Q2 2015 SBI Holdings Inc Earnings Presentation Webcast

8473.T - SBI Holdings Inc
Q2 2015 SBI Holdings Inc Earnings Presentation Webcast
Oct 30, 2014 / 07:30AM GMT 

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Corporate Participants
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   *  Yoshitaka Kitao
      SBI Holdings, Inc. - Representative Director, President, and CEO

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Presentation
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 Yoshitaka Kitao,  SBI Holdings, Inc. - Representative Director, President, and CEO   [1]
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 Thank you very much for joining us for the six months period ended September 30 financial results presentation, despite your tight schedule. And I'd like to extend my hearty gratitude for your continuous support for our Group on this occasion, and I would like to move on to the presentation of the results.

 The consolidated results of the first half. The operating revenue down at -- down by 11.6%, or JPY113.303 billion. Operating income up 1.3%, JPY34.915 billion. So in terms of operating income, the first half operating income hit the record high for the six months result. The pre-tax income about JPY32.5 billion, down 1.5%. Profit attributable to the owners of the Company, JPY25.787 billion, up 46.8%. The full year 2013 are the JPY23 billion to JPY24 billion. So only in six months, we already exceeded the last full-year result.

 So for the -- on a quarterly basis, the revenue up by 55.1% at JPY68.9 billion. Operating income up 472% at JPY29 billion and profit attributable to the owners of the Company up 173.3% at JPY18.879 billion. So the significant increase in both revenue and profit on a quarter-on-quarter basis.

 With that backdrop as to the ordinary dividend, JPY20 per share in consideration of the positive results for the shareholders as of the end of March 2015. And as to commemorative dividend since we are commemorating Company's 15th anniversary, a JPY5 per share for that. So the total of JPY25 per share. And we will look at the second half results. If the results are good, we will probably raise the ordinary dividend.

 So by segment, what are the key points? The first, the financial services business, as you can see, JPY84.276 billion, up 16.1%. Asset management business, and biotechnology, others including real estate business year-on-year basis, the revenue went down on a year-on-year basis. But when you look at the income, they are increasing. The reasons being for financial services business increasing greatly, up 106.2% year-on-year. That's the biggest -- big reason. And for the asset management business and biotechnology related business, the negative year-on-year -- negative in the first half and the others including real estate some decline.

 But on the quarter-to-quarter basis for all the segments, the changes were positive. The first quarter of April through June, we struggled. The financial services business up 53.5% in operating revenue. Asset management business up 53.3% at JPY15.2 billion; biotechnology at JPY650 million or up 268.2% and others up [32%] at JPY2.2 billion.

 As to profit on a quarter-on-quarter basis, at financial services, the pre-tax -- the profit with IFRS increased greatly to JPY28.732 billion, up 201.4%. Asset Management, JPY1,747 million, increased quarter-on-quarter basis. In biotechnology, the negative number decreased greatly and others increased to some extent.

 The biggest growth lies in financial services business. SBI Securities, it went down year-on-year basis in terms of pre-tax income, but down by only JPY1.7 billion. So the April through June period was very good last year. So in the case of securities firms and many securities firms decreased there the results, but our business decline was very limited. Japannext achieved a record high. The SBI Liquidity Market, the big plus number and SBI FXTRADE achieved record high profit and SBI Insurance, a significant improvement. SBI MONEY PLAZA achieved a record high profit, SBI Card made significant improvement and as to Mortgage, the only for four months because shares were sold. SBI Sumishin Net Bank achieved record high profit. On November 13, there is going to be the closing announcement for this SBI Sumishin Net Bank and on this occasion, I cannot talk about details, but that is -- their business is going very well.

 As to SBI Mortgage, we sold the shares and the proceeds that was JPY16.9 billion and even if we exclude it, as you can see the pre-tax profit there was JPY22.3 billion or up 20% year-on-year. SBI Securities, as I mentioned, it went down by about 10%. But other financial services increased significantly. So all in all, the result was a positive and that is the point of the other financial presentation this time.

 So if you look at in terms of securities, this is a trend in average daily individual brokerage trading value. Like I said earlier, April, May particularly in May this is historically high market and so for this reason, we saw a very large increase in individual brokerage trading value. But compared to that this April, September fell by -- the trading value fell by minus 35.3%.

 But SBI Securities by changing its earnings structure and as you can see that the percentage dependency on commissions has decreased; it's down by about 30 percentage points. The percentage dependency on the commissions here because this has decreased significantly and meanwhile, we see increase in financial revenues by 17.1%. So this is the growth.

 So if you look at in terms of financial revenues, this is -- cost is about JPY2.5 billion, but the revenue is about JPY13.7 billion. So you have the substantial profit as a difference of that, and that's the significant growth and aside from that underwriting sales commissions -- offerings in sales commissions have increased trading gains and losses. Again, this increased quite significantly investment trust fees. Because this is trending very nicely, this increased as well. So the stable revenue generating products have grown significantly compared to FY 2005.

