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Message from the CFO

August 2018

By constructing the optimal capital structure for the Group's business, we will consistently generate ROIC that exceeds capital costs.
Motohiko Sato Senior Managing Executive Officer and CFO

In the fiscal year ended March 31, 2018, the second year of the medium-term management plan, total Group transactions rose 13.2% year on year, to ¥2,189.4 billion, exceeding ¥2 trillion for the first time thanks to the strong growth of card shopping transactions. At the same time, operating income increased for the ninth consecutive year, to ¥35.2 billion, and net income attributable to owners of parent grew for the seventh consecutive year, to ¥20.9 billion. Coupled with the benefits of share buybacks and dividend increases, this income growth contributed to a 0.9 percentage point increase in ROE, to 7.6%; a 16.1% rise in EPS, to ¥93.2; and a total shareholder return of 45.6%, well above the Tokyo Stock Price Index average of 22.0%. In addition, income improvements in the Retailing segment led ROIC to rise by 0.1 percentage point, to 3.2%. ROIC exceeded weighted average cost of capital (WACC), which was 3.0%, for the second consecutive year as a result of efforts to reconstruct our business and capital structures to achieve the corporate value improvements targeted by the medium-term management plan.

The reconstruction of our capital structure is being advanced based on our target balance sheet, a vision for the balance sheet judged to be ideal from the perspective of long-term corporate value improvement, our participation in the securities business, and new business entries and reforms to be undertaken in the future. Total assets are expected to rise to ¥1 trillion in the fiscal year ending March 31, 2021, as a result of higher operating receivables (installment sales accounts receivable and consumer loans outstanding) in the FinTech segment. Meanwhile, the liability portion of our balance sheet has been more oriented toward retailing with high levels of shareholders' equity. Under the medium-term management plan, we aim to address this structure by transforming our business model to target an equity ratio of approximately 30%. Higher funding demands will be met through the procurement of lowcost capital as we seek to lower overall capital costs by increasing the portion of funds accounted for by interestbearing debt. At the same time, we will seek to maintain a level of interest-bearing debt that is equivalent to around 90% of operating receivables to ensure financial safety.

We plan to enact a fund procurement policy of liquidating operating receivables and procuring funds through borrowings from financial institutions and bond issuances. Our end goal is to improve asset efficiency by limiting the increase in total assets and liabilities.

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