ORIX Corp (IX) 2019 Q4 法說會逐字稿

[Interpreted] Thank you very much for waiting. We would now like to begin.

Thank you very much for attending today's ORIX Corporation's consolidated financial results presentation. My name is Haru from Corporate Planning. I'll be acting as your facilitator today.

First and foremost, let me confirm the handouts in front of you. There should be 3 different types of materials. From the top, you should have the financial statements. You should have additional statements. And lastly, a survey sheet.

So for today, first, we will have Mr. Yano, Executive Officer, Head of Treasury and Accounting Headquarters, to explain to you the segment results for fiscal 2019 March end. And this will be followed by Director and Representative Executive Officer, President and CEO, Mr. Inoue, to explain to you the overview of our financial performance as well as new investments as well as our growth strategy and shareholder returns. This will be followed by Q&A.

[Interpreted] Thank you very much for gathering today despite your busy schedules. Firstly, I would like to outline to you the overview of our performance.

So if you can please refer to Page 3. So first is net income and ROE. So for net income, last year was JPY 313.1 billion and we increased year-on-year by 3.4% standing at JPY 323.7 billion. ROE stands at 11.6%. And this does record growth for 10 consecutive years and a record-high for 5 consecutive years.

Let us now move on to the next page. This shows the trends in segment profits and assets. Segment profits totaled JPY 401.4 billion, down by 6% year-on-year. Investment and Operations segment had no capital gains from major PE investments. And in our Overseas Business segment, our company in India, IL&FS, recorded losses.

Now moving on to segment assets. And this will be explained in more detail later on, but we were aggressive in our investments. And versus last year, we increased by JPY 900 billion year-on-year, resulting in a 10% increase, giving us JPY 9,997.7 billion. We are closing in on the JPY 10 trillion mark.

Now starting this fourth quarter, the segment classification for DAIKYO has shifted from Investment and Operation to Real Estate segment. And so we have backtracked to last year to adjust the numbers.

Now the details of each segment are shown on Page 17 and onwards, but allow me to briefly comment on each segment.

So I'd like to start off with profit for the Corporate Financial Services segment. So this stands at JPY 25.5 billion. And in the previous year, we enjoyed gains from selling shares of affiliates and investment securities. And on the other hand, we continue to enjoy stable fee revenues.

Now moving on to Maintenance Lease segment. So profit was JPY 38.8 billion and auto declined due to fiercer competition. But Rentec not only grew their existing business, but Yodogawa Transformer, which we acquired during FY '18 March, also contributed to profit.

Now for segment assets. We saw an increase in auto and Rentec and resulted in JPY 873.8 billion.

Now moving on to Real Estate segment profit. The profit was JPY 89.2 billion. So hotels, office buildings and legislative facilities were very strong in the market, and we exceeded gains on sales versus the previous year. We also enjoyed profits through the transfer of ORIX Golf Management business.

Now segment assets, due to the selling of properties declined, and this resulted in JPY 720.2 billion.

Investment and Operation segment's profit declined by 55% year-on-year to JPY 38.2 billion. The decline is due to a capital gain generated from private equity investment in the prior year. On the other hand, concession business that was affected by typhoon last September increased its profit for the full year. Mega solar business expanded its capacity and enjoyed an increasing profit as well.

Segment assets was up 9% year-on-year at 900 -- excuse me, 733 point -- sorry, I will speak closer to the microphone. Segment assets was up 9% year-on-year at JPY 733.6 billion as a result of the investment made to Cornes AG, an importer as well as the sales and service company of dairy farming machineries.

Retail segment's profits went up by 13% year-on-year to JPY 84.2 billion. Life insurance premium income increased, while the banking business expanded its financial revenue by building up the Real Estate investment loan balance. All business units enjoyed increase in profits, including credit business that benefited from expansion of car loan guarantees.

The segment assets, on the other hand, were up by 13% year-on-year at JPY 3.5714 trillion, due to an increase in operating assets for life insurance and banking businesses.

Segment profit of Overseas Business was up by 18% to JPY 125.4 billion. Although the loss was posted from IL&FS business in India, newly acquired businesses of NXT Capital and Avolon trended firmly, making positive contribution to the earning. As a result of these acquisitions, the segment assets grew by 20% year-on-year to JPY 3.1389 trillion.

So that's it for the segment performance summary. And please turn to the next slide. I would now like to explain our new disclosure policy.

So from this fiscal period, we have changed our disclosure policy slightly. ORIX group has been actively developing new businesses to establish new business pillars such as environment and energy, asset management and concession through the process of evolving businesses from debt to equity and further to Operation.