 So you can see that the breakdown have changed over the years. And although the market dropped substantially, SBI Securities' operating revenue or I should say profit did not fall as much, it only fell by minus 7.4% in operating revenue. And in terms of net profit for the quarter, only fell by minus 4.9%. All other online security companies, all booking losses, Monex, Rakuten; Rakuten is minus 13.9%, they're down in sales minus 14.7%. Matsui, minus 26.5%; their net profit is minus 31.4%. kabu.com minus 14.5% in revenue, minus 9.6% in net profits. So you can see that the level of decline is quite different.

 And if you look at in terms of bricks-and-mortar brokers' difference is even more significant. So for example, if you look at Nomura's profit on a consolidated basis is minus 30%, Daiwa is minus 23%. Now if you look at their operating profit, that's JPY75.6 billion. And then net profit is JPY71.4 billion. This means that they are not paying taxes, that's why the margin decline. It wasn't so big. Now SMBC Nikko is minus 45.3% down in operating income, down minus 19% in revenue. Ichiyoshi is down by minus 65.2% in net profit and Iwai is minus 54.7%. So brick-and-mortar brokers' trade value declines and their profit is dropped significantly. If trading value increases then they make more profit.

 But compared to that SBI Securities has great resistance towards bad economy. So even though on trading value may fall, we're not influenced by it. I think we have come to that level. So among the online brokers, our earnings capabilities have changed, so that's how I think.

 Now asset management business. Since introducing IFRS -- applying international standards, this is where we are greatly impacted -- most impacted positive and negative. If you have a public company, then at the end of September or at the end of June, you must disclose how much it was and that directly is reflected in profit and losses, and we can see that being reflected. So ReproCELL and Acucela, although it hasn't seemed to drop so much anymore, but the holdings we have fell and so we are losing money here.

 And WH Group, this is in Hong Kong, because of the poultry issue and they had some poor performance. Maybe for these reasons, WH Group share prices fell. I believe that they have come to a good level now. But for this reason, so impact of IFRS directly hit. So impact from the fair value is directly reflected in this. However, the holdings we have in overseas, so we didn't have it before, but then as for the assets that we plan to go IPO somewhere in the future, it's in here.

 So for example, SBI Savings Bank it's in here in the first quarter, it was JPY5 billion, in the second quarter it was JPY2.7 billion. So in total JPY7.7 billion pre-tax profit, was booked. So, thanks to this, performance volatility as a result of share price volatility have been contained. So SBI Savings Bank, I said JPY7.7 billion in PBIT. Operating profit was JPY7.9 billion -- operating income was JPY7.9 billion, large increase.

 So why is this positive on IFRS basis now? One reason is the Korean government's stimulation policies for real estate. As a result of that, you can see the housing price index is recovering rapidly; also transaction amount of home sales is increasing steadily. So we are able to proceed with the collection, or we have been able to sell on what we had held for collateral.

 And in terms of operating receivables, finally at the end of June, as you can see we have hit bottom in September, we're beginning to turn around. As a result of non-performing loan reserve ratio is declining down to 30% level. So for this reason, the bank is becoming healthier. If you look at K-GAAP in Korea, I believe that we will be profitable from October. So because of the situation, we can now become aggressive in our management approach.

 So SBI Savings Bank was divided into 1, 2, 3, 4 SBI. One savings banks, two savings bank, but we have decided this will be integrated as of 31st of October. This will allow for management efficiency and we will promote online banking. And as for the branch network, we will focus on highly populated areas. Up until now, you would think that there will be branches in those highly populated areas, but they did not have these branches. When they acquired smaller banks, the branches that a bank had were located in areas it was sparsely populated. So when they became Savings Bank 1, 2, 3, 4, that was the case.

 So now we will open a new branch in Incheon or may be in Gwangju where it's well known for Gwangju incident or maybe we will relocate to Daejeon. So we will distribute this branches efficiently, so that we can have nationwide coverage, we can have branches in the relatively larger cities. And as for unprofitable branches, they will be closed or relocated. So with this, we will make the branches efficient.

 And as for asset management business, IPO market is also very good. Last year, we had 12; for 2014 we're expecting 16 as a prospect. We believe that there will be 16 that will go IPO.

 As for bio-related business, I think you just saw the commercial earlier, Mr. Hiromi Go, we have featured him on a TV commercial. And in 2014 February, we've launched the first commercials and then the second set of commercials was launched in June 2014. So we, as a result of implementing these TV commercials, SBI's ALApromo products and a number of consulting pharmacies and drug stores have topped 3,500 stores in October. At the end of November, we will have nearly 4,500, which we will be signing contract with. So our target was 5,000, this is very much in horizon now.

 And in light of this situation, whether it be health foods or cosmetics, we will continue to enhance product lineup or we will have other companies release products containing SBI Pharmaceuticals 5-ALA like Bi Chocola Enrich or L'ala Solomon series or Genostyle series, this is cosmetics. Or maybe at Mr. Hayashibara's place, they're doing WASREN and PLANEN, or AsA-G Tablet. ALA will be contained in these products. And we are trying to increase the consumption of ALA.

