ORIX Corp (IX) 2015 Q2 法說會逐字稿

I am Urata, CFO of Orix Corporation. I would like to extend my gratitude for participating in this session, out of your tight schedule. I would like to give the first-half financial results.

In your document please refer to page 1. This is the overview of the business as you have seen every time. The net income for the first half of the fiscal year ending March 31, 2015 was JPY142.1b. All segments increased their profits steadily, achieving 77% profit growth against JPY89.4b (sic - see slide 1 "JPY80.4") during the same period of the previous fiscal year and 68% against the full-year target of JPY210b.

We have achieved increased first half profits for the first five consecutive fiscal years. As you can see in the red line, ROE was 14.4% on an annualized basis. It continued to exceed 10% level which was achieved in the previous fiscal year. Please go to the next page.

Total revenues increased 55% year on year due to factors including the consolidation of Hartford Life Insurance KK, Robeco, Hyundai and Daikyo and increased profit contribution from private equity investments.

Operating revenues had renewed record high results for the first half. The total revenues went up by 55%.

For the segment revenues, it went up by 63%. Retail and overseas led the growth while real estate went up as well. And corporate finance as well as maintenance lease steadily improved.

Total assets were JPY2,150b and segment assets went up as well from the end of last fiscal year at JPY1,850b due to the Hartford acquisitions.

ROA of segment assets was favorable at 3.46%. It was faring very favorably.

For the short-term and long-term debt and deposits went up by approximately JPY40b compared to the end of the last fiscal year. We have been controlling the balance of interest-bearing debt while monitoring our assets.

The debt/equity ratio was 1.9 times level, which is similar to the end of the previous fiscal year.

Please go to the next page. I would like to talk about the first half results by different segments.

Let me first talk about the top half which is the corporate financial services. Segment profit increased PY12.6b year on year as sales of solar panels that captured the demands of corporations' tax saving needs have expanded and fee revenues from distribution of life insurance products expanded, even though revenues from lending went down.

Segment assets continued to be flat compared to March end 2014.

With regard to the solar power generation business, we used our Group relationship management capability and this has contributed in expanding revenues by capturing business opportunities for our entire Group not only improving the commission income of the panel sales. We have reconfirmed our sales force capabilities.

Although gradually the capital expenditure in Japan is showing signs of improvement, corporate tax will be reduced gradually starting from next year and this will increase tax deferral needs of corporations, continuously coming forward.

Nextly, lower half is the maintenance lease. Auto leasing has increased assets on the back of the strong new business volume and as Orix Rentec has contributed to the profitability of the segment. And the maintenance leasing segment has recorded JPY21.5b in segment profits up 5% year on year.

The segment assets went up by approximately JPY34b compared to March end. While steadily growing assets ROA continues at high value at 4.3%.

Four new locations were opened in the first quarter and new sales office was opened in Kobe in the second quarter to improve the networks in the Kinki area in the Orix Automotive. Orix Auto has been expanding its truck rental shops nationwide adding to the number of vehicles in order to respond to the public investment and private construction demands.

Please go to the next page. Upper half is the real estate segment. We have continued to reduce the size of the assets into the second quarter, which is proceeding at a steady pace. Segment assets were down approximately JPY77b from the end of the previous fiscal year to drop below JPY900b as a result of sales of rental properties to third parties including REITs.

Gains from sales of rental properties increased and the impairment has significantly decreased on the back of the favorable real estate market condition. As a result the segment assets went up 80% year on year at JPY15.8b.

In operation business, it acquired Unazuki New Otani Hotel in the first quarter and in the second quarter, Hilton Okinawa Chatan Resort was opened and started operation in the second quarter. So, new acquisition and new facility operations are started.

Please look at the lower right. It is the investment and operations. The segment profits were JPY15.3b as a result of the increased profit contributions from the private equity investments and environment and energy despite decreasing profits from loan services and Daikyo.

The segment assets was changed -- to reached JPY600b as the assets of new investments in Arcnet Japan were consolidated in the second quarter and also with increased assets in the environment and energy including mega solar business. The solar power generation business is steadily expanding. We have already secured approximately 600 megawatts worth of mega solar and rooftop solar projects at the end of September.

Now please go to the next page, retail segment. Segment profits were JPY77.7b, 2.7 times the profits recorded during the same period of the previous fiscal year. Segment profits include bargain purchase gain of JPY36.8b during the second quarter for the acquisition and consolidation of Hartford Life Insurance KK on July 1 this year.

