ORIX Corp (IX) 2016 Q4 法說會逐字稿

Again, my name is Kojima. I'd also like to thank you for your precious time attending this Orix Corporation's earnings call despite your busy schedule. And that said, I'd like to take a moment to explain the actual results of the FY March 2016.

Would you please turn to the next page, please? As already reported, in FY March 2016 net income was JPY260.2b, up 10.8% year on year. Following the previous year, Orix renewed our record profit and the Company grew a nice profit seven years in a row. ROE was 11.7% and up 0.2% from 11.5% previous year. Following our fiscal year March 2015, we achieved our target on ROE 11% or higher.

Fiscal year March 2015 enjoyed the same level of gains on sales, particularly in the first half. Our existing and new businesses drove our -- the growth in a steady fashion. We are so happy as to these results.

We are aiming at JPY300b in FY March 2018 and we're able to actually enjoy the good path toward that goal.

And next page, page 2. This shows the segment profits and assets and the trend for the entire fiscal year. The segment profits in total, JPY380.1b or up 13% from the previous year. Excluding retail, the five segments have grown and there are profits.

Segment assets, due to the decline about JPY200b, mainly due to the [in-house] factors which I'm going to explain to you later.

Looking into each segment the numbers, please refer to the details on pages after 20, but allow me to give you some highlights here. The first, in corporate financial services, the profit was up 66% or JPY42.4b, a big growth in profit year on year.

We added Yayoi, and this Yayoi made a full contributions. And on top of that, fee business actually was able to grow in a steady fashion. And also now in the first quarter and in the third quarter we were able to enjoy the capital gains.

As for the maintenance and leasing, this segment was up 6% or JPY42.9b. Automotive maintenance and the others actually play a very important role. And also automotive in leasing in value-added results has actually made a good contribution. Actually all in all 6% growth.

As for the retail -- as for the real estate rather, real estate grew the 11 - 1,131% (sic - see slide 22 "1,231%") year on year or JPY42.9b. We leveraged a good market opportunity and enjoyed the gains on the sales of real estate and also the income from the Japanese inns and hotels in our operation also they made their contributions to the growth.

And furthermore, compared with the previous year, actually we had a loss on the long-term basis, actually JPY20b. Actually this was actually calculated and put into the booking.

And also the investment in operation, actually it was up 35% or JPY57.2b. The profit grew thanks to the gains on the sales of the investment exit. I'm talking about private equities. And also environment and energy and also (inaudible) were able to grow smoothly.

Retail was down 57% Y on Y or JPY51.8b. In March FY 2015 we had a major gain from the sales. I'm talking about Monex sales as well as in Hartford Life and (inaudible) purchase. And also in Hartford, the performance was rather good. And all in all we had a negative impact JPY51.8b or down 57%.

And on [global] actually up 37% and JPY124b. In the second quarter we had Houlihan IPO and the gains and the valuation gains, actually that made a great contribution to the improvement.

Please next turn to page 3. This graph has been used since last time. Actually we are going into some of the details by elements. On the left-hand side it shows the pre-tax profit, actually JPY344b becoming JPY349b (sic - see slide 3 "JPY391.3"), so it grew JPY47.3b or 14% from the previous year.

So existing business as well as new investments gave us a profit of JPY54.4b. And furthermore, the gains on the sales, JPY112b, and also JPY20b out of the sales of the real estate. And also we have the gains on the sales in the previous year, JPY123b. And also the real estate gains on the sales, JPY171b (sic - see slide 3 "JPY17.1b"). So the sales -- the gains on sales, including real estate actually down JPY7.1b. But thanks to JPY54b growth out of the existing operations, all in all JPY47.3b was the growth that we enjoyed.

Right-hand side, looking into the segment assets. As has been explained by me earlier, end of the fiscal year, JPY197.8b actually down 2%. And going through the details, first existing business, the new investments included, JPY632b was the growth we had in terms of asset. At the same time, the other factors, five factors. And the first factor is Hartford, the one-off operations and cancellation, JPY442b.

