ORIX Corporation (IX) Q2 2016 Earnings Report, Transcript and Summary

Thank you. My name is Kojima, and I am CFO of ORIX Corporation. First one, I'd like to thank you for your time for our earnings reporting for the second quarter ending in March 2016. Allow me first to explain our first half results. So will you kindly please turn to Page 1 of the basic materials, please? First, the outline of the performance. Net income for the first half ending March 2016 was, as shown in this graph, JPY 161.3 billion on the year-on-year basis, actually 14% increase. Following the first quarter, we achieved almost JPY 80 billion in the net profit in the second quarter. This shows the annualized ROE of 14.7%, 14.7%. We are aiming at, again, for the March 2018 JPY 300 billion of net income in our midterm plan. We announced this 6 months ago. And in this very first year, particularly in regard to the performance in the first half, I believe it is fair for me to say that we're able to have a good start. And actually, we are able -- we achieved large capital gains in the first and the second quarters. And also we are able to have the steady growth in our core business operations resulted in steady growth and profit in each business segment. Next, would you please turn to Page 2? Segment profit. For the past 2 years and also as well as this first half of this fiscal year, as shown in these 3 bar graphs, segment profit, JPY 244.8 billion, up 21% on the year-on-year basis. The Corporate Financial Services, Real Estate, and investment and Operation, and Overseas Businesses, actually those four segmentations actually enjoy the strong profitability. And also, we were able to enjoy the good growth in the Maintenance Leasing. When it comes to the Retail, actually second one from the top, the Retail portion. In the previous fiscal year, particularly in the first half, we sold the sales of the stocks of the managed group JPY 15 billion. And also in the second quarter, we have done a bargain purchase gains as much as JPY 36 billion, putting together JPY 50 billion. So we had that capital gains because of that investment, particularly, in the period, actually, we had dip. So excluding the JPY 50 billion, of course, our profit actually grew. So as for details, I will cover details in each segment. Next, please, look at Page 3. We are looking at segment assets. Segment assets actually compared with the previous year actually 4% actually declined by JPY 400 billion. So the number here was JPY 8.8 trillion. As for details, I'm going to use the next slide, that's where the details. We sold assets under good marketing conditions. So now we worked on this line of activities. So we had a decline in assets because of this. Moving on to Page 4, please. Here, I am going through all the movements of profits and assets. That's what you see here. First, please look at the left chart of the profit -- net profit. In September last year, actually, JPY 201.1 billion actually became JPY 205.7 billion on the year-on-year basis, JPY 49.6 billion, almost a JPY 50 billion increase, that's what you see here. We had the difficulties in certain businesses in the fiscal year period. Actually, we sold the new investments included. In other words, if you are looking at growth of the existing business, actually as much as JPY 42.4 billion. And also in the first half, we realized the capital gains JPY 90.7 billion and also in the Real Estate sales and actually JPY 14.7 billion, respectively. So we had those increases, but at the same time, in the previous fiscal year, if you remember this point, and actually, Monex and Hartford Life and others actually, we actually had capital gains from this, of course, they are gone and JPY 87.2 billion. So that's the decline we had in this particular period. In the Real Estate capital gains, we had JPY 11 billion in the first half and previous year. So with that excluded, JPY 215.7 billion all in all. So we had those capital gains and the Real Estate gains actually and, of course, we had more numbers in this first half and also we had challenges as much as JPY 42.4 billion. And furthermore, earlier in our segment and asset was covered by me earlier, JPY 400 billion, almost JPY 400 billion, actually down JPY 442 billion. And as for the analysis behind that number, as for this, we had new investments. And actually, we had some ups and downs in there. So as much as JPY 162 billion. Actually we increased in asset there. And Hartford Life, next. Of course, this has been explained every time, if you remember this. And actually this is treated as run-off. So actually asset is going to go down as time goes on. So in the first 6 months and actually earned JPY 360.5 billion. And also Real Estate sales are actually JPY 81 billion. And PE investment, private equity investment in 2 companies actually we exited out of these 2 companies, actually down JPY 13.2 billion. And looking at