1. Business Performance

(1) Analysis of business performance

 1) Business performance of the current consolidated fiscal year

During the consolidated fiscal year under review, amid a global financial downturn that began two years ago, Japan's economy started to show signs of recovery. Nonetheless, conditions remained difficult, with a consumption downturn caused by a severe employment and income environment slowing the pace of any recovery.

 　 In the consumer finance industry, each company is seeking ways to ensure profitability just prior to the full introduction of the revised Money Lending Business Law, which will impose aggregate debt control and lower the maximum legal lending rate. Companies have also been facing a severe financing environment, and the situation remains unpredictable with bankruptcies and closures continuing at the same pace.

 　 In this environment, TAKEFUJI CORPORATION and its subsidiaries ("the Group"), in the first year of the Medium-Term Business Plan adopted in the previous year, have been taking steps to improve asset quality and undertake organizational reforms to achieve stable earnings and boost retained earnings. Despite these efforts, the Company's rating was downgraded as the number of interest refund claims remained high and uncertainty surrounded the impact of the full enforcement of revised Money Lending Business Law. As a result, it has become increasingly important to secure liquidity in hand. To do this and ensure sound business activities, we have introduced stricter lending criteria ahead of schedule to respond to the full enforcement of the revised Money Lending Business Law, improved cash flow by controlling the amount of cash loans, and raised funds through the sale of assets, such as our loan portfolio.

  　The Company has also been focused on practicing its founding philosophy of "Customer First," to provide customers with secure and reassuring services. As part of this effort, we launched a product with a new interest rate of 6.5% per annum as the benecere Black Plan, part of our benecere brand products, to provide a more attractive card brand. In addition, our ATM tie-up with AEON BANK, Ltd. has enabled customers to borrow money or make repayments at AEON BANK ATMs, for even greater convenience.

  　Moreover, the full enforcement of Money Lending Business Law will require that services to customers be provided with a precise understanding and interpretation of the laws and regulations. In response, we took comprehensive steps to qualify employees as managers for money lending operations. As a result, more than 1,300 of the Company's employees passed the qualifying test, and this has enabled us to strengthen and enhance our compliance system.

 　 As a result of these initiatives, the balance of direct cash loans to customers at the end of the year was 589,477 million yen (down 31.6% from the previous consolidated year-end) and the number of customer accounts stood at 1,079,000 (down 27.2%).

Herewith operating revenues on a consolidated basis for the current fiscal year amounted to 120,266 million yen (decreased by 35.5% from the previous consolidated fiscal year), while operating income was 33,360 million yen (210,612 million yen of operating loss for the previous consolidated fiscal year), ordinary income was 33,180 million yen (214,669 million yen of ordinary loss previously) and net income was 4,577 million yen (256,137 million yen of net loss previously).

As of March 31, 2010, the Company operated a network of 140 manned branch offices (210 at the previous consolidated year-end), 645 unmanned offices (840 previously), one internet shop (one previously), 873 owned ATMs (1,161 previously), and 57,067 inter-linked CDs and ATMs (53,743 previously).

 

2) Forecasts for operations in fiscal 2011

Although the business environment is expected to remain difficult and uncertain given the impact of the full enforcement of Money Lending Business Law and the trend in the number of interest refund claims, the Group will strive to ensure highly efficient management by giving top priority on securing the liquidity in hand. The Company is united in its determination to overcome the management challenges.

The forecasts for the consolidated fiscal year ending March 31, 2011 are as follows;

Operating revenues are expected to be 64 billion yen (down by 46.8% from the previous year-end), Operating income is expected to be 7.7 billion yen(down 76.9%), Ordinary income is expected to be 7.7 billion yen(down 76.8%) and Net income is expected to be 9.9 billion yen.(up 116.3%)

 

 

 

(2) Analysis of financial condition

Assets at the end of the current consolidated fiscal year were 686,931 million yen (down 28.3% from the previous consolidated year-end) with total assets decreased by 271,533 million yen from the end of previous consolidated fiscal year, due to the decrease of direct cash loans to customers (272,040 million yen), the decrease of short-term loans receivable related to asset management in repurchase transaction (30,003 million yen), the decrease of land (9,434 million yen) for impairment etc.

