companies have been restructuring Group business while also developing and expanding business in new growth areas. The Aeon Group s strengths lie in its unique product development capabilities, supply chains, supermarkets, and e-money and other infrastructure and its presence in a diverse range of businesses and operating formats, primarily its GMS (general merchandise stores) and Other Retail Store Operations. Aeon has focused on enhancing its sales capabilities by utilizing such strengths to reform products and sales floors and expand sales promotion opportunities. Aeon and its 155 consolidated subsidiaries achieved year-over-year growth in consolidated revenue and earnings in the fiscal year ended February 28, Aeon booked consolidated operating revenue of 5,096,569 million yen (up 0.8% year over year) and consolidated operating income of 172,360 million yen (up 32.4%). With the inclusion of its 24 equity-method affiliates, Aeon earned consolidated ordinary income of 182,080 million yen (up 39.8%) and net income of 59,688 million yen (up 91.8%). Group Business Restructuring Aeon has worked to generate further growth and enhance profitability in its GMS operations, the reform of these operations being one of the Group s priorities. To expedite these reforms and drive the evolution of Aeon s GMS operations, Aeon Retail Co., Ltd. and Aeon Marche Co., Ltd. merged on December 1, 2010, with Aeon Retail as the surviving entity. Aeon Retail then merged with MyCal Corporation on March 1, The newly formed post-merger Aeon Retail Co., Ltd. will have annual sales exceeding 2 trillion yen. While maximizing its advantages of scale, the company will rebrand its existing Jusco and Saty stores under the Aeon banner and work to enhance recognition of the Aeon brand. Aeon Retail will also deepen its ties with local communities by shifting from a four-area to an eight-area company structure, and 5

6 pursue greater efficiency by consolidating organizational units and functions to eliminate overlap, primarily in its back-office operations. By doing so, it hopes to become a new GMS entity that strikes a balance between growth potential and profitability. To enhance the competitiveness of our Drugstore and Pharmacy Operations and our Supermarket Operations, we acquired a majority of equity-method affiliate CFS Corporation s shares, making it a consolidated subsidiary. We have begun working to consolidate our two companies accumulated enterprise resources, enhance competitiveness, and maximize synergies. As part of these efforts, we intend to develop and roll out a new store format that combines drugstore specialization with convenience-store amenity. These stores will function as local healthcare stations while also catering to everyday living needs. To undertake this task, Ministop Co., Ltd., CFS Corporation, and Takiya Co., Ltd. jointly established a new company named Recods Co., Ltd. on August 20, In the aim of building locally focused supermarket operations, on August 21, 2010, Aeon Co., Ltd. acquired all shares of Aeon Kimisawa Co., Ltd., which had run CFS Corporation s supermarket operations as its wholly owned subsidiary. Cox Co., Ltd. and Blue Grass Co., Ltd., both consolidated subsidiaries in the apparel specialty store business, merged on August 21, 2010, with Cox Co., Ltd. as the surviving entity. In the Group s apparel operations, Cox Co., Ltd. will institute SPA (Specialty store retailer of Private-label Apparel) strategies spanning product planning through to production and sales and build a platform that can be utilized right across the Group s apparel operations in its GMS and specialty store operations. The company will also pursue business restructuring and review existing brands in the aim of realizing highly specialized and profitable products and sales floors. Consolidated subsidiary Aeon Delight Co., Ltd., Japan s largest comprehensive building maintenance company, and Certo Corporation, which provides back-office support services, merged on September 1, 2010, with Aeon Delight Co., Ltd. as the surviving entity. Upon merging, the company began pursuing service contracts from companies and other organizations within and outside of the Aeon Group as a comprehensive facilities management services (FMS) company. The company aims to provide environments that enable customers to focus on their core strategic businesses. Former consolidated subsidiary and US-firm The Talbots, Inc. ceased to be a consolidated subsidiary from the beginning of the fiscal year because all remaining Talbots shares held by Aeon (U.S.A.), Inc., Aeon s consolidated subsidiary, were sold back to Talbots in April Going ahead, we intend to concentrate our resources on Asia, including Japan. Group Cost Structure Reforms Aiming to build a robust earnings foundation to support our new growth strategy, we set up an organizational unit to focus specifically on implementing cross-group and structural cost reforms, through which we have been implementing cost structure reforms across the entire Aeon Group. We consequently achieved reductions in selling, general and administrative expenses that greatly exceeded our initial targets set at the beginning of the fiscal year. 6

7 Product Reforms During the fiscal year ended February 2011, we reorganized Group product operations in the aim of enhancing Group profitability and stepped up efforts to boost efficiency through utilization of the Group s functional companies, such as Aeon TOPVALU Co., Ltd., Aeon Global Merchandising Co., Ltd., and Aeon Global SCM Co., Ltd. Aeon TOPVALU actively developed new and reviewed existing products in the TOPVALU range, Aeon s private brand, to make it even more attractive to customers in terms of quality, functionality, and pricing. The company stepped up the brand s development efforts, reduced product costs, and boosted supply chain efficiency. TOPVALU Barreal, a new-genre beer that we launched in June 2010 had sold the equivalent of 100 million 350 ml cans as of April 3, 2011, greatly outstripping our initial annual sales target of 72 million cans. We have continued to improve our highly successful range of TOPVALU school backpacks since launching them in During the fiscal year, we launched a new type of backpack within the TOPVALU range. Named Karuspo, the new backpacks are lighter and designed to easily accommodate standard-size classroom materials. Unit sales of TOPVALU school backpacks consequently increased by around 40% versus the previous fiscal year. Amid the health boom and rising eco-consciousness, unit sales of TOPVALU bicycles also grew, rising a hefty 64% year over year, reflecting positive customer reaction to the range s affordable pricing. As a result of these efforts, sales of TOPVALU products across the entire Aeon Group came to billion yen (up 1.5% year over year). Making even greater use of the information technology and logistics infrastructure that we have built so far, we have boosted efficiency across the entire supply chain, enabling us to reduce product inventory levels and realize other benefits. Through these and other initiatives, we have improved profit margins and cash flow at the Aeon Group s retail companies. In our GMS operations, we strived to cater to individual customer preferences and satisfy increasingly diverse needs. We have worked to make our bicycle and liquor sales floors more like specialty stores by increasing the sophistication of product lineups, product displays, and customer service. We also developed and opened new specialty stores, such as TOPVALU COLLECTION, which retails casual apparel aimed at families, and R.O.U. (Rock Our Utopia), which sells a wide variety of household, beauty care, stationery, and other goods aimed primarily at women in their 30s. Expanding Business in Growth Regions We have actively expanded business overseas, focusing on emerging economies in Asia, which are exhibiting dynamic economic growth, as our priority area. In China, Aeon Mall Co., Ltd. and Beijing Aeon Co., Ltd. opened Aeon s first mall-type shopping center in the Tianjin area. And in the GMS opened by Beijing Aeon within Beijing city, G Foot Co., Ltd., Pet City Co., Ltd., Mega Sports Co., Ltd., Aeon Fantasy Co., Ltd., and Aeon Delight Co., Ltd. have opened specialty stores and are 7

