Moderator
I would like to thank everyone here for taking time out of their busy schedules
to join us today.
During today’s presentation, we will be looking at MARUI GROUP’s
performance in the fiscal year ended March 31, 2018, and the Company’s
outlook for the future, including its directives going forward.

Moderator
Today’s presentation will be divided into three sections.
First, Hirotsugu Kato, general manager of MARUI GROUP’s IR Department,
will explain performance in the fiscal year ended March 31, 2018, and forecasts
for the fiscal year ending March 31, 2019. The next two sections will be led byPresident Hiroshi Aoi and will focus on the progress of MARUI GROUP’s
medium-term management plan followed by the Company’s directives for the
future.

1Greetings, I am Hirotsugu Kato, general manager of MARUI GROUP’s IR
Department.
I will be explaining MARUI GROUP’s performance in the fiscal year ended
March 31, 2018, and the Company’s forecasts for the fiscal year ending
March 31, 2019.

2

To begin, I would like to touch on four highlights with regard to the fiscal year
ended March 31, 2018.
First of all, we achieved our targets for three key performance indicators, or
KPIs, in the fiscal year ended March 31, 2018, namely earnings per share, or
EPS; return on equity, or ROE; and return on invested capital, or ROIC.
Second, both revenue and operating income were up, with revenue rising forthe first time in four years and operating income increasing for the ninth
consecutive year.
Third, we increased dividends for the sixth consecutive year, this time by ¥5
per share, which was ¥1 more than previously forecast, to issue annual
dividend payments of ¥38 per share. This decision was made in reflection of
net income exceeding our forecast. A news release on this subject wasissued on May 10, 2018.
Fourth, our economic value added spread improved because ROIC increased
and once again exceeded weighted average cost of capital, or WACC, as was
also the case in the fiscal year ended March 31, 2017.

3

This slide details MARUI GROUP’s consolidated performance.
EPS, one of our KPIs, reached ¥93.2, showing a large year-on-year increase of
16% due to the benefits of higher profit and capital measures.
In addition, ROE rose 0.9 percentage point, to 7.6%, and ROIC edged up 0.1
percentage point, to 3.2%. Our targets were thus achieved for each of these three
KPIs.
Total Group transactions broke ¥2 trillion for the first time ever, soaring to¥2,189.4 billion.
Meanwhile, operating income increased for the ninth consecutive year, climbing
13%, to ¥35.2 billion, and net income rose for the seventh consecutive year withan increase of 12%, to ¥20.9 billion.

4

On this slide, you will see information on income by segment.
Operating income in the Retailing segment reached its target, rising 14% year
on year, to ¥8.8 billion. Factors behind this increase included income
improvements stemming from the transition to fixed-term rental contracts
as well as growth in Internet sales.
Meanwhile, the continuation of strong growth in card shopping transactions
led FinTech segment operating income to rise to ¥30.3 billion, an increase of
12% year on year, and exceed our target by ¥0.2 billion.

5

We will now look at the Company’s consolidated balance sheets.
Operating receivables were up ¥59.3 billion year on year due to the ongoingincrease in card shopping transactions.
Interest-bearing debt was also up, rising ¥51.0 billion, as a result of ouradopting a basic policy of addressing increases in operating receivables withinterest-bearing debt. As a result, the ratio of interest-bearing debt tooperating receivables came to 89% .
Meanwhile, the equity ratio was 31.6%, approaching the targeted level of 30%.

6

This slide details factors pertaining to ROIC and WACC.
ROIC in the Retailing segment increased in the fiscal year ended March 31,
2018, and, as a result, overall ROIC rose, exceeding WACC for the second
consecutive year.

7With this slide, we will look at cash flows.
Core operating cash flow, that’s operating cash flow excluding the change inoperating receivables, was ¥35.9 billion, up ¥7.7 billion.
Net cash provided by investing activities came to ¥0.7 billion, as cash inflows
from the sale of securities held by the Company outweighed cash outflows
totaling ¥9.6 billion for capital investments in store fixtures and renovations.

8On this slide, you will see our full-year forecasts for the fiscal year ending
March 31, 2019.
EPS is projected to increase by 18%, to a record high of ¥109.8, as a result ofhigher profits and capital measures. The previous record of ¥103.0 was set in
the fiscal year ended January 31, 1991, meaning that, if we meet thisforecast, EPS will set a new record for the first time in 28 years.
We also project improvement in ROE and ROIC, which are forecast to reach
8.6% and 3.6%, respectively.
At the same time, the ongoing growth of operations in the FinTech segment
is anticipated to contribute to total Group transactions of ¥2,500.0 billion,
while the Company also records operating income of ¥40.0 billion and net
income of ¥24.0 billion.
Certain changes in accounting procedures are scheduled to occur during the
fiscal year ending March 31, 2019, and the impacts of these changes havebeen factored into our forecasts. As you can see, these changes will have no
impact on operating income.
Accordingly, you can feel free to disregard these changes.