On the other hand, because we have continued to disclose our earnings in the framework of 6 segments, contribution from new businesses to a segment have become difficult to grasp and understand. In order to facilitate for the ease of understanding on the part of the investment community, from the financial result this time, we have started to disclose breakdowns of profits and assets of 16 business units that constitutes the 6 segments as well as the breakdown of expense items in the segment information.

We hope that the context -- contents of ORIX businesses have become easier to understand.

Based on this new way of information disclosure, we will do our best in enhancing our corporate barrier through vigorously engaging in dialogue with investment community. As to the details of the newly disclosed information, please refer to the Supplementary Information handout.

So please refer to the material at your leisure time. This concludes the presentation and the summary of fiscal year ended March 2019 as well as the explanation for new disclosure policy. And that's it for me.

And I would like to pass on the microphone to Mr. Inoue, our CEO. Thank you.

(foreign language) [Interpreted] My name is Inoue from ORIX, and I would also like to extend my gratitude for your participation today.

So last year, we announced that for the 3-year period beginning FY '19 March, we would grow net income between 4% to 8% versus FY '18 March, sustain ROE above 11% and maintain single-A credit rating.

The results for FY 2019 March was net income JPY 323.7 billion and a year-on-year increase of 3.4% from JPY 313.1 billion. Some of the reasons behind this limited growth are: Overseas Business segment impairment amounting to JPY 11.1 billion due to one of our businesses going insolvent and fee revenue decline due to a decrease in AUM as a result of the drop in stock prices last November.

And we have attained other goals. ROE stands at 11.6%, and we have maintained our single-A rating, a record-high for 5 consecutive years and growth for 10 consecutive years has been achieved.

New investments for FY '19 March amounted to JPY 1,020 billion. The M&A market is currently quite heated, but we will selectively invest in growth potential projects. Our strategy and direction for new investments remain unchanged.

Major investments for -- during the previous year were the aircraft lease company, Avolon, where we have 30% share now, and NXT Capital in the U.S., which we have fully subsidized.

As for Avolon, since ORIX investment, their ratings have improved to investment-grade bonds. We believe that they will contribute to cost deduction hereafter.

As for NXT Capital, we can now leverage the group's domestic and overseas sales network to potentially expand asset under management.

Now it is also true that continuing to just embarking on new investments for growth is proving to become difficult when we try to maintain our ROE above 11% and single-A rating stated in our mid-term plan. Therefore, we also need to keep an eye on portfolio replacement as well.

To serve this purpose, during the previous fiscal year and this fiscal year, we have sold ORIX Golf Management and ORIX Living.

ORIX, for the past 20-plus years, have expanded and evolved our golf course operation business and became the third largest operator here in Japan. However, in light of the golfer population trends in Japan, we had to consider the demerits of such a stand-alone operation given our current positioning, thus we decided to transfer this business to the largest operator, Accordia Golf.

Moving on to ORIX Living. Our aim was to change the status quo of nursing care and creating new de facto when we began this business in 2005. We had more than 30 facilities throughout Japan connecting everyday life, nursing care and medical services. As an operator, we lead the industry and answered to the social needs of embracing an aging society. We had tried to create unique new values for this industry. However, in the interest of enhancing the value of ORIX Living and further expanding footprint, we concluded that Daiwa Securities Group would be the best optimal buyer since they are planning to strengthen their health care business.

We continue to believe that selling assets for the purpose of replacing our portfolio is a part of management strategy. Our intent is to fine-tune our existing businesses and relentlessly pursue enhancement of corporate value. We need to make sure that we do not miss the window of opportunity for selling our assets and promote the most optimal portfolio based on 3 pillars: profit growth, capital efficiency and financial soundness.

Inns and hotels business under Real Estate segment has launched a new brand, ORIX Hotels and Resorts this January, and we will focus on growing this business further.

During FY '19 March, we newly opened a DoubleTree Hotel in Okinawa Chatan, UNIVERSAL PORT VITA, Cross Hotel Kyoto. And we refurbished Yamanoha Inn sited in Kurobe Unazuki hot springs. We operate 23 facilities, a total of 5,100 rooms.

We are also continuing to fully renovate the Suginoi Hotel in Beppu.

With global events such as the Tokyo Olympics and Osaka Expo in the horizon, we anticipate a surge in inbound visitors.

Since we have now integrated our brand, we can share knowledge amongst our various facilities, elevate our service level and expand our operations.

Other projects such as the Kanazawa Station Hotel and condominium development project, Osaka area Second Zone Umekita project, Gora resort hotel development project and Sendai station complex facility project are underway as well.

The MICE IR project, which we'll activate this term, will be in conjunction with America's MGM and businesses sited in Osaka. We are currently preparing for a joint bid.

To appropriately pursue these projects, DAIKYO, which we have fully subsidized this January, has been reclassified from Investment and Operation segment to Real Estate segment.

