Fiscal Year Ended September 30, 2006 Interim Financial Report (Consolidated)

Transcription

1 UNOFFICIAL TRANSLATION The formal press release document is in Japanese. 印刷日時 : 06/05/18 20:18 May 12, 2006 Ended September 30, 2006 Interim Financial Report (Consolidated) Company Name: FinTech Global Incorporated Code Number: 8789 URL: http: // Stock Exchange listing: Tokyo Stock Exchange, Mothers Market Company Domicile: Tokyo President,CEO: Nobumitsu Tamai Contact: Takeshi Sugimoto, Managing Director-Member of the Board Telephone: Date of board meeting for the approval: May 12, 2006 Application of U.S.GAAP standards: Not Adopted 1. Interim Consolidated Results for 2006 (October 1, March 31, 2006) (1) Consolidated Results of Operations (Monetary amounts are less than 1 million yen have been rounded down) Sales Operating Profits Ordinary Profits Million yen % Million yen % Million yen % Interim ended March ,892 ( ) 2,129 ( ) 1,991 ( ) Interim ended March ( - ) 531 ( - ) 528 ( - ) Year ended September ,463 ( ) 1,617 ( ) 1,571 ( ) Interim (Year-End) Net Profits Interim (Year-End) Earnings per Share Fully Adjusted Interim (Year- End) Earnings per Share Million yen % yen yen Interim ended March ,159 ( ) 5, , Interim ended March ( - ) 4, Year ended September ( ) 14, , (Notes) 1 Equity in earnings of unconsolidated subsidiaries and affiliates Interim period ended March 2006 N/A Interim period ended March 2005 N/A Fiscal year ended September 2005 N/A 2. Average number of shares for the period (consolidated) Interim period ended March ,525 shares Interim period ended March ,950 shares Fiscal year ended September ,927 shares Although we executed a three-for-one share split on December 20, 2005, earnings per share are calculated assuming it was executed at the beginning of the year. 3 Changes in accounting methods Yes 4 Percentages in the sales, operating profits, ordinary profits, and interim(year-end)net profits columns indicate changes from the previous fiscal year. 5 The following interim (year-end) earnings per share figures assume that the stock split was conducted at the beginning of the previous fiscal year. Interim period ended March 2006: 5,330.50; interim period ended March 2005: 1,617.09; fiscal year ended September 2005: 4, (2) Consolidated Financial Situation Total Assets Shareholders Shareholders Equity Ratio Equity Equity per Share Million yen Million yen % yen Interim ended March ,019 22, , Interim ended March , , Year ended September ,042 3, , (Note) Number of shares outstanding at year end (consolidated) Interim period ended March ,477 shares Interim period ended March ,950 shares Fiscal year ended September ,335 shares The following shareholders equity per share figures assumes that the stock split was conducted at the beginning of the previous fiscal year. Interim period ended March 2006: 97,284.83; interim period ended March 2005: 5,243.91; fiscal year ended September 2005: 16,

2 (3) Consolidated Cash Flows Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities Cash & Cash Equivalents at End of Year Million yen Million yen Million yen Million yen Interim ended March ,596-6,278 45,321 13,113 Interim ended March Year ended September , ,352 1,659 (4) Items concerning the scope of consolidation and application of the equity method Number of consolidated subsidiaries Equity-method non-consolidated Equity-method affiliates 6 companies subsidiaries N/A N/A (5) Changes in scope of consolidation and application of the equity method Consolidated (addition) (elimination) Equity method (addition) 4 companies N/A N/A (elimination) N/A 2. Consolidated business forecasts for the fiscal year ending September 2006 (October 1, September 30, 2006) Sales Ordinary Profits Net Profits Million yen Million yen Million yen Full Year 8,268 5,557 2,938 (Reference) Estimated earnings per share (full year) 12, * The above forecasts are based on assumptions that are current as of the date of publication of the information, concerning the information available and uncertainties that may impact future results as of the date of publication of the information. Actual results may differ significantly given various factors in the future

