ORIX Corp (IX) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for coming to the ORIX presentation of business results for the fiscal year ending March 2015. I'll be acting as moderator. My name is Shuji with Corporate Planning. I like to ask you to confirm the materials. Four materials have been provided; the earnings report, the flash report, additional information, and then the questionnaire. If you are missing any of the materials, please raise your hand. In the first half Mr. Urata, Group CFO, will give you the overview of the results; and then the CEO, Mr. Inoue, will talk about the mid-term strategic direction. After that, we will have time for questions and answers. We plan to end by 4:30, we ask for your cooperation. We would now like to begin.

Thank you very much for coming to ORIX presentation of the business results for the fiscal year ending March 2015. My name is Urata, I'm the CFO. First, I would like to explain about the results of the fiscal year ended in March 2015. First, the overview. Net income was as you see JPY234.9 billion, 25% increase year-on-year. In the third quarter we revised upward our full-year outlook to JPY215 billion, but the actual results came in JPY20 billion higher than that so we achieved record profits and also sixth consecutive year of earnings growth. ROE was 11.5%, improving further from the 10.5% of the previous fiscal year. In the fiscal year just ended, we made new investment for profit growth in environment and energy, investment and operations segment, and overseas segment; and we took advantage of favorable market conditions and divested certain businesses and also sold assets in real estate, aircraft, and shipping.

And in each of these endeavors, we believe we were able to have success. Also each of the business segments are delivering steady profit growth so we are making progress toward building a portfolio that can sustain growth. Concerning dividends, we raised the payout ratio to 20% so the dividend per share is being increased by JPY13 from JPY23 to JPY36. We want to continue to use retained earnings for growth and we want to achieve optimum balance between securing capital for investment opportunities and returning profits to shareholders. Next I like to talk about the profit and asset trends by segment. In terms of segment figures, they are in the material page 22 and onwards in more detail so please refer to them as necessary. As you see in terms of both profits and assets, we saw strong growth in the Retail segment and the Overseas segment. Those will be the two top bars.

In Retail, in the second quarter we acquired Hartford Life Insurance so that led to the large increase in assets and there was the recognition of the bargain purchase gain and so that resulted in large increase in profits and also existing banking and life insurance businesses have steadily been growing. Now excluding Hartford and Monex, we had 25% increase in profits and 7% growth in assets. Concerning Overseas, we had proceeds from the sale of STX Energy and other businesses and also we had strong results from Robeco and the Americas contributing to profit growth. In terms of assets, more than JPY200 billion increase year-on-year. Excluding the impact of currency, it was about growth of about JPY45 billion. Corporate Financial Services and Maintenance and Leasing are steadily growing. Corporate Financial Services in terms of profits, Yayoi started to contribute from fourth quarter and fee income is growing.

In terms of assets, financial lease grew assets in the fourth quarter and as a result, assets have been growing steadily. For Maintenance Lease, more than 4% ROE is being maintained and in terms of assets in the fourth quarter not much growth, but we issued more than JPY30 billion ABS so in real terms, it is still continuing to be strong. Now in Investment and Operation segment and the Real Estate segment, we had a profit decline. For Investment and Operation with the consolidation of Daikyo, there was a valuation gain in the previous year so we see profit decline. But the Private Equity Investment and Environment and Energy segments showed strong growth both in profits and assets. In terms of profits, these two together compared with the previous year doubled approximately. In terms of assets, in both segments we saw more than 60% growth.

Concerning Real Estate, we capitalized on the favorable market conditions, we aggressively sold assets. At the same time, we recorded impairment for some assets that we hold. As a result, we see large decline in profit year-on-year, but the quality of the asset has been substantially improved and the downsized balance sheet has been strengthened remarkably. This year we will continue to aggressively sell assets. As you see with the line graph, that is the segment assets ROA, it rose from 2.7% further to 2.9% this past fiscal year. With new investment and acquisitions, segment assets are increasing, but the overall profitability is also improving. Next let's look at the income breakdown. Left hand side shows gross profit calculated by deducting cost and expense items from corresponding revenue items. The bottom of the graph is the financial revenues or finance revenues and that is steady, but the contribution to the overall consolidated profit is declining year-after-year.

