ORIX Corp (IX) 2014 Q4 法說會逐字稿

As introduced here, my name is Miyauchi. I understand that all of you are very busy, and in this stormy weather right now outside, thank you very much for gathering here.

So, officially, we are here to present our consolidated financial results. But first and foremost, I would like to take some time to set the stage for the following financial presentation, which may be rather unusual for this sort of presentation session, but please allow me.

The reason for that is that back in April we, Orix Corporation, was able to celebrate the 50th anniversary here of its establishment.

And also, as released yesterday, upon the coming annual general shareholders' meeting I, Miyauchi, after many years of the CEO responsibility, is going to step down. I am going to be the senior chairman. The different -- the title and responsibility in that I am set to assume, which means that this probably is going to be the very last time that I am going to be speaking to you in this sort of program.

I would like to give you some remarks regarding the framework of our business, as well as our philosophy.

Looking at this first page, it shows our history; how -- well, I was one of the original group of 13. I was one of the most junior fellows. 1980, this was the year when I assumed the responsibility of CEO, so I received the baton to be the CEO.

1988, this was the year when we changed our Company name to Orix, and we also became ever so popular because of the acquisition of a professional baseball team.

And the most recent figures, 2014. So comparing and contrasting all of these numbers is not just to say that I am totally impressed and thinking of all fond memories; but rather, I would say, that all of the initiatives and actions that we have taken have enabled us to change in this manner, which could not have been accomplished without the support of the community.

Looking at the employees, ever since I became CEO, maybe 30 times shareholders' equity, 40 times, so everything has expanded rather exponentially. So it seems all rosy, just looking at this page, but it is not necessary to say that everything has been all positive and blessed.

I would like to, by asking you to move onto the next slide, go through our way of approach. More than anything else, may I say that it is always the creation of new values which will be proposed to the community. We started in the financial services. But in the field of finance and related services, not to mimic what others have been doing, but rather to recognize that we were the first company in Japan to get into the field of so-called leasing operations.

The creation of new values has always been kept tightly in our mind for one. And for another, we originally started up as a venture business; however, to be self-reliant and to be self-sufficient, this also has been kept up. That's a very important point.

There has been a series of critical moments and difficulties that we've gone through. However, be it on our own, the organic effort, or without having to rely on the public support, or the extra support then by [granters], we have been able to keep independent.

It was just in the first financial year that we had to accept the red ink, but that was the only year. Since then, we always kept in mind that there was no turning back; there was every teeny mistake that management makes and then the Company would not be able to turn back, or would not have a brighter future.

As to the business portfolio, the Board execution, the Board strategy. However, particularly so from the strategic initiatives, to be prudent and diligent, and that's how we accumulated our business portfolio.

The business expansion and diversification, it's not just to react, [material] quick thinking, but rather that you always [maybe carry record light] [right adjacent] next to where we are, or what about the area beyond. So it's been kind of reputation of those, the operations, to enable us to be what we are today.

By the way, when I say business diversification, if we just keep on diversifying we may just have a whole host of teeny operations. But what I always thought, and there was the organic linkages, among the created new businesses, so the multi-dimensional metrics approach.

This also has been kept very important, this diversified sort of conglomerate sort of structure. But at the same time, it's not that each business or business unit is separated from one another. And there's always the cross-functional across the unit linkage.

And also, we operate outside of Japan, 30-some countries by now outside of Japan. By the way, we are not just a group of Japanese nationals, so not asking foreign nationality, age or gender. This is the group of the very rich, the talents, who each come from the unique background, each and every transaction.

To create things new, meaning that we have to be willing to take on risks. Unless we take on risks, we would not be able to accomplish the big -- the business results.

But we have to be mindful of the bad risk, as well as the good risk, so-called; how to eliminate bad risks, but rather to courageously take on good risks. In order to do so, we need expertise. We have failed from time to time, but basically continue to take on good risks, to continue to grow.

That has been our history.

Back in Japan, in the 1990s, we had to go through the difficulties with the collapse of the business bubbles; economic collapse; financial and/or Asia crisis; or the Lehman crisis, so the series of critical moments in our business history.

However, I must say, because of the kind of stance and the principles of our business management, which has been kept up, we have been able to accomplish the sort of growth that we can now show you today. Well, after all, we're blessed with good luck.

