ORIX Corp (IX) 2017 Q2 法說會逐字稿

Allow me to introduce myself. My name's Kojima, Group CFO. I'd also like to take this moment to thank each one of you for your precious time, despite your busy schedule.

I would like to now explain the actual results for the first half, ending March 2017.

Please refer to page 1, overview, please. For this period, the net income was JPY142.2 billion; on the YoY basis, actually, went down on the 19.1% (sic - see slide 2, "12%").

As for the ROE, please, as shown in the red line, 12.2%. We have the mid-term target ROE at 11% to 12%; so, we are able to actually surpass on that target.

I will give you details later, but in terms of the -- in the same period with last year we actually had a gain out of the Houlihan Lokey US investment bank, an IPO: JPY39.6 billion, so we had a big capital gain. This is the background of why now we are suffering from the bad numbers.

Also, in FX situation the stronger yen actually had an impact on the final results, pushing down the net profit.

So, they are the major reasons.

But looking at an overall situation, I believe that we are right on the plan for our activities; or, in certain areas, I think we are above the targeted objective line.

Moving on to the next slide, again, overview 2, segment profits. As shown in this bar graph, and for details please refer to page 22 in the appendix. Segment profit, and total number, was at JPY214 billion, down 13% in a YoY basis.

The top shows the overseas business segmentation. You need to go to the overseas business, as I have explained this already. Again, we have the gains out of the Houlihan, in stock and sales, so we had a big number there, but that has come down to the normal situation in this particular period of time.

Also, we are affected by the stronger yen, actually, as much as JPY7.3 billion, so 53% compared with previous year; so, major decline.

But when it comes to the private equity, we had a private equity [exit], and we had a capital gain in segmentation; also in retail; and also in the real estate, actually, we enjoyed growth.

Moving on to the next page, please. Again, this is overview 3. Here, we are looking at the assets, segment assets, and also in ROA.

As of the end of FY16, JPY8.3562 trillion (sic - see slide 4, "JPY8.5362 trillion"). Six months earlier, actually, end of March 2016, compared, and actually it came down by 5%, down JPY436.2 billion. The major reasons behind that would be explained on the next slide.

But looking at segments, corporate and financial services, due to the negative interest rate, and actually now spread has become quite tight; and we went through the [building] process; because of that, the selection process, we suffered from the decline in the installment loans; and also, the maintenance and early segmentations. So, the number of percent has come down.

But in the first quarter we did not -- JPY37.5 billion was issued in terms of ABS. Certainly, that was taken out of the asset. So, with that factor in mind and, actually, subscriptions, it grew.

As for the real estate, in rental the facilities actually were sold, quite actually, so pushing down the bottom number.

As for the retail, the Bank's, the loans actually grew; bank loans grew.

Also, in Orix Life, [contracts] grew. But [AXA] had for the life insurance and a run-off situation, so being set off.

All in all, our operating asset has come down. Later on I will touch upon this. But, actually, the Bank and the life insurance, due to the negative interest rates, so the [JJBs], they owned, we enjoyed an increase in the profit, because of that, we decided to sell part of the net fixed income, so actually having an impact on the overall situation here.

Looking at the ROE (sic - see slide 3, "ROA") for the annualized basis, 3.2%. Our target was 3%, so we were above our annual target.

Moving on to the next page, please. This is overview number 4. Left shows the profit analysis we have done, and the right-hand side shows the segment assets.

This is the result of the analysis we have conducted. Several points. First, the net profit, the points, please look at left-hand side, existing business, existing operations. For this particular period of time, actually, compared with the previous year, JPY9.6 billion down -- down JPY9.6 billion.

As for the gains on sales, of course, on equity, private equity sold, we had a JPY60 billion there. Also, the real estate, on selling, JPY23.5 billion. Put them together, JPY83.5 billion. Now, we were able to book that number.

But, at the same time, we had, previous year, the same period, JPY90.7 billion on equity, and also, in real estate, JPY14.8 billion, respectively; so JPY101.5 billion. So, we had that number in the previous year. In terms of comparison between these two, transactionally, down JPY26 billion.