3 1 Group of Companies Our Group consists of six consolidated subsidiaries, and two affiliated companies which are not accounted for under the equity method. Unlike mega-banks that provide a very wide range of various kinds of services, the Company focuses on more sophisticated and specialized investment banking operations, in the sphere of structured finance only. The businesses of the Group and the operations of the subsidiaries that compose the Group are shown below: (Investment Banking) (1) Investment Banking Services [1] Arrangement Services We create and conduct transactions and devise schemes for carrying out structured finance transactions for property liquidation, the solicitation and coordination of the views of investors and other partipants in such projects, and inspections and verifications from a legal, accounting and tax perspective. Securitization is one of the Company s main products, and the recently introduceded securitization of money claims and development-type securitization have become strategic hit products for the Company. Revenue for the Company is recorded as arrangement fees based on service agreements at the time of the transaction, and most of the revenue is contingency fees. [2] Principal Finance Service As a fund provider as an investor or a lender, FinTech Global makes loans or investments (including investments in anonymous associations and mezzanine loans) for structured finance transactions arranged by the Company. In the past, although as an investment bank the Company was engaged just in principal finance services with limited funding capability it was able to generate a profit. At present, with enhanced funding capabilities thanks to listing, earnings opportunities have increased through loans and investments for transactions created by the Company. Revenue for the Company consists of interest income from loans,loan commissions and dividend income from investments in anonymous associations. [3] Other Investment Banking Services FinTech Global has actively incorporated its subsidiaries and affiliated companies with the aim of becoming a full-scale investment bank. Among these companies, those that are engaged in the securities business, private equity business and M&A business as classified below as companies engaging in other investment banking services. The purpose of the business of FinTech Global Securities, Inc. is to engage in 1) the sale of highyield overseas funds to domestic institutional investors, 2) the sale of private equity funds arranged by JBFinTech Capital, Inc. to domestic and overseas investors, and 3) the securitization of principal loans originated by the Company and the sale of securitized loans as securities. JBFinTech Capital, Inc. is engaged in investment fund management and investment. (2) Credit Enhancement Services Credit enhancement is a capital risk solution technique developed in Europe and the United States to stabilize the structure by having insurance companies take on finance risks in securitization or various structured finance in the form of a guarantee. Incorporating this credit enhancement into the structuring of transactions makes it possible to stabilize the structure, which in some cases reduce the cost of securitization or enables structuring of something that has been unable to be securitized. We carry out credit enhancement operation through a partner company (FinTech Capital Risk Solutions Incorporated) that is a joint venture with JLT Risk Solutions Ltd. in Britain, the major insurance broker in Europe. (3) Other Operations We underwrite administrative works (such as cash management services or distribution of notices concerning any subjects of discussion, in case changes in contract details under unforeseen circumstances during the transaction period, etc) on behalf of SPC in transactions for the development

4 type securitization and liquidation we have arranged. The Company has occasionally missed earning opportunities related to real estate. FinTech Real Estate, Inc. has been positioned to seize all such earnings opportunities and record dividend income and other revenue from equity investment in real estate funds. Entrust, Inc. will provide a system to guarantee rents in arrears that need to be paid by the tenants of properties managed by the large property management companies with close business ties to the Company. Stellar Capital AG, a subsidiary of the Company, will assume a part of the risk which is guaranteed by Entrust. The Company group thus provides a one-stop system for its cliants. (Reinsurance/Financial Gurantee Business) We established a reinsurance companies group in Switzerland and Bermuda using the funds raised last December. Stellar Capital AG of Switzerland provides credit enhancement services for securitization transactions selectively from the transactions arranged by the Company. This will not only reduce the time required by the Company for completing arrangements but will also increase the stability of schemes created through the provision of credit enhancement services by Stellar Capital. Stellar Re. Limited of Bermuda will underwrite reinsurance for fire and home contents coverage retained by large property management companies that have close business ties with the Company. Stellar Re. plans to underwrite apploximately 1.4 million policies at the time of the existing policies renewal. For insurance claims that would exceed certain loss ratio or amount, the company minimize its own risks by hedges those risks by using reinsurance. This business area will be expanded further and earnings opportunities will be increased for the entire group through the establishment of a reinsurance underwriting system for fire insurance, property insurance and other good insurance risks. The chart of the group structure is as follows: Note: The chart shows the status as of March 31, (Cooperation on property deals) (Investment Banking) (Cooperation on credit enhancement deals) FinTech Real Estate, Inc.* (Real Estate ) Fintech Global Incorporated Stellar Capital AG* (Stellar Re. Limited)* (Reinsurance) (Cooperation on sale) (Cooperation on placement) (Cooperation on reinsurance) JBFinTech Capital, Inc FinTech Global Securities Inc. * Entrust,Inc. * (Operation and management of investment funds) (Securities) (Rent guarantee, etc.) *: Consolidated subsidiaries - 4 -

