Marui Group Co Ltd Ord

We will now begin the presentation of the financial results of Marui Group for the fiscal year ended March 31st, 2022. Today's documents are available for download from our corporate website. Please see overview of performance in the fiscal year ended March 31st, 2022 and future outlook. Today, we would like to explain the financial results for about 30 minutes and then take questions from you. Questions for the Q&A session will be taken via the conference call system. Please note that the video of this briefing will be available on our website at a later date. Now, let me introduce today's presenters. Mr. Aoi, President and Representative Director. Mr. Kato, Managing Executive Officer and CFO, will present the financial results for the fiscal year ended March 31st, 2022. In addition to the two speakers, we have three speakers, including Mr. Saito, Managing Executive Officer and President of EposCard, Mr. Aono, Senior Executive Officer and President of Marui,

and Ms. Kutsukake, General Manager of IR Department. These five speakers will answer questions from the audience.

The contents of today's briefing are as shown. First, Mr. Kato, Managing Executive Officer, NCFO, will give an overview of the financial results for the fiscal year ended March 31, 2022, and the outlook for the fiscal year. My name is Kato. I will now give an overview of financial results for the fiscal year March 2022 and explain the status of each business segment in light of the progress of the medium-term management plan. Let me start with consolidated performance. There are four highlight points for the financial results. The three main KPIs all significantly improved year on year in reaction to last year's COVID and increasing provision for loss on interest repayment. They recovered to the levels ranging from 70 to 90% compared to pre-COVID levels. Total transactions reached the 3 trillion yen level for the first time due to growth in fintech segment transactions. Consolidated profit also achieved a plan with a significant increase compared to the previous year. By segment, fintech recovered to a level higher than before COVID-19 and achieved a record operating income, while retailing increased its profit compared to the previous year, but the impact of the COVID still remains significant compared to fintech. Key KPIs As I explained earlier in the summary, the past three years have not yet seen a recovery to the pre-COVID level, although there have been significant increases compared to the previous years. ROE and ROIC the year were below cost of shareholders' equity and WAC, respectively. Therefore, we are aware that they must be exceeded in the fiscal year ending March 2023. Main financial indicators. Transactions, while slightly below plan, reached the 3 trillion yen level for the first time well above the pre-COVID level due to the increase in fintech transactions. Both operating income and net income achieved the plan, although they did not reach the pre-COVID levels. This is revenue and operating income by segment. Retailing continues to struggle in terms of revenue, profit, and ROIC due to the still significant impact of the spread of COVID-19 and other factors. Fintech's revenue, operating income, and ROIC all exceeded the pre-COVID levels. ROIC, in particular, reached a record high of 5% due to an increase in non-balance sheet revenues that we are increasingly focusing on, such as rent guarantee services. Breakdown of changes in operating income. Operating income increased by 21.6 billion yen in the fiscal year March 2022, of which 17.8 billion yen was due to extraordinary factors such as loss on interest repayment, which was a large expense in the previous year. Excluding these extraordinary factors, the actual increase in operating income was 3.8 billion yen, with 1.9 billion yen in retailing and 1.8 billion yen in fintech. recurring revenue and contracted future recurring gross profit remained strong even during the pandemic. As a result, contracted future recurring gross profit, which is most likely to be recorded as recurring revenue in the future, increased significantly from less than 200 billion yen in the fiscal year March 2016 to 337.6 billion yen this fiscal year, an amount equivalent to 1.8 years of total gross profit for the current fiscal year. We believe that this indicates that the earnings structure has changed significantly over this period and that the certainty of future cash flow acquisition, which affects corporate valuation, has steadily increased. Next, I will explain the status of retailing segment. Here are the quarterly revenue and operating income trends. They started to show increasing trend in the second half of the year as the impact of COVID-19 has weakened from the first half, but income level is still about 30% of the pre-COVID level. This is the status of the number of store visitors. Although the number of store visitors for the year was 1.1 times that of the previous year, the impact of COVID still remains, especially for stores in big cities. Going forward, we aim to increase the number of store visitors by an average of about 10% per year by promoting the transformation of the department store format set forth in our medium-term management plan. And by the fiscal year March 2026, we aim to increase the number of store visitors to 210 million, surpassing the number before pandemic. The two main strategies for the transformation of the department store model in the medium-term management plan are shifting to stores that don't sell by expanding the composition of non-retail stores such as food and beverage, service, and experience-oriented stores, and eventful stores by launching various events centering on anime and new businesses to make the stores more attractive and fun to visit. I would like to explain our progress in each of these two areas. For stores that don't sell, the percentage of non-retail stores increased 7% year-on-year to 50% in the current fiscal year due to the active opening of stores of co-creative investees, and we are making steady progress toward the 70% target of the medium-term management plan. In terms of eventful stores, the number of events held a year more than tripled from the previous year to 2,900, which is also on track to reach the medium-term goal of 5,600 events. The status of EC. Transactions peaked at 24.2 billion yen in the fiscal year March 2019 and has declined for three consecutive years, a situation that requires drastic improvement in order to achieve the medium-term management plan target of 30 billion yen. At a financial results presentation held in November last year, we explained that the lack of sufficient know-how and human resources for online systems was a factor in a struggling EC business, and that we would expand our human resources for online systems and accumulate expertise in this area. As the first step in expanding human resources for online systems, we established a new UI team with 11 members during the second half of the last year within the EC Business Division, including three externally hired specialists. The effects of these efforts are gradually being felt, and the trend in the third and fourth quarters increased, with the fourth quarter showing an increase of transactions over the previous year. In addition, we hired two more specialists from outside of the company this month to work on UI, and we will continue to actively expand the number of personnel