The capital gain actually down JPY26 billion; and also, in existing operation, JPY9.6 billion. Put them together, the total is going to be JPY31.5 billion. This is going to be the comparative number compared with the previous year.

The capital gain actually was already touched upon. In the previous fiscal year, the [fall] in yen had a major impact behind this number and we were not able to repeat the same thing surpassing that gain we had last year.

As for the existing operations, down JPY9.6 billion, several factors behind that. The biggest factor goes to the stronger yen, the FX loss, the JPY7.3 billion. Besides that, the Hartford profit last year, it was the black figures, but this year, there was the slightly red number, [JPY4.8] billion, a small number, but actually, we are in the red region.

Well, in energy and the environment and also the infrastructure actually grew and also real estate business saw growth among the existing operations, so positive side.

Moving on to the right-hand side, the assets situation, so asset decline. Six months earlier and end of March the comparison, down JPY436.2 billion. I'd like to go one by one from the right-hand side.

First, the existing operations, JPY60 billion (sic - see slide 5, "JPY63.4 billion") growth, we're happy for that. But after that, securitization is following there and about JPY70 billion; and Hartford, the run-off, JPY110 billion approximately; and RE, we sold the real estate investments for JPY30 billion (sic - see slide 5, "JPY34.5 billion") and JPY40 billion (sic, see slide 5, "JPY42.9 billion") RE, and also the sales of investments.

Of course, the biggest factor goes to the currencies, JPY240 billion, (sic - see slide 5, "JPY242.4 billion"), that was the biggest factor.

What else? In the existing business, maintenance grew and automotive business. Also, the environment and energy investments actually grew. But, at the same time, I need to remember this point I made earlier and the life insurance also the Bank, the business certainly grew, but we sold the securities, and if we are able to make a reinvestment into other marketable shares. That wasn't the case and we ended up with an increase in cash. That shouldn't be part of the operating asset, so actually, that pushed down the number and I have given to you earlier.

Allow me to move on to the next page. Here, I'd like to go one by one on six segments. The first, corporate financial services. In this services segment, profit year-on-year basis, actually 8% decline, JPY19.9 billion. If we remember this point, in our operating and in lending declined, and that had an impact in terms of the profit we were able to make in the segmentation.

But at the same time, we are trying to grow the services business. Yayoi and other fee businesses actually grew, and JPY2.7 billion was the growth we had from the previous year.

The segment assets mainly, and the operating loans, actually went down, 1% decline from the previous year, JPY1.344 trillion (sic - see slide 5, "JPY1.0344 trillion").

Let us now move onto the next page, maintenance leasing. The segment profit on a Y-o-Y basis a JPY3.5 billion decline, JPY19.7 billion. The factors behind that decline is in this particular segmentation, so automotive leasing and also the so-called -- the instrumentation, and PCs and IT, the rental business, the major items. In this particular period of time, the automotive, the leasing and the rental business actually suffered, in terms of number.

The major reason behind that would be the asset itself actually has grown. But, unfortunately, the leasing, or rental, and the items actually used in the product market actually did not have a good market, so under those circumstances, the number came down.

Segment assets, down 1%, JPY724.2 billion from the previous year. But, actually, in this period, we had a JPY30.75 billion (sic - see slide 6, "JPY37.5 billion") assets decrease due to the securitization, as much as JPY37.5 billion, so that was the major impact on this final number. But in substance, I think we had a growth.

Please turn to the next page. I would like to explain real estate. In the real-estate segment, we have been selling the profit-making assets, which went well, so the segment profit was up 5% year on year at JPY35.4 billion.

On the other hand, when it comes to the service income, in the first quarter, where a major portion of the service income is the operations business and here, in the first quarter, we experienced the Kumamoto earthquake. And because of the earthquake disaster, our hot spas in Beppu and golf courses in Kumamoto had a temporary reduction in the number of customers. Compared with the previous term, this experienced reduced revenue, but from August, they resumed the normal operation.