9These are our forecasts for segment income.
Operating income in the Retailing segment is forecast to increase 25% year
on year, to ¥11.0 billion, due to growth in e-commerce sales and income
improvements stemming from the ongoing transition to fixed-term rental
contracts.
The FinTech segment, meanwhile, is expected to see operating income riseby ¥3.2 billion, or 11%, year on year, to ¥33.5 billion.
Adjustments accounted for under Eliminations/Corporate will equate to a¥0.6 billion increase in net expenses. This increase will be the result of costs
pertaining to the development of new businesses as well as higher
investments in human resources.
These factors are anticipated to result in consolidated operating income
coming to ¥40.0 billion.

10

As the last portion of my presentation, I would like to talk about shareholder
returns.
We plan to increase dividends for the fiscal year ended March 31, 2018, by¥5 per share, ¥1 more than previously forecast, to ¥38 per share. Thisdecision was made in reflection of the forecast-exceeding level of net
income.
President Aoi will be explaining our policies for dividends in the fiscal year
ending March 31, 2019, and beyond in more detail. For now, let me say that
we intend to raise dividend payments for the fiscal year ending March 31,
2019, by ¥9, to ¥47 per share, while conducting share buybacks in theamount of ¥7.0 billion.
This should result in a total return ratio of 72% and EPS of ¥109.8.
With this, I conclude my portion of today’s presentation.

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Hello, my name is Hiroshi Aoi, and I am the president of MARUI GROUP.
I would now like to begin our look at MARUI GROUP’s progress under the
medium-term management plan.

12

Specifically, I plan to touch on the six subjects listed on this slide.

13

Our first subject will be the progress of the transition to shopping centers andfixed-term rental contracts.
We made steady progress in converting department stores to the real estatemodel and in transitioning from consignment agreements to fixed-term rental
contracts, bringing the ratio of fixed-term rental contracts in the fiscal year
ended March 31, 2018, to 87%, higher than forecast, and realizing ¥3.2 billion
worth of income improvements.

14

In addition, restaurants, food sales, and services came to account for 30% of
the product categories offered by Marui stores as a result of the transition to
fixed-term rental contracts.
Furthermore, we achieved increases in customer and purchase numbers andtransactions at the six stores in which we had introduced food vendors on
entry floors, with the aim of expanding this successful initiative from Hakata
Marui to other stores.

15

Here is our future outlook for the transition to shopping centers and fixedterm rental contracts.
The amount of floor space applicable to be converted to fixed-term rental
contracts has increased, and the amount of floor space converted to fixedterm contracts is therefore expected to be about 9,917 m2 higher thanpreviously forecast in the fiscal year ending March 31, 2021.
At the same time, the amount of idle floor space is expected to increase by
7,273 m2 in the same year, rising above our forecast. This is due to thereplacement of tenants following contract expirations, which is expected to
begin in the fiscal year ending March 31, 2020, as well as to contract
cancellations.

16

This slide offers information on our e-commerce operations.
Performance in our e-commerce operations was favorable, with totaltransactions of ¥23.0 billion in the fiscal year ended March 31, 2018, a rise of
13% achieved through increased coordination of inventories with business
partners.

17However, we also uncovered some obstacles to the ongoing growth of these
operations.
For example, we experienced a lack of space and staff at distribution centers
due to increases in the number of stored and shipped items.
We aim to address this issue by expanding the floor space of distribution
centers and boosting efficiency through the introduction of robots.
Meanwhile, growth in orders through smartphones faltered, despite the overall
increase in such orders, as we were unable to provide the ideal user interface
in line with demand.
To address this issue, we established a dedicated user interface and user
experience division in October 2017 to guide us as we pursue user interface
improvements while coordinating with external experts.

18

We will now look at circumstances surrounding our directly operated sales
floors and private brands.
Previously, the portion of floor space accounted for by directly operated sales
floors and private brand sales floors was a bit too large. We sought to reduce
this portion by transitioning to fixed-term rental contracts with the aim ofincreasing efficiency. However, sales decreased in conjunction with the
reduction of this floor space, and we were therefore unable to achieve thedesired improvements in efficiency.

