ORIX Corporation (IX) Q2 2015 Earnings Report, Transcript and Summary

I am Urata, CFO of ORIX Corporation. I would like to extend my gratitude for participating in the session out of your tight schedule. I would like to give the first half financial results. In your document, please refer to Page 1. This is the overview of the business as you have seen every time. The net income for the first half of fiscal year ending March 31, 2015 was ¥142.1 billion. All segments increased their profits steadily, achieving 77% profit growth against ¥89.4 billion during the same period of the previous fiscal year and 68% against the full year target of ¥210 billion. We have achieved increased first half profits for the first five consecutive fiscal years. I think you see the red line, ROE was 14.4% on an annualized basis. It continued to exceed 10% level which was achieved in the previous fiscal year. Please go to the next page. Total revenues increased 55% year-on-year due to factors including consolidation of Hartford Life Insurance K.K., Robeco and Daikyo and increased profit contribution from private equity investments. Operating revenues had renewed record high results for the first half. The total revenues went up by 55%. For the segment revenues, it went up by 63%. Retail and overseas led the growth, while real estate went up as well and corporate finance as well as maintenance lease steadily improved. Total assets were 2,150 billion and segment assets went up as well from the end of last fiscal year at ¥1,850 billion due to the Hartford acquisitions. ROA of segment assets was favorable at 3.46% -- it was fairing very favorably. For the short-term and long-term debt and deposits went up by approximately ¥40 billion compared to the end of the last fiscal year. We have been controlling the balance of interest-bearing debt while monitoring out our assets. The debt to equity ratio was 1.9 times level which is similar to the end of previous fiscal year. Please go to the next page. I would like to talk about the first half results by different segments. Let me first talk about the top half which is the corporate financial services. Segment profit increased ¥12.6 billion year-on-year and sales of solar panels that captured the demands of corporations' tax saving needs have expanded and fee revenues from distribution of life insurance products expanded even though revenues from lending went down. Segment assets continued to be flat compared to March end 2014. With regard to the solar power generator business, we used our group relationship management capability and this has continued in expanding revenues. By capturing business opportunities for entire group, not only improving commission income of the panel sales, we have reconfirmed our sales force capabilities. Although gradually the capital expenditure in Japan is showing signs of improvement, corporate tax will be reduced gradually starting from next year and this will increase tax deferral needs of corporations continuously coming forward. Nextly, lower half is maintenance lease. Auto leasing has increased assets on the back of the stronger new business volume and as ORIX Rentec has contributed to the profitability of segment and the maintenance leasing segment has recorded ¥21.5 billion in segment profits, up 5% year-on-year. The segment assets went up by approximately ¥34 billion compared to March end, while steadily growing assets ROA continues at high level at 4.3%. Four new locations were opened in the first quarter and a new sales office was opened in Kobe in the second quarter to improve the networks in Kinki area and the ORIX [indiscernible]. ORIX Auto has been expanding its truck rental shops nationwide and to the number of vehicles in order to respond to the public investment and private construction demands. Please go to the next page. Upper half is the real estate segment. We have continued to reduce the size of the assets into the second quarter which is proceeding at a steady pace. Segment assets were down approximately ¥77 billion from the end of the previous fiscal year to drop below ¥900 billion level as a result of sales of rental properties to third parties, including REITs. Gains from sales of rental properties increased and impairment have significantly decreased on the back of the favorable real estate market conditions. As a result, segment assets went up 80% year-on-year at ¥15.8 billion. In our operation business, it acquired Unazuki New Otani Hotel in the first quarter and in the second quarter Hilton Okinawa Chatan Resort was opened and started operation in second quarter. So new acquisitions and new facility operations has started. Please look at the lower right, it is the investment in operations. The segment profits were ¥15.3 billion as a result of the increased profit contributions from the private equity investments and environment energy despite a decrease in profits from loan services and Daikyo. The segment assets was changed to reach ¥600 billion as assets of new investment in [indiscernible] Japan were consolidated in the second quarter and also with increased assets in environment of energy including Mega-Solar business. The solar power generation business is still expanding. We have already secured approximately 600 megawatts worth of Mega-Solar and rooftop solar power projects at the end of September. Now please go to next page, retail segment. Segment profit was ¥77.7 billion, 2.7 times the profits recorded during the same period of the previous fiscal year. Segment profits include bargain, purchase, gain of ¥36.8 billion during the second quarter for the acquisition and the consolidation for Hartford Life Insurance K.K. on the first of July this year. The [indiscernible] segment assets in addition to the assets growth in banking and life insurance businesses, we saw an increase of ¥1.7 trillion investment in securities which correspond to the investment by Hartford Insurance K.K. The ORIX Bank residential mortgage loan balance showed a good growth as well. As well as the ORIX Life enjoyed premium income growth as the medical insurance product launched last year has continued to sell very well. We focus on the first sector product sales on top of our strength in the third sector. Lastly, the lower half is overseas business. On the back of stronger stock market globally, Robeco, which is expanding its assets under management and fee business in Americas, have contributed to the increased profits. As a result, segment profit increased 80% year-on-year to ¥61.5 billion. Segment assets increased compared to the end of the previous fiscal year partially as a result of a foreign exchange but also because of an increase in asset loans in the Americas as well as in the lease assets in Asia despite a decrease due to the sales of STX Energy. This concludes the results of the first half. Next, CEO Mr. Inoue is going to talk about debt reduction and strategy after this [indiscernible].