domestic entities as well as we have in the U.S. subsidiary or subsidiaries, and we worked on the securitization. And actually our segment asset went down by JPY 90 billion. As for foreign currencies and FX, of course, so far, we had positive direction overall. But in the first half, particularly the Asian currencies vis-à-vis the Japanese yen actually became weaker. So those Asian currencies became stronger and vis-à-vis the Japanese yen and actually JPY 45.9 billion was the impact we had negatively. And that's JPY 400 billion down, and 75% out of that come from ex-Hartford. This is one point. And also we advanced capital gains. We started to realize the capital gains, particularly on the -- we worked on the object of Real Estate on the business as well as the securitization. So they are the major factors behind these numbers. And Japan as well as outside of Japan, asset actually increased in the following segments and automotive leasing and also in our environmental energy, renewable energy, I'm talking about here, and ORIX Life and ORIX Bank. And also, the aircraft business. In this segmentation actually, we had strong growth. And I'd like to move on to the next page. In this page and onward, I like actually go through the details for each segmentation. First, I'd like to touch upon Corporate Financial Services. Actually, nice profit was up 71% to JPY 21.6 billion. There in our segment asset actually in the first quarter, now we had the securitization of as much as JPY 40 billion. So that had impact on us here. And as for -- due to the decline in leasing, of course, there was a decline in the financial assets, but we had Yayoi. We -- actually Yayoi made contributions. We acquired Yayoi. And also we had life insurance sales and fees, particularly for SMBs, and also the solar panel business. So the fee businesses out of this life insurance business has actually helped us to increase the service revenue quite dramatically. So in terms of profitability, if you remember the number, actually JPY 12.6 billion becoming JPY 25.6 billion -- JPY 21.6 billion. And please look at central graph in terms of the service revenue. ROA as shown on the right-hand side and ROA became 2.6%, and we had capital gains in the first quarter by selling the marketable securities as much as JPY 3 billion. So excluding that, still our ROA now is going to be 2.2%, 2.2%. I think we are able to increase our profitability. And several points I need to explain upon, and actually we pay more attention to the new fields, such as agriculture, in September in Nagano Prefecture. We started producing Yatsugatake brand vegetables. Our Corporate and Financing, of course, it has the longest in history within ORIX and also it's based upon the extended network of relationship we have had, and we have a strong expectation that this new field is going to benefit us as time goes on in terms of profitability. Now please open Page 6. So Maintenance and Lease segment. So this is segment profit, increased 7% Y-o-Y to JPY 23.1 billion. In segment assets, automobile is the major area and asset has been accumulated and increased. And as a result, versus previous term, 6% up. And not only lease profit and also finance business profit was the result in the maintenance service as well as telematics. That is additional value service delivery, so that service profit has favorably increased. In this segment, we had leasing and rental asset has been accumulated, and we have competitive advantage in service area, we have accumulated profit and stable ROI and also high profitability. This is what we'd like to keep and maintain. Now please go to Page 7. So this is segment performance. Real Estate. In Real Estate business, as you see here, JPY 15.8 billion and JPY 33.7 billion. So that means segment profit increased by 2.1x year-to-year, JPY 33.7 billion. So there are some major reasons. Well, leasing property has been sold out, and this is capital gain. And also in the past, there was an impairment impacting us in the past. So this amount has become substantially smaller. These two have impacted our end result. On the other hand, in the segment asset continuously, property selling is pretty frequent and pretty sizable. Versus 6 months ago, JPY 80 billion sales reduction. So June end, JPY 48 billion decline is what we have faced and September end the balance was JPY 753 billion as a result. On the other hand, in our operation business, continuously, we had hotel and hot spring businesses and in this accommodation, inbound tourist number has increased. Therefore, it is a pretty favorable, sizable result. Now please go to Page 8. This is segment performance. And the segment profit increased from JPY 14 billion to JPY 36 billion. That is 2.5x year-to-year to JPY 36.5 billion. This is a substantial increase. In this area, just like Real Estate property business, in the first half, there was a sizable exit we have