 As for overseas, in Bahrain, as you can see there is a big poster like this at the drugstore. In Bahrain, we are selling at drugstores like this, pharmacies like this, on the package -- in this box here, it says promotes sugar and fat metabolism and promotes energy production. The government has approved that we can have labels like this. So we're selling health foods containing 25 milligrams 5-ALA. So it actually promotes the metabolism of sugar and fat and energy production will be promoted. There is a technical word that's used in Japanese for energy production, but it's used as for energy production. So in the mitochondria, when you create energy, ALA plays a very significant role. So therefore, the government has approved that we can label it like this. And that's how we started marketing this product.

 The major financial services company is SBI Securities. Number of accounts and deposit assets in the [five] online securities companies, it is top by far. We were the first and only online securities company to exceed a 3 million in number of accounts as of June 27 and the share wise too. Second quarter of fiscal 2013, 34.8% that is the individual stock trading value share. The outside circle is fiscal year 2014, first half 36.8%. So 2 percentage point increase. Fiscal year 2013 full year was 35.3%. So additional increase from that this year. So we are surely expanding.

 In terms of the margin trading value, Matsui Securities is doing various things and their shares are increasing too, but for us too ours is 38.4% and we are largely expanding. So as you can see, the reason why we can expand the share this much is because looking at the major online securities companies basis -- commission rate comparison we are at the lowest level. That is the reason.

 Financial revenue this time showed a large increase. Open interest credit balance, it was maintaining high level for the first quarter and the second quarter. And last fourth quarter, all of them were achieving a high level. I did mention 35% year-to-year, our trading value has been declined but open interest credit balance is at this level. And within this situation, as I have briefly explained before, the financial revenue is JPY13.7 billion; year-on-year, 26% increase (sic - see slide 39, "20.6%"). And as for the investment trust, 19.3% year-on-year increase and is steadily expanding. Investment trust fee quarter-end balance has renewed the historical high.

 And next NISA, at the end of September, it was 510,000 and it has large number by far. Matsui is 75,826 and kabu.com is approximately 85,000. So you can see the large difference. And in terms of the deposits, [JPY136.4 million] as of end of September. And as for the 510,000 accounts is 530,000 and JPY136.4 billion increased to JPY146.4 billion as of October 29. What's important here is that this is the customer attributes.

 Within the customers who have the accounts, the new customers is 28.4%. So it is a high number and without that, we have 66.5% that are beginner investors. Compared to the other securities companies, this is a high percentage situation. Especially compared to Nomura and Daiwa Securities, it's totally different. And breakdown by product; for us, 71% is domestic stocks; investment trust is close to 27%. So, we are at a very high level focusing on the domestic stocks. That is our portfolio. Age-wise, the NISA account, persons age of 20 to 49 make up close to 60%. Among the major securities companies, well the major ten securities companies, nearly 60% is over 60 years old.

 SBI Japannext Securities, this also within the TSE first section ratio, it is increasing its share percentage. First half of this fiscal year was 5.5%, last year was 4.9%. So it is steadily increasing its share. And as for operating income, 5.2% increase year-on-year and JPY526 million. From October 14, we will start the J-NET trading of Nikkei 225 Futures and Nikkei 225 mini.

 SBI Liquidity Market, this is an FX company. SBI FX is also the same as -- when we look at SBI Group, those two companies, SBI Securities -- SBI Securities, SBI FXTRADE, Sumishin SBI Net Bank, these three total is considered to be SBI Group.

 In terms of the FX trading accounts -- this is the result that comes out every month from Yano Research. You will see in terms of the FX trading accounts, we are Number 1 by far and also by far Number 1 in terms of customers' deposit assets. Originally, this Liquidity Market is a market and it's an OTC market, therefore it's one infrastructure. SBI Securities or Sumishin SBI Net Banks at the beginning were the ones to use this infrastructure. It was limited.

 However, the customers were saying that -- limited to only those who have accounts or banks or securities company is not fair, you need to expand it more was the request from the customers that came out strongly. So, we created SBI FXTRADE. Even though they do not have an account in two companies, they will be able to have a transaction through this account. And this is showing an increasing trend. And within that SBI Liquidity Market -- before it is allocated to the SBI Securities, SBI Sumishin Net Bank and SBI FXTRADE is JPY4.272 billion and is [12%] increase.

 And within that, SBI FXTRADE is at JPY512 million. So MONEY SQUARE JAPAN, Money Partners, FX PRIME by GMO Corp. If you do a compare of the numbers, MONEY SQUARE only has 67.2% decrease, and FX PRIME by [GO] Corp. is in the reds. Within that situation, our SBI FXTRADE, which we newly established, we have made profit of JPY500 million. Therefore what this means is that our dealers are professionals. I think it has a significant meaning whether the system is good or bad, easy to use, or uneasy to use of course is a reason too. However, financial trading itself to begin with, especially in the FX, as you think, is just a system, the revenue will increase.