8 providing services. Through such efforts, the entire Aeon Group has worked to expand business overseas. Aeon Credit Service Co., Ltd. has accelerated the rollout of its credit card business and other diverse financial services in China and the ASEAN region, where income levels continue to rise. In response to increasingly prevalent customer belt-tightening, our discount stores employ a low-cost operating model to offer low prices on foods and everyday items. We have appointed personnel to focus specifically on developing our discount store business, which we have designated as a growth area. During the fiscal year, these personnel supervised the accelerated nationwide rollout of Aeon s discount store The Big. As of February 28, 2011, a total of 54 The Big stores are operated by Aeon Group companies. We continued to pursue greater customer convenience with our WAON e-money service, which we launched in April 2007, increasing the number of locations at which WAON can be used and advancing the service s role as a local currency. Aeon has launched a wide range of WAON-branded cards designed to contribute to and deepen ties with local communities. Aeon donates 0.1% of these cards transaction amounts to specific foundations, funds and the like designated on a card-by-card basis. During the fiscal year ended February 2011, we launched 13 new types of WAON cards, bringing the total to 16 types. We added 57 new stores to our network of online supermarkets, which we launched in April 2008, bringing the Group-wide total to 128 stores. 2) Segment Information Operating Revenue and Operating Income by Business Segment (millions of yen, except percentages) Operating revenue Year-over-year change (%) Operating income Year-over-year change (%) GMS and Other Retail Store Operations 4,135, , Specialty Store Operations 532,884 (2.0) 5,746 Shopping Center Development 171, , Operations Services and Other Operations 1,111, ,187 (3.7) Total 5,950, , Eliminations/corporate (854,420) 5.2 5, Consolidated 5,096, , *See page 32 for detailed information by business segment. 8

9 GMS and Other Retail Store Operations Aeon s GMS and Other Retail Store Operations generated operating revenue of 4,135,886 million yen (up 1.2% year over year) in the fiscal year ended February 28, 2011, and operating income of 80,467 million yen (up 82.1%). During the fiscal year, in Japan the Aeon Group (including equity-method affiliates) opened 4 new general merchandise stores (GMS) and 49 supermarkets, and closed 15 GMSs and 28 supermarkets. Overseas, the Aeon Group opened 8 GMSs (6 in China and 2 in the ASEAN region) and 7 supermarkets (3 in China and 4 in the ASEAN region), and closed 2 GMSs (China) and 1 supermarket (ASEAN region). *Excluding equity-method affiliates, in Japan the Group opened 4 GMSs and 27 supermarkets, and closed 6 GMSs and 17 supermarkets. GMS Operations In Japan, our GMS operations translated the Aeon Group s strength into increased customer traffic and sales, staging nationwide bargain sales in cooperation with the Group s shopping centers and tenants throughout Japan, along with sales promotions involving WAON and Aeon cards, such as customer appreciation days (discounts for cardholders) and Super Tuesdays. We also tailored product selections even more closely to seasonal changes in temperature and cultural events, and acted quickly to capture increases in demand resulting from changes made to the government s Eco-points program and the legislated tax hike on tobacco products. Total comparable store sales in our domestic GMS operations were consequently up year over year in the fiscal second half. Further, we made solid progress in implementing our earnings structure reforms, which have yielded positive results at Aeon Retail Co., Ltd., across the entire Group. As it did in the previous fiscal year, Aeon Retail continued to translate product and sales floor reforms and cost structure reforms into enhanced operating performance. These reforms are part of our reforms to GMS operations. Additionally, annual comparable store sales increased slightly over the previous fiscal year, even amid languishing consumer spending, as Aeon Retail implemented product and sales floor reforms tailored to changes in customer needs. Specifically, it adopted the SPA model for TOPVALU COLLECTION stores and also revamped bicycle, liquor and other sales floors to make them more like specialty stores. The company achieved a 0.4-point year-over-year increase in gross margin at directly operated stores, representing the combined effect of factors such as inventory controls, reductions in the cost of national brand products facilitated by expanded joint procurement efforts capitalizing on the Group s scale advantages, and wider TOPVALU profit margins stemming from supply-chain efficiency gains. Additionally, selling, general and administrative expenses at comparable stores were down 3.7% versus the previous fiscal year as the company reduced expenses, mainly personnel and facilities expenses, by more than planned. These efforts resulted in substantial growth in Aeon Retail s operating income. Aeon Kyushu Co., Ltd. tailored its store opening efforts to diversifying customer needs and the competitive environment while working to enhance price competitiveness. It also utilized group infrastructure to reduce procurement costs and 9

10 reduced store operating costs, particularly equipment expenses. These efforts greatly improved the company s profitability, resulting in record-high operating income. MyCal Corporation staged bargain sales and sales promotions in collaboration with Group companies while also working to make greater use of Group infrastructure and reduce inventory levels. Its gross margin continued to improve as a result. And by pushing firmly ahead with cost structure reforms, it substantially improved operating income. Supermarket Operations Our domestic supermarket operations, which encompass the six Maxvalu companies that went into operation at fiscal year outset and Aeon Kimisawa Co., Ltd., which was split off from CFS Corporation, worked to establish deeper roots in local communities while also bolstering strategic pricing policies and sales of key products in the aim of boosting earnings. We continued to open new stores and refurbish and enliven existing stores, while also transitioning toward a discount store format so as to respond to changes in customer needs and the competitive environment. Additionally, we worked to enhance customer convenience by expanding the number of stores at which WAON is accepted, further bolster our price competitiveness, and increase profitability through the expanded rollout of TOPVALU products and joint procurement of national brand products. As a result, our supermarket operations as a whole booked higher revenue and operating income. Strategic Small-size Store Operations In Japan, Ministop Co., Ltd. responded adroitly to changes in temperature and customer needs, bolstering sales of cold deserts from its in-store-prepared fast-food range, for example, in response to the intense summer heat. Its efforts to capture last-minute demand ahead of the legislated tax hike on tobacco products and its initiatives to help franchisees strengthen their product lineups also paid off. Daily net sales per comparable store were consequently up by 0.5% year over year. With regard to selling, general and administrative expenses, Ministop endeavored to reduce comparable store rents, reduce expenses related to directly operated stores by reducing the number of such stores, and effectively use sales promotion expenses. Overseas, the company continued to actively open new stores, mainly in South Korea. As a result, Ministop booked growth in both consolidated revenue and earnings. Origin Toshu Co., Ltd. continued to lay solid groundwork for growth by revitalizing existing stores, chiefly through store refurbishments, and reinitiating store opening efforts in the Greater Tokyo area. The company s Smile Series packaged lunches, which it launched in the fiscal second half, sold well, and combined with sales promotions such as customer appreciation days, resulted in sales growth. The Group s joint procurement efforts also helped Origin Toshu to reduce cost of sales, resulting in higher profits. 10

11 During the fiscal year, we expanded the target geographic area within Greater Tokyo for our My Basket stores, a small-scale supermarket, and also reviewed staffing arrangements at the stores. We opened 60 My Basket stores during the fiscal year, bringing the total to 173 My Basket stores in operation at fiscal year-end. We have been finely tuning the stores offerings to local customer needs, and the format s comparable store sales outstripped the previous fiscal year s. China Operations Sales continued to grow steadily in China amid ongoing strength in the domestic economy against a backdrop of exuberant consumer spending and corporate investment. We continued to enhance competitiveness, differentiating ourselves from competitors by tailoring sales floors and product lineups to changes in customers lifestyle preferences and social occasions and festivals, and also by rolling out TOPVALU products. As a result, our China operations had a positive impact on both consolidated revenue and earnings. ASEAN Operations Aeon Malaysia (Aeon Co. (M) Bhd.) achieved solid growth at both comparable and new stores amid ongoing solid economic growth. It also achieved sales growth at directly operated stores as it staged events to coincide with the seasons and social occasions and stepped-up sales promotions aimed at Aeon Card holders. The company had a negative impact on Aeon s consolidated revenues due to an accounting change that means that concessionary sales are now recorded on a net basis (comparing last fiscal year s results based on this year s accounting treatment, however, results in revenue growth). The company worked to increase earnings by stepping up product development efforts in apparel and other areas while also controlling expenses, and thereby made a positive contribution to Aeon s consolidated earnings. Aeon Thailand (Aeon (Thailand) Co., Ltd.) worked to create product lineups and sales floors tailored to local events and social occasions and responded to customers preference for low prices through discount price sales and other measures. Customers responded positively to these efforts. The company secured gross profit by expanding sales of key products and pushed ahead with cost structure reforms. It consequently made a positive contribution to Aeon s consolidated revenues and earnings. As a result, our ASEAN GMS and Other Retail Store Operations had a positive impact on consolidated earnings. Specialty Store Operations Aeon s Specialty Store Operations generated operating revenue of 532,884 million yen in the fiscal year ended February 28, 2011 (down 2.0% year over year) and operating 11