done. To your right, we have segment asset. Energy and environment area, that is in the middle, this has shown some gain increase, but in other areas, there was some decline. In total, 9% decline from the previous term. Principal investor -- PE Investment business, in the first quarter, 2 investment exit has been done, and profit -- capital gain has been posted. And also we have invested in the past fiscal year net of Japan and also other 3 companies have contributed to some increase in profit. So it has contributed to profit increase. Last year, by the way, in the first half, the number was Daikyo relative. But this time, Daikyo has posted positive result. So therefore, in the first half, it has contributed to the profit gain. And Energy and Environment business, segment asset is JPY 170 billion. So breakdown mega solar power generation, including solar -- including mega solar business, the end of September, we expect 800-megawatts to be secured. And in that area, 30% round about 230-megawatt 30% is lower will be megawatt we have commenced generation. At the end of fiscal year, 400-megawatt to be commenced. In the next fiscal year 600-megawatt is the progress we will be progressing stage by stage in our commencement, and it will contribute to our profit. And the new investment will be ongoing, and at the same time, we will be selling asset in the good market situation. ROA is 7.7%. It has been continuously high standard we have kept and maintained. Now please go to Page 9, that is Retail. In this Retail segment, like I told you before, last fiscal year, JPY 50 billion sales gain contributed to JPY 770 billion. And there are some normal unique cases. JPY 32.1 billion, 58% decline. In the segment asset to your left, revenues and profit credit, life insurance. It is a very stable asset increase as you see on this chart. On the other hand, Hartford Life Insurance step-by-step we will be completing runoff activities. In the middle, we have life insurance premium and related investment income. So it means the dark blue color, this is ORIX Life Insurance. Asset increase and policyholders increase has contributed pretty healthy gain, but all Hartford Life Insurance, that is operation gain. In the first half, it has shown negative figure. It means that variable insurance is what we have been involved with by Hartford. The Hartford asset is based upon variable insurance. In the middle August to September, middle of September, there was a China market shock, which has impacted the -- all over the world marketplaces and market has become weak. So there it means Hartford asset valuation has declined. So that was minus, negative profit posted. Therefore, JPY 50 billion change or minus figure is what we had seen at the very end. And as for this part, operational asset has declined. It's a variable insurance. It means that policyholders or customers asset will be declined. It means that ORIX's business does not include this part or area. We are not going to see any direct impact. But from profit impact point of view, there's one thing. Volatility will be higher. It means that hedging deserve -- yes, volatility is high. It means that we need to increase more deserve part. This is a deserve we needed to accumulate as our responsibility. In this quarter ORIX profit or income has gone minus. Now let me go to the next page, Page 10. This is the very last page. This is Overseas segment performance. In the second half, in the United States, Houlihan Lokey IPO was completed in the United States. Our shares have been partially sold out. And also due to the listing activity, valuation gain has caused JPY 40 billion to be posted. So the change was 59% profit increase from JPY 61.5 billion to JPY 97.9 billion. In the first half, in the first quarter, if we ex-energy capital gain was posted as JPY 16.1 billion. These are major capital gains. But except for these major gains, in other consolidated profit, it was increased by, as a total, 28%. There are some major reasons why. Service income includes Robeco asset management income from Robeco, which has increased, and also Asian investment business has seen securities capital gain. And also in Asian local companies, mainly from automobile leasing, has increased income. In the segment asset from the previous fiscal year, it has flat, but except for foreign exchange impact, it is a asset gain by JPY 39 billion. So in business by business level, aircraft business, JPY 60 billion and local companies round about JPY 20 billion, asset expansion was favorably reported. On the other hand, in the United States, Houlihan is not in our consolidation and also multiple bonds were sold out and securitization of loan assets have caused asset decrease. So this concludes our first half business results. So now we'd like to have from our group CEO, Mr. Inoue. So he will be covering midterm cover plan and also return for investors. Thank you.