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Looking ahead, we aim to strengthen e-commerce operations in relation to
directly operated sales floors and private brands.
At the same time, we will select which sales floors will be continued and which
will be discontinued based on the profitability of each product category.
The directly operated sales floors that are discontinued will be replaced withtenants on fixed-term rental contracts.
We also anticipate that some product categories will need to be reformed
through means such as conversion to the try-on store model used for shoes
or to the rental and sharing sales floors we intend to develop going forward.

20

Next, we will look at our EPOS card operations.
Card shopping transactions continued to post smooth growth and exceedindustry averages, reaching ¥1,600.0 billion, an increase of 15% year on year, inthe fiscal year ended March 31, 2018.

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Operating receivables rose 12% year on year, to ¥548.0 billion, growing
smoothly for the seventh consecutive year.

22As a result of these factors, operating income in the FinTech segment has
grown consistently by between ¥3.0 billion and ¥4.0 billion over the past four
years. In the fiscal year ended March 31, 2018, operating income in thissegment increased ¥3.2 billion year on year, to ¥30.3 billion.

23

However, we also continue to face the issue of slow growth in new card
applicants.
We had anticipated an influx of more than 800,000 new applicants inconjunction with the opening of Hakata Marui in the fiscal year ended March
31, 2017. Regardless, we failed to meet our new card application targets fortwo consecutive years.

24

We have identified two major factors behind this failure.
As the first factor, our systems for issuing EPOS cards at Marui stores,
which account for roughly 60% of new card applications, were not suited tothe environment resulting from the transition to the shopping centers andfixed-term rental contracts.
Recognizing this situation, we began taking steps to revise our systems andredouble our measures for issuing cards in October 2017. These efforts
brought an end to the declines in card application numbers, and the numbersof applications in March and April 2018 were higher than in the previous year
as a result.

25

The second factor was the fact that the external partners with which we
collaborate were predominately in fields pertaining to physical stores andsales of goods, and we had been slow in forming collaborative partnerships in
the growing Internet, experience, and service fields.
To respond to this situation, we commenced collaboration with GMO
Payment Gateway, Inc., in the Internet field and with ABLE. INC. in theexperience and service fields in the fiscal year ending March 31, 2019.
Through collaboration with these partners, we aim to receive one million newcard applications in the fiscal year ending March 31, 2021.

26

Next, I would like to talk about provision for bad debts.
Provision for bad debts once again rose, increasing 28% in the fiscal year
ended March 31, 2018, no doubt causing concern for our investors. This
increase, however, was largely a result of higher provision for allowance for
doubtful accounts following a rise in operating receivables. Accordingly, wewere still able to maintain one of the industry’s lowest rates of ratios of bad
debt write-offs with a ratio of 1.6% in the fiscal year ended March 31, 2018.
We therefore feel that there is no need for concern.

27

Moving on, I would now like to talk about service revenues.
The rent guarantee service business we commenced in the fiscal year ended
March 31, 2009, has continued to growth smoothly in recent years.
We expect that the market for this business will grow in the future due to thebenefits of the upcoming Civil Code revision. In light of this situation, we
intend to target revenue of ¥10.0 billion for this business in the fiscal year
ending March 31, 2021, which we will work toward through collaboration with
ABLE.
Looking ahead, we plan to grow such businesses that can generate revenues
without increasing capital alongside the securities business that I will be
explaining a little later on. We aim to improve capital efficiency in this manner.

28

The last subject I will touch on with regard to our progress under the mediumterm management plan is environmental, social, and governance, or ESG,
topics.
MARUI GROUP has been proactive in its efforts to become a forerunner in
ESG management. These ESG initiatives have led several organizations to givehigh evaluations to the corporate value of the Company, as indicated by
MARUI GROUP’s inclusion in the Dow Jones Sustainability Indices as well as
in the Health & Productivity Stock Selection and in the Nadeshiko Brand
selection.
Nevertheless, we recognize that not having a clear long-term vision or a setof KPIs is an issue. With this in mind, we are preparing such a vision andindicators, and I hope to offer a detailed explanation of these matters at theco-creation sustainability explanatory forum scheduled to be held in
December of this year.

29Moving on, I would next like to discuss our directives for the future.

30Based on feedback from our shareholders and other investors, I will be
explaining our directives with regard to the four subjects listed on this slide.

31

We will look first at MARUI GROUP’s directives for growth investments.

