Koki Sato: Yes. Thank you. Just a follow-up, ORIX USA the floater assets and higher interest impact has been positive. So this time in the first half the segment profit or base profit results, higher interest rate that positive impact is included. Is that the correct understanding?
Hitomaro Yano: Yes, that’s correct. Well, liability side is exactly what you said, but the asset side with the higher interest rate, the customer side have a negative cash flow or deteriorating cash flow and financing and have the bad loan and that I think is the negative factor for ORIX USA.
Koki Sato: I see.
Hitomaro Yano: So the interest rate sensitivity is difficult to say, but the environment, of course, it is a mixture of positive and negative. And thank you very much.
Operator: Thank you. Next is Daiwa Securities, Watanabe san. Please ask your question.
Kazuki Watanabe: Yes. This is Watanabe, Daiwa Securities. I have one question profit plan JPY330 billion, how strong is this commitment for this fiscal year? On Page 8 you are showing capital gain outlook JPY100 billion, lower bound is shown for the second half and the JPY400 billion for next fiscal year. Maybe you attempted to prioritize that. And utilization of capital has actually increased to 94%. And I think there is of course upside and downside. But how strong is the commitment for the profit plan for this fiscal year? That’s my question.
Hitomaro Yano: That is actually a very difficult question. JPY330 billion, JPY100 billion, well, 20 – well, about JPY80 billion considering what we have done in the first half, this is basically according to plan and we’re hoping to do this in the second half. In January, February, during the end of the pandemic we started to move forward with sales activities. But of course, there are buyers and their own situations and sometimes they’re late in responding to the situation. So negotiations starting from February to March would probably be concluded in the second half of the year that is why the schedule is expected to be tail heavy or second half heavy. But if this is actually possible, we believe that we can achieve this number.
But it really depends on the customers. In order to achieve JPY400 billion, maybe we want to delay some of them. Maybe that is a sentiment. But the sales teams have their own objectives for this fiscal year that if they cannot achieve this there’s going to be strong pressure. So, on the ground I don’t think any team is considering prioritizing the next year’s profit target. Now, as I mentioned before, renewable energy related matters starting from next fiscal year, operations will start in some of these initiatives. So once they’re operational and the cash flow is stable, it means that we can exit immediately and including Greenko. Well, Ormat was a little bit unexpected because of the Israel situation and the sovereign risk is now materialized or maybe a little bit more difficult.
But other than that, everything is basically going according to plan.
Kazuki Watanabe: And the next question is to what extent we will have event risk.
Hitomaro Yano: So that is basically one of the risks that we have to look at in terms of achieving the target and excluding that all efforts are being made so that we can achieve the target smoothly.
Kazuki Watanabe: Well, in terms of employed capital ratio, I think it’s going up. And also, there is a possibility of buying the used car business. Do you have any idea or plan about exit?
Makoto Inoue: Well, we don’t increase the bank lending dramatically. As I said before, capital recycling is at the center for our new investments. So we are basically recycling the assets from the older ones, the new ones. And for the old ones, it’s basically capital recycling. We want to increase the earnings. And for the new projects, we use that funding and the employed capital ratio should not be very high. That is the very basic policy of our business.
Kazuki Watanabe: That’s very clear. Thank you very much.
Operator: Thank you. Tsujino Natsumu from Mitsubishi UFJ Morgan Stanley Securities.
Natsumu Tsujino: Yes, thank you very much. The banking and credit in the presentation, the trust asset, JPY1 trillion. And for the real estate loan, you have sold some of them, and this led to this amount. Until now, we did not pay much attention to that. So liquidation rate, how would that start to impact your earnings? And the new investments in new real estate market, I think that it’s very competitive. So whether you are successfully doing dates and also with the intensified competition, I think that the competition has been always intense. So what is going to be – how would you improve your position in terms of the gain on sales of the exit [ph]?
Makoto Inoue: Well, 0.7% ROA of 0.7% or 0.8%, or their mission is to get to the 1%. So what they do is to make the earnings and that want their total assets would increase. And the JPY3 trillion is the total asset in their assumption and they have set up the earnings target. As a parent company, at JPY3 trillion and if it’s 0.7%, it’s not good enough because ORIX Group ROA will be pushed down. So that is not acceptable. So our real estate, the loan is not the only thing we have. So especially about the banking, the real estate loan for the investment purposes, we have slowed down. In the merchant banking, especially for the renewable energy project finance and also project finance like syndication becoming a leader and getting the fee revenue and to sell the assets.
So that is the policy that they have. So to what extent they are successful in doing so? The total assets keep growing is not acceptable. So we want to control the total assets, and we want to reduce it from JPY3 trillion to JPY2.5 trillion and increased the ROA. So that is what we tell them or as a direction or instruction. So if they cannot do it, we cannot increase the ROA. And like Rakuten, the selling or listing will not become visible. So when we consider listing in the future, at least ROA of 1% is necessary, and we have to take initiatives for that. We can use the trust business so that the total asset can be reduced and increased the fee business. So that’s what they are trying to do as a target. So whether they can achieve them or not – be the – or determine the future of ORIX Bank.
I hope that answers your question.
Natsumu Tsujino: Yes, I understand the philosophy. So from now on, this – the JPY1 trillion, the breakdown and the impact on the profit and loss, if you can provide that information in the future, that would be very helpful. Thank you.
Operator: Thank you. SBI Securities Otsuka-san [indiscernible], please ask your question.