Thank you. My name is Inoue. Now I'd like to take this moment to express our heartfelt appreciation to each one of you for your support. That said, again, you have just received the report by Mr. Kojima, our CFO. There is going to be overlaps. I hope you bear with me. Net income for the first half full year ending March 2016 actually was JPY 161.3 billion, up 14%. I think it is fair for me to say that we had a good start in -- for first 6 months and of the midterm plan very first year. In line with the macroeconomic outlook, now we assumed ORIX actually exited PE ahead of the time. So we're able to actually generate the profit in the first 6 months. Since August, the market has been somewhat in the confusion. Going through Chinese regulatory market fluctuations and renminbi depreciation and delayed rate and increase in the U.S. yet we successfully listed Houlihan Lokey, overall, I think we have in the 6 months. In regard to Houlihan Lokey listing, actually, we sold about 15% of stocks for the price of $21 per stock. The valuation -- the value was JPY 14 billion. Right now, for your information, the stock price is moving around $22. But according to the equity research and target price, the price is -- stock price is in the range of $25 to $28. So definitely we are going to keep an eye on the things going on, and then we're going to make our own decision. For your further information, actually, we have become equity method affiliate. We used to be a consultant company. So from now on, this is going to be the new role we're going to look into as for the financial accounting. In the first half, we gained JPY 60 billion capital gain. But in the second half, actually, the contributions from the capital gain, I think it's going to decline. In the second half, we do expect those contributing, a lot more contributions coming from existing business operations and also we are going to pay more attention to the new business, the investment opportunities. As for the net profit, we have target to achieve net profit JPY 300 billion for March 2018. Unfortunately, [indiscernible] was downgraded. And 2 days ago, S&P actually came up with an ORIX rating, right now the A- and stable. Well, of course, no changes for the rating, but an outlook became negative. That was the latest release, unfortunate release we have received from S&P. The Japanese financial sector [indiscernible] and also [indiscernible] assets are going to be restricted according to them. Therefore, S&P decided to come up with negative outlook for general financial sectors. That said, though, our business competition is different from the other players in this industry. In other words, I don't think now we are in [indiscernible] of the financial sectors, but they do believe that there is going to be a sort of impact upon us. Well, in terms of the projected risk-adjusted capital ratio, the so-called RAC ratio. We -- if it goes below 10%, then according to them, and they are thinking about downgrading. And right now, our RAC ratio stands at 10.8%. We are going forward. Actually, the company has already decided to expand our new investments and activities. But again, it's very important for us to keep an eye on the RAC ratio and while defining on very specific investment activities. So we're going to be very careful going forward. Allow me to now spend some time to share some of the best philosophies in making new investments, of course, in cash flow contributions and also improvements of ROE. This is going to be the basis for us, and also it's got to be the growth of the opportunities. We have in critical areas, environment energy and networking of Asian regions and asset management and private equity investments have been identified. I think it is in these areas we have made substantial progress. First in environment energy, we have already secured actually 800 megawatts. So while group-wise, 900 megawatts. Actually, we're able to secure that much for the mega solar operations and also now, we are going to be having our own power supply. So we'll act naturally and extend our stable on the system, and we are going to be working on the power retail and business opportunities, and being more specifically in the storage battery system retail services and also low voltage and power retailing and others are now going to be quite important driving forces. And on the energy -- environment energy is one of the important areas for our global activities. Of course, we have to be careful and fixing the challenges one by one and out of that we should be able to expand our business opportunities. As for our own power development, of course, we have the coal-fired power as well as biomass. We have combined our facilities, and actually 2 sites as much as JPY 80 billion, 112 megawatts. Actually, the activities are in good progress. As for the PE investment, actually, we have acquired an auto loan company in Indonesia. And also in Cambodia actually started to make more investments in ACLEDA Bank recently. Here in Japan, we have acquired Cosmolife for the spring water producer and distributer business. While