And also real estate sales, they declined JPY95.8b. And also the PE exit, JPY43.2b. And also the USA, the [CEO] insurance, and also corporate financial services and leasing and depreciation, all in all JPY113b (sic - see slide 3 "JPY111.3b"). And also due to the strong yen in this fiscal year, now we have an FX impact, JPY138.4b. Actually we had a growth of JPY632.1b in the existing. Actually, all in all, down [factor] was JPY897b (sic - see slide 3 "JPY8,972.4b").

Looking into the runoff of the former Hartford and life insurance, that excluded actually [year-only] basis actually [JPY134b]. So that was the growth we had in the existing business and operations.

Furthermore, in the third quarter on the (inaudible) and in fact the businesses we had JPY65b up until the third quarter. Actually, that went down JPY54.4b on the annualized basis. And one of the reasons for that was having to do the decline on the market. And also the former Hartford life insurance actually had a negative performance in the fourth quarter. So they are the major factors.

Looking at the asset side, the existing side, operations side, up until the fourth quarter, JPY316b up until the fourth quarter, but on the annualized basis JPY632.1b, actually up JPY237b. And investment, actually we made a further investment into the Kansai International Airport. And also in India we launched the investments into the wind power generation. And also we purchased aircraft and others.

So we had these new investments, plus in the existing business, maintenance leasing and retail, overseas business, in these we had a growth.

Now from here, for two pages, we would like to attempt to make an expression in a new fashion. I don't think this is familiar to you. But this slide is where [we all in this Group], we have six segments and disclosure is made based on that. But depending on the nature of the business, we now -- we have attempted to categorize this into three. Finance, operation and investment, these are the three categories. And the nature of the business is shown at the top of the graph.

With respect to finance, credit risk, credit risk is taken to get interest income for financial gain, like leasing, the loan are some of the businesses. And the constituting businesses are the lease, loan and fee business are in the corporate financial services business, and also in Japan Orix Bank and Orix Credit. These are the businesses that belong to this. Overseas lease is centered in Asia and in the Middle East and also in the US we have a lease, the lending.

And with respect to operation, we have four sub-segments. One is environment and infrastructure and also the real estate operation. This is a category -- one category, for example, hotel among the real estate businesses. And also Good Time Living, so-called, the facilities and also the aquarium and other facilities and operations, and including the solar power generation, the environmental energy and also something that is added, the new concession business; that belongs to environmental infrastructure.

As for financial services, asset management business is done by Robeco. And in the US RED Capital, Mariner, asset management business, and the REIT in real estate and also REIT and the investment advisors that belongs to real estate, and also Orix Life, that belongs to the retail.

With respect to maintenance services, just like the rent and leasing, Auto and Rentec. And others include Yayoi and also some other new businesses that are in this category.

And last category is investment. We take a market risk here and exit is -- in the volatility of the market we will try to get a capital gain. While we own it, the income gain is also expected in this business.

As for fixed income, the -- centering around the non-performing loan, investments, [servicer] for Japan. And also for overseas, we do this in USA, as CMBS, and the municipal bond investment belong to this.

And with respect to the tangible assets, the real estate market and aircraft market and shipping market, in these markets we have transactions, the real estate investments. And also aircraft leasing and shipping are some of the businesses that belong to tangible assets category.

And the last one is equity. We do PE investment and Daikyo that belongs to investment and operation. And overseas, particularly in the US, we do have healthcare and investment in South America and also the Korea office and the China office do China and Korea corporate investment or PE investment. They belong to this category.

So what do the picture -- does the picture look like according to this category? Now we have pre-tax profits by category and also segment assets by category. It may be rather difficult to see, but within the parenthesis, for example, March 2015 the net income in the businesses there's asterix 2, that's JPY130b it says. And also in 2016 March it's not JPY190b but JPY150b rather. This is of a one-time nature, Hartford life insurance bargain purchase gain and also Monex sell-off gain. And with respect to 2016 March, Houlihan IPO has generated a gain on sale. So excluding all these big items, the number is shown in the parenthesis.

