ORIX Corp (IX) 2016 Q2 法說會逐字稿

Thank you. My name is Kojima, and I am CFO of ORIX Corporation. First one, I'd like to thank you for your time for our earnings' reporting for the second quarter ending in March 2016.

Allow me first to explain our first-half results; so, will you kindly please turn to page 1 of the basic materials, please.

First, the outline of the performance. Net income for the first half ending March 2016 was as shown in this graph, JPY161.3 billion on the year-on-year basis, actually, to 14% increase.

Following the first quarter, we achieved almost JPY80 billion in the net profit in the second quarter. This shows the annualized ROE of 14.7%. We are aiming at, again, for the margin 2018 and in JPY300 billion of net income in our mid-term plan, we announced this six months ago. In this very first year, particularly in regard to the performance in the first half, I believe it is fair for me to say that we were able to have a good start.

Actually, we achieved a large capital gains in the first and the second quarter, and also we are able to have the steady growth in our core business operations, resulting in the steady growth in profit in each business segment.

Next, would you please turn to page 2? Our segment profit for the past two years and also as well as this first half of this fiscal year are shown in these three bar graphs.

Segment profit JPY244.8 billion, or up 21% on the year-on-year basis. The corporate financial services, real estate, and investment and operation, and overseas businesses actually those the four segmentations actually enjoyed a strong profitability. Also, we were able to enjoy the good growth in the maintenance leasing.

When it comes to the retail, actually the second one from the top, the retail portion, in the previous fiscal year, particularly in the first half, we sold the stocks of the Monex Group, JPY15 billion. Also, in the second quarter, we had a bargain purchase gain, as much as JPY36 billion. Putting together JPY50 billion.

So we had that capital gains. Because of that in this particular period, actually, we had a dip. So excluding that JPY50 billion, of course, our profit actually grew.

So as for details, I will cover details in each segment.

Next, please look at page 3, and we're looking at segment and assets. Segment assets actually compared with in the previous [year] 4% declined by JPY400 billion; so the number here was JPY8.8 trillion.

As for details, I'm going to use the next slide for the details.

We sold assets under the good marketing conditions. So now we worked on this line of activities. So we had a decline in assets because of this.

Moving on to page 4 please. Here I am going to the movement of the profit and assets; that's what you see here. First, please look at the left-hand chart of the profit -- net profit. In September last year, actually, JPY201.1 billion became JPY205.7 billion (sic - see slide 5, "JPY250.7 billion") on the year-on-year basis; so JPY49.6 billion, almost JPY50 billion, increase that's what you see here.

But now we had the difficulties in certain businesses in the half-fiscal year period. Actually, we sold the new investments and included. In other words, here we're looking at the growth of the existing (inaudible) business actually as much as JPY42.4 billion. Also, in the first half, we realized on the capital gains of JPY90.7 billion, and also on the real-estate sales JPY14.7 billion (sic - see slide 5, "JPY14.8 billion") respectively. So we had those increase.

At the same time in the previous year, and if you remember this point, and Monex and Hartford Life and others, we had capital gains from these entities. Of course, they are gone. And JPY87.2 billion. So that's the decline we had in this particular period. Real-estate capital gains, we had JPY11 billion in the first half in previous year.

So with that excluded the JPY250.7 billion all in all. So we had those in capital gains and the real-estate gains. Of course, we had more numbers in this first half and also we had challenges in as much as JPY42.4 billion.

Furthermore, early in our segment asset was covered by me earlier, JPY400 billion -- almost JPY400 billion -- actually, down [JPY442 billion].

As for the analysis behind that number, as for this we had a new investment, and we had some ups and downs in there. So as much as JPY162 billion we increased in asset there.

Hartford Life next. Of course, this has been explained every time, if you remember this, and this is treated as one off. So an asset is going to go down as time goes on; so then for six months earned JPY306.5 billion. Also, real estate themselves JPY81 billion; and PE investment, private equity investment, and two companies exited out of this in two companies, down JPY13.2 billion (sic - see slide 4, "JPY43.2 billion").

Looking at the domestic entities, as well as we have in the US subsidiaries, and we worked on the securitization, and segment asset went down by JPY90 billion.