    Liabilities were 536,311 million yen (down 33.7% from the previous consolidated year-end) decreased by 272,505 million yen from the end of the previous consolidated fiscal year, due to the decrease of allowance for losses for refund of interest received from customers (130,404 million yen) as we responded to interest refund claims, the decrease of long-term borrowings (115,541 million yen), the decrease of convertible bond-type bonds with subscription rights to shares (27,600 million yen) despite an increasing factor of recording expected loss stemmed from transfer of loans receivables as allowance for loss on transfer of receivables (11,276 million yen).

Net assets were 150,620 million yen (up 0.6% from the previous consolidated year-end), increased by 972 million yen from the end of the previous consolidated fiscal year due to 998 million yen of increase in valuation difference on available-for-sale securities from -1,943 million yen to -945 million yen

 

 (The situation of consolidated cash flows)

  Cash and cash equivalent at the end of the fiscal under review on a consolidated basis (the "Funds") was 60,361 million yen, down 37,501 million yen compared to that of the end of the previous consolidated fiscal year.

  Each cash flow situation and factors were as follows:

 

  (Net cash provided by operating activities)

    The Funds provided by operating activities were 109,005 million yen (150,020 million yen was provided in the previous year's same period).  The principal sources of these cash flows were as follows; 58,746 million yen (previously 174,297 million yen) for direct cash loans made to customers and 194,100 million yen (previously 296,271 million yen) for direct cash loans collected from customers, based on our core business of consumer finance.

 

  (Net cash provided by investing activities)

    The Funds provided by investing activities were 5,672 million yen (2,110 million yen was used in the previous year's same period).  The principal sources of these cash flows were as follows; 1,896 million yen (previously 3,717 million yen) for purchase of tangible and intangible fixed assets, and 6,210 million yen (previously 1,499 million yen) for gain on sales of investment securities.

 

(Net cash used in financing activities)

    The Funds used in financing activities were 151,096 million yen (203,193 million yen was used in the previous year's same period).  The principal sources of these cash flows were as follows; 126,730 million yen (previously 177,306 million yen) for repayment of long-term borrowings, 19,646 million yen (previously 82,400 million yen) for redemption of bonds, including convertible bond-type bonds with subscription rights to shares and 4,720 million yen (previously 16,461 million yen) for cash dividends paid.

 

 (3) Basic policy of profit distribution and dividends of the current and next fiscal year

  　　The Group considers the return of profits to shareholders as the most important issue for management and its basic policy is to consistently return profits and meet the expectations of shareholders.

  　  We will utilize retained earnings effectively and boost earnings to establish robust business foundations that can cope with future changes in the consumer finance market.

 　   In line with this policy, second-quarter dividends of 15 yen per share were paid. With fourth-quarter dividends of 15 yen per share, full-year dividends of 30 yen are planned for the current fiscal year ended March 2010.

Dividends for the fiscal year ending March 2011 are not decided as of now because it is necessary to examine the impact of full enforcement of the Money Lending Business Law in the current severe situation of the business management.  Planned amount will be promptly disclosed when possible.

 

 

 

 

(4) Business Risk and Other Forms of Risk

This section concerns the major business risks that the Group confronts and that could potentially have a significant impact on results, the stock price and the financial position of the Group. It also includes other risks that are regarded as important to the investment decisions made by investors, for better information disclosure to investors. The Group is fully aware of these possible risks and will make its best possible efforts to hedge them or to respond to them if they transpire.

This section contains some future projections, which are based on forecasts as of the date this material was prepared.

 

1) Legal regulations

1. The Money Lending Business Law

To engage in its principal business, namely consumer finance, the Company is registered as a moneylender as provided by the Money Lending Business Law, regulation for loan business in Japan. Takefuji is required to comply with the regulations set out in that law encompassing all consumer finance business. These regulations include those covering the prohibition of excessive lending, the indication of loan terms, the advertising of loan terms, the prohibition of exaggerated advertisements, the issuance of document when concluding contracts, the delivery of receipts, the provision of account books, restrictions on designated notarial deeds, the regulation of loan collection, the return of loan contract, the display of signs, transfers of claims and others. In addition, the enforcement provisions of the Money Lending Business Law require Takefuji to conduct business mindful of the Comprehensive Supervisory Guidelines for Loan Providers and the JFSA Self-regulatory Basic Rules Regarding the Conduct of Money Lending Business Operations.

