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5/8/2024
It's time to begin the meeting. Thank you very much for joining us for the 12th Conference of Oryx Corporation for Annual Results for the Consolidated Fiscal Year ended March 31st, 2024. My name is Nakane from the Investor Relations and Sustainability Department. I'll be the Master of Ceremony today. Thank you. The attendee at today's conference is Mr. Inoue, member of the board of directors, representative executive officer, president and chief executive officer, and also Mr. Yamamoto, operating officer responsible for investor relations. As we begin, we would like to request all the participants to make sure that any mobile phone or other communication devices nearby would be either turned off or be put far away from the phone in order to prevent feedback. We will first of all hear from Mr. Yamamoto, and then followed by explanation by Mr. Inoue, and then Q&A session. The whole program should take approximately one hour. Mr. Yamamoto, the floor is yours.
Thank you for the introduction. I am Kazuki Yamamoto, Operating Officer in Church of Corporate Planning and IR Departments. I'd like to make use of the deck in front of you to provide you with FI24 merchant for year earnings briefing. So please turn to page 2. So the right-hand side of page 2 shows Oryx's record high profit for the year, FI24 merchant, with net income of 346.1 billion yen. And this is a year-on-year increase of 55.8 billion, up 19%, ROE rose to 9.2%. Now, quarterly trends in net income is shown on the right. Q4 net income was 126.9 billion yen. This is OREC's highest quarterly net profit figure to date, even higher than the 22 fiscal year March end when we sold Yayoi. Profit was boasted by investment gains from the sales of partial stake in OREC's credit and excess from domestic PE investment. Please stand to page 3. Segment profit rose 22% year-over-year to 494.2 billion yen. As shown on the right-hand quarterly graph, FY24 March end ended tail heavy in terms of exit as initially forecasted. In other words, we were able to maintain a consistent uptrend in base profits and investment gains over the fiscal year as a result. Next, please look at the full year graph on the left-hand side. Base profits were up 14% year-over-year to 367.6 billion yen, which also represents a new record high. Profit recovery in the facility operations and concession business, thanks to higher inbound tourism as well as growth in investment income in the insurance segment, were the main reasons behind growth in base profit. The light blue investment gains were also up 54% year-over-year to 126.5 billion yen, while we have been maintaining an average of 100 billion yen. Yen over the past five years, thanks to ongoing capital recycling in our asset portfolio including the real estate and domestic PE businesses and a portion of OREC's credit shares, we exceeded the average this time with 126.5 billion yen of gain. Note that from the fourth quarter, we have reclassified earnings from the investment in affiliates account into either equity method investments or goodwill, depending on the type of asset. As a result, we have retroactively restated both base profits and investment gains. Next, please turn to page 4 and 5 for the breakdown of segment profits and segment assets. Detailed information can be found further back in the presentation from page 20 onwards. Please take a look after. I'll just give a brief overview of the highlights here. First, the corporate financial services and maintenance leasing segment profits were up 6.2 billion yen to 81.2 billion yen. In corporate financial services, profits were up as fee businesses were solid, and M&A brokerage businesses also contributed to profits. In the auto unit, strong leisure demand for rental cars and ongoing high prices in the used car market helped the business achieve its third consecutive year of record high profit. Segment assets were up by 38.3 billion yen to 1,552.3 trillion yen. 1.5523 trillion yen as assets increased in the Corporate Financial Services Unit as it undertook a variety of financing deals while remaining careful in selecting new businesses. Assets also increased in the auto unit thanks to rental car fleet replacement. Next is the real estate segment. Segment profits were up 14.3 billion yen to 65.8 billion yen. The real estate investment and facilities operations unit saw profits rise as inbound tourism demand led to strong earnings at hotels and inks. In addition, we put gains on the sales of a large property in Q3. The Daikyo unit secured profits in line with the previous fiscal year, aided by robust sales of high-margin condos. Segment assets were up. Although still being selective, we are setting investment and facilities operation to need and continue to develop new logistics facilities while actively selling properties as part of capital recycling. Daikyo assets increased by 59.1 billion yen as compared to 23 merchant, bolstered by the acquisition of a very well situated site for large-scale development. We continue to operate this segment based on a business model of acquiring promising properties and then monetizing them after adding value. Next is the P.E. investment and concession segment. Segment profits were up sharply by ¥40.5 billion to ¥43.4 billion. Although Oryx booked costs associated with a purely financial stake in Toshiba, we saw two P.E. investees, including Primages, in second half. This plus a start to contribution to base profits from DHCC acquired last year led to strong upswing in segment profits. The concession unit returned to profit on a full-year basis for the first time since the pandemic, aided by a sharp rise in earnings following growth in international passengers thanks to a strong inbound tourism. Segment assets were up by 167.4 billion yen net versus March end of 2023, although assets rose due to 200 billion stake in Toshiba. We had several exits from investees. Thank you.