In regards to the segment assets, in addition to the asset growth in banking and life insurance businesses, we saw an increase of JPY1.73b in investment in securities which correspond to the investment by Hartford Insurance KK. The Orix Bank, our residential mortgage loan balance showed a good growth as well. As well as the Orix Life enjoyed a premium income growth as the medical insurance product launched last year continued to sell very well. We focused on the first sector product sales on top of our strength in the third sector.

Lastly, the lower half is overseas business. On the back of a stronger stock market globally, Robeco which is expanding its assets under management and fee business in the Americas have contributed to the increased profits. As a result, segment profit increased 80% year on year to JPY61.5b.

Segment assets increased compared to the end of the previous fiscal year, especially as a result of foreign exchange, but also because of an increase in asset loans in the Americas as well as in the lease assets in Asia, despite a decrease due to the sales of STX Energy.

This concludes the results of the first half.

Next CEO, Mr. Inoue is going to talk about the strategy and strategy after this onward.

I'm Inoue. Hello, everyone. Thank you very much for joining us today. Thank you very much.

When we look at today's stock price and the Nikkei 225, it's going up. But when we look at that our stock price of our Company and the [drop rate] and when we look over the constant stock prices of the Company, then we think that our strategy to the investors have not been enough for example and we have experienced a lot of the business failures or the Company had to make their downward revision of the business performance.

But Orix is now [regarded] just like all the other companies but I think that my mission is to review these situations and make a turnaround . And also we have explained earlier and we made the report of this first half and the business performance and 14.4% of ROI -- ROE and 68% of the achievement we have achieved.

But based on some disappointment to the Abenomics and also uncertainty in the macro global economy is now increasing but now still, we think that we don't have so much of concerns about -- as Orix in terms of the sales and also the finance.

But this year is all right, but perhaps the growth of the Company will stop next year and also the revenue probably decline for our Company. Yes, that's one of the view to our company from the market. We understand that. So this is the one of the reason that our stock price underperformed the TOPIX index.

But on the other hand, when you look back on the past six years, I hope you understand that we have overcome a lot of problems, the collapse of the global economy, the Asian currency crisis and financial crisis in 2008. But other than that we have steadily grown in this market and I hope you understand this.

And Orix as a non-bank and some of the investors have this anxiety and they say Orix is a non-bank business operator. But now we already have more than 70% of business coming out from the non-financial business. So we are sure that we are already out of the scope of the definition of a non-bank business model.

Our business model, I already have mentioned, so many times we have changed that business model, once in every five years by taking advantage of our own proprietary as a management method and technologies and we'd like to break into the new business domains by maintaining high ROA. This is the most important potent business model for maintaining the double-digit growth of Orix. We will insist on this strategy and direction.

But we know that the many investors, they worry about that for next year. But we still have the five months to getting into the next fiscal year. I'd like to have more -- add business on top of this business but also we would like to think about the direction and strategy not only for next year but also five and ten years ahead.

We'd like to show you that -- the new approaches. For example, we'd like to expansion of the asset management based on (inaudible) and core including the fixed income, equity and real estate. We can cover broader areas and we have the indefinite possibility and potential for the business expansion. For the aircrafts and the ships, now based on (inaudible) in the past more than ten years, we have been making it profitable by buying at the cheapest price and selling at highest price.

We already have proven the viability of our business model. And when it comes to the turnaround business we have in Japan and we already have achieved that -- the performance which cannot be compared to any other competitors.

When it comes to the energy not only for the solar power but also we have the infinite possibility of the domestic business of this renewable energy and there are a lot of the new -- brand new areas now we can break into after this onward. And Orix can freely operate our businesses and at same time we have a lot of methods and approaches to improve that profitability.

And Kirarito Ginza which opened yesterday in the Ginza, it's one of our success story for the development projects. And then also the Asian Development Bank and Robeco jointly we established the funds. And also -- and this will start from $400m, but finally we would like to make it to the $1b. And we have acquired the Hyundai Logistics and also we have start at the Hotel (inaudible) and a lot of projects is going on.

Now we're getting into certain stages and we'd like to announce and explain a lot of those different projects to you. Liquidation of the assets and the divestiture will not be announced every time, but now we'll always consider and try to find out the best timing for divestiture and the selling of our assets. And the scale of -- and the profits of the assets and then also we compare the capital gain we can get from the sale and we would like to make a balanced approach.

When it comes to the assets, we check out the impairment every time, every time and we're evaluating the market values and manage. Our portfolio is well diversified. It's not in any problem.