Deeming compliance to be its most important managerial challenge, we are working to build a highly effective compliance framework that will bolster its compliance by changing its organizational structure, offering education to employees, and creating a system with a self-correcting effect. However, in case that a part of Takefuji Group fails to comply with the Money Lending Business Law, it will not merely face administrative sanctions or penalties; its financial position and business results may be undermined by the infringement.

Following promulgation of the Amendment of the Money Lending Business Control and Regulation Law on December 20, 2006, the amendment is being enforced in four phases from the enforcement of Article 1 to the enforcement of Article 4. Article 1, which increases the penalty for unregistered operations (tightening of anti loan-shark measures), was enforced on January 20, 2007, one month after promulgation.

Next, Article 2, which was enforced on December 19, 2007, one year after promulgation, changed the name of the law from the Money Lending Business Control and Regulation Law to the Money Lending Business Law and the main points of the amendment are that it strengthens administrative measures including the establishment of business improvement orders, tightens regulation of solicitation, tightens regulation of collection activities, expands the scope of prohibited activities, provides for the establishment of the new Japan Financial Services Agency and the formulation of self-regulatory rules and makes it obligatory to agree to the browsing of accounts.

On "business improvement orders" the amendment states that in connection with the conduct of business by lenders, if considered necessary to protect the interest of borrowers, etc., the supervisory authorities may, to the extent necessary, order a change in business method or other measures necessary for improvement of business conduct, and there is the possibility that such business improvement orders will be issued with greater flexibility than the business suspension orders which have been available prior to the amendment. Furthermore, the new Japan Financial Services Association (JFSA) is a powerful self-regulatory body that has been granted the authority to investigate and supervise its members and considerable discretionary authority in order to increase the effectiveness of self-regulatory rules.  The Company was imposed a "business improvement order" by the Kanto Regional Finance Bureau on the basis of Article 24, 6-3 of Money Lending Business Law (No. 32 Law of 1983) related to the provision of account books and the delivery of receipts on May 16, 2008.

With the enforcement of Article 3 on June 19, 2008, measures such as the establishment of credit information agencies and the creation of a new money lending business manager system were implemented.

Then, with the enforcement of Article 4, the deadline for which comes in June 2010, regulations such as the lowering of the maximum legal lending rate and the introduction of aggregate debt control (explained later in 2. Risks associated with the regulation of loan interest rates and the aggregate debt control) will be implemented.

In light of the amendments outlined above, Takefuji is conducting a review of its lending criteria,

but there is a possibility that these amendments may seriously affect the number of new loan customer accounts, direct cash loans to customers, and operating revenues.

  As a result of the phased implementation of the Money Lending Business Law, the Company will be subject to more extensive regulations than before. As a consequence, it is now taking steps in areas such as its account books, work flow and information systems, although these amendments may affect the Company's performance.

 

2. Risks associated with the regulation of loan interest rates and the aggregate debt control

The maximum cash loan interest rate under the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits ("Capital Subscription Law") is set at 29.2%. Since February 1, 1996, Takefuji fixed its maximum loan interest rate at 27.375%. Although the Interest Rate Restriction Law stipulates that a contract on interest on a loan for consumption that exceeds 20% per annum when the principal is less than 100,000 yen, 18% per annum when the principal is 100,000 yen or more but less than 1,000,000 yen, and 15% per annum when the principal is 1,000,000 yen or more shall be invalid, the repayment of interest by a debtor that exceeds the interest stipulated in the Interest Rate Restriction Law is regarded as valid if the predetermined requirements provided in Article 43 of the Money Lending Business Control and Regulation Law are fulfilled.

However, the Bill for the Amendment of the Money Lending Business Control and Regulation Law passed the 165th extraordinary session of the Diet in 2006. When the Money Lending Business Law comes into full effect, which is scheduled to take place by June 2010, the maximum lending rate under the Capital Subscription Law will be lowered from the current 29.2% per annum to 20%. Also, money lenders will be prohibited from entering into any contract on interest that exceeds those stipulated in the Interest Rate Restriction Law. Similarly, the amendment on the aggregate debt control, which is due to be adopted upon the full enforcement of the Money Lending Business Law, states that if the balance of lending exceeds one third of the borrower's annual income, the borrower shall be considered to have exceeded his or her repayment ability and, as a general rule, the lender may not extend any further loans.

