ORIX is active in a variety of fields, such as private equity carve outs, succession deals and venture capital. Our basic principle behind portfolio management is always capital recycling. The Kansai Airport concession business, our joint venture with VINCI Group stands poised to benefit from earnings expansion powered by inbound tourism from the 2025 Osaka Expo. In FY 2024 March, in the investment category, we target pretax profit growth of around ¥57 billion, driven by profit growth at domestic investees and capital recycling in the overseas renewable energy business. Please turn to Page 17. In FY 2024 March, ORIX reached ¥150 billion in capital gains from Aircraft and Ships, Real Estate and PE. This reaches ¥520 billion altogether with originally invested capital.
New investments totaled ¥620 billion. In FY 2025 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 the global conflicts to further expand. Worldwide divisions based on nationality, politics and economics 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 the solving problems and accelerate globalization of ORIX Group and expand our asset management strategy. We plan to maintain this direction for this and next fiscal year. In FY 2025 March, we marked the 60th anniversary for the founding of our ORIX 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 for pandemic and the announcement of record high profits this fiscal year.
Please turn to Page 18. For ORIX Group’s 60th anniversary, we aim to further promote sense of unity and increase incorporate value as a global company by accelerating the adoption of the ORIX Group purpose and culture, which was announced in the FY 2023 March results briefing. That concludes my remarks. Thank you very much for your kind attention.
A – Hitomaro Yano: We would like to move on to Q&A session now. [Operator Instructions] So Mr. Sato from JPMorgan to begin with. Thank you. Sato San from JPMorgan, please start asking your question.
Koki Sato: Hello, can you hear me now?
Hitomaro Yano: Yes, we can.
Koki Sato: I am so sorry for this. I am Sato from JPMorgan, 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, the — or the prerequisite 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, the model. So would you may 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 do you mind concerning these numbers and also the backdrop to this?
Makoto Inoue: So may I explain — provide my explanation to your question then.
Koki Sato: Yes.
Makoto Inoue: Okay. In the first of all, with regard to this headquarter and administrative expenses. So ¥45 billion of interest payment and SG&A is ¥30 billion also. 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 would like to hand over to Yamamoto-san to answer to the question.
Kazuki Yamamoto: 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 experience some recovery. And so because we have incorporated some negatives in the prior year, and this is why we can expect a significant recovery this year. This means that in the United States.
Koki Sato: So 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?
Makoto Inoue: Well, this is the number that you had ¥148.2 billion on other profits. And that includes the sales of a credit company, and that is ¥51 billion or so. So it is a capital gain. So we shouldn’t have really amalgamated the numbers. But — so this is why although the percentage is not that significant. However, from the flow of the business of financials, ¥198 billion 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, but we did, in fact, kind of appropriate for the credit cost increase as of 2024 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, has 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.
Koki Sato: Okay. 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 was a valuation loss, ¥150 billion, I think that was. But this year, it is about ¥150 billion to ¥200 billion of an expectation this year, and it was about ¥100 billion on average for the past some years. So which means that the capital gain is going to be significantly higher. So over the two years, because of the environment that’s around the business, the capital gain can be generated in a much bigger way in numbers or this as compared to this ¥100 billion 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.
Makoto Inoue: So ¥100 billion was on average per year, and that is our user expectation. This year, it was higher because of the sales of the credit business. And although we separate into sub segments, but this ¥150 billion, in fact, includes the sales of the credit company. And if you were to subtract that, it is roughly about ¥100 billion of gain. And that is roughly about our expectations or it is in line with our expectation.
Koki Sato: I’m very sorry that I may be asking this in a different way, perhaps — but the capital gain, I think you still expect it to ¥150 billion to ¥200 billion. That is your expectation going forward. Is that right? And for the next fiscal period and onwards, is this sustainable, the level ¥150 billion, ¥200 billion?
Makoto Inoue: 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 user expectation will be still be around ¥100 billion. So in a — from a flow perspective, normally, when we do acquire any kind of investment, we would — 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.
Koki Sato: Okay, that is all for myself. Thank you.
Hitomaro Yano: Daiwa Securities, Watanabe, please ask your question.
Kazuki Watanabe: Yes, this is Watanabe, Daiwa Securities. I have two questions. First question is about profit target. This is the last year of the midterm and for FY 2026 March end and beyond. How much profit growth do you plan for? And ROTE and EPS, I understand you want to focus on these as KPIs. But going forward, do you think your KPIs will change?
Makoto Inoue: Well, for FY 2025 March end, this is a situation. And do we produce another three year plan midterm plan beyond FY 2026 March end. I’m sure that there are expectations for that. But when we produce a midterm plan, it will make the situation more difficult. So we are 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?
Koki Sato: ROTE and also EPS. Are you going to focus on different KPIs going forward?
Makoto Inoue: ROA, ROE and well, LTE 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 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 the profit, 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, ROTE 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.
Koki Sato: I understand. Thank you. Second question is about shareholder return. Payout ratio of 39%. It was 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?
Makoto Inoue: It’s simple. We want to see our investors happy.
Koki Sato: Prime market average payout ratio is at 37%, I think. And the 37%, 38% are not really impactful. So why not 39%.
Makoto Inoue: 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 capital about ¥4 trillion. 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 2024 and March end, we stopped providing shareholders 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 your question.