From the perspective of information sharing, we envisage more opportunities to maximize value through integrated operations in areas, such as development, logistics and construction management.

In asset management business, Robeco group, which joined our group in 2013, they are creating diverse business lines through new investments in the U.S.

The combined total AUM for ORIX Europe, ORIX USA and Japan's Real Estate asset management business is JPY 44.3 trillion as of 2019 March end. Profit contribution before tax has increased to JPY 55.2 billion and presence within the group has advanced.

We are seeing especially strong growth in the U.S., and ORIX USA group's AUM has doubled since the year ending March 2015.

Regardless of domestic or overseas, our policy to increase AUM remains unchanged. I would like to note that in the U.S., there is the risk of fee revenues declining for Boston Financial and Lancaster Pollard. Currently, this is known as ORIX Real Estate Capital and NXT Capital.

However, we will continue to [efficianize] back-office procedures utilizing AI and enhance profit contribution.

Now for Japan's Real Estate asset management business, both REIT and private funds are doing well. AUM has increased from JPY 1 trillion in 2017 March end to JPY 1.2 trillion in 2019 March end. In accordance with expansion of AUM, we plan to enhance ROE by increasing the fee revenue ratio within Corporate Financial Services segment.

Under Environment and Energy, PV business has completed its first cycle, but domestic geothermal and industrial waste biomass power generation businesses are underway.

We are currently completing procedures to fully subsidize a wind power business in India and also looking for potential renewable energy projects in both Europe and Southeast Asia.

As for Investment and Operation segment. Based on the fact that we managed to generate JPY 100 billion worth of capital gain in the last 5 years, we will now migrate to the second stage breaking away from simple PE investments.

In addition to further advancing existing focal business areas, we will expand our businesses in width, breadth and depth. Leveraging the unique network of ORIX that is different to our competition, we will continue to identify new investment opportunities. And by rolling out the business, we will expand our market share as well as extending the business into its adjacencies. Furthermore, we will increase our EBIT in the business succession support services at our sales offices throughout the country of Japan. This is because we regard the suspension and all closure of SMEs that suffers from no presence of successes of business to be one of the major social issues.

While we also regard the issue to be material for ORIX that enjoys SMEs as the major customer base, we are proceeding with initiatives to meet the funding needs of different businesses in different geographical areas.

ORIX has more than 70 corporate sales offices nationwide with 1,500 sales reps. While our overseas footprint has been created in 37 different countries and territories in order to carry out sales and marketing activities. By elaborating the network both in the domestic and overseas market, we believe that we can enhance corporate value that can never be done by others such as M&A vendors or private equity funds.

Across the country of Japan, we are undertaking initiatives in support of formation of partnership or business succession with numerous numbers of clients. We are expanding our capabilities in order to provide optimal support to our clients.

Now in addition to the existing business model, I need to mention the importance of automotives and Rentec as a segment with which we feel the need to take on new challenges.

ORIX auto is tying up with start-up ventures at home and abroad to respond to the ongoing mobility revolution and thereby added autonomous driving, EV to the existing lines of businesses so to secure a good presence in the next generation of auto industry.

ORIX Rentec has the potential to evolve into a shared service company from Japan's largest rental equipment company. And for this reason, we are building the business to respond to artificial intelligence, IoT with sense of urgency. We recognize the segment to be making great strides going forward by providing added value through software along with robots, drones and equipments need -- equipment needs for AI and by corresponding to the needs of customers by data usage and our products, thereby becoming an equipment-related shared services company.

In addition to the accomplished, new sizable acquisitions, including Robeco in 2013, Kansai International Airport concession in 2016 and Avolon and NXT Capital in 2018, we will continue to seek for investment opportunities irrespective of the sizes or the sector by analyzing the profitability and growth potential of the targets.

In the fiscal period that ends in March 2020, we aim to further grow our earnings through expansion of existing businesses, increasing profits from newly acquired sizable businesses and by rebalancing our asset portfolio in response to the changes in the market.

We have a near-term business target that concludes in March 2021. They are profit growth of 4% to 8%, more than 11% of ROE and to maintain a single A credit rating. We do not intend to change the target. However, we do recognize the reality to remain unstable with markets fluctuating widely, that was displayed through equity markets decline at the end of last year, crude oil price hike, persisting U.S.-China trade war, slowdown of global economy, shifting monetary policy by FRB and possible risk of known deal Brexit.

And therefore, we intend to remain cautious and careful in driving our business forward.

Payout ratio is scheduled to be 30% with JPY 76 for the fiscal period of March end 2019. This puts the dividend amount at the end of fiscal period to be JPY 46.