And last of all, let me talk about our business on the photovoltaic power generations. And recent media report and analyst report, they pointed out that a lot of -- the mixed comments and the ideas is reported. So it's confusing all of you so that let me explain our basic [starting] point of this business.

Now feed-in tariff system was established and started three years ago. And now, now that renewable energy have -- the higher power cost and in the feed-in tariff system they've tried to fill up the gap of the cost and the pricing for the time being. And based on and waiting for the technical innovations and expansions in the market. This is the basic concept of the feed-in tariff in the initial three years.

So that's some -- the favorable price was set up in the past three years. But now in the next year it will go below JPY32 and this is now we're getting into some turning point of this system. And also and the power source of the solar power generation, now have to be concentrated. And the joining of the newcomers that -- within our expectations, but some of the business operator only acquired the rights and actually did not get into the actual operation. That's true, so that the government and authority is now making interviews to each specific potential operators and they're going to end -- cancel that -- their license and approval.

And just a few days ago, I look at the media news and NHK TV broadcaster and some small and medium-sized companies are about 500 kilowatt or maybe smaller power generation has been provided by them. But now, they don't have any for example, interconnection to the grid. And they don't have any kind of pre-discussions and they have just started their operations, with only the approval from the governments and (inaudible) and also the bank is providing the loan without any specific plans and interconnection approval.

So that's why everyone doesn't get ready and they go to the power companies, they turn them down for any interconnections and they have failed. It was reported on the TV news.

But in our case, we have the well -- negotiated with interconnected grid systems and we have implemented all this, the completed type of project, so there is no any problem or any impact on all of this business.

Now we have 100 megawatt for the total and the power and 130 megawatt for that only the rooftop mounting types. And we already have secured 600 megawatt, already we have, I mentioned earlier. But now we'd like to steadily implement the start-up of the operations and then also still we have some of the other solar panels is still under construction. But there is no problem for all these solar projects for us concerning solar power generation. And those project, we don't have any projects in which we cannot get that approval or the interconnect grid systems approval from the power company. So this is that's the outline of our business on the photovoltaic business.

So we like to make social contributions, but we will not do anything, any project that is not profitable. And the FIT will lower than JPY32 and some of the projects will lose its profitability. And if we cannot get any approval of interconnections then we don't do that. We don't have that kind of a project right now.

And also there's -- that's the pricing and set up FIT and someone says to me it is too expensive but it is based on -- it is reviewed every time based on the IRR 6% and then also taking all these factors in the Japanese market into consideration and the utilization. I think that 12% of the utilization that is the proper level if we think about all the construction cost and the weather condition and climate condition in Japan for the earthquake and the typhoon. This is our basic starting point of our solar power business so I hope you to understand that.

And the other item about the payout ratios for the contribution to the shareholders we're going to discuss further in our Board of Directors meeting but we'd like to maintain at least a 20% payout ratio and this is our -- the target. And once we have determined and fixed the decision we're going to announce that.

But when it comes to share buyback, but still our first priority is to maintain our current growth path and current growth strategy. So for the time being we think that the share buyback will be the last resource for returning to the shareholders. I hope you understand.

And also in the information we have distributed today, we eliminated the base profits. After this onward we're going to disclose the PL for each segment. The reason why we eliminate the base profit is that in the accounting process, when we acquired Hartford Life Insurance and basically this is -- this means that we purchased that future cash flow. It's very, very easy and simple, but this is negative goodwill. And that's -- and the recurring profits from the operation is quite the same.

But now based on the accounting rule, we have to get them separated between the base profit and capital gain. And that is not -- that does not match our complicated business model, that's why we changed it, the rule of this disclosure.

But also when we sell that STX Energy, this recurring profits was recognized as the base profit and the profit from the selling was recognized as capital gains separately. So that was also we don't think it is the right way to go. But basically everything was unitary profits.

So but in this accounting rule we need to recognize them separately. So this is all the profits and revenues from the one single project should be in the unitary profits and it should be recognized as one single profit. So that's why we changed that a little -- disclosure. So we'd like to disclose the PL for each of these specific segment. This is the disclosure after this onward.

And last of all, let me repeat this. We have no concern about achieving that business performance targets and we still aim for having the double digit growth. So we have the disclosing and policies and strategy for that, the success strategy and communicating properly is that -- the mission as the president. And we'd like to live to up to the expectations of all the investors and we'd like to do our utmost after this onwards, so I appreciate your cooperation. That's all. Thank you for your kind attention. Thank you very much.

