Non-consolidated Financial Results for the Three Months Ended June 30, 2017 [Japanese GAAP] August 4, 2017 Name of Listed Company ZENKOKU HOSHO Co., Ltd. Listed Stock Exchange Tokyo Code Number 7164 URL http://www.zenkoku.co.jp/ Representative (Title) President & Representative Director (Name) Eiji Ishikawa Contact Director and General Manager, (Title) Management Headquarters (Name) Yuichi Aoki (Phone) +81-3-3270-2302 Scheduled date of filing quarterly securities report August 8, 2017 Scheduled date of commencing dividend payments Availability of supplementary briefing material on quarterly financial results: Yes Schedule of quarterly financial results briefing session: None (Figures less than one million yen are omitted.) 1. Business Results for the Three Months Ended June 30, 2017 (April 1, 2017 to June 30, 2017) (1) Operating Results (Percentages represent changes from the previous corresponding period.) Operating revenue Operating income Ordinary income Net income Three months ended Million yen % Million yen % Million yen % Million yen % June 30, 2017 7,290 6.5 5,165 12.2 5,388 8.9 3,756 25.1 June 30, 2016 6,847 14.2 4,603 17.7 4,947 19.2 3,002 9.7 Net income per share Net income per share after full dilution Three months ended Yen Yen June 30, 2017 54.63 54.61 June 30, 2016 43.66 43.65 - (2) Financial Position Total assets Total net assets Shareholders equity ratio Million yen Million yen % As of June 30, 2017 262,447 89,736 34.2 As of March 31, 2017 263,352 90,149 34.2 (Reference) Shareholders equity As of June 30, 2017: 89,645 million yen; As of March 31, 2017: 90,058 million yen 2. Dividend Payments Annual dividend per share 1st 2nd 3rd quarter-end quarter-end quarter-end Year-end Annual Yen Yen Yen Yen Yen FY2016-0.00-62.00 62.00 FY2017 - FY2017 (forecast) 0.00-74.00 74.00 (Note) Revision to the forecast for dividends announced most recently: None
3. Non-consolidated Financial Forecast for the Fiscal Year Ending March 31, 2018 (April 1, 2017 to March 31, 2018) (Percentages represent changes from same period in previous year) Operating revenue Operating income Ordinary income Net income Net income per share Million yen % Million yen % Million yen % Million yen % Yen 1st six-month period 15,180 6.1 10,690 3.3 11,090 2.0 7,630 8.2 110.96 Full year 38,230 6.4 28,790 2.3 29,570 2.0 20,350 4.2 295.95 (Note) Revisions to the non-consolidated financial forecast announced most recently: None * Notes (1) Adoption of special accounting treatment for preparing quarterly non-consolidated financial statements: No (2) Changes in accounting policies, changes in accounting estimates and retrospective restatement (i) Changes in accounting policies due to the revision of accounting standards : No (ii) Changes of accounting policies other than (i) above (iii) Changes in accounting estimates (iv) Retrospective restatement : No : No : No (3) Number of shares issued (Common stock) (i) Number of issued shares at the end of period (including treasury stock) As of June 30, 2017 68,860,980 shares As of March 31, 2017 68,860,980 shares (ii) Number of treasury stocks at the end of period As of June 30, 2017 100,006 shares As of March 31, 2017 99,957 shares (iii) Average number of shares during the period Three Months Ended June 30, 2017 Three Months Ended 68,760,984 shares June 30, 2016 68,761,069 shares (Note) The Company s shares held by the Employee Stock Ownership Plan (J-ESOP) of 99,650 shares as of June 30, 2017 and 99,650 shares as of March 31, 2017 are included in treasury stocks. P* These quarterly financial statements are outside the scope of quarterly review procedures. * Explanation on appropriate use of forecasts of performance and other special items The forward-looking statements in this document concerning forecasting of performance and etc. are based on currently available information and assumptions considered by the company to be reasonable. The actual performance may be significantly different from the forecast due to various factors. For the assumptions used as a basis for forecast of performance and important matters when using the forecast of performance, please refer to Explanation of Future Forecast Information such as Non-consolidated Results Forecast on page 3 of the Attached Documents.