As compared to March end of 2013, we grew our net profit by 2.8x at March end 2019, which was a growth from JPY 111.9 billion to JPY 323.7 billion. So we have achieved this growth of 2.8x. However, we grew the dividend by 5.8x. While in 2013, the payout was JPY 13, we managed to grow it to JPY 76 this time during the same period.

Interim dividend for the fiscal period March end 2020 is forecasted at JPY 35. We will maintain the payout ratio at 30%.

Going forward, we will continue to strike the optimal balance between new investments for future growth and the stable shareholders' return.

Because we have made new investments that amounted to JPY 1.02 trillion for the fiscal period that had just ended, we deferred the execution of shares repurchase program. However, referring to the recent share price, we feel the need to consider the optimal approach we need to take. It goes without saying that the decision will be made by taking all the -- taking everything into consideration, including the share price trend, investment pipeline, capital adequacy and others by second quarter results announcement.

We also recognize the fact that our target to continue achieving 4% to 8% of growth and above 11% of ROE contradicts with maintenance of credit single A rating as key management metrics. Likelihood of facing such a dilemma in considering the possibility of making a sizable new investment may rise going forward. Every time a decision has to be made for a new investment deal, we would have to face a challenge of how to clear the hurdle of credit A rating maintenance. We are aware that sometime in the future, we may have to arrive at a rational and subjective judgment over the credit rating of ORIX at a time when a decision has to be made whether to go or no go for a major deal as well as the shares buyback execution.

Before such challenge comes to surface, we feel the need to proceed with the rebalancing of our asset portfolio in a steady manner while ensuring the achievement of growth strategy. We believe that political uncertainty to still continue this year. But please know that ORIX has a cluster of talents who are experts in finance, accounting, tax accounting and legal as well as the solid global network.

We also have rich experiences in both successes and in failures. Our organization is capable in maximizing returns, not just limited in financial area, but from end-to-end, including operations and exit.

We also prove our strength in network with our business partners with whom we can share the risk in both home and abroad. We will continue to exert efforts in reinforcing our governance through further building our ERM organization. There is no end to the evolution of our governance so long as our business model continues to evolve.

Please rest assured that we will continue to brush up our unique business model that can only be described to be ORIX and further strengthen and develop our firm business foundation and management structure. With ORIX's business model continuing to evolve, our related stakeholders are rapidly diversifying.

In order for us to maintain the trust relations with our stakeholders, we intend to ensure transparency in our initiatives related to environment, society and governance more than ever before while reinforcing our effort in all those areas.

Going forward, as a truly global company capable in creating new values and quick in responding to the social changes and client needs, we aspire to make the contributions to our society through ESG by understanding its relations with SDGs.

I would like to take this opportunity to seek for your continued support to our company.

And that's it from myself, and thank you very much. So I would like to entertain your questions. So I would like to remain at this podium in order to answer to your questions. Thank you very much.

[Interpreted] So let us move on Q&A at this point in time. (Operator Instructions) Our staff members will bring the microphone over to you. (Operator Instructions).

(foreign language) [Interpreted] This is Muraki from Deutsche Securities. 2 questions, please. The first question is on Page 5, so new disclosure policy you explained to us and I would like to thank you for this. So on the right side, the -- I believe these 16 units that you are now disclosing are very clear. So when you consider the current ORIX management structure, these 16 units or this level, 16 units, is this optimal? And do you think the scope is adequate? Or do you plan to further increase the number of units? So that is the first question.

And the second question. In the last part of your presentation, you mentioned your capital policy and the RAC ratio has dropped slightly. So if you invest JPY 1 trillion, you did buy back, you may not have any leeway. And obviously, you are faced with that challenge throughout the year in hindsight. So as the CEO, you just mentioned, you are saying that within the current economic environments you are willing to drop your ratings to further make new investments and buyback and you want to consider that within this fiscal year. So is that the interpretation? And is this interpretation accurate? So I would like to confirm that point.

So if you consider a long cycle during the previous recession, you were very dependent on short-term financing and you did not have much leeway for ratings as well or credit rating. So you could not make major investments. But with a good environment, you are willing to let go or drop your ratings and still, at the same time, go after new investments.

[Interpreted] So thank you. So the 16 segments or units that we've disclosed, at this point in time, I think the question is -- excuse me, I do think that the 16 units subject to disclosure is adequate at this point in time. But we will continue our activity. So perhaps after a year or 2, we'll have to disclose maybe 20. And even if we further clarify or disclose, then it will be quite detailed. But if it's too much detail, it might be a bit confusing. So for the time being, we will keep it at 16. But it is not limited to 16 units, it may expand to 17, 18 or 20 units to be disclosed in more detail. But at this point in time, we are disclosing 16 units.

