MARUI GROUP Co., Ltd.
Financial Results Briefing for the Six Months Ended September 30, 2023
<Questions and Answers>

Q.

Regarding the revision of FinTech's full-year plan, even in the first quarter, the company had
expected some impact from the reduction of commission rates by some affiliates, among otherfactors. At that time, it was explained that the company would improve profits by taking various
measures such as a review of its cash reward measures in the second half of the year, and I think
the direction has not changed even now. What specific changes were made from the outlook as of
the first quarter to the revised full-year forecast? Revenue has not changed much from the firstquarter forecast, and costs appear to be higher than initially expected, but we would like to knowwhat caused the revision to the forecast.

A.

Regarding revisions to the outlook from the first quarter, on the revenue side, a sharp increase inprepaid card charge transactions led to a decline in affiliate commission rates and an increase in
cash reward costs. While we work to cope with this situation, we expect transactions to declinefrom the second half onward due to the revision of the cash rewards program. In addition, actualtransactions for the first half of the year were 115% year on year, 1% short of the initial forecast of116% year on year. Based on the above, we have revised the annual transaction forecast byapproximately ¥50 billion. As a result, our revenue slightly decreased from the outlook in the firstquarter.
Next, on the expense side, while the planned cost reductions for the first quarter were underway,
the outlook for cash reward costs and foreign currency-denominated costs has changed. Regarding
cash reward costs, we did not factor in an increase in cash reward costs associated with an increasein the use of prepaid card charges for the first quarter. In addition, although we had initiallyconsidered foreign currency-denominated expenses to be a temporary impact, the exchange rate isstill over ¥150 to the dollar, which forced us to revise up our expense forecast. As a result of thesechanges, we have revised our final annual operating income forecast by approximately ¥3 billion.

Q.

I understand you did not expect to see anything related to prepaid card charges, but weren’t there
any signs at the end of the first quarter?
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A.

As described in the page on cash reward costs of the briefing material, while transactions had been
gradually increasing since the second half of last year, our recognition was that the increase was
not so remarkable as to require action. However, there was a sharp increase in the first half of thisyear, especially from the second quarter, so we responded based on the results of the first quarter.
In the first quarter, there was some uncertainty about our response, and we had not factored in cash
reward costs.

Q.

I think the company assumes that the impact of lower commission rates by some affiliates willcontinue to some extent going forward. Is it correct to say that the continuing negative impact of¥200 million on page 24 of the briefing material is also due to this impact, and that this portion
alone will cause a decline in profit of ¥200 million over the next two to three years? Won’t the samething happen to other affiliates in the future?

A.

As the terms for commission rates of large affiliates were changed, the impact will continue in thecoming fiscal year and subsequent periods. The impact is described in the document. In the past 10years, there have been no cases in which a change in the terms of a particular affiliate has caused adecline in the overall affiliate commission rates. As this is the first such case, we cannot say forcertain that it will never happen again, but we recognize that it was a very unique case.
(Of the impact of the decline in affiliate commission rates of ¥800 million on page 24 of the briefing
material, a negative impact of ¥600 million after excluding the temporary negative impact of ¥200
million will continue going forward.)

Q.

In Retailing, I think the company is generally on track and doing well. I would like to know if there
are any parts that are working particularly well and any you feel there is still room for growth.

A.

One that is doing particularly well is revenue from fixed-term rental contracts. The growth inrevenue from fixed-term rental contracts will serve as the engine for achieving our future profit
target. In order to achieve our operating income target of ¥7 billion for the current fiscal year, weexpect to increase revenue by ¥2 billion or more in revenue from fixed-term rental contracts. We
have a sense of confidence that this is possible after seeing our performance for the first half of thisyear.
As for room for future growth, we feel there is significant room for growth not only in FinTech but
also Retailing by means of strengthening the cards tailored to each individual's interests. This card
will attract new customers to commercial facilities and increase store value as revenues increase,2

including those from events, which will also lead to higher revenue from fixed-term rental contracts.
For this reason, we believe that pursuing the strategy for cards tailored to each individual's interests
reflects the room for growth in Retailing.

Q.

I think it was mentioned that the increase in personnel was one of the reasons behind the stagnancy
in productivity improvement in FinTech. With that in mind, I would like to know why productivity
hasn't increased. In addition, please explain what specific measures will be taken to make
improvements going forward.

A.

Within the Group, FinTech has taken on the role of utilizing human resources for more productive
work in the context of restructuring Retailing. However, with the need to secure work sites, wefocused on expanding nationwide and strengthening our sales capabilities during the restructuring
period for Retailing. The number of affiliated facilities with outside companies has increased toabout 40, and we are securing human resources through workplace development. The MaruiGroup's human resources are well-versed in both Retailing and FinTech, and our strength is that wehave a large number of employees who can immediately take on active roles. We were able toproceed in parallel with the restructuring of Retailing because we did not have to take into accountbecoming short of manpower as we expanded nationwide and strengthened our sales capabilities.
The processing division has been promoting IT, but the shortage of human resources has become
apparent due to the rapid increase in transactions. In order to cope with this situation, we assigned
personnel in back office units and secured manpower. In terms of improving productivity in thefuture, we recognize that the ratio of employees is high. So, we would like to promote low cost
operations at our external card center operations by switching from a unit run mainly by employees
to one run mainly by local part-time workers. At the same time, we will strengthen our back officestructure through promoting DX and not increasing headcount. We plan to increase productivity
through taking these initiatives.

Q.

While making progress under the medium-term management plan, the synergies among Retailing,FinTech, and Forward-Looking Investments for the future seem to be increasing. I would like toknow what factors you feel are going well and any risks or points to be aware of in achieving yourfuture plans.