Now, looking at some financials, which is on this page, the line graph shows the debt-to-equity ratio. 1990, that was the peak of the economic bubble in Japan. We were able to take on highly leveraged business management. But this ratio has been declining in the aftermath of the Lehman failure, the ratio of 2 times.

As a financial institution, or the Company -- the finance business, this has been unusual. In the meantime, if you take a look at our net worth, or the shareholders' equity, we have been able to accumulate the shareholders' equity. Or said differently, we have been able to generate the bigger and bigger net profits.

As a finance company, the high tier of leverage and the size of interest-bearing debts, they both have to be looked at very carefully. But whereas we had the very -- the peak in the interest-bearing debts in March 2008 period, while reducing debts, the net revenue has been accumulated.

And furthermore, net profits, by the way, the profit story you will hear later on, but we have been able to change the growth accordingly.

We have not just been engaged in the most simplistic, this set of finance services. In the same category of financial services, are the most sophisticated, are the so-called fee and commission based in the business. That is in the category, or the direction, that we would like to move into.

Or willing to step back and step outside of finance, to be more engaged in the business investments and operations, to use capital for those purposes. That's what we have been doing for the past few times, so we not relying so much on the use of the balance sheet to be able to grow in our business and profits. And that is what we are today.

Now for future, now that we celebrated the first 50 years, what is going to be in store, possibly, for the next half a century? This is going to be the very final slide that I am going to cover today. But really, we need to look beyond, and look ahead.

After all, a company has to be innovative. Without the sense of innovation there is no raison d'etre, sort of. So riding the tide of the times, to be dynamic and to be agile and swift, or maybe opportunistic, maybe, we have to be innovative, in principle. Unless we continue to do that, I do not think that we are going to be blessed with continuing future success.

That means that it's not just taking on the new challenges always, but to foresee, to look into the future, what is likely to be the future of the community. That means that the management of a company has to be able to have sophisticated viewpoint, and also where we are likely to see the emergence of new [bands] and requirements.

So, those thinkings are very important. If not, just dynamic, the movement, would result in the fatigue as the business entity. Please understand that all of those points are kept very closely here at heart.

With that, looking around Orix, having been born after 10 years, 20 years, into the future. In the 10, 20 years after integration of Orix there were quite a few finance companies globally.

As of today, I know that globally we are truly unique. We are by now totally unique, and, therefore, we have been able to successful establish, or we are successfully establishing, the unparalleled unique Orix business model; business model of Orix, quote unquote. Those are, given our business scale, centering on finance to be independent, and to continue to generate this manage the profit. That's also unique; we are unique in that respect, as well.

So the leveraging, based on the standing, what we ought to do is to become more international, global, to lead the global economy to be able to convincingly represent Japan as a country. For the next future generations of the management, or the future set of challenges, that is the sort of goal that we can accomplish, establish.

Orix today, well, needless to say, everything that we established 50 years ago, I believe that we are in the best ever in our form. By best, what I mean is that the financial soundness is the most robust.

And also, domestically, and outside of Japan, there is a well expanded network that we have now, which is the best and the strongest now. Also, human resources, expertise, management, the people power, in that regard as well Orix today is the strongest that we have ever been. That is the reason why I say that we are ready to take on the challenges for the future.

At hand, we have ample cash and the sound financial conditions, and a good business portfolio.

All of these points should be kept in mind to make sure that we can continue to fulfill the expectations given to us by our shareholders and key investors.

By the way, in terms of thinking of everything's good, ROE 10%, in the aftermath of the Lehman Brothers' failure, I say, time after time, that our target will be ROE of 10%. May I report to you that we have been able to accomplish this target about two years ahead of our original plans. So hereafter, we are, and I am ever so confident that we will be, able to preserve the ROE standing at 10%.

Before going into the financial details, I wanted to take a bit of your time to share my view on Orix, which I know sounded very bullish, and that's what I am.

I feel very confident here about Orix; maybe confident and bullish, yes. However, please note that our management is ever so conservative, blessed with the most sophisticated intelligence and expertise. We are quite conservative in that we would tap the bridge twice before deciding to cross it.