As for currencies and FX, of course so far we had a positive direction overall. But in this first half, particularly the Asian currencies, vis-a-vis the Japanese yen, they became weaker. So those Asian currencies became stronger, vis-a-vis the Japanese yen and JPY45.9 billion was the impact we had, negatively. That's JPY400 billion down, and 75% out of that comes from ex-Hartford. This is one point.

Also, we advanced the capital gains. We decided to realize the capital gains, particularly we worked on the area of real estate on the business as well as on the securitization. So they are the major factors behind these numbers.

Japan, as well as outside of Japan, assets actually increased in the following segments: in automotive; leasing; and also environmental energy, renewable energy I'm talking about here; and ORIX Life; and ORIX Bank; and also the aircraft business. In this segmental we had a strong growth.

I'd like to move on to the next page. In this page and onward I'd like to go through the details for each segment. First of all, I'd like to touch upon corporate financial services. Its profit was up 71% to JPY21.6 billion in segment assets and in the first quarter now we had the securitization of as much as JPY40 billion, so that had impact on us here.

As for -- due to the decline -- and in addition, of course, there was a decline in the financial assets, but we had the ROE. Actually, ROE made a contribution, we acquire the ROE. Also, we had life insurance and sales and fees, particularly for SMEs, and also the solar panel business.

So the few businesses out of these lines of business has actually helped us to increase the service revenue quite dramatically.

So in terms of profitability, and if you remember the number JPY12.6 billion becoming JPY25.6 billion -- JPY21.6 billion.

Please look at the center graph in terms of the service revenue. ROA next. As shown on the right-hand side, ROA became 2.6%. We had capital gains in the first quarter by selling the marketable securities as much as JPY3 billion. So excluding that, still ROA now is going to be only 2.2%. I think we are able to increase our profitability.

Several points I need to explain about, and actually we pay more attention to the new [field], such as [car sharing] in September. In [production] -- we started producing Yatsugatake brand in vegetables, well, in our corporate and financing.

Of course, it has the longest in history within ORIX and, also, it's based upon the extended network of relationship we have had. We have a strong expectation that this new field is going to benefit us as time goes on in terms of profitability.

Now please open page 6, the maintenance and lease segment. This segment profit increased 7% YoY to JPY23.1 billion . In segment asset, automobile is the major area, and asset has been accumulated and increased, and as a result versus previous term 6% up.

Not only lease profit and also finance business profit was [a result] and the maintenance service, as well as telematics, that is additional value service delivery, so that service profit has favorably increased.

In this segment we had leasing and rental. Asset has been accumulated and we have competitive advantage in service area. We have accumulated a profit and a stable ROI, and also high profitability. This is what we'd like to keep and maintain.

Now please go to page 7. This is segment performance, real estate. In real-estate business, as you see here JPY15.8 billion and JPY33 billion. So that means segment profit increased by 2.1 times year to year, JPY33.7 billion. So there are some major reasons.

Leasing property has been sold out and this is a capital gain. Also, in the past there was an impairment impacting us in the past. So this amount has become substantially smaller. These still have impacted our end result. On the other hand, in the segment asset continuously property selling is pretty frequent and pretty sizeable, versus six months ago JPY80 billion sales reduction. So June end JPY48 billion decline is what we have faced and September end the balance was JPY753 billion as a result.

On the other hand in our operation business, continuously we had hotel and hot spring businesses, and in this accommodation inbound tourist number has increased. Therefore, it is a pretty favorable, sizeable result.

Now please go to page 8. This is segment performance, and the segment profit increased from JPY14 billion to JPY36 billion. That is 2.5 times year-to-year to JPY36.5 billion. This is a substantial increase. In this area, just like real-estate property business, in the first half there was a sizeable exit we have done.

To your right, we have segment asset, energy and environment area that is in the middle, this has shown some gain, increase. But in other areas there was some decline. In total 9% decline from the previous term.

Principal investor, PE Investment business, in the first quarter two investment exit has been done and a profit -- capital gain has been posted. Also, we have invested in the past fiscal year (inaudible) Japan and also other three companies have contributed to some increase in profit. So it has contributed to profit increase.

Last year, by the way, in the first half the number was DAIKYO negative, but this time DAIKYO has posted positive result. So therefore, in the first half it has contributed to the profit gain.