A.

One of the things that has worked well is the collaboration between Retailing and FinTech which
has been bringing our whole group together in providing highly unique services. For example, the3planning and issuance of cards tailored to each individual's interests may originally not have been
the tasks to be engaged by Retailing or Forward-Looking Investments, but the voluntary initiatives
taken by our employees have generated a great deal of excitement. I think this reflects the fact thatthe entire group is working together on a highly unique business that is hard to replicate by otherfirms.
On the other hand, there are many challenges. In particular, new competitors are emerging as theexternal environment changes. For example, e-commerce companies, telecommunications
companies, and emerging FinTech companies are entering the market one after another. Thus, weneed to monitor trends more closely and develop our own strategies that are unrivaled by others.
Meanwhile, we regret that we are continuing to struggle with the new business. We have thereforechanged our policy to ensure success by focusing on highly reliable businesses that areentrepreneurial-type businesses that take full advantage of our strengths and resources. Also, interms of investments, we were on a series of trial and error processes over the first seven years ofstarting investments. Now that we can see issues, we plan to leverage what we have learned fromour experiences to make more accurate investments.
Q.

Is it correct to recognize that while there are changes in the external environment, among otherfactors, there will be no change to the targets for the final year of the medium-term management
plan?

A.

Basically, I think we will be able to achieve our goal, so please rest assured.

Q.

On page 62 of the briefing material, the lowering of profit from the new business of ¥2 billion to¥1 billion does not seem to be reflected.

A.

The impact of the new business is included on page 36. In terms of the entire Group, there is a totalprofit impact of approximately ¥3 billion including the amount of profit contribution from the newbusiness which was reduced to ¥1 billion and a negative ¥2 billion impact in FinTech. Page 62
illustrates how much recovery is possible. The negative impact is described on page 32, and thedetails of the recovery against such impact are described on page 62.

Q.

While there is assurance that the direction of the medium-term management plan is firm and thatthe plan is progressing steadily, the company’s single-year earnings forecast has been revised down4

following the previous year's shortfall. Looking at the budget formulation for the past two years,
because the direction of the medium-term management plan is firm, but the method of incorporatingrisk factors and preparing figures for the single fiscal year seems to be lax. If the expected plan is
not reached in the next fiscal year, it will be the third consecutive fiscal year, and the achievementof targets under the medium-term management may be on the line. How do you measure the balance
between the medium-term management plan and the single fiscal year plan in the budget
preparation process?
A.

As you say, we deeply regret that we were not able to adequately take extraordinary factors into
consideration for the medium-term management plan. In addition, we were a little late in dealing
with extraordinary factors, and unfortunately we had to revise our plan for this fiscal year. Yet in
the course of the analysis, we found that it was possible to cover the lack to some extent. Thus,
from next time, we will detect these extraordinary factors a little earlier and take countermeasures.

Q.

As an example of the above, the company had conventionally implemented liquidation ofreceivables and recorded profit only in the second quarter, and this is the first I heard that profit
will be leveled out over the year from this fiscal year. We would like this type of information to bedisclosed earlier in the fiscal year.

A.

We knew it would be inefficient to implement liquidation of receivables once a year, because it ismost efficient to appropriate the funds obtained through securitization to new loans. However, until
this fiscal year, the profit earned in the second quarter was substantial every time, so we took that
into consideration. In the first quarter of this fiscal year, we liquidated cash advance receivables
and found that they were very good in terms of capital efficiency, so we decided to level profit out
for the year at that time. We are sorry that advance notification could not be made. We have decided
to level out profit earned throughout the year from this fiscal year from the perspective of increasing
capital efficiency.

Q.

I have an impression that FinTech's profits have not grown much in the last two years. While I thinkprofit will grow for your company, it may be difficult to achieve the kind of growth conventionally
aimed at. Is there such awareness not only in the company but also across the industry?

A.

Last year, we experienced record-high issuance of new cards, and card issuance cost increased. Inaddition, our expectation for the post-pandemic recovery of rent guarantee business was too eager.
We realize that this was a completely incorrect speculation and caused you a lot of disappointment
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last year. This year too, I think there is a possibility that some unplanned temporary factors may becausing doubts to arise that the profitability of FinTech itself is declining. However, as explainedin quantitative details, our basic earnings structure has not changed, and the decline in earnings forthe period under review is due to temporary factors. For this reason, we are maintaining the sameearnings structure to continue to increase profits by ¥3 billion or more each fiscal year, and we willfurther strengthen the earnings structure by promoting new initiatives and cards tailored to eachindividual's interests. We sincerely regret on having had to revise the plan, but would seek yourunderstanding that the earnings structure has not changed.
Q.

It seems that compared to the past, it has become difficult for the industry as a whole to make excess
profits because three or four extraordinary factors tend to overlap.

A.

The concern about the earnings structure that it has become more difficult to secure profit in
FinTech is actually the issue that we're most concerned about, and we are conducting a detailed
analysis. We agree with your points and concerns. For example, we regret that we could not notice
sooner that the surge in prepaid card charges would have an impact not only on the increase in cash
reward costs but also on the decrease in transaction fees. As transactions exceed ¥4 trillion and as
we aim to reach ¥5 or ¥6 trillion in the future, even a change of 0.1% will make a big difference inthe amount of money. Therefore, we feel we need to respond carefully. On the other hand, as aresult of a very detailed examination, we found no structural change in the basic earnings structure,
and we have decided to take this opportunity to implement our original strategy ahead of schedule
for the cards tailored to each individual's interests. We believe there are still opportunities. There
are also points that we look forward to in terms of the earnings structure, and we will continue toprovide explanations along with our operating results.

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