I'm Inoue. Hello, everyone. Thank you very much for joining us today and thank you very much. When you look at today’s stock price and Nikkei 225, it's going up. But when you look at that old – our stock price of our company, the drop rates, and when you look at all these constant prices of the company and we now we think it's our strategy to investors have not been enough. And for example, we have experienced about lot of the business failures or that the company had to make the told revision in the business performance, but only since now [indiscernible] just like all these other companies. But I think that my mission is to review the situations and make a turnaround. And also we have explained earlier and we made report of this in the first half of the business performance and 14.4% of our ROE and 68% of achievement we have achieved. But based on some disappointment today dynamics and also uncertainty in the macro global economy is now an increasing now [indiscernible]. We think that we don’t have so much of concerns about [indiscernible] in terms of the sales and also the finance. But, this year's is alright. But that’s the growth of the company, will start next year and also revenue and profit will decline for the company. Yes, that’s one of the view to our company from the market. We understand that. So this is one of the reason that our stock price underperformed the top exchanges. But on the other hand, when we look back on the past six years I hope you understand that we have overcome a lot of the problems, the comps in the bubble economy, the Asian currency crisis and financial crisis in 2008. But other than that, we have steadily grown in this market. I hope you understand this. And to ORIX as a [indiscernible] and some investors have anxiety about ORIX’s owned bank business operated. But now we already have more than 70% of business coming off from the non-financial business. So, we are sure that we are already out of the scope of the definition of non-bank business model. Our business model, already I've mentioned so many times we have changed our business model once in every five years by taking advantage of our unproprietary as a management method and technologies and we'd like to break into the new business domains by maintaining high ROA. This is the most important portion business model for maintaining the double-digit growth of ORIX. We will insist on this strategy and traction. We know that many investors worry about that for next year, but we still have the five months to getting into the next fiscal year. We'd like to have more of the business on top of this business, but also we like to think about that [indiscernible] strategy not only for next year but also five and 10 years ahead. We like to show you the new approaches. For example, like the expansion of the asset management based on [indiscernible] including fixed income equity and real estate we can cover broader areas. And we have indefinite possibility and potential for the business expansion. For the aircraft and ships, now based on [indiscernible] in the past more than 10 years, we have been making profitable by buying at the cheapest price and selling at highest price. We already have proven the viability of business model. And when it comes to the turnaround business in Japan and we already have achieved that, the pro formas, which cannot be compared to any other competitors. When it comes to energy, not only for the solar power but also we have infinite possibility of the domestic business service, renewable energy and there are a lot of new brand new areas. Now we can break into after this and ORIX can freely operate our businesses and on other same thing, we have a lot of methods and approaches to improve that profitability. And KIRARITO GINZA which opened yesterday in Ginza and one of our success story for the development project and then also the Asian Development Bank and Robeco jointly established funds and also this was struck for $400 million finally and we'd like to make it to $1 billion. And we have a client HYUNDAI LOGISTICS and also we have a start at the Hotel Elite and a lot of projects are going on. Now we’re getting into the certain stages we'd like to announce and explain all of those different projects to you. Liquidation of the assets and the divestiture will not be announced anytime, but now we'll always consider and try to find out the best of timing for the divestiture and the selling of our assets. And the scale of and profits of the assets and then also we compare that to capital gain that we can get from the sale and we like to make a balanced approach. When it comes to assets, we check out the impairment every time and we're evaluating that our market values [indiscernible]. Our portfolio is well diversified, it's not any problem. So let me talk about our business on the portable power generation. And recent media report and analyst report that pointed out that a lot of the mixed comments and ideas is reported. So this is confusing, all of you, so let me explain our basic starting point of this business. The feed and tariff system was established and started three years ago. And now that renewable energy have a higher -- power cost and it isn’t the feed and tail-of system and tried to fill out the cap of the cost and enterprising. For the time being and based on, and waiting for that technical innovations and expansion to the market, this is the basic concept