So single A rating and sustaining or maintaining this rating. When we acquired Avolon, from S&P, we were claimed as negative watch. So the reasons being that there was -- they deemed us doubtful under RAC ratio as well. So 11 were dropped closer to 10 or even below 10. So RAC ratio is not the only condition for the ratings. However, when we do face a major project or deal, we will converse with the credit parties whether it's negative or not. And we converse and have dialogue. But if there is a major deal in the works and if we have to stop our growth strategy or not go after the deal just because we want to maintain the single A rating, we want to avoid such a situation. So A- or BBB+, there is not much impact on financings. But if there is another Lehman Shock, for instance, 1%, 2% perhaps that is within boundaries. And so at this point in time, we do not know which way is the optimal way. We will have to go through the detailed analysis.

However, as in the case of Avolon, which was a major investment, there are no major investments in the horizon. At the biggest maybe JPY 100 million -- JPY 100 billion or less. So when a major project does come our way, what we need to do, we will make sure that we are ready and analyze and decide what policy we will be taking. So this goes back to the question of buyback. If we do maybe JPY 100 billion buyback and the RAC rate goes below 10% and our ratings go down, and obviously, it will confuse the markets and people will wonder what we are doing. So obviously, we will validate each scenario. And with the upcoming few months, we will come up with a policy. But yet, we have come to a conclusion.

[Interpreted] Another technical question if I may. So you did have subordinate bonds in the past, but you don't have that option anymore. So it's either common stock or debt. So it's only -- it's one or the other.

[Interpreted] No, no, no. That is not the case. We are in conversation with many banks still. And so the -- for instance, in terms of subordinate [issuance], for instance, or bonds, we are considering that discussion. So again, in light of a major product, if it does come our way, we will consider the balance between the RAC ratio.

[Interpreted] So let us move on to the next question.

[Interpreted] From Daiwa Securities, my name is Watanabe. I have 2 questions. The first question, this year, for the 2019, what will be the driver for growth? That's the first question. What would be the growth driver for growth of your profit? And 16 units that you have disclosed this time around, so can we -- which unit do you have the greatest expectations for? If you could give us the color to the 16 units. And the second is, so in terms of the divestment of the assets, if it is at the peak of its price, do you think that it will be the timing for you to divest? Or do you think that you should give away to the steady growth of your profit from -- going forward?

[Interpreted] So as to the driver of growth such as mega solar, for example, it is making 100% contribution to the profit generation. Avolon, in November, we have executed our program. So therefore, this year, we can enjoy the profit generation to the full. However, the existing deals or existing line of business would only -- would not allow us to maintain this 4% to 8% of growth. So therefore, for this fiscal period as well, we would have to make a new investment and also we would have to engage in divestment as well. Otherwise, we will not be able to maintain this growth of 4% to 8%. So this is why we are referring to the investment pipeline and also, at the same time, we are creating a short list of the assets that we may be able to dispose of which would allow us to generate some capital gain.

Having said that though, going forward, just as I had told you, MICE IR, which is some years ahead and also Umekita project, I'm sure, in total, would be hundreds of billions of yen of investment. And this investment to this kind of project, after we complete the investment, we will now be able to start generating the profit. So it will take time before we can start generating profit from this project. So we have to strike the right balance, which is not an easy job to be done. But we would have to do a good job, otherwise, we'll not be able to maintain this growth of 4% to 8%. We are fully aware of this and that's how we try to drive the business going forward.

Now another question was? And so in thinking about the correction of the market, what kind of divestment are you thinking of? In terms of the Real Estate market, I think the market is at its peak. This is our understanding. So before the Tokyo Olympics, I suppose that there would be the correction of the market. And the condominium, in fact, is already experiencing a correction. But the Real Estate market, overall, may not have experienced a correction as of now and that is because of the abundance of the fund and also BOJ and GPIF, in fact, are participating in the investment as well. So even if there was to be a crash of the market, they may not decide to dispose off the assets, which means that the correction may not take place as early as we had initially anticipated. So -- but with the current [over-heatedness] persisting, so far as the Real Estate properties are concerned, if we see the properties to have been experiencing a peak period, we may decide to divest those assets. And if there was to be any assets overseas, which we cannot foresee continuous growth and also if we can identify any potential buyer, we would have no hesitation in disposing off those assets, and we have, so such a variety of segments. So there are certain markets that have not yet peaked. I mean, yes, there are some markets that have peaked -- already peaked out. So -- and of course, there are some segments. We would -- that are not peaked out, for sure. We would try to, of course, maintain and retain those assets. But through the means of our network, we will try to enhance the value such as auto, Rentec, as just I had told you, I think we can continue to grow that segment of automotives as well as Rentec, so we would, of course, further effort in growing the business. But of course, once -- of course, sometime in the future, there will be time for the market to peak out. So on that occasion, we would then only consider the possibility of divestment. Does that answer your question?