With respect to segment assets, again, the Hartford asset is excluded, then not JPY3.6 trillion but JPY2.2 trillion and JPY2.5 trillion in the parenthesis are shown, if you exclude the Hartford.

So as you can see from this page, in March 2013 more or less the profit from operation and also the profit from finance are on par with each other. But in 2016 March period, if you include the one-time nature items, the profit from operation is double that from finance. If you exclude the items of a one-time nature, the finance growth over three years was 1.3 fold, so as opposed to operation, where the growth was 1.9 times.

On the other hand, if you look at assets, again, the maximum or the greatest share is from the finance. That remains so. But rapidly the operation is growing from JPY1.5 trillion to, if you include Hartford, JPY3.4 trillion, twice as much, or if you exclude that, still 2.5 times. So a 1.7-time growth is seen at JPY2.5 trillion.

Particularly the business is growing, for example in the -- because of Robeco. And also gradually over the few years we have been focusing on environment and energy area. The solar energy investment is now coming into operation one after another. And going forward, the concession business will also further drive this growth.

In 2016 March in terms of segment assets, investment is JPY1.6 trillion. The breakdown of this is the bond, JPY300b; and the tangible assets, about JPY800b. Of JPY800b, real estate JPY550b, the aircraft and shipping about JPY500b, and the remaining, the equity investment about JPY500b. That's the breakdown.

Over the last few years in terms of investment, JPY1.9 trillion to JPY1.6 trillion or around JPY1.8 trillion. But when it comes to the breakdown, as you know, the real estate share has been coming down and equity and aircraft is increasing. So the structure has been changing quite dramatically.

So that is what I have to say. And I would like to pass the baton to Mr. Inoue, CEO, who will talk about the (technical difficulty).

Hello. This is Inoue. I may repeat the same point, but actually the net income actually 11% and JPY260.2b. We achieved continuous growth seven years in a row. And also ROE was 11.7%. We are aiming at JPY300b in FY March 2018. I think we were able to start in a rather smooth position to -- for that goal.

Actually, in the first half of the fiscal year [on average] and actually was able to go back to the level of JPY20,000 for the first time in 15 years. So [relatively] speaking, actually we've got -- we had a rather smooth start. But moving into the second half, the decline in oil price actually had a great impact upon us. And also [China] (inaudible) start a global equity decline and also the global economic outlook actually became rather darker.

And also here in Japan JGB actually got downgraded. And also JGB -- Central Bank of Japan decided to go for the negative interest rate. All in all, we have [emerging] changes and challenges over the 12 months. So that's in the first half within that business environment.

And actually beside the existing business growth, we actually sold two PE investments. And also the Houlihan, looking on the IPO now, we worked on the sales of the (inaudible) in Ginza and also others.

And environment and energy and Asia network, asset management and private equity investments are the new areas. But excluding asset management, actually we were able to actually grow in a rather steady fashion in all of these fields.

That said, Robeco and AUM due to the poor market situation, actually now we had a negative situation Y on Y. But the impact there was somewhat limited if I'm not wrong.

And actually the environment and energy business, the mega-solar actually -- the concession and the mega-solar and the development was underway for all the power generation. And also we worked on the global activities. We are investing in IL&FS. Together with IL&FS actually we started 1,000 megawatts scale wind power activities. We decided to go for it.

And also Robeco and together with an Asian development bank jointly we established energy-related advance, with the very first investment took place purely in Asian NGOs. And also I believe that we will be able to have good growth in environment and energy.

Talking about the mega-solar, by the way, 8.9m megawatts have been secured. And also the 410 megawatts are now being secured. And constructions are well underway and we are aiming at 2018 and onward for the full operation going forward.

Private equity investment, the next, and Asia networking. And we have the automotive finance and a company acquired in Indonesia. And also in Cambodia agreed -- a bank additional capital investment was done. And also in the United States the hedge funds, the Mariner Investment Group vehicle was used for our execution on the very first private equity deal.