With that, I am going to close my comments to you today. Thank you.

Thank you. Co-CEO; my name is Inoue. I'm going to go into financial details.

I'm going to start on page 5. It may be rather redundant to what was presented, announced yesterday, but the March 2014 net income was JPY186.8 billion, year on year increase of 67%.

Excluding onetime variation gain involving DAIKYO, there is still more than 30% profit growth, as well as the return on equity at 10.5%. We said that by March 2016, ROE 10% shall be accomplished and (inaudible) of which, well, of course, we had the one-time valuation gain involving DAIKYO, but we were able to frontload this plan.

Dividend payout has been increased by JPY10, having moved up from JPY13 to JPY23 per share.

Of course, our fundamental stance is the same in that we would like to please maybe allow to use the capital [hand] for business growth. However, having given thoughts to the improved profitability of each business, or having given thought to the fact that there is a strong sense of stability of base profits, through the execution, such as the acquisition of Robeco, the excluding the one-time on the accounting, the gains and losses factor, the payout ratio of 20% has been reminded of.

For March 2015, 12% growth in net income, the target is JPY210 billion. In the aftermath of the financial crisis, for five consecutive years in a row substantial increase in profits has already been accomplished. Now our target is to repeat that once again, for the sixth consecutive year.

In the record high, which was back in March 2007, we accomplished JPY195.3 billion; our net target is to renew that. In comparison, however, with the conditions of the Company back in 2007, this [also] revenue, the profits has expanded and has been diversified. So all in all, the more stable earnings capacity has been recognized.

For March 2014 period, specific accomplishments in the area of environment and energy-related field, the multiple investments which have made have been commenced; and always new operations. Mega-solar, the power projects, and roof top mega-solar power generation projects combined, 425 million what were the scale that we have available now.

By the way, in comparison with the previous time, the trend, the scale of solar panels is much bigger.

And also, we made equity investments, such as into the global business power plant operated in the Philippines, the [innovergy], the investment-based energy service company.

Business investments: the Mongolian financial, the big power [tender], Cambodian bank, ACLEDA, and Middle Eastern insurance company, MEDGULF, these are the parties that we made investments in. This results in minority equity positions for Orix. However, we are talking about the Asia and Middle East, and the emerging parts of the country, where, under robust economic growth, the opportunities are talked about. So good partnerships; how we can construct those in these regions will be the big thing to us.

Now, historically, looking on the back at our history, the biggest effort on the M&A was executed was the acquisition of Robeco. And also, DAIKYO is the consolidated group company. These, the group members may have contributed towards the March 2014 results, as well.

Robeco: AUM continues to be built up the [duty]. And with the consumers, clients, as well as with Robeco's key employees, relatively good and friendly relationships have been constructed.

For DAIKYO, DAIKYO is steadily and gradually transforming itself to be a real estate asset management company, where the key business operation is in the condominium management. So together with condominium development, DAIKYO is set well.

So, moving onto the next page, our strategic direction of finance plus services and debt to equity, and then onto operation, will not change. However, we seek to develop new business that contribute to the Group's overall base profits.

We will continue to exercise our expertise and increase fee revenues, without relying on asset-based business. Furthermore, we will accelerate our initiative to expand businesses in new markets, which are one step away from the financial market.

Since the financial crisis, we have worked hard to strengthen the Company's financial base and risk management. I also believe that we have made significant progress in improving our middle office operations.

We believe that growth potential exists in every business segment. But in the coming years, we are going to place more focus on to the environment and energy-related fields, investment in operation, and overseas business segments.

For example, in the environmental and energy field, the Great East Japan Earthquake in 2011 was a significant turning point for energy policy in Japan. With the liberalization of the solar power generation business, Orix has become a top-class player in that market of solar power generation.

We have also been studying and preparing for new areas, such as wind and geothermal power business. We would like to further expand our presence in the renewable energy segment in Japan, in both qualitative and quantitative terms.

There are also ample opportunities in investments worldwide. Our deal pipeline is a sizeable one, and we have been receiving many inquiries on deals. For instance, the primary objective of the acquisition of Hartford Life Insurance, that we announced the other day, is to secure additional profit. But we think it's a good deal to complement Orix Life's future growth.