 Actually, the role that the dealer plays is very important. Therefore we have talented dealers and that is a great positive element for us and we are showing this growth. And deposits are increasing by far. And number of accounts, we are Number 1 by far. And so we became a well-established company far ahead of the competitors. What we need to do right now is the foreign exchange dealings. We have to have more liquidity to that and we need to start to think to enter the overseas market. FXTRADE is rapidly growing. In terms of customers' deposit assets and number of assets, we have exceeded 70,000, I believe it's 71,000.

 As to SBI Sumishin Net Bank, the closing announcement is November 13. As to the change in deposit, the currently JPY3.4 trillion -- almost close to JPY3.4 trillion of deposits. And among the six Internet banks in this comparison, we are dominant, Number 1.

 SBI SECURITIES -- synergy with SBI SECURITIES contributed to the growth of deposits. SBI Hybrid Deposit, it is automatic deposits and withdrawals of stock trading deposits. This SBI Hybrid Deposits expanded and currently, the JPY1,054.7 billion as of the end of September. The number of users exceeded 900,000 mark in [May 2014]. So, the deposit is increasing and we need to think about how to manage deposit asset. Therefore the auto loan JPY263 billion and net loan JPY61 billion are being managed as asset. And also for the housing loan, the balance as of the end of September JPY1,647.8 billion. So, the cumulative total of housing loans exceeded JPY1.9 trillion. So housing loan business is expanding greatly.

 There are two elements here. The housing loans processed directly by SBI Sumishin Net Bank, in particular Mr. Housing Loan, is growing significantly. So, these loans increased by 113.1% year-on-year. Another element, which is the Banking Agency Business for Sumitomo Mitsui Trust Bank, which is also doing very well. The housing loan, that is a long-term business. And of course, as a bank, we need to strike a good balance between long-term and short-term assets. And it would be difficult to increase only on the long term side, that's why we are cooperating with Sumitomo Mitsui Trust Bank. So we are kind of borrowing their wallet, if you like, to expand our housing loan business.

 SBI Mortgage, we decided to sell the business. Why? Well, most of the entities are doing housing loan business, so it's redundant. The public housing, the support entity, so called Flat 35 should not be the only scope. SBI Mortgage was trying to expand its business. And here, SBI Sumishin Net Bank will also be willing to do Flat 35. So that will be the competition in the Group. Some people might say that it's a good thing, but I do not want to have them engaged in such competition. So, that's why we decided to sell the business. The VeriTrans sales, the same reason. They were two entities doing similar business, that's why we decided to sell VeriTrans.

 Insurance business, it's growing very steadily. SBI Insurance, the number of contracts, also insurance premium income, in both measurements increased by 14.9% and 11.2%, respectively. Particularly important for the insurance business is combined ratio, and that is the -- and the net operating expenses and net loss ratio. The combined ratio shows the profitability of the business. And if it is less than 95%, the business will be in the black and the other -- we are currently below 95%, so it is very likely that the other way will soon run in the black number.

 When it comes to Internet financial business, I am confident that we can turn it around in three years. But insurance business is somewhat different, so we struggled to come to this point; it took us about eight years. Because when it comes to insurance business, where naturally you need to accumulate reserves for claims payment. So the more you sell, the more you have to reserve, and then those reserves should be booked as expenses; that's the structure.

 So, it is difficult to run an insurance business in the black, that's why we launched the insurance after the bank and after the securities. Securities business comes first, and then the banking, and the insurance. But faster than expected, we could turn around the business. For example, net operating expenses ratio and net loss ratio are declining already.

 So, in the first quarter, we run in the black. And in the 2014 second quarter, we had small red number about JPY0.4 billion, but this is because of the increase in reserving which always happens at the end of the second quarter and the first quarter, it is stipulated in the law. And because of the more reserving, we still have some small red number. But in reality, we are almost breaking even. The fiscal year 2015, we are targeting at full year net pre-tax profit on an IFRS consolidated basis. I'm very confident that we're going to achieve it.

 This smart amount -- small-amount and short-term insurance business that we acquired, the SBI SSI is selling earthquake coverage called [Vista], increased its number of contracts by 10.3%, and another company SBI IKIIKI also increased its number of contracts by 10.7%. So called small-amount, short-term insurance business entities are very solid.

 Now, SBI MONEY PLAZA launched on June 2012 and the deposit asset increased to JPY440 billion and the WORLD NICHIEI was the other company that we bought, and this company had a face-to-face sales group. And this group was curved out to be transported to the MONEY PLAZA with about 141 personnel. And not only securities but also insurance business because they have obtained a qualification to sell insurance business and also housing loan business. So, we increased the lines of business sold by the same sales people continuously increased. And sales activities have been very active. And a number of MONEY PLAZA shops in the franchising method such as [7/11].