5 2 Management Policy (1) Fundamental management policies of the Company Our business consists of three types of operations, including investment banking, which specifically underwrites the arrangement (structuring) of transactions in structured finance, credit enhancement, which is a fusion of finance and insurance to shift financial risks in different kinds of financial transactions to domestic and international insurance markets, and other incidental operations. Our core competence is to maximize the financial benefits for our clients with comprehensive strength in these three types of operations. In structured financing, the business environment surrounding the Company has been improved given the continued strength of products related to real estate securitization and diversified needs for the securitization of money claims with the application of asset-impairment accounting and increasing needs for off balance-sheet corporate assets. So that we can continue to grow in the future, it is essential to seek to acquire new financial technology and develop new financial products. To this end, we aim to develop financial technology that covers legal affairs, accounting, tax practices, statistics and mathematics, and at the same time we will continue our efforts to maintain advanced and innovative financial technology to master and commercialize the technologies as financial products. (2) Basic profit sharing policy of the Company The investment banking business in which FinTech Global Incorporated is engaged is inherently a high margin business. In view of this, the management of the Company considers it quite natural to return profits to shareholders by declaring a high dividend when the Company s business results are favorable. A global overview of the investment banking industry in which FinTech Global Incorporated operates reveals that companies in the industry generally pay dividends based on very high payout ratios. As a result of taking into account its current business size and growth trends, the Company plans to achieve a dividend payout ratio of 40% for the current term, while targeting a future payout ratio that is on a par with those of financial institutions in Europe and America. Please be noted that we have not yet started examination about how to distribute dividends after enforcement of the new Company Law. Dividend per share for fiscal year ended September 2006 has not been decided because a number of issued shares at the end of the September have not been determined. (3) Management position and policy on reducing the stock trading unit In order to enhance liquidity of the Company's stocks in the stock market so that many investors may be able to hold them, the Company, as a basic policy, makes reviews on reducing the current stock trading unit as appropriate taking into account situations of the stock market etc. Under this policy, we implemented the three-for-one share split in December (4) Targeted management ratios A feature of our management ratios lies in our high gross profit and recurring profit margins. Given that demand for financial technology is strong and sales remain on the rise, we will aim to increase our gross margin to 90%. A target of 15% ROE has also been set in consideration of the importance of the capital deposited that is deposited with the Company. At the same time, we intend to restore our capital adequacy ratio to 40% and maintain that level by raising capital at an early date to control the rise in interest-bearing liabilities. (5) Medium- and long-term management strategy of the Company [1] Main products Our principal product is currently the securitization of real estate, particularly new real estate developments. Fund management companies engaged in real estate development typically exit from transactions prematurely, whereas our approach, which is more appealing to developers, is to provide complete financing to and beyond the completion of construction. Our analyses show that development-type securitization is not susceptible to changes in the economic environment. With demand for development funds existing even in a depressed real estate - 5 -

6 market, it rather makes a strong showing when supply of funds by financial institutions is restrained. Improving our arrangement processing capabilities by increasing our staff numbers allows for aggressive new business development to acquire core real estate-related arrangement transactions. We will therefore continue to adopt a policy of expanding sales volume in the future. [2] Derivative products In the development-type securitization transactions we have arranged, a number of projects are scheduled to be completed, including block-investment condominiums. As many business opportunities are expected to be derived from development-type securitization, such as the liquidation of real estate for profit and the structuring of private placement investment funds, we believe that our real estaterelated products will remain viable as a pillar of our businesses in the future. [3] Development of new products With the Company s growing name recognition, we have received commissions to structure a wider variety of structured finance than before. As our business foundation has been improved by solid core products, we will make our best effort to develop new hit products by allocating some of management resources such as staff to the development of new products. (6) Issues for the Company to address [1] Start of a securitization program for loans extended through principal finance services The Company will not only actively conduct principal finance activity but will also reduce its total assets (to maintain ROA and avoid an increase in debt). There is also a plan to start a securitization program for loan asset extended through principal finance services to secure a rise in revenue. [2] Cultivation of new products To achieve sustained growth in the future we will not stand still, but will seek to acquire new financial technology and cultivate new products. Presently, by setting up a full-time position for marketing and sales promotion dedicated to the business, we will strive to seek and promote new businesses and expand our operational base, to satisfy the needs of our many partners, as a developer and manufacturer of financial services products. [3] Securing of human resources Our business is a special type of business that requires sophisticated know-how. As there are only a few mid-career workers who have experience in this field, it is important to have a system for training human resources within the Company. We have currently adopted a comprehensive on-the-job (OJT) training system, and this has been successful for both new employees and mid-career workers. However, to continue to grow in the future, we must continue to secure outstanding staff. We will address this issue by expanding and improving our work force through aggressive recruiting of new graduates as well as mid-career workers, irrespective of their experience in this business. [4] Organization On the road to fast growth, we are rapidly expanding our organization and workforce. In the circumstances, to ensure strengthening of our internal control system and the practices of thorough risk management as an investment bank, we will strive to further improve and expand our corporate governance and compliance system. (7) Business risks Followings are the major potential risks in our business operations. Factors which are not necessarily risks to our business but which are considered important in investment decision-making by investors are also shown for the purpose of disclosing information to investors. Descriptions of the future outlook in the text are based on our views as of May 12,