From a compliance perspective, Takefuji has lowered the maximum lending rate and adopted the debt control as outlined above ahead of schedule, in anticipation of the full enforcement of the Money Lending Business Law and this may have a serious impact on the Company's performance.

 

3.  Impact of the Financial Instruments and Exchange Law (the construction of an internal control, etc.)

The bill for the "Amendment of the Securities and Exchange Law" (the name of the Law was changed to the Financial Instruments and Exchange Law) became law on June 7, 2006 and published on June 14, 2006. This amended Law obliges listed companies to submit an Internal Control Report that evaluates the effectiveness of internal controls in each fiscal year to ensure the credibility of financial reporting, and this Report must receive an audit certificate from a certified public accountant or an audit corporation. This system will apply to the fiscal year that will begin on April 1, 2008. Takefuji Group will also be required to submit this Report from the fiscal year ended March 31, 2009.

Also, in the event that a qualified opinion, etc. is attached because of a defect, etc. in the internal control of Takefuji Group as a result of an audit of the internal control by a certified public accountant or an audit corporation, the results of the Group could be impacted by a decline in the evaluation or corporate image of the Company in the market, etc.

 

4. Impact of the Law Concerning the Protection of Personal Information

As the Law Concerning the Protection of Personal Information ("Personal Information Protection Law") came into full effect on April 1, 2005, Takefuji has set out and now implements internal rules in accordance with the Personal Information Protection Law, the Guidelines for Personal Information Protection in the Financial Field, and the Practical Guidance on Safety Control Measures and Such like under the Guidelines for Personal Information Protection in the Financial Field. However, should any of such information be leaked, the Company would be obliged to notify the affected borrowers as well as the competent authorities and make a public announcement as prevention of secondary damage. This may result in a loss of public confidence, compensation payable to individuals, and penalties affecting business.

 

 

 

 

 

5. Impact of other business-related laws

For its card business, Takefuji is subject to the Specific Commercial Transactions Law and the Installment Sales Law and various regulations pursuant to the law, including the indication of terms of business, the issuance of document, the provision of account books, and the prevention of purchases exceeding the capacity for payment. Especially, in case that a customer has a plea against the dealer for specified products or specified rights related to plea against credit card issuers, with the plea, there is a possibility that the customer may stop paying to credit card issuer or may be exempt from paying.  If many of such cases occur, it may affect the Group's results.

Other than the above, the business of Takefuji is subject to various laws, including the Civil Rehabilitation Law, the Bankruptcy Law, the Judicial Scrivener Law, laws related to special conciliation and amendments to any relevant law or the enforcement of a new law may affect earnings of the Group.      

 

2) Risks associated with claims for refund of interest received from customers 

Takefuji's loan interest rates in part exceed the upper limit for interest rates prescribed by Article 1, Paragraph 1 of the Interest Rate Restriction Law.

  Defense in the case of a claim for the refund of interest received from customers has become extremely difficult, but presently the number of cases of interest refund claims is remaining at the same level as before.

 

3) Fund procurement and interest rates of funds procured

1. Risk related to reduction of ratings

On March 25, 2010, Moody's downgraded the Company's rating from Caa1 to Caa2. Takefuji has a CCC- rating from Standard & Poor's. No loan will be affected by the downgrade by Moody's.

With respect to the true sale loan we started with Bull Capital Co., Ltd. in July 2005, which amounts to 58,530 million yen (as of March 31, 2010), the downgrade became the reason for early repayment in the current first quarter. However, we later conducted several negotiations concerning changes of contract terms, etc. and reached an agreement on certain issues.

We have no other loan payable with rating-related conditions. A future downgrading of our ratings may have an impact on the Company's ability to procure funds.

 

2. Restrictive financial covenant on fund procurement

Some of the funds raised by the Company by means of loans and corporate bond issues are subject to certain limits under the restrictive financial covenants. Loss of benefit of time will result in the lump-sum repayment of the whole amount.

 

3. Risk related to fluctuation of interest rates on fund procurement

Borrowing rates may vary because of the market environment and other factors and the rise in funding rate makes flexible funding difficult and may affect results. Moreover when interest rate of The Capital Subscription Law becomes 20% in accordance with enactment of revised Money Lending Business Law, it may affect results.