12 income of 5,746 million yen, an improvement of 6,388 million yen from the fiscal year ended February 28, Specialty Store Operations Our specialty store operations revised product lineups and sales floors, finely tuning them to match changes in customer needs, and also worked to expand sales of Aeon original products and to improve gross margin through inventory control. They also further stepped up cost structure reforms. Specialty store operations consequently achieved revenue and earnings growth versus the previous fiscal year. Cox Co., Ltd., which merged with Blue Grass Co., Ltd. during the fiscal year, has been refocusing and restructuring brands by consolidating existing brands and launching new brands. The company pushed ahead with its merchandising reforms and worked on rebuilding its SPA (Specialty store retailer of Private-label Apparel) operations while also working to generate cost reductions from the business integration. The company s revenue grew and profits improved year over year. G Foot Co., Ltd. worked to bolster its merchandising and in-store sales capabilities in the aim of fulfilling its role as the core of the Aeon Group s footwear business. G Foot achieved growth in both revenues and operating income. Other companies in our specialty store operations swiftly adapted product lineups to customer needs and bolstered their sales capabilities, made improvements in gross margins through product reforms, and reduced to selling, general and administrative expenses with a focus on head-office expenses. These efforts helped Pet City Co., Ltd., Miraiya Shoten Co., Ltd., and Mega Petro Co., Ltd. achieve both revenue and earnings growth, while Laura Ashley Japan and MegaSports Co., Ltd. booked growth in earnings. Drugstore and Pharmacy Operations We made CFS Corporation a consolidated subsidiary during the fiscal year, and took over its supermarket operations in August to enable it to focus solely on our drugstore and pharmacy operations. This puts us in a solid position to rollout drugstores in the Greater Tokyo region and the Chubu region. We also worked to create a network of local healthcare stations by, for example, opening Recods stores, a new format that combines drugstore specialization with convenience-store amenity. Health consciousness is rising rapidly in the face of demographic changes, such as Japan s declining birth rate and aging population. In this environment, HAPYCOM, Aeon s drugstore business alliance, bolstered its exclusive HapYcom product range and rolled out stores equipped with dispensing pharmacy functions. Shopping Center Development Operations Aeon s Shopping Center Development Operations generated operating revenue of 171,008 million yen (up 3.3% year over year) and operating income of 38,451 million yen (up 1.1%). Aeon Mall Co., Ltd. opened 3 new shopping centers in Japan (including 1 location at which it has been contracted to perform property management), while overseas it added 1 location, the Aeon Mall Tianjin TEDA Shopping Center, its second location in China. Aeon Mall carried out renovations at 12 of its shopping centers and worked proactively to attract tenants, thereby improving vacancy rates substantially. It also staged 12

13 nationwide bargain sales that drew on the Aeon Group s combined capabilities, and these efforts helped to push specialty store sales, customer traffic, and vehicle visits beyond their year-ago levels. While Aeon Mall expanded the scale of its business, it also pushed further ahead with cost structure reforms focusing on its existing shopping centers, and booked growth in both revenues and earnings as a result. Equity-method affiliate Loc Development Co., Ltd. opened one new shopping center during the fiscal year. Services and Other Operations Aeon s Services and Other Operations generated operating revenue of 1,111,211 million yen (up 3.8% year over year) and operating income of 42,187 million yen (down 3.7%). Service Operations Aeon Delight Co., Ltd. merged with Certo Corporation during the fiscal year in the aim of becoming a comprehensive facilities management services (FMS) company. The company began pursuing service contracts from companies and other organizations within and outside of the Aeon Group, presenting proposals for the creation of environments designed to enable such customers to focus on their core strategic businesses. In Japan, the company won new contracts from non-aeon Group customers including an international airport and a redeveloped commercial complex. Overseas, after launching services in Beijing in May, the company also began offering services in Guangdong and Tianjin. Building on the success it has achieved in its cleaning business so far, the company also revised work processes in its facilities management business. It also reduced inventory levels and streamlined logistics in its office supplies sourcing business. The company achieved revenue and earnings growth as a result. Aeon Fantasy Co., Ltd. opened 2 new stores in China, while in Japan it accelerated efforts to open Fantasy Skids Garden facilities, which enable children to develop essential motor skills through play. The company also began opening its newly developed Fantasy kidzooona facilities in December This new format was created in response to increasing desire for safe and secure children s play areas. The facilities are designed to function as indoor parks where parents can spend time with their children with peace of mind. Aeon Fantasy s operating revenue declined year over year, but improvements in its gross margin and cost structure reforms saw it achieve year-over-year earnings growth. Comprehensive Financial Services Aeon Credit Service Co., Ltd. increased the number of valid domestic cardholders in its credit card business by 950,000 (net) from the beginning of the fiscal year (March 1, 2010) to 20,000,000, while card shopping transaction volume in Japan increased by 14.4% year over year. These outcomes are the result of the company s ongoing efforts to boost membership online and through in-store branches, issuance of co-branded cards in cooperation with non-aeon Group partners, collaborative initiatives carried out with its partners, and promotional campaigns aimed at boosting card use. In its banking agency business, which it is developing as a new earnings source, Aeon Credit Service worked on expanding its network of in-store branches, which act 13

14 as one-stop providers of a wide array of financial products and services, including credit, banking, and insurance products and services. It also stepped up account opening services and brokerage of term deposits and mortgage loans for Aeon Bank, Ltd. In Aeon Credit Service s e-money business, WAON was accepted at 102,500 locations and contact points nationwide as of end-february 2011, and around 18,500,000 cards had been issued since inception, an increase of some 5,100,000 cards since the fiscal year outset. WAON transaction volume also grew, rising to more than billion yen for the full fiscal year. Overseas, Aeon Credit Service stepped up efforts to increase cardholders amid a strong economic recovery while steadily expanding card shopping transaction volume. Its efforts to build earnings models in new regions also advanced, as its local subsidiaries in Indonesia and the Philippines achieved profitability on a single-year basis and its Vietnamese subsidiary turned profitable on a monthly basis. On a consolidated basis, Aeon Credit Service s operating revenue declined, due in part to changes to its accounting treatment of e-money transactions. Adhering solidly to its low-cost operating model, however, enabled it to achieve year-over-year earnings growth. Equity-method affiliate Aeon Bank, Ltd. is steadily expanding its operating base. As of end-march 2011, had 75 in-store branches (including those operated by Aeon Credit Service as a banking agency), 1,800 ATMs, around 2.03 million accounts and deposits totaling around billion yen on its books, and around billion yen outstanding in loans extended. Aeon Bank also stepped up efforts to increase holders of Aeon Card Select, which provides credit-card, ATM-card, and e-money functionality in a single card. It also grew its portfolio of home mortgages combined with the Aeon Select Club benefits program for borrowers, and also expanded its investment trust, insurance, and other product portfolios. Outlook for the Fiscal Year ending February 29, 2012 Consolidated Operating Results Forecast (millions of yen, except per-share data and percentages) Fiscal year to end-february, (actual) Operating revenue 5,100,000 5,096,569 Operating income 175, ,360 Ordinary income 183, ,080 Net income 40,000 59,688 Net income per share (yen) ROE (%) Store Opening Plans (number of stores) Fiscal year to end-february, 2012 (plan) 2011 (actual) GMS 4 (0)* 4 (0)* Japan Supermarkets 31 (10)* 49 (22)* GMS 5 6 China Supermarkets 5 3 GMS 1 2 ASEAN Supermarkets 3 4 *Figures in parentheses indicate the number of store openings accounted for by equity-method affiliates. 14