7 [1] Small organization With seven directors, three auditors and 43 employees (including five workers dispatched from other companies) as of May 12, 2006, we are small in size, and so is our internal control system. We will continue to employ new staff as we expand, in accordance with which we plan to strengthen and expand our internal control systems as well. However, unsuccessful recruiting activities would delay the establishment of an organization arrangement suited to the scale of operations, which could impact our operations and expansion. [2] Securing and maintaining of human resources As we belong to a special type of business which requires sophisticated know-how, an important issue of management is to secure human resources in accordance with our growth. We intend to employ without hesitation and train in-house excellent human resources as our business expands in the future. However, if we were to lose existing human resources at one time, or if we are unable to hire the expected human resources, the expansion and future of our business are likely to be affected, including the roll-out of future businesses. [3] Legal restrictions Our Group may or will likely be subject to the following legal restrictions depending on structuring in asset liquidation dealt with by the Investment Banking Headquarters. The improvement and elimination of laws and regulations or changes to their interpretation by the authorities as part of future legislation or administration may lead to changes in the scope of business our Group is permitted to conduct, the costs involved in our business, and the risks we have to take, and this may in turn have an impact on the results and continuity of our business. Additional human resources, establishment of a firewall and other compliance costs are also expected to become necessary for future approvals and licenses required by the laws and regulations shown below, as a result of changes to laws and their interpretation, as well as changes in structuring. Moreover, in accordance with these laws and regulations and general principles of the Civil Code, liabilities for material misstatement or false statement and liabilities for incorrect advice may also arise. Even if we are not actually at fault, we may face a risk of substantial litigation costs or damage to our reputation by receiving these complaints. We may also be subject to penalties, business suspension, or revocation of approval and license. Laws for Asset Liquidation Laws for Real Estate Specified Joint Business Laws for Investment Trusts and Investment Corporations Building Lots and Buildings Transaction Business Law Regulation for Loan Business in Japan Law Concerning Regulation, etc. of Receiving of Capital Subscription, Deposits, Interest on Deposits, etc. Securities Exchange Law Law Concerning Regulation for Investment Advisory Business Regarding Securities Financial Instruments Sales Law Trust Business Law Insurance Business Law (The Regulation for Securitization of Specific Credit was repealed in December 2004) Registered as moneylender under Article 2 of the Law Concerning Regulation for Loan Business in Japan (Registration Number: Tokyo Governor (1) No.28474), we conduct lending operations as part of asset liquidation activities at the Investment Banking Headquarters. The current registration is effective from April 29, 2004 through April 28, Articles 6, 37 and 38 of the law Concerning Regulation for Loan Business in Japan provide causes for registration refusal and cancel. We are not currently aware of any causes for registration refusal - 7 -

8 and cancel, or causes for non-renewal of registration. Nevertheless, cancellation of registration for any reason in the future may affect our business activities and results as well. [4] Dilution of share value by the exercise of share warrant Based on a special resolution at the ordinary general meeting of shareholders on December 25, 2001, in accordance with the Law for Partial Amendment of the Commercial Code (Law No. 128 of 2001), we have granted subscription rights provided under Article of the former Commercial Code to our directors and employees and approved supporters. We have also granted share warrants provided under Articles and of the Commercial Code to our directors, employees and directors of our subsidies or affiliates based on special resolutions at the extraordinary general meeting on June 16, 2004 and resolutions at the meetings of the Board of Directors on December 1 and 14, 2004, and to our officers and employees based on a special resolution of the ordinary general meeting on December 3, 2004 and a resolution at the meeting of the Board of Directors on December 2, As we plan to sustain this system in the future, the value per share is likely to be diluted if the existing share warrants are exercised. The total number of shares outstanding before the public stock offering was 233,480 shares, while the number of residential securities of share warrants was 20,075 shares as of May 12, The terms of these share warrants such as the exercisable period and number of shares are set based on the Share Warrants Grant Agreement concluded between the Company and share warrant holders. [5] Business results and financial situation Our results for the past five years are as follows: Fiscal year Fiscal year ended September 2001 Fiscal year ended September 2002 Fiscal year ended September 2003 Fiscal year ended September 2004 Fiscal year ended September 2005 Sales ( thousand) 173,595 5, , ,051 2,463,575 Recurring profits or losses (-) ( thousand) -9, ,926-21, ,834 1,603,975 Net profits or losses (-) ( thousand) -8, ,772-73, , ,533 Capital ( thousand) 59, , , ,385 1,303,735 Total assets ( thousand) 152, , ,501 1,480,205 8,015,569 Net assets ( thousand) 50,438 1,665-10, ,657 3,449,440 Number of employees (average number of temporary employees) (persons) (Notes) 1 Consumption tax is not included in sales. 3 (1) 2 Figures include only the performance of those companies that have reported, as consolidated financial statements have been prepared since the fiscal year ended September (1) 8 (1) 11 (2) 23 (4) With the aim of achieving a listing, we embarked on a phase of expanding and improving our operations in the fiscal year ended September Up to that point, the Company was run by two people, our representative Mr. Tamai and chairman, Mr. Fujii, and was able to survive with just one or two large structured transactions annually as shown in sales of fiscal year ended September In the fiscal year ended September 2002, despite an increase in our workforce and expanded marketing activities, we posted a substantial loss because certain securitization transactions required six months to one year to complete and also because some transactions were no longer present. Currently, mainly the members who weathered this difficult, second early period manage our business. They have worked to establish a system to efficiently structure many transactions simultaneously to ensure stable sales. In fiscal year ended September 2004, sales were boosted significantly by solid repeat transactions from existing customers and the relatively successful attraction of new customers. Profit margins also improved thanks our efficient underwriting system. As a consequence, it may not be sufficient to use only past results as an indication of evaluating future performances