I would also like to highlight that we have sold all shares in Monex group; sold our majority shares in STX Energy. And with the listing of Haichang Group's leisure division on the Hong Kong Stock Exchange, we have been able to secure liquidity. We think that we have been successful in securing liquidity, and having turnover of our portfolio assets.

We think that the business opportunities in Japan will increase if the growth strategy under Abenomics becomes more specific. We have expectations for that. However, considering the market size, we simply cannot ignore the overseas business.

There will be no changes to our policy to position our overseas business as an important support to the Group's overall stability and growth potential.

Page 7. I would now like to explain the latest financial results, and the projection and specific strategies for the current fiscal year, for each of our segments.

First of all, in the last fiscal year ending March 2014, the investment in operations segment recorded a valuation gain from the consolidation of DAIKYO; the overseas business segment benefited from the consolidation of Robeco; and the real estate segment skillfully took advantage of the changes in the market. Each achieved an increase in pre-tax income of JPY10 billion.

Also, maintenance leasing and retail segments have achieved steady growth in asset balance, also contributing to profit growth.

In this new fiscal year, we're expecting strong growth in overseas business, retail, and maintenance leasing segments.

Page 8, segment assets. On the segment assets, there was significant increase in the last fiscal year due to the consolidation of Robeco and DAIKYO. In addition, growth in maintenance leasing and retail segments also contributed to growth of assets.

This fiscal year, we anticipate the investment in operation and the overseas business segments to play pivotal roles in finding investments for future growth.

Next page. For the corporate financial service segment, we're going to utilize our sales network and maximize the potential from our Group RM capabilities.

There are currently many ongoing themes in Japan, including the stimulus package under the Abenomics, targeting corporate capital spending; TBB, reconstruction following the Great Earthquake; deregulation of casinos; etc. We will continue to seek good risks in potential growth areas, such as agriculture and health care in Japan.

For the maintenance lease segment, we will aim for high ROA and steady expansion in the asset base.

Going forward, we will sustain the high profitability in the segment; and at the same time, aim for further growth by expanding new customers, such as SMEs and retail customers, as well as seeking out new markets in neighboring business areas.

In the real estate segment, creation of new business model, I believe, is an ongoing challenge. Right now, the market environment is favorable for us to offload our assets, and we are taking this opportunity to restructure our portfolio.

Also, we will reinforce our effort in utilizing expertize in areas such as asset management and joint investment to generate new fee revenues.

We are continuing to position investment in operation segment as the key driver for the Group's mid-term growth. We intend to expand our investment in the environment and energy business, and private equity investment, on a global basis.

For the retail segment, we plan to further enhance the stable stream of profit generated in this segment, which is vital to the Group's future growth.

In the life insurance business, while the third-sector products remain solid, we plan to strengthen our marketing efforts in the first sector market. Also, we will ensure that Hartford Life Insurance will be integrated into the Group smoothly.

Concerning housing loan and card loan business, we will steadily increase our asset balance.

For the overseas business segment, mainly in the US, we are enhancing our fee business, as well as new business development.

In Asia, we are focusing on asset expansion and business diversification at the same time. For Robeco, the emphasis will be on expansion of AUM, and making inroads into new markets in Asia and the Middle East.

Our overseas network covers over 36 countries. In each local market, we have reliable partners that we have cultivated over 40-some years. The network of these establishments we have built over the half century form the important foundation of Orix business. It's an important asset for us. I'm convinced that leveraging and expanding our global network would be an important initiative for the next 50 years of Orix growth.

In conclusion, net income for the fiscal year ended 2014 was JPY186.8 billion; 67% growth year on year. The net income target will be JPY210 billion for this fiscal year, and we'll continue to aim for sustainable double-digit growth.

Shareholder return: we decided to increase dividend payout by JPY10. Going forward, we aim for steady dividend payout, focusing on the balance between growth and profitability.

As we forge ahead into the next 50 years, I feel that the Company bears huge responsibility to sustain growth and provide new values. We need to nurture global mindsets, and make further efforts to become a Company that contributes to society; a Company that will represent Japan in the global society.

As we continue to carry on the principles and spirit of Mr. Miyauchi, it's also imperative that we further evolve our Orix DNA that we have cherished over the past 50 years. In order to achieve this end, I myself look to be more conscious about creating innovations and to take necessary actions.