Table of Contents of Attached Documents 1. Qualitative Information on Quarterly Financial Results 2 (1) Explanation of Operating Results 2 (2) Explanation of Financial Position 2 (3) Explanation of Future Forecast Information such as Non-consolidated Results Forecast 3 2. Non-consolidated Quarterly Financial Statements and Significant Notes 4 (1) Non-consolidated Quarterly Balance Sheets 4 (2) Non-consolidated Quarterly Statements of income 6 (3) Non-consolidated Quarterly Statements of cash flows 7 (4) Notes to Non-consolidated Quarterly Financial Statements 8 (Notes on Going Concern Assumption) 8 (Notes in Event of Significant Change in Shareholders Equity) 8 1
1. Qualitative Information on Quarterly Financial Results (1) Explanation of Operating Results During the three months ended June 30, 2017, despite uncertainty in the outlook for overseas economies, the Japanese economy continued on a moderate recovery trend due to sustained improvements in corporate earnings, employment and income conditions, as well as signs of 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. Moreover, in the housing loan market, as refinancing demand, which had been increased backed by the low housing loan rates, has slowed down, financial institutions are now actively promoting loan guarantees for new and secondhand housing. In such a business environment, we have implemented various measures with the focus on expansion of the business scale and enhancement of the corporate value. For the expansion of the business scale, we have exerted our efforts to enhance the utilization rate of our credit guarantee products with the existing partnering financial institutions, and increased the number of new contracts with prospective partnering financial institutions. As for the enhancement of utilization rate of our credit guarantee products with the existing partnering financial institutions, we worked to continuously deepen relationships by holding presentation sessions on our credit guarantee products, as well as visiting activities to the sales branch. In addition, as an initiative to increase added value, we implemented initiatives aiming for the development and implementation of an application data linkage system with financial institutions. As for increasing the number of new contracts with prospective partnering financial institutions, we continuously performed marketing activities, and as a result, signed new contracts with three JA cooperatives during the three months ended June 30, 2017. For the enhancement of the corporate value, we worked to improve screening operational efficiency by utilizing systems, and to develop a vigorous corporate culture through promoting the reform of working styles and establishment of new personnel system which places greater emphasis on cultivating human resources. As a result of such efforts, we recorded an operating revenue of 7,290 million (up 6.5% compared to the same period of the previous fiscal year), an operating income of 5,165 million (up 12.2% compared to the same period of the previous fiscal year), an ordinary income of 5,388 million (up 8.9% compared to the same period of the previous fiscal year), and a net income of 3,756 million (up 25.1% compared to the same period of the previous fiscal year) in the first quarter under review. As we operate in the single segment of the credit guarantee business, figures by segment are omitted. (2) Explanation of Financial Position (i) Financial Position At the end of the first quarter under review, total assets amounted to 262,447 million, down 0.3% from the end of the previous fiscal year. Current assets totaled 196,443 million, down 0.2% from the end of the previous fiscal year, due to 2
a decrease in money held in trust. Non-current assets totaled 66,004 million, down 0.7% from the end of the previous fiscal year, due to a decrease in investment securities. Total liabilities amounted to 172,710 million, down 0.3% from the end of the previous fiscal year. Current liabilities totaled 24,834 million, down 10.1% from the end of the previous fiscal year, due to a decrease in income taxes payable. Non-current liabilities amounted to 147,875 million, up 1.6% from the end of the previous fiscal year, due to an increase in long-term unearned revenue. Total net assets totaled 89,736 million, down 0.5% from the end of the previous fiscal year, due to a decrease in retained