In terms of gross profits, in March 2012 it was 43% the finance revenues; but in fiscal year ending March 2014 it declined to 22%. Now the non-financial business based on service income is leading the profit growth, especially strong is the one on the right hand side graph the bottom part, the asset management business. In the second quarter of the fiscal year March 2014, Robeco was consolidated and so that led to this strong growth. So, in this past fiscal year Robeco steadily increased AUM and the fee income exceeded that of the previous year. The second item from the bottom, the M&A financial advisory service fees in the Americas are increasing profit year-after-year and also we have fee income for the automobile maintenance service and also we have the income from Yayoi service fees and compared with March 2012, it has more than tripled so overall it has grown substantially.

So, we are shifting from a simple financial business to non-financial business. Next I talk about the cash flow. Left hand side graph, cash flow from operating activities. So after the Lehman shock, after the March 2010 fiscal year we have seen steady increase. And the cash flow from changes in current asset positions, the light blue, that is a big negative. That's because we acquired Hartford Life and there were the insurance contract liabilities and that rapidly decreased and so that led to cash outflow. So if you look at the dark blue, operating cash flow excluding those changes in current asset positions, that is moving from JPY300 billion to JPY400 billion so that's stable and steadily growing and reached JPY386.9 billion in the fiscal year ended March 2015.

Now cash flow does not include the sale of assets so it moves in tandem with the base profit so this is a base cash flow, this cash flow from operating activities that is. And right hand side is the cash flow from investing activities. After the Lehman shock, we had opportunity to downsize our assets and up to March 2013, investment cash flow was positive. But from March 2014 onwards we acquired Robeco, Hartford Life, Yayoi; and these new investments exceeded the proceeds from asset sales. In fiscal year March 2015, we had outflow of JPY467.8 billion. And as you see, every year we are constantly continuing to sell assets so you see that there is good turnover of assets.

That is all from myself. Next I like to ask the CEO, Mr. Inoue, to explain to you the mid-term management objectives. Thank you very much.

This is Inoue of ORIX. I'd like to explain to you the mid-term strategic directions of the ORIX Group. First, I like to have the overview of the fiscal year ended March 2015. To repeat what Mr. Urata said; we had more than 25% profit growth, sixth consecutive year of profit growth and two years in a row we achieved more than 10% ROE. At the end of the fiscal year, we realized 11.5% ROE. In terms of our strategy of expanding non-financial business; Robeco, which is the core of our asset management business, steadily increased AUM and contributed throughout the year with stable fee income. Also they agreed with the Asian Development Bank to establish a private equity fund to invest in environmental projects so we are starting new initiatives in Asia.

In our mega-solar power business, by the end of March we have secured projects with a total power generation capacity of 700 megawatts. Already approximately 180 megawatts have started operations and the remaining projects will come on line and most of them have FIT price of JPY40 or JPY36 so the impact of further reduction of the FIT rate and the control imposed on grid connection will be limited. Also we are cultivating new business areas. From 2009, we started the electricity power retail business. We provide high voltage power for business users and we are steadily expanding our marketing area and the size of the business. Also domestically we have invested in Hartford Life and Yayoi and overseas we have made new investment to Hyundai Logistics in Korea. And on the other hand, we have sold our shares in the Monex Group and the STX Energy of Korea.

So, we are conducting portfolio turnover and we have placed orders for new ships for the future and we are moving ahead with the acquisition of over a dozen aircraft under lease contracts, which are available for sale over the mid-term. And next I like to talk about our mid-term strategic directions for the coming three years starting in fiscal year ending March 2016. After the Lehman shock in 2009, the Company policy has been to focus on rapid recovery and improving financial conditions. In the past five, six years, we have been able to continuously demonstrate our capacity to recover and then the financial market conditions have changed and there has been the environment of zero interest rates so we have kept the ratio low and we have shifted funding from short term to long term and we have moved our focus from financial to non-financial business.

Now, our total assets have exceeded JPY11 trillion so more than ever we need to focus on the three basic pillars; profit growth, capital efficiency, and financial soundness; and to have robust and steady management that has become more important than ever. Focusing on yearly figures is of course important, but short-termism can sometimes hinder the Company's mid-to-long term growth potentials. So, this time I will not announce our outlook for this fiscal year, but like to provide you explanation based on our mid-term horizon. March 2015 fiscal year net income, JPY234.9 billion. But in three years in the fiscal year ending March 2018, we want to be able to generate JPY300 billion so we want to become a business entity that can have JPY300 billion net income.