15 Aeon s medium-term management plan for fiscal 2011 through fiscal 2013 is aimed at shifting the Group into a new growth strategy and laying foundations that will support its growth. Effective March 1, 2011, we implemented certain organizational changes to facilitate the plan s execution. Specifically, we appointed a Metropolitan Strategy Officer, and we instituted to a tripolar regional headquarters structure comprising a Japan Headquarters, a China Headquarters, and an ASEAN Headquarters. In the fiscal year ending February 29, 2012, we will continue to reform the Group s business, pursue earnings structure reforms, and work as a unified group to solidly lay the foundations for developing business in China, the ASEAN region, and the Greater Tokyo area. We will continue working to enhance profitability in our GMS operations, which account for a large proportion of Group earnings. The new Aeon Retail Co., Ltd. was formed through the merger of the Group s three GMS companies, which operated stores in the Honshu and Shikoku areas. Aeon Retail has newly added eight area companies, constituting its new eight-area operating structure. With the addition of consolidated subsidiaries that operate GMSs in the Hokkaido, Kyushu, and Okinawa areas, GMS operations are now divided into 11 geographic areas encompassing all of Japan. This structure will enable it to closely tailor its operations to individual localities in each area. The companies will continue to deeply root operations in local communities, engage in rapid decision-making, pursue further scale advantages, and boost organizational efficiency by eliminating functional overlap. Aeon Retail also will continue to make its casual apparel, bicycle, and liquor sales floors more like specialty stores while boosting competitiveness and sales efficiency as it further enhances GMS operations profitability. The earthquake and tsunami that hit eastern Japan on March 11, 2011, initially reduced the number of Aeon GMSs, supermarkets, and other stores in operation in the Tohoku region to around 35% of the total of 449 stores. Aeon acted quickly, however, using its supply chains, global sourcing capabilities, and other strengths to reopen stores. By March 25, two weeks after the disaster, operations had resumed at around 95% of stores (including stores operating normally, those operating only partially, and temporary-storefront sales). Aeon hopes to act as an everyday lifeline for its customers, and will work to revitalize disaster affected regions as its top priority in the aim of returning to normalcy as soon as possible. Disruptions to the supply of electricity and fuel due to the disaster may affect operations in some areas. Aeon believes that it will be able to mitigate the impact on its consolidated results, however, by utilizing its unique infrastructure, its strength as a national chain, and its presence in a diverse range of businesses and operating formats. Our earnings forecasts incorporate the potential impact of the disaster, weather conditions, seasonal trends, and other variables to the extent that we can currently determine. Because the Group manages earnings on an annual basis, it does not disclose forecasts of results for the first six months of the fiscal year. To keep stakeholders informed, the Group provides progress updates through monthly results reports. 15

16 Since Aeon Co., Ltd. is a pure holding company, we believe that consolidated figures represent a true picture of Aeon as a group, and we therefore release forecasts of consolidated earnings only and not of non-consolidated earnings. 2. Analysis of Consolidated Financial Condition Consolidated Assets, Liabilities, Net Assets, and Cash Flows Consolidated Assets, Liabilities, Net Assets, and Cash Flows (millions of yen) Fiscal year to end-february, Total assets 3,774,628 3,785,288 3,741,447 3,591,406 Interest-bearing debt 1,161,854 1,250,735 1,194,612 1,041,266 Breakdown: Interest-bearing debt of financial subsidiaries 518, , , ,468 Interest-bearing debt excluding that of financial subsidiaries 643, , , ,798 Net assets 1,219,236 1,144,434 1,105,712 1,167,477 Cash and cash equivalents, ending balance 306, , , ,744 Cash flow from operating activities 261, , , ,050 Cash flow from investing activities (105,517) (324,573) (325,758) (291,283) Cash flow from financing activities (121,847) 11, ,000 (141,266) Consolidated Assets, Liabilities and Net Assets Assets Total consolidated assets at February 28, 2011, were 3,774,628 million yen, a decrease of 10,659 million yen, or 0.3%, from the end of the previous fiscal year (February 28, 2010). Trade notes and accounts receivable increased by 92,768 million yen, due in part to an increase in installment sales receivables at Aeon s financial subsidiary. The financial loan account decreased by 129,897 million yen due to factors including the securitization of receivables, and the resultant increase in beneficiary trust rights resulted in a 32,395 million yen increase in investment securities. Liabilities Total consolidated liabilities at February 28, 2011, were 2,555,391 million yen, a decrease of 85,461 million yen, or 3.2%, from February 28, The decrease mainly reflects an 88,881 million yen in interest-bearing debt, reflecting factors such as a 73,467 million yen in borrowings, including commercial paper. Net Assets Consolidated net assets at February 28, 2011, were 1,219,236 million yen, an increase of 74,801 million yen, or 6.5%, from February 28, The increase was chiefly due 16

17 to a 46,697 million yen rise in retained earnings and a 27,765 million yen increase in minority interests due mainly to making CFS Corporation a consolidated subsidiary. Consolidated Cash Flows Cash and cash equivalents Cash and cash equivalents at February 28, 2011, totaled 306,820 million yen, an increase of 26,299 million yen, or 9.4%, from February 28, Cash flow from operating activities Net cash provided by operating activities during the fiscal year ended February 28, 2011, was 261,132 million yen, a 27.7% decrease versus the previous fiscal year. This 99,964 million yen decrease in cash flow from operating activities was due mainly to a 99,753 million yen higher increase in accounts receivable due in part to an increase in installment sales at Aeon s financial subsidiary, despite a 28,114 million yen increase in income before income taxes and minority interests (excluding non-cash costs such as depreciation costs). Cash flow from investment activities Net cash used in investing activities during the fiscal year ended February 28, 2011, was 105,517 million yen, a 67.5% decrease versus the previous fiscal year. This 219,055 million yen increase in cash flows from investing activities reflects 130,384 million yen less spent on the purchase of property, buildings and equipment and 45,058 million yen in proceeds from the collection of loans receivable, which included repayment by Aeon s US subsidiary of its indebtedness to Aeon coinciding with Aeon selling its entire shareholdings back to that subsidiary. Cash flow from financing activities Net cash used in financing activities during the fiscal year ended February 28, 2011, was 121,847 million yen, versus net cash of 11,179 million yen provided by financing activities in the previous fiscal year. This 133,026 million yen decrease in cash flow from financing activities was due mainly to a 100,000 million yen decrease in proceeds from the issuance of convertible bonds, an 83,375 million yen decrease in proceeds from long-term debt, a 50,206 million yen decrease in proceeds from the issuance of bonds, and a 28,882 million yen increase in long-term debt repayments. These factors more than offset the positive effect of a 130,028 million yen lower net decrease in short-term borrowings and commercial paper. 3. Dividend Policy and Dividends for the Fiscal Year ended February 28, 2011, and the Fiscal Year ending February 29, ) Basic Medium- to Long-Term Policy Aeon Co., Ltd. strives to maintain an optimal balance between paying dividends and improving corporate value through medium- to long-term growth as a key management priority. It believes in returning profits to shareholders, whom it considers partners in business management. 17