 And of course, there are some directly managed shops, but basically it is franchised, and we target at 500 shops, and now currently it stands at 408 as of September-end. And we are considering and planning to open new shops in the prime downtown locations. So the existing securities firms opening new shops in the prime downtown locations where the prefectural government is located. But in our case, we use 7/11 method.

 In other words, each shop shoulders the real estate expense as well as personnel cost, and we provide brand name and the education to franchise shops. That is our method, and that's how we have been increasing the number of shops. As a result, the operating revenue and operating income, both of them are increasing steadily. This time, operating income increased 15.4% year-on-year, and the revenue sources have been diversified including even the solar power-related business.

 On top of that, the tax savings products or the ordinary or term deposits products will also be added to the existing lines of products, including the banking agency business will be launched. And we are going to improve the product line furthermore.

 Morningstar already presented their results. This is a listed company. So as you can see both in terms of net sales and operating income, we have recorded record high historical high.

 So now efforts to realize further growth and strengthened profitability. Let me explain by number one, pursue profitability enhancement by allocating cash flow generated from selection and concentration to strengthen the high ROIC businesses and by contributing that to the improvement of financial ratios it will contribute to profitability. So when we say concentration and selection, you can see that some of the pillars of business will be financial services business, asset management business, and biotech-related businesses, there are three. So, any other businesses that's not part of these three major businesses will in principle be subject to divestment.

 And then within financial services business, so for example, if it's securities business, then there may be some businesses that will support that. For example, Morningstar, it's in investment trust, ratings and research. In many ways, it is contributing to SBI SECURITIES, so we call this a supporting function company. So, such companies and also even within the three core businesses, there are different synergies that are born. So any company with a synergy in principle will be included, but any other areas, regardless of whether it's profitable or losing money, it will be divested or IPOed or consolidated within the Group. And we have been declaring from a while ago, and we are actually starting moving forward whatever we need to sell, we have sold off.

 So, the basic policy for selection and concentration in financial services is based on whether a business provides meaningful synergy with one of the core businesses of securities, banking or insurance. So overlapping businesses will generally be consolidated. So for example, I explained in the mortgage earlier. Within this process of consolidation, we have decided to divest it.

 And as for non-core business, we will divest or IPO or integrate with other Group companies. As we thoroughly proceed with this, we will be able to generate cash and that will be the cash flow. So, we will generate and maximize and that will be invested in high ROIC business or it will be used to improve various financial ratios. As for ROE, we will improve it, so we will first of all target 10% ROE. In the first half, we have come to 7.6%. So, this will be raised to 10% as quickly as possible. I think at a high time, we were like 28%, so -- and we had several years of 20-some percent. And post-Lehman shock financial crisis, we have been exposed to various factors and environment. And in light of this, our ROE fell. And we are now finally be able to turn around and recover.

 So through our pursuit of synergies within the Group to improve profitability and expand the customer base. So up until now, SBI SECURITIES and/or Sumishin SBI Net Bank have been the center. But our synergy going forward and now, of course, that will be continued on, but it will be SBI SECURITIES and it will be SBI Japannext.

 In terms of business, the most optimal market will be selected by SOR and it will be connected to Japannext system and it will be automatically placed order in Japannext. So that's the way it will flow. But it's not just restricted to that area, there will be alliance in systems. So in IT section, there are 41 people SBI Japannext. 70% of that, which is 28, are highly skilled non-Japanese staff, so the official language is English in the system section. So we need to better utilize these human resources to improve and develop SBI SECURITIES system, and this will become an important synergy going forward.

 Provision of J-NET Cross-trading Services, which I mentioned earlier, for futures and options trading; this will be a new service that will be launched. So, we would like to utilize this off-hour market trading system and provide opportunity to trade off-hours. So in this way, we would like to utilize data centers operated and managed by SBI Japannext. So, some of the data centers will be relocated here to Japannext data center by reducing -- and we will be able to reduce cost. We have an enormous amount of system cost which SBI SECURITIES pay, maybe only JPY4 billion to JPY5 billion, maybe at a maximum even higher. We are hoping that we can reduce that to JPY2 billion or JPY3 billion, maybe not as low as that, but we would like to reduce costs significantly, substantially. And one of the key ways to do that will be the utilization of the staff members in the IT section of SBI Japannext.

 Next is IPO underwriting business. Mr. Takamura, the President is putting a lot of efforts into it. He himself goes and visits many companies. So, he is very active in sales activities. And this is not just IPO, even secondary [marketing POs], there is a lot of activities. So, if you look at it in terms of the IPO underwriting ranking, this is -- first half FY 2014, 26 companies which were listed during the period, our involvement -- so underwriting share was 84.6%, which is actually 22 companies.

 The basic thinking of any company that wants to do an IPO, they believe that it is the online brokers that are controlling distribution or shares. And in fact, 70%, 80% are held by online brokers. So because of the situation, they believe that they want an online broker to be part of it -- at least one online broker to be part of it. And most of the ordinary companies recognize that, ones that do not recognize that is maybe Ministry of Finance. So that's why [they say Japan Post, they say Ja] and that is -- everything is decided by net margin.

