Lifetime Value Management
Dramatically Transforming Earnings Structures
The recent transformations in the earnings structure of MARUI GROUP have caused recurring revenue to grow andsurpass one-time revenue from product sales. As this recurring revenue is generated on an ongoing basis in accordance with contracts, it can be recognized as contracted recurring revenue to account for the amount of revenue tobe generated in a given fiscal year as well as in future fiscal years. The concept of recurring revenue includes thefuture earnings to be generated by new businesses. As such, recurring revenue is a crucial element of managementthat focuses on lifetime value (LTV) from a long-term perspective.

Transition in Earnings Structure from One-Time Revenue to Recurring Revenue from Recurring Payments 
MARUI GROUP is endeavoring to forge even longer-term
relationships with its customers and business partners
through the transformation of its business model.
In our retailing operations, the transition to shopping
centers and fixed-term rental contracts has made it possible to generate consistent recurring revenues over periods of between three and five years. Meanwhile,increased use of EPOS cards for the purposes of making
rent and other recurring payments have enabled us tocontinue relationships with customers over 10 or even
20 or more years. The profits generated over the courseof these relationships are recurring revenue.
In the fiscal year ended March 31, 2019, recurringgross profit amounted to ¥122.7 billion, approximately
2.3 times higher than five years ago, making for an average annual growth rate of 18%. In addition, we haverecently been seeing growth in revenue from rent

guarantee and asset building services. The markets forthese services are expected to continue to expand going
forward, and we therefore anticipate strong ongoinggrowth in recurring revenue in the future.
This earnings structure centered on recurring revenue indicates that MARUI GROUP’s business model issimilar to that of a SaaS company. These companies are
known for producing high levels of LTV with their recurring revenue-oriented earnings structures as well as their
distinctive products and services, frameworks for close
coordination with customers and business partners, andlarge total addressable markets.*1 These strengths arethus all areas warranting attention as MARUI GROUP
practices LTV management going forward.
*1 S
 ee “(Reference) Estimate of Total Addressable Market Scale for
MARUI GROUP’s Rent Guarantee Business” on page 43 for more information.

Recurring Revenue Recognized in the Future 
Recurring revenue represents revenues that will continue
to be generated well into the future. However, the true
value of these revenues is difficult to communicate
through the consolidated statements of income due tothese statements being limited to one year in scope. For
example, if a customer were to conclude a five-year contract in a given fiscal year, the conventional method ofrecognizing earnings would only see us posting the revenue recorded for the first year of this contract in thefiscal year in question. The remaining four years’ worth ofoutstanding value would not be accounted for.
However, this outstanding value is incredibly likely tobe recognized in the future. The concept of contracted
future recurring revenue is a tool for quantitatively

recognizing this outstanding value. On April 1, 2019, theamount of outstanding contracted future recurring revenue that will translate to revenue in the future was approximately ¥360.0 billion, roughly 1.4 times higher than theconsolidated revenue posted in the fiscal year ended
March 31, 2019. The view of contracted future recurring
revenue gleaned from MARUI GROUP’s new businessmodel helps cast light on the fact that earnings previously
recorded on a single fiscal year basis were actually a component of LTV, which continues from the past into thepresent and on to the future. In this concept, we see theunderlying principles of MARUI GROUP’s long-term LTV
management approach.
P100 Tracking of LTVConcept of Contracted Future Recurring Revenue Underlying Long-Term LTV Management
Futurerecurring revenue
5th year
Futurerecurring revenue
4th yearContracted future
recurring revenue

Futurerecurring revenue
Total for2nd–5th years

Futurerecurring revenue
3rd yearNot recognized
Futurerecurring revenue
2nd yearContracted recurring revenue not recognized under conventional accounting standards

Recorded revenue
1st year
1st year

2nd year

3rd year

4th year

5th year

Total for 2nd–5th years

Message from an Employee Illustration of LTV Management through Engagement with Investors

Ratio of Recurring Gross Profit to Total Gross Profit*2

MARUI GROUP has a unique business model that merges retailing and finance. We understand that
this can make it difficult to evaluate the Company, and this recognition has shaped our ongoing

Ratio of recurring gross profit to total gross profit anticipated to continue growing to exceed 65%
in the fiscal year ending March 31, 2020

engagement activities with shareholders. In these activities, I was made aware of the fact that future
earnings scale is an important standard for decisions by investors and that there is a great deal ofinterest regarding the ratio and growth rate of recurring revenue. This inspired me to research compa-¥72.3
billion¥104.2billion¥52.9
billion(33.7%)(38.0%)(41.9%)FY2014FY2015FY2016(52.1%)FY2017(60.2%)FY2018¥71.6
billionNon-recurring

Nahoko Kutsukake
Investor Relations
IR Department
MARUI GROUP CO., LTD.

¥122.7billion(62.9%)¥134.3billion(65.2%)FY2019FY2020(Forecast)

Recurringnies deemed to have high LTV. I found that these companies often disclosed information on theiranticipated future earnings, including information on market scales, customer bases, sales, andgrowth rates. In addition to recurring revenue, these companies also presented the concepts of contracted future recurring revenue and total addressable market. I believe that combining such data will
make it easier to illustrate MARUI GROUP’s approach to LTV management. In the future, we will seek
to realize consistent improvements in LTV while also engaging in constant dialogue with investors tofacilitate disclosure that accurately portrays MARUI GROUP’s market value based on LTV.

*2 Calculated as the ratio of a figure combining gross profit and selling, general and administrative expenses paid by business partners

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