of the feed and tariff in the initial three years. So that’s some favorable and price was set up for any of us two years back. Now in the next year it will be go below the ¥32 and this is now we’re getting into some turning point of this system. And also and the power source of the solar power generation, now have to be concentrated and the joining of the newcomers, but that was within our expectations. But some of that business operator only acquired that right and actually did not get into the actual operation, that’s true. So that the government and authority is now making interviews to each specific potential operators and they're going to cancel their license and approval. And just a few days ago, I look at that media and news in NHK TV broadcaster and some small and medium sized companies are about 500 kilowatts of very smaller power generations has provided by them. But now they don’t have any, for example, interconnection to the grid or they don’t have any kind of pre-discussions and they have just started their operations with only the approval from the government and also the bank is providing them loans, but any specific plans and the connection approval. So that’s why everyone is getting ready they go to the power companies, they return down for any interconnections and fail. It was reported on the TV news. But in our case, we have the well [indiscernible] with the interconnected grid systems and we have implemented of all these the completed type of projects. So there was not any problem or any impact on this business. Now we have a 100 megawatt for the total power and 130 megawatt for that rooftop mountain types and we only have secured 600 megawatts. Already we have mentioned earlier, but now we like to and steadily implement start up of the operations and then also still we have some of the other solar panels under contraction. But there was no problem for all these solar projects for us, solar power generation. Those project -- we don’t have any projects in which we cannot get that approval of all that interconnected grid systems approval from the power company. So that this is -- that’s the outline of the business – the possible take business. So we like to make social contributions, but we will not do anything, any project that is not profitable. And the FIT will lower the ¥32 and some of the project will lose its profitability. And if we cannot get any approval of interconnections, then we don’t that. We don’t have that kind of project. Now also that’s surprising and setup their FIT and someone says it is too expensive, but based on it is reviewed every time based on our 6% and then also taking all these factors in the Japanese market considerations and the utilizations, I think that 12% of the utilizations and that is the proper level. If we think about some older construction cost and the weather condition, chronic condition in Japan for the earthquake and the typhoon, this is our basic standing point of our solar power business so I hope you to understand that. And the other item about the payout ratios and for the contribution to the shareholders, we’re going to discuss further in our Board of Directors meeting, but we'd like to maintain at least 20% of payout ratio and this is our target. And once we have determined and fixed our decision, we're going to announce that. But when it comes to share buyback, there still our first priority is to maintain that current growth path and growth strategy. So for the time being we think that the share buyback will be the last resource for returning to the shareholders. I hope you understand. And also in the information we have distributed today, we eliminated the item base profits. [indiscernible] onward we’re going to disclose the PL for each segment. The reason as well we eliminated the base profit is that the accounting process when we acquired Hartford Life Insurance and basically this means that we purchased at future cash rate is very, very easy and simple. But the negative goodwill and the recurring [indiscernible] operation isn't quite the same. But now based on the accounts, we have to get them separated between the base profit and capital gain and that is not, that does not match our complicated business model. That’s why we change it, the rule of disclosure. But also when we sell that STX Energy and the the current profit was recognized as a base profit and the profit from the selling was recognized as capital gains, that's separately. So that was also, we don’t think it is the right way to go. Basically for everything was unitary profit so that in this accounting rule we need to recognize them separately. So this is our profit and revenue from the one single project should be in unitary profit and should be recognized, that is one single profit. So that’s why we changed that little disclosure. So we’d like to disclose the PL for each this specific segment. This is the disclosure after this onward. And last of all let me repeat this. We have no concern about achieving that business performance target and we still aim at having that double-digit growth. So that we're disclosing our policies and strategy for that success strategy and communicating properly is that on a mission as President I'd like to live up to your expectations of all the investors and like to do our utmost after this onwards, so I appreciate your cooperation. That’s all. Thank you for your kind attention. Thank you very much.