 So they don't want to include online brokers as the lead manager, what is the ground basis for this? I believe that I need to say something about this sometime and I'm prepared to write a paper on this. Whatever the reason may be or rationale may be, the fact that they do not allow online brokers' participation is inconceivable, if the -- the fact that the Ministry of Finance decides that.

 How much impact would that have on investors? For Japan Post, investor base is most important who are able -- and the fact that online brokers which control a lot of this trading is not part of it, it just does not make sense, it's completely irrational and I think this needs to be talked thoroughly and I think this is an important agenda. And the fact that the situation is still permanent or still accepted is because online brokers do not speak up, so I believe that I myself as a representative online brokers and I am the representative director and chairman of this association. So, I'm trying to think of ways to enter into -- break into the securities industry, so that we can eliminate things like that. So that's my thinking.

 Even from the payment of taxes, the level of taxes we pay. Compared to the two other lead managers that were chosen later on who is paying more in taxes or what about in particular region, what about Nagoya. I think we -- much more significant presence in Nagoya than anyone else, so this is a common sense conclusion, which they are not able to draw, this is extremely strange. They are in a public position, they must be logical and common sense in terms of allocation.

 I sidetracked a little bit, but in terms of IPO underwriting, our outcome or result is remarkable even for lead managing. You can see that we have done five in 2012, five in 2013 and in this first half, we have done two.

 And in terms of synergy contributing SBI SECURITIES enhancement of its corporate business. Since 2001, 647 IPOs have been underwritten by SBI SECURITIES. Among which 65 were invested by SBI Investment from January 1 to 2001 to October 22, 2014. So roughly 10% were the IPOs of SBI Investments invested companies -- that's the strength. And we need to continue to play out our strength. And we need to continue to grow and drive our IPO business.

 Now SBI MONEY PLAZA strengthens -- will strengthen high net worth business in collaboration with Group companies including SBI SECURITIES. Now this high net worth business as it has been saying follows Pareto's principle. So in other words, if you look at the number of -- percentage of share, it's only 26% but in terms of share of commission revenue, it's 72%. Pareto's optimum is 20-80 that's always been said.

 So if you look at in terms of our share of the commissions revenue, they comprise 72%. Customers would register financial assets of more than JPY30 million. 72% of them pay commissions to us -- to MONEY PLAZA. And against the segment, we need to provide special service and since SBI SECURITIES are not able to do it SBI MONEY PLAZA can do it, because it's a brick-and-mortar company. They can meet different kinds of needs for example asset management needs, inheritance or donations, different issues that their customer may have. They will be able to provide consultation and advice. This is something that our online broker cannot cover and MONEY PLAZA will be able to provide that. So this will be a new synergy.

 Furthermore, there will be synergy with SBI Group companies with high net worth client segment. So something a little different and that will be collaboration with the utilization of SBI Medical Spa Club. This Spa Club is run by SBI Wellness Bank. And SBI Wellness Bank is actually running a medical facility for Tokyo International Clinic. It's only 3 minute walk from Tokyo Station, it's located at Pacific Century Place, it's on the 9th floor, it's a very nice place. They have state-of-the-art MRI, and 3D CTs, and they are able to receive medical checkup with reservation and we will also be targeting Chinese high net worth segment, maybe on a Saturday from a certain time of the day, we will only be targeting Chinese medical tourists.

 So we have a joint venture company in China in Hangzhou. It's called SBI Wellness Management Company. (spoken in foreign language), it's actually called in Chinese. It's a joint venture with Insigma. And we will collaborate with this joint venture to attract medical tourists from China. This will be a completely -- we will have translators who have medical expertise who can translate medical technical terms, so that we can cater to the needs of Chinese high net worth customers and in fact we have already started accepting many Chinese medical tourists.

 And in terms of FX margin trading, as I have been saying before, we continue to increase liquidity and we have this overwhelming liquidity. So even the counter parties altogether including western financial institutions and domestic leading banks, there are 27 companies and we have this liquidity and we want to increase this liquidity from overseas as well. Furthermore, this is a different sort of synergy but this is SBI Insurance -- cancer insurance. This is contributing significantly to Financial Agency, which the SBI Group's shareholding is 34.4%. Direct contract through this Financial Agency comprises 56.9% in fact, and Mitsubachi Insurance Group Company -- this is about 48.5% invested company. Among the contracts of insurance shops the ones that come through MONEY PLAZA and Mitsubachi Insurance comprises nearly 90%.

 So in this way -- in various ways, we are able to expand synergy effect. So we talked about bank and securities, bank and insurance, but now we are going into more detailed synergy effect. And by effectively and strategically utilizing this big data, we will be able to thoroughly pursue this Group synergy. And we have -- are hosting Big Data Committee, which I am the chair of and we are inviting directors from different companies to come and provide ideas and inputs.