[Interpreted] Yes.

[Interpreted] So let us move on to the next question.

[Interpreted] Two questions, please. The first question, you mentioned buyback and shareholder return in your presentation. So 30%, you will sustain the ratio at 30%? I see it in the literature, but JPY 30 to JPY 35, that is the forecast and -- which is an increase of 10%. But your net income or profit, you want to -- you say that you will struggle. It's a challenge to increase 4% or more. I know that you will be very aggressive. So this 30% (foreign language) So this 30% payout ratio, what is the intent behind this in sustaining this level?

[Interpreted] Sorry, 30% -- so you're -- you -- so 35% increasing it to -- is that the question?

[Interpreted] Yes. So do you have an intent on increasing? And the second question, (foreign language) in the rebalancing of your portfolio, ORIX Living as well as you also sold off the golfing business as well. But perhaps -- so you have a -- you made a major investment of PE, but you have goodwill. And it goes back to the strategy, perhaps at times you may have to drastically shift your strategy. But again, if you take into account potential for the future growth, there may be times that you have to opt to not make an investment.

[Interpreted] Excuse me, so let me respond to that, the first question, which is the dividend and the payout ratio, 30% whether it's adequate or not. To be quite candid, I do believe we had a question, the same question last year, it was 27% in the past. But when we look at the market, 27% level is only us perhaps. Most are at 30%, some actually set a ratio at 50%. So as long as we have [dollar] with the market, minimum is 30%.

But at the same time, how do we time our growth? And where do we put emphasis on growth? When do we put emphasis on shareholder return? So it's all about balance. So if we are going to be aggressive with growth, then it will be 30%. But we will actually increase the absolute monetary value. So we want to sustain that level. So that is our message. So it's not 30%. It's not 30% for the sake of 30%. 30% is the sake for us to grow as a company. And if we are growing as a company, then our message is that please, please, feel that 30% is fit. But if we grow even further, then we have to increase the ratio -- the payout ratio more. So obviously it's about balance. But for the time being, it's 30%. And we have to make sure that we keep this intact and this is the balance that we'd like to sustain for the time being.

Now moving on to your -- excuse me, what's your second question? I did not fully understand the question.

So you had major overseas investments and some of them perhaps were strategically very important, but for those that are actually you are generating losses. Now so if there is a major goodwill attached, then would you be willing to -- or what would you be willing to do with such assets overseas?

So the nature of our deals or projects that we invest in, goodwill is something that cannot be avoided. Avolon goodwill was 0.

So if it is a deal, goodwill 0, then we should be making investment. And if ROA is more than 3% and ROE is more than 11% or more, and if that is the contribution level of that project, obviously, that is what we want and that is why we are trying to find something like that. PE business as well, we want to expand the PE business as well. However, just -- we cannot repeatedly buy and buy and buy companies with goodwill over and over again. So -- because the investment will bloat. So again, it's about balance.

Now ORIX Living and ORIX Golf. The reasons why we sold off Golf, it's quite simple, because the golfer population is in their 65 to 70s at the moment, the baby boomers, so to speak. 5 years down the line, they will become 70, 75, which means that there will be a decline in the golfing population. And the play fees as well are dropping, so for us as an operator, for the golfing business, we have 40 facilities or courses and we're not the largest. So we questioned ourselves, is there meaning to continue this operation. But obviously, if we did not have a buyer, we could not do this. But Accordia Golf, they are the largest golf course operator here in Japan, that is their intent. And so it was a win-win decision, and we decided to sell and transfer the business.

So there may be no profit growth for ORIX, but from the outside, there are external companies that feel that there is still growth potential, so we can sell that business at a premium. And if there is no buyer, then we will not sell.

Now for ORIX Living, Daiwa Securities was the buyer and they are trying to expand their health care business. They want to emphasize or strengthen their health care business so we considered to what extent do we have the luxury of allocating resources and money to expand this business. We realized that there was a limit, so that is why we decided to sell. So it's a project-by-project consideration. If we can consider growth potential, we will make sure that we possess and hold that asset and add value.

But for ORIX, again from the viewpoint of ORIX, if we can no longer add value, then we will divest. But then if it is an industry where we can actually inject our know-how and insight, then we will continue to make new investments. So it's 2 wheels that we are running simultaneously. I do hope that this answers your question.

Thank you very much. So let us entertain our next question. So the person in the middle of the room.

I am Moriyama from Macquarie Capital, and I have one question. So the number of units which you have expanded to 16, so the framework that you have created this time around, so the growth prospect of the existing businesses I'm sure was something that you referred to. Automotives and Rentec, you have mentioned the 2 in your presentation today. I know it may sound kind of strange, my question, talking about your DNA and also the replacement of some of the assets and also the new investment because I think you would find it -- you find it -- you would be very passionate in taking action in that regard. However, if you want to -- you would have to be persistent on growing your businesses, otherwise, you will not be able to achieve this 4% to 8% of growth that you set by to achieve. So as a company, are you trying to introduce a new KPI in order to motivate the people?

