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Financial Results of FY2018
Ⅰ. FY 2018 Highlights
II. FY2018 Financial Report 1-(1). Financial Results (JGAAP)
1-(2). Financial Results (IFRS / Differences between JGAAP and IFRS)
2. Results by Business Segment (IFRS)
3. Contribution by Consolidated Companies
4. Main Indices (Non-consolidated)
5. Credit Risk / Credit Cost
6. Interest Repayment Claims
7. Trends in Management Indicators
8. Trends in dividend per share & Payout ratio
(Reference) Fund Structure and trends in interest-bearing debt (non-consolidated)
III. New Medium-Term Management Plan (FY2019 - FY2021)
New Medium-Term Management Vision: Neo Finance Company in Asia
Medium-Term Management Plan - Numerical Targets -
Recap of the Previous Medium-Term Management Plan and Vision for the New Medium-Term Management Plan
Key Points of the New Medium-Term Management Plan
（i）Growth Strategies and Structural Reform in the Payment Business(1)
（i）Growth Strategies and Structural Reform in the Payment Business(2)
（i）Growth Strategies and Structural Reform in the Payment Business(3)
（i）Growth Strategies and Structural Reform in the Payment Business(4)
（i）Growth Strategies and Structural Reform in the Payment Business(5)
（i）Growth Strategies and Structural Reform in the Payment Business(6)
（i）Growth Strategies and Structural Reform in the Payment Business(7)
（ii）Further expansion of Finance Business as a non-bank
（iii）Expanding the Earnings Base of Global Business with a View to the Future(1)
（iii）Expanding the Earnings Base of Global Business with a View to the Future(2)
Conclusion of a Basic Agreement Concerning Factors Including Constructive Dissolution of the Comprehensive Business Partnership with Mizuho Bank
IV. ESG-related initiatives
Comparison of Share for Payment Methods in Consumer Spending in Japan and the U.S.
(Reference) Domestic Market Share (Shopping Transaction Volume)
Good morning. Thank you for participating in the explanatory meeting for the Company's financial results. Let us look at the financial results for the 2018 fiscal year.
Here are the main topics for the 2018 fiscal year. On this slide, you can s ee the details of both the internal and the external environment of the Company.
The Company has changed its standards of accounting switching from Japanese standards to IFRS. With the Credit Services Business and the Finance Business playing th e role of the driving force behind our performance, the Company posted operating revenue of 304,800 million yen (104.3% year on year). The ordinary income was 54,100 million yen (95.5% year on year ), and the reason for this decrease is twofold. Firstly, i n the last fiscal year, the Company posted 4,500 million yen as equity method investment profit resulting from sales of investment securities owned by the UC Card, an equity method affiliate, an extraordinary income which is absent this year, and, secondly , the burden of the depreciation of the a ssociated c ore s ystem increased. The current term net income was 34 billion yen (88.7% year on year ), and in addition to a decrease of ordinary income , last year the Company posted a gain on sale of shares I mentio ned earlier, while the expenses for the transition to our new system were incurred both last year and this year, and these differences are the reason why the results fell below those of the previous year.
The IFRS net revenue in the 2018 fiscal yea r is for the most part equal to the operating revenue according to the Japanese standard at 304,800 million yen (104% year on year ). The business income, which is ordinary income in terms of Japanese accounting standards, is 52,200 million yen (91.1%). The current term net income is 30,500 million yen (79.4% year on year ). As both the operating revenue and the net revenue according to the IFRS are, as a rule, calculated on consolidated basis, an increase of revenue resulting from an increase in consolidate d subsidiaries is 2 billion yen. On the other hand, the accounting period of Saison Fundex due to adoption of the IFRS was changed to period ending March and extended to a 12 month period, ending up with a negative 1,400 million yen. Ordinary income, that is, business income, was a negative 1,900 million yen. If we adjust the accounting period of Saison Fundex with two more months the result is 600 million yen; according to Japanese standards, IC cards are processed based on accounting periods spanning fro m the previous year, but with the IFRS, asset capitalization is traced back to the past and deferred, and this difference between the Japanese accounting standards and the IFRS resulted in a negative 1,100 million yen. The current term net income is a neg ative 3,500 million yen, and the reason for it is that in addition to the business income being a negative 1,900 million yen, there is also upfront revenue IFRS with its effective interest method allocates proportionally over the relevant time period the revenue that in the case of Japanese standards is posted as a lump sum resulting in a deferral of upfront revenue of 900 million yen .