The segment assets, due to the series of rental real estate was 5% down year to date at JPY705.1 billion. Also, we were able to post a lot of revenue from sales, so the ROA on an annualized basis was as high as 6.7%.

Please turn to the next page. I would like to talk about the investment and operation. Here, private equity investment, environment and energy business and from April, we started an infrastructure business and the servicing business. These constitute this segment.

In this term mainly, the private equity investment saw two exits. The business software vendor, WingArc1st and the post-payment service company, Net Protections. We assigned the shares of these companies. So, with these two deals, JPY27 billion of gains on sales were achieved.

Also, in the environment and energy, we actually had made an investment in The Philippines for power, the coal-fired thermal power. There is a global business power, we also exited from this. So, due to all these, we saw an increase in the gain on the sale and JPY52 billion segment profits were able to be achieved.

As you see on the right-hand side, the red dot that's ROA, and from 5.6%, it increased to 10.2% in a substantial manner.

Also with respect to Kansai Airport, from April 1, we started this business. It's an equity method, so it's three months behind. But in the first quarter, the expenses were posted. But from the second quarter, it started contributing to the revenue.

Please flip another page and we'll go to retail. With respect to the retail segment, the segment profits were up by 11% year on year at 35.5% (sic - see slide 9, "JPY35.5 billion"). At Orix Life, the policies in force grew. Also, as I talked before, the [JJBs] were sold and so gains on a series of JJBs also made a contribution.

Plus, the Orix banks, the housing mortgage and card loan, the balance increased and so finance revenue increased. That contributed to the segment profits.

Regarding segment assets, it went down 4% year to date at JPY3.3254 trillion. One point here is the Hartford Life run-off business decrease, accounting for JPY100 billion.

The other point is, as I said before, the investible securities turned into cash. That is another factor for the decline.

The banks, housing mortgage and card loan increased.

Please go to the next page. This is the last segment, the overseas segment. With respect to the overseas business segment, as I said before, in the previous term, we had the IPO of Houlihan's. Last year that pushed up the number quite substantially and this didn't happen in this term.

Also, we experienced the ForEx fluctuation. So, the segment profits came down 47% year on year at JPY51.5 billion. The segment assets were affected by the foreign exchange and so they were down 10% year to date at JPY2.0515 trillion.

With respect to ROA, it was at 3.2%, so it was above the 3% level.

Lastly, now please turn to the next page, let's take a look at the results from the perspective of three categories of our business portfolio, from the left, finance, operation and investment. As you can see on this slide, in the first half the gain from service in the field of investment pushed up the performance.

Excluding the extraordinary factors, if you look at ROA, in terms of finance it was 1.9% sidelining. As for operation, it was 5% to 4.9%, so it more or less also sidelining. And in investment, it was 5% to 6.5%, so the profitability grew quite rapidly.

That is my explanation of the financial results for the first half of FY17.

Hello everybody, my name is Inoue. Well, I may make the same points, but allow me to make [my presentation].

As for the first half ending March 2017, actual net income was JPY142.2 billion and ROE was 12.2%.

Of course, in the first half in last year, we had the Houlihan Lokey IPO (inaudible) and we were able to gain in capital gains. But that did not happen, of course, in the same period. Of course, we did not have the same level of capital gains. Also, we suffered from the stronger yen situations. So. all in all, the number actually came down by 11.8%.

As for FX, actually, it was JPY113 to $1 in the previous year. In the first half it actually became JPY101; in other words, the yen actually appreciated by 11%.

As for net profit of the overseas corporation and the number has been calculated in the Japanese yen. The first half it was negative JPY7.3 billion. That was the impact.

Of course, as for the yen fluctuations, of course, that is going to be affected by the economic situations. But purely in terms of the US interest rate hike, so I simply cannot speak with authority. But, again, all in all, I'm afraid we're going to be affected by the FX in terms of the consolidated numbers.

So, that's it. Now I'd like to go through some of the important points in terms of Orix, the business environment. I think we had to be wary of the situation serving us. It isn't going to be (inaudible).