Thank you very much and we'd like to move on to the questions and answer session. For those who have any questions, please raise your hand as you see us seated and we will bring you the microphone. Before you ask the questions, please identify your name and your affiliation. So the floor is open for questions.

Tsujino of JP Morgan Securities. You might say again, Tsujino? You said 20% payout ratio is the minimum of what you're going to keep. Without adjustment EPS is going to be the basis? Or since you have goodwill are you going to exclude the goodwill or are you going to consider goodwill in addition to EPS? That's my first question.

Let me go to my second question. You said that you would continue to make growth and you will seek for the revenues source. So the business model has changed every five years as you have rightly pointed out. But in your baseline scenario, a certain level of the asset-based revenue is included and therefore it is a source of comfort.

Otherwise, if that's the case, you told us that you were not non-bank any more. But since you are making a variety of different investments, are you a trading house. So what's of differences. Trading houses have a very stable income stream based on the assets and that the strength of the trading firms.

But having said that asset based for the stable income source is getting tough competition with the banks and therefore it's very difficult to grow. And also retail as well as consumer finance might be showing some growth, but it is very competitive and mortgage is growing slightly but the corporate finance is not doing well in terms of growth. Therefore we would like to see the improvement in asset-based cash flow and income in the future. What can you comment on this?

With regards to the payout ratio, it was 16% or a little more last year. And when I explained that Daikyo and others, other than accounting profit and income are going to achieve 20%. But I thought that it's not going to be persuasive enough. And therefore, not considering any other factors, I'd like to achieve 20%. And since we haven't discussed at the Board of Directors meeting yet, it's not finalized. But that's the basic stance that we would like to have a consensus internally to keep 20% regardless of other factors.

Now asset-based income and revenue sources, we are not giving up. As for the interest rate income, we have not given up. But with the current zero interest rate, ROA of 2% or 3% is impossible. And therefore what we are doing just now is that there is a cheap, very inexpensive fund available, so we are going to use that money to expand the business, to expand and increase our revenues. In case that interest rate goes up from zero interest level to a higher level of course we are going to have the arbitrage business and the financial businesses with the wider spread. So we are going to be flexible.

Where we can find the revenues and the profit? We are going to make decisions where we can find the best sources of revenues to move the human resources as well the fund. We are not becoming a non-bank or if we were just a non-bank I think Orix is gone already because the spread is so tight and it's not very profitable and there's leasing companies and other financial companies with very tight margin. So we are not in -- have the intention to compete against them.

So we have six segments and all segments and each single one of the segments should be profitable. And even though one of them is not going to be profitable, if real estate is going to grow 20% or 30%, growth can be achieved and if finance is not going to be achieved zero growth will be okay. But as a whole in the six segments in total we would like to achieve a certain 10% of growth as a whole.

And in order to do that where we should allocate the human resources and the fund? And that's the decision that we have to make and that is the most important thing for us. And I believe that we are successful in doing so. So the revenues from assets should be expanded and we should also get the commissions related ones and also asset ones, the four sources. Real estate is doing quite well at this moment and that asset-based income stream and we are going to expand that income stream. So we are now really concentrating in one area, but we have six different segments as revenue sources and profit sources.

Thank you very much. Do we have any other question?

I'm Sasaki from Merrill Lynch Securities. I have two questions. My first question is about now in -- I'd like to know about your mid and long-term strategy from the perspective of the president. And in which region, in which specific product or service will it be the key for the mid- and long-term growth? This is my first question.

And my second question is about your domestic business. And in the retail segment, I think that the presence and the positioning in the retail segment is getting bigger for your business strategy, but still your brand of Orix in the retail business is still weak. How do you enhance and how do you think about your brand power of Orix in the retail industry. This is the second question.

Okay, when I think about strategy for mid and long term basis in the domestic business, to tell you the truth it's very competitive in any business domain and segment. And it's too difficult to maintain that at a certain level of profitability. It's very difficult now.

So when it comes to photovoltaic generations and feed-in tariffs and JPY42 and JPY36 and JPY32 and they have declined, but still we've still maintained a certain level of profitability. But still it's only the temporarily the business.

And also for another ocean power plants so that's this [Jusamo] power plants and this is a new area that we're still -- we're studying about it. But when it comes to Jusamo is very, very uncertain because we don't know exactly that how much of that generation is available before drilling. So that's why I tried to explore the possibility of Jusamo and also for the ocean power plants. And we need to just set up a lot of the wind farms on the oceans. So that we are having negotiations with the manufacturers of which kind of wind farm will be best suited and we're still working around that.