In the Credit Services Business, net revenue is 102.7% year on year thanks to the increase of shopping transac tions volume, etc. and b usiness income is 60.6% year on year . Revenue increased and income decreased as a result of an increase in depreciation costs for the Associated Core System in addition to the reactionary effects of gain on sale of investments in se curities held by UC Card. Lease, finance, and real estate related operations showed a double digit growth of profits, and real estate is yielding particularly stable profits with quite firm footing in the current environment.
On non consolidated b asis, ordinary income is 39,600 million yen, and the difference with the consolidated business income of 52,200 million yen is 12,600 million yen. Atrium posted 5,390 million yen, Saison Fundex 3,160 million yen, in the area of affiliates accounted for by the equity method we have mainly listed card related joint ventures, and all of them are making stable contribution to our revenue.
The number of active card holders, which is an index of the most importance for the Company, was 14,900,000 in the 2018 fiscal year, and in the current fiscal year, we plan to exceed this number reaching 15 million. In the area of card transactions volume, the Company set the goal for the shopping transactions volume at 5,100 billion, 106.5% year on year. The goal for the cash advance at 245 billion was also set to exceed the previous year, and we intend to achieve this goal through measures I will touch on later. The card balance is yet another area we put a lot of effort into. The shopping revolving credit balance wa s 422,500 million yen in the end of the previous year (102% year on year ) and the cash advance was 218 billion, exceeding, although not significantly, our previous results, but the plan for this year is to take these figures even further.
As you c an see, the figures for claim risks and bad debt are continually at very low levels.
The new claims regarding overpayment handled by lawyers fell to about 85% of the last year. The unit price for the services is continually at a high level exceedi ng the previous year. The amount of reversal for the last fiscal year showed a satisfactory decrease at 5,500 million on consolidated basis and 5,100 million yen on non consolidated basis. Even if the amount of reversal continues on the same level it was o n consolidated basis in 2018 fiscal year , as at present our provision balance is 17,700 million yen, even if the decrease trend continues for about 3 years as it is now, we will still have over four years of provision balance.
Our medium to long term management indices are ROE of 10% or more and equity ratio of about 15%. As Saison is a non bank institution, we would like to put emphasis on the equity capital, hence the figure of 15%. ROE as of the 2018 fiscal year was 6.2% and is declining due to a number of reasons including the depreciation cost of the system, but in our medium term management plan, we have stipulated out intent to increase it and will do our best to achieve this goal.
In the 2008 fiscal year, although the Company had to deal with Atrium's reconstruction , the dividend was 30 yen. The plan regarding Atrium's reconstruction was subsequently executed and, with its completion, the dividend was increased to 35 yen in the 2015 fiscal year. In 2018, commemorating the Company 's transfer to a new system, we increased dividend by 10 yen to 45 yen. We shall maintain our policy of redistributing profits with stable dividends. In our new medium term management plan, we have included all kinds of measures that will allow us to gene rate good profits and we shall ensure sizeable returns from these profits to our shareholders through dividends. There are also other ways for returns of profits as well, and we will make sure that we consider and choose good options among them.