Here in Japan, the natural spring water producer and distribution and Cosmolife. And also Japan is the biggest operator (inaudible) acquired are well-known and the vaccine business for the animals. And we are successfully working on the deals out of these investments. And also, [as mentioned], we are working on the concession as of April 1 in the Kansai International Airport.

As for the existing business, Orix Auto first. The number of the vehicles under management under Orix Auto end of March 2015 are [1,117,000]. That grew up to 1,230,000. And we were able to maintain the number-one position in this industry.

And next, the life insurance business. The individual policyholders have passed 0.5m, for three years in a row. And also the number of the existing policies for the past 10 years were able to grow in two digit. So this is still growing and expanding.

Next, our Yayoi operations. And this is a cloud-based invoice management service. And we acquired the Misoca who is going to do the development and also operation for the Yayoi cloud-based activities.

And we acquired concessions for the Kansai International Airport. And also we would like to make further efforts to further grow the existing business. And we are aiming at [JPY300b] in March 2018. So all these activities are going to be launched one after another.

As has been explained by CFO, Mr. Kojima, the recent portfolio has been categorized into three, in finance, in operation and investment. And out of these three categories, operation and investments are going to be very important areas for us until further (inaudible) in terms of the money, in terms of the resources we have.

We now have a low-interest era. And because of this it's rather difficult for us to make a good return in loan and finance leasing. And also we should not move into the excessive interest competition. Rather we should put emphasis on operation and investment. This is what we believe.

When it comes to the corporate financial services, of course it is not a simple loan and lease business. Rather we need to work on further efforts moving into the electronic settlement services as well as transmission services, because we do believe that out of these activities we should be able to increase the service income, getting away from the finance revenue model.

And also we believe that we need to take a somewhat the long-term perspective in terms net profit. But we are thinking moving into further and actively in the new businesses, including the agricultural business.

As for the operation, environment/infrastructure business and also financial services and also maintenance services and others and new business are going to be the categories that we are now looking at.

And environment and infrastructure, of course, mega-solar. Now we have the captive power capacity and the plans are well underway. And we're [beginning] to make further efforts to accelerate our activities in this space.

Globally in India, we launched the wind power generation. And that is not to be the end point. We would like to have further activities in other Asian geos as well as in United States, particularly on the side of the renewable energy opportunities.

As for the concession business, we have an experience of acquiring concession for the Kansai International Airport. And we have now received inquiries for other concession businesses as well. Toward the future, we believe that we can turn our concession business into one of the core businesses.

In the real estate operation business, this has been performing well with the tailwind of rebound. With respect to new investments, the selective investment stance will remain unchanged.

As for inns and hotels, we fix our eyes on the increasing [inboundees] in the future. And we are now -- we would like to consider investment by selectively looking at properties, including the ones that are under construction.

For Orix Life, not just in terms of product competitiveness, the price competitiveness is also expected to be more stringent in terms of the insurance premiums. So we would like to differentiate ourselves with product proposal capabilities and we will further expand the direct distribution channel, where our own sales reps sell insurance products directly.

Orix Auto and Orix Rentec have secured number-one position in the industry. Their ROA, ROE and cash flow are robust. We would like to actively increase assets on a continuous basis. And will also expand the related services, such as telematics services and the rental businesses of the AI-related equipment.

Also our auto business has a knowhow that we have developed in Japan. We'd like to take advantage of that in the overseas subsidiaries, particularly in Asia, as we promote this business. However, we have to be cautious. But we are aware that the nature of risks in operation category is very different from that of finance category.

The risk of a loan is mainly the credit risk of borrowers. But in the case of mega-solar business, the operational risk, whether we can appropriately manage mega-solar or not, that is our main risk. The nature of these two are very different. So as we try to expand these businesses, there will be increasingly risks that we have not experienced in the past, so we have to put in place a system that would allow us to do risk management appropriately in these fields as well.

The investment can be categorized into three, the fixed income investment or investment in tangible asset, and equity investment. And we would like to particularly increase accumulation of assets in tangible asset investment and equity investment. With the expected investment in tangible assets, the real estate market, we believe, is peaking out so there should not be a major increase in the new investments in real estate or center around the development of land that we have already owned.

