Financial Results for the Six Months Ended September 30, 2017 ZENKOKU HOSHO Co., Ltd. November 2017
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, 2017 The number of new housing remained robust due mainly to the continuance of the Negative Interest Rate Policy adopted by the Bank of Japan and government policies designed to support housing acquisitions. Progress made in new partnerships, we concluded new contracts with 9 JA cooperatives during the six months ended September 30, 2017. Operating revenue and income were on a favorable trend as outstanding guarantee exposure increased steadily. Operating expenses (expenses related to credit services) were lower than the forecast, primarily due to payment for subrogation performing at a low level. 2
3 I. Overview of Financial Results
Economic Environment Despite a sense of uncertainty in the outlook for overseas economies, the Japanese economy continued on a recovery trend due to sustained improvements in corporate earnings, employment and income conditions as well as a moderate recovery in consumer spending. In the housing market, the number of new housing remained robust due mainly to the continuance 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, refinancing demand, which had been increasing backed by the low housing loan rates, has slowed down and financial institutions continue to actively promote loans for new and secondhand housing. Unemployment Rate (seasonally adjusted figures) (April, 2016-September, 2017) (unit: %) Number of new housing starts (April, 2016-September, 2017) (seasonally adjusted annual rate) (unit: Number of houses) 3.4 1,100,000 1,050,000 3.2 1,000,000 950,000 3.0 900,000 850,000 2.8 2016/4 2016/7 2016/10 2017/1 2017/4 2017/7 Source: Labor Force Survey, Ministry of Internal Affairs and Communications 800,000 2016/4 2016/7 2016/10 2017/1 2017/4 2017/7 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) 800 Banks Shinkin Banks Credit Unions JA JF Labour Bank Others 709 726 738 700 81 83 88 88 600 500 254 252 253 253 400 300 102 102 101 101 200 100 248 263 268 277 0 24 26 28 27 2015/3 2016/3 2017/3 2017/9 Partnership Market Share by Category 746 As a result of efforts to increase new partners, we concluded contracts with 9 JA cooperatives during the six months ended September 30, 2017. (Unit: Number of Institutions) 11 Partnership 7 22 Rate 80.0% 95.8% 93.5% 42.5% Non-Partners Banks* Shinkin Banks Credit Unions JA Partners 88 253 101 375 277 5 * 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.
Increase in Loan Guarantee Business The number of new guarantees granted in the six months ended September 30, 2017 decreased as demand for refinancing slowed down. 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 0 183,507 86,903 224,299 Annual 108,194 *Number of guarantees of housing loans extended by private financial institutions to individual borrowers 2Q 245,758 125,089 130,422 2015/3 2016/3 2017/3 2018/3 2Q 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 12,084 54,422 Number (Annual) (left scale) Amount (Annual) (right scale) 25,365 5,484 15,018 64,228 30,889 7,135 Amount (2Q) (right scale) 16,897 71,777 Number (2Q) (left scale) 8,422 8,280 36,477 34,327 2015/3 2016/3 2017/3 2018/3 2Q *Number of guarantees of housing loans extended by private financial institutions to individual borrowers. 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Outstanding Guarantee Exposure (Unit: 100 million yen) Amount Repaid in Subrogation (Unit: 100 million yen) 120,000 100,000 91,597 100,001 108,906 113,405 150 120 124 120 Annual 2Q 114 80,000 90 60 65 62 58 52 60,000 30 6 40,000 2015/3 2016/3 2017/3 2017/9 0 2015/3 2016/3 2017/3 2018/3 2Q
Summary of Business Results for the Six Months Ended September 30, 2017 (P/L) FY2017/3 2Q FY2018/3 2Q Change FY2018/3 2Q (Forecast) Operating revenue 14,311 15,264 6.7% 15,180 Operating expenses 3,959 4,067 2.7% 4,490 Expenses related to credit services Provision for loss on guarantees Provision of allowance for doubtful accounts (Unit: Million yen) 1,130 1,165 3.1% 1,550 1,353 1,537 13.6% 1,700 222 371 66.8% 150 Other expenses 2,829 2,902 2.6% 2,940 Operating income 10,352 11,196 8.2% 10,690 Points Operating revenue Operating revenue amounted to 15,264 million yen as outstanding guarantee exposure remained steady. Operating expenses Operating expenses amounted to 4,067 million yen as a result of expenses related to credit services being lower than the forecast at 1,165 million yen due to payment for subrogation performing at a low level. Net income As a result of above situations, net income amounted to 8,036 million yen. Ordinary income 10,873 11,592 6.6% 11,090 Extraordinary income and loss 441 53 - - Net income 7,049 8,036 14.0% 7,630 7
