Target Balance SheetHistory-Making Balance Sheet Change
Transition from retailing to credit cards as main driver of growth after 2006 launch of EPOS card
Creation of a credit card-driven business structure capable of achieving stable growth
MARUI GROUP has continued to evolve its unique businessmodel merging retailing and finance since its founding.
In the past, it has been retailing that has driven growth
while finance supported these operations. During thisperiod, the credit cards offered by the Company werein-house cards only valid at Marui stores, and they primarily
generated revenues through cash advances. However,the 2007 revision to the Money Lending Business Act
greatly impacted these credit cards, catastrophicallydamaging cash advances as a revenue source.
We were able to overcome this trial thanks to theEPOS card, which was launched in 2006, one year prior
to the regulatory revision. This new card enabled us toincrease card shopping transactions, freeing us from pastdependence on cash advances and shifting the focus ofgrowth from retailing to credit cards. By positioning
credit card services operations, which were able to generate steady income, as the main proponent of its business, the Group was successful in creating a businessstructure that was capable of achieving stable growth.
This change was most apparent in the Company’sbalance sheet. While previously the asset portion of thebalance sheet had primarily consisted of land, buildings,
and other fixed assets for stores, in the fiscal year ended
March 31, 2014, the balance of credit card operatingreceivables accounted for more than half of assets.
These receivables thus took center stage on the balance
sheet, representing a history-making change from thetime of our founding.

Balance Sheet Assets
Billions of yen

600

Fixed assets andother store assets
500

History-Making Change
Shift of growth focus fromretailing to credit cards

400

Increase in card shoppingtransactions following
EPOS card launch
300

Credit card
operating receivables
200

Catastrophic damage dealt tocash advances by Money
Lending Business Act revision100

FY1992

FY2006FY2014FY201683

Target Balance Sheet

Previously
Increase of Operating Receivables on Asset Portion
Growth of operating receivables to represent more than half of assets despite total assets remaining relatively the same
Increase of 15 percentage points in ratio of interest-bearing debt to total assets while maintaining high shareholders’ equity
Total assets ¥689.4 billion

Operating receivables
29%
Fixed assets
45%

Total assets ¥675.6 billion

Interest-bearing debt
26%

Operating receivables
53%% of operating receivables: 90%

Shareholders’ equity
53%

Interest-bearing debt
41%

% of operating receivables: 78%

Shareholders’ equity
45%

Fixed assets
37%

FY1995FY2015The amount of total assets on the balance sheet fromthe fiscal year ended March 31, 2015, was around thesame level as that of the balance sheet from the year
ended January 31, 1995, roughly 20 years ago.
However, the structure of the balance sheet has changed
as operating receivables, which represented less than

30% of assets in 1995, accounted for more than half ofassets in 2015. Meanwhile, the increase in the ratio ofinterest-bearing debt to total assets was around 15
percentage points, and a high level of shareholders’equity has been maintained.

Comparison of Balance Sheet to Industry Peers
Imbalance between assets and liabilities on MARUI GROUP’s current balance sheet
Assets now oriented toward credit cards but liabilities still geared toward retailing

MARUI GROUP

Operatingreceivables
53%

Fixed assets
37%

Average of 4 major credit cardcompanies

10%

Interest-bearingdebt
41%% of operatingreceivables: 78%

Shareholders’equity45%

Average of 3 major department store
operators

82%

72%

% of operatingreceivables: approx. 90%

15%
76%
40%

8%

10%
(Data from the fiscal year ended March 31, 2015; Source: MARUI GROUP)

Averaging the balance sheets of four major credit cards,
we will see that their ratio of interest-bearing debt tooperating receivables is around 90%. For MARUI GROUP,
this ratio is 78%. Meanwhile, our shareholders’ equity isequivalent to 45% of total assets, greatly above the averagefor the four credit card companies, which is 10%.
84

At the same time, the ratio of stores and other fixed
assets to total assets on MARUI GROUP’s balance sheet
is 37%, about half the average ratio for the three major
department store operators. Our level of shareholders’equity exceeds the average for these department stores.

Target Balance Sheet

Going Forward
Balance Sheet Targeted by MARUI GROUP
Total assets forecast to reach ¥1 trillion in the fiscal year ending March 31, 2021, due to increased operating receivables
Optimal capital structure defined as having equity ratio of approximately 30%
Total assets ¥1 trillion
Total assets ¥730.1 billion
Operating receivables¥413.9 billion

Fixed assets, others

Operating receivables¥680.0 billion

Liabilities¥448.0 billion

Liabilities¥730.0 billionof which interest-bearing debt is¥590.0 billionof which interest-bearing debt is¥359.3 billion

Shareholders’ equity¥281.6 billion

Fixed assets, others

Shareholders’ equity¥300.0 billion
Equity ratio approx. 30%

Equity ratio 39%

FY2016FY2021 (forecast)In order to achieve the balance sheet we target, we will
work to bring the liabilities portion of the sheet in linewith the Group’s earnings structure. As operating receivables increase in the FinTech business, total assets arealso expected to grow, reaching around ¥1 trillion in thefiscal year ending March 31, 2021. Meanwhile, we will
maintain a level of interest-bearing debt that is equivalent to 90% of operating receivables, while targeting anequity ratio of approximately 30%, the level we view asrepresenting an optimal capital structure.

