Q1 2016 SBI Holdings Inc Earnings Presentation

Jul 30, 2015 AM JST
8473.T - SBI Holdings Inc
Q1 2016 SBI Holdings Inc Earnings Presentation
Jul 30, 2015 / 07:30AM GMT 

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Corporate Participants
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   *  Yoshitaka Kitao
      SBI Holdings, Inc. - Representative Director, President and Chief Executive Officer

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Presentation
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 Yoshitaka Kitao,  SBI Holdings, Inc. - Representative Director, President and Chief Executive Officer   [1]
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 Thank you very much, ladies and gentlemen for attending our First Quarter Earnings Report Meeting, despite very warm weather outside. I also like to take this opportunity to thank you for your continued support and understanding to our Group companies. Thank you very much indeed. Without further ado, I'd like to start my presentation.

 First, fiscal 2015 first quarter consolidated results. Before I give you all the figures, I'd like to inform you that we have eliminated the operating income items starting this fiscal year, given that from time to time it was difficult to make a clear distinction between operating income related items and other items, which are prone to cause differences in opinions. So upon the consultations with our auditor, we decided to eliminate the operating income category and instead use the profit before income tax expense as the performance criterion. I think this is much simpler and much easier to understand.

 For example, what are the changes in terms of the operating expense this portion as well as other financial cost or other financial income. These portions have been consolidated, changed and so we have the other financial income included in the revenue. And we also would have financial cost and operating expenses put together to be shown as expense.

 So these are the results for the first quarter. On IFRS basis, revenue JPY66.735 billion, up 50%. Profit before income tax expense, JPY14.861 billion, plus 256.7%, and the profit for the period JPY11.619 billion, which is up 402.5%. Profit attributable to the owners of the Company increased by 67.3% to total JPY11.555 billion.

 ROE for the quarter, 3.0% which is 0.9 percentage points higher. And if you multiply this by 4 on the annualized basis, that will be 12.0%. So that's up 3.6 percentage points. And we also changed some of the segments -- segmentation for the asset management related business. We newly established that business within the asset management business and Morningstar and others have been transferred from the financial services business to asset management business accordingly.

 This asset management related business; Mr. Asakura, who is running the Morningstar would be the CEO. So as to enhance this part of the business on a global business scale, we will be inviting more personnel for various types of management, securities including fixed income and equity and FX and real estate. Those would be managed under this part of the business and global products would be handled.

 We have securities, banking and insurance within the group and therefore we wanted to enhance our asset management capability. And also the products that we do origination, we will be collaborating with various institutions, so as to come up with a better offering to many of the investors.

 This is revenue by segment. Financial services JPY40.751 billion, 26.6% increase. Asset Management, JPY24.454 billion, up 117.3%. Biotechnology related, JPY482 million 173.1% increase. And others, primarily housing and real estate business. In fiscal 2014 this included SBI Life Living, not for this fiscal year.

 And within the financial services business, this is the profit before income tax expense, large increase, 47.4% increase, JPY13.444 billion and asset management turned from loss to profit, JPY4.42 billion, about JPY6.3 billion improvement. Biotechnology related, it's still in the negative, but we saw an improvement by JPY178 million.

 And here you can see the consolidated financial indicators, ROA, 4.7% for this fiscal year and this is deducting the assets and liability accounts associated specifically with the Security Company -- Securities Company and we are to include that, it's 1.7% and because of the assets and liabilities accounts with the Securities business, that pushes down ROA. And so if we exclude that it's 4.7%, if we include that it's 1.7%. But when we look at the ROA, average ROA by business, banking, of course, it's very low, 0.7% and Securities business, 1.2% and for the entire industry, 2.3%. So financial institutions tend to have low ROA, that's the common sense.

 So assets and liabilities accounts even when those are included it's 1.7% in our case, so that's higher than our peers. Interest-bearing debt ratio, 97.6% and the ratio of equity attributable to the owners of the Company, without the assets and liabilities accounts, that's 21.4%, about twice as much as those that we include and that has come down year-on-year. And that is because we executed JPY7.6 billion shareholder return including the dividend and the share buyback.

