Koki Sato: Yes, that was very clear. Thank you very much.
Hitomaro Yano: The next person is Sasaki-san from Nomura Securities. Over to you.
Futoshi Sasaki: I am Sasaki from Nomura Securities. Hello. I have 2 questions. The first question is with regard to the hedging costs. 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’ll 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 would the hedging policy remains to be unchanged despite the fact that you’ll be proceeding with the project globalization.
Makoto Inoue: So to begin with, you see ORIX was a yen-based company. We started out that way. And therefore, we have been proceeding with the investment overseas on a yen-denominated basis, but now we had extended globally. So therefore, dollar-denominated outstanding balance of investment is ¥2.8 trillion. And in total of ¥3.5 trillion worth of investment overseas that is denominated either on U.S. dollars as well as or euro. So therefore, is there any kind of benefit in hedging against those currencies on a yen basis. We had questioned ourselves. So this ¥160 to $1, in fact, kind of poses 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 final, of course, accounts. 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 would be questioned. And so therefore, going forward, so this Forex-adjusted amount, even if there was to be any fluctuation, it will be adjusted on the balance sheet basis. It will not affect the P&L. So this is why we may become a little more flexible, which means that the hedging costs 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 of the plan, which means that in 2025 March, so ¥390 billion of our net profit expectations.
Futoshi Sasaki: So this operation, in fact, there will be changes in your operation as well as this impact that you have just announced?
Makoto Inoue: Of course, if there was to be any kind of excess in terms of the planned target, then that would be the change that will be reflected, if you could take you that way.
Futoshi Sasaki: Now you had explained to us that there are a number of risks that you foresee. But for example, Mr. Inoue, in your idea, this — 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?
Makoto Inoue: So 24 months, and 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 the United States, if interest rates start to, of course, get lower, the arbitrage would work, and therefore, the spread would of course, spread or the other way around. So 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’re going to be lowering the interest rate immediately. But of course, Mr. Trump becomes the President, sure the interest rate may perhaps become lower, and they may perhaps cut the corporate tax rate as well. So if U.S. will be directed by Trump, then, of course, things would be very different.
But that will 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 kind of proceed. So inclusive of the security in Europe, the volatility may perhaps increase on — 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 what if domestic can maintain their current level of the businesses, then the United States will be an additional contributor. And Europe may not be and Robeco AUM can be expanded. But as for Robeco, of course, the inflation, in fact, has not kind of come 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 billion to ¥400 billion to ¥390 billion. 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 billion.
Futoshi Sasaki: So ¥390 billion impact is a minimum target that you are — you feel the obligation to achieve?
Makoto Inoue: I don’t want to really kind of draw myself into the corner, but that’s my basic idea incorporating all the risks.
Hitomaro Yano: SMBC Nikko Securities, Muraki-san. Please ask your question.
Masao Muraki: This is Muraki SMBC Nikko Securities. Page 11, you are showing the financial leverage. And on Page 11 and 12, you’re 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 in rating leverage and then if you increase to 10% or higher, maybe to challenge you 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.
Makoto Inoue: Including the USA we plan to launch funds. And if the capital already is trying to increase the fund’s AUM and for domestic market, especially including Middle East, we are finding new investors who want to put money with ORIX. And of course, we have to deal with the situations one by one, which means that, for example, with private equity, how much AUM we will have, we don’t know yet. But anyway, we want to increase the AUM and increase the asset management fees. The challenge as compared to principal investment, we will be using third parties’ money and the 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 a level higher than 10%, then we need a lot of funding from the third party, and we have to think about the 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 our policy how to best utilize capital and the third-parties’ investment and continue on expansion path. This is a major theme. And this is the direction we’re already moving into this direction, but it will take some more time before we see the impact or the result of this. Thank you.
Masao Muraki: Maybe it’s not so much about earning fees, but you also mentioned that the project size is also increasing. If you think about GFC, for example, as a deal I think there’s an advantage in going it alone, investing 100% by yourself. But for large-scale deals, do you think we will see more and more joint investments?
Makoto Inoue: Yes, that is correct, including Middle East, third-party investments coming into ORIX. This means co-investment fund type of approach. For example, we get for 51%, and we will invite 49% investment. That will be the approach. But basically — according to accounting recommend this 49% will be 100% 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 ORIX invests 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 ORIX, as a whole, is being managed. So our next challenge is how to explain that externally.
Masao Muraki: Understood. Thank you very much.
Hitomaro Yano: Thank you for the question. The next person is SBI Securities, Otsuka-san please.
Wataru Otsuka: I’m Otsuka from SBI Securities. I hope you can hear my voice.
Hitomaro Yano: Yes, we can, thank you.
Wataru Otsuka: 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, is — so that is 420 of an increase, ¥42 billion of an increase. So Page 40, in fact, shows a breakdown by three categories and is 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 the — in the operation, which area is going to increase for its grow in operations?
Makoto Inoue: So first of all, Kansai Airport kicks in the last year, about ¥10 billion. I think it was a pick up on our equity, and that should double. And also Aircraft business, so we’re proceeding with the acquisition of the aircraft in a significant way. And in addition, we would be this — selling those aircraft to Japanese industries and also the replacement of the fleet of the ships will take place as well. So ¥40 billion worth of profit can be generated with these being set. And the Greenko, Elawan 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.
Wataru Otsuka: I’m sorry to go into much of the details Mr. Inoue. But on Page 14, Kansai Airport in fact, is an facilities operation, right? So I thought that it is under investment? Or is it under the real estate facility operations of operations? Is that right?
Makoto Inoue: So investment, in fact, if it is under equity method, it will 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 ORIX, 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 a company, and they are very much involved on a day-to-day operations. 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 [Indiscernible]. In fact, includes Kansai Airport. Yes, it does, the operation, I mean. Yes.
Hitomaro Yano: Thank you very much. It’s almost time to close. And therefore, the next question will be the last, Citigroup Securities, Niwa-san. Please ask your question.
Koichi Niwa: Thank you. This is Niwa from Citi. I hope you can hear my voice.
Hitomaro Yano: Yes, we can hear you.
Koichi Niwa: Thank you. I would like to talk about the exit and also pipeline evaluation, ¥1.2 trillion 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? Or is it completely unrealistic? If you could explain, please.