 And in terms of focusing on enhancement of the overseas financial services business along with the overseas investment business by increasing affiliated partners abroad. With a company in Israel, we concluded a strategic alliance, and we announced that in September. However, how you pronounce it -- is it Vertex or [Vartex] Venture Capital, we are in alliance with them. It was about JPY70 billion -- they have an asset under management of JPY70 billion. There are quite unique companies in Israel.

 Interesting company that this company was handling for example, the largest intestine -- unlike the large intestine, the small intestines you may not able to diagnose that resin endoscope. But small intestine has a high immunity level such as your throat glands, so you don't hear small intestines cancer, but still having said that it does suffer cancers. So also for the small intestines they have to examine, but it's difficult to put an endoscope down there. And there was a company that developed the technology to examine the small intestines by swallowing a capsule and this Vertex Venture Capital has made an investment there.

 This technology was applying the military technology. Israel is a country that has a large scale research and development for military technology because they think that they are surrounded by enemies and they do not know when a missile will attack their country. Therefore how they can protect their country regarding elements of that, they spend enormous amount of money. And the Jewish people are an ethnic group that pride themselves to surpass others in a certain field. If one is good at mathematics, they will only focus on mathematics; if they're good at music, they'll focus on music to surpass the others. So the knowledge and having -- gaining the skills is put importance amongst them because they didn't have a country. In 2000 several years ago, they lost their own country and they were wandering around the world. And even though they had money they did not know when they have to leave or escape from somewhere. What you can take with you when you actually escape is only knowledge. That is why the Jewish people put great importance on knowledge.

 Therefore very high quality intellectual property has been developed. For example, SBI Biotech's subsidiary company Quark, all the researchers are from Israel and the US, it's a US Company, but the researchers are from Israel and the lab is in Israel too. Therefore they are unique, various research and development are conducted and the technology that was developed for military purposes it can be used in the private sector companies can use that that is the way the country Israel is set up and that technology is made into business. And these are the areas that this company is focusing on and have established a very good track record, that is why we have decided to have a strategic alliance with them. And we also established an LP becoming active limited partner and assigned a resident officer.

 And next is China. In the Shanghai's free zone we are thinking that we do have to have an online systems service set up with Lujiazui Group and New Hope Group. Now we have created a company called [A1] which is a preparation company this March. And as of our company that has 200 people who are very talented and skilled in the network system. We are in partnership with them, so that we can move forward the preparation in China and Morningstar using E-Advisor. In Indonesia, we have established a joint venture company for an investment valuation business and investment advisory services. So in various areas in the overseas markets financial service business proliferating is what we are putting our efforts in. The first phase we start from the investment business and now we are entering various areas. And we are conducting various financial services business overseas.

 In the 5-ALA related businesses which is pursuing an early profitability, promote the sales of health foods etcetera and accelerate the research and development of pharmaceuticals in and outside of Japan. Actually the IPO of SBI Biotech we were preparing and working. But as of September 30, there is a change of President and CEO, therefore the company will promptly resume IPO preparations once the new management organization is in place. The representative director that we first asked for the -- to assume the position had health issues and probably cannot return to work immediately. And himself said that it is difficult for an early return. There by our representative director Mr. Nakagawa is assuming this responsibility for now.

 And as for on SBI Pharma, for diagnostic agent for malignant glioma, we have already launched ALAGLIO and it is performing in a satisfactory manner and now not just for a brain tumor we thought maybe it could be used for other cancers such as the bladder cancer is designated as an orphan drug and we are trying to go into Phase 3 of the clinical trial with the doctor sponsored investigation. Within 2016, we would like to submit an application for production and marketing approval. This is to increase or expand the indication if we can have the bladder cancer for indication where can we go next? In Bahrain, using ALA they have conducted surgery for bladder cancer, already seven cases and they have a successful case of seven. And there is an attempt to apply it to prostate cancer also. Basically the Bahrain's Ministry of Health, it was saying that you can use for the brain, why can't you use it in the other parts of the body, because the brain is the most complicated and difficult organ, therefore don't need to check everything. Therefore we have received an approval, so first in the world in Bahrain, we used ALAGLIO for the bladder cancer surgery and using our own developed device and we have used the photo dynamic light source and we have succeeded in this surgery.

 And for the chemo therapy for cancer treatment including anemia, now we have finished the Phase 1 trial in the UK and for Phase II we thought where is the cheapest place to conduct a trial, it was Japan. Therefore in terms of the cost issues we have Kitasato Academic Research Organization as ARO and Saitama Medical University as the medical institution conducting this clinical trial and we are conducting investigator-led Phase II clinical trial and it has been administered to patient already and we are in the follow-up observation now.

