Message from the CFO
- Overview of Performance in Fiscal Year Ended March 31, 2015
- Allocation of Entire Three-Year Operating Cash Flow to Growth Investments and Shareholder Returns
- Steady Enhancement of Shareholder Returns through Dividends and Treasury Stock Acquisitions
- Total Group Transactions—New Management Indicator for New Business Model
Overview of Performance in Fiscal Year Ended March 31, 2015
The fiscal year ended March 31, 2015, was the first year of the new three-year, medium-term management plan, which is slated to end in the fiscal year ending March 31, 2017. Performance in this year was more or less in line with our targets, with gross profit increasing for the fourth consecutive year and operating income rising for the sixth consecutive year.
In Retailing and Store Operation, while sales and income were down due to the impacts of the consumption tax rate hike, performance still exceeded our targets. At the moment, we are working to improve profitability by shifting away from our traditional department store model, which primarily generated earnings through consignment sales, to a business model based on shopping center style stores with tenants on fixed-term rental contracts. Plans in this area are gradually taking shape.
In Credit Card Services, total card transactions exceeded ¥1 trillion in the year under review. This business is locked firmly in a growth track, recording double-digit growth in both total operating revenues and operating income, and is expected to drive overall performance going forward.
Allocation of Entire Three-Year Operating Cash Flow to Growth Investments and Shareholder Returns
Under the new medium-term management plan, we are working to improve corporate value through the implementation of growth strategies and financial strategies. Our performance in the fiscal year ended March 31, 2015, and the targets of the plan are as follows.
Management Performance and Targets
The financial strategies aimed at achieving these targets call for us to allocate the entirety of the ¥100.0 billion in operating cash flow projected to be generated over the three-year period of the plan to growth investments and shareholder returns. We thereby hope to quickly achieve the ROE target of 6% or higher, after which we will strive to swiftly raise ROE to 8% or higher and then 10% or higher in the fiscal year ending March 31, 2018, and beyond.
During this period, between ¥30.0 billion and ¥35.0 billion of generated cash flow will be allocated to growth-oriented capital investments in new stores, while ¥17.0 billion to ¥18.0 billion is earmarked for shareholder returns and ¥50.0 billion is scheduled to be used for treasury stock acquisitions. The increase in working capital for Credit Card Services is to be funded entirely through external financing.
Steady Enhancement of Shareholder Returns through Dividends and Treasury Stock Acquisitions
We hope that our shareholders will maintain their holdings over the long term, and we are therefore working to steadily enhance long-term shareholder returns through stable and continuous dividend payments combined with aggressive treasury stock acquisitions.
Since the fiscal year ended March 31, 2013, we have been increasing dividends in conjunction with performance recovery, targeting a payout ratio of 30% or more. In the fiscal year ended March 31, 2015, cash dividends per share were ¥19, up ¥1 year on year, making for a payout ratio of 32%.
Shareholder Returns and Payout Ratio
We are also conducting treasury stock acquisitions. In accordance with the aforementioned policy, a total of 10.7 million shares were bought back using ¥15.0 billion. Leading up to March 2017, we plan to conduct a series of acquisitions to repurchase another ¥35.0 billion worth of stock in total. Furthermore, 40 million shares of treasury stock, equivalent to 12.55% of total shares issued, were canceled in March 2015.
Looking ahead, we will continue to issue appropriate returns to shareholders to increase shareholder value while achieving a capital structure suited to the scale of profits.
Total Group Transactions—New Management Indicator for New Business Model
MARUI GROUP has been recently pushing forward with the transformation of its business model. This transition necessitated the introduction of a new management indicator to more accurately display management performance. Accordingly, we created "total Group transactions" as a new top-line indicator that is effectively linked to income growth. At the same time, we revised the accounting policies for sales in Retailing and Store Operation, introducing "revenue" as a line item to replace the previously used "total operating revenues." These changes will be applied to performance forecasts and reports for the fiscal year ending March 31, 2016, and onward.
Structurally, the Retailing and Store Operation business accounts for the majority of the Company's sales. As we shift toward shopping center style stores under the new business model, our source of earnings will change from product sales to rent revenues, resulting in a decline in overall recorded sales. At the same time, though, this transition is driving profitability improvements in the Retailing and Store Operation business and earnings growth in Credit Card Services, resulting in an upward trend in gross profit and operating income. This situation has caused inconsistency between trends in the previously used top-line indicator, "total operating revenues," and income figures.
We anticipate that the newly introduced "total Group transactions" will prove to be a highly viable indicator that accurately reflects management performance and progress under the new medium-term management plan.