 Cash flow increase, JPY32.5 billion or so increase, that's the operating cash flow. And investing activities cash flow, again an increase of JPY1.05 billion at JPY2.657 billion and financial activities cash flow, this improved by JPY13.411 billion. Dividends, we have not been paying interim dividends for quite some time. So for the first time since 2007, fiscal 2006 that is, we are going to pay the interim dividend of JPY10 yen per share. When should this be paid has not been shown.

 I believe that the performance will only increase going forward. So we've decided to pay the interim dividend. It doesn't mean that we will be reducing the year-end dividend. Of course, if the performance deteriorates in the second half, we might change, we may change, but 35% was the payout ratio in the last fiscal year and we want to increase this to 40% this fiscal year, which would mean share buyback and the dividend payment are to be executed. So the balance between the two is something that we need to consider going forward. And the last time we paid the interim dividend, it was the commemorative dividend, which is different from this time around.

 Now, the results by segment, Financial Services business. We saw improvement in almost all business. SBI Securities, 49% improvement, SBI Japannext 21.3% increase, Liquidity Market 68.9% improvement year-on-year. These are all the pre-tax profit. FXTRADE, 161.8% increase, SBI MONEY PLAZA, 102.6% improvement. And SBI Insurance, it went down year-on-year, but this is because as will be explained later, there was some special factor.

 SBI Card, this has declined year-on-year. As has been announced, this will be sold to the Bank and so many preparations are underway, which accounts for this decline.

 SBI Sumishin Net Bank, this is the shares based on the equity method. It's been announced already, based on Japan GAAP today. On the IFRS basis, this is the figure, but on the Japan GAAP basis, the figures are much better. As for SBI Life Insurance, this results are to be announced on August 10. We still need to do some kind of consolidation. We are still in the preparatory stage, so not much change.

 Now, these are the businesses that we have not covered much in the past. This is within the Holdings Company, the Website Comparison, website business, JPY518 million profit, 22.4% improvement year-on-year. This is a business that can generate a profit of JPY2 billion or so a year. So it can become independent and SBI Remits, JPY50 million improvement and Benefit Systems, JPY45 million. And this is the company that manages the defined contribution operation. And with the increase in the corporate type 401(k) plan, investment trust balance, we believe that these could all grow going forward.

 Now each of specific companies. SBI SECURITES, compared to last fiscal year, we see steady improvement in the market in terms of the average daily individual brokerage trading value, 28.3% improvement year-on-year. Therefore, operating revenue was plus 40.2% year-on-year, JPY22.33 billion. Operating income approximately JPY10 billion, plus 52%. Ordinary income, approximately JPY10 billion, plus 51.3%. Net income for the period was JPY6.116 billion, which was plus 60.5%.

 Performance comparison of major online brokers. Excluding Monex, most of the players have announced their results and each company, each brokers are working hard and they are showing good results.

 And online brokers, their broker comparison of their performance, this is quarter-on-quarter basis. Now, if you compare on a year-to-year basis, as I had described earlier, there's increase in individual stock brokerage trading value, so of course this will become positive in a very large sense. But on a quarter-on-quarter basis, operating revenue hasn't grown by a large amount, large margin, and also in terms of net income for the period, Matsui was down year-on-year, kabu.com increased, but this is because of JPY1 billion in sales gain from marketable securities.

 So in that sense, we are the only double digit growth on a normal basis. So in that sense, the other day, I mentioned that the competition between online brokers is coming to an end, and I think this reflects that.

 So this is looking at the stock brokerage trading value and commissions, which have increased dramatically. I have discussed about the market earlier, but in our case, we have grown by plus 36.7% year-on-year. So we are surpassing the overall market growth rate. And also in terms of commissions, it's plus 44.1% year-on-year, so what it means is that our share is increasing. And I will explain more about shares later on.

 In terms of margin trading, JPY820 billion. This is a record high in terms of quarterly balance. So with just financial revenue, we have been able to generate more than JPY8.4 billion.