Environment energy segment profits were down 9% year-on-year to 29.9 billion yen. Domestic business secured profits in line with the year-early level despite some quarterly fluctuations owing to the impact of output cap over solar power. Overseas, profits were down year on year, owing to elevated euro interest rates and the absence of year-earlier investment gains. However, electricity sales rose due to steady expansion of incapacity at LR1. Segment assets were up 73.4 billion yen versus end of March FY23, owing mainly to changes in Forex. Assets in real estate, PE investment and concession and development on energy segments are each less than 1 trillion yen, and we remain aware of maintaining balance between different segments. Insurance segment assets were up 11% year-on-year to 70 billion yen. Profits were up mainly driven by lower COVID-related payout expenses versus the prior year and higher investment income added by yen depreciation and high interest rates. Insurance premium income is also rising steadily, with whole life insurance being marketed more aggressively. Segment assets were up by 258.9 billion yen versus end FY23 March, reflecting the impact of FX and increasing investment securities. Banking credit profits were up, 59.1 billion yen to 96.7 billion yen. In the credit business, OREC sold 66% of share to entity DoCoMo to create joint venture. This transaction resulted in investment gains and variation gains valued at 57 billion yen. In banking, interest income from real estate investment loans grew. due to higher long-term interest rates, with only marginal increases in deposit-related expenses, profits were a pioneer. Higher trust fees also contributed, resulting from Oryx Bank's focus on growing trust assets. Segment assets rose ¥34.3 billion, reflecting higher lending in the merchant banking business in Oryx Bank. Based on the stake, Oryx Credit is now considered an affiliate rather than a consolidated subsidiary. Total assets for banking and credit and insurance segments are about 5 trillion yen. This represents 37% of Oryx's total assets. And we continue to manage this ratio with an awareness of the quality of insurance and banking-related assets and overall balance within the firm. Next is aircraft and ship segment. Profit rose 44% year-on-year to 26.8 billion yen. In aircraft leasing, passenger demand in the US and Europe reached record high levels. Recovery in airline earnings and tight supply demand for aircraft led to an increase in both leasing income and gains of the sales of aircraft. This led to higher profits year-on-year. In the ship's business, profits were in line with our target but lower Ionia, owing to proactive sales of owned vessels a year ago when prices were favorable. At the end of February, Orixa acquired Santoku Senpaku, which will begin to contribute to profits in fiscal year 25 March on a three-month lag. At Avalon, hedging costs rose owing to elevated U.S. dollar interest rates. Growth in lease revenues fueled by a rebound in passenger demand helped the firm achieve profitability on a full-year basis for the first time since the pandemic. Segment assets were up 315.5 billion yen versus the end of FY23 March, reaching 100%. slightly more than 1 trillion yen. This reflects aircraft purchases in aircraft policing, in addition to Santoku Senpaku, which owns 67 vessels as a consolidated subsidiary, Orix USA, Segment Profit, was declined by 65% year-on-year to ¥17.3 billion. In Q4, OCEA booked losses associated with withdrawal from an investee, as well as preventative and allowances impairments based on conservative view a risk from long-term inflation and elevated interest rates. The resulting segment loss was ¥10.5 billion for the first quarter alone. Segment assets were upped by ¥74.3 billion, reflecting the substantial impact of weaker yen, we remained price-sensitive and selective with new deals and through the sales of assets in real estate business. Used or dormant assets excluding FX impact were down by ¥107.2 billion versus end of the prior year. Oryx Europe segment profit was down 30% to ¥28.6 billion. In FY23 March and 22 March, OEC booked 10 billion yen or more in performance fees, but this amount declined substantially in FY24 March, and higher currency hedging costs resulting from rising euro interest rates led to lower profits year-on-year. In the mainstay asset management business, assets hit €324 billion, a new record high at the end of FY24 March, buoyed by strong equity market and management fees. Segment assets were essentially flat after excluding the impact of yen depreciation. Finally, the Asia and Australia segment profit were down 2% year-on-year to €34.3 billion. Profits were flat versus a year ago thanks to growth in lease and lending assets in South Korea, Australia, India and other countries from new executions. Gains from the sale of an investee during Q4 also contributed. Segment assets were up 192.4 billion yen as a result of favorable new lease executions in ASEAN countries and India and the impact from FX changes. We maintain a cautious stance on investments in Greater China. The aircraft and ships and the US, Europe and Asia segments comprise a total of 22% of segment profits and 34% of segment assets. We will continue to carefully monitor economic and financial trends in each country. This concludes my explanation about the FY24 March 4-year results. Next, we would like to hand over to our CEO, Mr. Inoue. Please begin.