With respect to the aircraft portfolio, we will expand this business, particularly focusing on narrow-body type aircraft.

Regarding investment in the operation business in Japan, the high price levels have been maintained so we'll continue with our [series] and will avert the price competition. And we will try to increase investment in healthcare, IT, food and lifestyle-supporting businesses, which are core businesses.

With respect to investment business outside of Japan, we will move ahead with investment, using the investment management company, where fund accounting can be applied that is established by a very [narrow] investment group. In Asia, as we try to tie up with our major partners, we will identify the excellent new investment opportunities.

Lastly, I'd like to talk about shareholder return. The concept of using the capital for investment toward sustainable growth will remain unchanged. We will continue to strive for a stable return to shareholders.

The dividend for 2016 March period is JPY45.75 per share. Also the interim dividend for forecast for 2017 March period is JPY23. With respect to the EPL ratio of this period, at the time of the announcement of interim, the financial results will announce the policy.

We will also, of course, look at the investment growth. We will change the assets by seizing the opportunities in the market and we will go beyond the business or country boundaries. We will continue to actively enter into new fields. This policy will be maintained toward our JPY300b target of income by 2018. We would like to focus on investment continuously.

As for the existing assets, we will take opportunities to have a gain on sales, and centering around the operation, the stable revenue increase, to achieve a JPY300b income target, and we also establish a foundation for further growth.

With that, I would like to conclude my remarks.

Now we like to have question and answers. If you have any questions, please show your hand while being seated and the microphone will be delivered to you. And appreciate if you could limit yourself to the two questions per person. Please identify now who you are and which organization you belong to before you ask questions, please. Yes, I see a hand here.

Daiwa Securities. My name is Watanabe and I have two major questions, if I may. The first question concerning the investment and an exit. For FY 2015 you exit in the first half. And also now in the second half I think you are accumulating assets. What's going to happen to FY 2106? Could you share your thoughts?

And I'm looking at page 7, and bottom right, and actually the mid-term directions by segmentation. Is segmentation included in the finance? Actually there seems to be any growth, no factors. Could you please expand on that? And exit and investments are going to be further evaluated in further details. If you could expand on those aspects, I'd appreciate that.

My major second question is your return to the shareholders. Interim dividend at JPY23. What's the discussion behind that? And according to the press release, I'm looking at page 4, page 4 in the press release, and the focus for the next dividend, and year end actually is shown in the dotted line, whether or not that dotted line has any specific meaning. These are the two questions, please.

Well, in the previous fiscal year and actually in our first half, yes, we had many investments. And actually it is done. Yes, if I'm not wrong, in the previous meeting like this, and in the -- well then I'm sure (inaudible) are expected to come and include in China factors, and therefore the exit should be an isolated -- I think that's what I was sharing with you.

I think what I said turned out to be right. At the time they were holding a lot, and I think it was really -- it was back in August, and an IPO and a price, and (inaudible) was carried out and then the Shanghai market actually crashed. At that point of time it was rather a sensitive issue, but actually IPO was done successfully. And then after the IPO done, actually the price was a little bit lower than our expectation, but going forward the price was going beyond an IPO.

Moving into the second half, well the overseas, the [NAP] is actually no major piece outside Japan. So the activities center around in Japan. And also the concessions. Therefore in the -- not given much impact on the market was what we tried to work out. And the last year, of course the interest rate was expected to go up. So to what extent interest would go up and we had a big concern as for that. But some people said that no interest rise, and actually it did not go up.

Then FX, particularly the dollar FX, of course it's going to have an impact on our situation, and particularly in the Southeastern Asian divisions. So we had to be sensitive and careful. And what's going to happen if Mr. Trump is going to become the President and there will be no interest rise and then that is going to actually give us more opportunities and to make investments outside Japan globally. So it all depends upon an FX factor, and our performance, the overall.

So actually it all depends upon an actual situation. So there is no one set of the actions that I can share with you. But overall I think the things are not moving into a bad direction. And JPY23, yes, the -- if I'm wrong, actually we have received the satisfaction, the opinions concern this number.