Thank you very much. We’d like to move on to the question-and-answer session. (Operator Instructions) Before you ask questions, please identify your name and your affiliation. So the floor is open for question.

Tsujino of JP Morgan Securities. You may say again, Tsujino. You said 20% payout ratio is the minimum of what you’re going to keep with adjustment EPS is going to be the basis or since you have goodwill, are you going to exclude the goodwill or are you going to consider goodwill in addition to EPS? That's my first question. Let me go to my second question. You said that you’ll continue to make growth and you will seek for the revenues source. So the business model has changed every five years, as you have rightly pointed out. But in your base line scenario, a certain level of the asset based revenue is included and therefore it is the source of comfort. Otherwise, if that's the case, you told us that you are not non-bank anymore. But since you are making a variety of different investments, i.e. trading houses, so what's the differences? Trading house have a very stable income stream based on the assets and that’s the strength of the trading firms. But having said that, asset base for the stable income source is getting tough competition with banks and therefore it's very difficult to grow. And also retail as well as consumer finance might be showing some growth, but it is very competitive. And mortgage is growing slightly, but the corporate finance is not doing well in terms of growth. Therefore, we would like to see the improvement in asset-based cash flow and income in the future. What can you comment on this?

With regards to the payout ratio, it was 16% or a little more last year. And when I explained that Daikyo and other – other than the accounting profit and income, I'm going to achieve 20%. But, I thought this is not going to be specific enough. And therefore not because from any others factors we achieved 20% and since we haven't discussed at the Board of Directors meeting yet, it's not finalized. But that’s the basic stance that we like to have consensus internally to keep 20% regardless of other factors. Now asset based income and revenue sources, we’re not giving up. As for the interest rate income, we have not given up, but with the current, with zero interest rate, ROA of 2% to 3% is impossible. And therefore, what we are doing now is that there is a cheap, very inexpensive fund available, so we are going to use that money to expand the business, to expand and to increase our revenues. In case that interest rate goes up from zero interest level to a higher level, of course we are going to have the arbitrage business and financial businesses with the wider spread. So, we are going to be flexible. Where we can find the revenues and profit, we are going to make decisions where we can find the best sources of revenues to move the human resources as well as the fund. We are not becoming non-bank. If we were just a non-bank, I think ORIX is gone already because spread is so tight and it's not very profitable and there is a leasing companies and other financial companies with very tight margins. So, we don’t have the intention to compete against them.; So we have six segments and all segments and each single one of segments should be profitable. And even though one of them is not going to be unprofitable, if the real estate is going to grow 20% or 30%, growth can be achieved. And if finance is not going to be achieved, zero growth will be okay. But as a whole in the six segments in total, we will like to achieve a certain 10% of growth as a whole. And in order to do that, where we should allocate the human resources and fund, and that’s the decision that we have to make and that is the most improvement thing for us. And I believe that we are successful in doing this. So, the revenues from assets should be expanded and we should also get the commissions related ones. I know, so asset based one is the whole focus. Real estate is doing quite well at this moment and that’s asset based income stream and we are going to expand that income stream. So, we are not really concentrating in one area, but we have six different segments as revenue sources and profit sources. Thank you very much. Do you have any other question?

Ms. Otsuki from Merrill Lynch Securities. I have two questions. My first question is about -- now I would like to know about your mid-term and long-term strategy from the perspective of President and in which region and which specific product or service. And will it be the key for the mid-term and long-term growth? This is my first question. And my second question about your domestic business. In retail segment, now I think that the presence and the position in the retail segment is getting bigger for your business strategy, but it's still new brand of ORIX and retail business, it's still weak. How do you enhance and how do you think about your brand power at ORIX in the retail industry? This is the second question.