9 [6] Markets surrounding the Company In general, most assets to be liquidated are real estate. At present, the major products in our arrangement services are also linked with real estate, such as development-type securitization. Accordingly, changes to legal and tax accounting rules for real estate securitization and trends in the real estate market may impact our performance. In the broader sense, our business is subject to trends in the financial markets and economic conditions. Market downturns are caused not only by pure economic factors but also by wars, acts of terrorism, and natural disasters. [7] Clients Under our arrangement services, we receive arrangement fees from SPCs that are established for each securitization transaction. A SPC is set up to enable securitization of specified assets, and consequently those from which we record sales are different for each transaction. This means that it is necessary for us to acquire transactions through continuous marketing activities, and this trend may have an impact on our performance. [8] Insurance markets Essentials to our credit enhancement operation are insurance companies. Through a joint venture company with JLT Risk Solutions Ltd. in Britain, we aim to establish a system to provide advice on structuring to meet the needs of the many insurance companies that form the insurance markets in both Japan and overseas. However, the globally unfavorable market conditions caused by terrorism have the potential to impact our performance. [9] Principal finance Our principal finance services are for us to provide investments and loans to structured finance transactions as a supplier of funds. Uncontrollable forces such as higher credit risks of investment destinations, changing real-estate market conditions, and earthquakes may lead to lower than expected returns and reduced investment and loan funds. The outstanding balance of investments and loans in the principal finance services is as shown below: [Outstanding balance of principal finance] Fiscal year ended September Fiscal year ended September Interim 3 rd Quarter Year End 1 st Interim Quarter 3 rd Quarter Year End ( million) Fiscal year ended September st Quarter Interim New transaction ,113 1,212 5,314 13,911 23,379 Selling / arbitrage / repayment ,154 2,920 3,022 2,268 Operational loans (note) ,215 3,295 3,353 5,747 16,583 37,693 * Recorded separately in operational loans and operational investment securities on the balance sheets. [10] Competition Generally speaking, it is difficult to find people in the broader financial sector with experience in our specialized area of structured finance. Our analyses show that the supply of services has not overtaken the rapidly increasing needs for securitization. Our efficient operation system, which allows for efficient promotion of business operations by a small team without setting up an excessively large non-marketing department, is also available for relatively small and less profitable transactions. This makes it possible to supply these services to not only major companies but also to midsize companies. Nevertheless, if the business expansion of massive domestic and overseas financial groups and new entries by other companies are realized beyond the entry barriers of efficient business operations, enhanced and strengthened human resources and the standardization of financial technology, then competition for transactions will intensify, and this is likely to impact our business performance

10 [11] Obsolescence of financial technology Despite our sustained efforts to keep our technologies cutting-edge and innovative, financial technology that encompasses legal affairs, accounting, tax practices, statistics and mathematics evolves every day. Failure to acquire any of these technologies or to commercialize them as financial products could make our financial technology obsolescent and less competitive, which may have a serious impact on our performance. In this respect, the level of technology is more important for us than it is for our peers in the financial industry, as we are more like a manufacturer of financial products. [12] New businesses The Company established Stellar Re. Limited, a reinsurance company, in Bermuda and its holding company Stellar Capital AG in St.Moritz, Switzerland with the aim of undertaking various financial risks to improve the efficiency of credit enhancement services and underwriting the fire insurance and property insurance taken out by its customers. With respect to the insurance risks undertaken by Stellar Re. Limited, although analysis was conducted to estimate the loss ratio based on previous claims history and insurance premiums so that sufficient underwriting reserves could be established, there is still a possibility that actual losses could exceed the underwriting reserves, which would negatively impact the finances of the reinsurance company. The probable maximum loss (PML) related to the payment of substantial claims stemming from a catastrophe such as earthquake, wind damage or flood has also been analyzed, and the risk equivalent to the PML has been reinsured through leading insurance companies. However, it is still possible that an unexpected loss could have an adverse impact on the reinsurance company s finances. In addition, the risks expected for credit enhancement services have been fully examined, but there is a possibility that a loss exceeding the underwriting reserve could adversely impact the finances of the reinsurance company. The investment division of the reinsurance company plans to make investments using foreign currencies. Foreign exchange risk is inherent in such investments. Accordingly, if a foreign exchange loss occurs as a result of a rapid change in foreign exchange rates, there is a possibility that there will be an adverse effect on the finances of the reinsurance company. [13] Other important matters regarding management of the Company No relevant items (8) Information concerning the parent company etc. No relevant items 3 Operational Results and Financial Review Operational Results During the interim fiscal year under review, the Japanese economy began to recover and the corporate sector and household sector have shown a continuous recovery trend. Overseas demand was strong centering on IT-related areas, and domestic demand picked up even in regional areas thanks to the economic recovery. As a result, both domestic and foreign demand was revived. However, if the rise in crude oil prices cannot be passed on to consumers, there could be a negative impact on the corporate sector. The movement of crude oil prices will be a cause of concern in the future. We consider that cutting-edge financial techniques including securitization and liquidation used freely by the Company group can bring many benefits to companies that have seen their growth and activities become increasingly complex. As mentioned above, demand for growth funds is rising, reflecting the economic recovery. Therefore, we believe that the market in which the Company is actively involved will expanded significantly. With the growth in demand, investment banks and mega banks are looking to provide a full range of services. However, there are few employees with practical experience related structured finance, and thus customer demands cannot be fully met. In particular, groups of rapidly growing