FY 2018, we are going to aim at JPY300b. May I remind you of that? And we're still sticking to it. The market is rather poor and also there are many in corporations actually predicting the profit decline. But I'm still aiming at the JPY300b. And actually now we achieved JPY260b. I think it is a simple calculation what kind of numbers we have to drive at to reach the point of the JPY300b.

But again, JPY24, JPY25, after that announcement was done, what's going to happen if we lost our -- the [spin] in the second half and actually in terms of dividend at JPY25, and the final adjustment actually will give JPY23? I think that kind of situation will give our investors more dissatisfaction, some sad feelings.

So we're not pleased to accept the JPY23. And it all depends upon the market situation and it all depends upon actual activities. And as time goes on, we should be able to come up with a better clear forecast. Then I think we should be able to talk about more specific numbers. So what you see in this chart, actually there's not much message and the meaning. And compared with March 2016, definitely we're going to aim at better situations compared March FY 2016.

I fully understood your point. Thank indeed.

Thank you. We'd like to invite our next question. Anyone?

Muraki with Deutsche Securities. Question one, the negative interest rate of BOJ, with respect to impact, this may be a technical question, but page 22 of the material at the very end, the interest-related yield is shown. I would like to have your outlook.

Last year, throughout the -- in the full year, yen-denominated funding cost was 0.6%. The asset side yield was 4.5%. So the spread, simply put, is 4% on a net basis. The funding cost is already -- has come down to 0.6%. And so, with respect to further reduction, well, on the surface it's only 0.6% but the yield on the asset side is still quite high.

So going forward, as banks compete with each other more stringently, the yield reduction on the asset and also the funding cost reduction, do they go in parallel or perhaps the -- it might -- there might be a further shrinkage. So this is my question about -- the first question about ALM.

The second is also related with that, but on page 4 of the presentation material you are showing three categories of the portfolio. The unusual monetary easing has been continuing for long, long years, and it is likely that it will continue on for some time to come. Now you explained some points, but with respect to finance, or to some extent, if you want to focus on profit, it's very difficult for you to increase the assets.

With respect to investment, the valuation is going up because of the monetary easing. So the sell-off will increase, just like the last two years. The asset for investment is very difficult to increase. If that is the case, then based on -- the business based on the assets, the negative interest rate policy would bring about a negative impact, I think that would be fair to say. Am I correct? Or the operation, if you conduct a major M&A, then the profit itself can grow technically perhaps. So the monetary easing, the non -- the shift to non-finance business, that is just really (inaudible). So how does the monetary policy affect that?

I'll answer the technical question, based upon numbers. Well unless you do it, no-one knows to some extent, but as far as numbers are concerned, first, the funding side. The variable interest rate and fixed interest rate funding and Orix Bank, well, it has a term deposit but also short-term deposit. But within a year, well, the funding -- so that if you do a funding that can be shifted within a year, then JPY2 trillion, perhaps the end denominated long, JPY3 trillion plus if you include variable at JY2 trillion.

And 10 to 15 basis points, that might decline that by 10 to 15 basis points. In fact, Orix Bank's deposit, 0.35, it's 0.2. So that's the case. So on one hand, with respect to the revenue side, the deposit for investment and the lending based on the variable interest rate, like the short-term maturity one, so I think there's a match between them, but it's like JPY1.7 trillion.

And so, in light of this, the variable rate -- variable interest rate, this is a matter of negotiations with our customers. And so because of a very difficult competition, how far should we reduce it? Well it has just begun, as a matter of fact. But overall, 10 to 15 basis points, JPY2 trillion, so that's about JPY3b or JPY2b. So JPY1b, well it won't bring about a major impact on our earnings result. If the negative interest rate spreads then the gap will increase. But right now, as we speak, that's the way we look at it. So have I answered your question?