18 Dividends Aeon Co., Ltd. sets dividends in consideration of its consolidated earnings results and strives to reward shareholders appropriately for capital invested. Specifically, Aeon has set a target annual dividend of 20 yen (previously 15 yen) and a target dividend payout ratio of 20% or more (previously 15% or more). The Aeon Group will endeavor to increase earnings and return even more to shareholders in coming years. Use of internal reserves Internal reserves are essential for funding investments in future growth. Aeon Co., Ltd. strives to meet shareholder expectations by improving corporate value through medium- to long-term growth. 2) Dividends for the Fiscal Year ended February 28, 2011, and Starting Date for Dividend Payments Aeon Co., Ltd. has decided to pay a special dividend of 3 yen per share for the fiscal year ended February 28, 2011, to return to shareholders part of the gain realized on the sale of US-firm The Talbots, Inc. In addition to an ordinary dividend of 18 yen per share, set in accordance with Aeon s dividend policy, this special dividend of 3 yen brings the total dividend to 21 yen for the fiscal year ended February 28, The starting date for dividend payments (effective date) is Wednesday, April 27, Dividend Forecast for the Fiscal Year ending February 29, 2012 Aeon Co., Ltd. does not pay interim dividends. Over the medium- to long-term, the company plans to pay annual dividends and to use retained earnings in accordance with the policies outlined above. 18

19 Management Strategies and Policies (1) Basic Policy on Management Aeon s fundamental management principles are the pursuit of peace, respect for humanity, and contributions to local communities with the customer s point of view as the core. On the basis of this unchanging philosophy, the Aeon Group focuses first and foremost on its customers and ensuring customer satisfaction, constantly innovating to promptly and precisely respond to changes in the external environment and customer needs. Aeon aims to be a fully global, truly local company, meaning that management must both meet global quality standards and at the same time remain rooted in local communities. From the viewpoint of corporate social responsibility (CSR), the company has instituted the Aeon Code of Conduct, a set of behavior guidelines and standards for decision-making for all Group employees to follow in their daily work activities. Aeon is instilling this code throughout the Group. On the basis of this code, Aeon is striving to achieve long-term prosperity and growth by building excellent relationships with its customers, shareholders, business partners, local communities, and employees, while continuing to offer products and services that satisfy customers. (2) Medium-term Management Strategy The global economy in 2011 presents various risks that could dampen economic recovery. The growth rates of emerging Asian economies, which have been a major driver of recovery since the global financial crisis, have begun to slow due to inflation concerns and credit-tightening instituted to halt inflation. In addition, economic stimulus measures enacted by nations throughout the world have generally run their course and European economies are dealing with persistent fiscal problems, while high oil prices continue to threaten economic growth. In Japan, there is growing uncertainty over the future course of the economy. The earthquake and tsunami in eastern Japan, including the rolling blackouts which have followed, will impact economic growth. In addition, government stimulus programs have run their course, exports to emerging Asian economies have slowed, and the labor market remains stagnant. Aeon recognizes both the immediate challenges facing the Group, and that over a medium- to long-term period extending the next 10 years, the Group is facing a period of enormous change on a scale never experienced in its history. Aeon believes this period of change presents an opportunity for dramatic growth over the next decade, and to that end, the Group has formulated a new three-year strategic management plan to commence from fiscal 2011, the Aeon Group Medium-term Management Plan (Fiscal ). In terms of the basic strategy underpinning the Aeon Group Medium-term Management Plan (Fiscal ), the company recognizes three emerging megatrends: Asian economic growth, urbanization, and population aging. Responding to these trends, the common strategy for the Aeon Group will be to reallocate resources to Asian markets, urban markets, and senior markets to take advantage of the new 19

20 opportunities for growth. The Group will innovate its existing business models, develop new business models geared for growth as well as higher profitability, and reinvest its earnings with a focus on the three key growth markets. The Group will also develop an organizational structure and financial foundation to support this growth, ensuring that Group management achieves an appropriate balance between growth, profitability, and stability. Following is a summary of the Group strategy to seize growth opportunities, innovate its organizational structure, and maintain a sound financial foundation. (1) Group Strategy Asian market growth Over the next 10 years, emerging Asian economies are expected to achieve phenomenal growth, with the GDP of Asia (excluding Japan) expected to double. Overall, the Asian region is expected to remain a major engine of global economic growth. The middle classes in emerging Asian countries are growing quickly, and the retail and service industries in these countries are expected to grow concomitantly over the next decade. Aeon recognizes Asia including Japan the growth engine of the global economy as a single market, and will deploy a common growth strategy for the emerging Asian markets that unifies all Group businesses. In China, the Group has developed business in Beijing, Tianjin, Shandong and Guangdong provinces, and Hong Kong, and intends to branch into other areas of the country. In the ASEAN region, the Group has been doing business in Malaysia and Thailand since the 1980s. In 2009, the Group established a representative office in Vietnam, and it will begin preparing to foray into Indonesia, Cambodia, Laos, and the fast-growing Indian market. With regard to merchandising, the Group also plans to rectify its dependence on certain geographic areas, and create a merchandise procurement and development structure that strikes a balance between China, the ASEAN region, and India. Urban market growth Urbanization continues to accelerate, especially in emerging Asian economies. By 2020, urban dwellers in Asia are expected to have grown by 400 million to about 2.2 billion people. In East Asia, populations in Japan, Korea, and China are expected to peak in 2030 due to low birth rates and population aging, but urban populations alone are expected to buck this trend and continue to grow after Japan is facing a population decline, but the decline of the nation s urban populations is expected to be comparatively low. Tokyo is expected to be among a number of few cities in Japan that continue to see population increases. Aeon recognizes the opportunities for rapid growth in shopping center development in China, the ASEAN region, and India as suburban areas expand alongside urbanization and accelerated motorization of these societies. The Group will pursue growth opportunities in these regions by combining the management resources of its general merchandise stores (GMS), shopping center development, comprehensive financial services, and other operations. In Japan, the Group will build synergies between its businesses and seek growth with a priority on key urban markets, with a 20

21 focus on the Tokyo metropolitan area, along with the Nagoya metropolitan region, the Osaka, Kyoto and Kobe metropolitan region, and other population centers. Senior market growth Currently, Japanese people aged 65 or over make up 23% of the domestic population, and that ratio is expected to grow to 30% of the population in 2020, which would make Japan the oldest population in the world on average. Population aging and changes in demographics will lead to significant political, economic, and social change. In terms of consumption trends, Aeon expects fast growth in the senior retail and services markets as the free-spending baby-boomer generation ages. The Group will respond incorporate the needs of the senior generation into its stores, products, and services throughout all of its businesses. With respect to stores, the Group will continue to develop facilities easily accessible to seniors, while creating easy-to-shop sales floors and visually clear products and offering customer service that meets the needs of this demographic. In terms of products, the Group will strengthen products oriented towards health-conscious seniors and other products for the demographic. The Group will also actively develop new services and specialty stores that meet the tastes of seniors. (2) Organizational Strategy To facilitate its new medium-term management plan and to accelerate growth particularly in the key China, ASEAN and India markets as a unified Group, Aeon is comprehensively restructuring its Group organization. Under Aeon Co., Ltd., which maintains the Group headquarters functions, regional headquarters for Japan, China, and the ASEAN region will be established. Significant management authority will be transferred to these regions. This structure will support rapid decision-making and achievement of the Group s growth strategy. (3) Financial Strategy The Group will maintain a stable financial foundation that emphasizes a sound balance between operational cash flow and investing cash flow. 21

22 4. Consolidated Financial Statements (1) Consolidated Balance Sheets (Millions of yen) As of February 28, 2010 As of February 28, 2011 Amount Amount Assets Current assets Cash and time deposits 294, ,212 Notes and accounts receivable - trade 323, ,548 Marketable securities 3,372 4,509 Merchandise inventories 333, ,951 Deferred tax assets 41,367 40,728 Financial loan 423, ,427 Other 167, ,329 Allowance for doubtful accounts (54,129) (53,245) Total current assets 1,533,085 1,509,462 Fixed assets Property, buildings and equipment Buildings and structures, net 934, ,075 Tools, furniture and fixtures, net 119, ,186 Land 347, ,029 Leased property, net 3,140 6,336 Construction in progress 25,599 24,796 Other, net 3,394 3,643 Total property, buildings and equipment 1,432,648 1,407,068 Intangible fixed assets Goodwill 69,479 74,753 Software 28,592 27,514 Leased property 1,154 2,033 Other 20,589 13,064 Total intangible fixed assets 119, ,365 Investments and other assets Investment securities 242, ,507 Deferred tax assets 61,519 63,981 Fixed leasehold deposits to lessors 321, ,916 Deposits for stores in progress 4,219 2,942 Other 86,922 89,387 Allowance for doubtful accounts (16,607) (15,004) Total investments and other assets 699, ,731 Total fixed assets 2,252,202 2,265,166 Total assets 3,785,288 3,774,628 22