Good afternoon. This is Oryx CEO, Makoto Inoue. Let me begin from page 6. For FY24 March end, Oryx achieved pre-tax profits of 470 billion yen, and a 19% increase in net income to ¥346.1 billion. This represents an achievement 105% of our announced net income target. EPS was ¥299. Now, in line with our policy of paying a dividend per share of either 33% of net income or last year's DPS of 85.6 yen, whichever is higher, we will pay a full year dividend per share of 98.6 yen for March end of 2024. Now, since we paid an interim dividend of 42.8 yen per share, the year-end dividend will be 55.8 yen per share. ROE for FI24 merchant was 9.2%. Now please turn to pages 7 and 8. FI25 merchant is the final year of the three-year mid-term outlook that we introduced two years ago. We initially forecast net income of 440 billion yen for the final year, which we revised downward to 400 billion yen last fiscal year in light of market conditions at the time, but today we now target FI25 margin net income of 390 billion yen. Now, this translates to an ROE of 9.6%, although improving our ROE is a major challenge for Oryx. Unfortunately, I will have to ask for your patience for another year for us to achieve our goal of ROE exceeding 10%. Our target of 390 billion yen net income suggests 12.7% year-over-year growth for FY March 2025. Now, please stand to page 9. There are three main reasons for our decision to lower the profit target from 400 billion yen to 390 billion yen. First, it may take some additional time before a full recovery in Oryx USA earnings because we foresee high credit costs persist as well as elevated interest rates to continue as inflation remains doubly high. Second, the MICE-IR project has begun in earnest, resulting in capital outflows that may not produce profits for some time and upfront cost outlays. In addition, we see a lack of visibility caused by political divisions owing to expansion in international conflicts, Chinese economic sluggishness to an extent, coupled with Japan's sinking position globally owing to historic yen depreciation and the unreadable impact of high prices on the economy. For these reasons, we have decided to conservatively target 390 billion yen for the coming fiscal year. However, this 390 billion yen is, of course, just a minimum target, and internally we maintain our goal to exceed net profits of 400 billion yen. Now, please stand to page 10. I will outline the measures we plan to take to reach 390 billion yen in net profits later. So now, I would like to announce a dividend policy for FY March 25, which will be to pay a dividend equivalent to 39% of net income or equal to the FY24 March dividend of 98.6 yen, whichever is higher. As in the previous fiscal year, we have set a share buyback program of 50 billion yen. This translates to EPS of 341 yen and EPS of 133.2 yen for the whole year. Combined with the 50 billion yen in shares buyback, Oryx's total shareholders' return is set to reach 51.8%. Now please stand to page 11. Unfortunately, the credit rating agency S&P recently announced its decision to downgrade Oryx from A- to BBB+. Although we maintain high levels of profitability, S&P found it difficult to maintain an A- rating on Oryx as a financial institution in light of a diversified portfolio which includes operating assets and investments and given the speed of a capital recycling program. Moody's and Fitch maintained A-equivalent. R&I and JCR maintained AA-equivalent, and they have a stable outlook as well. We will continue our dialogue with the rating agencies to ensure they give an objective and fair evaluation of our businesses. Please note that S&P downgrading has no impact on RX's capital and financial policies. Now please turn to page 12 and 13. Oryx Group holds assets of 16 trillion yen with shareholder security of 4 trillion yen. Due to an accounting requirement, non-recourse loans at investees, third-party capital and accounts which should be considered off-balance sheet are held on Oryx's balance sheet. With Oryx's diverse investment style, each M&A execution has led to an increase in goodwill and intangibles. In light of this, in order to fairly represent the nature of the group businesses, I think a new approach would have to be examined. In FI25 Marchant, our ROE target is 9.6%. However, each year, our intangible assets average around ¥1 trillion. So considering this, we can believe return on tangible equity, ROTE, which is net income divided by shareholders' equity minus goodwill and intangible asset, is an effective way to measure Oryx's nature of business and the actual profitability. Note that Oryx's ROTE trends at around 13%. Going forward, we will disclose ROTE alongside with ROE. In addition to ROE and ROTE, an important factor for growing corporate value is EPS. EPS for 246 yen in FY23 March end, 299 yen in FY24 March, and we target 341 yen in FY25 March end. We will continue to endeavor to strengthen EPS under our PV ratio with the aim of improving shareholders' value. Now please refer to page 14 to 16. We target FY25 March, pre-tax profits of 553.7 billion yen, an increase of 70.81% year-over-year. I will now use the three categories of finance, operation, and investment to provide with you the breakdown. The finance category includes Oryx Life, Oryx Bank, the leasing, installment loan, and lending businesses of the corporate financial services segment, Oryx USA, and leasing businesses at overseas subsidiaries. Within Japan, we can expect a mild increase in yen interest rates, which should help improve financing income, asset management yields, and leasing spreads. At Oryx Bank, in addition to commercial banking, we aim to strategically improve both ROA and ROE through expansion in merchant banking and private banking. In insurance, we anticipate growth in embedded value fueled by improvements in asset management yields. At Oryx USA, we assume high interest rates to continue and therefore expect that the credit cost burden to continue to rise. However, the multifamily agency and non-agency lending segment, which is Oryx USA's strength, is faring comparatively well, and we expect it to contribute to earnings during this fiscal year. In the latter half of this fiscal year, we would hope that improved credit spreads from expectations of future rate cuts might help boost earnings. However, before rate cuts actually occur, we feel that the impact of a possible increase in credit costs must also be considered. Thus, we plan to continue to conservatively manage the OCU portfolio going forward. In high-growth markets like Australia, Indonesia, and India, we plan to increase our financial portfolio. For finance category segments, we target at about ¥45 billion increase in pre-tax profits after the gain from the sale of Oryx Credit.