 Bahrain, as I have mentioned to you before, instead of the intra-operation diagnosis agent the type 2 diabetes clinical trial is -- the approval of that is taken from the National Health Regulatory Authority and we have administrated it to type 2 diabetes patient. When it's sold at the pharmacy on the package it says that promotes sugar and fat metabolism, we received approval of that. There is a sugar metabolism, it's related to diabetes, so. And this has a treatment agent, before it was a health food. As a treatment agent, high immunoglobulin acid using the hydrochlorine, the one before was 5 immunoglobulin acid that was a phosphate that is used for the medical drug. So there is a slight difference between the medical drug and health food, and the clinical trial of this was approved and we have administrated it to patients.

 We are focused on the fact that in the Middle East there is a high ratio of diet patients, and also there are about 30% of those who have the potential for diabetes. So we are considering whether it can be used as a preventative medicine. (inaudible) it is a country that the medical expenses are free of charge, different from Japan. And therefore, they can actually [shown] in the time for the approval of the drug.

 We always focus on early authorization, meaning that we focus on the country and we have the country -- a particular country that use the medication as soon as possible. And the Ebola right now is a hot topic now, but we are talking to the government right now, so that our products may be used for the treatment of Ebola. We're thinking of talking to the countries directly that have issues. So for the Ebola, there are papers that have been written. Therefore based on these scientific datas we would like to negotiate with the relevant countries' government.

 This is a light source equipment that I will explain. This is Aladuck LS-DLED, this is using LED light source and SBI Pharmaceuticals sells in Japan. And there is also a laser light source equipment. And it's preparing for sales in Japan, the registration of medical device has been completed. This is very good, if you light or illuminate the tumor, the tumor part will shine as a red color and you only have to surgically remove the red eliminated area here, where it's the cancer tumor it's in red. So in this form, we just surgically removed the cancer part for sure that's what we are aiming for, and that's why we have developed something like this.

 It actually makes sounds if it gets close to the cancer tumor, it starts to make sounds. Therefore visually and also from audio effect we will be able to surely remove the cancer cell tumors. And we are working on it to be applied to the prostate cancer [in Reading City] in the UK.

 The joint research with University of Oxford has completed and Phase II is going to start in the UK. This is ischemia reperfusion related and at the preclinical models in mice, the ischemia reperfusion injury can be protected by ALA that was discovered.

 And the Oxford University's Houman Ashrafian -- professor Houman Ashrafian found that and have approached that he wanted to conduct this clinical trial. The clinical trial will be conducted at Birmingham University.

 And with Osaka City University and SBI Pharmaceuticals jointly -- joint research -- PLOS ONE which is a US scientific journal, which is very famous an article was published, meaning that the hospital-acquired infection, the representative of that is MRSA. The infection causes cutaneous ulcers and by having a systemic administration of ALA and also having LED irradiation, they were able to treat that cutaneous ulcers and the professor of Osaka City University was making the announcement. And MRSA can resist antibiotics because it's been administered large amount of antibiotics and now there are patients that antibiotics do not work against.

 For example, if someone is hospitalized for a long term and has a bedsore and if this MRSA goes into that bedsore, it turns into an ulcer and there was not an effective treatment for that and that was the situation and now there is a mice experiment result that ALA may be effective. Therefore from now onwards, for the antibiotics resistant infections we are going to proceed on the research. In addition to this at various universities experiment by mice -- there are places that are conducting experiments using monkeys, we are heading towards that direction.

 For example, cervical intraepithelial neoplasia Alzheimer's disease done by Hokkaido University, Parkinson's disease, Shimane University, Mitochondrial diseases, Saitama Medical University, and kidney protection from chemotherapy, Kochi University, malaria, the University of Tokyo, Institute of Technology and SBI Pharmaceuticals.

 We adopt to Prime Minister Modi of the possibility of collaboration because there are large occurrences of malaria in India. And we can wait that we would like to conduct a clinical trial in India, and also chronic kidney disease and diabetic diseases, our tests are conducted in various universities such as Bahrain University, University of Hawaii and they prevented the aggravation of influenza that is tested at Tokushima University in a different efficacy is the Fujifilm's product that may work is told to be worked on Ebola. Maybe we will have a product that can go that direction for accelerating the 5-ALA related business in China, we like to promote the sales of it. We have to have the substance -- a test -- it already a passed the safety and toxicity tests, so that it can be added to food material and we are currently submitting a review for the Ministry of Agriculture and after the completion of the review of the Ministry of Agriculture, which is ruled into the Ministry of Health, Labor and Welfare in Japan.

 And once we receive the approval, we expect to obtain a product license in early 2015 and we already completed construction of health food manufacturing plant. Here we'd like to manufacture ALA and reduce the production costs and sell it in China as medicine and health food.

 Together with the New Hope Group, we are in the procedure to establish an important sales company which imports 5-ALA products and other products from Japan in Shanghai free trade zone. It's not limited to food materials, but also forage and fertilizer because the New Hope Group is the world major forage and fertilizer company. Do not use antibiotics but only use the ALA and see how the livestock meat quality is and how many eggs, the chicken will lay, the experiments that are conducted right now and if that goes well, those test results as a base, items will be imported from Japan and sold in China, that is the flow. (technical difficulty).

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Editor   [2]
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 Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.




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