23 (Millions of yen) As of February 28, 2010 As of February 28, 2011 Amount Amount Liabilities Current liabilities Notes and accounts payable - trade 637, ,114 Short-term borrowings 89,180 52,065 Current portion of long-term debt 183, ,028 Bonds due within one year 27,518 15,311 Commercial paper 7,000 5,410 Lease obligations 571 1,468 Income taxes payable 33,233 44,838 Provision for bonuses 15,183 17,991 Provision for store closing expenses 3,770 8,397 Allowance for point program 7,981 12,070 Notes payable, construction 27,890 30,861 Other 355, ,354 Total current liabilities 1,388,050 1,418,913 Long-term liabilities Bonds 223, ,209 Convertible bonds 99,998 99,976 Long-term debt 616, ,624 Lease obligations 3,869 7,759 Deferred tax liabilities 13,140 8,390 Liability for employees retirement benefits 13,413 8,271 Liability for directors retirement benefits 1, Provision for store closing expenses 8,244 2,448 Provision for contingent liabilities 1, Allowance for loss on refund of interest received 22,840 16,017 Allowance for loss on redemption of gift coupons 2,240 2,531 Lease deposits from lessees 220, ,844 Other 27,325 9,841 Total long-term liabilities 1,252,802 1,136,478 Total liabilities 2,640,853 2,555,391 Net assets Shareholders equity Common stock 199, ,054 Capital surplus 264, ,963 Retained earnings 449, ,648 Treasury stock (61,512) (61,458) Total shareholders equity 852, ,208 Valuation and translation adjustments Unrealized gain on available-for-sale securities (718) 3,401 Deferred gain (loss) on derivatives under hedge accounting (1,863) (1,225) Foreign currency translation adjustments (9,340) (14,012) Total valuation and translation adjustments (11,922) (11,836) Stock acquisition rights 920 1,118 Minority interests 302, ,746 Total net assets 1,144,434 1,219,236 Total net assets and liabilities 3,785,288 3,774,628 23

24 (2) Consolidated Statements of Income (Millions of yen) Year ended February 28, 2010 Year ended February 28, 2011 Amount Amount Net sales 4,542,599 4,561,748 Cost of sales 3,269,190 3,322,762 Gross profit on sales 1,273,408 1,238,985 Other revenues 511, ,821 Gross profit from operations 1,785,203 1,773,807 Selling, general and administrative expenses Advertising expense 103,066 95,859 Provision of allowance for doubtful accounts 32,221 31,614 Employees salaries and bonuses 572, ,027 Provision for bonuses 15,183 17,991 Statutory welfare benefit expense 87,106 84,698 Utilities expense 90,872 89,224 Depreciation and amortization 133, ,635 Repairs and maintenance expense 84,504 81,836 Rent expense 274, ,918 Amortization of goodwill 7,563 7,019 Other 253, ,619 Total selling, general and administrative expenses 1,655,010 1,601,446 Operating income 130, ,360 Other income Interest income 2,942 3,423 Dividend income 959 1,114 Amortization of negative goodwill 11,571 11,209 Penalty income from leaving tenants 3,487 2,410 Income from bad debt recovery 3,273 2,957 Other 6,288 5,812 Total other income 28,522 26,927 Other expenses Interest expense 12,366 10,858 Equity in losses of associated companies 10,257 1,985 Other 5,894 4,363 Total other expenses 28,517 17,207 Ordinary income 130, ,080 Extraordinary gains Gain on sale of fixed assets 2,273 4,014 Gain on sale of investment securities Gain on sale of subsidiaries shares - 21,630 Gain on change in equity interest Gain on reversal of allowance for doubtful accounts 1, Penalty income from leaving tenants 2,838 - Gain on reversal of liability for employees retirement benefits 18,048 - Other 8,724 9,838 Total extraordinary gains 33,831 37,557 Extraordinary losses Loss on disposal of fixed assets 3,312 4,615 Impairment loss 26,723 33,284 Valuation loss on investment securities ,094 Provision of allowance for doubtful accounts 3,

25 Loss related to store closing 1,649 1,930 Provision for store closing expenses 2,474 1,100 Provision for loss on refund of interest received 14,000 - Cost of withdrawal from business by U.S. subsidiary 1,693 - GMS and Other Retail Store Operations restructuring costs - 5,227 Other 4,714 7,176 Total extraordinary losses 57,789 64,471 Income before income taxes and minority interests 106, ,166 Income taxes Current 49,106 67,401 Deferred 3,926 (4,040) Total income taxes 53,032 63,360 Minority interests 22,085 32,117 Net income (loss) 31,123 59,688 25

26 (3) Consolidated Statements of Changes in Shareholders Equity Year ended February 28, 2010 Millions of yen Year ended February 28, 2011 Shareholders Equity Common stock Balance at end of previous period 199, ,054 Changes during period Total changes during period - - Balance at end of period 199, ,054 Capital surplus Balance at end of previous period 264, ,963 Changes during period Disposal of treasury stock (3) - Total changes during period (3) - Balance at end of period 264, ,963 Retained earnings Balance at end of previous period 434, ,950 Effect of application of ASBJ Practical Issues Task Force No. 18 (5,225) - Changes during period Cash dividends (13,008) (15,304) Net income 31,123 59,688 Disposal of treasury stock (0) (23) Increase (decrease) in retained earnings due to adoption of US accounting standards by subsidiaries in the US 2,070 2,336 Total changes during period 20,184 46,697 Balance at end of period 449, ,648 Treasury stock Balance at end of previous period (61,517) (61,512) Changes during period Repurchase of stock (4) (3) Disposal of treasury stock 9 56 Total changes during period 5 53 Balance at end of period (61,512) (61,458) Total shareholders equity Balance at end of previous period 837, ,456 Effect of application of ASBJ Practical Issues Task Force No. 18 (5,225) - Changes during period Cash dividends (13,008) (15,304) Net income 31,123 59,688 Repurchase of stock (4) (3) Disposal of treasury stock 5 33 Increase (decrease) in retained earnings due to adoption of US accounting standards by subsidiaries in the US 2,070 2,336 Total changes during period 20,186 46,751 Balance at end of period 852, ,208 26

27 Valuation and translation adjustments Unrealized gain on available-for-sale securities Balance at end of previous period (4,591) (718) Changes during period Net change in items other than shareholders equity during period 3,872 4,120 Total changes during period 3,872 4,120 Balance at end of period (718) 3,401 Deferred gain (loss) on derivatives under hedge accounting Balance at end of previous period (1,577) (1,863) Changes during period Net change in items other than shareholders equity during period (286) 638 Total changes during period (286) 638 Balance at end of period (1,863) (1,225) Foreign currency translation adjustments Balance at end of previous period (10,248) (9,340) Changes during period Net change in items other than shareholders equity during period 908 (4,671) Total changes during period 908 (4,671) Balance at end of period (9,340) (14,012) Total valuation and translation adjustments Balance at end of previous period (16,417) (11,922) Changes during period Net change in items other than shareholders equity during period 4, Total changes during period 4, Balance at end of period (11,922) (11,836) Stock acquisition rights Balance at end of previous period Changes during period Net change in items other than shareholders equity during period Total changes during period Balance at end of period 920 1,118 Minority interests Balance at end of previous period 283, ,980 Changes during period Net change in items other than shareholders equity during period 19,133 27,765 Total changes during period 19,133 27,765 Balance at end of period 302, ,746 27