Now it is time to explain our medium term management plan. For that I would like to pass the floor to President Yamashita. Good morning to you all. First of all, let me quickly introduce myself. I was appointed the President and CEO of the Company effect ive March 1. I joined the Company in 1981 when it was still called Seibu Credit, and for several years worked at the retail division. Subsequently, I was transferred to the Credit Card Division , and from that time on for the most part have been tilling th e same field of the credit card business. For a short period of just one year I was transferred to a company called Qubitous, and since coming back in the spring of 2015, have been assigned to the system related work. The first phase of the system was rel eased in November, 2017; about one year later, in October, 2018, the Company transferred to a new system, and on March 1 I was appointed President replacing President Rinno. Now let us look into the Company's vision for its new medium term management vis ion , its numerical targets, recap of the previous medium term management plan and vision for the new medium term management plan , and the key points .
This slide represents a bird's eye view of the image we have, the structural outline of our new medium term management plan. Our vision is to become a "Neo Finance Company in Asia", and the mission is to walk side by side with each customer for 50 years. Let us say a person signs up for our credit card at 20. It is often said that people live to be a hundred these days, so even 50 years might be a little short, and we can expect relationships with our customers to last up to when they are 70 or 80. In the middle, you can see a picture of a person ascending the stairs. As one ascends the life stages, l ife events get more varied and the settlement amounts expand as well. After reaching a certain stage, people start needing services close to investment. The circle around the picture contains settlement business, solution business, finance business, and as set management business, and you can see our global business at the bottom. Right inside the circle you can see digital marketing, and digital transformation is a cross boundary phenomenon that influences each and every area, which is why it was placed ins ide the circle.
This slide shows the negative factors of this year. System related costs are about 2,100 million, also there are costs pertaining to the earlier than planned update of IC cards, which are all, according to the directive, to have IC chips embedded by the spring of 2020, but this shall be a one time expense only. In addition to the disappearance of other special factors which occurred during 2018 fiscal year there are investments into new businesses and credit guarantee or asset form ation, which are all expected to play out as positive factors. Consequently, the plan is to reach 30 billion yen non consolidated with 12,500 million yen consolidated contribution adding up to the gross of 42,500 million yen.
The Company finally resolved the longstanding issue of building a new system. As during the system development period we had to freeze development of new products, nothing had been done in this area for quite some time. But recently we have worked with QR code settlement bus iness, which is quite brisk already, prepaid and debit cards, as well as mijica that Saison launched together with the Japan Post Bank. Past four to five years we have been also actively engaging in global business, and although we by no means on par with Aeon that has a history of several decades with this endeavor, in three years, we have almost doubled the number of countries we operate in from five in 2015 to nine. In the medium term management plan, we stipulated three areas for reinforcement, that is , the payment business, the finance business we engage in as a non bank institution, and the global business.
The color coded bar chart you see here, and individual figures are not described in the slide, are color coded so you can better envisag e the volume of each area.
And now regarding the increase of customer base through expansion of new partnership networks. We have refrained from entering into new partnerships before completing the new system, but from now on we shall start workin g in this direction again. There are many patterns for partnerships new affiliated credit cards, contracting work, service partnerships, etc Needless to say, we will highly customize and get involved with heavyweight affiliated credit cards but also ca pture demand of small and medium size companies with semi proper cards as we call them, where we do not need to make any substantial modifications to the service content but merely make some adjustments to the card face designs. I cannot name any concrete names, but can tell you that we have five major targets. One is companies that currently issue affiliated credit cards with various card issuers. Since the completion of our system, we have received some offers from companies that issue affiliated credit cards with other issuers but are not satisfied with some aspects of the service they get. The second is enterprises that want to attract core customers, for example, young women. The third is companies that have many wealthy clients with an affinity to th e AMEX brand. The fourth is enterprises that have not ventured into financial services yet but want to. And the last target is companies that want to use credit know how or screening skills to expand their sales. We shall offer all kinds of services from uniform ones to ones tailor made to fit the past usage of the client best. So far, we have offered everyone basically the same services whether the client has just signed up yesterday or has been with us for years and years. And the idea is to divide cl ients that use both our products and our settlement services into six classes, and have different service content available for each. We believe that this differentiation will help us build relationships with our clients lasting, as may be, even as long as 50 years.