In terms of the capital efficiency, ROE target currently is 11%. That should be maintained or further improved. And as a precondition in terms of financial soundness, we shall maintain the A credit rating. At the same time, we will continue on the asset turnover namely to continue with sales of assets as well as new investments. But it is not (inaudible) that we can give you the preview of what we intend to do ahead of time and also communication in the context of credit rating is very important. And please note that there is no segment whatsoever in the spectrum of our business segments where the growth has stopped. So on top of the organic growth, the existing business areas where we can look to further growth in income and on the profitability and that we will accelerate the expansion of non-financing business organic growth.

We will expand the auto services in and outside of Japan, which currently is conducted in Japan and Asia. The ORIX auto operating in Japan is ready to provide the total range of services relating to automobiles and the fleet owned is 1.170 million vehicles as of the end of March 2015. It's Number 1 in the auto leasing industry. When it comes to the variety of services and know-how in this entity leasing to Japanese industry and whatever is necessary in the rest of the Asia, it can be deployed outside so that Asia as a whole will be the platform for us to expand ORIX Group automobile operations. Domestic corporate business, please do understand that as we have (inaudible) on the clientele, the small to medium-sized enterprises with the coming into the group of Yayoi, we now have the group of small enterprises and proprietors.

So ORIX original finance and retailer services blending together Yayoi and the originated services, we will be able to strengthen further our capabilities to respond to the needs of the small enterprises and proprietary, contributing to their respective growth, and furthering its efficiency to solidify our base. Overseas, the diversification, diversity is the key word. Aside from the auto that I just mentioned in the Asian local the Group company operations by deploying know-how available here in Japan, I believe that we will have abundant opportunities to grow further. Life insurance; number of insurance policies in-force has been growing so that through March of this year for nine years in a row, two-digit year-on-year growth in the number of insurance policies.

Going forward on top of the third sector insurance and the expansion of the primary auto sector insurance, diversification of distribution channels to grow the number of policies in-force; to make the growth from being a mid-sized entity to a major player. Speaking of new investments in key areas. First of all, we will continue to sell down low profitability, low growth assets while making investments in new business areas. The key areas would include the Environment and Energy, Asia, asset management, and PE investment. When saying Environment and Energy, 759 megawatts from mega-solar power business projects have been secured, which will become fully operational within this three-year period. Ultimately by the end of March 2018, up to 930 megawatts [rise].

And aside from the mega-solar power projects; in geothermal, wind power, not to mention biomass; so the full variety of power sources that will be explored. So that within the next five years, we will aim at becoming the largest scale renewable energy power generator in Japan. Now anticipating further liberalization of the power market in Japan, we will carry out our business expansion. The (inaudible) related services to corporates and retail customers by mobilizing domestic sales network and to increase the number of contracts. Also for the purpose of securing further other power sources, the mixed coal and biomass power plant thermal project will be proceeded with. In Asia, have investments which would lead into the augmentation of network. In the various countries around Asia since the 1970s and the targeting at local customers leasing operations have been conducted.

In order to further develop and expand, we will continue to make investments so that our name, value, product, and services can be amplified in Asia. In particular in Cambodia, it was back in 2013 that we made a capital participation into the major city commercial bank, the ACLEDA Bank. ACLEDA in Cambodia is a very strong franchise and business base and we believe that by leveraging that, we will be able to aim at a further business domain expansion and expect it will be growing the Indo-China region. Asset management, Robeco's assets under management and the normalization of M&A techniques will expand dramatically. And for PE investments, as before the selective investments outside of Japan; but I'd say that although the prices have fallen a little bit and that we are yet to find an attractive candidate.

After all, the evaluation of each and every investment on a deal-by-deal basis is very important making sure that we do not miss out on any opportunities for us. So, relying on the reliable partner and that we will be watchful. Longer-term investments; in Japan the deregulation or the changes in the business environment anticipated for medical, agriculture, the venture business arenas such as IT and robotics; and we will try to make entries there. And also as before, we will continue always in business rehabilitation or turnaround activities. To explore on the investment opportunities here in Japan, to utilize the strengths in the domestic and the sales network by strengthening the information gathering capabilities Groupwide and that we will capture business opportunities.

