Financial Results for the Six Months Ended September 30, 2016 ZENKOKU HOSHO Co., Ltd. November 2016
Table of Contents I. Overview of Financial Results P 3 II. Future Prospects P 10 1
Summary of Business Results for the Six Months Ended September 30, 2016 2 The housing market showed signs of recovery, including increased number of new housing starts compared to the same period of the previous fiscal year. We made progress in creating new partnerships, and signed new contracts with a total of 12 financial institutions, including 3 banks, 2 Shinkin banks, 6 JA cooperatives and 1 labour bank during the six months ended September 30, 2016. Operating revenue and income were both on a favorable trend as outstanding guarantee exposure increased steadily, and operating expenses were lower than the forecast. Operating expenses (expenses related to credit services) were lower than the forecast, primarily due to payment for subrogation performing at a low level.
3 I. Overview of Financial Results
Economic Environment Although the Japanese economy continued on a moderate recovery, its future prospects still remain uncertain due to concerns over the deceleration in overseas economies, such as the slowdown in economic growth in emerging Asian countries, and due to a standstill in improvements in corporate earnings resulting from the advance in the appreciation of the yen. Signs of recovery were seen in the housing market, with the number of new housing starts exceeding that of the same period of the previous fiscal year, due mainly to the effects of the Negative Interest Rate Policy adopted by the Bank of Japan and government policies designed to support housing acquisitions. In the housing loan market, competition to acquire customers has become increasingly intense among financial institutions as lower housing loan rates have stimulated demand for loans. Unemployment Rate (seasonally adjusted figures) (April, 2015-September, 2016) (unit: %) Number of new housing starts (April, 2015-September, 2016) (seasonally adjusted annual rate) (unit: Number of houses) 3.6 1,100,000 1,050,000 3.4 1,000,000 950,000 3.2 900,000 850,000 3.0 2015/4 2015/7 2015/10 2016/1 2016/4 2016/7 Source: Labor Force Survey, Ministry of Internal Affairs and Communications 800,000 2015/4 2015/7 2015/10 2016/1 2016/4 2016/7 Source: Statistics of Housing Starts, Ministry of Land, Infrastructure, Transport and Tourism 4
Increase in Number of Partnering Financial Institutions Trend in Number of Partnering Financial Institutions by Category (Unit: Number of Institutions) Banks Shinkin Banks Credit Unions JA JF Labour Bank Others 800 700 600 500 400 300 200 100 0 692 709 726 Partnership Market Share by Category 734 73 81 83 86 251 254 252 254 102 102 102 102 243 248 263 265 23 24 26 27 2012/3 2014/3 2013/3 2015/3 2014/3 2016/3 '2016/9 As a result of efforts to increase new partners, we concluded contracts with 3 banks, 2 Shinkin banks, 6 JA cooperatives and 1 labour bank during the six months ended September 30, 2016. (Unit: Number of Institutions) Non-Partners 24 Banks* Shinkin Banks Credit Unions JA Partnership Rate 78.2% Partners 86 11 8 95.8% 92.7% 254 102 389 40.5% 265 * The amount of banks is the sum of Regional Banks, 2nd Tier Regional Banks, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Sumitomo Mitsui Trust Bank, Limited., Resona Bank, Limited, Saitama Resona Bank, Limited and AEON Bank, Ltd. 5
Increase in Loan Guarantee Business Number of New Guarantees Received (Unit: Number of Guarantees) Number and Amount of New Guarantees Granted (Unit: Number, 100 million yen) 250,000 200,000 150,000 100,000 50,000 0 170,965 93,687 183,507 Annual 86,903 224,299 108,194 125,089 2014/3 2015/3 2016/3 2017/3 2Q *Number of guarantees of housing loans extended by private financial institutions to individual borrowers 2Q Number (Annual) (left scale) Number (2Q) (left scale) Amount (Annual) (right scale) Amount (2Q) (right scale) 80,000 15,018 16,000 70,000 14,000 11,454 12,084 60,000 12,000 50,000 64,228 10,000 7,135 8,422 40,000 54,422 8,000 54,129 5,603 5,484 30,000 36,477 6,000 26,754 30,889 20,000 25,365 4,000 10,000 2,000 0 0 2014/3 2015/3 2016/3 2017/3 2Q *Number of guarantees of housing loans extended by private financial institutions to individual borrowers. Number and amount of new guarantees granted (annual, 2Q) as of March 2016 do not include loan guarantees succeeded through an absorption-type split. Outstanding Guarantee Exposure (Unit: 100 million yen) Amount Repaid in Subrogation (Unit: 100 million yen) 120,000 100,000 86,163 91,597 100,001 104,394 180 150 120 161 Annual 2Q 124 120 80,000 60,000 90 60 30 85 65 62 58 40,000 2014/3 2015/3 2016/3 2016/9 0 2014/3 2015/3 2016/3 2017/3 2Q 6 *Outstanding guarantee exposure as of March 2016 and September 2016 include loan guarantees succeeded through an absorption-type split.