Summary of Business Results for the Six Months Ended September 30, 2017 (B/S) Assets (Unit: Million yen) Liabilities (Unit: Million yen) FY2017/3 FY2018/3 2Q Change FY2017/3 FY2018/3 2Q Change Current assets 196,872 203,578 3.4% Cash and deposits 172,852 185,994 7.6% Right to reimbursement 11,481 11,523 0.4% Securities 4,822 8,220 70.5% Money held in trust 10,058-100.0% Allowance for doubtful accounts 6,355 5,999 5.6% Noncurrent assets 66,479 68,304 2.7% Investments and other assets 65,919 67,735 2.8% Investment securities 54,053 55,033 1.8% Total assets 263,352 271,882 3.2% Points Assets Cash and deposits increased due to the solid increase of outstanding guarantee exposure. Money held in trust was canceled. Liabilities Due to the increase in outstanding guarantee exposure, unearned revenue and long-term unearned revenue increased. 8 Current liabilities 27,609 26,711 3.3% Unearned revenue 14,552 15,100 3.8% Provision for loss on guarantees 7,079 6,923 2.2% Noncurrent liabilities 145,592 151,128 3.8% Long-term unearned revenue 145,543 151,063 3.8% Total liabilities 173,202 177,840 2.7% Net assets Shareholders' equity 90,021 93,789 4.2% Valuation and translation adjustments 36 128 251.8% Total net assets 90,149 94,041 4.3% Total liabilities and net assets 263,352 271,882 3.2%
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, 2017 was lower than the forecast primarily due to payment for subrogation performing at a low level, and amounted to 1.5 billion yen (down 9.6% compared to the forecast). Trends of provision for loss on guarantees and outstanding guarantee exposure (Unit: 100 million yen) 債務保証損失引当金 Provision for loss on ( guarantees 左目盛 ) Outstanding 保証債務残高 guarantee ( 右目盛 exposure ) (left scale) (right scale) Percentage of provision 280 140,000 240 108,906 113,405 120,000 100,001 200 100,000 160 0.08% 80,000 120 60,000 0.07% 0.06% 80 40,000 40 80 70 69 20,000 Trends of provision for loss on guarantees 120 100 80 60 40 20 Year-start provision 101 40 61 Year-end provision 80 18 80 Amount reversed during the period 36 70 70 69 26 44 53 (Unit: 100 million yen) Provided amount 16 15 0 2016/3 2017/3 2018/3(2Q) 0 0 Year-start During Year-start During Year-end Year-start During 2016/3 the period Year-end 2017/3 the period 2018/3(2Q) the period FY2016/3 2015/3 FY2017/3 2016/3 FY2018/3 2017/3( 計画 (2Q)) End of the period 9 *Percentages of provision are rounded off to the second decimal place. *Since figures less than 100 million yen are rounded down, numbers may not add up precisely.
10 II. Future Prospects
Progress in the First Half / Initiatives for the Second Half First Half Second Half Conclude new contracts with nonpartner financial institutions Formed partnerships with 9 JA cooperatives Further promote partnerships through ongoing activities to conclude new contracts Increase added value to strengthen alliances with financial institutions Commenced operation of the data linkage system to receive credit data from financial institutions. Aim for reducing administrative burden, improving service quality, and enhancing security Established an application scheme using the Internet Commenced initiatives with website providing real estate property information Provide proposals for the introduction of the data linkage system and the application system using the Internet Increase profitability through streamlining of operations Considered paperless credit evaluation Undertake initiatives to achieve paperless credit evaluation starting from the fiscal year ending March 31, 2019 11
Forecast of Earnings FY2017/3 FY2018/3 2Q FY2018/3 (Forecast) Change Operating revenue 35,918 15,264 38,230 6.4% Operating expenses 7,778 4,067 9,440 21.4% Expenses related to credit services Provision for loss on guarantees Provision of allowance for doubtful accounts (Unit: Million yen) 2,030 1,165 3,320 63.5% 2,676 1,537 3,620 35.3% 645 371 300 53.5% Other expenses 5,747 2,902 6,120 6.5% Operating income 28,139 11,196 28,790 2.3% 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 117,660 74,000 12,100 7,700 ROE 19.5% Dividend per share 74 Ordinary income 29,001 11,592 29,570 2.0% Net income 19,530 8,036 20,350 4.2% 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 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 September 2014, Smile Ichiban Next V launched April 2014, Zenkoku Hosho started card loan guarantee business extended by private financial institutions 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 Jun. 2017 1 trillion 2 trillion 3 trillion 4 trillion 5 trillion 6 trillion 7 trillion 8 trillion 9 trillion 10 trillion 11 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 L o a n C o n t r a c t 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 6, 2017, 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