MARUI GROUP Co., Ltd.
Financial Results Briefing for the 6 Months Ended
September, 2019
<Questions and Answers＞
Q. About the card business, you made additional interest repayment
provisions, how does it compared with last year on your basis? What did
you see claim situation and also what did you outlook?
A. About interested repayment, in the first half actual interest repayment
was ¥2.2 billion, 103% of last year. Claims of lawyer intervention whichis leading indicator of actual interest repayments was 104% of last year.
Since the second half last year, the claims was very higher comparedwith previous year and the situation has continued in this half. Based on
this trend, we made additional interest repayment provisions in the firsthalf. About future outlook, it’s difficult to forecast, but there are theseveral good signs for the future. Banking loans has declined withstricter screening. The number of self bankruptcy had increased inseveral years, but it has declined compared with last year most recently.
Also, looking at operation receivables of MARUI GROUP, growth ofoverdue receivables was very lower than growth of operatingreceivables, and situation of overdue receivable has calmed down.
However, there are a lot of factors, therefore we won’t be optimistic andwe will look very carefully going forward.
Q. You explained EC business had struggle, let us know more concrete
what product or what category do not perform well. You said that you
are going to increase cosmetics lineup, but everyone is trying toincrease cosmetics lineup. What should you have done in terms of yourmainstay fashion business, please explain specifically the situation inthe first quarter and the second quarter.
1A. EC business has struggle, the transactions of the first half was 93%
year on year which is ¥0.8 billion less than last year. There are threereasons. Firstly, the purchase by existing customers struggled becauseof PB brand decline and delaying introduce new brand. It caused anegative impact of ¥0.5 billion, 96% year on year. Second reason wasfailure to increase new customers because of the recent market
situation and decline of advertisement efficiency. It caused a negative
impact of ¥0.2 billion, 90% year on year. Third reason was decline ofsells by No-MARUI site, which were driving business until last year. It
had been expanded 139% year on year until last year, however it was
only 102% in this year although exceeded the previous year level. As ameasure for the second half, we introduced new apps in September,and the number of downloads are very strong about 150,000. By
introduction of the new apps and marketing automation, and also
improvement in product lineup with EC, we will make effort to aroundfor better in the second half.
Q. I think it’s great to hear that such as BASE finally listed. Taking a longperspective, I don’t think you will be keeping all stocks. My question isabout your exit policy. It will be difficult for you to part with companies
because of the deep of relationship with these companies and stock priceincrease by listing. What are conditions would you exit? I’m relieved
because there is no loss and you also don’t want a loss cut. Let us know
your exit policy.
A. About our exit policy, we define that investment in startup should
contribute our core business, and should be for open innovation. It isfor growth investment and we are not expecting financial return
because we are not a fund. In a case that there are IPOs, done by gifteeand BASE, it depends on synergy being actually realize or not. For
example, collaboration with company A is being made successfully
and the relationship deepens, such a case we retain and keep maintaincompany A. But in a case that the synergy effect was less as much asexpected, we will enjoy and maximize IPO’s finance return. As middleof cases, at least the investment amount should be recovered. That’s
2basic an exit policy.
Q. Thank you for very clear explanation easy to understand. I would like
you to more explain for the timeline of return on investment. I don’t
think the return will be after 10 years, what timeline will be used for
discussions? Of course, I understand that it depends on the businesstype. Let me discuss again on this subject.
Q. As you basis, recurring revenue has been increasing as strong and also
there are contracted future recurring revenues, so I think the risk hasquite declined. Did you set the target of 30% shareholder’s equity ratiowith that in mind? Do you think you can have more leverage because ofrisk decline? Let us know the optimal capital structure can be adjusted
or not.
A. Recurring revenue is expanding, but this concept of recurring revenue
wasn’t conscious in previous. When we have been shifting from flowbusiness to stock business, the concept has become implicit knowledge.
This time, we clarified the concept of recurring revenue like
subscription companies, SaaS companies and platform companies. Interms of shareholders equity ratio, the first reason is optimal capital
structure in past explained. The second reason is opinions of our bondinvestors. They want keep at the ratio 30%. We respect that opinions
and look at optimal capital structure, we set target of shareholders
equity ratio at 30%.
Q. The target for 30% has not changed for a while?
A. Yes, that’s correct.
Q. Contracted future recurring revenue is not difficult to understand theconcept, but liquidation of revolving receivables will devalue contracted
future recurring revenue. It becomes difficult for credit card companies
to be evaluated even if they make profits as the scale of liquidation
increases. In the first half revolving installment business was handling
19%. If the pace continues, you don’t have concerned, there may be aview that even if the fiscal year's plan is not met, liquidation should not3