My hint about strategy for the mid and long-term basis in the domestic business, to tell the truth, it's very competitive in any business domain and segment and it's too difficult to maintain at a certain level of profitability, it's very difficult. Now, so when it comes to [indiscernible] power generations and feed and tariffs and ¥42 and ¥36 and ¥32, they have declined, but we still maintain sustained level of profitability. But still it’s only temporary business and then also for the [indiscernible] power plant so that is,, some power plants and this is a new area that we are still studying about it. But when it comes to [indiscernible] it's a little bit uncertain because we don’t know exactly that how much of that generation is available and before [indiscernible]. So that’s try to explore the possibility of [indiscernible] and also for the ocean a power plant and we need to just set up a lot of wind farms on oceans and so that we have an negotiation with the manufacturers what kind of wind farm would be business suited. We're still working on that. And when it comes to in 2018, this is the year for the power plants and the power generation business will afford it [indiscernible]. So when you think about the possibility of summer power plants and how we can secure the capacity of the several hundreds of megawatts of the capacity of the summer power plants. And then we have completed the assessments and we're getting into the next phase of constructions. And taken this all into consideration, we have about 200 billion or 300 billion of assets and that we can expect some kind of revenues and profits. And also we would like to export these assets and skills to Asia. And also 400 billion of that renewable energy fund and we're going to study this 400 billion yen and I think we [indiscernible] Asia and the Chinese renewable energy business. So this is a fund for that new renewable energy in Asia and China. So that implementing this business in China is still questionable from the probability. But as a fund manager, we'd like to secure the profits and then also have the investments rights to be acquired and so that we can expand the business. So this would be the next domain of business. Also Myanmar or Cambodia or India after the administration changes hands and then also we don’t want to go to Nepal and Africa and we don’t want to go to due to Ebola. But anyway, Africa is the area. Other than Robeco, we don’t have any business in Europe, so private equity market in Europe. But it still have infinite potential. But it's very easy to break into that market without any preparation. That’s why we start from the Robeco and first would like to make use of the network at Robeco and also at the same time, we'd like to have a tie-up, business tie-up with investment banker in Europe. So anyway, when we started this process, we don’t do anything in Latin America. And now when there was recession in Latin America is in a very difficult situations due to China, but we are going to have some kind of opportunity there. So the once the market goes down then we are going to make a turnaround, we're going to have the opportunity to buy into the market and also for aircraft. And past year the price have gone up so rapidly, but in this case for the Ebola at the AMEX or the MCC, the recessions, now the aircraft price will go down so that we can patch us and we have a good opportunity to buy, so just like this. So hopefully the venture capital or digital media, also look into the possibility of that business. But still we have a several-fold shortage of resources and talent so that if we can have some room, we will also expand the scope of business. But everything is wide open for the possibility of the new business. But each region has its own condition. So we'd like to wait and see, for example the business in China, but still in recently we plan to IPO in Hong Kong so that we think also concerned about the exit strategies and also Korea or Japan. Every time we’re looking around for all the situations globally. I cannot just mention about specifically which is the strategic area, no. But anyway, we like to continue to study with a broader perspective and we'd like to make some kind of investments and like to move on to the strategic investments. Now some of that's possible projects and if it is possible for us to take advantage of our synergy and we like to switch from the simple investments to the strategic investments, this is our basic strategy. When it comes to retail business, now we have a quite handful. So it seems like we have a really large scale of business now. But already about one-third of the revenues comes out from retail. Whether the [indiscernible] is promising after this or we're going to look at the competition in the market and I am afraid that we have to spend a lot on advertising and then always spend on advertising and investments. And the more we have – the more contracts with the customers. So that’s why the business is going up. But on the other hand, in exchange for that, there are the financial situations and [indiscernible] the heavier amounts for example the spending on advertising. So in exchange for that for example in corporate finance and now credit scores goes down, now credit score goes down to zero, because zero then we know we've now secured that profit, but that is only temporary, it's not a long-term strategy. So that’s why for that banking, I think [indiscernible] and the housing loan should be the two keys areas so that we can improve the ROA. And when it comes to life insurance business and setting aside [indiscernible] the medical insurance and the 6-to-1 insurance, life insurance, then we have an incremental revenues and we’d like to keep this steady revenue growth. The profitability, we have the better profitability down the other life insurance in Japan, so that we'd like to -- first with the targets to be the top 10 insurers, but better way that the first priorities is the profit and revenues. And when it comes to the real estate and property business, we have about the hotels with turnaround business or with new hotels. So, now we are actually covering these areas and the real estate business. And also our profitability is at least 3% to 4% ROA which is substantially higher than the other business model of hotel. So, I hope you believe this. But we have actually potential projects in which we can expect higher ROAs. Anyway, this turnaround isn't the basis of our business. And the new hotel business startup is very, very expensive so that first of all we have to acquire that kind of property, we can make a turnaround. And also in the case of depreciation, we'd like to at least secure 3%. And now we have a ¥60 billion portfolio currently, but we like to do our utmost and that’s Japanese hotel type. If we can make them turnaround and secure the profitability, we like to make it into a ¥100 billion portfolio. When it comes to retail, always can't be that wholesaler. But it's a bit easier to say, but it's very difficult to actually break into this retail market, because once [indiscernible] try to build wholesaler, we educate their sales persons and so include an education employees, we like to do everything. We'd like to spend also for the retail, but all this performance and our reputations damage, but this an older manufacturers and retail business so that we don’t want that to hamper the brand of ORIX. Only we like to expand our retail. But anyway, we like to do utmost to expand the retail business. It was responding to your question.