 

4) The problem of people with excessive debts

If there is an increase in incidences of personal bankruptcy, personal civil rehabilitation, special conciliation, debt arrangements by attorneys, uncollectible loans such as cases of petitions for refunds of improper profits, or loans overdue for long periods, and the cost of bad debts rises, Takefuji Group's business results may be impacted.

 

5) Transition of operating results

     The Group has invested in "\en Musubi" automatic contract machines and ATMs for efficient management and promoted enhancing non-face-to-face channels such as via Internet and free call center for customer convenience.

However, the global financial crisis originated from sub-prime mortgage issue in the U.S.A. now influences real economy and the environment surrounding the consumer is rapidly deteriorating, such as deterioration of employment situations and decrease of income. This deterioration in the environment surrounding consumers could possibly have a drastic influence to the Group's operation. Also, with expenses for losses for refund of interest received from customers and stricter standard of allowance for the expenses, business environment surrounding the Group is expected to enter a more severe phase.

     Changes in the number of customers, cash loans to customers, credit expenses, expenses for losses for refund of interest received from customers and other items may have an impact on the group's operating results.

 

1. Risks associated with economic trends

     Japan's economy in the current consolidated fiscal year has been continuously at a low level.  Corporate earnings have worsened due to slow international and domestic demands and the severe environment surrounding consumers, including large scale bankruptcy of companies, deteriorated employment situations and decrease of income, is continuing.

 

2. Risk of growth in write-offs of bad debts

     It has been believed that the number of personal bankruptcy influences the number of write-offs.  According to a study by the Supreme Court, the number of personal bankruptcy peaked in 2003 at 242,000 and a downward trend has been observed every year, as the number was 211,000 in 2004, 184,000 in 2005, 166,000 in 2006, 148,000 in 2007 and 129,000 in 2008 and 126,000 in 2009.  However, because the reasons of this downward trend include an increase in claims for refund of interest paid with voluntary liquidation and in use of debt arrangements such as civil rehabilitation etc., and it is hard to assume that the trend will result in decrease of write-offs of bad debts.

     Deterioration of corporate performance is significantly impacting household financial conditions.  As a result, there is a possibility that the write-offs of bad debts may increase and impact the Group's business results.

 

3. Risk concerning market competition

Pursuant to the amended Money Lending Business Control and Regulation Law enacted in December 2006, the maximum lending rate under the Capital Subscription Law is set to be lowered by June 2010 and the so-called aggregate debt control will be introduced. It is anticipated that this move will drive the industry from a conventional state of coexistence based on a differentiation of lending rate ranges for borrowers into a state of competition with bank-affiliated money lenders, credit card operators, and credit sales companies within the same interest rate range, and that the race for customers will intensify. As a consequence, the results of Takefuji Group could be influenced by this competition, depending on the actions of its competitors, including not only those specialized in consumer finance business but also bank-affiliated money lenders, credit card operators, and credit sales companies.

 

4. Risks associated with the concentration of businesses

Most of Takefuji Group's operating revenues come from the consumer finance business, and it accounts for approximately 97.6% of consolidated operating revenues. If operating revenues declines significantly in the future with a legislative amendment, change to accounting standards or other factors in the consumer finance industry, the results of the Takefuji Group may be affected.

 

6) Disruptions and malfunctions in information network systems, internet service and other technology-based systems

1. Fires and natural disasters

The Company has completed work on its computer system to enable all facilities to withstand a level 7 earthquake tremor. In the event of a natural disaster, the Company does not own a back-up center that could take over computer operations.

Consequently, even in the event of a major Tokai region earthquake (level 5 tremor in the Tokyo area), the Company believes there would be no major disruption to its computer system. However, the computer system may cease to operate if the computer center building sustains major damage in a fire. In this event, the Company would conduct operations in a different manner for approximately 2 to 3 months. This could have a substantial impact on the level of service.

 

2. Protection of customer data

The Company centralizes the administration of customer data in its main computer. Users are authorized to operate this only when and while necessary.  This authorization requires prior application and approval and audit on access results, whether the operation was authorized or not, is conducted daily by another person.

In addition, input or output device for external storage device cannot be used from PCs etc. and audits are performed for devices brought in, added or recording to external storage device.