In energy and environment business, segment asset is JPY170 billion. So breakdown; solar power generation, including mega-solar business, the end of September we expect 800 megawatt to be secured and in that area 30% -- round about 230 megawatt, 30% lower will be megawatt. We have commenced generation the end of the fiscal year 400 megawatt, to be commenced in the next fiscal year, 600 megawatt is the progress we will be progressing stage by stage in our commencement and it will contribute to our profit.

The new investment will be ongoing. At the same time, we will be selling asset in the good market situation ROA is 7.7%. It has been continuously high standard we have kept and maintained.

Now please go to page 9; that is retail. In this retail segment, like I told you before, last fiscal year JPY50 billion sales gain contributed to JPY770 billion. There are some normal unique cases; JPY32.1 billion, 58% decline.

In the segment asset to your left revenues and profit, credit, life insurance, it is a very stable asset increase, as you see on this chart.

On the other hand, old Hartford Life Insurance, step by step we will be completing run-off activities.

In the middle, we have life insurance premium and related investment income. So it means the dark blue color, this is ORIX Life Insurance. Asset increase and policyholders increase has contributed pretty healthy gain, but old Hartford Life Insurance that is operation gain, in the first half it has shown negative figure. It means that variable insurance, what we have been involved with by Hartford, the Hartford asset is based upon variable insurance.

In the middle August to September -- middle of September there was a China market shock, which has impacted the all over the world marketplaces. Market has become weak, so there it means Hartford asset, but the valuation has declined.

So that was a minus, a negative profit posted. Therefore, JPY50 billion change or minus figure is what we have seen at the very end.

And as for this part, operational asset has declined, it's a variable insurance. It means that policyholders or customers asset will be declined. It means that ORIX business does not include this part of the area; we are not going to see any direct impact.

But from profit impact point of view, there's one thing, volatility will be higher. It means that hedging reserve, volatility is high, it means that we need to increase more this other part. This a reserve we needed to accumulate as our responsibility. In this quarter ORIX profit or income has gone minus.

Now let me go to next page, page 10. This is the very last page, this is overseas segment performance.

In the second half in the United States, Houlihan Lokey IPO was completed in the latest days. Our shares have been partially sold-out.

Also, due to the listing activity valuation gain has caused JPY40 billion to be posted.

So the change was 59% profit increase from JPY61.5 billion to JPY97.9 billion.

In the first half -- in the first quarter, it's the [ex-energy] capital gain was posted as JPY16.1 billion. These are major capital gains, but except for these major gains in other consolidated profit, it was an increase by as a total 28%.

There are some major reasons why, service income includes Robeco asset management income from Robeco, which is increased. Also Asian investment business has seen securities capital gain, and also in Asian local companies, mainly from automobile leasing has increased income.

In the segment asset from the previous fiscal year, it has flat, but except for foreign exchange impact, it is an asset gain by JPY39 billion.

So in business-by-business level, the aircraft business JPY60 billion, and the local companies round the world JPY20 billion asset expansion was favorably reported.

On the other hand, in the United States Houlihan is not in our consolidation, and also multiple bond were sold out, and securitization of loan assets have caused asset decrease.

So this concludes our first half business result.

So now we'd like to have from our Group CEO, Mr. Inoue, so he will be covering mid-term cover plan and also return for investors. Thank you.

Thank you, my name is Inoue. Now I'd like to take this moment to express our heartfelt appreciation to each one of you for your support.

That's done, again you have just received the report by Mr. Kojima, our CFO. There is going to be some overlaps, I hope you will bear with me.

Net income for the first half and for the year ending March 30, 2016 actually was JPY161.3 billion, up 14%.

I think it is fair for me to say that we had a good start in the first six months and of the mid-term plan very first year.

In line with the macroeconomic and outlook, and we assumed ORIX and exited (inaudible) ahead of the time, so we're able to actually generate the profit in the first six months.

Since August, the market has been somewhat in confusion; going through the Chinese equity market fluctuations and the renminbi depreciations, and the delayed -- the rate increase in the US. Yet we successfully invested on Houlihan Lokey. Overall, I think we had [a smooth] six months.