Let us go to the next question, please. Next person please.

[indiscernible] Goldman Sachs. Thank you very much for your presentation. For the renewable energy I have a question. FIT system is going to be revised and the discussion is going on. What is your main scenario you have in mind? And also, how are you going to approach such a scenario? Or if you have no impact, I’d like to know. And also, in relation to the first question, then secondly, you have SPC type of also the projects. Are you going to have a private placement type of exit or securitizations? And how are you going to make all the business more liquid? Now since you are a representative of the company doing such a securitization, I believe that market is expected to grow with higher liquidity. So, what are you going to do in leading the market?

Now as for the FIT system, in the past several months all of the sudden in the newspaper negative campaign has been launched in a series. That means, in my personal opinion I believe that as a backdrop in order to promote the nuclear energy, I think negative campaign was launched to criticize against the solar energy as an extensive sources. Kyushu Electric and we work together and Kyudenko is our partner and Kyudenko is 100% subsidiary, our main subsidiary of Kyushu Electric. And as we have a discussion, it is always talk about alliance and collaborations and for us Kyushu Electric is going to accept everything for whatever we have arranged. Hokkaido Electric is not going to come into this business, because they do not have any business. And if they go expand the solar business, it’s not going to keep them grid. So there is different situations in each region. So we will talk with the different utility and then negotiate the cost and also profit and see the profitability in each region in making the decision. Now since we are the Japanese company, it is linked to the sovereign risk. Japanese government has come up with FIT system and for 20 years they have guaranteed ¥32. After several years, if Japanese government say they’re going to quit ¥32, it is sovereign risk. So if we start criticizing that, we have to be out of Japan and therefore the risk is nil in our understanding. Germany, Spain are the cases. In the middle, they had a system to be able to change the price. Of course the price comes down. But FIT is a system to keep the price. There is no option to reduce the price once contract is signed and that’s why we decided that we can take the risk. Now let me talk about solar energy. In the beginning, approximately 600 megawatts to 800 megawatts is going to be supported. It is going to be 100 billion to 200 billion and half of that is non-recourse loan. And therefore, approximately our investment is around ¥100 billion for 20 years with a 5% or 6% of net spread and 8% to 9% leverage in place. However, if we’re going to keep it for 20 years, it is not suitable for ORIX business model. So all the transaction, I am not going to say CLO, but cash flow is going to be generated and it will be subject to securitization and that’s the next step. In the beginning, there is a green tax system and others, so we’re going to enjoy the green tax. And once the cash flow becomes more stable, we will consider the next step and that’s our plan.

Let me go the next question then.

I'm Shiota from Daiwa Securities. I have two questions. My first question is about the shareholders and return to shareholders. You mentioned about the payout ratio, you like to make it more than 20%. And on the other hand and when it comes that -- this is based on the net income -- and you have the plan for about the [indiscernible] next year and this is 20%. So you can, so may we expect that kind of -- your forecast of the amount of dividend would be announced at the same time? And the next question is about the share buyback. You don’t think that for the time being, for example, a 0.9 times PDR and this is that – do you think that also this is very, very favorable situation for share buyback now where the PDR is less than 1? But still you don’t think about the share buyback. And my next question is about the focus for your next fiscal year. And now you mention you still keep your double-digit growth targets and so you mentioned also about the next years, and this is a gap from that level that we’re looking at your business and now we try to still aim for having the double-digit growth, there is a gap. How do you fill the gap? This is my second question.