And when it comes to in the 2018, this is the year for that -- the power plants and the power generation business will (inaudible). So we need to think about that possibility of the summer power plants and how we can secure that capacity of the several hundreds of the megawatts of the capacity of the summer power plants. And we have completed the assessments and we're getting into that next phase of constructions.

And taking this all into considerations, we have about JPY200 to JPY300b of assets and we can expect some kind of revenues and profits.

And also we'd like to export this asset and scale to the Asia. And also JPY400b of that renewable energy fund; we started with this JPY400b. And we're aiming now for the Asia and the Chinese renewable energy business. So this is a fund for that, that new renewable energy in Asia and China. So that implementing our -- this business in China is still questionable from the profitability. But as the fund manager I would like to secure the profits. And also have the co-investment right, to be acquired so that we can expand the business.

So this will be the next domain of business for also the Myanmar or the Cambodia or -- and India and after the administration changes hands. And then also we don't want to go down that Ebola and into Africa; and we don't want to due to the Ebola, but anyway the Africa is the other area.

Other than Robeco, we don't have any business in Europe. So private equity market in Europe, but you still have the benefit of infinite potential, but it's very easy to break into that market without any preparation. That's why we start from that Robeco. And first we'd like to make use of the network of Robeco. And also the same time we'd like to have a tie-up, business tie-up with investment banker in the Europe.

So that we're in a very -- we started this process. We don't do anything on Latin America. And now when the recession in the Latin America is in the very, very difficult situations due to the (inaudible) now, but we're going to have some opportunity there. So that once that the markets goes down and we're going to make it a turnaround and we're going to have the opportunity to buy in that market.

And also for the aircrafts and the past year the price have gone up so rapidly but -- and in this case for the Ebola epidemics or the [LCC], the recessions, now the aircraft price will go down, so that we can purchase and we get a good opportunity to buy. So just like this.

So hopefully that the venture capital or digital media, we'll also look into the possibility of that business. But still we are -- we have the now suffer from shortage of resources and talents. So that if we're going to have some room we'll also expand this scope of business. But everything is open and everything is wide open for the possibility of the new business. But each region has its own conditions so that we'd like to wait and see.

For example, the business in China [better] still. And recently we planned to IPO in Hong Kong. So that when it comes to about exit strategies, and also when the Korea or Japan or -- where every time we're looking around for all the situations globally. So that I cannot just mention about specifically which is that the strategic area now, but anyway we'd like to continue to study with the broader perspective.

So I would like to make some kind of simple investments and like to move on to the strategic investments. That was some of that possible projects. And if it's possible for us take advantage of our synergy, we'd like to switch from the simple investments to the strategic investments. This is our basic strategy.

And when it comes to retail business, now we have acquired Hartford. So it seems like that we have a really large scale of the business now, but already about one-third of our revenues come out from retail. And the way that the card loan is promising after this, or when we look at the competition in the market, and I'm afraid that we have to spend a lot on advertising. And the more we spend upon advertising and investments, the more we have -- we [win] contracts with the customers. So that's why our business is going up.

But on the other hand in exchange for the better ROI, the financial situations has deteriorated due to the heavy amount of, for example, the spending on advertising. So in exchange for that, for example, in corporate finance and now credit cost goes down. Now credit cost goes down to the zero, goes to zero and we now secure that profit, but it's only temporary. It's not long-term strategy. So that's why for that banking, I think card loan and I think the housing loan should be the two keys areas so that we can improve the ROA.

And when it comes to life insurance business and setting aside that Hartford about the medical insurance and the [621] insurance, the life insurance, then we have an incremental revenue. So we would like to keep this steady revenue growth. And the profitability, we have the better profitability than the other life insurers in Japan. So that we'd like to, first we have the targets to be the top 10 insurers, but anyway the first priority is the profit and revenue.

And when it comes to the real estate and property business, we have about the hotels for the turnaround business, we have the new hotels. So now we're actually covering these areas in the real estate business. Then also our profitability is -- at least 3% to 4% ROA is the target, which is substantially higher than the other business model of these hotel. So I hope you believe this.

But we have actually potential projects in which we can expect higher than -- higher ROAs. And anyway, this is turnaround, this is the basis of our business. And the new hotel business start up is very, very expensive, so that first of all we just have acquired that kind of property. We can make it turn around. And also in the case of depreciation we'd like to secure at least this 3%. And now we have a JPY60b portfolio currently. But we'd like to do our utmost, that's the Japanese [inn] hotel type of--. If we can make them a turnaround so that -- and secure that profitability, we'd like to make it into a JPY100b portfolio.