Next, I would like to talk about the operation category. We anticipate a roughly 18 billion yen year-end increase in pre-tax profits including facility operations in inns and hotels in the real estate segment, condo development and the sales at Daikyo and the auto leasing business. In ships, while our business model was primarily focused on ship financing and sales, the acquisition of Santoku Senpak will allow us to make a full-fledged entry into marine transport freight management, ship charters and their coastal businesses. In addition, we plan to accelerate investment in eco-ships, making our ships business even more sustainable. In addition to Oryx Aviation and Avalon's aircraft leasing business, Oryx is well positioned to benefit from an increasing movement of people and goods. In the aircraft and ships business, we are poised to offer solutions in the operations, finance and investment areas, and we plan to grow this as a core business for Oryx Group. At NXT Capital in the US and Robico in the Netherlands, we are searching for ways to expand the asset management business. Although it is a competitive market, in order for Oryx Group to maintain its earnings expansion, we must consider how best to utilize third-party capital. This remains a vital area for Oryx to address. Investments are becoming increasingly large in scale, such as carve-outs, and there are many opportunities facing us. We think that there is a limit to what Oryx can achieve when it is responsible for all of the acquisition capital. The shift towards an asset manager model is an important medium-term theme for Oryx. Our strengths include expertise in managing variety of tangible assets and wealth of financing expertise. For this reason, we believe that we shall have no difficulty in expanding our role in Asset Manager. The current ¥60 trillion level AUM should be expanded to ¥100 trillion level as rapidly as possible. Our basic policy for investments is unchanged, that is, not to limit ourselves to any particular industry, but to carefully consider profitability and liquidity, in aim to secure opportunity deals, catalyzing upon the strength of the Oryx Group Network. Oryx is active in a variety of fields such as private equity, carve-outs, business succession deals, and venture capital. A basic principle behind portfolio management is always capital recycling. The Kansai Airport's concession business, a joint venture with Vinci Group, stands poised to benefit from earnings expansion powered by inbound tourism from the 2025 Osaka Expo. In FY24 March, in the investment category, we target pre-tax profit growth of around 57 billion yen driven by profit growth at domestically invested and capital recycling in the overseas renewable energy business. Please turn to page 17. In FY24 March, Oryx reaped 150 billion yen in capital gains from aircraft and ships, real estate and PE. This reaches 520 billion yen altogether with originally invested capital. New investments totaled 620 billion yen. In FY25 March, we plan to continue our capital recycling program. The pipeline, both within Japan and overseas, for new investments is ample, and we plan to stick to our business strategy, which cautiously weighs profitability, liquidity, and exit opportunities when making investment decisions. In this fiscal year, we expect global conflicts to further expand. Worldwide divisions based on nationality, politics and economics are accelerating. The results of the November U.S. presidential election run the risk of increasing global uncertainty, and we must think about the possible impact in various areas. Within Japan, yen depreciation and high prices remain unsolved. Both of these have the effect of lowering Japanese economic value and position in the world, and we must carefully consider the direction that the group will take. That said, we have no plans to change our basic strategy. In other words... We plan to, first of all, invest in domestic industries, second, execute investment aimed at solving problems, and accelerate globalization of our X group and expand our asset management strategy. We plan to maintain this direction for this and next fiscal year. In FY25 March, we marked the 60th anniversary for the founding of Oryx Group. We have seen some ups and downs, but I feel that we have been able to maintain a growth trajectory overall. The full and gracious support of our shareholders and stakeholders has been key to our ability to return to a growth trajectory in just two years following the pandemic and the announcement of record high profits this fiscal year. Please turn to page 18. For Oryx Group's 60th anniversary, we aim to further promote a sense of unity and increase in corporate value as a global company by accelerating the adoption of the Oryx Group purpose and culture which was announced in the FY23 March results briefing. That concludes my remarks. Thank you very much for your kind attention.