 Now, this is Investment Trust, again our quarterly balance was record high. Our Investment Trust fees was plus 44.3% year-on-year, so JPY1.1 billion. Also, in terms of Wholesale business, this is the Underwriting business. This July, you have the April, July figure. These are the two companies -- in FY 2014 it was 14 companies, so in the first quarter, this includes July portion, but it's 22 companies now. So since it's all IPO underwriting, you can see that we're underwriting more and more companies. In terms of underwriting share, it's 78.6%. There are 28 companies were listed during the period and we have taken 22 cases out of 28.

 And then in terms of number of accounts and amount of the customer assets. So in 2015 June we have exceeded JPY3.33 billion. AUM is JPY9.7 trillion, which is a nearly JPY10 trillion in the very near future. Commissions is overwhelmingly low. Share, I have spoken about earlier, so this is about 40% in share of individual stock trading value, among which margin trading is 44.2%.

 Customer satisfaction, so over the last eight years, consecutive years, we're Number 1 in Oricon Customer Satisfaction Ranking. And in terms of JCSI, this is Japanese Customer Satisfaction Index, we were number 1 in securities industry. For customer service center, we are three stars for five consecutive years so customers showing high appreciation of our company.

 Next is SBI Japannext. Again you can see a relatively a nicely performing average daily trading value. And in light of this, operating income is steadily growing. Year-on-year in the first quarter was plus 18.1%. We have exceeded JPY300 million, now -- exceeded JPY30.7 million.

 And now in terms of SBI Liquidity Market, this is from the (inaudible) resource, monthly rank research on 16 Major FX trading companies, you can see that SBI's Group's total number accounts and customer deposits assets have overwhelming surpassed out of the competitors.

 Now in terms of performance, operating income before allocation of the SBI Liquidity Market representing amounts before its allocation of profits to affiliated companies such as SBI SECURITIES, SBI Sumishin, Net Bank and SBI FXTRADE. So last quarter first quarter 2015, it was JPY3.14 billion so this is plus 66.7% year-on-year.

 Now Money Square, we are planning to announce this on the August 6. Money Partner's, the performance was announced again. This was JPY381 million, so it was a very large growth, but it was a very small amount in the previous year. So you can see that foreign exchange companies are all showing very high growth rate.

 Now let's look at the Bank business. So as I have said earlier, today they are announcing the results. So in J-GAAP basis, this is approximately JPY5.2 billion in ordinary income, year-on-year 176% increase.

 And in terms of deposit balance, so it goes back and forth between JPY3.6 trillion and JPY3.7 trillion. So at the end of June, it is about JPY3.7 trillion. Now if you look at the pure play Internet Banks, the six Internet Banks Deposits, Daiwa is JPY3 trillion and SBI Sumishin is JPY3.6 billion, as you can see we are far ahead.

 And for Securities and the Bank, we have a hybrid deposit which is automatic deposits and withdrawal of stock trading deposits service. In May, we hit a record high, which was JPY1,369 billion and in June, it's at similarly levels and continues to remain at high levels at JPY1,366 billion.

 Also, deposits have been accumulating, therefore we need to diversify the management of the deposits. And we have been seeing growth in housing loans. As of end of June, the balance was closed to JPY2 trillion.

 With regards to the cumulative total, it was JPY2.4 trillion as of July 23 and the balance of card loans have been steadily growing as well. We have been putting a lot of emphasis on this business, so we have been seeing an increase of balance.

 And in July 2014, the credit ceiling was revised and the minimum interest rate is now 1.99%. So we are seeing more utilization by customers. And we have the number 1 in deposit balance and balance of loans amongst the pure play internet banks. Also, ordinary profit is a question still, as we are waiting for the announcements to be made by respective competitors on the August 7 as well as August 6. But one thing we can say is that we started in September 2007 and deposit amount as well as the balance of loans is by far number 1 against competition now.