Moreover, all incoming and outgoing e-mail messages are inspected.

Consequently, the Company believes there is only a very small risk that customer information could be leaked to an external party. If such a leak did occur for whatever reason, there could be a significant impact on the Company's operating results because of the resulting loss in the public's trust in the Company.

 

3. Damage resulting from computer viruses

To limit and prevent damage from computer viruses, Takefuji Group installs and updates anti-virus software periodically as well as at other times as necessary. An external company conducts periodic tests to determine susceptibility to hackers and responses are made based on the results of these tests. However, anti-virus software is normally distributed only after a new strain of a virus has been detected, and hacker responses are made only after a problem has been discovered. Consequently, there is a possibility that the Company's operations could be damaged before the responses are made.

Even in this case, there is no danger of the core information system being infected. However, the possibility exists of a disruption in head office management operations due to infections that impact the PCs used for Internet-based operations and general administrative tasks.

 

4. Damage caused by forged cards, etc.

There are increasing cases of fraud in which data on credit and cash cards are obtained by skimming or other illegal methods of using forged cards.

The Company introduced credit cards embedded with integrated circuits when it launched its credit and business in October 2002. The Company also takes measures such as only partially displaying the credit card number on receipts. To combat phishing fraud, the Company adds electronic certificates to all e-mail that it sends. On March 15, 2005, the Company became the first consumer finance business operator to obtain the British standard BS7799-2:2002 certification on the international standard and the ISMS (Ver. 2.0) certification on Japan's domestic standard for information security management systems. The Company has shifted its system to the international standards ISO/IEC27001:2005, which was established in October 2005 and JIS Q 27001:2006 on April 5, 2006. Following certification, on February 28, 2008 the Company also passed the obligatory certificate renewal inspection, which takes place every three years.

Despite these efforts, there remains a risk of losses caused by unauthorized use in fraudulent transactions that bypasses the Company's credit control systems or that uses illicitly-gathered transaction information and PIN numbers.

 

7) Asset risk

1. Risks associated with exchange rate fluctuation

As of March 31, 2010, the domestic companies of the group held US$ 2 million in deposits and property denominated in foreign currency. Because of the recent rise in the value of the yen, foreign exchange losses of 995 million yen were recorded. Given the fluctuations in foreign exchange rates, the group may record other significant foreign exchange gain or loss in the future.

2. Risks associated with venture capital investments

The Group has made venture capital investments both directly and indirectly. As of Mach 31, 2010, venture capital investment securities amounted to 1,648 million yen. Because of the nature of venture capital investments, significant returns can be expected if a portfolio company conducts an IPO. However, investments may become worthless if a portfolio company encounters serious difficulties.

 

  8) Significant litigation

  As of the end of March 2010, there were a total of 28 matters before the courts in which the Company was the defendant. They include one case in which former employees are claiming payment of outstanding salaries, etc. for service during their employment; one case of damage for loss; and 26 cases of collection litigation by local government etc.

The company will be consulting with its litigation attorneys to deal appropriately with these cases. However, it is possible that the Company may encounter similar cases in the future that could force the payment of substantial damages.

  In addition, reports about these legal actions in the media may create concerns among consumers, investors, financial institutions and other stakeholders that could make it more difficult for Takefuji Group to acquire new customers, sustain its share price, procure funds and conduct other aspects of operations.

 

 (5) Important Events Affecting Going-concern Assumption

The Group had been conducting funding through various, expeditious and flexible measures, such as borrowing from financial institutions, issuance of corporate bonds and securitization of direct cash loans to customers. However, while financial situation was becoming more and more severe due to sub-prime loan issue in the U.S. and Lehman Brother's shock etc., funding environment surrounding the Group became more severe with financial needs for high-level interest refund claims and with concerns about impact of loan volume control that is expected to be introduced at the full enforcement of Money Lending Business Law scheduled by June 2010. In addition, the Company was downgraded against this background to give rise to conflict against covenant for early redemption and other events for a part of borrowings.

In above mentioned situation, the Group considered various funding methods to improve cash position. As a result, in preparation for the early redemption requests of convertible bond-type bonds with subscription rights to shares, we conducted exchange offer of such bonds during the third quarter under review on a consolidated basis. The Group also conducted sale of listed securities and sale of a part of restructured loans'included in direct cash loans to customers. Despite these successful conducts, new funding continues to be extremely difficult due to extending economic slowdown, unpredictable future of the industry, high-level interest refund claims and additional downgrade.

