Financial Strategy

Introduction

Message from thePresident & CEO

Value Creation Story Business Strategies

Financial Strategy

Strategy to EnhanceNon-financial Capital

Governance

Data Section

Message from the CFO
Financial strategies for achieving the targets set in 2025 MTMP

Pursuing Healthy andSustainable Growth with
Disciplined Financial
Strategies andStrengthened Group
GovernanceHaruhiko SatoDirector, Managing Executive Officer
Head of Corporate & Strategic Planning Division
CFO

Following the two-year period of our PMI process, weformulated the 2025 MTMP that runs through FYE
3/2026, and we announced this plan in May 2023.
Within the 2025 MTMP, we have set high financial
targets and believe that improving ROA is essential forachieving these targets. Improving ROA is no easy featfor a company that undertakes the asset business.
Therefore, we have made the evolution and layering ofbusiness models the centerpiece of its business strategy in the 2025 MTMP. While building on the strong
customer base and revenue base of our core businesses of corporate finance and asset finance, we willcontinue our business portfolio transformation byfocusing on “strengthening and increasing the efficiencyof existing businesses,ʼʼ “shifting existing businesses tohigh-value-added services,ʼʼ and “developing newbusinesses.” In doing so, we will increase the weightingof our businesses away from traditional low-risk, low-return businesses toward middle-risk, middle-return
business areas.
As a financial strategy for this purpose, appropriately balancing financial soundness, return on capital,
and growth potential will be important.
First of all, regarding our financial soundness, werecognize that financing is the lifeline for Mitsubishi HCCapital, which undertakes an asset business thatutilizes a variety of tangible and intangible assets

exceeding 10 trillion yen. To take on the challenge ofmiddle-risk, middle-return businesses, I believe it isextremely important that we preserve our financial
soundness, including maintaining an A rating, which isone of the financial targets of the 2025 MTMP.
Although we need to appropriately expand capitalto promote the evolution and layering of businessmodels while maintaining financial soundness, simultaneously pursuing return on capital (ROE) is also essential. In other words, this means we must raise the overall
return on capital by ensuring improvements in profitability that exceed our expansion of capital. To do so,“management with an awareness of cost of capital” iscrucial. Although the company has been putting this
into practice in the past, we will continue efforts toimprove our company-wide return on capital by aiming
to achieve profitability that exceeds the cost of capitalset for each department and business.
On the other hand, just pursuing a balance between
financial soundness and return on capital could fall intodiminishing equilibrium. Mindful of this, maintaining
growth potential by allocating capital after paying dividends to growth investments is also important.
In this way, we will continue emphasizing a balanceamong financial soundness, return on capital, andgrowth potential and will strive to optimize its balance
sheet as it aims to maximize corporate value.

Achievements and challenges during the two years following our business integration
Over two years have passed since Mitsubishi HCCapitalʼs business integration. One of our majorachievements during this period was the successful
completion of the post-merger integration (PMI) process exactly on schedule. The smooth progress inintegrating our sales and corporate departments has
enabled us to strengthen both our offensive and defensive capabilities. The two-year PMI process and theformulation of our first Medium-term Management Plan(2025 MTMP) after the business integration proceededin tandem. During this time, we held active discussions
at various levels ranging from top management toemployees, and I believe this dialogue contributed
tremendously to fostering a sense of unity within theMHC Group.
Furthermore, during this period, we encounteredand overcame various domestic and overseas headwinds. We worked to strengthen our existing businesses while focusing on quickly achieving profitability

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MITSUBISHI HC CAPITAL INTEGRATED REPORT 2023

of a large-scale M&A project and reducing credit costs.
Thanks to the success of these strategies and measures, we achieved a record-high profit in FYE 3/2023,
as we posted strong financial results that clearly underscore the effectiveness of our responses. Even during
the COVID-19 pandemic, when markets stagnated, wepersisted with our earnest efforts to evolve our business model and I believe our excellent business results
were the fruition of this hard work.
Meanwhile, our business integration has significantly expanded the scale of the consolidated Group,
including its business portfolio and regions. This meansthat strengthening group governance is also an important issue in achieving sustainable growth. We previously formulated a Consolidated Management
Philosophy that incorporates various policies, such asemphasizing financial discipline on a consolidated
basis. We will now work to further permeate this on aglobal basis.

Balance between the Three Perspectives
Concept of cash allocation

Growthpotential

Maximization ofcorporate value

Financialsoundness

Actively invest cash flows after paying dividends inhigh value-added businesses, including thedevelopment of new businesses.
● Pursue the generation of ongoing expected returns
and an increase in absolute revenue by transforming
the business portfolio and the quality of assets in themedium to long term, with an awareness of the costof shareholder equity.
●Return oncapital

Achievement of an optimal balance sheet tomaximize our corporate value
Optimize our capital/debt structure according tochanges in asset risks, in the course of transforming
the quality of assets in the medium to long term by
the evolution and layering of business models.
● Give consideration to both financial soundness(maintain A ratings) required for stable funding andreturn on capital(ROE).
●MITSUBISHI HC CAPITAL INTEGRATED REPORT 2023