The biggest surprise in the first half, of course, having to do with the UK's decision to leave the EU, and that increased the European economic uncertainties.

Actually, for the first time in two years and seven months, the yen went down below JPY1. In September, the United States started to postpone the rates until December. Of course, many people keep an eye on an outcome of the US presidential election. So, I think a lull situation is taking place right now.

It all depends upon the situations and the yen may become stronger or yen turn out to be weaker. I think both are possible.

The BoJ decided back in January -- decided to go for being a negative interest rate. That is going to give us benefit in terms of the funding, and particularly in the project finance side it's going to be the area, which should be benefited.

That said, we have an operation business, and also the investment business. In this area, suddenly we can have an access to the cheaper money. But -- and actually this late addition is not necessarily having the overall positive impact on the Japan's real economy.

I think 'til the end of this year no-one knows for sure in which direction the global economy is going to go. That said, now we are faced with lots of uncertainties at a macroeconomic level. Still, I think in an Orix Corporation that we'll get the best opportunities out of this situation, since we like to maintain our growth strategy if a yen becoming stronger.

Of course, we shall be able to (inaudible) and make investments outside of Japan. And if yen become weaken, definitely we should be able to accelerate the turnover of our asset portfolio.

We have set a net income target of JPY300 billion for FY18, and toward the achievement it is important, we believe, to steadily expand profit and solid development of [new views].

In the first half, with the investment of JPY32 billion in the Kansai Airport, we have received lots of enquiries for participation in the infrastructure business, and from many infrastructure-related business fields. So, we would like to carefully consider the portfolio going forward.

In the first half we executed five key investments, both at home and abroad. We have completed several sales, the exits, and we repeated the processes of investment and sales at -- to five-year short cycle, so we are controlling risks achieving high profitability.

Toward the expansion of the aircraft-related business, we newly acquired about 35 aircraft, mainly narrow-body types, step by step. We also changed asset portfolio through sales of our existing aircraft, achieving high profits. The total value of [focal] -- acquisition of 35 aircraft was about JPY180 billion. The expected IRR should be about 10%.

As part of the expansion of the asset investment business, in the United States we acquired Boston Financial Investment Management. Boston Financial is a syndicator for investment -- investors, using the tax credit that was for the developers of rental housing game that low-income earnings -- earners that was put in place by the federal government in 1969. The balance of client assets under management as of the end of 2015 was about $7.8 billion.

Our asset management company, Robeco, at the end of March 2016 the AuM slightly decreased from 360 -- EUR263 billion to EUR276.1 billion. In the first half, there was some outflow of funds, but we believe the impact of Brexit was limited.

Now, just this October, the -- we acquired 9.99% of Robeco that was held by Rabobank, and turning it into our wholly-owned subsidiary.

In the field of energy -- the environment energy, the operation of mega-solar projects made a good progress. At the end of the first half, 510 megawatt started to operate. 410 megawatt will gradually start operations. As of now, we're not thinking about actively selling mega-solar projects, but the most of it are projects with [FYT] at JPY40. So, we have been able to secure substantial unrealized gains.

Also, following wind power generation projects in India in the first half, we took part in the hydropower generation business in Vietnam in September.

Besides the mega-solar business and our track record here in Japan, actually in our activities outside of Japan growing, and actually now we are given an increased number of the potential opportunities. (inaudible) Orix own environment energy and business and footprint is becoming extended.

I think going forward, and I will actually establish in our really good position in the field of the renewable energy and on the business, particularly here in Asia and in the United States.

As for the real estate, and actually now we are working on the logistic facilities and activities, and emphasis has been placed upon in operation. But looking at the economic environment, of course loan or interest rate, and also and that is, of course, giving us a tailwind. Now, in the first half, we try (inaudible) we were on the selling aside.

We're able to gain a really good capital gain. But we do not believe that we're going to end up with then a huge amount of an assets on in the end.

There is nothing to be noted in the finance in low interest rate, and also in a tightening spread, and actually all the factories and how we need to keep an eye on.