And also with respect to the impact of negative interest rate on investment, of course, for investment, 100% equity investment, that doesn't happen. We always take a leverage. So a leverage, well, a long recourse loan, the condition for that is, frankly speaking, so far historically better than corporate loan, the condition. And the term is usually 5 years or we can take 5 or 10 years, and the interest rate is very low and no recourse.

And so the negative impact on investment? No, we actually take it very positively. But the issue is if you have a lot of money then there would be more competitors. So because of competition, there might be a potential that we may buy something at high price. But our stance is, well, the enterprise is the name of the game so we won't budge or compromise that. That's our concept. So the impact of the negative interest rate on investment is nil.

SMBC Nikko Securities. My name is Niwa. I like to ask a question, two questions, concerning the mid-term directions for the Company to follow. I'm looking at page 7. My first question is -- sorry, I may go into some of the details. Actually the net income, JPY300b, right now JPY260b, so the gap there is going to be JPY40b, and how that JPY40b is going to be filled up based upon the overall impressions, Mr. President, you may have. This is my first question.

My second question is concerning M&A. M&A may become necessary for your operation and activities up until last year. I think new areas, new domains have been actually identified in the presentation materials. But this time, it seems to me that you are still on the extension of the activities you have had so far. So what are the specific areas you may have interest in finding more opportunities going forward?

Well mid-term perspectives, well in the last fiscal year, capital gain was JPY130b. And this fiscal year, probably it will be around JPY100b capital gain. It's still within our forecast, and probably 50% will be listed and 50% private equity. I think that's the kind of switchover we may be having.

So the overall, which one is going to be in solar, which is going to be kept in real estate and hotels should be belonging to the REIT but making lots of profit. So maybe we should delay putting the hotels into the REIT. So we're still working on such an adjustment. If I'm not wrong, in the hotel portfolio now is going to be put into the REIT portfolio. But ADL actually went up now 1.5 ex any improvements. So it will be a shame for us to do so. So that is now why we're delaying this process.

As for hotels, of course there are many issues, such as an inbound, how long inbound is going to be lasting and what's going to happen after Tokyo Olympic Games are finished. So we have to take into account all these points, working on the definition of the new portfolio and also the new activities, including hotels and Japanese inns, and the developments. They also are on the surface. And all these facilities are going to be built by the end of 2018, and so that -- and we still have two years to go for the Olympic in 2020. So in the meantime we would like to enjoy the stable stream of the facility.

And also the solar actually -- the operation is actually 200 megawatts and up to 1,000 megawatts. And by the time we're [considering]. And of course, then out of that we should be able to enjoy the good and stable profit.

And also, in the private equity, next, usually the exit is going to be done once every four to five years. So it's possible for us to have returns within that kind of framework. We're going on to the USA, and of course there could be some changes, administrative changes due to this upcoming presidential election. But I still believe in the potential opportunities so in terms of investment activity in the United States.

So this fiscal year and moving into the next fiscal year, actually now we are working on this scenario, looking at the level of JPY200b and up to JPY300b. It all depends upon the market factors.

You pointed out that no new major -- the opportunities at Kansai International Airport, and also healthcare, for that matter, and also the vaccine for animals. As for the private equity, new areas are going to be quite important driving factor, even though it has got somewhat smaller limited. For example, the food and the agricultural activities, I think agricultural, I think it is going to take a lot more longer time than we have thought.

So we have to work on a new area. So talking about new areas, not necessarily purely futuristic activities, I think we are looking at those potentials, sitting next to us, our neighbor. Well how you define that kind of distance, it all depends upon how you see it. But again, we believe that it's not going to be that futuristic and we believe that we should be able to grab those opportunities within one or two years, within several years. So we should be able to actually give you an updates that, yes, we are now working on this new division, these opportunities.

Tsujino with JPMorgan. Thank you for taking my questions. As you just explained, as for exit, you have been giving consideration to your pipeline and you are seizing investment opportunities. And also you are not -- you are going to stick to JPY300b. And if you aim at that then this year you want to increase profit this year. But still, then high ROE is to be realized and JPY23, well if you are talking about such a P&L ratio, the ROE, the maintenance is very difficult to do. Given the numbers I think it's quite evident.