earnings. (ii) Cash Flows Status In the first quarter under review, cash and cash equivalents (hereinafter referred to as funds ) amounted to 71,077 million, down 5,324 million from the end of previous fiscal year, due to an increase of 3,180 million in operating activities, a decrease of 4,256 million in investing activities, and a decrease of 4,248 million in financing activities. (Cash flows from operating activities) Funds provided by operating activities amounted to 3,180 million. The main positive factors included income before income taxes of 5,442 million and an increase in long-term unearned revenue of 2,266 million, while the main negative factor included income taxes paid of 4,433 million. (Cash flows from investing activities) Funds used in investing activities amounted to 4,256 million. The main negative factors included payment into time deposits of 39,593 million, and purchase of securities of 4,000 million, while the main positive factors included proceeds from withdrawal of time deposits of 29,800 million and proceeds from cancellation and dividends of money held in trust of 8,433 million. (Cash flows from financing activities) Funds used in financing activities amounted to 4,248 million. The main negative factor included cash dividends paid of 4,248 million. (3) Explanation of Future Forecast Information such as Non-consolidated Results Forecast Non-consolidated Results Forecast for the fiscal year ending March 31, 2018 has not changed since the announcement of the forecast on May 8, 2017. 3
2.Non-consolidated Quarterly Financial Statements and Significant Notes (1) Non-consolidated Quarterly Balance Sheets FY2016 As of March 31,2017 (Amount: million yen) FY2017 As of June 30,2017 Assets Current assets Cash and deposits 172,852 178,321 Right to reimbursement 11,481 12,253 Securities 4,822 7,221 Money held in trust 10,058 1,595 Accounts receivable - other 378 254 Prepaid expenses 31 44 Deferred tax assets 3,372 3,316 Other 232 392 Allowance for doubtful accounts 6,355 6,956 Total current assets 196,872 196,443 Non-current assets Property, plant and equipment Buildings 204 204 Accumulated depreciation 131 134 Buildings, net 72 70 Vehicles 56 56 Accumulated depreciation 32 34 Vehicles, net 23 21 Tools, furniture and fixtures 362 363 Accumulated depreciation 267 272 Tools, furniture and fixtures, net 95 90 Land 4 4 Total property, plant and equipment 196 186 Intangible assets Software 302 285 Software in progress 57 88 Other 3 3 Total intangible assets 363 378 Investments and other assets Investment securities 54,053 53,601 Shares of subsidiaries and associates 9 9 Long-term time deposits 10,000 10,000 Long-term prepaid expenses 66 65 Prepaid pension cost 14 14 Deferred tax assets 1,159 1,134 Other 616 613 Total investments and other assets 65,919 65,439 Total non-current assets 66,479 66,004 Total assets 263,352 262,447 4
FY2016 As of March 31,2017 (Amount: million yen) FY2017 As of June 30,2017 Liabilities Current liabilities Unearned revenue 14,552 14,817 Deposits received 28 31 Accounts payable - other 916 1,114 Income taxes payable 4,701 1,611 Provision for bonuses 233 124 Provision for loss on guarantees 7,079 7,108 Provision for shareholder benefit program 84 6 Other 11 21 Total current liabilities 27,609 24,834 Non-current liabilities Long-term unearned revenue 145,543 147,810 Provision for stocks payment 48 65 Total non-current liabilities 145,592 147,875 Total liabilities 173,202 172,710 Net assets Shareholders' equity Capital stock 10,684 10,684 Capital surplus 618 618 Retained earnings 78,985 78,472 Treasury shares 267 267 Total shareholders' equity 90,021 89,508 Valuation and translation adjustments Valuation difference on available-for-sale securities 36 136 Total valuation and translation adjustments 36 136 Subscription rights to shares 91 91 Total net assets 90,149 89,736 Total liabilities and net assets 263,352 262,447 5