When it comes to -- as far as the dividend, as concerns my former statements of the dividends, we did not make to the last minute so far. And also I do not to make any – I don’t want to mention anything about the dividends. But when I look at the current stock price, I think that I should mention something about the dividend and without any specifics to negotiations, so same discussions with [indescribable] extend to our directors. But they'll simply mention that we'd like to keep and maintain 20%. We still have five months to go and we have to change how to deal with these issues. But they will also have their internal discussion. So whether or not we give a forecast of the amount of dividends, when we announce the next areas of focus and still we don’t determine. We cannot make any commitment on that, I am very sorry. And when it comes to share buyback, we have a lot of questions and a lot of same questions of share buybacks including small meetings. But it’s not that we turn it down nor we reject the idea of a share buyback. It is also within the scope of our actions. But I myself think that share buyback is a last resort for us, returning to the shareholders. A lot of other things we have to implement or make a contribution to the investors, so that’s why -- and we have the other things with other higher priority. But still the share buyback also within scope of that actions and this is what I have been keep saying in the past two years. But still still we have kept growth right now. So as long as we keep growing, we'd like to allocate as much of the money possible to that investment for the future growth. So I hope you duly understand. And once that growth stops, would you please [indiscernible] again that you should buy back your share. But now this is the current situation. And when it comes to the growth for the next year and the future. The months this year – and before we made that deferral announcements, we mentioned about this year -- many of the analysts thought that our company will have the lower revenue or lower profits and on the [indiscernible] was sold and STX was sold. That's selling [indiscernible]. And at the same time we had your understanding and now the many analysts changed that [indiscernible] into the higher revenues and higher profits year-on-year. So we need to explain about that breakdown of assets in more details. We have a lot of assets which have that -- and realizing profits. And for example in these days we try to promote the selling of the aircraft and we already have 10 aircraft. In the past six months we have acquired these aircraft. Now we consider how to hold them or not. But now the markets are very, very favorable. So we already sold eight aircraft to the Japanese investors. And we already secured that large sums of capital gain. So this is what we are doing. And so this is all that business we are doing. But I don’t think that 10% growth is that much difficult. And also we have the asset base and then also again I am confident we can achieve the 10%. But we still have five months to go so that in the final numbers and figures will be determined and made a formal announcements to some specific timing. So I hope you understand this. For example in KIRARITO GINZA, we opened yesterday in Ginza. And the project started – development started two years ago. At the time they tried to 100%, but now – expensive. So that’s why we have only owned 20% and 80% was owned by the foreign capitals. And now we are also providing the asset management and also having the tenant fees. That was a very good timing. And we could have the 100% of the space for the tenants and now we can earn that fees from the tenants and we're fully booked already. So this is what we are doing in the other projects. So that’s why it’s not that difficult to achieve 10% of growth. So that’s why I hope you do understand that it is responding to question.

I'd like to move on to the next question, please.

Muraki, Deutsche Securities. I have two questions. My first question is related to cost. In the Appendix document on Page 11, you have SG&A and [indiscernible] 8 and compared to a year ago it is picking ago. And compared to the gross profit, the ratio of SG&A is getting larger. Of course Robeco and other labor intensive business is increasing its percentage and therefore it is pushing up the cost. But since the new companies are consolidated one after another, cost management initiative is very important. How do you take initiative in the cost reduction? Secondly, I believe it's a maintenance lease. IT expenses are recorded. In order to seek the efficiency and also the IT related investment for the growth, it's going to be incurred. In which segment and what scale in the third quarter? My second question is about U.S. business. Foreign exchange is moving with a lower yen and approximately there is additional ¥180 billion of assets accumulated. It is leveraged loan and CMBS and other secondary type of loans and also securities related risks that you took. But more recently, you have acquired a credit portfolio. What is the average yield you have acquired? And also for loans, I believe it is the duration of three years to five years. But, are you going to hold it to maturity? I don’t think so. Therefore, with the interest rate picking up in the coming years, such a variable interest floaters will be sold. What is your timing of exit that you have in mind?