28 Total net assets Balance at end of previous period 1,105,712 1,144,434 Effect of application of ASBJ Practical Issues Task Force No. 18 (5,225) - Changes during period Cash dividends (13,008) (15,304) Net income 31,123 59,688 Repurchase of stock (4) (3) Disposal of treasury stock 5 33 Increase (decrease) in retained earnings due to adoption of US accounting standards by subsidiaries in the US 2,070 2,336 Net change in items other than shareholders equity during period 23,760 28,050 Total changes during period 43,947 74,801 Balance at end of period 1,144,434 1,219,236 28

29 (3) Consolidated Statements of Cash flows (Millions of yen) Year ended February 28, 2010 Year ended February 28, 2011 Amount Amount Cash flows from operating activities Income before income taxes and minority interests 106, ,166 Depreciation and amortization 141, ,030 Amortization of goodwill 7,563 7,019 Amortization of negative goodwill (11,571) (11,209) Increase (decrease) in allowance for doubtful accounts 32,358 30,147 Increase (decrease) in allowance for loss on refund of interest received 10,904 (6,823) Increase (decrease)in allowance for loss on redemption of gift coupons Increase (decrease) in provision for bonuses (1,600) 3,569 Increase (decrease) in liabilities for retirement benefits (14,688) 2,224 Increase (decrease) in provision for store closing expenses (776) (1,126) Interest and dividend income (3,901) (4,537) Interest expense 12,366 10,858 Foreign exchange (gains) losses - net (1,058) 316 Equity in (gains) losses of associated companies 10,257 1,985 Gain on sales of fixed assets (2,273) (4,014) Loss on disposals and sales of fixed assets 3,263 5,019 Impairment losses 26,723 33,284 (Gain) loss on change in equity interest (283) (613) (Gain) loss on sale of subsidiaries shares - (21,630) Net (gain) loss on sales of marketable securities and investment securities 47 (174) Valuation (gain) loss on investment securities ,094 (Increase) decrease in notes and accounts receivable - trade (19,139) (118,892) (Increase) decrease in merchandise inventories 12,378 21,750 (Increase) decrease in financial loan receivable 22,277 58,295 Increase (decrease) in notes and accounts payable - trade 48, Other assets and liabilities 44,502 14,052 Other - net (4,015) 2,612 Sub total 420, ,622 Interest and dividends received 3,412 4,158 Interest paid (11,576) (10,773) Income taxes paid (50,761) (55,875) Net cash provided by (used in) operating activities 361, ,132 Cash flows from investing activities Purchase of marketable securities (4,825) (2,825) Proceeds from sales of marketable securities 4,945 4,692 Purchase of fixed assets (307,390) (177,006) Proceeds from sales of fixed assets 6,784 29,803 Purchase of investment securities (47,645) (12,804) Proceeds from sales of investment securities 11,497 3,309 Proceeds from sales of business 5,964 - Cash paid in conjunction with the purchases of consolidated subsidiaries (12) - Cash received in conjunction with the purchases of consolidated subsidiaries 1,183 1,671 29

30 Cash paid in conjunction with the sales of consolidated subsidiaries - (10,925) Cash received in conjunction with the sales of consolidated subsidiaries - 8,451 Collection of loan receivables - 45,058 Payments for fixed leasehold deposits to lessors (13,820) (7,116) Collection of fixed leasehold deposits to lessors 24,989 19,863 Proceeds from lease deposits from lessees 13,486 18,199 Repayments of lease deposits from lessees (22,980) (22,520) Other - net 3,251 (3,367) Net cash provided by (used in) investing activities (324,573) (105,517) Cash flows from financing activities Net increase (decrease) in short-term borrowings and commercial paper (168,416) (38,387) Proceeds from long-term debt 236, ,972 Repayments of long-term debt (160,523) (189,406) Proceeds from issuance of bonds 57,550 7,343 Payments for redemption of bonds (27,878) (27,585) Proceeds from issuance of convertible bonds 100,000 - Repayments of secured and unsecured obligations under reorganization proceedings of subsidiaries (2,080) (2,192) Repurchase of subsidiaries stock from minority shareholders (10) (162) Dividends paid to shareholders (13,008) (15,304) Dividends paid to minority shareholders (9,080) (9,241) Other - net (1,720) 116 Net cash provided by (used in) financing activities 11,179 (121,847) Foreign currency translation adjustments on cash and cash equivalents 1,847 (7,468) Net increase (decrease) in cash and cash equivalents 49,550 26,299 Cash and cash equivalents, beginning of period 224, ,521 Increase (decrease) in cash and cash equivalents due to change in scope of consolidation 6,344 - Cash and cash equivalents, end of period 280, ,820 30

31 (5) Notes on the Going-concern Assumption Not applicable (6) Material Changes to the Basis of Preparation of Consolidated Financial Statements Changes to accounting procedures Accounting standard/guidance relating to business combinations Effective the fiscal year ended February 28, 2011, Aeon adopted the Accounting Standard for Business Combinations (ASBJ Statement No. 21, December 26, 2008), the Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22, December 26, 2008), and the Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10, revised December 26, 2008). Accounting standard for retirement benefits Effective the fiscal year ended February 28, 2011, Aeon adopted the Partial Amendments to Accounting Standard for Retirement Benefits (Part3) (ASBJ Statement No. 19, July 31, 2008). The effect of this change on consolidated profit and loss was nil. Additional Information Accounting standard for financial instruments Effective the fiscal year ended February 28, 2011, Aeon adopted the Accounting Standard for Financial Instruments (ASBJ Statement No. 10, revised March 10, 2008) and its accompanying Guidance on Disclosures about Fair Value of Financial Instruments (ASBJ Guidance No. 19, March 10, 2008). Accounting standard for fair value of investment and rental property Effective the fiscal year ended February 28, 2011, Aeon adopted the Accounting Standard for Disclosures about Fair Value of Investment and Rental Property (ASBJ Statement No. 20, November 28, 2008) and its associated Guidance on Accounting Standard for Disclosures about Fair Value of Investment and Rental Property (ASBJ Guidance No. 23, November 28, 2008). Please note that information other than the changes to accounting procedures described above were omitted from disclosure, because there were no significant changes from what was stated in the last financial report (submitted on May 14, 2010). (6) Notes on Consolidated Financial Statements Notes on consolidated balance sheets, consolidated statements of income, consolidated statements of changes in shareholders equity, and consolidated statements of cash flows are omitted from this report. 31

32 (5) Segment Information Operating segment information (March 1, 2009 February 28, 2010) I. Operating revenue and income (1) Revenue attributable to customers (2) Intersegment revenue or GMS and Other Retail Store Specialty Store Shopping Center Development Services and Other Total Elimination/ corporate (Millions of yen) Consolidated 4,040, , , ,844 5,054,394-5,054,394 45,949 7,149 51, , ,101 (812,101) - transfers Total 4,086, , ,575 1,070,719 5,866,495 (812,101) 5,054,394 Operating expenses 4,042, , ,537 1,026,931 5,741,124 (816,923) 4,924,200 Operating income 44,186 (642) 38,038 43, ,371 4, ,193 (loss) II. Assets, depreciation, impairment loss, and capital expenditure Assets 1,906, , ,700 1,190,133 4,118,512 (333,224) 3,785,288 Depreciation and amortization 89,033 12,984 23,921 22, , ,469 Impairment loss 22,763 2, ,723-26,723 Capital expenditure 198,812 11,052 77,233 20, , ,390 (March 1, 2010 February 28, 2011) I. Operating revenue and income (1) Revenue attributable to customers (2) Intersegment revenue or GMS and Other Retail Store Specialty Store Shopping Center Development Services and Other Total Elimination/ corporate (Millions of yen) Consolidated 4,090, , , ,620 5,096,569-5,096,569 45,117 11,230 51, , ,420 (854,420) - transfers Total 4,135, , ,008 1,111,211 5,950,990 (854,420) 5,096,569 Operating expenses 4,055, , ,556 1,069,024 5,784,137 (859,928) 4,924,208 Operating income 80,467 5,746 38,451 42, ,853 5, ,360 II. Assets, depreciation, impairment loss, and capital expenditure Assets 1,860, , ,168 1,222,887 4,072,964 (298,336) 3,774,628 Depreciation and amortization 83,314 7,620 25,589 23, , ,049 Impairment loss 25,382 1,740 6, ,284-33,284 Capital expenditure 87,999 6,499 60,364 22, , ,006 32