So in and outside, we will make these investments so that we can identify the opportunities for us to establish [getting] the core of the next phase of the ORIX business operations and to nurture them. Here please take a look at the employed capital ratio. As I said, the preservation of the A grade of our credit rating is a key theme for us. Employed capital ratio of about 80% is earmarked. So for the sake of the preservation of financial soundness and then capital flexibility, a 20% buffer has been allowed for. As I said before, as of the end of March this year, the employed capital ratio exceeded 80%. As a mid-term sense of direction in order to preserve the A grade from the credit rating and mindful of the employed capital ratio that we need to control our capital property meaning that capturing today's favorable business environment by selling down less yielding and less growing assets and to replace them with the portfolio asset items with a stronger growth prospect.

Finally, on governance. As we announced in the press release issued on April 9, two employees of ORIX Australia Corporation Limited, a subsidiary of ORIX Corporation, were arrested by the state police in New South Wales on charges of making illicit payments to a client in connection with vehicle leasing transactions. The employees are a Managing Director and a Sales Director in charge of fleet leasing business. The two suspects were immediately put on leave from the jobs and we are fully cooperating with the police in the investigation. We are also conducting our own internal investigation through a special committee. At our request, a former judge of the Federal Court of Australia and the Supreme Court of New South Wales is serving as the Chairman of our internal investigation committee.

Outside advisors including law firms, audit company, and forensic investigation company have been retained and they are currently conducting a thorough investigation on records of past transactions and communications in our computers and network. To date we have confirmed that improper transactions occurred with only one client. Regarding the illicit payments, these payments were [not] processed in expenses. We have also confirmed that any impact on the financial results of the ORIX Group should be minor. Further news releases on the matter, including any potential impact on ORIX financial results, will be issued after our committee concludes its internal investigations. The ORIX Group regards compliance as one of its most important managerial responsibilities. Proper compliance forms the basis of our operations.

We have extensive measures and policies in place to ensure a high level of corporate compliance and therefore we sincerely regret that an incident like this has arisen. We take this incident very seriously. In addition to our ongoing investigation, we are making changes in our internal systems within the ORIX Group to ensure best practices are always maintained. Changes will be carried out in three basic areas. Number one, we will strengthen our system of checking balance on an overseas basis to ensure proper business conduct. The checking balance will be implemented in line with each market or business which is necessary. Up until now for example, balance and check functions including compliance and audit income have been centralized here in ORIX Tokyo. From now on however, internal control division will be established at each region that we operate in.

The divisions will thoroughly supervise its operations and will report directly to the CEO and CFO in our ORIX Tokyo global headquarters. Second, we will strengthen our auditing functions. These changes will be developed with the assistance of outside global advisors and experts that will be retained from outside. Number three, we will adopt a new rotation and succession plan for senior personnel. We will implement internal policies that these senior personnel will be reviewed by internal audit and outside auditing firms to determine whether the employment contract will be renewed or discontinued in every [one or three] years. The ORIX Group is determined to continue evolving and progressing as a global company and we will do whatever is required no matter how drastic to strengthen our internal systems and structure. We will also update our progresses through follow-up releases on our website.

This is the summary of my presentation today. In March 2015 period, we were able to renew the record high profits and for the sixth consecutive year we were able to increase profits. ROE exceeded 10% mark at 11.5%. Investments for future growth as well as the asset sales leading to execute asset turnover and they are latching on to the market momentum, we were able to generate good results. And to repeat once again, mid-term sense of direction is that through the expansion of non-finance business, in March 2018 we will aim at net income of JPY300 billion. Assuming the preservation of the credit rating of A grade, ROE aiming at more than 11% ROE and it's going to be not only the growth of profits, but also financial soundness and the capital efficiency as well to stably and sustainably generate JPY300 billion order on the profits.

That is the sort of portfolio that we will aim at. The use of capital for the contract of such portfolio investments that will continue, but at the same time we will be quite mindful of shareholder return. March-end 2015 dividend payout has been decided to be JPY36 per share. Starting in the March 2016 period, the interim or the mid-year dividend payout will begin with a per share mid-year dividend payout will be JPY22 per share. ORIX has changed quite vastly in the past 50 years and we're still continuing. And I'd say that ORIX is quite unique in the global business community with our size where we focus on the finance services at its core, but at the same time have a variety of diversified businesses. So as an unparalleled business entity and enterprise, we have unique business, the motto which in itself is ever evolving and never ending to change, it's becoming solidly established.