And when it comes to retails, Orix can be that wholesale, wholesaler. But it's easy to say but it's very difficult to actually break into this retail market because (inaudible) try to be the wholesaler. So as far as we educate that salespersons. So we include an educational piece; we'll have to do everything.

We like to expand also for the retail, but all this performance and reputations damage, but there's some [other] manufacturers in the retail business so that we don't want that to hamper that brand of Orix, although we'd like to expand our retails. But anyway we'd like to do utmost to expand the retail business. Is this responding to your question?

Let us go to the next question please. Next person please.

(Inaudible) of Goldman Sachs. Thank you very much for your presentation. For the renewable energy I have a question. FIT system is going to be revised and the discussion is going on. What is your main scenario you have in mind and also how are you going to approach such a scenario. Or if you have no impact, I would like to know -- and also --

Please continue.

In relation to the first question, then secondly you have SPC type of solar project. Are you going to have a private placement type of exit or securitizations? And how are you going to make the solar business more liquid?

And now since you are representative of the Company doing such securitizations, I believe that market is expected to grow with higher liquidity. So what are you going to do in leading the market?

And as for the FIT system, or FIT system, in the past several months all of a sudden in the newspaper negative campaign has been launched in a series. That means that, in my personal opinion, I believe that, as backdrop, in order to promote the nuclear energy, I think negative campaign was launched to criticize against the solar energy as an expensive sources.

Kyushu Electric and we work together and Kyudenko is our partner. And Kyudenko is 100% subsidiary or main subsidiary of Kyushu Electric. And as we have a discussion, it is always to talk about alliance and collaborations. And for us Kyushu Electric is going to accept everything for whatever we have arranged.

Hokkaido Utility -- Hokkaido Electric is not going to come into this business because they do not have any business. And if they go expand the solar business, it's not going to keep the grid. So there is different situations in each region. So we will talk with different utility and then negotiate the cost and also profit and see the profitability in each region in making the decision.

Now since we are the Japanese company, it is linked to the sovereign risk. Japanese government has come up with FIT system and for 20 years they have guaranteed JPY32. After several years if the Japanese government say they are going to quit JPY32, it is the sovereign risk. So if you start criticizing that, we have to be out of the Japan. And therefore the risk is nil in our understanding.

Germany, Spain are the cases. In the middle they had a system to be able to change the price. Of course the price comes down, but FIT is a system to keep the price. There is no option to reduce the price once contract is signed, and that's why we decided that we can take the risk.

Now let me talk about solar energy. In the beginning, approximately 600 to 800 megawatts is going to be supported. It is going to be JPY100b to JPY200b and half of that is non-recourse loan. And therefore approximately our investment is around JPY100b for 20 years, with a 5% or 6% of the net spread and 8% to 9% leverage in place. However, if we are going to keep it for 20 years, it is not suitable for Orix business model. So all the transactions, I'm not going to say (inaudible), but cash flow is going to be generated and it will be subject to securitization and that's the next step.

In the beginning there's the green tax system and others. So we're going to enjoy the green tax. And once the cash flow becomes more stable, we'll consider the next step. And that's our plan.

Let me go to the next question then.

I'm Shiota from Daiwa Securities. I have two questions. My first question is about the shareholders and return to shareholders. You mentioned about the payout ratio; you'd like to make it more than 20%. And on the other hand, when it comes to that, this is based on the net -- this is net income. And you have this plan for about -- this is the [again] for next year and this is 20%. So you can -- so may we expect that kind of about the -- your forecast of the amount of the dividend will be announced at the same time?

And I -- the next question is about the share buyback. You don't think for the time being about the -- for example now 0.9% -- 0.9 times the [PBR]. And this is that -- you really think that's also -- this is now going to be a favorable situation for share buyback now, with the PBR level less than 1. But still you don't think about the share buyback, okay?

And my next question is about the forecast for your next fiscal year. And now you mentioned you still keep your double-digit growth targets. And so you mentioned also about the next years, but -- and it's -- this is a gap from the level we're looking at in actual business. And now we try to steal that -- aim at for being the -- having the double-digit growth; there's a gap. How do you fill the gap? This is my second question.

Okay. When it comes to, as far as the dividends, as concerns my former statements of the dividends, we did not make to the last minute so far. And also I don't want to make any -- I don't want to mention anything about the dividends. But when I look at the (inaudible) price I think that I should mention something about the dividends -- and without any specific [negotiations], so (inaudible) with any other external directors -- but I did simply mention that I'd like to keep and maintain this 20%.