We'd like to move on to Q&A session now. If you wish to ask a question, please press the star key after the asterisk. Then press 1 on your telephone keypad. After your names are announced, please ask your question. If you wish to cancel the question, please press the star key and then press 2. If you wish to ask a question, you may ask up to one question. So, Mr. Sato from J.P. Morgan, to begin with, thank you. Sato-san from JP Morgan, please start asking your question. Hello? Can you hear me now? Yes, we can. I'm very sorry for this. I'm Sato from JP Morgan. Hello. I have two questions by asking one question by one. So first of all, on page 15, you had explained for this fiscal period all the prerequisites in coming up with a target for this year. Now, in the area of finance, you are thinking about increasing your profit by 40%. And that seems to be quite significant considering your business nature and the model. So would you mind explaining the backdrop to this? And also, at the same time, the headquarter and managerial expense of $75 billion seems to be pretty high as well. So would you mind confirming these numbers and also the backdrop to this? So may I explain, provide my explanation to your question then? Yes. Okay. In brief, first of all, with regard to this headquarter and administrative expenses, so 45 billion yen of interest payment and SG&A is 30 billion yen or so. So those are the major items that is included in the headquarter and administrative expenses. And I think the amount has been trending on and around this amount up to now. So it doesn't seem to be a big increase on our part. And as for the growth area, I think I'd like to hand over to Yamamoto-san to answer to the question. So with regard to the finance segment or the finance businesses, financial businesses, insurance as well as in U.S., we have been conservatively selecting our businesses, the deals, and we can start to improve. experienced some recovery because we have incorporated some negatives in the prior year, and this is why we can expect a significant recovery this year, which means that in the United States, according to your qualitative explanation, you sounded very cautious in this briefing session. but you do expect normalization of the businesses, and that is reflected to the numbers. Is that right? Well, the number that you had, 148.2 billion yen on other profits, and that includes the sales of a credit company, and that is 51 billion yen or so. It is a capital gain, so we shouldn't have really amalgamated the numbers. So this is why, although the percentage is not that significant, however, from the flow of the business of financials, 198 billion yen should be achieved. and the majority is consisted of insurance as well as bank, and also considering other parts of the financial businesses, we have set these numbers. As for U.S., though, credit cost. We did, in fact, kind of appropriate it for the credit cost increase as of 24 March end. So we think that we have come to almost to the peak level. However, although the numbers may not grow that much, however, the credit cost, I think, is just about to peak out. So this is why we have come up with this number, because we do not foresee the credit cost to further increase. Okay, thank you very much for that. And the second question, in fact, is still on page 15, and that is to do with the PE investment. And you, in fact, expect the growth in a significant manner and the capital gain that appears on page 12, that is. And what I want to be asking, with regard to the capital gain, in the last year, there was, before the impairment loss, that was the valuation loss, 150 billion yen, I think that was. But this year... It is about 150 to 200 billion yen of an expectation this year, and it was about 100 billion yen of an average for the past some years, which means that the capital gain is going to be significantly higher. So over the two years, because of the environment that surrounds the business, The capital gain can be generated in a much bigger way or in numbers as compared to this 100 billion yen of an average. It's just that there has been a shift on the level of the capital gain that you can generate in a single year. Would this be a new standard? May I take it? So this is something that I would like you to confirm. So 100 billion yen was an average per year, and that is our average. use your expectation and this year it was higher because of the sales of the credit business and although we separate into sub-segments but this 150 billion yen in fact includes the sales of the credit company and if you were to subtract that it is roughly about 100 billion yen of our gain and that is roughly about our expectation or it is in line with our expectation I'm terribly sorry that I may be asking this in a different way, perhaps. But capital gain, I think, is still expected to 150 to 200 billion yen. That is your expectation going forward. Is that right? And for the next fiscal period and onwards, Is this sustainable, the level 150, 200, 200 billion? It is possible. It is sustainable. But it is very much dependent on the deals that are available. And we are exploring different opportunities, such as PE and also real estate investment. So we have a certain buffer in place. So still, our usual expectation would still be around 100 billion yen. So from a flow perspective, Normally, when we do acquire any kind of investment, the equity method and all that would be under consolidation, and this is why we do expect these kind of numbers that you see on this page. Okay. Okay, that is all for myself. Thank you. Thank you very much.