Then you go to Houlihan Lokey investment, we sold about 15% of the new stocks and for the price of $21 per stock. The valuation, the value was JPY14 billion. Right now, for your information the stock price is moving around $22. But according to the equity research and target price the price is -- the stock price is in the range of $25 to $28. So definitely, we're going to keep an eye on the things that are going on, and then we're going to make our own decision.

For your further information, now we have become on the equity method of late, and we used to be a conservative Company. So from now on this is going to be the new rule now, we are going to look into as for the financial accounting.

In the first half, we gained JPY60 billion capital gain. At the end second half, actually, the contributions from the capital gain I think it's going to decline.

In the second half we do expect that there is going to be a lot more contributions coming from the existing business operations. Also, we are going to pay more attention to the new business, the investment opportunities.

As for the net profit, and the -- we have now target to achieve net profit of JPY300 billion for March 2018.

Unfortunately, (inaudible) was downgraded and two days ago S&P came up with an ORIX rating; right now, the A- and stable.

Well, of course, no change as for the rating, but an outlook became a negative that was the latest release -- unfortunate release we have received from S&P.

The Japanese financial sector it's (inaudible), and also quality of the assets are going to be restricted according to them. Therefore, now S&P decided to come up with the negative outlook for, in general, the financial sectors. That said though our business condition is different from the other new players in this industry.

In other words, I don't think now we're ending perfectly [in sync] and within a so-called [anchoring] values of the financial sectors, but they do believe that there is going to be some impact on us.

Well, in terms of the projected risk-adjusted capital ratio, the so called RAC ratio, we -- if it goes below now 10%, then according to them they are thinking about downgrading. Right now, our RAC ratio stands at 10.8%.

Well, going forward, actually, the Company has already decided to expand our new investments and activities. But again, it's very important for us to keep an eye on the RAC ratio, and while defining on the very specific on investment activities. So we're going to be very careful going forward.

Allow me to now spend some time to share some of the best philosophies in making new investments, of course, in cash flow contributions and also improvement of RoE. This is going to be the basis for us, and also it's got to be on the growth opportunities.

We have critical areas: the environmental energy and networking of Asian regions and asset management, and the private equity investment have been identified. I think it is in these areas that we have made a substantial progress.

First, in environmental energy, we have already secured actually 800 megawatts; well, Group-wise 900 megawatts. Actually, we were able to secure that much for the mega-solar operations. Also, now we are going to be having their own power supply (inaudible) and extend our stable on the system.

We are going to be working on the power, retail and business opportunities. Being more specific, the storage battery system, retail services, and also lower voltage and power retailing and others are going to be quite important driving forces.

Environmental energy is one of the important areas for our global opportunities. Of course, we have to be careful in fixing the challenges one by one. Out of that, I'm sure we'll be able to expand our business opportunities.

As for our own power development, of course we have the coal, fire and power as well as environment. So we have a combined facility, and actually, two sites as much as JPY80 billion, 112 megawatts in activities and are in a good progress.

As for [PE] investment, actually we have acquired an auto loan company in Indonesia and also in Cambodia. Actually, we started to make more investments in ACLEDA Bank.

Recently, here in Japan, we have acquired Cosmolife, for the spring water producer and distributor business.

While working on (inaudible) strategies, at the same time we are making new investments in these areas.

Going to go the asset management and, unfortunately, there has been no visible progress for the past six months. One of the reasons for that is, I would say, the acquisition prices were too high. But going forward, definitely we're going to look into the potential M&A activities. But in the meantime, I think it's worthwhile for us to fully leverage existing network. In other words, we would like to grow organically out of this existing network.

Of course, then we need to further work and extend the portfolio and in aircraft business. Narrow-body type is going to be the driver. Actually, we have already secured JPY90 billion in investments, so things are going to become a lot more specific going forward.

As you know, we submitted proposal to the second screening for the new Kansai Airport concession business in September. In November, the bidding result will be announced. It is a joint business with the French Vinci Group, and we plan to participate in the business as an equity method affiliate.

The detail cannot be disclosed, at this moment. Yet -- but taking this business as a start, we would like to participate in the concession business.

The second half of this year, we think there will be a gap to be adjusted in the market in some areas. China devaluated renminbi currency and with the possible interest rate hike by the United States will return the emerging countries' capital back to the United States, which will fluctuate the foreign exchange and volatility may increase. We need to be cautious with our countermeasures.