(2) Non-consolidated Quarterly Statements of income Three months ended June 30,2016 Three months ended June 30,2017 (Amount: million yen) Operating revenue Income guarantee fee 6,823 7,251 Other income 24 38 Total operating revenue 6,847 7,290 Operating expenses Provision for loss on guarantees 940 764 Provision of allowance for doubtful accounts 106 134 Salaries, allowances and bonuses 335 356 Provision for bonuses 116 124 Depreciation 49 48 Other 909 965 Total operating expenses 2,244 2,124 Operating income 4,603 5,165 Non-operating income Interest income 183 157 Dividend income 60 37 Gain on investments in money held in trust 96 8 Other 8 19 Total non-operating income 349 223 Non-operating expenses Commission fee 4 0 Other 0 0 Total non-operating expenses 4 0 Ordinary income 4,947 5,388 Extraordinary income Gain on sales of investment securities - 54 Total extraordinary income - 54 Extraordinary loss Loss on valuation of investment securities 408 - Total extraordinary loss 408 - Income before income taxes 4,539 5,442 Income taxes - current 1,273 1,595 Income taxes - deferred 263 90 Total income taxes 1,536 1,686 Net income 3,002 3,756 6
(3) Non-consolidated Quarterly Statements of cash flows Three months ended June 30,2016 (Amount: million yen) Three months ended June 30,2017 Cash flows from operating activities Income before income taxes 4,539 5,442 Depreciation 49 48 Increase (decrease) in allowance for doubtful accounts 787 600 Increase (decrease) in provision for bonuses 92 108 Increase (decrease) in provision for loss on guarantees 46 28 Increase (decrease) in provision for shareholder benefit program 124 78 Decrease (increase) in prepaid pension costs 7 0 Increase (decrease) in provision for stocks payment 15 16 Interest and dividend income 244 195 Loss (gain) on money held in trust 96 8 Loss (gain) on sales of investment securities - 54 Loss (gain) on valuation of investment securities 408 - Decrease (increase) in right to reimbursement 1,424 772 Increase (decrease) in unearned revenue 307 264 Increase (decrease) in long-term unearned revenue 2,540 2,266 Increase/decrease in other assets/liabilities 302 55 Subtotal 7,006 7,506 Interest and dividend income received 155 107 Income taxes paid 4,263 4,433 Net cash provided by (used in) operating activities 2,899 3,180 Cash flows from investing activities Payments into time deposits 29,800 39,593 Proceeds from withdrawal of time deposits 30,100 29,800 Purchase of securities 3,000 4,000 Proceeds from sales and redemption of securities 5,100 2,100 Proceeds from cancellation and dividends of money held in trust 185 8,433 Purchase of property, plant and equipment 16 1 Proceeds from sales of property, plant and equipment 1 - Purchase of intangible assets 35 65 Purchase of investment securities - 2,608 Proceeds from sales and redemption of investment securities 200 1,678 Net cash provided by (used in) investing activities 2,734 4,256 Cash flows from financing activities Purchase of treasury shares 0 0 Cash dividends paid 3,756 4,248 Net cash provided by (used in) financing activities 3,756 4,248 Effect of exchange rate change on cash and cash equivalents - 0 Net increase (decrease) in cash and cash equivalents 1,877 5,324 Cash and cash equivalents at beginning of period 40,339 76,402 Cash and cash equivalents at end of period 42,217 71,077 7
(4) Notes to Non-consolidated Quarterly Financial Statements (Notes on Going Concern Assumption) Not applicable (Notes in Event of Significant Change in Shareholders Equity) Not applicable 8
Financial Results for the Three Months Ended June 30, 2017 ZENKOKU HOSHO Co., Ltd. August 2017
Summary of Business Results for the Three Months Ended June 30, 2017 The number of new housing was 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 3 JA cooperatives during the three months ended June 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. 1
2 Overview of Financial Results
Economic Environment Despite uncertainty in the outlook for overseas economies, the Japanese economy continued on a moderate recovery trend due to sustained improvements in corporate earnings, employment and income conditions as well signs of recovery in consumer spending. In the housing market, the number of new housing was 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, as a refinancing demand, which had been increased backed by the low housing loan rates, has slowed down, financial institutions are now actively promoting loan guarantees for new and secondhand housing. Unemployment Rate (seasonally adjusted figures) (April, 2016-June, 2017) (unit: %) Number of new housing starts (April, 2016-June, 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 2017/4 800,000 2016/4 2016/7 2016/10 2017/1 2017/4 Source: Labor Force Survey, Ministry of Internal Affairs and Communications Source: Statistics of Housing Starts, Ministry of Land, Infrastructure, Transport and Tourism 3