32

When looking for the businesses that will drive the future growth of MARUIGROUP and contribute to increases in its corporate value, we will not limit
ourselves to our existing operations in the Retailing and FinTech segments.
We thus plan to develop businesses that integrate stores, credit cards, andthe Internet—a scheme that represents a strength of MARUI GROUP—toaddress social issues.
Accordingly, future investments in new businesses will be focused on
initiatives for addressing social issues by developing businesses utilizing
MARUI GROUP’s unique business model. At the same time, we willproactively direct investments toward startup companies that will help us cocreate such businesses.

33

Our past investments in the anime business, among others, have begun generating acertain degree of results. In the fiscal year ending March 31, 2019, we will start up a
securities business along with six new business projects. These new businesses will be
developed with a sense of speed.
A total of ¥30.0 billion worth of new business investments have been slated for theperiod of the current medium-term management plan. Combining the investments
conducted in the fiscal year ended March 31, 2018, and those that we currently
expect to be able to execute, around ¥7.0 billion of this amount has already been
decided.

34

At the same time, we recognize that investments in human resources
development are the most important form of growth investment. We will
therefore be accelerating such investments going forward.
In the fiscal year ending March 31, 2019, we intend to invest ¥1,030 million,
an increase of 40% over the previous fiscal year, in enhancing the programs
we offer to support the growth of employees. Such programs include thefuture leader development program launched in the fiscal year ended March
31, 2018; the seconding of employees to startup companies; dispatches of
employees to business schools; and various project team activities,
workshops, and seminar. These programs are open to voluntary participationby all employees.

35

Next, I would like to talk about our directives for financial inclusion initiatives.

36

In the past, financial services have only been available to a select, wealthy
few. MARUI GROUP sees part of its mission as promoting financial inclusion,
which entails providing such financial services to everyone, regardless of age
or income. We have thus been engaged in initiatives for accomplishing thisgoal.
As the first step of these initiatives, we began issuing credit cards to foreignexchange students in Japan in the fiscal year ended March 31, 2018. We took
our next step by entering into the securities business, which could be seen as
central to financial inclusion, in the fiscal year ending March 31, 2019.

37

The background behind our decision to enter into this business was theconcerns of younger generations for the future.
Public opinion surveys have found that roughly 60% of people belonging toyounger generations have concerns for the future in relation to money,
inspiring them to save and conserve money. Meanwhile, many of these people
find themselves unable to move forward with asset building due to a lack ofknowledge or apprehension regarding investment or to insufficient monetaryleeway.
At MARUI GROUP, we believe that this situation is a result of a severe lackof financial education.
At the same time, the ratio of private financial assets accounted for by cash
and deposits in Japan is higher than in any other developed country. In fact,
the amount of cash and deposits in Japan is ¥900 trillion. This situation has
resulted in slow growth in financial assets in comparison to other countries,
prompting the Financial Services Agency to encourage people to shift theirassets from savings to investment.
MARUI GROUP’s new securities business is geared toward addressing thisissue.

38

Our securities business allows younger generations and everyone else topurchases of investment trusts applicable under Tsumitate NISA throughcredit payment via EPOS cards.
This business represents Japan’s first scheme for purchasing investment
trusts with credit, and we plan to establish a securities company toimplement this scheme.
Discussions with the relevant government agencies are currently underway toachieve registration as a securities company.
This business will produce earnings for the Group in the form of theinvestment trust fees generated by the securities company as well as theincrease in the lifetime value of our EPOS cards that will be realized byencouraging long-term use by cardholders.

39

In developing our securities business, we will capitalize on MARUI GROUP’s
scheme that integrates its base of 6.5 million cardholders, the stores thatreceive visits from 200 million customers each year, and the platform
provided by the Internet.
Moreover, we will provide added benefits to customers by enabling them toaccumulate points when they make monthly deposits with their EPOS card.
We also offer a simple and accessible user interface that makes it easy toapply via smartphones, which helps us realize a low-cost operation.
While offering these services through the Internet, we will also hold seminars
for first-time users guided by Company employees as well as application
support and post-application follow-up seminars at Marui stores. In thismanner, we are merging our Internet-based activities with our store-based
activities.
Through the provision of services and financial education, we hope toapproach new customer groups, particularly younger generations that are
currently not addressed by existing financial institutions. Our targets for thisbusiness will include achieving one million users and ¥1 trillion in balance ofassets within 10 years.

40Moving on, I would now like to discuss our response to new payment
methods.
We often receive inquiries from shareholders and other investors with regard
to the possibility of credit cards becoming obsolete due to the spread of
payments via smartphones and other new payment methods and ofalternative payment methods emerging. I would like to take this opportunity tooffer my thoughts on this matter.