China may continuously have the government's support. However, there seems to be no good impact, and we cannot feel at ease about the effect.

Also, our exposure to China, it is round about JPY100 billion. It is a small 1% versus the total segment asset volume. They are local companies lease asset. The joint investment with the Chinese is excellent companies, and there are no specific concerns.

The [use] shows high yield bond and the debt balance are showing higher level versus that of the pre-Lehman period. Also, the housing loan and other loans passed the peak period. It may be an advanced warning of crisis-like situation. It may not be another Lehman shock yet; we expect some adjustment or foreign exchange fluctuation.

Impact to Asia. Local companies' earnings did not decrease and the level of bad loans or defaults has not increased. Yet, we need to stay cautious with the foreign exchange. Japanese situation is relatively good.

The real estate market is growing, yet it is not like an overheating we had during the bubble period, or it is not over-increased purchase for resale. It is a mad overheating. We think that real-estate industry, the major buyers, including us, learned from the Lehman shock.

Also, the inbound tourist business shows some relativity with the Chinese risk. However, it is a stimulus in many ways to the Japanese domestic market. It will bring, step by step, a variety of business chances.

Also, with the concession business, [TPP], and other changes in the Japanese economic environment will bring about possibility for many business chances.

After the Shanghai stock market in August, the market has been unstable, and if the down trend gets more obvious, more investment chances will arise. It is necessary to increase asset and there will be definitely good opportunities, yet basically, we stay cautious.

Based upon the census in the market, we will take a strategic position to achieve the net income target of JPY300 billion for March 2018 period. We continuously do like to use the capital for investment to achieve a sustainable growth.

Simultaneously, we make an all-out effort to bring the investor stable return. We have already announced that the interim dividend is JPY22, and for the yearend dividend, it is expected to be JPY23.

In comparison to the first half, we do not plan a big capital gain in the second half, so the total year dividend is JPY48 versus JPY36 from the previous term. It is up by 9% -- it is up by JPY9 and up by 25%.

Fundamentally, this term dividend payout ratio is 23%, and with the possible increase in the net income, naturally, we change the yearend dividend.

Let me repeat once again. We had a good start to achieve the profit target of March 2018. In the first half, we made advance selling before the adjustment period, and we posted in advance capital gain and valuation gain. The existing business made a fair profit contribution.

The first half net income versus previous term is up by 14%; that is JPY161.3 billion. The second half, we concentrate on new investment by taking changing environment into account. While we increased the stable profit to reach the March target of 2018, we will achieve JPY300 billion net income and we will create solid foundation for the sustainable growth.

We'd like to expect that ORIX will make our three-year transformation growth and the social themes into our profit opportunities and business opportunities.

Thank you very much for listening.

Thank you for your attention. Let us now have the questions and answers. If you have any questions, would you please show your hand while being seated?

Before you ask questions, I'd appreciate if you could identify who you are and your affiliation as well. Please show your hands if you have any questions, please.

Watanabe, Daiwa Securities. I have two questions. First question actually concerns your dividend and payout ratio. 23%, that is going to be the basis, or actually JPY45 for the full year.

In other words, the annualized EPS it is going to be JPY196, the first JPY123 subtracted actually. Then the answer there is going to be JPY73 is going to be the base. This is the first question I'd like to ask you, to double check on this.

Second question concerns the (inaudible) in the pipeline in the second half. Actually, in hotels and other assets had unrealized stock, the value. What's going to happen in terms of the capital gain, whether or not you see that capital gains are going to be realized, particularly in this area and moving into the second half? These are two questions, please.

Thank you again for your questions. Concerning question one, allow me to make the following response.

You are right; in the second half we do not expect that there is going to be the big capital gains. In other words, we are going to be based upon the income coming out of the existing lines of business. That has been the basis and we're hoping that there could be an upside. At same time, we have to look into the actual movements on the market.

With this point in mind, actually we have come up with somewhat conservative numbers, so to speak.

Let me go to hotels and others--I think in the beginning of the new fiscal year, in the hotel, the REIT, was talked about and we announced that we have a plan to launch it. I think that's what you are talking about.