The business environment is favorable, and the Company's financial condition is also in great shape. I think there's no better time to build new businesses and achieve continuous double-digit growth in the future.

Moving forward, we will continue to do our best to meet the high expectations of our investors.

This concludes my presentation. Thank you for your attention.

Now, we would like to open up the floor for questions and answers. If you have a question, please raise your hand and wait for a microphone to be delivered to you. When speaking out, would you please identify your name, and the company, firm that you're with?

Otsuka, Nomura Securities. I have two questions to you. Number one, about net income. March 2015 target of JPY210 billion, as I understand, and you talked through this. On page 19, the changes in the earnings structure where you break out between base profits and capital gains, page 19. March 2007, that you had different level of capital gains, or the contents of the base profits are different between March 2007 and now.

You talked about diversification, as well as a stability. But mindful of your future direction, do you think it is going to become even more diversified? I'm not necessarily saying that it's positive, or the negative. In other words, do you think that what you are, and the composition that you have today, is better and more suited to Orix? That's my question number one.

Thank you. Yes, we continue to [walk] in the cause of -- through the course of diversification. But, for instance, the segments may have an increase in [10, 20]. But, in particular, environment, and the energy, the photovoltaic, the power project, the new construction work is now started up. So more than 400 megawatts, we'll be ready to start the operations. The feed-in tariff between 42 to 36 years, which secure the guaranteed earnings for the 20-year period, so that means that for this particular segment we will have extra (inaudible) net profits.

In the segment overseas, the [escrow] activities, energy saving and other activities in South East Asia, this is a typical sort of fee business operations. So I don't know about the absolute size for net profits, but South East Asia, including China, to what extent can we nurture these operations.

Maintenance and leasing, as always, automobile [rent take], as well as trucks and other on the periphery the operations, we have been expanding the portfolio. It's not as though we are likely to have doubling or tripling net profits.

The corporate business, outside of the conventional leasing operations, we need something new and different in order to assure for the continued growth.

Overseas business, the business investments, private equity investments, as well as asset management businesses, will be expanded, clearly. As we do so, the profits, we may start to see some new segments.

So based on the profits beyond March 2015, would you say that service-oriented profits, the portion will become bigger?

The service business, yes. Retail, these are the promising business segments for the future.

Thank you. My second question, again staying on the same page, 19, capital gains and large valuation gains, [you show] the stability of capital gains. Yes, you say that you're going to pursue stabilized capital gains, going forward. Maybe nothing numerically they're targeted at, but do you have any sense as to what it is the comfortable level or the size, or what about recurring or ordinary -- the capital gains?

Capital gains are all attributable to the market operations. Since 2012, outside of Japan, we commenced PE investments, they saw good trends and have started to come about.

However, we had then the Asian crisis, and we had Lehman failure. There have been ups and downs. So, to be honest with you, I don't think we have the size of portfolio under which -- to encourage us to think about the comfortable size of capital gains. But in South East Asia, in particular, the extraordinary core profit, maybe, for the future.

You say stabilized, or stability, so you hint at the current sense of stability, which is not enough. Do you feel that you need to continue to sow seeds, or to make investments further?

This is a very ambiguous concept in the sense that we do not have a numeric target. But rather, if there's a good deal, rather opportunistically, if I may, we would make a decision to make investments, or to sow seeds. So, in that regard, we are not finished.

And in the meantime, on the past investments, in due course they will ready for us to exit from, and that's realized and then will be the extraordinary gains.

Thank you very much.

Muraki, Deutsche Securities. Two questions; in the data booklet, and the -- I want to ask about SG&A. On page 12 you show SG&A details for Japan and overseas, and in the previous page there is the operating revenue, and so you remove capital gain and that level after Robeco acquisition. For the past three quarters, I think it's been level and so SG&A every quarter has been increasing. Can you explain the background of that?

And the next fiscal year, what if there is some extraordinary event? If that is gone, is there a possibility of profit increasing? If there is such a case, please let us know.

In terms of business portfolio diversification, or you have diverse portfolio, so I don't think you control this at the consolidated level. But can you explain about the increase in SG&A, the reason for that, and the outlook?