I believe that therefore any business (inaudible) is in the provision of value which is needed by the customers and evaluated by customers. Through such business activities, we will be able to make contributions to the society and economy as well and in turn we will be able to generate better profits for that. Going forward, I am sure the business environment and customer needs will continue to evolve, but to capture income and the changes effectively, we will aim at a provision and the value which is needed and appreciated by the society and economy at large. I will make sure that we can respond well to the expectations by shareholders and the investors so that we can represent the whole of the business Japan and to lead the global economic and social economy. Thank you very much.

We will now take your questions. If you have a question, please raise your hand. We will bring a microphone to you. When you ask a question; please identify yourself, your name and affiliation, please. Now if you have a question, please raise your hand.

Tsujino from JP Morgan Securities. First question in terms of dividends for the first half, you indicated interim dividend payout. So what about the dividend for the second half? What's your policy about making the interim and the final dividend? Do you look at the full-year results and do you make the final adjustment at the second half or interim dividend and final dividend, are you going to have stable dividend payout? Is that going to be the emphasis? What is your intent there? That's the first question. Second question, page 9 you talk about the use of capital. You say it's more than 80%, but in terms of Real Estate segment, you have JPY100 billion asset decline expected and in terms of net profit JPY200 billion is to be accumulated and so I think there could be more aggressive investment. So, you say the employed capital ratio is more than 80%. So on one hand in the news, it's reported that in US you're trying to acquire a large asset management company and if that's the case, you have some goodwill generated. So in that context, what is going to be the impact on the employed capital ratio? Can you explain?

I'd like to respond. In terms of the interim dividend, we will be paying interim dividend and at the same time we don't show the annual figures and we show target for the three years into the future. It's a little difficult to explain to be quite honest with you. Now JPY22 interim dividend, we had the 20% payout ratio in the previous fiscal year and our intention is that we're aiming for JPY300 billion plus in three years' time in terms of net profit and this year of course we are not aiming for zero growth. When you think about it, this year we had JPY235 billion at the end of March and we are aiming for JPY300 billion so there's still JPY65 billion increase. So, how to achieve that in three years? And we have no idea of achieving lower revenue and profits so we put out JPY22. So, when you probably multiply that by two and you probably expect JPY44 to be the full-year dividend payout.

We understand that expectation. Now maybe you don't think so, but maybe there will be some phase of adjustment or correction and there could be some issues. So, we say that we need to maintain JPY22 at a minimum. So based on the interim results, we will announce the payout ratio for the full year. That's what we'd like to do. And we have absolutely no intention of making a downward revision because if we had any such idea, we cannot say that there's a target of JPY300 billion. So, that is our policy. Now in terms of capital, Hartford and Yayoi, we have made these acquisitions with large goodwill. Hartford, it's a negative goodwill. Our issue is what we always have to think about is what we invest in they will be companies with some goodwill. So, we have to have a good dialog with the rating agencies and make decisions.

Certainly of course there will be rumors before the fact, asset management company acquisition rumor that's being floated in the US or the Americas. That's true, but we need to do the scenario analysis and we will make investments so that we can maintain the A rating. And so in terms of all acquisitions, we say that we have to be able to maintain the A rating. That is our basic stance. So, we earn JPY200 billion so we use JPY200 billion or we sell JPY200 billion so we buy JPY200 billion. That's not how it works. We sell JPY200 billion and we have increase for some acquisition much larger than that. So, how do we maintain ROA of 3% and ROE of 11% or over 11%? So, we take in all those factors and then we decide whether to invest or not. So, it's not that we're going to use all the money that we take in so that is a difficulty that I have. I hope you understand.

Thank you very much. Let's move on to the next person.