But looking at the income, expect extended income growth on the side of inbound.

So probably it's worthwhile for us to then own it on somewhat a longer-term basis, so there's going to -- there could be certain delays in this regard. It all depends upon how you see what is going on in the marketplace. The income out of the hotels, so maybe we should be able to enjoy the income out of the hotels, maybe we can work and then pick out the best scenario.

So you may say that we have done a great year, but again on thinking that we're having the annualized net profit substantially, for example, Universal Port, there is next to that a land called annex -- annex land. Development is underway on that annex land and it is going to be officially opened up about two years from now. So with that asset in mind, probably that is going to help us and to give us a more stable asset infrastructure.

Did I answer your question?

Well thank you, I think you have clarified my questions, thank you.

Page 12 please; I'd like to ask you a question. Payout ratio 23% dividend, and annually you had [2,600] as a -- [JPY260 million]. So it means that [JPY200 million] is it an internal reserve amount you are expecting at this moment.

So [JPY200 million] how much will be the investment amount to secure this reserve, and you may think of some sizable of investment in the future, coming to think of these numbers. So as for new investments, do you have any plan, as long as you can tell us?

Also, payout, the dividend ratio, the future trend, this is what I'd like to know; page 12, due to this drawing, 3% to 4% increase per year. So 30 percentage for 2018. Is our understanding correct?

So these are two questions? JYP200 million hidden profit, that is book value for the profit? Yes, JPY200 million and internal reserve is what you will keep? JPY200 million internal reserve is what you're thinking about. By using this capital, how much level of investment do you think you will be conducting? Please let us know as much as you know?

Well, for the time, we have pipeline, internally we have made an approval investment. First of all, in aircraft 92 -- JPY100 [billion] aircraft and, step by step, gradually, we're making investment for environmental and mega-solar; in total JPY100 [billion] step by step.

So it means that JPY260 [million] profit means that [JPY60 million] dividend, and others is pipeline. So this is what we're expecting.

Additionally, perhaps PE investment will continue, will never disappear. Therefore, I, myself, think that some tens of, or maybe, yes, millions, level of investment will be in place.

Also, dividend payout ratio, in the past we had some stance about ORIX. Step by step we had increased our dividend amount as our payout ratio. It continues; 20% last year, this year 23%. So step by step we would like to increase the payout ratio. But if we do a 30% of the payout ratio, it does depend upon what situation we will face. For the time being, 23% is what we would like you to accept.

Thank you very much.

Muraki, Deutsche Bank Research. I have two questions. Question number one, actually what kind of outlook do you have vis-a-vis of the market environment? In the half-year you told us that you are becoming somewhat conservative. Actually, you don't have money and out of the emerging markets and pushing up the volatility, and also [the new credit in] the US has already picked out. I think that was the kind of story you have in mind.

So, with that point in mind, you wanted hurry up and make an exit. So now how long did -- this adjustment is going to be lasting; this is my question?

And you are going to be really smart if you can make investment when the market hits the bottom, but sometimes -- and that is going to be quite difficult, frankly speaking. But again, this adjustment process this time is going to be short in time.

In other words, moving into the next fiscal year, you think that you are going to expect to see it bottom-out quickly and move into a better era to come. Or would you say the other way around?

My second question concerning the rating. According to the S&P, in their report, A- rating I think and I think downgrading for that I think, and it could be based upon two stories: (inaudible) could be [lowered]; or another case could be [your own] capital ratio, equity ratio and modify the capital ratio and the equity ratio and it could be less than 10%.

I think these are two possible drivers for the downgrading of your rate.

As for the other half, of course, you can actually try to apply the stricter management.

[Well, money -- and the larger money], and definitely it is going to have another impact in this regard. So you do not believe that you should be able to find good companies to acquire.

The second point concerning 10% [no less], again, with that (inaudible) a number in mind, again, having nothing to do with the actual capability and you may become a BBB. Moody's actually has already given a BBB.

But with this point in mind, that rating, what kind of visible -- invisible impact it may have on you?

Well, first on the market -- the environment, maybe we shouldn't be worried so much. But the rate rise -- the raise in USA, may have impact on the stock prices in the Southeast Asian countries, particularly in Indonesian stock market and has been [in that situation].

