UNOFFICIAL TRANSLATION The official press release is in Japanese.

Transcription

1 UNOFFICIAL TRANSLATION The official press release is in Japanese. Company Name: FinTech Global Incorporated Address: Toranomon Towers Office, 1-28, 4-chome Toranomon, Minato-ku, Tokyo Representative: Nobumitsu Tamai, President and CEO Stock Listing: Tokyo Stock Exchange, Mothers Stock Code: 8789 Inquiries: Seigo Washimoto, Executive Officer, Head of Finance Department Tel: Notice concerning booking of additional allowance for doubtful accounts, writedown of deferred tax assets, and performance results for the first half of fiscal 2009 Tokyo, May 8, 2009 FinTech Global Incorporated (hereafter, the Company ) hereby offers a summary of resolutions passed at a Board of Directors meeting on this date pursuant to the booking of additional allowance for doubtful accounts under selling, general and administrative expenses, applicable to consolidated and non-consolidated settlements, and the write-down of deferred tax assets, also applicable to consolidated and non-consolidated settlements. In addition, the Company takes this opportunity to present key consolidated results for the first half October 1, 2008 through March 31, 2009 of the fiscal year ending September 30, 2009, and to compare these results with those reported for the corresponding period a year ago. The Company also includes an update on measures taken to overcome certain challenges to its continued success. Particulars 1. Booking of additional allowance for doubtful accounts and background information In regard to loans and guarantees, including those extended to a special purpose company (SPC) with property holdings, the Board of Directors considered the recoverability of such loans and the potential for guarantee default, given price adjustments eroding the value of these property holdings, and decided that the Company would book a total of 9,165 million under selling, general and administrative expenses, on a consolidated basis. This is an aggregate amount comprising allowance for doubtful accounts, loss on doubtful accounts and 1

2 allowance for loss on debt guarantees for the first half of fiscal 2009 and includes 1,192 million booked at the end of the first quarter. The amount also includes 4.0 billion in losses associated with loans and guarantees to an SPC involved in a real estate project and 3.0 billion in losses associated with the transfer of loan credits against a subsidiary to a third party, as described in the March 19, 2009 press release Notice concerning the booking of valuation losses on inventory, additional allowance for doubtful accounts, and loss on doubtful accounts, as well as transfer of investment stake in silent partnership (tokumei kumiai), following changes in subsidiary status. On a non-consolidated basis, allowance for doubtful accounts, loss on doubtful accounts and allowance for loss on debt guarantees amounted to 8,389 million. This half year amount has been booked under selling, general and administrative expenses and includes 1,408 million booked at the end of the first quarter as well as an extra 6.0 billion, as described in the aforementioned press release dated March 19, Deferred tax asset write-downs The Board of Directors took a conservative approach in evaluating the recoverability of deferred tax assets, based on consolidated results for the first half of fiscal 2009, and decided that the Company would execute write-downs. This has resulted in consolidated and non-consolidated income tax adjustments of 824 million and 678 million, respectively, for the first half of fiscal Results for the first half of fiscal 2009 (consolidated) and the corresponding period a year ago (1) Results (Millions of yen, %) Net revenue Operating income Ordinary profit Net loss (loss) (loss) First half of fiscal 8,961 2,312 1,636 (415) 2008 (A) First half of fiscal 2,047 (19,625) (20,484) (14,169) 2009 (B) Change (B-A) -6,914-21,938-22,120-13,753 Increase/(Decrease) (%)

3 (2) Comment Net revenue In the investment banking business, revenues from financial arrangement and principal finance operations decreased against a backdrop of continuing financial market upheaval and prolonged adjustment of prices in the real estate market. Seeking to offset the revenue drop, the FGI Group aggressively pursued activities geared to the difficult operating climate, including advisory services to facilitate corporate revitalization. In the reinsurance/financial guarantee business, Entrust Inc., a provider of rent guarantee services, steadily increased its contract count, which supported healthy revenue expansion. Crane Reinsurance Limited completed more policies, which led to higher premium income. The real estate related business benefitted from revenues provided by Better Life Support Co., Ltd., which came under consolidation in the first quarter. This contribution was augmented by the Company s own condominium resale services, launched to capitalize on short-term profit opportunities. Please note that FX Online Japan Co., Ltd., which contributed a solid 40% of consolidated net revenue in fiscal 2008, is no longer included in the scope of consolidation. All shares held by the Company were transferred to a third party, as of September 30, Operating income (loss) The 19,625 million operating loss for the first half of fiscal 2009 reflects a lower net revenue starting point as well as the booking of reserves specifically 248 million for valuation losses on inventory, 8,375 million for loss on sale of investments in securities, trade, and 1,325 million for valuation losses on investments in securities, trade all under cost of revenue and 9,165 million under selling, general and administrative expenses to beef up allowance for doubtful accounts, loss on doubtful accounts and allowance for loss on debt guarantees. This allocation of funds represents the Company s response to persistently sluggish conditions in the real estate market and efforts to dispose of outstanding claims, including the sale of loan credits extended to an SPC with real estate central to a large-scale development project and the transfer of equity stake in a silent partnership (tokumei kumiai) to a third party. Ordinary profit (loss) Losses on investment in marketable securities, at 768 million, drove the Group toward an ordinary loss of 20,484 million. In the second quarter, subsidiaries investing in marketable securities almost completely liquidated those positions with a high risk of price fluctuation. 3