Sasaki with Merrill Lynch Securities. Number one, about mega-solar projects. Within the next three years you said that those projects will become fully operational. As you start to sell the generated power, the business conditions how it is lucrative or not and you can check and also the three years from now, how much of profits do you think that you can expect as projects become fully operational? Number two about Robeco, it's duly expanding I understand. What after all is your strategy which has been the key to the successful fundraising and also any prospect for the mandates in the future? So, that's question number two. And question number three, your communication with the market. We understand that you are not [nurturing] the prospect on a single year basis with the market, we understand that. The other companies that may instead of the (inaudible) that you have full year and the prospect or the forecast, that would give us further clues on a monthly basis. There are other various ideas and ways to communicate with the market. So I wonder what sort of ideas that you have in order to set that?

About mega-solar projects within three years, about 930 megawatts prospect for income, 180 megawatts operational already as of now. And on top of the capacity utilization, about 10% of the overperformance is against our initial anticipation. Of course our business in that case was ever so conservative and based on the base and the power generation that we have been able to generate 10% over and above the business case. So, that has been pushing up the income that we enjoy. About JPY250 billion will be the outstanding balance of investments three years from now in this area. Pretax, after-tax; I don't think I am ready to share that. But JPY25 billion to JPY27 billion EBITDA and that is what we expect three years from now. This is assuming that the stable operations can be expected that we will have that size opportunity and then to go from there.

Now your second question regarding Robeco in the United States and also Transtrend, which is the trend follower fund management firm, has been operating quite favorably there with the downtrend of the oil market. The return has been generated quite nicely, which has been supporting the increase of the asset under management. However, right now the 57th is the ranking as of right now. These funds that we expect that there is going to be a reorganization in these investment firms and the communities. The 57th in size and that's not enough. We have to make sure that it becomes much stronger and bigger so that it can survive into the future. That's what we are discussing and thinking, but there's a positive trend after all.

According to the Morningstar rating, Robeco is one of the Top 5 meaning that comparisons in Asia, in particular the Middle East, national funds from the Middle East have been topping up their investments into Robeco. IR approach, quite tricky because you have already ORIX therefore any sort of reason such as Orecom, it's very tricky because some of you would probably think that we should look at the situations in the shorter trend and others would say no, it is more from long-term perspective. So, there are mixed views in the market indeed. However every day we have to recognize ourselves as being kind of one of those insider trading sort of an entity. So, what size of the deal and what size prospects. Every day we have to be mindful of the fact that we would very soon be (inaudible) therefore insider trading activities.

So, how they do press and media and their coverage and whenever the community at large becomes aware, then that's where we can for the first time feel comfortable in communicating with you. So if we say that we have to make investments and make asset sales and then you would say that you have stopped growing with those assets. If we do not sell, then you would say that you would criticize us otherwise. So, what we are doing is that it is the three year prospect that we are sharing with you not to say that we have any single year prospect or any kind of [notes] that we can give you, but really our sense is that we are not going to be bound by whatever number or the size in the single year operation and always keep in mind that JPY300 billion within the three year time period.

We understand that there is a variety of investments and operations that we are involved in and we will get involved in. So, all of those areas have different characteristics, which quickly have been to how they generate, can they return and others, which would take more time and we do not have time. And I don't think it is proper for us to try to give you details about each and every one from our business portfolio. That's the reason why we feel that the current way of communicating with you that three year prospect and expectation of JPY300 billion three years from now, we just feel that that is the most effective means of communicating with the market. So, I'm not saying that we don't have any prospect or any ideas in between during the three year period.

A supplementary question about management targets. You keep saying the preservation of the A credit rating, is that internal or external?

It's external.

External. What do you mean to say is that right now?

The A- from S&P, BBB+ from Moody's. So S&P's A-, that's the level that we would like to surely have stayed.

Thank you very much. I understand. Thank you.

Thank you very much. Next question, please.

Okada from Goldman Sachs Securities. First, you commented to the ROE of 11% to 12% so what's the thinking behind that? So, JPY300 billion profit is what you what to achieve in three years. When you achieve that, what would be the ROE or did you start from JPY300 billion profit and came up with that ROE figure or did you have the ROE figure first? So, what's your idea about the capital efficiency and also capital cost or do you compare vis-a-vis capital cost, what is the thinking about that? Second question in terms of the asset size, March 2018 Hartford Life asset will have declined. At that time compared with the current asset size, what will be the change? There will be change in regulation of non-banks and also the operating cash flow, this you're using instead of the base profit and so will you continue to disclose this? I think that's your intent, but how is that going to increase, if you can explain please?