And the second question I have, more abstract in nature. The existing business management and entry into brand new businesses, or acquisitions and investments, if you were to separate your business into those two segments, well, Mr. Miyauchi, the CEO, how much share of your time or your energy in your brain has been allocated to each?

Of course, new business becomes existing business after some time, so I think it's difficult to segregate the two. But for the long-term growth, you have to enhance the profitability of existing business, and also you need to organically connect the existing business. But at the same time, as you have been doing in the past months and years, aggressive M&A would also be necessary, so what is the weighting between the two in terms of the energy that you put into the existing and the new business?

So, those are two questions.

Concerning the first question for Mr. Muraki, I'd like to respond. Concerning SG&A, so if you look at the fourth quarter figures, salaries, well, bonuses, we announced that we will increase that bonus, and so that is one difference compared with the previous quarter. That's an additional expense for this quarter, the fourth quarter.

As you well know, in the past several quarters we have seen an increase, for example, in private equity investments. We have consolidated subsidiaries in Japan, well, we have a new company. When you have a new company, SG&A of that new subsidiary is added to the total SG&A. So until we find an exit for those companies, there is that impact to increase SG&A.

And mainly for overseas business, based on the performance, the SG&A can increase or decrease. [Fujihano] in the US, or the RED Capital, they are such cases. So those have impact on the SG&A. And for those, we look at the bottom line, that's what we manage. And if they are growing the bottom line, we accept that.

And so, in terms of what should be the right level of SG&A, we don't necessarily set a clear guideline of the SG&A ratio.

But in terms of the trend, if there is a weight that is dependent on the performance, as we increase our overseas business that dependency might increase. If that is the case, then we will look at that as a new issue and will think about we should respond to how to manage SG&A.

Now, I've been talking mainly about the personnel costs. And also, if we look at the current situation for the Group, especially in Japan, we are doing new system development. And it's almost complete. The -- it's starting to be operated, our main system.

And in the previous term, we had the parallel operation of the two systems, so that has doubled the expense for our core IT system. But in the next year or so we will have transferred to the new system, and that should suppress the cost for that cost item.

Before responding to the second question, talk a little bit about SG&A. The performance in Japan is controllable. But the performance overseas, well, we pay based on performance; that accounts for a very large part, so that is uncontrollable in terms of the amount of SG&A.

As Mr. Agata said, we control and manage by the bottom line. That's the only thing we can do. And if -- and there is a large possibility that, that part is going to increase in the future.

And also, in terms of the Company moving into new direction, what's the ratio of our effort in the new business? Well, originally, we started in finance and, basically, providing credit to corporations. That has been the core of our expertise. That's where we started. So we are a Group with that kind of expertise, and we try to create a profit based on that.

In that case, you have to increase leverage, and increase balance sheet, and expand your customer base. That's been the traditional approach. But that kind of business operation is not sustainable; that has been clearly shown by the Lehman crisis.

After that, we made a great effort to shift to something else, even in finance. We tried to generate profit by expertise, by earning fee income. So we have focused on transferring business to the fee business. So we can buy a company through M&A with such expertise, or we can hire external people to develop new departments. It's a choice between those two. And after the Lehman shock, we have tried to do that expeditiously.

My sense is that we need to increase profit with leverage less than 2 times. If that's necessary then we need external people with expertise, and we need the training of our internal employees, so that we can generate fees and transform ourselves to the fee business with a low leverage.

So it's not a matter of ratio, but we're really focusing all our efforts in shifting our focus to that direction. That's what we are doing now. And some time in the future, I think we're going to rethink the balance. But as of now, we are trying to, as quickly as possible, establish various fee business and operation business. That is our emphasis at this time.

So that means that as you have this set of existing businesses in comparison with what you used to have 50 years ago, as you yourself said, the scale and the contents are totally incomparable. So the time which will be required as management to focus on those businesses must be much, much bigger, and then the leverage mandate, and so forth, and expertise, acquisitions.

And all of these ideas that you just talked about, you say that you'd also like to devote your time for those future-oriented operations, as well. Do you have a good balance?

Well, I can only do what I am possibly able to. There's an actual limit, at a certain point. Also, Robeco, which is an asset management firm, coming from a different category of the financial services operations, and although both of us are in the field of finance, Robeco business operation is totally new to the Orix Group.