4 Net loss The Group suffered a net loss of 14,169 million. The result could have been worse were it not for a 7,018 million gain on redemption of bonds under extraordinary profit, as outlined in the official Japanese-language press release dated March 31, 2009, and the subsequent translation issued April 2, 2009, regarding the purchase and cancellation of euroyen convertible bonds with stock acquisition rights due in The result was also affected by a 827 million income tax adjustment booked under tax expenses through the write-down of deferred tax assets, as described in 2. Deferred tax asset write-downs above. 4. Update on measures taken to address certain challenges to the business The challenging financial climate and prolonged sluggishness in the real estate market forced the Group to curtail investment and loan activity in a bid to maintain cash and cash equivalents, and led to the charge-offs described above. In November 2008, management identified three issues of particular concern profitability, risk assets and cash flow and began channeling energy into raising profitability, reducing risk assets and strengthening cash flow. Achieving these goals should lead to higher corporate value, and progress has been made toward this end. Here is an update on measures taken in the first half of fiscal (1) A return to profitability The Group is transitioning away from the business model of the past, and management has been exploring a new direction for business development. The objective is to maximize Group resources, namely, structured finance-related know-how accumulated by the Company and its relationships with fund suppliers mainly investors and financial institutions as well as know-how and business models specific to each company under the Group umbrella. Management is applying these resources in three areas to steer the Group back on to a profitability course. The three areas are outlined below. i) Existing markets (services for existing clients based on existing marketing platform) Sluggish conditions in the real estate market have made the operating environment for real estate developers the Company s primary client segment quite difficult. But the situation is fueling demand for debt restructuring and financial arrangements to facilitate business rehabilitation as well as more restructuring of existing arrangements and necessitating interest adjustment among arrangement participants. The Group is responding to this demand and will continue to seek fee income from associated services. 4

5 ii) New markets pegged to corporate rehabilitation and REIT restructuring demand evolving from existing the marketing platform Many real estate investment trusts (REITs) are folding and real estate companies are failing these days. In response, the Group has been pursuing derivative opportunities, including the purchase of an asset management company and participation in making bids, corporate rehabilitation and REIT restructuring projects with domestic and overseas investors as well as corporate acquisitions related to these projects. iii) Next-generation platforms for growth and improved Group profitability The Company accelerated efforts to grow businesses into next-generation pillars of support. This included aggressively promoting activities in the realm of public finance, particularly for local governments, where Public Management Consulting Corporation has considerable expertise, and also asset management operations, especially joint investment fund formation with overseas investors. Some Group companies most notably, Entrust are already on the growth track and contributing handsomely to consolidated results. (2) Risk asset reduction During the first half of fiscal 2009, the Company booked considerable allowances, valuation losses and losses on the sale of securities, on a consolidated basis as well as a non-consolidated basis. Specifically, given the length of the current downturn in the real estate market and other factors, including tax effect, the Company sold off outstanding investments and loans that had been used to purchase real estate for large-scale projects, which are still under development, and wrote off losses associated with these projects. The Company also added considerable amounts to its reserves, primarily allowance for doubtful accounts, to cover other loans, investments and guarantees, and wrote down a portion of deferred tax assets. The Company also acted on its security interest against a loan for a revenue building, which provides rental income, and after reevaluating the situation, decided to retain possession for the rental income the building provides. Despite setting reserves aside, the Company remained keen to recover outstanding claims. The effort was only marginally successful, but the funds that were collected were used to reduce the reserve amount. (3) Improved cash flow In March 2009, the Company purchased a 14,070 million (par value) portion of euroyen convertible bonds with stock acquisition rights due in Of this amount, 10,010 million was cancelled on March 27, 2009, generating 7,010 million in gain on redemption of bonds, which was booked in the 5

6 second quarter. The remaining 4,060 million was cancelled on April 17, 2009, for a 2,820 million gain on redemption of bonds, which will be booked in the third quarter. An 8.1 billion portion of the euroyen issue still remains, and the Company may purchase and cancel this amount, if deemed advantageous to the Company, based on an overall assessment reflecting such criteria as the financial standing of the Group, the status of asset reduction through sale, and future business development. Meanwhile, the balance of loans acquired from financial institutions by Group companies fell to 2,105 million, as of March 31, This amount excludes non-recourse loans extended to SPCs under the scope of consolidation. The Group now only needs to deal with scheduled payments, so its relationship with financial institutions is sound. The Company has made great strides forward in balance sheet restructuring shrinking risk assets since the beginning of the period under review. Next, the Company will strive to improve liquidity on hand, primarily by utilizing unsecured assets, such as Company-held real estate, to procure funds from financial institutions. END 6