11 companies with new business models require many forms of financing to match the special characteristics of their growth and activities. Therefore, we believe that the Company, a niche operator, is in a more advantageous position than banks, which are financial department stores. The establishment of a reinsurance company group in Switzerland and Bermuda with the funds raised in December 2005 during the interim period under review will enable the Company to develop a reinsurance business centering on the investment banking business of the Company. Synergy and earnings opportunities will also be increased within the group, we will be able to develop a feeling of trust in our customers. The development-type securitization in which the Company group invested its business assets in and after the ninth accounting term remained brisk during the interim closing period. There was an increase in bridge financing arrangement for the period before the start of construction. The Company effectively used the funds raised in December 2005 and March 2006 in its principal finance business through which the Company makes investment and loans for transactions it arranges, and this contributed greatly to the improvement in revenue and had a favorable impact on the profit and loss of the group. As a result, sales reached 2,892 million yen, recurring profit was 1,991 million yen, and net profit totaled 1,159 million yen for the period under review. The results by business segment are as shown below. <Investment banking business> (Interim results FY 2006) (1) Investment Banking [1] Arrangement Services The development-type securitization that the Company has arranged since the term ended September 2003 earned a good reputation among developers including large developers listed on the First Section of the Tokyo Stock Exchange and unlisted growing mid-ranked companies. Developmenttype securitization aims to use structured financing to find a financing solution at the stage of construction in which it was diffiicult to find solutions in the past. It satisfies the strategic management needs for fund procurement by facilitating the acquisition of funds for earnings in advance and accelerates the speed of growth for companies by clarifying the risk and return of the concerned parties and raising funds for projects without relying on the credit of an originator. The length of the period of arrangements has a direct effect on the cost of sales of the Company. However, the cost of sales ratio declined during the current term because the period for arrangement was shortened through the stadardization of transaction arragements. Therefore, gross margin maintained at the high level of more than 90%. As a result, in the arrangement service segment, sales stood at 1,682 million yen, and gross profit on sales reached 1,586 million yen for the period under review. [2] Principal Finance Services In the principal finance service business, the Company makes investments and loans for transactions using its own funds based on its own judgment. There are cases when it is difficult to analyze a portion of the risk and return due to the transaction. For example, there might be a case where an outside participant has taken time for analysis and a transaction cannot be completed as scheduled, while the risk and return are fully acceptable to the Company as the arranger. In such case, the Company will temporarily provide its own funds making it possible for the transaction to be conducted smoothly. We consider this to be a service that can be carried out only as a result of the strong analyzing and financing capabilities which the Company enhanced as the arranger. As a result, both the originator and provider of funds as partners sharing risks have obtained an appraisal and have greater trust in the transaction. The availability of funds for bridge financing for three to six months before the start of construction (period up to building confirmation or the acquisition of development permit) diminished significantly during the interim closing period. Therefore, the Company employed a strategy to provide bridge financing temporarily with the aim of subsequently obtaining contracts for development-type securitization arrangements. Consequently, funds raised during the current term were used effectively. As a result, in the principal finance service segment, sales reached 860 million yen and gross profit on sales amounted to 802 million yen for period under review

