MARUI GROUP Co., Ltd.
Financial Results Briefing for the Fiscal Year
Ended March 31, 2020
<Questions and Answers＞
Q. You don't disclose the forecasts for the fiscal year ending March 31,
2020. But it’s good to disclose the COVID-19 impact. I think there isno end to debating whether there is a second wave of infection. You'll
finally reopen stores from June 1, but what conditions do you need toknow to make full-year forecasts?
A. For example, in scenario A, we assume that the suspension of businesswill end at the end of May and the business trend will return to normal
in the second half of the year. In scenario B, we assume that thebusiness trend will return to normal in April next year. In this way,
estimates depend on the length of time that the business trend returns,
so we can make accurate predictions if we know when the trend willreturn. For the time being, we think we can make full-year forecasts
around the end of the first half.

Q.

In your presentation, you indicated a year-over-year decline in
Retailing segment operating income for the fiscal year ending March31, 2021. To what extent have you factored in cost reductions? Or is it
simply based on the assumption that the top line will fall?

A. While we have factored in a reduction in variable costs in our forecasts
for the extent of decline in the Retailing segment’s operating income,we have not factored in a reduction in policy costs and other costs.
Because this is not a large amount of money.

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Q. In your presentation, you said that you would exempt the tenants from
common service fees and rent fees. While it seems natural, top line of¥5.0 billion will disappear. Considering only that, does it become adecrease of ¥5.0 billion in operating income?
A. We will proceed with the rent reduction negotiations for properties weare renting. Some fixed costs incurred during periods of absence may
be recorded as extraordinary losses. Therefore, we calculated theimpact value taking it into account.

Q. I would like to ask about the profit structure of the FinTech segment. I
think your typical major customer, the younger generation, isstruggling right now. I think they are enduring by staying home andnot spending. When this settles down to some extent, how will theyuse EPOS Card in the medium to long term rather than in the shortterm? How do you predict, for example, whether customers will use
more card cashing or refrain from using credit cards because they
won't be traveling for a while?
A. I will talk about our commitment to card members. The volume ofcredit card transactions will not recover rapidly. We envisioned a new
way of life for consumers through the COVID-19 crisis. And we
recognized something new trends through the crisis. First of all,
Cashless is expected to progress and E-commerce is expected to growmore and more through the crisis as a result of fewer outings. Under
these circumstances, we will further strengthen our digital contact withcustomers. We would like to expand our business with E-commerce bystrengthening cooperation with various business partners. Next,
volatility in transaction volume expanded due to the COVID-19 crisis.
Stabilization of transactions requires efforts that are not greatly
affected by the environment changes. Through our ongoing efforts tomaximize the share of household finances in EPOS Card, we will
make more effort to implement measures such as recurring payments,
which is expected to provide stable transactions every month like2

utility costs.
As for card cashing services, the decline in ATM usage was significant
in April and May due to fewer outings. In the future, we have to makeit easier for customers to use caching on apps rather than expanding
the ATM network.

Q. The idea of investment was interesting and very understandable. Is thenext medium-term management plan for the same five years? Howlong do you plan to invest?
A. We want to take a year to thoroughly review our next medium-term
management plan. The period is assumed to be three or five years. At
this point, I think a three-year plan is appropriate. The weight ofventure investment is increasing, and it is better to make the plan alittle shorter cycle and build up the next action based on the results
each time. We set the term of the current medium-term management
plan at five years because it will take five years to switch to a
fixed-term rental contracts in the Retailing segment. As for the next
fiscal year, we emphasize investment in Co-Creation, and I thinktree-year plan would be good.
Q.

As for new business investment, you said before that you would
postpone the plan because you didn't have enough know-how. This
time you explained that the investment will double. Has theknow-how improved, or is the number of investment projects
increasing under these circumstances? I would like to know about theinternal environment and the market environment.

A. As for the amount of investments, we planned to invest ¥30.0 billion
over the five-year period of the medium-term management plan, but
now it is just over ¥17.0 billion. We said we wanted to delay theoriginal plan by about two years, but that hasn't changed. Just as animage of investments, I would like you to think that the speed ofinvestments will be twice as fast as before.
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Q.

Regarding the breakdown of changes in operating income in theRetailing segment for the fiscal year ended March 31, 2020, thesituation in consignment sales floors and E-commerce changed
significantly from the third quarter. In the third quarter, consignmentsales floors were not expected to recover to operating income decreaseof ¥1.0 billion. On the other hand, E-commerce expanded more
operating income decline in the fourth quarter. As for consignment
sales floors and E-commerce, I think there is a difference from theprevious forecasts. Please tell me the background.

A. As for consignment sales floors, we stopped the promotion at all since
the number of customers decreased due to COVID-19. As a result,large cost reductions were achieved, and the margin of decrease inprofit in consignment sales floors was reduced. E-commerce expanded
operating income decline because shoppers didn’t come to ourE-commerce than expected.