Also, the BoJ decided to go for the narrative interest rate. That is actually sparking the competition and lending on the business. We're now in a high actively trying to an increase in finance and assets.

As for life insurance, unprecedentedly low interest rate. Of course, we have agency channels and direct sales, and also the bancassurance. But on top of that, starting from October 1 as a new channel, we started have the direct sales in channels, particularly in Tokyo and in Osaka.

On high-quality consultancy is going to be quite important, we'll [make an] offer to you, so that now customers can be truly satisfied.

Next, now I'd like to move on to the theme of the shareholders' return.

As I mentioned this point earlier, in the first half we had a total of JPY300 billion plus, on a full the -- on investment, the clients executed and unexecuted. So, we actually are in that level.

But that said though, it's very important for us to understand what is going on in terms of funding environment. Even if we are going to -- in a buyback and treasury stocks, that will not have a negative impact on our growth strategy.

So, this time we decided to actually hang -- to have the -- we have approved the up to JPY50 billion and for the share buyback on -- in activities.

We are suffering from -- even though now we are having -- [affirm] the performance, actually we are -- our [PB] has been a one [action] or lesser. Now, I think we have to be fully aware of this, and we have to be fully aware of the now cost equation, in terms of the assets.

Long-term investors are increasingly calling for measures to stabilize share price. Conducting a share buyback, at this point in time, would lead to more efficient funding for investors. We believe it is also effective in terms of filling the gap with what we consider to be our intrinsic value. That's why we made this announcement.

Going forward, from the prospective of a capital efficiency we would like to give thoughts to a share buyback without ruling it out as a strategic or strategy option.

Also, in the first we procured JPY94 billion through a subordinated term loan. We have secured a capital level required to maintain a single A credit rating, so, from the viewpoint of capital efficiency, we believe this to be a measure that contributes to shareholder value.

With respect to the dividend, the interim dividends are set at JPY23, the year-end dividend at JPY28, the full-year dividend is at JPY51. So, the three-year dividend payout will be 25%.

With respect to the yearend financials, at this moment, as I said before, we believe it is difficult to anticipate the degree of impact to be brought about by such external factors as ForEx and politics on Orix's financial results. This time we made a conservative calculation and announced the dividend numbers.

Depending on the full-year net income, with a payout ratio of 25% as a basis, we could make an adjustment with the yearend dividend, just like the previous term.

With regard to the net income target of JPY300 billion for the fiscal year ending March 2018, we're not considering changing it as we speak. But the result of the US presidential election, expansion of geopolitical risk, possible further deterioration of neighboring countries' economic situation, do affect our financial results.

We would like to look at the economic conditions, both at home and abroad closely before making decisions about whether to revise the -- revise or not the medium-term target of JPY300 billion net income and the timing of the ensuing formulation announcement of the mid-term plan.

Let me recap. Net income at JPY142.2 billion and ROE at 12.2% are results considered solid. The current business environment is one in which we intend to have larger gains from sales.

But with investment and the operational fields at the center that give us a foundation for the next growth, we'll focus on continuing to further strengthening stable earning streams and steadily developing new businesses actively so that we'll be able to have businesses that will be the next pillars for us.

Thank you very much for listening.

Let us now, going to have questions and answers. If any questions, would you please raise your hand and then the microphone will be delivered to you. We would like to receive many questions from many people, so I would like to ask each person to limit yourself to maximum two questions. And, appreciate if you could identify your name and your affiliations.

Please show your hands if you any questions.

I see a hand, a male person in the front section, please.

Watanabe, Daiwa Securities. I have two questions. Question number one, I want to ask to your outlook and the full-year profit. 25% was the number you gave to us in terms of the dividend and annualized and JPY51 actually; and the EPS is going to be JPY24.

You emphasize uncertainties going on in terms of the business activities. [JPY204], is that going to be the minimum target you would like to achieve? This is my first question.

My second question is concerning the returns to the shareholders. The buyback was announced, I would like to -- and also now you told us that you are going to continuously work on the buyback on operations. Again, how people are going to actually evaluate your own stocks?

