Message from the CFO

Target Balance Sheet

01 Target Balance Sheet
POINT

Procurement through interest-bearing debt in response to increases in operating receivables
Optimal capital structure defined as targeting an equity ratio of approximately 30%
Total assets ¥1 trillion

Total assets ¥730.1 billion
Operatingreceivables¥413.9 billion

Liabilities ¥448.0 billion
Interest-bearing debt

¥359.3 billion

Shareholders’ equity

Fixed assets, others¥281.6 billion

Liabilities ¥592.2 billion

Operatingreceivables¥548.0 billion

Interest-bearing debt

Shareholders’ equity

Fixed assets, others    Motohiko SatoSenior Managing Executive Officer and CFOn the fiscal year ended March 31, 2018, theI second year of the medium-term management
plan, total Group transactions rose 13.2% year on year,to ¥2,189.4 billion, exceeding ¥2 trillion for the first time
thanks to the strong growth of card shoppingtransactions. At the same time, operating income
increased for the ninth consecutive year, to ¥35.2 billion,and net income attributable to owners of parent grew for
the seventh consecutive year, to ¥20.9 billion. Coupledwith the benefits of share buybacks and dividend
increases, this income growth contributed to a 0.9
percentage point increase in ROE, to 7.6%; a 16.1%
rise in EPS, to ¥93.2; and a total shareholder return of
45.6%, well above the Tokyo Stock Price Index averageof 22.0%. In addition, income improvements in theRetailing segment led ROIC to rise by 0.1 percentage
point, to 3.2%. ROIC exceeded weighted average cost ofcapital (WACC), which was 3.0%, for the second

84Interest-bearing debt

¥590.0 billion¥274.4 billion

Shareholders’ equity

Fixed assets, others¥300.0 billion
Equity ratio 30%

Equity ratio 32%

FY2016 (Actual)

By constructing the optimal capital
structure for the Group’s business,
we will consistently generate ROIC
that exceeds capital costs.

Operatingreceivables¥680.0 billion¥485.3 billion

Equity ratio 39%

consecutive year as a result of efforts to reconstruct ourbusiness and capital structures to achieve the corporate
value improvements targeted by the medium-term
management plan.
The reconstruction of our capital structure is being
advanced based on our target balance sheet, a vision forthe balance sheet judged to be ideal from theperspective of long-term corporate value improvement,
our participation in the securities business, and newbusiness entries and reforms to be undertaken in thefuture. Total assets are expected to rise to ¥1 trillion in
the fiscal year ending March 31, 2021, as a result ofhigher operating receivables (installment sales accounts
receivable and consumer loans outstanding) in the
FinTech segment. Meanwhile, the liability portion of ourbalance sheet has been more oriented toward retailingwith high levels of shareholders’ equity. Under themedium-term management plan, we aim to address thisstructure by transforming our business model to target
an equity ratio of approximately 30%. Higher funding
demands will be met through the procurement of lowcost capital as we seek to lower overall capital costs byincreasing the portion of funds accounted for by interestbearing debt. At the same time, we will seek to maintain alevel of interest-bearing debt that is equivalent to around
90% of operating receivables to ensure financial safety.
We plan to enact a fund procurement policy of liquidating operating receivables and procuring funds
through borrowings from financial institutions and bondissuances. Our end goal is to improve asset efficiency bylimiting the increase in total assets and liabilities.

Liabilities ¥730.0 billion

Total assets ¥867.2 billion

FY2018 (Actual)

The medium-term management plan with the fiscal year
ending March 31, 2021 as its final year, defined ourtarget balance sheet with the aim of bringing the liability
portion of the balance sheet in line with our earnings
structure. Based on this target, we will procure funds inthe form of interest-bearing debt to address theFY2021 (Target)

projected rise in operating receivables with the aim ofmaintaining a level of interest-bearing debt that is equivalent to around 90% of operating receivables. As for theequity ratio, we will target a ratio of approximately 30%,
the level we have deemed to be optimal.

02 Creation of Corporate Value through ROIC Exceeding WACC
POINT

Structure in which ROIC consistently exceeds WACC to be achieved by increasing ROIC and lowering capital costs
Surplus income once again achieved in the fiscal year ended March 31, 2018,
through steady advance of financial strategies
ROICROIC

WACC>

3.1%

3.0%

ROIC>

3.2%

Retailing
ROIC 2.5%

Liability costs

0.2%

Capital costs

FY2017 (Actual)

7.2%

3.0%

4%

>

WACC

2%–3%

Total assets ¥930.0 billion

Total assets ¥867.2 billion

Total assets ¥806.6 billion
FinTechROIC 3.9%

WACC

FinTechROIC 3.8%
Retailing
ROIC 2.8%

0.3%

FinTechROIC 4.1%

Capital costs

Retailing
ROIC 5.3%

Liability costs

8.0%

FY2018 (Actual)

In the fiscal year ended March 31, 2018, ROIC exceeded
WACC for the second consecutive year following animprovement in the ROIC of the Retailing segment. In theFinTech segment, we are targeting ROIC of 4.1% or morein the fiscal year ending March 31, 2021, by growing
service revenues that require less invested capitalthrough initiatives in the securities business and othernew fields. Our ROIC target for this year in the Retailing

Liability costs

0.3%–1%

Capital costs

7%–8%

FY2021 (Post-liquidation forecast)segment is 5.3% or more. We will work toward this target
through growth in e-commerce earnings and by pursuingincome improvements by raising the value of the transition to shopping centers and fixed-term rental contracts
after its completion. We will also develop businesses that
do not require increased assets to improve the efficiency
of invested capital.