12 [3] Other investment banking services We wish to improve investment banking services in addition to structured finance service with the goal of becoming a full-scale investment bank. FinTech Global Securities, Inc. will sell overseas high-yield funds to domestic institutional investors by entering into an agreement with several foreign fund management companies. FinTech Global Securities, Inc. will also sell private equity funds arranged by JBFinTech Capital, Inc., an affiliate of the Company, to domestic and overseas investors, and its business purpose is to sell securities that securitize the principal loans of the Company. JBFinTech Capital, Inc. was established in February The company plans to arrange and make investment in private equity funds, and will launch the first fund soon. Operating revenue from the other investment banking service segment reached 9 million yen for the period under review. (2) Credit Enhancement Operation Although the number of inquiries has remained favorable since the previous consolidated fiscal year, the Company established Stellar Capital AG, a subsidiary of the Company, in Switzerland, and completed the development of the infrastructure in the current interim period. As a result, credit enhancement services can be provided for the financial risks involved in the transactions arranged by the Company, and the Company can carry out credit enhancement arrangements. Accordingly, sales reached 244 million yen, and gross profit on sales amounted to 238 million yen for period under review. (3) Other Operations In other operations, with an increase in the number of development-type securitization transactions we underwrote, administrative operation steadily grew in number of transactions. As a result, sales of other operations for the current interim period reached 65 million with gross profit of 65 million. As a result, net sales of the investment banking business for the interim consolidated accounting term under review came to 2,862 million, and gross profit on sales amounted to 2,701 million. (Forecasts of full year results FY 2006) For the term ended September 2006, the arrangement service business remained robust as financial arrangements reached 110,400 million during the first half-year (compared with 117,100 million for the term ended September 2005) and transactions exceeded the level anticipated at the beginning of the term. Approaches from new clients also became more frequent. With respect to the principal finance business, funds for bridge financing for three to six months before the start of construction (period up to acquisition of building confirmation or development permit) dried up significantly. Therefore, the Company employed a strategy of providing bridge financing temporarily and obtaining contracts for subsequent development-type securitization arrangements. The projected full-year results will be enhanced substantially as the funds raised during the current term are utilized effectively. On the other hand, it took longer than anticipated to put the sales structure of FinTech Global Securities Inc. in place. Consequently, sales of private equity funds and overseas funds created by JBFinTech Capital, Inc. fell short of the targets for the first half-year, and this has become a challenge for the Company in the second half-year. Overall recounting has revealed that the projected results will substantially exceed initial forecasts, and projected full year sales and gross profit of the investment banking business have now been revised to 7,917 million and 7,556 million, respectively

13 <Reinsurance/financial guarantee business> (Interim results FY 2006) We established reinsurance companies in Switzerland and Bermuda using the funds raised in December Stellar Capital AG located in Switzerland has seized earnings opportunities through the selective provision of credit enhancement services for transactions arranged by the Company. As a result, revenue recorded for the period under review is as shown below. Net premium income 310 million yen Revenue received in advance 309 million yen Insurance commissions 30 million yen Revenue 30 million yen Net sales of the reinsurance business for the interim consolidated accounting term under review came to 30 million, and gross profit on sales amounted to the same amount. (Forecasts of full year results FY 2006) Stellar Capital AG, a Swiss company offering a credit enhancement service, commenced operation in March 2006, but Stellar Re. Limited, a Bermudan reinsurance underwriter, will go into full-scale operation in June 2006, roughly three months later than initially anticipated. As a result, projected full year sales and gross profit of reinsurance/financial guarantee business have now been revised to 351 million and 303 million, respectively. Financial Review Total assets were 58,019 million, and shareholders equity totaled 22,713 million for the interim consolidated fiscal year under review. The equity ratio was 39.1%. Cash and cash equivalents increased 12,210 million from the previous interim consolidated fiscal year to 13,113 million. Cash flow for the interim consolidated fiscal year under review is as shown below. (Cash flow from operating activities) Net cash used in operating activities was 27,596 million (an increase of 177 million yen over the previous interim consolidated fiscal year). This is primarily attributable to a 31,989 million decrease with the payments for operational loans, despite interim net profit before taxes of 1,991 million and financing by operational borrowings of 1,559 million. (Cash flow from investing activities) Net cash used in investing activities was 6,278 million(a decrease of 139 million yen over the previous interim consolidated fiscal year). This was due mainly to an expenditure of 4,000 million for loans and an expenditure of 2,272 million for the acquisition of investment securities. (Cash flows from financing activities) Net cash provided by financing activities was 45,321 million(an increase of 142 million yen over the previous interim consolidated fiscal year), This was due mainly to a 26,915 million increase in short-term debt and a 18,488 million increase in net cash through the issue of the first unsecured convertible bond-type bonds with stock acquisition rights