We still have five months to go and we have to change and how do deal with these issues, but we also have the internal discussions. So whether or not we give you the forecast of the amount of dividends when we announce the next year's forecast, still we don't determine. We cannot make any comment on that; I'm very sorry.

When it comes to share buyback, we have a lot of questions and a lot of some questions about share buybacks, including [small] meetings. But it's not that we turned it down or we reject the idea of a share buyback. It is also within the scope of our actions.

But I myself think that share buyback is a last resort, returning to the shareholders. There are a lot of other things we have to implement for making a contribution to the investors. So that's why -- and we have the other things that would have the higher priority. But still the share buyback is also within the scope of that actions. And this is what I've been keep saying in the past two years.

But still we have kept the growth right now. So as long as we keep growing, we'd like to allocate as much of the money possible to that investment for the future growth. So that I hope you duly understand. And once that growth stops, would you please argue again that you should buy back your share. But now this is the current situation.

And when it comes to the growth for the next year and the future, the [margin] this year, before we made that formal announcements, we mentioned about this year -- many of the analysts thought that our Company would have the lower revenues, lower profits. And on April 10, [Mannix] was sold and STX sold. That's selling (inaudible) and the deals were announced, and at the same time we had your understanding. And now the many analysts changed the forecast into the higher revenues and higher profits year on year.

So that we need to explain about that; break down assets in more details. We have a lot of the assets which have that unrealized profits. For example in these days we try to actually promote the selling of the aircrafts. And we already have 10 aircrafts after -- in the past six months we have acquired these aircrafts, so [we have the] 10s. And now we considered how to hold them or not, but now the market is very favorable so we already sold the eight aircrafts to the Japanese investors. We already have sold eight aircrafts and we already secured that large sums of capital gain. This is what we're doing.

And -- so this is all that business that we're doing. So I don't think that 10% growth is that much difficult. It's not that difficult. And also we have the asset base. And also I can -- I am confident we can achieve the 10%, but we still have five months to go. So that the final numbers and figures will be determined and made formal announcements and some specific timing so I hope you do understand this.

For example, in Kirarito, Ginza we opened yesterday in Ginza. And the project started, development started two years ago. At that time we tried to own the 100%, but now -- but it was expensive so that's why we have only owned 20% and 80% were owned by the foreign capitals. And now we're also providing the asset management and also having the tenant fees. And it was very good timing and we could have the 100% of the spaces now for the tenants. And now we can earn that -- the fees from the tenants and we're fully booked already. So just like this what we're doing, a lot of projects, so that's why -- and it's not that difficult to achieve 10% of growth. So that' why I hope you do understand that.

Is this responding to your question?

Okay. Thank you.

Now let us move on to the next question please.

Muraki, Deutsche Securities. I have two questions. My first question is related to cost. In the appendix document on page 11 you have SG&A and (inaudible). And compared to a year ago it is picking up. And compared to the gross profit, the ratio of SG&A is getting larger. Of course Robeco and other labor-intensive business is increasing its percentage and therefore it is pushing up the cost, but since the new companies are consolidated one after another, cost-management initiative is very important. How are you taking initiative in the cost reduction?

Secondly, I believe it's a maintenance lease. IT expenses are recorded. In order to seek the efficiency and also the IT-related investment for the growth is going to be incurred in which segment, on what scale in the third quarter?

My second question is about US business. Foreign exchange is moving with a lower yen and approximately there is additional JPY180b of assets accumulated. There's leveraged loan and CMBS and other secondary type of loans and also securities related risk that you took. But more recently you have acquired a credit portfolio. What is the average yield you have acquired?

And also for loans, I believe it is the duration of three to five years. But are you going to hold to maturity; I don't think so. Therefore with the interest rate picking up in the coming years, such variable interest floaters will be sold. And what is your timing of exit that you have in mind?

Let me talk about cost management first. In net investment into private equity, if you get more than 50% it is going to be subject to the consolidation. And therefore the entire corporate cost is going to be included in the Orix. And when STX was included, there was ups and down in the cost items. So it did not look very well on the surface, but this is accounting requirement so we couldn't do anything about it.

So in each segment, for our investment return, we were trying to identify whether we're going to make investment or not at the bottom line, after tax how much profit can be generated. And we have a hurdle rate and in order to achieve the hurdle rate what has to be done? And that is the discussion we have with the head of the business.