41

QR code payments via smartphones boast a dominating share of the market in
China, and this payment method is expected to spread in Japan going forward.
The spread of this payment method will likely be centered on the ¥90 trillion
market primarily represented by the bottom-left quadrant of the diagram on
this slide. This market is characterized by payments in amounts of less than
¥5,000 made at small stores.
In regard to the other quadrants, credits cards have become established as
the most convenient payment method for large-sum transactions, represented
by the top half of the diagram, while e-money has carved out a position as aconvenient means of payment in the bottom-right small-sum transaction
quadrant. In the future, we expect that the overall trend toward cashless
payments will proceed with a clear division arising between QR code, credit
card, and e-money payments.
MARUI GROUP looks to enter into the ¥90 trillion market for small-sum cash
payments with the launch of a QR code payment-compatible smartphone
application, tentatively named EPOS Pay, that is scheduled for introduction insummer 2018.

42

Meanwhile, we anticipate that credit card usage will continue to grow going
forward in light of long-term structural changes, such as the advancement of
e-commerce and sharing economies.
Amid these trends, MARUI GROUP will look to increase the usage of EPOS
cards for Internet payments through collaboration with GMO Payment
Gateway. At the same time, we will seek to increase recurring payments bypromoting the payment of rent with credit cards through collaboration with
ABLE and by amassing monthly deposits through Tsumitate NISA in the
securities business. The goal of these efforts will be to increase the lifetime
value of our customers.

43

Lastly, we will be looking at our directives for future capital measures.

44

The balance sheet targeted in the medium-term management plan entails acapital structure in which the equity ratio comes to 30%. In the fiscal year
ended March 31, 2018, this ratio was 32%, approaching this ideal structure.
Meanwhile, operating receivables are now projected to exceed our initial
forecast by roughly ¥80.0 billion in the fiscal year ending March 31, 2021. Thissituation will result in assets rising to ¥1,060.0 billion, higher than the forecast
level of ¥1,000.0 billion, and the equity ratio falling below 30%.

45

Looking at this situation, we decided to undertake the systematic expansionof funds procured through the liquidation of operating receivables from thefiscal year ending March 31, 2019. We thereby aim to reduce risks through thediversification of procurement methods while making strides toward our ideal
capital structure.
Specifically, we will raise the ratio of liquidated operating receivables from thecurrent level, around 12%, to 25%, the same level as our peers, in a phasedmanner.

46

We anticipate that this undertaking will enable us to reduce total assets to
below ¥1,000.0 billion in the fiscal year ending March 31, 2021, and thereby
make it possible to maintain an equity ratio of more than 30%.
The benefits of this systematic liquidation of receivables will not be limited tocontrolling increases in total assets; it will also help us heighten corporate
value as we grow businesses that are not dependent on our balance sheet,such as the rent guarantee and securities businesses.

47

This slide details our investment plan.
Over the five-year period of the medium-term management plan, we intend to
conduct investments totaling ¥90.0 billion.
Of this amount, ¥60.0 billion will be directed toward existing businesses withthe remaining ¥30.0 billion going to new businesses.
As of March 31, 2018, we had conducted ¥25.9 billion worth of investments inexisting businesses, which included investments associated with the openingof Hakata Marui. This amount represents 44% of our five-year target andindicates progress that is generally in line with our plan.
Conversely, progress in new business investments has been slow, with only
¥1.0 billion, or 3% of our target, executed on March 31, 2018. However, we
forecast investments of ¥9.0 billion in the fiscal year ending March 31, 2019,
which will be for purposes such as providing the capital for securities
companies and investing in startup companies.

48

I would now like to touch on shareholder returns.
Over the four years since the fiscal year ended March 31, 2015, we haveconducted an aggregate total of ¥85.0 billion worth of share buybacks. As aresult, the total return ratio has exceeded 100% for four consecutive years.

49

From the fiscal year ending March 31, 2019, we will be gradually shifting the
focus of shareholder returns from share buybacks to dividends.
At the same time, we will target a total return ratio of 70% as this is a levelthat will make it possible to maintain an equity ratio of 30% going forward. As
for the payout ratio, we will aim for a ratio of 55%, as is common in Europe,and move toward this ratio in a phased manner as we target ongoing, longterm dividend increases.

50

Lastly, here are the KPIs of the medium-term management plan. There has
been no change in this regard.
I would now like to conclude my portion of today’s presentation. Thank you
for your attention.

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