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Introduction

Message from thePresident & CEO

Value Creation Story Business Strategies

Financial Strategy

Strategy to EnhanceNon-financial Capital

Governance

Data Section

Maintaining financial discipline and realizing stable financing
As I mentioned, we recognize that financing is thelifeline for the company, which carries out the asset
business. Therefore, to ensure we maintain financial
soundness, we have established a system that allows it
to appropriately respond to changes in the externalenvironment, such as rising interest rates and exchange
rate fluctuations, through ALM (comprehensive assetand liability management) based on financial discipline
on a consolidated basis. Moreover, we have establisheda system that allows us to maintain business withoutmajor impact, even in the event of a crisis. This system
includes implementing thoroughgoing “predictive management" using two analytical approaches consisting ofrisk scenario analysis for the future and analysis of thecurrent situation based on past market trends while
always having contingency plans in place in the event ofan emergency.
On the basis of this financial soundness, we continue to aim for stable and competitive financing and anexpansion of our financing capacity. For these purposes, our policy is to maintain a balance between
direct financing from the market and indirect financing
from financial institutions, while also working to diversify
financing methods, financing regions (domestic andoverseas), and financing sources.

Our approach to increasing PBROne of Mitsubishi HC Capitalʼs important managementtasks is to increase PBR to more than 1x as quickly aspossible. We asked ourselves what we must do toincrease PBR. I believe the answer is to increase corporate value by fully utilizing our financial and non-financial capital.
Regarding financial capital, I believe it is importantto sustainably improve ROE along with growth in absolute revenue and to foster growth expectations through“management with an awareness of the cost of shareholdersʼ equity.” In this sense, we have no current plans
to implement share buybacks to improve ROE in the
short term. With abundant investment opportunities for
growth at present, our policy is to allocate capital after
dividend payments to growth investments, which willlead to sustainable improvements in ROE.

At the same time, by accumulating non-financial
capital, we will raise expectations for the companyʼs
growth potential and lower our cost of capital to raise
our PER and improve our PBR. Therefore, in ourrecently announced 2025 MTMP, we position our“value creation process” as a guideline for the three
medium-term management plans and express how thecompany will accumulate non-financial capital whilesetting non-financial targets to measure the degree ofcapital accumulation.
We expect that the accumulation of financial capitaland non-financial capital through the promotion of these
initiatives will lead to value creation and this will ultimately enable an increase in our share price and PBR.

Basic policy for shareholder returns and strengthening relationships with stakeholders
Our basic policy is to return profits to shareholders by
distributing dividends. Furthermore, we are aware thatthe market has high expectations that we will increase
returns, so we have set a target dividend payout ratio of
40% or higher during the 2025 MTMP as a level thatenables us to both accumulate capital and raise shareholder returns.

In strengthening relationships with shareholders andother stakeholders, we will respect the interests ofminority shareholders while seeking to fully utilize ourcollaboration in finance, customers, and business with
our major shareholders, Mitsubishi UFJ Financial Group,
Inc. and Mitsubishi Corporation, as well as our business
partner, Hitachi, Ltd., to increase corporate value.

Aiming to evolve our business model
The environment surrounding us will likely remain difficult in the foreseeable future. Even so, I believe thatcompleting our PMI provides us with a golden opportu-51

MITSUBISHI HC CAPITAL INTEGRATED REPORT 2023

nity at present in the sense that the conditions are ripe
for further transformation and taking on challenges. So
we asked ourselves what is needed to spread themomentum for change throughout Mitsubishi HC
Capital and further energize the Company. The result ofserious discussions of this question is “Frameworks toPromote Transformation” advocated in the 2025 MTMP,
which encompasses initiatives such as the “Innovation
Investment Fund” and the “In-house Entrepreneurship
Program”.
The “Innovation Investment Fund” is based on ourconviction that new mechanisms are needed to quickly
incorporate the know-how and business models ofstartup companies to the evolution and layering ofbusiness models. The “In-house Entrepreneurship
Program” provides a “stage” where each employee canconsider and take on new challenges as his or her own
business. Each of these initiatives serves as the stage
for verifying and materializing the future businesshypotheses and future asset business envisioned by thegroup. We have expectations that these initiatives will
become an important piece in transforming our groupʼsbusiness.

In conclusion
We will maintain a healthy balance sheet with discipline
while boldly promoting transformation. To maintain thatbalance, I place great importance on being fair.
Occasionally conflicts arise between maintaining
financial discipline and driving transformation. To
achieve common goals that transcend the standpointsof both sides, I will continue initiatives without forgetting fairness.
When attending financial results briefings and participating in various IR activities, I have received com-ments from shareholders, investors, and many othermarket participants expressing their expectations ofMitsubishi HC Capital in the future. As a Director in
charge of corporate and financial strategy, I am determined to devote all my efforts to promoting transformation aimed at achieving the groupʼs sound andsustainable growth and maximizing corporate value
based on solid ALM and a risk management system. I
would like to ask all of our stakeholders for their continued support.

MITSUBISHI HC CAPITAL INTEGRATED REPORT 2023

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