So DNA of ORIX that we would of course grow and buy and sell. But at the moment, we have 32,000 people working for us. And of course, everyone had different opinions. There were some people who were very conservative who did not want to sell some of our assets. But of course, we had to convince them in order to rebalance our portfolio. But if we want to maintain the single A rating and achieve ROE of above 11%, then JPY 10 trillion of assets could be grown to JPY 15 trillion, JPY 20 trillion and JPY 30 trillion, but I don't think that is possible because it contradicts with each other.

So, currently, our asset is about JPY 12 trillion. But maintaining this size, while maintaining the ROE above 11% and single-A rating, which means that we will have -- we are propelled to be rebalancing our portfolio. So with that being the premise, we are in fact reviewing our portfolio. So ROE of 11% and above and also, at the same time, single A rating.

And talking about KPI, as a Japanese company, especially on the sales side, introducing KPI is not an easy thing to do. The back office as well as middle office we have introduced KPIs. But for the sales and marketing, it is not easy to introduce KPIs because, from the top management, of course, we have been quite demanding in setting the debt target, ROE of 11% and ROA of 3%. In fact, (inaudible). So whatever the investment that allows us to achieve these numbers, we would consider the deal. That's what we have been telling the sales and marketing activities -- people.

So -- but for the next 2 to 3 years, if we can achieve a growth of 3% to 4%, we may consider. But in the first year, we may have to complement with some other businesses. So we have to strike the balance between these different nature of businesses or characteristics of the profile of each and every businesses. So does that answer your question? So let us move on to the next question.

Nakamura from SMBC Nikko Securities. Two questions, please. First question. First one refers to Page 10, ORIX Europe or Robeco. So AUM, your plan is to increase or expand the AUM. But initially, in comparison to your initial forecast, I think that fees and AUM, you're struggling. So how do you deem this business as of today? And if you are to be able to value up or add value, what are some of the possibilities? So that's the first question.

Second question. I think that the IR resort in Osaka, we are seeing some more details. And so, for instance, how do you see the extent of growth potential so -- to the extent that you can disclose?

So for Robeco, the first question, as of November last year, the equity prices dropped and AUM did drop significantly. Fee revenue, there was a strong suppression pressure. But when we look at the index funds, still, Robeco has alternative PE funds and are not in existence. And so on top of this, Mariners, Robeco and, in the U.S., NXT Capital, these entities have acquired many, many asset in management. RB capital in Brazil is one of them as well. So, in a fancy way, we can say that this is a multi-boutique, but can they succeed? And the sales or distribution channel integrating the channel and creating a holding company, putting all the AUM together and then establish a distributed sales force and handle each of their respective products, such a reorganization or re-structuralization is a need. And without this reorganization, even if we were to acquire new businesses, the comprehensive synergy effects cannot be enjoyed. And to enjoy these synergy effects, we have to integrate. And I say this and I put this very simply, but it is extremely difficult because each of the unit heads, they do not like each other. So how do we combine these forces? And that would be the biggest theme for me this year. Without this integration, however, it will be just multiple entities, so that means that we will have to consider divesture in the horizon as well.

So, currently, JPY 44 trillion, but it is midway, I believe. So when we look at the competitive global market, we have to triple the AUM to be able to survive in this market. So double or triple, and so we have to newly acquire. And since November last year, for M&A, the prices are dropping. So when the price tags further drop, then there will be a turnaround where we can be more aggressive in buying, and this will also trigger more integration. So without this, we will see a ceiling or hit a ceiling for AUM business -- AM business, I'm sorry.

So going on to the second question, which is MICE IR. Finally, the qualifications for bidding will be issued in June. And some time next year, March, I believe, they will select a candidate for the operation. So we are working with Osaka businesses and MGM. So this is allied-based and we are in contract and considering how we can do a joint bid. So we are studying at the moment, and I do believe that in the near future a proposal will be out. [Sands] and Genting will be competition, 4 or 5 operators will be competing.

Now, currently, as we know, Yokohama, after the Mayor's election, we are assuming -- or it is said that they will raise their hands, but there are some opposition parties as well. Odaiba, which is in Tokyo, it is assumed that they will also raise their hand as a candidate for the IR location. But nevertheless, either way, Osaka has been pioneering the way. However, they will not be the first to make the bid or call for tender. So Yokohama, Tokyo or perhaps Hokkaido, all of these bids will happen in parallel. So that is the intent of the Japanese government as well, and we are very focused on Osaka.