we're working on acquisition strategies, at the same time, we are making new investments in these areas. In regard to the asset management and unfortunately, there's been no visible progress for the past 6 months. Well, the reason for that is I would say the acquisition price is way too high. But going forward, definitely, we're going to look into the potential M&A activities. But in the meantime, I think it's well for us to fully leverage existing network. In other words, we'd like to grow organically out of this existing network. And of course, we have to further work on extended portfolio in our aircraft business, and narrow-body type is going to be the driver actually. We have already secured JPY 90 billion in investment. So things are going to become lot more specific going forward. As you know, we submitted proposal to the second screening for the new Kansai Airport concession business in September. In November, the bidding result will be announced. It is a joint business with the French VINCI Group, and we plan to participate in the business as an equity method affiliate. The detail cannot be disclosed at this moment yet, but taking this business as start, we would like to participate in the concession business. The second half of this year, we think there will be a GAAP to be adjusted in the market in some of the areas. China devaluated renminbi currency. And with possible interest rate hike by the United States, will return the margin country's capital back to the United States, which will fluctuate the foreign exchange and volatility may increase. We need to be conscious with our countermeasures. China may continuously have the government support. However, there seems to be no good impact, and we cannot feel at ease about the effect. Also, our exposure to China, it is round about JPY 100 billion. It is small 1% versus the total segment asset volume. They are local companies, this asset, and the joint investment with the Chinese excellent companies, and there are no specific concerns. The U.S. shows high yield bond, and the debt balance are showing higher level versus that of pre-Lehman shock period, and also the housing loan and other loans past the peak period may even be an advanced warning of crisis-like situation. It may not be another Lehman Shock, yet we expect some adjustment or foreign exchange fluctuation. Impact to Asia. Local companies earnings did not decrease and the level of bad loans or defaults has not increased. Yet, we need to stay cautious with the foreign exchange. Japanese situation is relatively good. The real estate market is growing, yet it is not like an overheating we had during the bubble period or it is not overincreased purchase for resell. It is a mad overheating. We think that real estate industry, the major buyers, including us, learned from the Lehman shock. And also the inbound tourist business shows some relativity with the Chinese risk. However, it is a stimulus in many ways to the Japanese domestic market. And it will bring, step-by-step, a variety of business chances. And also with the concession business, TPP and other changes in the Japanese economic environment will bring about possibility for many business chances. After the Shanghai shock market in August, the market has been unstable. And if downtrend gets more obvious, more investment chances will arise. It is necessary to increase asset, and there will be definitely good opportunities, yet, basically, we stay cautious. Based upon the census in the market, we will take a strategic position to achieve the net income target of JPY 300 billion for March 2018 period. We continuously like to use the capital for investment to achieve a sustainable growth. Simultaneously, we make an all-out effort to bring the investors' stable return. We have already announced that interim dividend is JPY 22. And for the year-end dividend it is expected to be JPY 23. In comparison to the first half, we do not plan a big capital gain in the second half. So the total year dividend is JPY 48 (sic) [ JPY 45 ], versus JPY 36 from the previous term. It is up by 9% -- it is up by JPY 9 and up by 25%. Fundamentally, this term dividend payout ratio is 23%. And with the possible increase in the net income, naturally, we change the year-end dividend. Let me repeat once again. We had a good start to achieve the profit target of March 2018. In the first half, we made advanced selling before the adjustment period, and we posted in advance capital gain and valuation gain. The existing business made a fair profit contribution. The first half net income versus previous term is up by 14%. That is JPY 161.3 billion. The second half, we concentrate on new investment by taking changing environment into account. While we increase the stable profit to reach the March target of 2018, we will achieve JPY 300 billion net income, and we will create solid foundation for the sustainable growth. We'd like to expect that ORIX will make our 3-year transformation growth and social themes into our profit opportunities and business opportunities. Thank you very much for listening.