So cost management is done on an individual basis. For example, for the Robeco, it is labor-intensive business, you said. However, for Robeco Harbor Capital or Boston Partners incentive plan was renewed and that will push down our -- the commissions. There's a Transtrend CTA company is within Robeco, however the performance was quite poor. However we jumped up and improved the performance.

Transtrend was the company that we expected no profit. And when there's earn-out there will be a returned -- yield paid, partial payment to the Rabobank. That has been the arrangement. So that's the cost.

Now with the IT Orix system, it's taking initiative in IT development. But for the banking as well as for the life insurance, we have to have our own, unique ITES areas. And it's a business requirement due to the law. We cannot do any changes of legal requirements. But we have renewed new old systems for the automotive cut-off -- cut over of the system for the automotive system has been done. And therefore there will be additional cost.

For the IT strategy it is very simple. We are not a bank. The number of transactions is not so huge either, and therefore, basically, if we can do it manually, we do it manually.

However, when it comes to retail business, we are going to have at least average IT system; at least a so-so level, the average level of the IT has to be supported, even though it might not be the top of the premier level.

For the individual information, personal data information leakage, even though we do not have massive information of the personal data, we would like to keep the system so that we can have a good management of the personal data and the personal information through our IT system. And therefore there would not have a massive investment in IT excessively.

Now let me talk about US business. Syndication loans have expanded recently. And this business is very much dependent on the market. We are going to leverage these assets to have CLO and other non-recourse loans. And we are already working for the securitizations. Of course there is a market necessity and therefore we are going to tailor to the needs of the market to make a decision. And if it's attractive for us, we are going to do that.

We do not consider any hold to maturity. We are going to secure the liquidity, but we are going to turn the assets. And therefore the acquisitions and transactions of the assets in the US is also based on our idea.

What is the portfolio superficial on duration or the yield?

It is 4% to 5%.

So JPY200b and the balance might go up or down. So is it -- is it the income that you expect?

Yes.

Okay. So we'd like to have one last question. Okay.

I'm Kawahara of the Daiwa (inaudible). This is not a question, but initially President mentioned that the base profit and capital gain and credit cost, these are -- you are not getting them separated and that you get them together.

But some time ago the sell side also made some assumptions and a lot of the guess is made by the sell-side. And before you made the disclosure and we had a lot of -- much confusion, so it will be very informative for us if you disclose all these information. So that's why -- you just started disclosing all these detailed information. So now, for example, the gains from the SK group selling, you disclose that there are capital gains. That's why we can understand that you have very good assumptions of the business and that we take advantage of that information. So that I hope that would you please keep disclosing the same information. Also after this; this is my request. Okay.

I duly understand that you request but as I explained that for one single project, for example, as a private equity 100% -- we have acquired private equity 100% on the PL. Then all the profits will be reflected; we recognize this. These are regarded as base profits. But now we have acquired -- and also project is made the exit five years ahead.

So that -- and the capital gain, how much of the capital gain we expect above the 20% or 25% IRR? This is the basis of our projects. And five years ahead we sold that project. So these are all the profits for the one single, united project. So then we have more of the retained earnings and rather than PL we're having the more retained earnings and we have the value up and we like to invest that for having the more profits. This is the basic the business are under (inaudible).

So that now -- but at least we've done lot of capital gains so that's why we need to have the highly volatility for Orix. That is -- and I'm very sorry but we'd like to avoid that situation. That's why, as CEO, I've determined to and removed that. So that's why, in exchange for that, we disclose the PL for each segment and also expenses. And I'd like to disclose also the information for each segment and, if there's any request, that you need some additional information and would like to think about again.

So I hope you understand how we think about it. For example, also for the voltaic business, when we look at the depreciations at the PL -- and depreciation is in the PL. So this is the depreciation on the non-recourse loan for -- and securitizing that business and when we securitize them. And we also have the capital gain.

But just wait for a minute; and this is based on now you have the present cash flow, cash value for the 20 years of project. That's why. So this is cash flow we're realizing now. But although I explained that, but everyone think about that's the capital gain. So we'd like to avoid that kind of discussions on -- so this is -- and we have determined to change that disclosure rule.

But this is not final. So I'd like to -- and IR group and we'll also keep disclosing all these information. And if you have any comments, I would like to listen to your comments and I'd like to innovate and disclose any convincing information. Oaky.

You mentioned that you, but some of the analysts they think about that secure the capital gain; is that the core part of the business of Orix? It's about half and half, about 50% of the investors think so, but anyway.

Okay. That's all. Thank you very much.

Thank you very much for joining us today for this business performance briefing meeting. Thank you very much. Thank you.

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.