So this is just an image, JPY300 billion. We conducted a simulation based on JPY300 billion and ROE three years from now that will be a little lower than 12%. That is our target. So if possible, we want to exceed 12%, but it depends on the condition at that time. So if things move at the current pace when we achieve JPY300 billion, we should be able to achieve ROE a little lower than 12%. In terms of our size, JPY11.4 trillion is what we have. That's too big is what I think. JPY10 trillion plus or minus is the right level. So if we suppress to JPY10 trillion, then JPY300 billion would be 3% ROA. That is what we like to target, but I think that will be quite difficult, but that is my target.

How about the cash flow?

About your third question, operating cash flow, page 4. So, in our securities report every term we disclose that and that is just translated into this graph. So if you look cash flow from operating activities, it's divided into two parts in two different colors and if you analyze the past figures, you can see that it has been steadily growing. And so that part we think that trend will continue and show stable growth. That is what we think.

Next person, yes.

Muraki with Deutsche Securities. Page 13 of your presentation materials, the historical trend of profits. Three years from now of JPY300 billion as you say, if you add that, then it means that long tail the profit expansion in the period isn't going to be what you're going to have. For the three-year period to come, what are your assumptions in terms of external conditions? As you were talking about dividend and the payout, you said something about the uncertainty mounting and the externalities in dividend and the decrease, yes or no. I was wondering that ambiguity are you hinting at your anticipation that uncertainty in externalities may grow or not necessary that? So, that's question number one. Question number two on the retail investors or the long-tailed investors and remembering yesterday's press announcement. Toyota's type-A shares, how the interstudy kind of liked that approach instrument. I think there was this comment made in that regard. And also Mr. Miyauchi said in that one has to wait for three years investor before they become investor with the voting right so that's what your new Chairman said. So what about the particulars from whatever type-A shares or the divesting period therefore the voting rights? Are there any particular ideas or hints that you can give us?

Number one, shareholder policy. Our Senior Chairman, Mr. Miyauchi, I'm sorry I didn't catch that, maybe I was not listening. But anyway, basically we have no plans to issue that sort of shares, type-A equity for instance, we are not thinking of. There is certain (inaudible) on the preferred distinctions, but we are not thinking of any type-A sort of instruments to be issued per se.

Yesterday the media announcement of our financial results was made and I took to the podium and Mr. Miyauchi made comments. I think what he meant to say is that the secretariat is continuing to learn and investigate various [theoretical] options, but we have not focused on any type in particular.

And also on the external conditions in the three year period to come or simply put, don't know. Assuming that our current conditions will stay for the next three years and then JPY300 billion, but who never knows. One can never be sure that there's never going to be any kind of disruption such as the (inaudible). So basically provided that everything will be as we see today, then JPY300 billion, but one couple of rounds of corrections in the marketplace, probably given having experiences from the past, but we should be able to weather that. So whatever sort of events or the European situation getting anticipatedly worse or the US rate hikes and the causing unanticipated realization of the downside, those are the possibilities. Nothing is in our expectation. However having lived through the post-Lehman crisis period of natural conditions and how it has become much stronger so even if there's some disruption to the market such as the Lehman failure should occur again, we should be able withstand it. We are stronger than we used to be. If you keep on expecting the coming of whatever possibilities, then we will never be able to finish the planning process. So what we say today is that we assume that the conditions would stay as it is, then JPY300 billion. I hope I am answering adequately.

Thank you very much. Yes.

Next person, please, over there in the middle.

Yabumoto from Mizuho Securities. First, in terms of the mid-term strategic direction, what's your emphasis? So, what are going to be the deals that will emerge will depend on that so it might be difficult to say at this time. But toward the JPY300 billion in three years, what will be the segment profitability direction? You mentioned several focus areas so what do you think has the most potential, most promising; which segments do you think is more problematic? That's my first question. Second question, concerning the current business environment so the March 2015 term that just ended compared with one year ago domestically or globally, is it the situation that you can step on the gas and accelerate your activities. Is that your view of the current situation?