Thank you for your patience. Let us now have questions-and-answers. And if you have any questions, would you please show your hand while being seated. Before you ask questions, I'd appreciate if you can identify who you are and your affiliation as well. Please show your hands if you have any questions, please.

My name is Watanabe, Daiwa Securities. I have 2 questions. First question actually concerns your dividend payout ratio. Actually 23% and that is going to be the basis actually JPY 45 for the full year. In other words, so the annualized EPS is going to be JPY 196 and first -- JPY 123 subtracted actually then the answer there is going to be JPY 73 is going to be the base. This is the first question I'd like to ask you to double check on this. And second question concerns the exit on the pipeline in second half. Actually hotels and others associations had realized the value. And what's going to happen in terms of the capital gains whether or not you see that capital gains are going to be realized, particularly in this area and moving into the second half? These are the 2 questions, please.

Thank you again for your questions. And concerning question one, allow me to make the following response. You're right. In the second half, we do not expect there is going to be big capital gains. In other words, we are going to be based upon the income coming out of the existing lines of business. And that has been the basis. And we're hoping that there could be an upside. At the same time we have to look at into actual movements on the market. So with this point in mind, actually, we have come up with somewhat conservative numbers, so to speak. When you go to hotels and others, I think in the beginning of the fiscal year, in the hotel there was talk about and we announced that we have a plan to launch it. I think that's what you're talking about. But looking at income, expect -- extended income growth on the side of inbound. So probably, it's what [indiscernible] on it on somewhat a longer-term basis. So there's going to -- there could be certain delays in this regard. It all depends upon how you see -- what is going on, on the marketplace. The income out of the hotels -- and maybe we should be able to enjoy the income out of hotels. Maybe we can work on peak out the best case scenario. And so you may say that we have come in a great year. But again, thinking that we are having unrealized net profit substantially, for example, Universal Port, actually there is -- and actually that land called annex, annex [ph] land. So actually development is underway on that annex [ph] land, and it is going to be officially opened up 2 years from now. So with that asset in mind, probably that is going to help us to give us a more stable asset structure. Did I answer your question?

From Merrill Lynch, my name is Sasaki. Page 12, please, I'd like to ask you a question. Payout ratio 23% dividend and annually you have JPY 260 billion. So it means that the JPY 200 billion, it is internal reserve amount you are expecting at this moment. So JPY 200 billion, how much will be the investment amount to secure this reserve? And you may think of some sizable amount of Investment in the future, coming to think of these numbers. So as for new investment, do you have any plan as long as you can tell us? And also payout dividend ratio, the future trend, this is what I'd like to know. Page 12, due to this drawing, 3 to 4-point percent increase per year. So 30% for 2018. Is our understanding correct? So these are 2 questions.

[indiscernible] JPY 200 billion hidden profit. That is book value for profit.

Yes, JPY 200 billion and internal reserve is what you will keep, right? JPY 200 billion internal reserve is what you're thinking about. By using this capital, how much level of investment do you think you will be conducting, yes, please let us know as much as you know.

Well, for the timing, we have pipeline. Internally, we have made an approval investment. First of all, in aircraft, 92 -- JPY 100 billion aircraft. And step-by-step, gradually, we make investment for environmental and mega solar. In total, JPY 100 billion step-by-step. So it means that JPY 260 billion profit means that JPY 60 billion dividend and others is pipeline. So this is what we're expecting. And additionally, perhaps, PE investment will continue. Will never disappear. Therefore, I myself think that some tens of or maybe, yes, billions level of investment will be in place. And also, dividend payout ratio. In the past, we had some stance about ORIX. Step-by-step, we had increased our dividend amount as our payout ratio. It continues. 20% last year, this year 23%. So step-by-step, we would like to increase the payout ratio. But if it were 30% of the payout ratio, it does depend upon what situation we will face. For the time being, 23% is what we would like you to accept.

My name is Muraki, Deutsche Securities. 2 questions. Question number one, actually what kind of [indiscernible]do you have vis-à-vis the market environment? In the second half you told us that you are becoming somewhat conservative actually [indiscernible] actually out of the emerging markets and pushing up the volatility. And also credit in the U.S. has already peaked out. I think that was the kind of story you have in mind. So with that point in mind actually, you actually wanted to hurry up and actually make an exit. So how long this adjustment is going to be lasting? This is my question. And you're going to be really smart if you can make investment and -- when market hits the bottom. But sometimes that is going to be quite difficult, frankly speaking. But again, this adjustment process this time is going to be short in time. Now that's moving into the next fiscal year. You think that you are going to expect to see bottom out quickly and moving into better [indiscernible] to come or would you say the other way around? My second question concerning the rating. And according to the S&P report, A- rating I think, and I think downgrading for that I think and it could be based upon two stories: nonbank anchor [indiscernible] or another case and it could be your capital ratio, equity ratio actually modify the capital ratio and equity ratio and that could be less than 10%. I think these are the two possible drivers for the downgrading of your rate. As for the latter half, of course, you can actually try to apply the stricter management. [indiscernible] M&A, and the large M&A definitely is good to have negative impact in this regard. So you do not believe that you should be able to find good companies to acquire. And the second point of concern, 10% or less, again, without an anchor number in mind, again, having nothing to do with the actual capability and you may become BBB. Moody's actually has already given BBB. But with this point in mind, that turn of rating, what kind of visible -- invisible impact it may have on you?