And from the buyback aspects, besides the buyback, how about the dividend? The dividend ratio is going to be maintained and being raised, on the mid-term basis. These are the two questions.

Concerning 24% -- JPY24, those numbers, and -- we're not thinking that it goes below the JPY51 actually. It all depends upon the performance and the dividend may go up.

Moving on, in my presentation I'm talking about buyback [in] operations. Of course, this is going to be one of the options for us up until last year. Now, when you raised many questions, actually, I kept saying that in front of that, I will not buy back the stocks.

That was the situation back then but now, actually, interest rate and [funding] has come down and the stock price has come down, so I think we're now on this edge point. We decided to buy back the stocks and then the stock price have started going up, giving me lots of paying points.

I think we have to be truly careful as what we to do, because in terms of the responsibility to the shareholders. So, I will not eliminate this one option and look at buyback and operations.

25% payout ratio, well, actually, whether or not we can make it, 25%, it's rather difficult for me to say anything here. Well, we have a long history and had a really low level of the payout ratio, so we raise it to the 25%.

But other financial organizations actually at the level of the 30%, much higher than us, at least that's what they are saying. But I have to say that there seems to have been a lack of the growth strategies among those organizations.

But may I mention that we're going to aim at growth. I cannot speak with authority what's going to happen next year. But, again, we're going to aim at 25% and if there was further growth, definitely, we may ask for 25%. If the market is going to be flowing and liquid then there could be some other numbers we may need to announce.

Thank you indeed for your clear answers.

Thank you. Next question. Anyone? Someone at the center of the room.

Muraki, Deutsche Securities. I have two questions. With respect to the share buyback, now in having discussion and making decisions on share buyback on the part of the officials and also the Board, what kind of discussion did -- took place? The 25% payout ratio and the pay share back were decided. Was there any larger plan or a smaller plan that were discussed? What did you discuss?

Question number two; about the infrastructure project, the profit or loss from this for the Kansai Airport, I think there was an improvement. But, in this financial result, including the Golden Week, April through June and the next result, that's July through September that included summer vacation period. What is your outlook?

Now, with respect to the share buyback, yesterday we had a Board meeting and had a discussion. Half of the people said there is no need to do share buyback. Why don't we spend money on investment. So, these people are quite unhappy, and they scolded us.

The other half said, okay, JPY 50 billion, that shouldn't be a problem, or JPY100 billion, some people.

So, at the end of the day, with this plan, we actually came to an agreement on this plan, and the outside directors where Orix is equal to growth, that's what they said. So, based on that idea with respect share buyback this was unexpected, I think, to them.

But, ultimately purchasing Orix's shares will be an interesting investment, given the payout ratio. That's --the year it is 3.4%, compared with that maybe it's good, so they gave us a consent.

With respect to infrastructure prospect, on the point of infrastructure business, with respect to the Q1 profit, a little less than JPY3 billion in Q2 was posted. As I said before, in Q1 we had to incur cost and so it was a negative JPY1.3 billion.

So, on a net basis, in the first half, JPY1.7 billion profit was recorded, and so similar level of profit is anticipated on a quarterly basis, we believe. But they show the profit is there but we are at the best timing, because of the conservative number it's on the decline somewhat. But given the industry, the number shouldn't fluctuate all that much.

But if something happens, well, with respect to quarter where there was advanced investment, there might be some deviation from the anticipated number. But, basically, the number that was seen in second quarter could be repeated.

Concerning point one, buyback shares actually JPY100 billion per year, then actually it is going to be up in the 60%. I think you should be able to have the reserves and to return it to the shareholders.

Again, on the future buybacks and operations actually in hybrid loans and hybrid bonds. Those I think it could be part of the overall (inaudible) and offering, or within profitability you are going to actually restrict yourself in buying back your own stocks. So, which direction are you going to follow here?

Well, we're going to look at the ROC ratio and also we need to look at in cost at the same time; hybrid, for example. Cost-wise, actually, it isn't going to be that [big], expensive, so we need to look at the balance overall.