Summary of Business Results for the Six Months Ended September 30, 2016 (P/L) FY2016/3 2Q FY2017/3 2Q Change Operating revenue 12,558 14,311 14.0% Operating expenses 2,641 3,959 49.9% Expenses related to credit services Provision for loss on guarantees Provision of allowance for doubtful accounts (Unit: Million yen) 157 1,130 616.4% 455 1,353 197.4% 297 222 25.0% Other expenses 2,483 2,829 13.9% Operating income 9,916 10,352 4.4% Ordinary income 10,304 10,873 5.5% Extraordinary income and loss - 441 - Points Operating revenue Operating revenue amounted to 14,311 million yen as outstanding guarantee exposure remained steady. Operating expenses Operating expenses amounted to 3,959 million yen as a result of expenses related to credit services being 1,130 million yen primarily due to payment for subrogation performing at a low level. Net income As a result of above situations, net income amounted to 7,049 million yen. Net income 6,839 7,049 3.1% 7
Summary of Business Results for the Six Months Ended September 30, 2016 (B/S) Assets (Unit: Million yen) Liabilities (Unit: Million yen) FY2016/3 FY2017/3 2Q Change FY2016/3 FY2017/3 2Q Change Current assets 176,377 176,678 0.2% Cash and deposits 149,289 151,994 1.8% Right to reimbursement 11,989 12,269 2.3% Securities 7,077 4,873 31.1% Money held in trust 10,291 10,134 1.5% Allowance for doubtful accounts 6,802 6,658 2.1% Non-current assets 59,143 66,600 12.6% Investments and other assets 58,527 66,017 12.8% Investment securities 50,374 56,041 11.2% Total assets 235,520 243,278 3.3% Points Assets Due to the increase in number of new guarantees granted, cash and deposits and investment securities have increased. Liabilities Due to the solid increase in outstanding guarantee exposure, unearned revenue and long-term unearned revenue have increased. 8 Current liabilities 27,071 25,693 5.1% Unearned revenue 13,476 14,057 4.3% Provision for loss on guarantees 8,006 7,564 5.5% Non-current liabilities 134,336 139,963 4.2% Long-term unearned revenue 134,302 139,914 4.2% Total liabilities 161,407 165,657 2.6% Net assets Shareholders equity 74,278 77,540 4.4% Valuation and translation Adjustments 221 10 95.4% Total net assets 74,112 77,621 4.7% Total liabilities and net assets 235,520 243,278 3.3%
Provision for Loss on Guarantees The percentage of the provision for loss on outstanding guarantee exposure declined. The amount for provision for loss on guarantees posted during the six months ended September 30, 2016 was lower than the forecast primarily due to payment for subrogation performing at a low level, and amounted to 1.3 billion yen (down 24.0% compared to the forecast). Trends of provision for loss on guarantees and outstanding guarantee exposure 280 240 200 160 120 80 40 101 Provision for loss on guarantees (left scale) Percentage of provision 91,597 0.11% 80 100,001 0.08% 75 (Unit: 100 (Unit: million Billion yen) yen) Outstanding guarantee exposure (right scale) 104,394 0.07% 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Trends of provision for loss on guarantees 140 120 100 80 60 40 20 Year-start provision 118 45 73 Year-end provision 101 28 101 Amount reversed during the period 40 Provided amount 80 80 75 18 17 13 61 62 (Unit: 100 million yen) 0 2015/3 2016/3 2017/3(2Q) 0 0 Year-start During Year-end Year-start During Year-end Year-start During 2015/3 the period 2016/3 the period 2017/3(2Q) the period FY2015/3 FY2016/3 FY2017/3 2017/3( 計画 (2Q)) End of the period *Since units smaller than 0.1 are rounded off, totals might not be accurate. 9
10 II. Future Prospects
Progress in the First Half / Initiatives for the Second Half First Half Second Half Strengthening of relationships with existing partnering financial institutions Commenced offers of group credit life insurance with disability income insurance to expand our lineup Held presentation sessions with financial institutions for real estate companies, etc. Implement housing loan campaigns Continue to work on development and provision of products with added value Promotion of new partnerships with financial institutions Signed contracts with 12 financial institutions including Resona Bank, Limited, Saitama Resona Bank, Limited and The Kinki Osaka Bank, Ltd. Promote new partnerships with a focus on banks Promote penetration of our guarantee services to new partnering financial institutions Improvement of operational efficiency Enhanced efficiency of credit evaluation operations by improving credit evaluation systems Discussed with financial institutions regarding application data sharing Promote enhancement of operational efficiency by continuously improving systems, etc. 11