If you are able to consolidate and integrate, well, this is going to be the tremendous plus, and [the plus alpha], for us. But it's not as though we have to be pre-set into infuse in the Orix's side of operations. Just because they are the group company of Orix does not mean that we have to totally revamp the management team of Robeco.

By the way, it's totally the same. We have the same exact group of management, who continues to attend to the management affairs at Robeco. So that is what we have been able to accomplish, speaking of Robeco.

Now, going forward, we have Robeco in our Group. As we move forward, and this expertise that we have in our Group, knowing that they have lots of expertise and the US, and the Europe, and the Middle East, Asia, the other areas and regions that Orix has been able to accumulate the expertise.

We have to be mindful of the need to add additional expertise and the knowledge that we have available onto the Robeco side of the operations. As Robeco's management's accepts that and becoming ready to accept the additional expertise in Thailand, and knowledge, know-how, then all the better for both of us.

So, that's for the future challenges.

[Orix], we will exhaust the available talents and the resources for time available. It always has been so, and will continue to be so in our business operations.

Thank you very much for that.

I have three questions. Number one: dividend payout has been increased. When speaking of dividend payout ratio, how do you tend to assess the current payout ratio for the term completed?

You have that large valuation gains, so if this simplistic calculation of payout ratio it would be 15%, 16%. However, you know that how, and this will be so, in other words, by excluding one-time money valuation gains then the payout ratio calculated would be nearly 20%. So how would you evaluate and assess the payout ratio?

And what is the sense, and what is in the style and approach with which the March 2014, or for the future trends, non-cash, the benefits and other items to be extracted -- to be subtracted, then about 20% in the payout ratio? I would like to have a clearer sense.

The segment assets, on page 10, note a supplementary material book. So I see that the US is coming up. [Every sale] oriented, in credit and lending, do you -- is there any particular factor that the stance in US operation has been changing, or not? Or any other segment features? So that's my question number two.

Question number three: life insurance, under the first sector, had primary sector sales to be increased, or to be made more aggressively in the Japanese life insurance market. Now, in the past you talked about the corporate -- the financials the services, and excluding life insurance, the sales, you had good track records. But what is your strategy, for instance, in the current financial year?

How do you plan to introduce new products and services, and geared towards SMEs? Or do you have any plans to expand or establish a new sales force as a sales team to attend to particular sorts of products, or the services?

Let me take up the dividend payout question, which is repeated every time we meet. Basically, given the stability and the soundness of Orix then we would decide.

Well, I must say that we are the finance company without a safety net in banking. So that means that maybe (inaudible), and the customers, clients, maybe financial institutions, or the credit rating agencies, that this point is very important.

And mindful of shareholders' expectations towards us, we have to preserve profitability of our operations. And that is where we say that we continue to preserve double-digit, the profitability, and stability of payout operations.

The indices came down in the immediate aftermath of the Lehman failure; however, it's been restored, the stability of the profit generation, and, therefore, the payout should come about.

DAIKYO, well, valuation gains, we did not [want] to realize. However, in line with the US GAAP requirement, we had to. But then we thought beyond.

When we decide on the dividend payout, dividend payout should refer to what we were able to earn and generate through our business operations. And with that, we decided that it is to be JPY23 per share. But our gut feeling on the [honest fee] income is that we wanted to be stable on the on the payout ratio, and, therefore, the 20% payout ratio.

On the second question about US asset accumulation, operational assets and the US operations getting bigger, the US economy is out of the period of recession. The economic activities are booming, and the real estate market is up, so lending and loan business has been increasing, naturally.

However, something like the public and corporate bonds is being decreased. Houlihan Lokey, the fee business has been earned, and that [size] has been getting bigger, and that pushed up on the size of the assets as well.

You also asked about at primary insurance sector. The third sector insurance, that has been very favorable. If anything, we have been focusing on that; has meant the primary sector has been left -- less attended to. However, in order to have a strong distribution of primary sector insurance, we need the sales force and the network which is adequately set to handle that.