The JPY50 billion payback in operations have done. Then what is going impact on then our stock price? I think we have to look into that JPY50 billion buyback, and the further decline in the stock price and the value. If that's the case I think and we have to change in our activities, so it all depends upon the outcome we are going to get.

Did I answer your question?

Yes, thank you, indeed.

Thank you. Let us now move on to the next question. I see a hand there.

Merrill Lynch Securities, Sasaki. Two questions if I may. Question number one, JPY300 billion is going to be the target for the next fiscal year, end of September. Now, looking at the balance sheet, and also in the second half in this fiscal year new investment pipeline, again what is going to be (inaudible) now for you to now achieved JPY300 billion? And I wonder if you could expand on the contents of the JPY300 billion? This is my first question.

In regard to the concession on infrastructure, and I have some question. The domestic airport, well, of course, you made investment into Kansai International Airport. I think you have done the investment, but the fresh water and sewerage, the systems so -- I think it could be one of the important areas. People say that now they [pay us], they're paying attention too. What kind of possibility do you see there? What kind of opportunity you will see there representing your management? JPY300 billion [within] our turnover could achieve that or not, probability-wise?

Well, it isn't going to be that difficult for us to achieve [JPY3 billion]. That said, though, then what's going to happen after that in three years, coming down JPY260 billion from JPY300 billion nowhere.

So, no, we'd like to actually enjoy the cruising speed and probably not a two-digit growth. But again, having reached JPY300 billion we'd like achieve (inaudible) where we can achieve at least one-digit growth.

So, what'll be the numbers we can actually achieve after JPY3 billion, this is going to be a more important point. This is going to be an important milestone that we're going to look at.

So, JPY12 billion existing operation and JPY1 billion confirm from the capital gain. I think that is going to be the breakdown, roughly speaking; and FX changes [10%, 30%], and it will give us a big (inaudible) impact. In terms of the yen number, it is going to change as much as JPY100 billion or JPY200 billion.

So, at the time of the March when we make earnings announcement, [with amount] and we're going to be in a more positive and, well, less positive. Well, I believe that we should be able to achieve it. But actually, I simply cannot go into any further details and including portfolio. I think we need to look at the overall balance, that's all I can say.

Moving on, the second question concession infrastructure. As we reported in the newspaper and as for the infrastructure in Kobe Airport, of course, and we decided to participate in that.

But recently new investors are coming to this office and some of them are not known that at all. Actually, they seem to have more interest in terms of the quick money they can make, instead of paying attention to the true values, and out of the concession the infrastructure in a project. So, those players coming to this office we have to be careful.

Kobe Airport to be purchased, and also on the Itami and Kansai Airport, actually we are naturally looking into the synergy effects, and out of this and the three sets of the airport.

So, now out of that, and we're going to actually come up without a bidding price in this competition. As for the airport, [Kochi] and other locations I think it will have to be location specific, and we'd like to be on the -- we shouldn't be affected by the political factors. Also, there many other factors depending upon the specific market place.

So, all in all, actually and our competition has become quite tough. Yes, I have to admit that. Yes, we have innovation (inaudible), but in the worst case, Kansai airport wasn't last project. I think actually that was really true and excellent. Actually, that pushed up in our benchmarking.

Did I answer your question? Did I answer your question?

Yes, sir, you did. Thank you.

Thank you. Next question, please. Person in front.

Tsujino, JPMorgan. My first question is not so salient, but in your explanation, you said the environment is rather tough. For example, the corporate financial service, you can't simply do simple types of finance.

As I look at it, service revenue, well, you are trying to grow it little by little. So, you're making steady efforts. For example, you acquired Yayoi, you have been making efforts for the corporate financial services, you're aiming at synergy.

How would that translate into increase in service revenue? Where are the areas where you can expect improvement? Can we expect improvement? With respect to the corporate segment, I would like you to enlighten me on this.