As explained above, a material question about the Group's going-concern assumption exists under current circumstances.

The Group responds to said circumstances with approaches below:

1. Procurement of necessary funds and stabilizing cash position

  　　As severe funding environment is expected to continue for the time being, the Group endeavors to procure necessary funds for near-term operation by conducting measures such as transfer of real estate properties held by the Group and loans receivable, as well as strives to stabilize total cash position through efforts including reducing burden of existing bonds and considering strategic operational tie-up to secure new financing method.

2. Improvement of business streamlining

  　　The Group further advances existing business streamlining measures such as scrap-and-build reduction of branch offices as we have been conducting continuously and systematically, as well as making other efforts in business streamlining such as cost cut by reviewing contracts related to payments.

 　　 Regarding transfer of real estate properties held by the Group among measures to procure necessary funds and to stabilize cash position mentioned above, we have selected properties for transfer from properties held by the Company and by TDS Co., Ltd..  We are at the stage of deciding sale price by bidding and currently progressing procedures toward the concluding of contracts.

 　　 Regarding sale of loans receivable, we have surely progressed concrete discussions with counterparties as planned and have obtained a Letter of Intent to purchase loans receivable as a part of procedures to determine loans receivable in scope and transfer price.

  　　We consider that the question about the Group's going concern assumption can be eliminated by surely conducting further business streamlining measures in addition to continuously advancing measures for stabilizing total cash position.

 　　 However, with economic conditions remaining severe and with influence of the revised Money Lending Business Law, it is not clear that funding environment surrounding the Group will change for better.  Thus a material uncertainty about the Group's going-concern assumption is currently recognized.

  　　However, consolidated financial statements are made based on going-concern assumption and they do not reflect the material uncertainty about the Group's going-concern assumption.

2. Takefuji Group

The Takefuji Group consists of Takefuji Corporation and 8 subsidiaries, which are subject to consolidation as of March 31, 2010, and 1 equity method affiliate as of March 31, 2010.  Consumer Finance is the core business of the Group while subsidiaries and the equity method affiliate undertake other business operations.

 

Consumer finance:

Direct cash loan business: Takefuji Corporation, one of the largest scale consumer finance companies in Japan in terms of both the number of accounts and the outstanding loan balance, has concentrated since its establishment on making popular, convenient and on-the-spot small-scale consumer loans that require borrowers to provide neither collateral nor guaranties and has developed a nation-wide branch network through local communities in order to meet various customer needs.

Credit card business: The Company runs credit card business that is deeply rooted into regional communities by offering opportunities of credit card use as "Useful card for life" to such customers who had few chances to hold credit card and by advancing the development of franchise shops.

Other Businesses:

Golf course management: Take One Co., Ltd. is engaged in management of golf courses and provides funds to Takefuji Corporation.

Real estate business:

As part of group strategy for efficient use of real estate in possession, Takefuji Corporation and TDS Co., Ltd. undertake real estate business such as development, administration and rental to tenants.

Venture capital business:

TWJ EURO Co., Ltd. and TWJ VC Co., Ltd. were established in the U.K. and the U.S., respectively, in order to mainly invest in venture businesses in Europe and in the U.S., respectively. TWJ Co., Ltd. was established as a venture capital subsidiary for investments in  venture companies in Japan and abroad. Integrated financial services provider: METRO ASIA CAPITAL Co., Ltd. is engaged mainly in leasing and business finance in Republic of Korea.

Others:

Kyoritsu Estate Co., Ltd., Takefuji Capital Co., Ltd., G.H Investment Co., Ltd.

In addition to the above, there is one related company that deals with managing and leasing of real estate (as of March 31 2010).