Forecast of Earnings FY2016/3 FY2017/3 2Q FY2017/3 (Forecast) Change Operating revenue 31,918 14,311 33,780 5.8% Operating expenses 6,793 3,959 9,540 40.4% Expenses related to credit services Provision for loss on guarantees Provision of allowance for doubtful accounts (Unit: Million yen) 1,380 1,130 3,600 160.9% 1,800 1,353 3,920 117.8% 419 222 320 23.6% Other expenses 5,412 2,829 5,940 9.8% Operating income 25,125 10,352 24,240 3.5% Assumptions of earnings forecast Outstanding guarantee exposure (unit: 100 million) Number of new guarantees granted (unit: number) Amount repaid in subrogation (unit: million) Collected right to reimbursement (unit: million) Other 108,120 67,500 13,530 8,310 ROE 19.7% Dividend per share 55 Ordinary income 26,303 10,873 25,140 4.4% Net income 17,204 7,049 17,290 0.5% 12
13 APPENDIX
Corporate History Mar. 1986 Apr. 1987 Aug. 1995 Oct. 1999 Apr. 2002 Apr. 2002 May 2002 Jan. 2003 Apr. 2003 May 2005 Apr. 2007 Apr. 2015 14 Opening of Business Office (Branch) Osaka Office Yokohama Office Sapporo Office Fukuoka Office Nagoya Branch Sendai Branch Niigata Office Hiroshima Branch Kanazawa Office Miyazaki Office Partial operations in Head Office Sales Department and Head Office Credit Analysis Department were unified and Head Office established. Takamatsu Office April 2002, Zenkoku Hosho commenced Smile Ichiban January 2001, Zenkoku Hosho started guarantee services for educational loans extended by private financial institutions July 1997, Zenkoku Hosho started credit guarantee services for housing loans extended by private financial institutions December 1994, Zenkoku Hosho started guarantee services for prefectural housing corporations September 1988, Zenkoku Hosho commenced guarantee service for insurance premium loans April 1987, Zenkoku Hosho started group credit life insurance services September 2014, Smile Ichiban Next V launched April 2014, Zenkoku Hosho started card loan guarantee business extended by private financial institutions October 2010, Smile Refinancing Wide launched May 2007, Smile Assist launched March 2006, Smile Support launched January 2005, Zenkoku Hosho started credit guarantee services for apartment loans extended by private financial institutions April 1981, Zenkoku Hosho started guarantee services for Employee pension-funded housing loans February 1981, Zenkoku Hosho was established for the purpose of serving credit guarantee business in Chiyoda-ku, Tokyo October 2015, Zenkoku Hosho commenced Smile Ichiban Select Trend in Outstanding Guarantee Exposure May 1998 Mar. 2003 Sep. 2004 Sep. 2005 Mar. 2007 Sep. 2008 Mar. 2011 Mar. 2013 Mar. 2015 Mar. 2016 1 trillion 2 trillion 3 trillion 4 trillion 5 trillion 6 trillion 7 trillion 8 trillion 9 trillion 10 trillion
Relationship Diagram of Credit Guarantee Services for Housing Loans Since a housing loan is generally large with a longer repayment period, a joint and several guarantor is required. However, as a joint and several guarantor shall be onerous in the event of the insolvency of the principal loan holder, Zenkoku Hosho can offer effective services for borrowers of housing loans. 2 Loan Contract 1 Master Guarantee Agreement Customers (housing loan borrowers) Loan Payment of Principal and Interest Partnering Financial Institutions Claim for Subrogation (in case of insolvency) Subrogation Zenkoku Hosho 3 Guarantee Entrustment Agreement Payment of Guarantee Fees 1 Master Guarantee Agreement Collection of Claims after Subrogation Master guarantee agreements shall be concluded by and between Zenkoku Hosho and each financial institution. This agreement defines an acceptance of guarantee and subrogation. 2 L o a n C o n t r a c t 3 Guarantee Entrustment Agreement Loan contract shall be concluded by and between each borrower and the lending financial institutions. This contract defines a loan amount, interest rate, lending period and other conditions of each loan. Guarantee Entrustment Agreements shall be concluded by and between each borrower and Zenkoku Hosho. Pursuant to the agreement, Zenkoku Hosho will act as joint and several guarantor for the housing loan. 15
Disclaimer and Notes Regarding Future Prospects Disclaimer This material is prepared by ZENKOKU HOSHO Co., Ltd. (hereinafter, Zenkoku Hosho ) with the aim of helping investors understand Zenkoku Hosho and is provided purely for reference. The information contained in the material is prepared based on generally accepted economic and social conditions as of November 4, 2016, and on certain assumptions that Zenkoku Hosho believes to be reasonable as well as on Zenkoku Hosho s sole judgment. However, the information may change without notice subject to fluctuations in the business environment. Notes Regarding Future Prospects Data and information provided in this announcement include so-called forward-looking statements. These are based on assumptions associated with current estimations, predictions, and risks, and include uncertainties that could cause results to be substantially different from the description. The risks and uncertainties include general economic conditions both in Japan and overseas, such as general industrial and market situations, interest rates, and currency exchange fluctuations. Even in the case where there is new information or are related events in the future, etc., Zenkoku Hosho shall not be obliged to update and correct any forward-looking statements contained in this announcement. 16