President's Message
To Our Investors and Shareholders
I am Yoshitaka Fukuda, President of AIFUL.
Thank you for visiting our Investor Relations website. This website is your one-stop shop for a wide range of materials and useful information. Here you will find AIFUL news releases, financial data like our "Databook," and presentations on management strategy. I sincerely hope that these materials will help you to understand our current position and management strategy.
1. Overview of Financial Results for Interim Period (first half of the fiscal year ending March 31, 2008
(1) Overview of Consolidated and Non-consolidated Financial Results
In financial statements released November 13, 2007, the AIFUL Group recorded first-half operating revenue of 216.5 billion yen, down 18% year-on-year, with 125.2 billion yen in non-consolidated operating revenue at AIFUL, down 22% year-on-year. Consolidated ordinary income stood at 21.5 billion yen, with a 13.1 billion yen contribution from AIFUL, showing income growth somewhat higher than our initial projections.
So, despite the top-line decline brought on by our tightening up on credit, income grew-mainly because of a reduction in SG&A expenses resulting from cost structure reforms and the partial reversal of the reserve for losses on interest repayments.
(2) Financial Results of Each Group Company
First, credit card company LIFE issued 990,000 new credit cards in the first half of the year, bringing the number of cardholders to 14.54 million and showing healthy growth. Ordinary income was 5.0 billion yen in the first half due to a decline in interest repayments and bad debt expenses.
In the small business loan segment, Businext recorded 4% growth in its balance of loans outstanding. However due to a prudent increase in provisioning in anticipation of a rise in bad debts, the company posted a 200 million yen ordinary loss for the first half. City's, which is currently undergoing the restructuring of its business model, recorded an 18% decline in its balance of loans outstanding. Moreover, it posted a 1.0 billion yen ordinary loss for the first half, which is partly attributable to an increase in the reserve for losses on interest repayments.
Turning now to our consumer finance subsidiaries, the balance of loans outstanding declined 27% at TryTo during the first half as a result of tightening up on credit, but the company recorded ordinary income of 300 million yen due to a decline in interest repayment expenses. Similarly, the balance of loans outstanding fell 29% at Wide Corporation, which posted ordinary income of 4.2 billion yen.
2. Business Environment
(1) Bad Debt Ratio
The bad debt write off ratio at AIFUL on a non-consolidated basis was 7% during the first half of the year, representing an increase of 3% compared to the previous first half. The main reasons for this were a decline in receivables outstanding and an increase in the waiver of claims accompanying interest repayments.
(2) Fund Procurement
The funding rate for the AIFUL Group was 1.87% in the first half, which was an increase of 7 basis points compared to the first half of the previous year due to the rise in long-term interest rates. The funding rate for the current fiscal year is projected to be 2.05% with the anticipated rise in long-term interest rates. In addition, AIFUL has hedged 81% of its funding using interest caps and swaps to provide against the rise in long-term interest rates.
3. Comprehensive Financial Services Strategy
In the future, the environment for AIFUL will change significantly with the lowering of the maximum interest rate and restrictions on aggregate loan amounts. In order to build a business model strategically keyed to a maximum interest rate of 18% quickly, the AIFUL Group will move forward with: (1) thorough cost structure reform and reorganization of group companies; (2) reduction of credit costs through tighter credit criteria; (3) creation of a new scoring system and sales of new products; and (4) diversification of receivables portfolio.
Firstly, in cost structure reforms, as we announced on January 20, we are reducing the overall number of the group's branches from 2,713 to 1,193, and reducing the number of group employees with 644 voluntary retirees from among full-time employees and a reduction of 900 in the number of temporary employees.
Moreover, we are also substantially revising system development costs, billboards and other costs to implement cost reductions of at least 40 billion yen on a non-consolidated basis. In terms of the reorganization and rationalization of group companies, we are restructuring and integrating consumer finance subsidiaries, for example, by transferring the high quality claims of the four consumer finance subsidiaries to LIFE. In addition, we are reviewing the business office and personnel structure at business loan subsidiary City's with the aim of business rationalization. Additionally, we will also pare back the per-item credit business at credit card and shopping loan (or shinpan) company LIFE from the perspective of risk and profitability, shifting management resources to credit card shopping and credit card cash advances.
Furthermore, regarding the restructuring of our receivables portfolio, AIFUL will reduce the proportion of high-risk unsecured loans for which the market has matured and which will be subject to restrictions on aggregate loan amounts, from the current 64% to 50% in the medium to long term. We will expand the small business loan and credit card businesses and the guarantee business segment, which are growth areas.
Looking ahead, the advent of a tough external environment is expected with the revision of the Money Lending Business Control and Regulation Law and the lowering of the maximum interest rate. The AIFUL Group, however, will continue pushing ahead with its comprehensive financial services strategy and promoting various tactics to cut costs, while focusing efforts on thorough compliance and the principle of "customer-first." We will also continue striving to earn the support of all our stakeholders with the aim of securing stable income growth and profitability.
May 2007
Yoshitaka Fukuda
President and CEO
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