 With regards to the number of accounts as well, for Japannext it's just matter of time that we will exceed them. First only bank, we have already surpassed our level and Rakuten is number 1 for the time being. And also here, we are getting high ratings amongst customers with respect to customer satisfaction.

 So now the Insurance business. With regards to SBI Insurance's number of insurance contracts, we've been seeing it grow by 12.9% year-on-year and also the change in primary premium incomes has been growing by 13.8% year-on-year, which is double-digit growth, which is still ongoing.

 With regards to the combined ratio, it has gone down even more, now it's at 89.7%. So we are at this level, so obviously that business will be profitable.

 And earlier I mentioned that the earnings is down. The reason is because there was a significant insurance payment and also the cost increased due to reinsurance. The negative portion, the losses are upfront and then you start to see a positive impact and after. So the first quarter tends to have the largest loss which is cost increase of JPY111 million. But for the full year it's not going to be this times four, it's probably going to stay at around JPY200 million to JPY300 million. So with regards to this cost, we are trying to reduce this as much as possible. So we believe there is a need to have our own reinsurance company.

 We didn't need to use them, but as we use them as a way of preparing for our Life Insurance business. We wanted to see the environment and the situation surrounding us by using third-party reinsurance. So with regards to Life Insurance, we are organizing our sales structure now and we are preparing to conclude an agency agreement with the SBI Group companies and also preparing to handle sales in our websites.

 And we will establish a new product development team on a Company wide basis and also we will increase staff, because this company originally had almost no people and employee wise that can sell; it was mainly administration people. So we need to increase our headcount for sales staff.

 However, we will like to contain our personnel and non-personnel expense as much as possible so that we can offset the increase of cost that's related to the increase in headcount. For SSI, Short-Term insurance, for IKIIKI SSI, often are there being covered by the newspapers.

 The number of contracts has been growing steadily and also for this side, which is SBI SSI, Earthquake Indemnity Insurance. Because of the nature of the insurance, if earthquakes occur, the more people are likely to take out a contract.

 So next is MONEY PLAZA. For this business, operating revenue and operating income has been growing steadily. Operating revenue has been growing by 24.3%. The Securities business is the main part still, but we are trying to diversify the earnings sources as much as possible.

 For operating income on a quarter compared to the previous quarter last year, it has grown by 102.2% to JPY484 million. Next is the asset management business. Like I mentioned earlier, it has reduced the losses from minus JPY1.9 billion to JPY4.4 billion, when comparing 2015 March first quarter. When you look at the change in fair value and the profit and loss from that, it has improved to JPY3.3 billion from minus JPY5.6 billion.

 Unlisted securities account for JPY0.7 billion of that amount and listed securities, JPY 3.2 billion. So the improvement level was JPY8.9 billion.

 So also there are some unrealized gains versus acquisition cost, which is JPY6.5 billion. When we apply IFRS, you need to apply mark-to-market accounting, so that is why we have all these numbers. With regards to the Savings Bank of South Korea, like I mentioned earlier, it has concluded its revitalization process and June marks the end of their fiscal year.

 And the results are as shown. Operating income was KRW41.9 billion and profit before income tax expense was KRW26.2 billion and the capital adequacy ratio on a K-GAAP basis improved even more, reaching 11.46%. So you can say that they have achieved revitalization. This was covered by the Korean press as well. And they were able to do this over a short period of time.

 So Morningstar, they are a listed company, so they announced their results as well. And ordinary income was historical high, at JPY438 million. Like I mentioned earlier, Morningstar is now included in the Asset Management business so that is why we are mentioning them here as well. But nevertheless, ordinary income has been growing by 30.6% year-over-year and our profit 36.5% year-over-year. So steady growth has been recorded.

 Morningstar Japan has continued to grow consolidated operating income, for six consecutive years, they have recorded record high operating income. And compared to fiscal 2012, the operating income is 2.7 times when compared to fiscal 2009 first quarter, it's 6.9 times more. So I think they are a well-run company and I always say that to them.