And those are those hard-fought life insurance; variable annuity, variable life. And no new on the sales for that. However, our hard-fought life, with about 350,000 the policyholders, with those policyholders, what sort of additional add-on sales activities and opportunities. So those should be identified on a very closely. And, therefore, we're once again thinking the primary sector, the first sector insurance. But fundamental, the view and approach has not changed.

So the US, loans, real estate-related, they do crediting?

Not at all. We are not at all extending credit for real estate-related purposes. But when the real estate activities boom and then they will pick up, and the bond issuance, and so on.

Thank you. We understand.

SMBC Nikko Securities, Niwa. Mid-term profit and profitability goals, or your expectations; and also, the title of senior Chairman. Those are the two questions I have.

So the first question, on the page 12 of your presentation material you talk about ROE 10%. You achieved that two years early. And then for the next three or five years, you call that mid-term. If we consider that to be the mid-term, what's going to happen? And what are the conditions for that to be raised?

And then the other question is the new title, senior Chairman. So what is going to change in terms of operations? In terms of crisis, or in ordinary times, what -- how is your role going to change? Or how is the operation of the Company change? If you can share with us your philosophy, your thinking about that, please.

(Sorry to create a new title that's not easy to understand. I had been CEO for many years, and I had never had the experience of retiring, so I really have to go through the trial-and-error process to establish my role.

As long as I am well, and as long as I am useful to Orix, I'm going to exert my full efforts for the development of Orix. I think that is my mission.

I had been CEO for many years, and what I felt was that CEO is confronted with huge tasks every day. And you have to grapple with that issue immediately in front of you, and then you're struggling with that. At the same time you're thinking there are more important tasks that you need to work on, but you don't have the time to tackle those issues. And so I want to take on those issues.

For example, we have partners that we have a long-term relationship with. We should work to strengthen those relationships. And also, we need to select and nurture the next generation leaders.

In the times of a crisis, a person like me, I can brag to Mr. Inoue that I have experienced so many crises in the past and I think, therefore, I may be useful. I'd like to look at the long-term strategy for the Company. What is the direction that Company should move into? Those things that CEO should be thinking, but don't have the time to think about; that's what I would like to be in charge of.

So in terms of ordinary business, based on the long-term experience, I want to be the advisor to the CEO. I think that would be the role given to me. So that's just an image that I have. I haven't really tried it out yet, so that is my thinking at this point in time.

There's no need to be a director, or to be an executive director, to play those roles, and that's why I took on that kind of position.

So the next question, ROE 10%, is it going to stop at that level? Well, when I said that we should target 10% ROE, based on experience of the Lehman's shock. ROE management, I felt, was quite risky, so 10%, 15%, 20%, if you go to those ROE levels if there is a financial crisis you'll be hit very hard. So we learned that from experience.

To our shareholders, we should set a ROE level which would be satisfactory to them, so we thought that would be double-digit, at least 10%. But we shouldn't raise that limitless, and we should refrain from raising that too high until the financial situation has stabilized. That has been our stance.

If you can be confident that there will not be a crisis like Lehman shock, then I think we can raise ROE level some more. But as of now, if you look at the European financial markets, they are still various issues. And in the US there still haven't been so much change; we cannot think that it's a stable market yet.

So we like to target double-digit growth, or double-digit ROE, and open up new fields, and hope that that will satisfy our shareholders. I think that will satisfy the shareholders. So, it all depends on the external environment that's round us. And based on that, we should decide whether the ROE level should be raised, or, in the worst case, maybe necessary to lower the ROE.

One additional question. Sorry to dwell on this, in terms of profit growth rate, you talk about double-digit. Well, this year it's 12% growth. But what is the range that you want to target, fundamentally?

That's a very difficult question to answer. We say double-digit, so that's like a basic benchmark, basic target. It's not an absolute condition.

So by aiming for double-digit, if we're going to take bad risk and not just good risk it would be meaningless. We will aim for double-digit, and, based on the market conditions, we might fall behind, fall short. The health of the Company and the determination not to take bad risk is more important.

We have been able to maintain double-digit growth in the past, and so we should continue to do that, or else Mr. Miyauchi's going to scold me, as the advisor.

Hope that answers the question. Thank you very much.

With that we'd like to conclude our earnings presentation. Ladies and gentlemen, thank you very much for coming, despite your busy schedules.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.