33 Notes: 1. Classification of business segments Businesses are classified based on the business activities that they carry out within the Aeon Group. 2. Businesses in each segment (1) GMS and Other Retail Store Operations includes general merchandise stores (GMS), supermarkets, convenience stores, and department stores. (2) Specialty Store Operations includes specialty stores that sell women s apparel, family casual apparel, health & beauty care products, and footwear. (3) Shopping Center Development Operations entails the development, leasing, and operation of shopping centers and malls. (4) Services and Other Operations includes financial services, amusement services, food services, maintenance services, wholesale, and other activities. Note: Elimination/corporate in the tables above includes figures attributable to Aeon s holding company functions. 3. Depreciation and amortization includes amortization of long-term prepaid expenses and goodwill. Capital expenditure includes long-term prepaid expenses but does not include fixed leasehold deposits to lessors. 33

34 Geographic segment information (March 1, 2009 February 28, 2010) I. Operating revenue and income (1) Revenue attributable to customers (2) Intersegment revenue or transfers Japan North America Asia and other Total (Millions of yen) Elimination/ Consolidated corporate 4,636, , ,756 5,054,394-5,054, ,449 4,445 (4,445) - Total 4,637, , ,206 5,058,840 (4,445) 5,054,394 Operating expenses 4,529, , ,155 4,935,073 (10,870) 4,924,200 Operating income 108,369 1,346 14, ,766 6, ,193 II. Assets 3,413,020 79, ,115 3,844,274 (58,986) 3,785,288 Notes: Country and geographic segmentation and major countries or regions in each segment 1. Geographic segmentation is based on geographic proximity. 2. Major countries or regions in each segment (1) North America U.S.A., Canada (2) Asia and other China, South Korea, Taiwan, Malaysia, Thailand, Singapore, Indonesia, Vietnam, Australia Note: Elimination/corporate in the table above includes figures attributable to Aeon s holding company functions. (March 1, 2010 February 28, 2011) I. Operating revenue and income (1) Revenue attributable to customers (2) Intersegment revenue or transfers Japan Asia and other Total Elimination/ corporate (Millions of yen) Consolidated 4,823, ,805 5,096,569-5,096,569 2,715 3,721 6,437 (6,437) - Total 4,826, ,527 5,103,007 (6,437) 5,096,569 Operating expenses 4,677, ,035 4,938,775 (14,566) 4,924,208 Operating income 148,739 15, ,231 8, ,360 II. Assets 3,428, ,107 3,796,276 (21,648) 3,774,628 Notes: Country and geographic segmentation and major countries or regions in each segment 1. Geographic segmentation is based on geographic proximity. 2. Major countries or regions in each segment Asia and other China, South Korea, Taiwan, Malaysia, Thailand, Singapore, Indonesia, Vietnam, Australia, U.S.A. Note: Elimination/corporate in the table above includes figures attributable to Aeon s holding company functions. 34

35 Additional information The Talbots Inc. was Aeon s consolidated subsidiary at the end of the previous fiscal year (February 28, 2010) but ceased to be its consolidated subsidiary from the beginning of the fiscal year ended February 28, 2011, because all remaining Talbots shares held by Aeon (U.S.A.), Inc., also Aeon s consolidated subsidiary, were sold back to Talbots on April 7, As a result, North American operations ceased to be a material component of Aeon s business operations. Consequently, effective the first quarter of the fiscal year ended February 28, 2011, the North America segment was folded into the Asia and other segment. For reference, in the fiscal year ended February 28, 2011, North American operations produced no operating revenue, while they incurred operating expenses and an operating loss totaling 189 million yen. Assets attributable to North American operations were worth 5,604 million yen at February 28, Overseas sales (March 1, 2009 February 28, 2010) (Millions of yen) North America Asia and other Total I. Overseas revenues 132, , ,988 II. Consolidated revenues - - 5,054,394 III. Ratio of overseas to total consolidated revenues (%) Notes: 1. Country and geographic segmentation and major countries or regions in each segment (1) Geographic segmentation is based on geographic proximity. (2) Major countries in each segment (i) North America U.S.A., Canada (ii) Asia and other China, South Korea, Taiwan, Malaysia, Thailand, Singapore, Indonesia, Vietnam, Australia 2. Overseas revenues is the total of sales and other operating revenues by the Company and its consolidated subsidiaries to the countries and regions other than Japan. (March 1, 2010 February 28, 2011) (Millions of yen) Asia and other Total I. Overseas revenues 272, ,805 II. Consolidated revenues - 5,096,569 III. Ratio of overseas to total consolidated revenues (%) Notes: 1. Country and geographic segmentation and major countries or regions in each segment (1) Geographic segmentation is based on geographic proximity. (2) Major countries in each segment Asia and other China, South Korea, Taiwan, Malaysia, Thailand, Singapore, Indonesia, Vietnam, Australia, U.S.A. 2. Overseas revenues is the total of sales and other operating revenues by the Company and its consolidated subsidiaries to the countries and regions other than Japan. 35

36 Additional information The Talbots Inc. was Aeon s consolidated subsidiary at the end of the previous fiscal year (February 28, 2010) but ceased to be its consolidated subsidiary from the beginning of the fiscal year ended February 28, 2011, because all remaining Talbots shares held by Aeon (U.S.A.), Inc., also Aeon s consolidated subsidiary, were sold back to Talbots on April 7, As a result, operating revenues from North America in the fiscal year ended February 28, 2011, were nil. Sales by operating segment Sales by operating segment for the fiscal year ended February 28, 2011, were as follows. Operating segments Amount (million yen) Year-on-year change (%) GMS and Other Retail Store operations GMS 2,693, Supermarkets 1,065, Convenience stores 104, Other 272, Total GMS and Other Retail Store operations 4,135, Specialty Store operations 532, Shopping Center Development operations 171, Services and Other operations Financial services 146, Other 965, Total Services and Other operations 1,111, Sub total 5,950, Elimination/corporate (854,420) Total 5,096, Note: Operating revenue of convenience stores does not include net sales of franchised stores (362,447 million yen for the year ended February 28, 2011). Information on lease transactions, related-party transactions, tax-effect accounting, financial instruments, securities, derivative transactions, retirement benefits, stock-based compensation, business combinations, and investment and rental properties is omitted from this report. 36

37 Material Subsequent Events Impact of the Great East Japan Earthquake The earthquake and tsunami that hit the Tohoku and Kanto regions on March 11, 2011, caused damage to stores and warehouses owned by some of our consolidated subsidiaries in those regions. Damage was mainly sustained to buildings and structures, tools, furniture and fixtures, and merchandise inventories. We are currently conducting investigations to determine the amount of losses. At this point, we are unable to provide reasonable estimates of the disaster s impact on our financial condition, operating results, and cash flows for the fiscal year beginning March 1, 2011, and thereafter. However, we expect to book losses on disposal of fixed assets and asset restoration costs in conjunction with the disaster. 37