14 As a result, the balance of cash and cash equivalents stood at 13,113 million at the end of the interim consolidated fiscal year under review ( 902 million at the end of the previous interim consolidated fiscal year). Interim fiscal year ended March 2005 Interim fiscal year ended March 2006 Fiscal year ended September 2005 Capital-to-asset ratio 21.12% 39.15% 42.61% Capital-to-asset ratio on a market value base % % Years of debt redemption 17.8 years - - Interest coverage ratio (Notes) 1. Each index is calculated using the following formulas, using financial statements on a consolidated base. Capital-to-asset ratio: Capital/Net assets Capital-to-asset ratio on a market value base: Total market value of stocks/net assets Redemption of debt: Liabilities with interest/operating cash flow Interest coverage ratio: Operating cash flow/interest payments Operating cash flow is the cash flow from operating activities that is listed in the consolidated cash flow statement. Additionally, Liabilities with interest are all liabilities with interest that are listed in the consolidated balance sheet, and Interest repayments are the interest repayment amounts that are listed in the consolidated cash flow statement. 2. Since the Company was unlisted, the capital-to-asset ratio on a market value base for the interim fiscal year ended September 2005 is not entered. 3. Since the operating cash flow from fiscal year ended September 2005 to interim fiscal year ending September 2006 had a negative value, the years of debt redemption and interest coverage ratio were not entered

15 4 [Interim Consolidated Financial Statements] (1) [Interim Consolidated Balance Sheets] (Assets) I II Current assets Notes No. End of Previous Interim Consolidated (March 31, 2005) Amount ( thousand) Of Total (%) End of Current Interim Consolidated (March 31, 2006) Amount ( thousand) Of Total (%) End of [Summary] (September 30, 2005) Amount ( thousand) 1 Cash and deposits *1 952,871 13,302,232 1,848,843 2 Accounts receivable 1,377 13, Operational investment securities 203, , ,030 4 Inventories Operational loans *1.3 3,092,000 37,353,589 5,364,000 6 Short-term loans - 4,000,000-7 Others 88, , ,687 Of Total (%) Total current assets 4,337, ,392, ,700, Fixed assets 1 Tangible fixed assets *2 (1) Buildings 33,057 50,943 55,364 (2) Equipment and fixtures Total tangible fixed assets 11,024 15,579 11,492 44,082 66,523 66,856 2 Intangible fixed assets 1,398 25,368 4,819 3 Investments and other assets (1) Others 161,621 2,535, ,563 Bad debts reserves -3, ,690 Total investments and other assets 157,930 2,535, ,872 Total fixed assets 203, ,627, , Total assets 4,540, ,019, ,042,

16 (Liabilities) I II Current liabilities Notes No. End of Previous Interim Consolidated ( March 31, 2005) Amount ( thousand) Of Total (%) End of Current Interim Consolidated ( March 31, 2006) Amount ( thousand) Of Total (%) End of [Summary] ( September 30, 2005) Amount ( thousand) 1 Accounts payable 31,662 29,435 37,198 2 Short-term borrowings 3 Operational borrowings 4 Long-term borrowings due within one year 63,000 27,375, ,000 *1 2,990,600 4,627,175 3,067,200 41, ,256 38,640 5 Income taxes payable 224, , ,513 6 Accrued bonuses 8,331 25,035 15,557 7 Others 111,058 1,763, ,155 Of Total (%) Total current liabilities 3,470, ,905, ,484, Long-term liabilities 1 Long-term borrowings 71, ,620 53,408 2 Accrued retirement benefits 3,791 3,093 2,370 3 Others 31,350 19,950 25,650 Total long-term liabilities 107, , , Total liabilities 3,577, ,230, ,565, (Minority interest) Minority interest 5, , , (Shareholders Equity) I Shareholders equity 550, ,555, ,303, II Capital surplus ,351, ,101, III Retained earnings 408, ,810, ,021, IV Treasury stock , Total shareholders equity Total liabilities, minority interest and shareholders equity 958, ,713, ,427, ,540, ,019, ,042,

17 (2) [Interim Consolidated Profit and Loss Statements] I Sales 1 Investment banking business 2 Reinsurance /financial guarantee business Notes No. Previous Interim Consolidated Amount ( thousand) Of Total (%) Current Interim Consolidated Amount ( thousand) Of Total (%) *1-2,862,237 - [Summary] Amount ( thousand) Of Total (%) *2-885, ,597 2,892, ,463, II Cost of goods sold 153, , , Gross profits 732, ,731, ,157, III Selling, general and administrative expenses *3 201, , , Operating profits 531, ,129, ,617, IV Non-operating profits 1 Interest received 14 6, Profits from managing investment partnerships 1,095-2,197 V 3 Others 93 1, , , Non-operating expenses 1 Interest paid ,027 2,725 2 Share issue expenses - 87,378 15,492 3 Bond issue expenses - 11,741-4 Evaluation losses of derivatives 5 Cost of preparing public offering 2,141-5,837 1,000-24,073 6 Syndicate loan fee - 25,384-7 Others 529 4, , , , Ordinary profits 528, ,991, ,571, VI Extraordinary losses 1 Head office relocation expenses Interim (year-end) net profits before income taxes *4 18,786 18, ,786 18, , ,991, ,552, Income taxes 219, , ,899 Adjustment for income taxes Interest or losses (-) of minority shareholders Interim (year-end) net profits -6, , , , , , , , , ,159, ,