Let me talk about cost management first. In net investment in the private equity, if you get more than 50%, it is going to be subject to the consolidation. And therefore, the entire corporate cost is going to be included in the ORIX. And when STX was included, there was ups and down in the cost items. So it did not look very well on the surface. But this is accounting requirements, so we couldn’t do anything about it. So in each segment for our investment return, we were trying to identify whether we’re going to make investment or not at the bottom line. After tax how much profit can be generated, and we have a hurdle rate and in order to achieve that hurdle rate, what has to be done, and that is the discussion we have with the head of the business. So cost management is done on an individual basis. For example for Robeco, it is a labor intensive business, you said. However, for Robeco, Harbor Capital or Boston Partners incentive plan was renewed and that will push down the commissions. The Transtrend CTA companies within Robeco, however the performance was quite poor. However, we jumped up and improved the performance. Transtrend was the company that we expected a notable profit. And when there is earnout, there will be a return, yield – a partial payment to the Rabobank, that has been the arrangement. So that’s the cost. Now with IT, ORIX System is taking initiative in IT development. But for the banking as well as for the life insurance, we have to have our own unique IT areas. And since it's a business requirement due to the law, we cannot do any changes of legal requirements. But we have renewed new systems for the automotive cut over, over the system for the automotive system has been done and therefore there will be additional cost. For the IT strategy, it is very simple. We’re not a bank. The number of transaction is not so huge either. And therefore, basically if we can do it manually, we do it manually. However when it comes to retail business, we’re going to have a least average IT system. A least social level of the average level of the IT has to be supported, even though it might not be the top of the premiere level. For the individual information, personal data information leakage, even though we do not have massive information of personal data, we would like to keep the system so that we can have a good management of the personal data and the personal information through our IT system. And therefore, they would not have a massive investment in IT excessively. Now let me talk about the U.S. business. Syndication loans have expanded recently and this business is very much dependent on the market. We’re going to leverage these assets to have CLO and other non-recourse loans. And we’re already working for the securitizations. Of course there is a market in this area and therefore we’re going to tailor to the needs of the market to make a decision. And if it's attractive for us, we’re going to do that. We do not consider any hold to maturity. We are going to secure the liquidity, but we’re going to turn the assets. And therefore, the acquisitions and transactions of the assets in the U.S. is also based on our idea.

What is the portfolio superficial on duration or the yield?

It is 4% to 5%.

So 200 billion and the balance might go up or down? So is the income that you expect?

Yes.

We’re allowed to have one last question.

I am [Kawuhara] [indiscernible]. There is another question that initially President mentioned that the base profit and capital gain in credit cards, these are [indiscernible] get them separated and get them together. But some time ago, the sell side also made some assumptions and a lot of the gas is made by the sell side and before you make the disclosure and we had a lot of much confusion. So it will be very, very informative for us if you disclose all these information. So that’s why you just – you said disclosing all these detailed information. So, now for example the gains from the SK group selling and you disclosed the capital gains. That’s why we can understand that you have a very good assumptions of a business and we take advantage of that information so that I hope that would you please keep disclosing that’s the same information also after this? This is my request.

I truly understand that you request. But as I explained that for one single project and for example as private equity 100% we have acquired private equity 100% on the PL. And all the profits would be reflected, recognized. These are regarded as base profit. But now we have a client and also project is that made exit five years ahead. And the capital gain, how much of the capital gain we expect, about 20% or 25% IRR. This is the basis of the projects and five years ahead and we sold that project. So, these are older profits, for the one single united projects. So then we have more of the retained earnings and rather than PL we have more to retain earnings and to have the value up and we'd like to invest that and for more profits in the future. This is the basic that business owned in the PL. But we have done a lot of capital gains and so that’s why they have the high volatility for the ORIX. And so we like to point to that situation. That’s why as CEO I'm determined to remove that. So that’s why in change for that we disclose that PL for each segment and also expenses and I’d like to disclose all the inflation for each segment. And if there is any request that you need some additional information, then we'd like to think about it again. So, I hope you understand how we think about it. For example, also for the [indiscernible] business and we look at the depreciation at the PL -- depreciation is in the PL, so that this will be decreases in the non-recourse loan and securitized in that business and when we securitize them, we also have a capital gain [indiscernible]. And this is based on – now you have the present cash flow, cash value for the 20 years of project. That's why – so this is cash flow what realizes now, but although I explained that. But everyone think about that’s the capital gain. So we like to avoid that kind of discussions. And we have determined to change that disclosure rule, but this is not final. And like to IR group and we'll also keep disclosing all this informations. And if you have any comments, I would like to listen to your comments and I'd like to anyway disclose that any convincing information.

You mentioned that -- but some of the analysts think that to secure the capital gain, is that the corporate business of ORIX is about half-and-half, 50% of the investors think so, but anyway. Okay, that’s all. Thank you very much.

Thank you very much for joining us today for this business performance briefing meeting. Thank you very much. Thank you.