85

Target Balance Sheet

Target Balance Sheet

03 Forecasts and Issues Related to Target Balance Sheet

04 Interest Rate Hike Risk (Preliminary Calculation of Amount of Impact)

POINTPOINT

Equity ratio of 32% in the fiscal year ended March 31, 2018, approaching optimal level of 30%
Operating receivables to exceed initial forecast, making for total assets of ¥1 trillion
in the fiscal year ending March 31, 2021
Total assets ¥1,060.0 billion

Total assets ¥1 trillion
Operatingreceivables¥680.0 billion

Interest-bearing debt

¥590.0 billion

Fixed assets, others

Shareholders’ equity¥300.0 billion

Interest-bearing debt
¥660.0 billion% of operatingreceivables 87%

Operatingreceivables¥760.0 billion

Fixed assets, others

Shareholders’ equity¥300.0 billion

Total assets ¥930.0 billion
Liquidation of receivables¥220.0 billion

Operatingreceivables¥630.0 billion

Reduction of interest-bearing
debt ¥220.0 billion
Interest-bearing debt
¥530.0 billion% of operatingreceivables 84%

Fixed assets, others

Equity ratio 28%

Equity ratio 30%

FY2021 (forecast announced in FY2016)

FY2021 (current forecast)

In the fiscal year ended March 31, 2018, the equity ratio
reached 32%, a large step toward the optimal level of30% from the level of 39% in the fiscal year ended
March 31, 2016. However, operating receivables areexpected to exceed our initial forecast for the fiscal year
ending March 31, 2021, due to the growth of theFinTech segment. As we address this rise in receivables
through additional interest-bearing debt, this situation isprojected to cause the equity ratio to fall below 30%
while total assets exceed ¥1 trillion in this year.

Limited impact on financial expenses anticipated from projected interest rate hike risks
Liability costs to be controlled through optimal fund procurement balance
0.58%

Average
0.56%
interest rate

0.41%

Financial expenses 0.51%
as a percentageof operatingreceivables

0.57%

0.31%

0.39%

¥1,170.0 billion

0.31%

Operatingreceivables(including¥620.8 billion
liquidation) ¥553.1 billion¥482.8 billion

Shareholders’ equity¥2.5 billion¥300.0 billion¥2.1 billion

Interest
expensesLiquidation interest
Other costs¥6.8 billion¥2.8 billion¥1.9 billion

Equity ratio 32%

FY2016FY2021 (forecast after liquidation of receivables)

We will respond to this issue through a systematicincrease in fund procurement through the liquidation ofoperating receivables beginning in the fiscal year ending
March 31, 2019. By raising the ratio of liquidated operating receivables to around 25% from the level of 12%
seen on March 31, 2018, we aim to keep total assets
below ¥1 trillion in the fiscal year ending March 31,2021, which enables us to maintain an equity ratio of
more than 30%, moving us closer to our optimal capital
structure.

Operating Receivable Liquidation Schedule

FY2017FY2018FY2019(Forecast)

FY2020(Forecast)

As the FinTech segment continues to grow, it will be
impossible to avoid increases in liabilities. A higher levelof liabilities means that interest rate hikes will havegreater impact on the Company. If long-term interest
rates are increased by 0.1% every year, the averageinterest rate on the Company’s debt is estimated to risefrom 0.31% in the fiscal year ended March 31, 2018, to0.57% in the fiscal year ending March 31, 2026. Thesehigher interest rates will cause financial expenses toFY2021(Forecast)

FY2022(Forecast)

FY2023(Forecast)

FY2024(Forecast)

FY2025(Forecast)

FY2026(Forecast)climb above ¥6.0 billion in this year. However, thisamount will only represent 0.58% of operating receivables (including liquidation), a level that is not significantly larger than now. MARUI GROUP has beensuccessful in absorbing a portion of the potential impact
of interest rate hikes by procuring funds with lower interest rates, longer borrowing periods, and even fixedinterest rates. Going forward, we will continue to monitor
interest rate trends to limit liability costs.