Q. Previously, you said that as the Retailing business grew in conjunction
with the FinTech business, Retailing's refinancing was almost
complete, the growth driver was E-commerce, and the nature of thestores would change. Do you need the current number of stores in thefuture? The value of real estate may change after the COVID-19
impact. Given that E-commerce is a growth driver, do you think thecurrent store assets are appropriate from a medium-term prospective?
A. In the future, after the COVID-19 impact in particular will replace theplace where goods are sold with the place where experience isprovided, and I think that the role of the place as an experience
provision will be greatly required. Now, stores are in the process oftransforming themselves from places where things are sold to places
where experiences are offered. The experience is not limited to central
Tokyo, but we provide events, food and drinks in the suburbs. We
would like to maintain and improve the real estate value of existing4stores by changing the value we provide.

Q. As for the estimation of the COVID-19 effects in the FinTech segment,
what kind of changes in transaction volume are included in variousscenarios?
A.

In the most optimistic pattern, we expect transaction volume todecrease by about minus ¥250 billion against the no-COVID-19 setting
and to recover slowly. In the pessimistic scenario, we are looking at¥540 billion decrease. The volume of transactions fell to 82% in April
but recovered to nearly 90% in May. In this way, we assume that if thesecond wave of infection does not come, the transaction volume will
gradually recover.

Q. I think it is a common assumption that bad debt costs will increase in
the future. What are your thoughts on the risks of the FinTechsegment?
A. As for bad dept, the COVID-19 crisis in April and May led to a slightincrease in inquiries from customers whose income decreased due tobusiness closures. On the other hand, the balance of unpaid deposits
fell from the previous year due to a decrease in transaction volume.
The number of delinquent loans has increased slightly. But that’sbecause the number of call center staff has been cut in half in order todeal with infection, so that we have not been able to thoroughly inform
our customers. Thus, considering only the current situation, the impactof bad debt is limited. However, in view of the risk of falling into
personal bankruptcy without arrears during the year, we have increased
our loan loss provisions for ¥0.4 billion this year.

Q. I understand that about 20% of fixed-term rental contracts areas instores are renewed every year. Is this correct? You said you would5increase the number of experiential tenants from 30% to 60% in thesecond quarter. I would like you to tell me about fields that can beexpected positive impacts and those that are difficult to grow in
post-COVID-19.
A. As you say, the average pyeong for renewing a contract is 20,000pyeong. However, in this fiscal year, the number of pyeong will
increase slightly to 22,000 pyeong as contracts will be renewed during
the period when the fixed-term rental contracts rapidly expanded threeor four years ago. In areas where there is a positive response, the large
offline traffic and courteous customer service that we have cultivatedover 90 years will contribute to the engagement of experience-basedtenants, although there will be some the COVID-19 impact. Brands
that don't depend on real store visits will grow in the future. We want
to increase our value as commercial facilities by cooperating with suchbusiness partners. However, restaurants in the middle and upper floors,which have focused on providing new value to tenants, may facedifficulties due to the corona effect. We want to overcome theCOVID-19 crisis by thinking about measures such as takeout delivery
with tenants and doing Co-Creation.

Q. Despite undecided full-year forecasts, you have set dividends forecasts
at ¥51. What led you to this idea? Dividends forecasts are usuallybased on earnings and EPS forecasts. What were the internal
discussions?
A. In order to clarify our basic shareholders returns policies, which isaiming for long-term and stable dividends increase, we have set ourdividends forecast at ¥51. As you said, there was a discussion about thedividends increase without the EPS forecast. However, we believe that
the FinTech business is stable and the COVID-19 impact will not be
extremely large, so we will be able to pay sufficient dividends. Ourpolicies are to maintain a payout ratio of 55% and a total return ratio of
70% over the medium term. We estimated how much profit we would6

be able to increase dividends if total return ratio of 70% is realized
only by dividends. It also expresses our enthusiasm to realize thatdividends.

Q. I don't think the transactions will decrease significantly in the FinTechbusiness because there are a lot of withdrawals from bank accounts
and recurring payments. However, in view of the employment
environment, I think the amount of revolving and installment payments
transactions by young people will decrease. It will be difficult torecover profits if revolving and installment payments transactions
decrease. As a result, decrease of operating receivables make it
impossible to liquidate accounts receivables. If you don’t doliquidation, only amortization will occur. What do you think of thisrisk?
A. The amount of revolving and installment transactions is linked to thetotal amount of transactions. As a result of the expansion of installment
payments over the past two years, the number of customers using
revolving and installment payments is gradually increasing. Therefore,
if the total amount of transactions is recovered, the amount oftransactions for revolving and installment payments is also recovered.

Q.

You are accumulating additional provision for loss on interest
repayment. I am worried that interest repayments will increase in thefuture. How do you predict?

A. Last year, Claims of lawyer intervention, which is leading indicator ofactual interest repayments, were more than 100% of compared to theprevious year. For that reason, we set aside ¥1.5 billion as additional
provisions at the end of last fiscal year. However, the amount ofClaims is less than 80% in this fiscal year. We think the reason is thatthe lawyers are reducing their staff to prevent the COVID-19 infection.
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The environment is not good and the current situation is not reliable.
Therefore, if Claims are likely to increase, additional provisions will
be required.

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