for online systems to improve UI UX. Next, let me turn to the status of FinTech. Revenue and Operating Income of FinTech In a fiscal year ended March 2022, despite a significant decrease in gains on liquidated accounts receivable compared to the previous fiscal year and the year before, other revenue such as affiliate commissions grew significantly, resulting in record revenue and operating income exceeding even the pre-COVID level. Breakdown of transactions. Rent, e-commerce, and regular payments, which are strategically expanded in the medium-term management plan to maximize share of household finances, continue to perform well, and travel and entertainment, commercial facilities, and food are recovering after they struggled in the previous fiscal year. The level is well within reach of 5.3 trillion yen planned for the fiscal year March 2026, if the current growth rate is maintained. The status of installment and revolving transactions By making it easier to use installment payments, as there was a potential need, installment transactions increased approximately seven-fold compared to the fiscal year March 2016. and exceeded revolving transactions for the first time on an annual basis. During this period, revolving transactions did not decline. As a result, the total transactions of installment and revolving transactions doubled from the fiscal year March 2016, demonstrating that offering options that accurately meet customer needs has had a significant effect on revenue. Status of New Cardholders The number of new cardholders fell sharply last year, but it increased from the year in both online service and commercial facilities, and the number of new cardholders increased by 80,000 to 610,000. By further strengthening card applications from service use through online and rent guarantees, we intend to expand the composition of card applications from non-commercial facilities aiming for 1 million new cardholders in the fiscal year March 2026. In a mid-term plan, we plan to expand cards tailored to each individual's interests with large LTB as well as platinum and gold cards. The number of new cardholders of cards tailored to each individual's interest increased by 50,000 to 140,000 in this fiscal year due to the extremely favorable reception of the Chikawa Epos card issued since October last year and the continued expansion of the Sumikko Gurashi Epos card this year, which has been issued since 2019. The cards tailored to each individual's interests have been expanding steadily even during COVID-19 pandemic due to their high affinity with online card applications as recognition of the cards has been spreading through social media and others. We will continue to expand this to drive new card applications. The number of cardholders increased by 50,000 to 7.14 million this fiscal year from the previous year. Of this total, 3.38 million cardholders, or 47%, are cardholders of platinum, gold, or cars tailored to each individual's interests, which have particularly high usage rates. We plan to increase this rate to approximately 60% in the fiscal year March 2026 to further increase transactions. Bad debt write-offs The bad debt write-offs exceeded 2% in the previous year due to a decrease in the balance of loans receivable at the end of the period. But debt write-offs declined by 0.3% to 1.8% this year, again below 2%, due to a decrease in write-off amount and also a return to an increase in the balance of loans receivable. In terms of interest repayment, though we are aware that we concerned many of you when we recorded a large amount of expenses last fiscal year, we have judged that there is no need to make a new provision for loss on interest repayments at this time, given the fact that the amount received, which is a leading indicator, has been declining every quarter during this fiscal year. We will continue to monitor the situation closely. Now, let us turn to status of co-creative investment. Co-creative investments have totaled 22.3 billion yen since the fiscal year March 2017, but this fiscal year, the amount invested was 2.9 billion yen, a significant decrease from the previous fiscal year and the year before, mainly due to a significant decrease in the number of interviews with startup companies in the previous fiscal year because of COVID-19. As the number of interviews has increased this fiscal year, we will aim to expand our investment in the fiscal year March 2023. The earnings contributions to main business from co-creative investments was 1 billion yen, with the retailing business contribution of 0.7 billion yen through the opening of tenants of co-creative investees. and a fintech contribution of 0.3 billion yen through the use of collaboration cards with co-creative investees. The IRR was 27%. It has remained above the hurdle rate of 10% as an investment discipline. Next, let's look at impact. We have defined impact themes and priority items in our medium-term management plan and are currently examining the impact targets and measurement methods for each of them. Today, I would like to explain about CO2 reduction, social bonds, and HelloBony card. First, let me talk about the impact of CO2 emission reductions toward realization of a decarbonized society. Since joining RE100 in 2018, we have been working to reduce our own CO2 emissions by switching 60% of the electricity we use to renewable energy and have reduced our CO2 emissions by 310,000 tonnes so far. In addition to our own emission reductions, we have started to reduce social emissions by recommending renewable energy to our customers, working with Minna Denryoku, our co-creative investee. Going forward, we have a plan to step up our efforts to recommend renewable energy to our customers so that we can achieve emissions reduction impact of more than 1 million tonnes in the fiscal year March 2026. Next, I will explain the social bond and hellerbony card issued to support each individual's self-realization. The social bond, through co-creation with co-creative investees Gojo and Company and CrowdCredit, was very well received as a supportive investment option that enables EposCard holders to both contribute to society and build assets. Within three hours of the start of the offering, applications for the social bond reached the planned amount of 100 million yen and eventually 2 billion yen, 20 times the planned amount. Hello Bonnie card is a card in which 0.1% of the amount spent on a card is used to support the creative activities of artists with intellectual disabilities and its promotion, as well as to donate to welfare organizations through Hello Bonnie, our co-creative investee. As this being popular as using this card leads to a social contribution, more than 3,000 customers have applied for the card since last autumn. Balance sheet and cash flow First is the balance sheet. Total assets increased by 18.8 billion yen to 920 billion yen, mainly due to the growth of fintech and 27 billion yen increase in trade receivables compared to the end of the previous year. In addition, net assets decreased by 28 billion yen, partly due to 30 billion yen share buybacks for capital optimization. Regarding capital allocation, we allocated 38.5 billion yen of basic operating cash flow. 12.1 billion yen was allocated to investment for growth, 11 billion yen to dividends, and 30 billion yen to share buybacks. We partially used borrowings as we accelerated the share buybacks execution to optimize capital.