Transition to seamless smartphone based card services. Our Company has formed many alliances and being able to instantaneously sign up and use our services for shopping on the spot is an enormous merit for retailers. So far it was quite a long story, with people needing to fill the paper forms, go through screening, their requests going through backyard work, then eventually a plastic card would be issued and handed to the client, finally allowing him or her to use it for shopping. We w ant to make it all possible with just one tool a smartphone. Naturally, there is screening also, but it is done very quickly with a QR Code, the result instantly comes back to the client's smartphone and the purchase can be done with a QR Code right away . Of course, a normal plastic card is delivered to the client at a later day, and we will issue a press release of this service when the time comes, but I can tell you that the preparations are already done. I should also note our efforts to make procedur es easier and safer. We would like to make Saison the first choice among card issuers for those, who want to make all their transactions using smartphone, and we are already underway with preparations, having hired staff best suited for the job. For exampl e, a customer has the limit of 500,000 yen and worries about spending too much. We want to create a system allowing such customers to set a new limit right on their smartphone 100,000 or 200,000 yen so that they do not need to worry about overspending. Recently we have been also reducing the number of Saison counters. Regarding our switchover to digital counters and full automation. So far, we have been processing point exchanges and changes of address at the counters, but from now on we will switch to a system allowing customers to do everything themselves, using tablets or other devices, and use the workforce we will no longer have to use in this area for aggressive sales activities. We may even discontinue Saison counters altogether. For example, bac k in the heyday, we had Saison counters in over 50 Seiyu stores, while today we have none. If discontinuing the counters results in a performance decline, we need to think twice, but judging from the example of Seiyu, we are safe at first performance did slump a little, but it very quickly picked up again, and we were able to confirm that absence of Saison counters has virtually no effect on the number of new cards issued or the transactions volume. I am not saying we are going to discontinue all counters after all, this is our company's forte, something no other card issuers have but we can always leave what we need in place, while discontinuing what can be dropped without any adverse consequences, or what can give us additional laborsaving or manpowe r saving merits, so we can use that manpower elsewhere, and that is something we intend to actively engage in. We would also like to develop diverse packages of benefits through a single card. We issue all kinds of affiliated credit cards. So far, PARC O benefits were limited to customers that have a PARCO card, but we want to make them available for all Saison members. The idea is to make it all in one, for all customers of Saison.
It is said that the total volume of BtoB transactions is from 9 00 to 950 trillion yen. Saison would like to enter into alliances with companies offering platforms with solutions for BtoB transactions and add our settlement services to the part of their business that involves exchange of ownership for products. For exa mple, some platforms digitize bills and send them to clients, some play the role of coordinators between suppliers and users doing order taking and order placement. I cannot give specific names, but Saison is going to enter into alliances with such compani es and have a share in their business bringing our know how to the table. In SME market we will collaborate with financial planners or with companies offering accounting software, and issu e our cards there as our concrete measures . The bottom part of the slide is still in the concept stage. We conduct all kinds of transactions with large companies, small and medium enterprises, and sole proprietors. But we have not yet constructed a system to share all this information in the company, which surely costs u s some business opportunities. We want to address this issue systematically by issuing common corporate IDs.
Shopping transaction volume was 4,700 billion yen in fiscal 2018, and our plan is to increase it to 6 4 00 billion yen in the fiscal 2021. Currently, the BtoB accounts for about 10%. The plan is to double this figure.
Presently, rate is fixed for every product we offer. We want to develop a system allowing interest rates to be set flexibly, according to use. The system would also ena ble customers to easily submit applications on the web to increase their credit limit. Naturally, these applications will be screened, but customers will no longer have to bother visiting Saison counters or making phone calls, and do it all on their smartp hone instead, and this is yet another initiative in our plan to become the number one card issuer in terms of convenience for smartphone users. Cardless loan is a new service developed to accommodate the needs of the customers who would like to ensure tha t their use of the service remains private. Until now, people needed to sign up for a card, wait until it is delivered, borrow cash, and then have a bill delivered to their address, but now all of this can be done without a card. In short, this product doe s not entail a plastic card or a bill being delivered.