Data Securities, Watanabe-san, please ask your question. Yes, this is Watanabe, Taiwan Securities. I have two questions. First question is about profit target. This is the last year of the mid-term, and for FY26 March end and beyond, how much profit growth do you plan for? And RTE and EPS, I understand you want to focus on these as KPIs, but going forward, do you think your KPIs will change? Well, for FY25 March end, this is the situation. And do we produce another three-year plan, mid-term plan, beyond FY26 March end? I'm sure that there are expectations for that. But when we produce a mid-term plan, it will make our situation more difficult. So we... Thinking about that, and including the directors of the board, we will be discussing what to do about the three-year plan, whether to announce that or not, and if we announce it, what do we do? To be quite honest, going forward we will have a very heated internal discussions. Level of growth, more than 10% of growth. This is something that we must achieve. And based on that understanding, of course, the numbers need to exceed 10%. But it goes without saying that it depends on the market. But anyway, we are looking at that and we need some more time before we can announce something externally. So please be patient. What is the second question? RTE and also EPS, are you going to focus on different KPIs going forward? ROA, ROE, and well, RTE is maybe another perspective that we should have. Some other companies are looking at return on tangible assets as well. But there are companies that don't use this KPI. Trading companies invest a lot in tangible assets, so they usually use ROE. But our investments, well, there's a lot of goodwill sometimes, a lot of intangible assets, and we invest into those companies quite often. Of course, we will show ROE, but ROTA is something maybe we have to calculate as well. And on top of that, we have EPS as well. We are not trying to increase the number of KPIs. ROA and ROE are the main KPIs, but in order to understand the true status of the company, RTE is something that we want to look at. So this is our policy, and we also want to use it as an external announcement approach, but this is not really a KPI. I understand. Thank you. Second question is about shareholder return. Payout ratio, 39%. It was a 33% and also on top of that there was some addition due to the abolishment of the shareholder benefit. But what is the background? What is the reason for this increase? It's simple. We want to see our investors happy. Prime market average payout ratio is 37%, I think. And the 37, 38% are not really impactful. So why not 39%? Well, I know that people asked us for 40%, but it was not possible. So 39% is the number that we would like to show and get your understanding on. We don't know what is going to happen in the future, but we want to maintain growth. And we also have a capital about 4 trillion yen. So low payout ratio would not be... something that would make the market happy, would be disappointing. And also, for the retail investors, from fiscal year 24 in March end, we stopped providing a shareholder's benefit, so we wanted to provide some additional return. This is how the decision was made. We thought maybe this could be lower in the beginning, but we want to have this endorsed by the investors, and that is why we decided on this number. I hope this answers the question. Yes, that was very clear. Thank you very much.
Thank you. Thank you for the question. The next person is Sasaki-san from Nomura Securities. Over to you. I am Sasaki from Namio Securities. Hello. I have two questions. The first question is with regard to the hedging cost. In the presentation, I think you had explained about the hedging cost. And when you came out with the plan for this year, how did you reflect the hedging cost? In what way? and when you do make an investment overseas, you basically do hedge against it. Has there been any changes to the policy, the hedging policy? And if you're going to proceed with globalization, do you always have to hedge whenever you make an overseas investment, I wonder? So the hedging policy remains to be unchanged, despite the fact that you'll be proceeding with the product globalization. So to begin with, You see, Oryx was a yen-based company. We started out that way. And therefore, we have been proceeding with investment overseas on a yen-denominated basis. But now we have expanded globally. So therefore, dollar-denominated outstanding balance of investment is 2.8 trillion. And in total of... 3.5 trillion yen worth of investment overseas that is denominated either on U.S. dollars or Euro. So therefore, is there any kind of benefit in hedging against those currencies on a yen basis? We have to question ourselves. So this 160 yen to a dollar, in fact, kind of posed as a question, whether we should continue to maintain our capital in a very conservative way by hedging, even against such the level of currency. But of course, on an adjusted Forex basis, we would be making an adjustment on the on the final of course account but other than conservatively hedging for everything and anything we may want to become a little more flexible considering deal by deal whether hedging is necessary or not will be questioned and so therefore going forward so this Forex adjusted amount, even if there was to be any fluctuation, it would be adjusted on the balance sheet basis. It would not affect the P&L. So this is why we may become a little more flexible, which means that the hedging cost going forward would not be based on a very conservative hedging policy, but I think we would turn a little more flexible. And that is at the basis of this earnings forecast or the plan, which means that in 25 March, so 390 billion yen of net profit expectations. So this operation, in fact, there will be changes in your operation as well as this impact that you have just announced. Of course, if there was to be any kind of excess in terms of the plan, the target, then that would be the change that would be reflected if you could take it that way. Now, you had explained to us that there are a number of risks that you foresee. But, for example, Mr. Inoue, in your idea... what would allow you to exceed your expectations in terms of the profit generation or the business opportunities or any kind of risks that may perhaps become smaller or whatever. So 24 merchant, if you were to refer to the numbers, it was very much domestic focused. In other words, the overseas location, we had faced difficulty, if we may conclude. So as for United States, If interest rates start to, of course, get lower, the arbitrage would work, and therefore the spread would, of course, spread, or rather the other way around, which means that we may be able to increase our profit generation, but according to the announcement of the Fed, it doesn't look as if they are going to be lowering the interest rate immediately. But if, of course, Mr. Trump becomes the president, I'm sure the interest rate may perhaps become lower, and they may perhaps cut the corporate tax rate as well. if U.S. will be led by Trump, then of course things would be very different. But that would be after the next fiscal period, though. So as for U.S., it looks as if we will be hitting the bottom soon. However, how much of an improvement can we make is very much dependent on how things would proceed. So inclusive of the security in Europe, The volatility may perhaps increase over in Europe. So USA, if Trump becomes president, of course, things would become better. But if Trump is going to become the president, Europe may suffer more. And China may continue to struggle. So this is why... If domestic can maintain the current level of the businesses, then the United States will be an additional contributor, and Europe may not be, and Robico, AUM, can be expanded. But as for Robico, of course, the inflation, in fact, has not kind of calmed down. So therefore, 2025 number is still very difficult to, or it does not have much of a visibility, that is. So this is why we have carried out the downward revision from 440 to 400 to 390 billion yen. That is, these are at the backdrop. So if my forecast is not too conservative, then I think we would be able to exceed our current target of 390. So 390 billion, in fact, is a minimum target that you feel the obligation to achieve. I don't want to really kind of drive myself into the corner, but that's my basic idea. incorporating all the risks. Thank you.