05 Cash Flow Forecasts
POINT

Five-year aggregate core operating cash flow of ¥230.0 billion forecast for period of medium-term management plan
Allocation of cash flows to growth investments and shareholder returns to achieve ongoing growthand improve capital efficiency

Ratio of liquidated operating receivables to be systematically raised from 12% to 25%
Equity ratio of more than 30% to be maintained by keeping total assets below ¥1 trillion
in the fiscal year ending March 31, 2021

Increase in operatingreceivables in FinTech¥260.0 billion

Growth investments¥90.0 billion

Existing businesses¥60.0 billion+Investments in new business fields¥30.0 billion

Core operating cash flow
¥230.0 billion

Growth investments &Shareholder returns¥200.0 billion

Shareholder returns¥110.0 billion

Stable, long-term dividend increases
Share buybacks

Procurement

Allocation

Breakdown

Fund procurement throughincurring interest-bearing
debt and liquidationof receivables¥230.0 billion

25%

Ratio ofliquidation

12%–¥220.0 billion
Amount of liquidation–¥73.0 billion¥630.0 billion

Operating receivables¥548.0 billion
FY201786

FY2018FY2019(Plan)FY2020(Plan)FY2021(Plan)FY2026(Plan)

FY2031(Plan)

Over the period of the medium-term management plan,
core operating cash flow, which excludes outflows associated with increases in operating receivables, isexpected to amount to ¥230.0 billion. We will allocate¥200.0 billion of this amount to growth investments andshareholder returns. Growth investments of ¥90.0 billion
will be conducted, of which ¥30.0 billion will be used forinvestments in new business fields and collaborative
ventures. The remaining ¥110.0 billion will go toshareholder returns.

87Shareholder Returns and Policies

Shareholder Returns and Policies

Continuous, Long-Term Dividend Increases

shareholder returns from share buybacks to dividends,and we will aim for a consolidated payout ratio of 55%
and move toward this ratio in a phased manner as weimplement ongoing, long-term dividend increases. Ourtarget for the total return ratio will be around 70%, a levelthat will enable us to maintain an equity ratio of 30%
going forward. Acquired treasury stock will, in principle,
be canceled.

MARUI GROUP has been conducting proactive sharebuybacks over the past four years. Also, in the fiscal year
ended March 31, 2017, we raised our target for consolidated payout ratio from 30% or more to 40% or more.
The total return ratio exceeded 100% for four consecutive years leading up to March 31, 2018, representing
a high level of shareholder returns. Looking ahead,MARUI GROUP will be gradually shifting the focus ofHigh Growth Coupled with High Returns

In addition, we plan to issue higher dividends for the seventh consecutive year with dividends of ¥47 based on
our new shareholder return policies. The Company will
also acquire ¥7.0 billion worth of treasury stock in thisyear. In May 2018, MARUI GROUP canceled 10 million
shares of acquired treasury stock.

For the fiscal year ended March 31, 2018, we raised dividend payments by ¥5 per share, to the record high of¥38 per share. In the fiscal year ending March 31, 2019,MARUI GROUP will target record-breaking EPS of¥109.9 through income growth and capital measures.

Previously• Acquired ¥85.0 billion worth oftreasury stock in four years
beginning with the fiscal year
ended March 31, 2015
• Raised target for consolidated
payout ratio to 40% or more in
the fiscal year ended March 31,2017• Achieved total return ratio
exceeding 100% for four consecutive years leading up to
March 31, 2018

¥130

Record highor more

Shareholder Returns: Amounts and Indicators(Forecast)
227%

125%

112%

Total return ratio
31%
Consolidated
payout ratio

32%

148%

32%

31%

41%

41%

¥110

7.6%

(Forecast)

Consolidated
payout ratio

Approx.

6.7%
6.0%
4.5%

5.0%

55%

5.2%
¥35.0billion

ROE
Share buybacks¥15.0 billion¥20.0billion

Dividends¥93¥15.0billion¥4.1 billion¥4.9 billion¥5.1 billion¥5.4 billion¥7.6 billion¥8.5 billion

FY2013

FY2014FY2015FY2016FY2017FY2018¥47Earnings per share(EPS)¥80¥38(Forecast)¥71¥33¥5940%or more

¥56

Going Forward• Gradually shift the focus ofshareholder returns from sharebuybacks to dividends beginningin the fiscal year ending March
31, 2019• Target a total return ratio ofapproximately 70% to maintainan equity ratio of 30% goingforward• Aim for a consolidated payout
ratio of 55% and move toward
this ratio in a phased manner¥48

Forecasts for Shareholder Returns: Amounts and Indicators
70%

Total return ratio
72%

55%

¥19

Cash dividends
per share¥1843%
Consolidated
payout ratio
8.6%
ROE

¥15

Share buybacks¥7.0 billion

FY201930%

or more

10%Dividends¥10.3billion

88

¥22

FY2020

FY2021

FY2022

FY2030FY2013

FY2014FY2015FY2016FY2017FY2018FY2019(Forecast)

Consolidated
payout ratio

31.0%

32.0%

32.3%

31.1%

41.1%

40.8%

42.8%

Total return ratio

31.0%

32.0%

125.3%

227.5%

147.5%

112.3%

71.9%

Share buybacks——¥15.0 billion ¥35.0 billion ¥20.0 billion ¥15.0 billion ¥7.0 billion

FY2020(Forecast)

FY2021(Forecast)—

Phased increase toward 55%
Total return ratio target of 70%

FY203189