 

The Chart of Takefuji Group

 

 

		Consumer Finance	Finance		Golf course management	Take One Co.,Ltd.
	Loans
Customers		Takefuji Corporation	Finance	Real estate business		TDS Co., Ltd.
			Finance		Venture capital business	TWJ EURO Co.,Ltd. TWJ VC Co.,Ltd. TWJ Co.,Ltd.
					METRO ASIA CAPITAL Co., Ltd. Kyoritsu Estate Co., Ltd. Takefuji Capital Co., Ltd. G.H Investment Co.,Ltd

3. Management Policy

(1) Fundamental corporate management policy

The Group has developed as a customer-friendly financial institution with close links to local communities that provides unsecured, unguaranteed small-lot loans based on its founding principles of "Customer First" and "Management Efficiency." Recognizing that it is a social commitment of a consumer finance company to appropriately meet the needs of sound borrowers as much as possible, we accurately grasp the needs of our customers and work to provide a wide range of meticulous services. We will also make efforts in areas such as the promotion of business efficiency through the optimum distribution of business resources, the expansion of Corporate Social Responsibility (CSR) activities, and the bolstering of our corporate governance and compliance system to be worthy of the trust of our stakeholders and increase our corporate value.

 

(2) Target management indices

The Group considers the shareholders' equity ratio to be an important business indicator for the establishment of a robust business foundation. To enhance management efficiency and shareholders' value, we will also seek to maintain and improve other business indicators such as return on assets (ROA), return on equity (ROE) and net income per share.

 

(3)Medium-to-long term corporate management strategy

The operating environment surrounding the consumer finance industry is likely to remain severe, given for instance the introduction of aggregate debt control and a reduction of the cap interest rate with the full enforcement of the Money Lending Business Law, as well as funding difficulties due to the consistently large number of interest refund claims. While the consumer finance market has been contracting and competition among lenders in different sectors is intensifying, the Company is placing priority on securing liquidity in hand, responding to interest refund claims, and ensuring earnings despite a reduction in the balance of direct cash loans to customers and is united in its determination to take the following measures to maximize corporate value:

1) Securing liquidity in hand

In a severe financing environment, we intend to raise funds by utilizing and selling assets including loan claims and real estate, attaching overriding importance in management to cash flow. We also plan to adopt comprehensive measures for "reducing expenses" and "increasing income," in order to secure the funds required to operate our business.

2) Enhancing the ability to respond to interest refund claims

We have set up "Loan Administration Division" to enhance our ability to respond systematically to interest refund claims, the number of which has remained high. We will strive to reduce the total costs incurred by interest refund claims by developing and systematizing the staff responsible and clarifying their responsibilities and authorities.

3) Ensuring earnings despite a reduction in the balance of direct cash loans to customers

As our response to the reduction in the balance of direct cash loans to customers, which is a source of earnings, we will exploit new earnings sources by seeking M&A, business and capital alliances, and other possibilities, while considering expansion overseas. In addition, we will constantly seek to improve management efficiency and achieve extensive cost savings, while continuing to close and integrate branch offices.

   Through these measures, the Company will establish a strong business model, enabling it to achieve profits even in a severe environment and establish a more robust business foundation.

 

(4) Basic guidelines regarding relationships with related parties

Facilities owned by related parties are used as a part of training center.  As for the said transaction, having considered demands and the trend of market price, all procedures and conditions same as other transactions are conducted and applied.

4. Consolidated Financial Statements

(1) Consolidated Balance Sheets

			(millions of yen)
	Previous Consolidated Fiscal Year (as of March 31, 2009)		Current Consolidated Fiscal Year (as of March 31, 2010)
Assets:
Current assets
Cash and deposits		47,871		40,372
Direct cash loans to customers	*1,2,6	861,517	*1,2,6	589,477
Installment receivables		465		312
Raw materials and supplies		241		218
Accrued interest income on direct cash loans to customers		7,914		5,693
Short-term loans receivable	*4	49,992	*4	19,989
Deferred income tax assets		13		-
Other current assets		15,523		37,596
Allowance for credit losses		-96,994		-60,658
Total current assets		886,541		633,000
Fixed assets
Tangible fixed assets
Buildings and structures' equity		6,144		4,239
Machinery and vehicles'equity		68		53
Equipment, furniture   and fixtures' equity		4,140		3,512
Land		34,649		25,216
Golf course		195		195
Total tangible fixed assets	*5	45,195	*5	33,214
Intangible fixed assets		5,174		4,837
Investments and other assets
Investment securities		10,981	*8	5,624
Long-term deposits		5,580		6,206
Other investments and   other assets		4,992		4,050
Total investment and other assets		21,554		15,880
Total fixed assets		71,923		53,931
Total assets		958,464		686,931