SMBC Niko Securities, Muraki-san, please ask your question. This is Muraki, SMBC Niko Securities. Page 12, sorry, page 11, you are showing the financial leverage, and on page 11 and 12, you are showing your ROE. In order to increase ROE, What can be done? That is my question. I don't think it's too difficult to achieve 10%, but... A rating leverage, and if you increase to 10% or higher, maybe it's challenging to maintain that high level. So if the leverage is not increased, then as a method, for example, as you explained, shifting to asset management, introducing third-party money and earning fees, I think that would be the model that you would want to shift to. But in order to increase ROE for this fiscal year, what are the initiatives for asset management? What are the specific initiatives in Japan and outside, including the USA? We plan to launch funds. Annexy Capital already is trying to increase the funds AUM and for domestic market, especially including Middle East. We are finding new investors who want to put money with Oryx. And of course we have to deal with the situations one by one. Which means that, for example, with private equity, how much AUM will we have? We don't know yet. But anyway, we want to increase the AUM and increase the asset management fees. The challenge is, compared to principal investment, we will be using a third party's money, and profitability will be much lower in terms of fee. So we have to do both, in other words. And as was mentioned before, if we want to maintain level higher than 10%, then we need a lot of funding from the third party, and we have to think about various initiatives. Total asset may increase, the total number may increase, but ROE may get worse. So in order to avoid that situation, we have to think about a policy how to best utilize capital and third parties investment and continue on expansion path this is a major theme and this is the direction we are already moving into this direction but it will take some more time before we see the impact or the result of this thank you Maybe it's not so much about earning fees, but you also mentioned that the project size is also increasing. If you think about DHC, for example, as a deal, I think there's an advantage in going alone, investing 100% by yourself, but for large-scale deals, do you think we will see more and more joint investments? Yes, that is correct, including Middle East third-party investments coming into Oryx. This means co-investment fund type of approach. For example, we get 51% and we will invite 49% investment. That would be the approach. But basically, according to accounting recommend, this 49% will be 100% on balance, on our balance sheet. So how to explain that externally is another issue. But anyway, U.S. GAAP requires us. When we get investment from different sources and Oryx invest 30% or 40% or even a majority, everything has to be on our balance sheet. So ROA, ROE do not improve, at least on the surface level. So how do we explain that properly externally? And that is why we're talking about ROTE, showing that in parallel, so that you can see how efficiently Oryx as a whole is being managed. So our next challenge is how to explain that externally. Understood. Thank you very much.
Thank you very much. Thank you for the question. The next person is SBI Securities, Otsuka-san, please. I am Otsuka from SBI Securities. I hope you can hear my voice okay. Yes, we can. Thank you. So on page 15, I was referring to page 15. And I want to be asking questions about the PE investment. So 188 and 304, in fact, so that is 420 of an increase, 42 billion yen of an increase. So page 40, in fact, shows a breakdown by three categories, and it's a matrix with the segments. And according to Mr. Inoue's explanation, and I think you have been explaining over time, but on page 14. So in the operation, which area is going to increase or grow in operations? So first of all, Kansai Airport kicks in the last year about 10 billion yen. I think it was the pick up on equity and that should double and also aircraft business so we're proceeding with the acquisition of the aircraft in a significant way and also the replacement of the fleet of the ships will take place as well so 40 billion yen worth of profit can be generated with these being set. And the Green Co., Erawan, the assets, how can we capitalize on those assets? In other words, proceeding with the capital recycling, that is. And taking all that into account, I think posting of such an amount of profit is quite possible, we thought. I'm sorry to go into much of the details, Mr. Inoue, but on page 14, Kansai Airport, in fact, is an up facilities operation right so i thought that it is under investment or is it under the real estate facility operations of operation is that right so investment in fact is if it is under equity method it would be under investment but the airport operation after all is under operation although As an asset, it is held as an equity method. So I'm sorry that it is confusing. So as an operation, it is 100% operation for RX, real estate facility operation, that is. And, of course, airport is included. In the case of Kansai International Airport, we own 40%. However, there are about 10 people that are seconded from our company, and they are very much involved on a day-to-day basis. So as to the operation of Kansai Airport, there's an overlap between operation and investment. I hope this would explain. So this 188 and 8.5 and 230.4, in fact, includes Kansai Airport. Yes, it does. The operation, I mean. Yes. Thank you very much.