Well, first on the market environment, maybe we shouldn't be worried so much. But the rate raise in the U.S.A. may have impact on the stock prices in the Southeast Asian countries, particularly Indonesian stock market and has been in that [ph] situation. So with that point in my mind, probably bottomed out. And so it is going to be quite difficult for us to have full hedge vis-à-vis the South Asian countries. So I have to be extremely careful in this regard. And 2 years ago now we talked about investments in Brazil, but we decided not to go for that investment. I think we were successful to not make any investment. Actually, all these prices actually have started coming down. So we are given a lot better negotiation power. So if I want to make an action in a hurried manner, I think we're going to -- we are doomed to fail. I am hoping that they will raise interest rate as soon as possible and they decided not to raise interest rate this month and how come you're still delaying the raise in increase. So that's the kind of feeling I am having when it comes to the U.S. interest rate. So what is going to be a good place for investment? Probably Japan. Well, Japan versus U.S.A., actually, we're not showing good numbers in regard to the U.S.A., but actually disclosure is there solid and also governance compliance actually they are good companies, who have no governance and compliance issues. So definitely I need to look into Japanese candidates as well as American candidates. And also FX situations will make me somewhat less than active talking about M&A in South Asian possibilities. And also China, same, I have to be careful. As for the rating, even we are downgraded and that is not going to have almost no impact on our business activities. Actually, we have -- actually, we have borrowing range with most of them with domestic Japanese financial organizations. So we're going to be okay. But what's going to happen if another Lehman shock came about, comes about? So BBB, we like to maintain an A level as much as possible. That is our business assumption. But at the same time, just it's not the case that we're going to give the top priority to rating A. If they are really good [indiscernible], so to speak, we should go for it and why not? So we are going to anyhow looking into the balance between the rating and specific business opportunities. Actually, financial asset accounts about 25%, non-financial asset accounts for 75%. So even if an anchor rate goes down, make sure that we're going to ask them make sure that you should not put ORIX in sync with other players. What we're asking for in this situation already, and this is going to be continuously done going forward. Again, no -- the rating has no impact on the business activities. Yes, next question please?

Goldman Sachs, Noda. There are 2 questions I'd like to raise. First one, retail business ROA. So first off 1.2%. And CEO was talking about some number, and [indiscernible] ROA 3%, and these numbers were not reached. However, when it comes to Corporate Financing, you have made a pretty good jump. Is there any countermeasure you're going to take or nonorganic development to progress may be planned already in your mind, let me know. And next one is asset arrangement or sorting changes. At the beginning of the term, you are talking about investment and also sort out of your asset PE existing Houlihan and the Real Estate, these are what you have talked about. So these are what you have been talking about as rearrangement or maybe some multiple level of rearrangement or resorting of asset kinds? I'd like to know of them.

As for Retail, fundamentally ROA below because of the bank situation. CFO -- former CFO, Mr. Urata, he was talking about to, yes, ROA improvement. He has been a bank president. ROA cannot be improved right away. But in ORIX Bank, employees came from other banks more and more increasingly. So ORIX Bank is getting just like an ordinary bank. Therefore, what you'd like to rethink again what ORIX Bank could do, we would like to review what we can do as ORIX Bank. It may take some time. ROA may not go jump right away, but plus Alpha [ph] means service business so that we have our own business ongoing. So we make an all out effort to make an improvement. Please wait for some time. And also rearrangement of asset or reassortment. Ordinarily, when it comes to Real Estate business, we made a mistake before Lehman shock. We have sold some property and reassortment was done. Right away capital gain was achieved and we bought at high price and it has become a legacy. De-assortment means that you have to sell at most appropriate moment, but before markets decline, you keep and maintain or you sold the property, for instance. So reinvestment in property is not our plan, truly. Well, capital gain -- actual capital gain is JPY 10 billion. We needed to see the fluctuation of the stock prices in the future; what to do and how to do. Naturally, we see the marketplace and Houlihan and post-Houlihan, it's not going to be the same type of purchase. It could be assets simply or tangible asset purchase in the future. This is a decision to be made. We have variety of businesses. Well, Real Estate maybe bad or aircraft or warships and vessels might be another choices. Well, reassortment within the same industry will cause our mistake. This is our fundamental understanding. I hope I answered your question.