So with that point in mind, and probably going to bottom out, and [if so], it is going to be quite difficult for us to have full hedge, vis-a-vis the Southeast and Asian countries. So I have to be extremely careful in this regard.

Three years ago, now we were talking about investments in Brazil, but we decided not to go for that investment -- I think now we were successful not making the investment.

Actually, all these prices have started coming down, so we can -- we are given a lot better negotiation and power. So now, if we're going to make an action in this hurried manner, I think we're going to -- we are doomed to fail. But I am hoping that they will raise the interest rate as soon as possible, and they decided not to raise interest rate in this month, and how come you are still delaying on raising the increase?

So that's the kind of feeling I am having when it comes to the US interest rate.

So what is going to be then a good place for investment? Probably Japan. Well, Japan versus USA, we're not showing the good numbers in regard to the USA, but actually disclosure is there, solid, and also in governance compliance. There good companies enough, who have no governance and compliance issues. So, definitely that I need to look into the Japanese candidates, as well as American candidates.

Also, FX fluctuations will make me somewhat be less inactive, I'm talking about M&A in Southeast Asian possibilities and also on China, same. I have to be careful.

As for rating, even we are downgraded and that is not going to have almost no impact on our business activities, now, we have a new borrowing arranged with most of them -- and with the domestic and the Japanese and the financial organizations.

So we're going to be okay. But what's going to happen if another Lehmann shock comes about.

So BBB, well, we like to maintain an A level, as much as possible; that is our best assumption. But, at the same time, just so you know, it's not the case that we're going to give the top priority to the rating A. If they are really [golden carrots], so to speak, and we should go for it, and we're not.

So we're going to now be looking into the balance between the rating and specific business opportunities. Actually, financial and asset accounts for 25%; non-financial asset accounts for 75%. So, even if an anchor rate goes down, and make sure that we're go to ask them, make sure that you should not put an ORIX in sync with another player.

Well, now, we're asking for [discontinuation], already, and this is going to be continuously done, going forward. Again, the rating has no impact on the business activities.

Yes, next question please.

Goldman Sachs, Noda. There are two questions that I'd like to raise. First one, retail business ROA.

So first half, 1.2%, and the CEO was talking about some number. (inaudible) ROA 3%, and these numbers were not reached.

However, when it comes to corporate financing, you have made a pretty good jump. Is there any countermeasure you're going to take, or non-organic development, the progress may be planned, or (inaudible) let me know?

And next one is the asset arrangement or sorting changes, at the beginning of the term you were talking about investment. And also sort out of your asset PE, exit and fully (inaudible), and the real estate, these are what you have talked about.

So these are what (inaudible) has been talking about, as rearrangement, or maybe some multiple level of rearrangement or resorting of asset kinds? I'd like to know of them.

As for retail, fundamentally, [ROA] low, because of the bank situation. CFO, former CFO, Mr. Urata, he was talking about too ROA improvement. He has been a bank President.

ROA cannot be improved right away, but in ORIX Bank, employees came from other banks, more and more increasingly. So ORIX Bank is getting just like an ordinary bank. Therefore, what we would like to rethink again what ORIX Bank could do, we would like to review what we can do, as ORIX Bank.

It may take some time, ROA may not go jumping right away, but plus [Alpha] means service business, so that we have of our own business ongoing.

So we're making an all-out effort to make an improvement. Please wait for some time. And also rearrangement of asset or re-assortment.

Ordinarily, when it comes to real-estate business, we made a mistake before the Lehman shock. We have sold some property and re-assortment was done right away.

Capital gain was achieved and we bought at a high price, and it has become a legacy. Re-assortment means that we have to sell at the most appropriate moment, but before market decline, you keep and maintain, or you sold the property, for instance. So reinvestment in property is not our plan full year.

Well, capital gain, actual capital gain is JPY10 billion. We needed to see the fluctuation of the stock prices in the future, what and how to do. Naturally, we see the marketplace and fully [hung] and post fully [hung].

It's not going to be the same type of purchase. It could be an asset simply, or tangible asset purchase in the future. This is a decision to be made.

We have variety of businesses. More real estate may be bad, or aircraft or ships and vessels might be another choices. Well, re-assortment within the same industry will cause our mistake. This is a fundamental understanding.