Thank you very much. It's almost time to close and therefore the next question will be the last. Citi Group Securities, Niwa-san, please ask your question. Thank you. This is Niwa from Citi. I hope you can hear my voice. Yes, we can hear you. Thank you. I would like to talk about the exit and also pipeline evaluation. 1.2 trillion yen this time around, and last time, last year, around this time, you said it was going to be 1.5 trillion, and I think investment was quite successful last year, maybe, but with regard to the pipeline, is it okay to expect something like 2 trillion yen, or is it completely unrealistic? If you could explain, please. Well, pipeline... Well, we have more than 2 trillion yen, and if we are selective, this is the number that we're talking about, and then out of that, after buying, can we increase the value, and can we do the capital recycling and liquidate? And also, how can we capitalize the Oryx network? We have to look at all of this, and then it would be basically about 50%. There are many inquiries. but it's becoming more and more competitive as well, and we don't want to buy at high price, so we have to be very carefully looking at these different deals. One good example of this is Santoku Senpaku. In the beginning, from the seller's perspective, We were basically out of the question, but they changed their minds and they wanted to do with us. So we cannot say exactly how much, but we could purchase them at a very competitive rate. So there's inquiry, there's pipeline. Can we really buy at a good price? purchase price and then can we really increase the value after the investment so we have to be very discerning in all of these perspectives which means that we cannot really process a large volume but there is a lot in a pipeline and we have a sufficient projects that we can do but of course we have to be selective in terms of what deals we can do because it's a competitive landscape and this stance has not really changed from before. I hope that answers your question. Yes, thank you for the details. I would like to ask you about lifestyle and also bank, low profitability businesses. In the presentation, this time round, you talked about small upside of Japanese economy. That was my understanding. Which means that for these businesses, in terms of for specifically expansion, maybe there's no more room. Is that the correct understanding? Or once the monetary policy changes, should you continue to hold these businesses as core businesses? because the profitability will change. The monetary situation is changing, so I would like to understand your position, your stance about bank and insurance. Yes, for life insurance and bank, it's true that profitability is low. In order to increase the profitability, we are pressuring these teams. If the interest rate goes up, embedded value of life insurance company will increase. And then we will have maybe sufficient price to sell. If that is the case, we will not hesitate to sell. And this has been my policy over the last several years. It has not changed. And same story with the bank. We are asking the bank to increase the profitability. Compared to other businesses, ROA seems to be good, but if we want to sell the bank, we can only sell at PBR of 0. some times. We're not that desperate, so we only sell if the price is right, so same thinking as credit. If we have the buyer and the offer is attractive for us, then we will sell at that attractive price, so the policy is still unchanged. Thank you. In order to increase ROE, I think what to do with this business is a big theme for Oryx, but still, you want to maximize the value that is more important for us. Is that correct? Well, bank and life insurance, 0.5, 0.6, at this level, I don't think there's an advantage for us to sell. That is our assessment. It has to be sold at the right price. You may be dissatisfied, but our rate is 9% with Oryx, and we are approaching exceeding 10%. So we want to pursue ways to maximize the value that is the current direction of Oryx. I hope you understand. Thank you very much for your detailed explanation. That was very informative.
Thank you for the questions. And with this, we'd like to conclude the Q&A session. And I'd like to ask Mr. Inoue to provide us with closing remarks. Well, this year, 2024 March end, the numbers were pretty good, as we have announced. But it is not to our full satisfaction. 390, 400 billion yen, and also ROE of 10%, 11% must be achieved. And it will require a strenuous effort in order to achieve those goals. So we will continue to seek for your support. And of course, during this time, of course, we would enhance the payout ratio so that we'll be able to align ourselves with your expectations. And this is how we are going to be managing this business forward. So please continue to support us. So with this, I would like to conclude the I-524 March End briefing session. Thank you very much for your participation, and please disconnect.