In terms of promising areas, we have existing segments and without making any effort, there is profit that will come from these existing segments, that's about JPY200 billion and then we have some additional profit from new business. And then there's the JPY20 billion to JPY25 billion EBITDA from the mega-solar, that's a part of that. So if we don't have new business, we will not be able to achieve JPY300 billion. So JPY200 billion or JPY220 billion, JPY230 billion from existing business. So, the remainder we have to increase with new business and I think it's the mission of the management to try to find that additional income. In terms of environment, it's mixed. China, we have wait and see attitude there and it's interesting that China has worsened but in areas other than real estate.

Well, money for real estate is now flowing into the stock market and stock market is now very strong. So PE that we are doing in China, we are entering an exit phase. So the environment overall, it's not unitary, it's not the same everywhere. For the US real estate, there is a very big boom especially for condominiums in Manhattan. Condominiums are selling at not hundreds of millions, but the penthouse is selling at tens of billions and being traded with cash and the Middle East and Russian buyers are buying that. And shale gas not so strong. So you have to look industry by industry or else you will make the wrong judgment. So in terms of the environment, you have to look and analyze the industry environment and decide where to put your money in, which industry to invest in.

So, it's more difficult to make a macro decision. You have to look at it at an industry level. So for China, real estate may not be so good, but the stock market is a very strong. Hong Kong, non-China business, IT-related industry strong; but the China real estate related business not so good. But then in terms of real estate companies, stock price is much higher than a year ago so that's time to exit or sell. So, that's how we looked at it. So, overall the environment is not so bad. But there is the zero interest rate that's been continuing and there is a lot of short-term assets, current assets. And so based on the US monetary policy, there's going to be a very big impact and so we really have to carefully make decisions about investing and exiting.

Thank you very much.

Gentlemen, now we're approaching the closing time so the next one is going to serve as your final question.

SMBC Nikko, my name is Niwa. Sorry to be a bit redundant, but number one having to do with your mid-term business plans, I'm interested in further details. To accommodate JPY65 billion additional profits, those will be basically through new investments, right? And is it possible for you to go deeper from whichever particular project or the segment is it possible? And the question number two, short-term the conditions that you know that's also very useful so what will be the range view that you have for the current fiscal year?

Mid-term strategic directions and plans. What I did say was that given our business model; we have finance, non-finance, retail, wholesale, overseas, domestic; so it covers a wide span and so accentuation depend on the nuances in each and every. So knowing that, how to show more clearly and effectively which has been a big challenge to us. We always have been thinking ourselves as to the better means of communicating with you. What I did say was that organic growth; 10%, 20%, maybe it's in that sort of the prospect which can be maintained by some, but not by others. Life insurance, yes, more than 10% growth. Or the mega-solar or environment and energy, it's not 10%, more than 20% in growth. Overseas, more than 20% as you'd expect; automobile related as you probably know, there are the various asset sellers who have the M&A rumors.

Just by having our hands on maybe a handful few, then that will mean to have a sizable investment. If we are able to have one of that, then IRR 20% in five years and that has been the criteria that we have been applying over the years. If we do that JPY165 billion in three years' time, it's certainly feasible. There's no reason for us to think that it is not. So JPY234.9 billion, about JPY11.4 billion or JPY11.5 billion in effect on the corporate tax and the payable so it came to us all at once abruptly. So basically our thinking is that we preserve toward a certain growth and that we aim at JPY300 billion. However as I keep on saying different chapters, different stages, ups and downs. So when I say that constant double-digit growth, that's something that once quoted we would have to meaning that in order to adhere to that, we may have to sell the assets that we would otherwise not sell.

Rather than having that sort of an approach under the three year time span and we should be able to do that 30% and that (inaudible) and the tax rate effect to 28%, but we would like to have a little bit of time allowance on our part. That's our message to you. Short-term view you say that it's useful for each and every segment. For instance corporate and domestic sales, there's usual sort of leasing operations only that cannot be accomplished. However, today's leasing operations under the fee income and also under the sales of the solar power and the panels, the profits have been generated. But that phase is over and so now they are on to another stage that you have to identify next reliable and promising means. So, that sort of process is repeated throughout our business portfolio. There's no tone here of the decline from profitability. All segments and sectors will continue to increase their profits. Needless to say that this is typical under the quarterly adjustments and the realignments that we would have to and we would be able to make as we move forward.

Thank you. And with this, we close today's presentation. Thank you very much for your attendance. The meeting is finished now. 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.