The second question is rather similar but regarding real estate. You are selling off operating leasing business. Also, in the operating assets there are things that are going well. With respect to rental revenue, if you sell the operating assets, that would certainly decline, and so you have to increase operating assets, on the other hand.

Well, relatively speaking you should -- I think you are increase the operating assets little by little but -- so there's no spectacular increase because of large operating assets. What kind of efforts are you making and what kind of coordination do you do inside the Company? Has network become better? Can you expand this business?

These are my questions. Also I'd be appreciative if you include some actual cases.

The corporate segment, we don't want to increase our finance assets, the service revenue and also Yayoi. We made an equity investment in it. Service industry-linked investment is something we'd like to do. But for leasing, we're 0.5% lease rate so no matter how much you see increase that wouldn't be reasonable so --

ROA 1.9%?

Right, 1.9% (sic - see slide 5, "2.6%") should be maintained. That's where the service revenue is making a great contribution. But service revenue, that's a one-off revenue so there's no recurring profit, so you have to achieve the same number every year which is very difficult. Up until last year we had [PV] and also life insurance.

Are you going to have PV next year?

If not, then the next product has to be developed. We have to supply one product after another to the market. If we can't do that, the corporate financial segment cannot be viable.

If we can do it, we can do better. And so, more than the life insurance, the marketing service people walk around and try to get the number. I think this is a great number, but finance shouldn't be done, leasing shouldn't be done.

But to knock at the doors, you can do a leasing business. You knock the door for leasing and make further investment, say Yayoi and business investment. If that is involved, then that would translate into the corporate business, well, business. So, cross-selling would be a central part of our business, so we have to make steady efforts. That's what we must do.

Having said that, the fee -- we are making money from fee income so it's not really non-steady. Well, it's a cash-cow unit. So, are we okay with the things as they are? We need to do some restructuring. Well, real estate.

Well, sorry, I made a mistake. As for the corporate finance, ROA is 2.6%. Well, including others that's 1.9%, so the number isn't all that bad, including Bank.

For real estate, we look at the situation and the transfer of the property to the Orix REIT. The Orix REIT value is JPY800 billion, JPY600 billion AuM and, to the extent possible, we would like to bring it up to JPY1 trillion. Orix's real estate is transferred and also we buy external assets to do that. On the part of the REIT, they are increasing their revenue.

Also, with respect to the real estate segment, well, you say they are just selling it off, but in projects, we have 12 or 13 projects, including the ones under development.

Total sum is on a gross basis is beyond JPY100 billion. Most of them are hotels, logistics facilities. These are the centers. Hotels recently, in terms of revenue that has been stagnating but inbound businesses are still okay.

So, if the location is good, reasonably, and we establish a good facility, we can secure a revenue and so we are constructing more and by 2018 or 2019, these will start to open. Again, for Orix real estate this will contribute to the revenue.

So, it's not that we are not doing anything for real estate. We sell them but we also build more. The expecting is while we expect a crash -- we want a crash, then that gives us an opportunity to buy. Not small ones, but class A buildings are what we like to buy, but it depends on the market situation.

Have I answered your question?

Well, with respect to corporate finance, the service revenue you said is not recurring. So, the service revenue and corporate finance. You said it's not recurring, the revenue?

Recurring?

I think that's what you said. It's not continuous. That's what you said, right?

Right, continuous. Well, BCO, it's a one-off business.

Well, you make me somewhat concerned.

Well, but for the last few years we are posting a similar level of numbers and for a few years we have been increasing our service fees so you should trust me at long last.

Our sales people, if we have one product, I think our sales capability is number one in Japan. We have to develop products; we have to continue to supply products to the market. That's the key. We did that PV, we had the life insurance. So, what's next?

We are also selling aircraft. Aircraft. Well, we sold 10 and the regional service people, of course, those people who want assets or those people who want to save tax, we identified them and the aircraft unit people would try to sell the aircraft to these people and the total management fee comes to the Dublin, the Orix aircraft.

Also when we sell them that, we act as our agency, so this is a continuous service network that we have. So in this respect, you can have confidence in us.

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.