Creation of Corporate Value through ROIC Exceeding WACC
Development of structure in which ROIC consistently exceeds WACC by increasing consolidated ROIC fromcurrent 3.3% to 4.0% and lowering capital costs

>

ROIC

4%

ROIC

3.3%
Operatingreceivables

FinTechROIC 3.9%

Fixed assets,othersRetailing
ROIC 3.5%

WACC

2%–3%

≦ 3.3%–3.7%
WACC

Liability costs

0.3%

Capital costs

7%–8%

Liabilities

Shareholders’equityFY2016

We will increase ROIC by growing financial service
revenues in the FinTech business and transitioning toshopping centers and fixed-term rental contracts in theRetailing business. Meanwhile, we will deploy financial
strategies of increasingly procuring funds in the growing

FinTechROIC 4.1%

Liability costs

Retailing
ROIC 5.3%

Capital costs

0.3%–1%

7%–8%

FY2021 (forecast)

FinTech business through low-cost interest-bearing debt
to reduce the overall capital costs of the Group andthereby develop a structure in which ROIC consistently
exceeds WACC.

85

Target Balance Sheet

Cash Flow Forecasts
Five-year aggregate core operating cash flow of ¥230.0 billion forecast for period of new medium-term
management plan (fiscal years ending March 31, 2017–2021)
Allocation of cash flows to growth investments and shareholder returns to achieve ongoing growthand improve capital efficiency
Fund procurement throughincurring interest-bearing
debt and liquidation ofreceivables

Increase in operatingreceivables in FinTech

Growth investments¥230.0 billion

Growth investments &Shareholder returns

Shareholder returns

Procurement

Allocation

Breakdown¥230.0 billion

Core operating cash flow

¥260.0 billion¥200.0 billion

MARUI GROUP will use cash flows generated during thefive-year period of the new medium-term management
plan to conduct growth investments and enhance shareholder returns. Approximately 90% of the working capitalrequirements associated with the anticipated increasein operating receivables in the FinTech business will befunded through borrowings. Excluding this increase, core
operating cash flow is expected to amount to ¥230.0billion over the period of the plan. We plan to allocate¥200.0 billion of this amount to growth investments andshareholder returns. Growth investments of ¥60.0 billion
will be directed toward existing businesses to fund the¥90.0 billion¥110.0 billion

Existing businesses¥60.0 billion+Investments in new businessfields ¥30.0 billion
Stable, long-term dividend
increases
Share buybacks

transition to shopping centers and fixed-term rental
contracts and invest in IT systems. Meanwhile, ¥30.0billion has been earmarked for investments in new business fields, and we are examining potential uses for thisamount. We intend to use the remaining ¥110.0 billion
for enhancing shareholder returns through stable, longterm dividend increases and share buybacks. We willcomprehensively evaluate factors such as cash flows
when considering share buybacks, targeting the ideal
timing for improving capital efficiency and increasing
shareholder returns. Acquired treasury stock will, inprinciple, be canceled.

High Growth Coupled with High Returns
Stable, long-term dividend increases in conjunction with income growth aimed
at raising payout ratio from 30% or more to 40% or more
MARUI GROUP positions returning profits to shareholders
as an important management priority. Our basic policy is
to issue stable and appropriate returns, based on which
we have continued to increase dividend levels whileconsidering performance trends and financial conditions.
We had previously targeted a consolidated payout ratioof 30% or more. However, we have since received
numerous requests from long-term investors and private
shareholders stating that they want the Company toreconsider dividend levels, rather than focusing only onshare buybacks.

86Based on this feedback, we have decided to raise thetarget payout ratio to 40% or more beginning with thefiscal year ending March 31, 2017. Accordingly, we intend
to increase dividends in this year to ¥32 per share, whichis ¥10 per share higher than was issued in the fiscal yearended March 31, 2016. This level will represent a record
high for dividend payment and make for our fifth consecutive year of increased dividend payments. With thefiscal year ending March 31, 2021, as its final year thenew medium-term management plan targets high growthcoupled with high returns to be realized through ongoing
dividend increases based on long-term growth in EPS.

Target Balance Sheet

Previously

Going Forward

EPS in fiscal year ending March 31, 2021

More than ¥130 (forecast)

EPS

gh

Hi

¥80 (forecast)ow
GrthStable, long-term
dividend increases

srn

¥71

gh

Hi

Cash dividends per sharetuRe¥32 (forecast)

¥59
¥56

Record high¥48
Cash dividends per share22¥(up ¥3)4th consecutive yearof higher dividends
Earnings
per share (EPS)

¥32

¥19

¥22
¥18

¥14

¥19¥15Cash dividends
per share

FY2012FY2013

Consolidated
payout ratio
Share buybacks

FY2014FY2015FY2016FY2017(forecast)——

FY2019(forecast)

FY2020(forecast)

FY2021(forecast)

40% or more

30% or more
—FY2018(forecast)¥15.0 billion¥15.0 billion ¥35.0 billion(1st half)87