Financial Capital PolicyMessage from the Managing Executive Officer in charge

We will work steadfastly toward
achieving our medium-term
management targets while making
adjustments in accordance with
interest rate hikes.

Managing Executive Officer and CFO
Head of Public Relations Office,
Treasury & Accounting Dept.,
Credit & Leasing Business Division,
General Manager,
Credit & Leasing Business Division
Masaki Negishi

In Light of Changes in the Business Environment

In 2024, the transition to a world with interest rates progressed, and the business environment underwent significant change. Although interest rate hikes were factored into the current Medium-term Management Plan, actual trends have progressed at a greater-than-expected pace. Against this backdrop, we are considering the need to revise business plans, various initiative priorities, and portfolios in light of changes in underlying conditions.
Looking back at our performance for FY2024, the Payment Business made steady progress with its structural reforms. In the Finance Business, Credit Saison, Saison Fundex, and Suruga Bank all performed well and saw increases in their results. Although our Global Business did not meet initial expectations, we can definitely see business growth ahead. Based on results that confirm the growth of each business, we are now reviewing our business plan with a certain degree of confidence as well as a forward-looking perspective. This review focuses on how to proactively evolve existing business strategies while anticipating further interest rate hikes.
I feel that a major factor in our ability to maintain this positive attitude is that we have been able to move away from a structure that relied solely on the Payment Business and to reach a point where interest rates have started to rise after our Finance Business had been established as a second pillar. Our Finance Business mostly consists of floating-rate assets, making that business highly resistant to rising interest rates. In the Payment Business, we have scaled back and streamlined our business operations through systemization and digitalization over the past few years. As a result, we are building a portfolio that can more flexibly respond to increased costs brought about by interest rate hikes, and it is my belief that each business is now in a position to continue taking on challenges without being unduly concerned about rising interest rates.
Even if the business environment does change, under the current Medium-term Management Plan, we will continue to focus on the three pillars of our business: Payment, Finance, and Global. In the first fiscal year of the Plan, we were able to confirm strong growth opportunities in our domestic business. As a result, while actively investing in our Global Business, we will allocate some of that investment to the domestic market and seek out investment opportunities that will contribute to the growth of our domestic business. For example, besides the compatibility between a bank and a non-bank, in our alliance with Suruga Bank we are able to accumulate high-quality assets by leveraging the screening capabilities and sales speed of both companies. I believe this is a growth opportunity that will create new value and is difficult for Credit Saison to achieve on its own.

In Light of Changes in the Business Environment

I feel that a major factor in our ability to maintain this positive attitude is that we have been able to move away from a structure that relied solely on the Payment Business and to reach a point where interest rates have started to rise after our Finance Business had been established as a second pillar. Our Finance Business mostly consists of floating-rate assets, making that business highly resistant to rising interest rates. In the Payment Business, we have scaled back and streamlined our business operations through systemization and digitalization over the past few years. As a result, we are building a portfolio that can more flexibly respond to increased costs brought about by interest rate hikes, and it is my belief that each business is now in a position to continue taking on challenges without being unduly concerned about rising interest rates.
Even if the business environment does change, under the current Medium-term Management Plan, we will continue to focus on the three pillars of our business: Payment, Finance, and Global. In the first fiscal year of the Plan, we were able to confirm strong growth opportunities in our domestic business. As a result, while actively investing in our Global Business, we will allocate some of that investment to the domestic market and seek out investment opportunities that will contribute to the growth of our domestic business. For example, besides the compatibility between a bank and a non-bank, in our alliance with Suruga Bank we are able to accumulate high-quality assets by leveraging the screening capabilities and sales speed of both companies. I believe this is a growth opportunity that will create new value and is difficult for Credit Saison to achieve on its own.

Increased Certainty of Achieving Business Profit Targets

While consolidated business profit for FY2024 totaled ¥93.6 billion, I estimate that the actual amount, after excluding one-off factors, was ¥84 billion. With this in mind, we will work to increase profit by approximately ¥12 billion to ¥96 billion. Should we achieve this figure, we will come within sight of our Medium-term Management Plan target of more than ¥100 billion in FY2026.
For our Global Business in FY2025, the continued healthy growth of India and the realization of a specific growth strategy in Brazil, our next pillar of growth, will be priority themes. While advancing structural reforms, in the Payment Business we are expanding our customer base and developing and revising products to respond to changes in the environment that are causing procurement costs to rise, based on a premium strategy that primarily targets individual customers in the moderately wealthy class and above as well as sole proprietors (SMEs).
In light of changes in the interest rate environment, we aim to grow from both on- and off-balance sheet perspectives in the Finance Business. Our Finance Business is broadly divided into two categories: the Credit Guarantee Business and Real Estate Finance Business. In the former, we repay financial institutions when end users become unable to repay. Although this involves a certain amount of repayment risk, this business places a light burden on our balance sheet and is fee-based. If we can identify growth opportunities in these off-balance sheet businesses and generate solid earnings growth there, I believe we will be able to achieve sustainable growth while avoiding excessive reliance on on-balance sheet business that inflates our balance sheets.
Of course, even in businesses where the burden on the balance sheet is light, if the fulfillment of a guarantee arises, Credit Saison could be temporarily affected. Therefore, it is necessary to handle risk with an awareness of risk caps and to discuss business and investment decisions for each fiscal year. In particular, as we also provide credit guarantees for real estate-backed loans, while enjoying the benefits of off-balance sheet assets, we must always keep a close eye on trends in the underlying real estate market and carefully determine the extent to which we should take action.
From a financial perspective, the balance of interest-bearing debt already stands at more than ¥3 trillion, indicating a large scale of borrowings. The challenge is that we will have to balance the aggressiveness of growth investments (including M&As) with capital efficiency, while also being mindful of the profit margins of the business, and will have to go for volume if necessary. Because there is the possibility that spreads corresponding to a certain degree of credit risk will also change, I believe it is important to focus on generating profits without expanding the balance sheet.