So JPY 1 trillion is the size of the project volume we are assuming. And half will be in debt and half will be from equity -- or in equity. So that is the current plan or the structure. But the one remaining challenge is the concession period, which is a duration of 10 years. A duration of 10 years means that we cannot finance from the banks.

So, currently, with the government and Osaka City, we want to have them do something about this 10-year duration. And if they can meet us halfway, we can do something and raise our hands. So we want a form of -- a commitment from them as well. So such details will be slated out some time by this September. And once we are on board, we can move forward.

Now according to MGM, the Singapore situation, Japan is very similar. So he -- they say, "Mr. Inoue, it's only 3 or 4 years you need to collect everything", which obviously I have questions about.

But either way, it will not work if we just focus on the casino as the business model. It has to be a comprehensive resort entertainment facility on the Yumenoshima. And then how do we utilize the Osaka Expoland after it's finished. The universal port, are they participating or not? That's also up in the air at the moment. But how the land for Osaka Expo will be utilized later will be considered by the city as well. And we are very sensitive about what may happen. Thank you.

Thank you very much. This is going to be the final question.

I am from Citigroup Securities. My name is Niwa. I would like to ask questions about shareholders' return and also, at the same time, unrealized latent profit.

First of all, the shareholders' return, especially the share repurchase program within this fiscal period, you may arrive at a conclusion, I think that has been said by Mr. Inoue. But if I were to perhaps kind of analyze this, why did you not execute within the last fiscal period at the backdrop? Of course you had -- you're paying out more and also the profit you had increased, but the share price in fact is not rising. So that's the first question.

And the second is with regard to the latent gain, the unrealized profit, and I know that you have quite a large amount of unrealized gain. But within the card that you can play, how much and where does it come from? And as compared to March end of '18, March end of '19, how much of an increase were you able to achieve in this unrealized gain?

With regard to the share price, to be honest with you, this is the biggest headache that I have, because even if I try my utmost best, I will not be able to raise our share prices. And with regard to the repurchase program of our shares, Avolon, NXT Capital, we have spent JPY 350 billion in total. And the investment amounted to a total of JPY 1 trillion or so. So JPY 100 billion of a repurchase program, if we were to execute this, it would affect our RAC rate. So this is why, for the past fiscal period, we decided to shelve it.

But when we had a discussion internally, of course, there was mixed opinions and all the board members were not for the repurchase program. Like SoftBank, why don't you make new investment to the extent of JPY 1 trillion, JPY 2 trillion. But on the other hand, there were some who were against for the repurchase. And of course, we have the backlog as well for the new investment as well. So, therefore, there is no point in us lowering credit rating by carrying out the repurchase program in an outstretched manner. So this is why we have decided not to execute the plan.

But as you know, over the past 5 days, unfortunately, the share price had continuously declined and I don't know what would happen to U.S.-China relations. Some people say that -- optimistically saying that it would settle down somehow. But even if we were to repurchase, the share price may continue to decline. So I think the timing is pretty important, so we would have to make the correct decision as to the timing. So that's all I can say for now.

And as to the latent gain or the unrealized gain, PBR of 0.7x now. And of course, the unrealized gain is more than 1x of PBR, quite naturally so. So simply put, Avolon, for example, we purchased it at book value. And looking at the aircraft market, there is already JPY 10 billion worth of unrealized gain. And in light of that, real estate assets as well, we do have some unrealized gain, still.

So for example, just to give you an example, like KIX, Kansai International Airport, we have made JPY 32 billion. And already, 60%, 70% of -- we have already gained return -- got a return. And on a discount basis, if -- of course, we will not be able to sell off the asset, but we can actually sell the asset in about 5 or 6 years' time. So putting all that together, I don't think unrealized gain should amount to less than JPY 500 billion or so, so hundreds of billions of yen.

And I know there has been a request for us to disclose the amount of unrealized gain, and we did take it back and consider. But it is very hard to kind of define and also give a rationale to the calculation of the unrealized gain. Because if it's not realized, then we would be perhaps accused of false representation. So this is why fair value disclosure was something that we considered as well as an option. But by disclosing fair value, there may be some, from a fiduciary duty perspective, it may perhaps infringe our obligations. So this is why, as we have said, hundreds of billions of yens of unrealized gain, for sure, which I would not be able to state clearly as to how much. But I'm sure we can continue to increase the value as well. But of course, in some time in the future, we may decide to divest some of these assets, just like Houlihan Lokey.

So if you could perhaps allow me to conclude my answer at this point in time. So we'd like to conclude this session. And we have handed out a survey, so please fill out your -- the questionnaires. And I would like to thank you all once again for your participation, despite of the busy schedule. Thank you so much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]