I hope I answered your question.

Yes, thank you.

Tsujino, JPMorgan. Concerning dividend, payout ratio actually is done to go up piece by piece, and bit by bit, and 23% this year, and last year 20%.

I think that's what I was hearing from you. Well now this year, first half, you had a profit, this much. Also, moving into the second half probably JPY110 billion is what you had in mind, and that is why you have come up with the JPY45.

In case you're not having a big capital gains, and it's fiscal year, JPY230 million, while the -- one higher in that range. The number actually was in the lower side.

Maybe dividend is not going to be lowered. Again, what's going to happen to payout ratio, and probably it's not going to be in the traditional payout ratio, and tactics, and probably payout ratio may jump up, once you have reached -- once you could have achieved such a range of numbers.

Next question, and I have to go into details, sorry about this. (Inaudible) I'm looking at page 11, in this [data] book. Overseas business, for example, JPY470 billion, that's the number I see.

Out of that, JPY40 billion accounts for (inaudible). The remaining JPY7 billion is quite large. In other words, again on -- this is a mixture of all the subsidiaries and reorganization. I think that was the kind of explanation I have received at some point.

I wonder if you could clarify that point, whether or not this kind of thing is going to be sustainable. I'd be pleased if you could expand on those questions.

[If we go to] the question on the dividend, let's assume that in the second half, we had really bad performance and still we're not going to change JPY23. In other words, the payout ratio is going to go up automatically.

Also, minimum 23% for the next fiscal year, and probably our profit is going to be much better. So shareholder is not going to be satisfied with a JPY23, so there's going to be a baseline bottom line, and we are hoping that now we can actually now go up beyond JPY23.

Talking about the next fiscal year, actually three years from now, we're going to aim at JPY300 billion. We are not considering a dip scenario. But in case a dip has taken place, of course, you're right and I think we have to go through these procedures. Again, still we have to return -- we have to give returns to the shareholders.

I think now in the core is going to be the growth. I think my important job, mission, is going to make sure that people are going to look at ORIX, still a growing Company, and [CFO] is going to program -- I am going to ask the CFO now to go through the numbers.

But before that, in China, we have security -- the prevention security company. Of course, we had Shanghai shock. That and our Company business has gained [nearly] JPY2 billion in capital gain.

Well, I may go into details. Well, I'll not give you any specific detailed numbers. Again, on this Chinese case, our CEO was talking about. (Inaudible) is the name of the company. That was good case in point.

Also in the United States, we are making the investments in the funds. Actually, the profit there was as much as several millions of yen. So we have many pieces in this -- in general, so to speak.

Therefore, well, crime prevention, security, I think minimum JPY2 billion plus. But other than this, and actually it is going to be a collection of JPY1 billion less, so it is the collection of all these small ones put together.

Did I answer your question?

Well, even under those circumstances, well, whether or not you can maintain all these small pieces going forward, and extra question if I may.

Some time ago, the -- what is the valuation in terms of loss on the side of real estate? I think you shared the ball park numbers there.

On the investment and the profit seems to be going up, even though you have not realized them yet. I wonder if you could share your thoughts in this regard.

Yes, the hidden profit is that what you'd like to know? When it comes to JPY55 billion, in the securities report. This is what we have -- he has described. Selling and buying, it was already materialized, as selling gain.

Naturally, when management -- or result is getting better, when it comes to investment in leasing business, yes, profit is materialized.

Yes, out of JPY50 billion in existing part, rental and also rotation, has become better. Including all of this valuation, valuation gain will be different. It does not change so often.

However in our front line, there are many cycles. But once a year, we evaluate this business, to sell properties first, and materialize profit, is one thing. Also, profit will be increasing. So therefore, it is a little bit of gain.

As for US, it's not that great. However, as for the investment proper, it is now great, but however, it is still gaining.

Management, some hundreds of billions of yen, in management of asset.

Yes, we have analyzed and the hidden profit is JPY200 billion, according to some report, but we do not visit that level of hidden profit. I hope you are -- I'd like to have your understanding.

So I hope we answered your question.

Now, we'd like to close today's second quarter consolidated financial results report. Thank you very much for your participation.

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.