Business Growth with an Eye Toward 2030

Executive President and COO Mizuno has stated that his personal target is to ensure that Credit Saison achieves business profit of ¥200 billion by FY2030. We have received many inquiries from the capital markets with regard to this matter, asking us how we will achieve this. On a personal note, I believe it as a positive step that a senior executive of the Company has expressed his ambitious target to the outside world. Harboring a renewed desire to face up to the challenges that lie ahead, I also feel it has had a positive impact on the Company as well.
Of course, if we consider only organic growth, it is true that there are major obstacles to achieving business profit of ¥200 billion in FY2030. However, I feel that there has been a significant positive change in the attitudes of our employees over the past few years. Having achieved our business profit target of ¥70 billion one year in advance under the previous Medium-term Management Plan, the probability of achieving the target of more than ¥100 billion in FY2026 has increased since the first fiscal year of our current Medium-term Management Plan. In this environment, the numbers that were initially perceived as ambitious both inside and outside the Company have now become more realistic, which has led to increased confidence among employees. I now feel that this has further invigorated the culture of using our ingenuity to take on challenges.

As far as our growth prospects up to 2030 are concerned, the Global Business is of the utmost importance. In addition to our Indian business, which has grown rapidly since we obtained our license in 2019, we need to accelerate investment in our business in Brazil as our next pillar of growth. Although some aspects of our India business did not go as planned during the course of its rapid growth, we will strive for growth from both the offensive and defensive perspectives while strengthening risk management and governance. Having basically undertaken the local procurement of funds through business with around 40 financial institutions in India and raising corporate bonds, our India business has established a high level of creditworthiness through its track record to date. I am confident this will enable us to continue to raise funds stably and at a low cost going forward.
The Payment Business has reentered a growth stage, and the premium strategy of the past few years is showing signs of getting back on track. As previously mentioned, we will continue to build our business model around the clarification of our target customers and the development of products that respond to changes in the environment in the years to come. In the Finance Business, Credit Saison, Saison Fundex, and Suruga Bank will leverage their respective strengths to focus on capturing business opportunities.

Management with an Awareness toward Capital Efficiency and the Stock Price

Since formulating the current Medium-term Management Plan, we have held extensive discussions internally about capital efficiency. On the assumption that our cost of capital will roughly fall within the 8% to 11% range, we have adopted an ROE target of 9.5% for the final fiscal year of the Medium-term Management Plan, with ROE as of the end of FY2024 coming in at 9.4%. While capital and profits are expected to increase, my belief is that we will maintain an ROE level of 9.4% as of the end of FY2025 by purchasing treasury stock worth ¥20 billion. Of course, reducing capital to balance ROE is not essential. Here, our goal is to secure an ROE that surpasses 9.5% by pursuing more productive profit growth toward FY2026. Having said this, 9.5% is just a stepping stone. I would like to increase the productivity of each business and exceed 10% in the near future.
The PBR remains at less than 1, meaning there is a need to improve capital efficiency. The key to achieving a PBR of more than 1 is to improve capital efficiency on an ROE basis. In the past, there were times when ROE was low and business performance volatile, but we first focused on improving our business performance in a stable, sustainable manner. At the same time, I would hope to improve capital efficiency as a result, which will have a positive impact on our stock price.

Growth Investments and Shareholder Returns

As far as growth investments are concerned, we are considering not only organic but also inorganic growth. As a global comprehensive life services group, we advocate building in a loosely connected economic zone through various alliances. While placing importance on becoming a Group with finance at its core, we remain constantly aware that M&As contribute to inorganic growth.
When making new investments, we set quantitative targets and criteria for withdrawal for each project over a certain time frame, and then regularly track our progress. In principle, we consider withdrawing from projects that deviate downward from the initial plan, but if we analyze the causes and see a prospect of recovery, we do not withdraw immediately, but rather set a new time limit and verify the project at the next checkpoint.

From a shareholder returns perspective, there is no change to our basic policy of implementing stable and continuous dividends. Assuming sustainable growth, we would like to continue increasing dividends as much as possible. In addition to returning profits to shareholders, our goal is also to increase returns to the employees who support our growth.

To All Our Stakeholders

CFO Companies must continue to achieve sustainable profit growth. To this end, it is important that companies continue to boldly evolve in response to changes in the environment. Based on this perspective, I believe that our business portfolio for 2030 has the potential to evolve through future changes and challenges.
In addition to the Payment Business, Credit Saison has undergone a process of continuous transformation by incorporating the Finance and Global businesses. I hope that you will continue to watch over the ever-changing Credit Saison Group and provide your continued support in the years to come.

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