Tsujino is my name, JPMorgan. Concerning dividend, payout ratio actually is planned to go up piece by piece and bit by bit and JPY 23 this year and last year JPY 20. I think that's what I was hearing from you. Well, this year, first half, you had profit, this much. And also moving into the second half probably JPY 110 billion is what you have in mind. That is why you have come up with a JPY 45. In case you're not having big capital gains this fiscal year JPY 230 billion or the one higher in that range, the number actually was in the lower side. May be dividend is not going to be lowered. Again, what's going to happen to payout ratio? And probably it's not going to be traditional payout ratio tactics and probably payout ratio may jump up once you have -- once you could have achieved such range of numbers. Next question, actually, I have to go into details, sorry about this. In data book and actually I'm looking at Page 11 in this data book. Overseas Business, for example, [indiscernible] that's the number I see. And out of that JPY 40 billion, actually comes from Houlihan, and the remaining JPY 7 billion is quite large. In other words, again, this is a mixture of the subsidiaries and reorganization. I think that was the kind of explanation I had received at one point. I wonder if you could clarify that point whether or not this kind of thing, it is going to be sustainable. Appreciate if you can expand on those questions.

In regard to the question on the dividend, let's assume that in the second half, we had really bad performance and still going to change in the JPY 23. In other words, the payout ratio is going to go up automatically. And also minimum 23% for the next fiscal year and probably our profit is going to much better. And so shareholders are not going to be satisfied with JPY 23 , so this is going to be the baseline, bottom line, and we are hoping that we can actually go up beyond the JPY 23. And talking about the next fiscal year, and actually 3 years from now, we are going to aim at JPY 300 billion. And actually, we are not considering a dip scenario, but in case seeing a dip has taken place. Of course, you're right thinking that we have through [indiscernible] procedures. Again, still, we have to return -- we have to give returns to shareholders. I think in the core is going to be the growth. I think my important job mission is going to make sure that people are going to look at ORIX as still a growing company. And CFO is going to program -- going to ask the CFO now to go through the numbers. But before that, in China, we have a security, the prevention security on our company, and of course, we had Shanghai shock actually that on a company business actually has gained JPY 2 billion in capital gain.

Well, I may go into details. Actually, I will not give you any specific detail numbers. Again, on this and Chinese case our COO was talking about. Actually Handy Terminal [ph] is the name of the company. That was good case in point. And also in the United States, actually, we are making the investments in the funds. Actually, on a profit that was as much as several millions of yen. So we have many pieces in this genre, so to speak. Therefore, crime prevention security, I think minimum JPY 2 billion-plus. But other than this and actually it is going to be a collection of JPY 1 billion or less. So it is the collection of all these small ones put together. Did I answer your question now?

Well, even under those circumstances, well, whether or not you can maintain all this on small cases and going forward. And extra question, if I may. Some time ago, what is the valuation in terms of loss on the side of Real Estate. I think you shared the ballpark numbers there. Actually the investment -- the profit seems to going up even though you have not realized them yet. I wondered if you could share your thoughts in this regard.

Hidden profit is what you would like to know? When it comes to JPY 55 billion in the securities report, this is what we have, yes, described. Selling and buying, it was already materialized as selling gain. And naturally, when management for result is getting better. When it comes to investment in leasing business, your profit is materialized out of JPY 50 billion in existing part, rental and also rotation has become better. Including all of these valuation, valuation gain will be different. It does not change so often. However, in our front line, there are many cycles. But once a year we evaluate this business to sell properties first and materialize profit is one thing and also profit will be increasing. So therefore, it is a little bit of gain. And as for U.S., it's not that great. However, as for the investment profile, it is not great, but however, it is still gaining. Management. Some hundreds of billions of yen in management of assets. Yes, we have risk and hidden profit is JPY 200 billion according to some report, but we do not reach that level of hidden profit. I hope you are -- I would like to have you understanding. So I hope we answered your question.

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