ANNUAL REPORT 2012 for the year ended March 31, 2012

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Financial Section Management's Discussion and Analysis


The Credit Saison Group has five business segments: Credit Service Business, Lease Business, Finance Business, Real Estate-related Business and Entertainment Business. The Credit Service Business segment is the Credit Saison Group's most important segment, and generated approximately 80% of total consolidated operating revenues in fiscal 2011.

The Credit Saison Group's operating revenues are generated primarily in the mainstay Credit Service Business. These consist of fees from affiliated stores generated via credit cards and interest and fees from customers generated via revolving credit, cash advances, specialty loans and other transactions.

Operating expenses mainly comprise advertising expenses, point redemption costs, costs of uncollectible receivables, personnel expenses, fees and financial costs.


1. Market Environment

In fiscal 2011, the Japanese economy was heavily impacted by the Great East Japan Earthquake. However, there were also signs of a gradual revival in corporate production activity and consumer spending on the back of recovery and restoration efforts. Despite these encouraging signs, the economic outlook remains clouded by concerns of a slowdown in economies overseas given the sovereign debt crisis in Europe and the yen's protracted strength.

The non-bank industry continued to face a severe business environment, with full implementation of the Money-Lending Business Control and Regulation Law weighing down operating revenues from cash advances on credit cards, making it necessary to reform business models.

2. Operating Revenues

In fiscal 2011, operating revenues declined by 14.6% year on year to ¥244,009 million. In the mainstay Credit Service Business, the Company worked to increase shopping transaction volume by stepping up efforts to acquire new members for premium cards, such as the Saison American Express® Card, that have a high active ratio, and by increasing the benefits of credit card use for cardholders. For the latter, the Company strengthened its service alliances with prominent companies such as Seven & i Holdings Co., Ltd. and Yahoo Japan Corporation by linking IDs and points, among other measures. The Company also focused on strengthening earnings power by expanding fee-based businesses through improvements to the functionality of Internet services. The Company promoted use of the Internet to achieve timely collection and build up of the shopping-related revolving credit balance, expanded the number of Internet members and launched a service enabling use of Eikyufumetsu Points ("Saison Permanent Points" in English) for making Internet shopping payments. Nevertheless, operating revenues from cash advances decline due to total lending restrictions following the revision to the Money-Lending Business Control and Regulation Law. Furthermore, the transfer of the affinity card issuance business operated with Sogo & Seibu Co., Ltd. to Seven CS Card Service Co., Ltd. resulted in year-on-year declines in the number of new cardmembers acquired, the shopping transaction volume, the shopping-related revolving credit balance, and the card cash advance balance. As a result, the segment saw lower operating revenues year on year.

In the Lease Business, operating revenues rose year on year as a result of efforts to strengthen ties with existing customers and to acquire new partner merchants. In the Finance Business, operating revenues increased, mainly through growth in the balance of credit guarantees in the credit guarantee business. In the Real Estaterelated Business, operating revenues decreased as consolidated subsidiary Atrium recorded a loss on reappraisal of its assets. In the Entertainment Business, suspension of operations and reduced operating hours at stores due to the Great East Japan Earthquake contributed to lower operating revenues year on year.

3. Operating Expenses and Operating Income

During fiscal 2011, the Credit Saison Group saw operating expenses decline 17.9% year on year to ¥212,143 million. The cost of uncollectible receivables declined as the Group continued to improve the quality of its receivables by strengthening the management of receivables, and the number of receivables handled by third parties such as attorneys and certified judicial scriveners continued to fall. Moreover, the Company has achieved a leaner cost structure by making efforts to control various costs through improvements to operational efficiency, and by increasing the number of Internet members registering for Web-based usage statements, bringing a decrease in communications costs. Web-based usage statements allow users to check their usage statements online at any time, and the Company has been promoting them as being both environmentally considerate and convenient.

4. Non-operating Revenues and Expenses and Net Income

Total non-operating revenues increased 191.0% year on year to ¥20,219 million. The main factors behind the change in non-operating revenues were a gain on sales of investments in subsidiaries and affiliates of ¥7,140 million, following the transfer of 51% of the shares of Seven CS Card Service to Seven Financial Service Co., Ltd., and a gain on reversal of allowance for losses from a natural disaster of ¥5,492 million after reversing part of the provision to cover losses resulting from the Great East Japan Earthquake. Total non-operating expenses increased 388.0% from the previous fiscal year to ¥62,799 million. The main factors in the change in non-operating expenses were a loss on business restructuring of subsidiaries of ¥59,796 million, due to a valuation loss on inventory assets of real estate holdings and a provision of allowance for doubtful accounts following the business restructuring of Atrium, and a loss on revision of retirement benefit plan of ¥1,658 million. As a result of the above, the Credit Saison Group posted net income of ¥9,454 million.


  (Millions of yen)
2012 2011 % change
Cost of uncollectible receivables 30,672 66,217 (53.7)
Included in the above:      
Allowance for losses on accounts receivable 20,736 44,115 (53.0)
Losses on accounts receivable 2 5 (53.2)
Provision for losses on interest repayment 6,974 18,445 (62.2)
Allowance for losses on guarantees 2,958 3,651 (19.0)
SG&A expenses excluding cost of uncollectible receivables 161,512 169,540 (4.7)
Included in the above:      
Advertising expenses 13,580 14,557 (6.7)
Provision for point program 11,719 13,729 (14.6)
Personnel expenses 40,686 42,767 (4.9)
Fees paid 49,197 47,564 3.4
Total SG&A expenses 192,184 235,758 (18.5)
(Years ended March 31)
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