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 88 600 500 254 252 253 253 400 300 102 102 101 101 200 100 248 263 268 271 0 24 26 28 27 2015/3 2016/3 2017/3 2017/6 Partnership Market Share by Category 740 As a result of efforts to increase new partners, we concluded contracts with 3 JA cooperatives during the three months ended June 30, 2017. (Unit: Number of Institutions) 11 Partnership 7 22 Rate 80.0% 95.8% 93.5% 41.6% Non-Partners Banks* Shinkin Banks Credit Unions JA Partners 88 253 101 381 271 4 * 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 three months ended June 30, 2017 decreased as demand for refinancing slowed down. Number of New Guarantees Received 250,000 200,000 150,000 100,000 50,000 0 183,507 42,532 224,299 54,626 (Unit: Number of Guarantees) 245,758 65,663 67,021 *Number of guarantees of housing loans extended by private financial institutions to individual borrowers Number and Amount of New Guarantees Granted (Unit: Number, 100 million yen) *Number of guarantees of housing loans extended by private financial institutions to individual borrowers. Outstanding Guarantee Exposure (Unit: 100 million yen) Amount Repaid in Subrogation (Unit: 100 million yen) 120,000 100,000 Annual 1Q 2015/3 2016/3 2017/3 2018/3 1Q 91,597 100,001 108,906 111,025 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 150 120 12,084 54,422 Number (Annual) (left scale) Amount (Annual) (right scale) 2,462 15,018 64,228 11,534 13,850 3,161 16,897 71,777 4,023 3,850 17,595 16,129 2015/3 2016/3 2017/3 2018/3 1Q 124 120 Annual 1Q Number (1Q) (left scale) Amount (1Q) (right scale) 114 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 80,000 90 60,000 60 30 33 32 29 23 40,000 2015/3 2016/3 2017/3 2017/6 0 2015/3 2016/3 2017/3 2018/3 1Q 5 *Estimated figures were used for part of outstanding guarantee exposure for the period under review.
Summary of Business Results for the Three Months Ended June 30, 2017 (P/L) FY2017/3 1Q FY2018/3 1Q Change Operating revenue 6,847 7,290 6.5% Operating expenses 2,244 2,124 5.3% Expenses related to credit services Provision for loss on guarantees Provision of allowance for doubtful accounts (Unit: Million yen) 833 629 24.5% 940 764 18.7% 106 134 26.0% Other expenses 1,411 1,495 5.9% Operating income 4,603 5,165 12.2% Ordinary income 4,947 5,388 8.9% Extraordinary income and loss 408 54 - Points Operating revenue Operating revenue amounted to 7,290 million yen as outstanding guarantee exposure remained steady. Operating expenses Operating expenses amounted to 2,124 million yen as a result of expenses related to credit services being 629 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 3,756 million yen. Net income 3,002 3,756 25.1% 6
Summary of Business Results for the Three Months Ended June 30, 2017 (B/S) Assets (Unit: Million yen) Liabilities (Unit: Million yen) FY2017/3 FY2018/3 1Q Change FY2017/3 FY2018/3 1Q Change Current assets 196,872 196,443 0.2% Cash and deposits 172,852 178,321 3.2% Right to reimbursement 11,481 12,253 6.7% Securities 4,822 7,221 49.8% Money held in trust 10,058 1,595 84.1% Allowance for doubtful accounts 6,355 6,956 9.5% Noncurrent assets 66,479 66,004 0.7% Investments and other assets 65,919 65,439 0.7% Investment securities 54,053 53,601 0.8% Total Assets 263,352 262,447 0.3% Points Assets Money held in trust decreased due to partial cancellation. Current liabilities 27,609 24,834 10.1% Unearned revenue 14,552 14,817 1.8% Provision for loss on guarantees 7,079 7,108 0.4% Noncurrent liabilities 145,592 147,875 1.6% Long-term unearned revenue 145,543 147,810 1.6% Total liabilities 173,202 172,710 0.3% Net assets Shareholders' equity 90,021 89,508 0.6% Valuation and translation Adjustments 36 136 275.9% Total net assets 90,149 89,736 0.5% Total liabilities and net assets 263,352 262,447 0.3% 7 Liabilities Due to the increase in outstanding guarantee exposure, unearned revenue and long-term unearned revenue increased.
Forecast of Earnings FY2017/3 FY2018/3 2Q (Forecast) FY2018/3 (Forecast) Change Operating revenue 35,918 15,180 38,230 6.4% Operating expenses 7,778 4,490 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 1,550 3,320 63.5% 2,676 1,700 3,620 35.3% 645 150 300 53.5% Other expenses 5,747 2,940 6,120 6.5% Operating income 28,139 10,690 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 11,090 29,570 2.0% Net income 19,530 7,630 20,350 4.2% 8