be forced. If transaction is not increasing, what is your a policy ofliquidation? I don't think it's a good idea to stick too much to the profits
you promised for the year. Can I have your opinion?
A. As you talks about, liquidation of revolving installment receivables
equivalent to accelerated recognition and realization of profits in thecontracted future recurring revenue for this year. But there is theanother purpose to the contracted future recurring revenues. For
example, the right side of the household accounts, recurring payments,
is kind of service increase. That’s contracted future recurring revenue.
The liquidation of revolving receivables can be advanced, but thedifferent types of earnings which cannot be advanced and recognize
such as recurring payments, and increased recurring revenue is so thatmaximize the LTV (Life Time Value). By doing this, we promote LTV
management. As for the optimal balance of liquidation in the future,
although one aim is to keep our promised profits, there is another aimof the mid-long term plan. As the balance sheet in the mid-long term,when FinTech business becomes driver business and we raise
corporate value, operating receivables should increase. As a result, thebalance sheet will exceed to initial target of ¥1.0 trillion assets for thefiscal year ending March 2021. Our shareholder concerned about
potential risk of that and requested us to control the balance sheet.
Therefore, to keep of the optimal balance sheet, we are planning toraise the ratio of liquidation. That’s why increased ratio of liquidationfrom the previous 15% to an industry average of 25%. The aim of themedium- to long-term plan is to realize the balance sheet we aim toachieve through this.
Q.

I think that the growth of the revolving/installment balance will
decrease as installment transaction handled. In several quarter,
installment transaction grew strongly, how long will this trend last?

A.

According to the theory of general financial and credit card, they
recommend revolving payments that has longer payment periods. We
also recommended revolving payments business, but customers and ourcardholders are worried about when their revolving payments will end.
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So we have strongly recommended installments in several years. Thebalance of installment payments per one customer are lower than thatof revolving, but they increase the number of customers and the balance
as a result of having a wide range of customers, so we are working toincrease them in the same way as the growth of revolving payments.
Therefore, the expansion of installment transaction does not mean thatthe balance of trade receivables decreases.
Q.

You mean that rather than having the same customer shift fromrevolving to installment payments, do you want new customers to use
installment payments?

A. Yes. Customers who thought that using revolving payments would be
difficult will be able to decide the payment amount and the period
themselves, so we will increase the number of new customers andexpand the balance.
Q. In terms of short-term results, FinTech’s actual operating income growthin second quarter was not significant at approximately ¥0.7 billion andthe expanse of point increased. Service revenue supposed to accelerate
due to the collaboration with Able, but we don’t see too much change.
What do you think of this as a general review of FinTech business infirst quarter and second quarter?
A. Looking at the balance of operating income over the last six months,
we aim to increase actual operating income by ¥1.6 billion in the firsthalf of the year and by ¥4.0 billion in the fiscal year. As for quarterly
changes in operating income, you have mentioned the actual situation.
However, since the timing of liquidation amortization and the timingof liquidation differ, there may be some irregularities in the balance
between expenses and income in each quarter. Although there will be acorresponding variable cost, operating income will be higher in thesecond half of the year. You can think of the difference of the first half
and the second half as the difference of expenses. The main source ofservice income is the rent guarantee business. We plan to make asignificant leap in the second half of this fiscal year by the5collaboration with Able, but the system actually went into operation inMay, and we expect it to be slightly lower than planned due to a delay
in connecting the system. However, the initiative is on track, and if
Able's revenues increase about 4 times in the first half of the year, weexpect Able alone, not gross, to be effective at around ¥0.4 billion. Wetherefore expect service revenues to grow by more than 130%.
Q. Regarding the growth investments, you collaborate with the companies
and work together, I can understand that, and the amount is ¥0.5 billion
so far. So I don’t think it will be that big. However, if you are going to
expand to invest in a number of companies, you’ll have to use humanresource for that. As the return on investment is neither good nor bad,how much human resources is going to use such investment? Also, I
think it is necessary to have discipline to limit the number of companies.
What’s your view on that?
A. Regarding human resources and future disciplines related to investment,
first of all, in our mid-term management plan by March 2021 weplaned to investment ¥30.0 billion for the growth investment. But
know-how has not yet been accumulated and progress has been slow,
so as explained previously, we have extended the plan to 2 years anduntil March 2023 we are going to invest ¥30.0 billion. Now, in termsof amount are looked, not the number of companies. We have 5-6
people of our company doing this, and also we have added 2
professionals with investment experience scouted from othercompanies. Because there are risks if we do it by ourselves, we want tocontrol risks by hiring people who have the know-how.

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