Still, if you say JPY23, well the investors are rather unhappy. But still, well, my questions may sound similar, but so what are your thoughts on this point at this moment?

JPY23. Basically we started interim dividend last year. Well back then the JPY22 -- JPY22 was the last year's number. We didn't receive any such a question. But after paying the interim dividend, we now receive questions.

Frankly speaking, this year the pay-out ratio is 23% -- sorry, last year. And this year it will be beyond that. That is what we are considering. But this year the performance, how far will it go? By looking at the earnings results in September we'll make a formal announcement. That is what we are thinking.

Naturally, last year, again, we said that we are not going to disclose annual numbers but to achieve JPY300b. But we have to see it will increase by 10% per annum to achieve JPY300b. And that's what I said. But basically we're not -- we have been thinking about going along those lines. So JPY23, say, if you are happy with it then if we say JPY25, and if we reduce it to JPY24 in the second half, I think more people will be unhappy, right?

So hope you understand the situation. The Company, Orix, is a stingy company. You may tend to think so. But we are positive and we are thinking about shareholder return positively. So at the time of our earnings announcement in September, we will announce our payout ratio. And so please wait until then. But we would like to always achieve growth. And please understand this sentiment on our part.

Goldman Sachs. My name is Noda. I have a question concerning M&A. And also I have a question concerning how I should look at the information on page 4. So again, you made a response concerning the new areas for you to enter, and actually -- and there's a kind of void in areas. And I think probably the [significant] area is going to be in M&A drivers, or -- so if you could help me in how -- whether or not I am looking at this, the graph in the right way. And Robeco, I think it was the largest in terms of the value. And whether or not turnover JPY100b and above, that kind of deal could be possible as far as how it presently goes. And so M&A in overall directions for you to follow.

Well actually our operations and investments are actually the two sides of the same coin. Investment, of course, is going to be defined based upon the exit on the scenarios. So once an investment is made, and probably in four to five years, well then exit is going to be done in a maximum of seven years.

But when it comes to the new operations, of course we need to have all the internal -- the consistent building. And if we can make an exit within five years, then we can, for the first time, think about it. And Daikyo is included in there.

Well probably maybe you are looking at this as available for sale. And I think sooner or later we have to think about it. But I believe that Daikyo still has potential for its value to go up. And based upon the current stock price and of course it is now good at all for us to take action right now. So to what extent then the value is going to go up and if we are going to actually make an exit right now, that is going to give us really the poor performance.

So thinking it is -- it goes up and goes down. It all depends upon actual negotiations. In other words, liquidity needs to be looked at all the time in thinking about the investment scenarios. Whenever something has happened we should be able to maintain certain liquidity by selling certain assets immediately.

At the same time I think we have to have the mid-term as well as long-term perspectives, so working on operation and opportunities. So if we get to see more values than we had expected, of course then we are going to make an exit. And also the investment is going to be carried out based upon the assumption of the exit, JPY100b or above. Definitely I get to see those opportunities going forward.

I did not mention this in my earlier presentation. Right now we maintain an A-minus rating. And the RAC ratio is -- if the RAC ratio is 10% or below and we are not able to maintain an A ranking -- rating, so that is going to be one of the important factors we have to keep an eye on. And our tangible assets is quite small. An aircraft and a ship are actually the exceptions. But again, we have goodwill and going up. And that is going to give us another set of problems. So we have to pay attention to that factor as well. And also we need to look into RAC, the ratio coming from the rating agencies.

So JPY100b or above, and if there's opportunity for that, definitely we need to have serious negotiations with the rating agencies and looking into the other factors, and while reducing exposures, maintaining then our rating. And also if we can get to see then higher profitability, then why not go for those M&A, even if it may be rather large?

Thank you very much. Now we have come to the ending time so we'd like to conclude that Q&A. Lastly, we would like to make a request to you, please fill in the questionnaire survey sheet.

So with this, we'd like to conclude today's financial results meeting. Thank you very much for your attention and participation today.

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.