We have established an Asset Management Department. With point investment, our asset management business is already being used by over 300,000 people, and the balance has exceeded a billion. W e have established some firm points of contact with beginning investors, by the way, I should note that this is related to the life stage picture you saw earlier and would like to introduce people to the Saison Asset Management, the Monex Saison Vangua rd, and help those in the higher life stages with asset management.
Just like in the corporate market, there are still many more products we can offer to the individual clients. We have not yet been able to create a systematic vision of this endea vor, but in the future, would like to arrange customers' information in such an order that would enable us to cross sell our products in the best possible way. Saison wants to offer its customers not only settlement or money related services, but go much f urther, finding solutions for people's life troubles and meeting new needs. Nokatsusoken Brain Activity Research Institute is a health related platform for the senior customers that helps to identify early signs of dementia before the disease develops, h elping people to relieve the anxiety regarding this important problem. The idea is to provide services matching the client's life stage best, even in the areas not necessarily directly related to money.
Flat 35 and Rent Guarantees, Asset Formation Loan, Credit Guarantee, and Lease & Rental. These are the four main axes of the business, and on the right hand side you can see that we intend to increase the capital balance from 1,800 billion it was in the fiscal 2018 to about 2,700 billion in the fisc al 2021. By the way, this figure of 1,800 billion in fiscal 2018 is actually about twice of what the capital balance was in fiscal 2015.
Four to five years have passed since we started to put an earnest effort into the Global Business. The major s trategy in our foreign operations is to enter into cooperation with companies offering platforms in Southeast and South Asia. The idea behind our decision to make inroads into the foreign countries was to supply consumers, medium, small, and even tiny comp anies with the funds they need to make purchases or operate their businesses, at the same time contributing to the economic development of the regions and reaping the fruits ourselves.
HD Saison is a company operating in Vietnam providing financin g services to consumers in cooperation with various dealers and consumer electronics shops, and presently the company is preparing to start issuing credit cards as well. With SAISON MODERN Finance that operates in Indonesia, we would like to enter into all iances with companies providing P2P platforms to offer unsecured operating capital. Another interesting initiative is Grab Financial. Here we are trying to establish a business in cooperation with Grab, offering unsecured loans to drivers and grab users. W ith Siam Saison, we will be offering supply chain financing services to the business partners of the Siam Cement Group in Thailand. We believe that harvesting season is quite close.
Saison secured tactical dissolution of its comprehensive business partnership with the Mizuho Bank. Presently, we hold a 31% share in the UC CARD, and 51% in the Qubitous, with the remaining 49% held by the Mizuho Bank. If October, we will no longer be a shareholder of the UC, while Qubitous, on the other hand, will bec ome our wholly owned subsidiary. We intend to actively cooperate with the Mizuho Bank in the profitable areas, that is, the MMC Card, which we will run together as we did before, as well as the UC brand cards we will continue issuing also.
In the ESG area, we have been operating the Akagi Nature Park, promoting, as much as possible, transition to online processing to reduce paper consumption in application forms, etc. In the sphere of social contributions, we have been supporting the Japan National Football Team and Mr. Jose Carreras, to name but a few. In the governance area, we plan to increase the number of independent outside directors, audit and supervisory directors, and female directors, by one each.
The system is at last comp leted. For some time, we were not able to make any adjustments to the mainframe, could not release new affiliated credit cards or products, even when our partners asked us to. Finally, this state of affairs has ended, and we intend to start playing offence once again. With the change of the president, the organizational changes, I feel that this year will mark a new start for Credit Saison, and the start of the new Reiwa era coincided with the anniversary of our Company's establishment, which was also May 1 . These many coincidences surely mean something, and I would like to take advantage of this opportunity to make a fresh start with many endeavors.