 So next is Biotechnology related. Like I mentioned earlier, for this business, we have been seeing a slight improvement. But we still see a loss of JPY1.1 billion, approximately. The improvement made was related SBI ALApromo, you saw the TV commercial area. We suspended it for a while. So on a year-on-year basis, the losses decreased. Furthermore, sales has increased. That's another reason why. So there are more drugstores that carry our products. They are now 4,873 as of end of June, so it is steadily on the rise. And the effect from running TV commercials is positive for sure. Hiromi Go does have an effect indeed.

 And with regards to ALApromo shipment volumes, if we were to index fiscal 2014 first quarter at 1 times, it has grown by 9.3 times. So finally, the awareness towards ALA, I think has enhanced.

 So next, the Company's outlook for fiscal 2015 based on the current business environment is what I would like to talk about. First, I would like to talk about the business environment. Of course, there is Greek debt crisis that affected the global stock markets. Lots of fluctuations on stock markets globally, but the Greek insolvency was avoided and we do see the European stock markets headed toward recovery.

 Back in 2011, there was another Greek debt crisis, but it's quite different this time around because back then, many of the European banks had the Greek sovereign bonds on holding. Whereas this time, no one is holding that. It's only the Greek banks that hold the sovereign bonds. And therefore, the impact had been limited.

 Besides, the euro, the economic integration, or should I say the currency integration, unified currency, that's the framework and therefore when it comes to the fiscal policies, each member country had its own authority to make decisions. So it can't be avoided that these issues are repeated, because there is this contradiction within the euro framework because usually the countries can adjust by working on its own local currency. In the case of Greek, drachma, but under the euro framework, the countries cannot afford to do that, which means that this could be repeated going forward, unless the national mindset, mentality of that country changes.

 And another issue was Chinese stock plunge. Between June -- summer of 2014 and June of 2015, the SSE Composite Index increased approximately 2.5 times, but then it plummeted by more than 30% after peaking on June 12 2015. Of course, the higher the peak, the lower the plunge, the trough. I think China is rather interesting in that in the ordinary capital country, what China is doing today is something unthinkable and therefore, if you want to predict the Chinese market going forward, you cannot use the common sense that you have for ordinary capitalist countries. What's common sense elsewhere does not apply to China.

 Securities firms, primarily the National Securities firms are buying about JPY2 trillion worth of stocks and they are banning the stock sales for large shareholders. And maybe if you do something against that, you might be arrested. So China is a country that can afford to resort to those measures and therefore, I think the market will stabilize eventually.

 Now, there was a government intention to raise the share prices, stock prices, a sort of Chinese version of quantitative easing was introduced. And four times the interest rates had been lowered. And of course the stock markets would go up, the stock price would go up in the meantime, resulting in this 2.5 fold increase. But then after some stimulation, people get concerned, the financial institutions was probably after buying the stocks sold, it is suspected.

 So there is high volatility on that market, I talked to many people and I'm told that if there are such measures that China can resort to, I think things would be settled down because they are taking very agile measures.

 Chinese Banks are going to purchase securities, so it doesn't even compare to what Japan did, the so-called PKO. And that's what the Chinese government is currently doing to address the situation. Looking at the US economy, of course the question is, when would the interest rate go up? It just means that things are going to normalize, in other words, things for the past several years have been abnormal. Some say, it will be in September; others say, December, but it's just a matter of time. Gradually, the interest rates are going to be raised, I think. But that's already been incorporated in the investors' and market mind. The only thing that is still not known is the rate at which the interest rates are to be raised.

 Looking at the Japanese economy, Abenomics are being maintained. The consumption tax hike last year should have been avoided, but what helped was the decline in crude oil prices, which had the effect of about JPY7 trillion. But now the oil prices are gradually going up. Back in March, it was $24 per barrel, but now it's over $60, but now it's down to below $60 again. For the Japanese economy, this is a good trend.

 Having said that, I strongly am against another round of consumption tax hike, because the economic recovery is not yet strong. But the corporate earnings are strong. When we look at the securities market, the stock market, I think it's undervalued based on P/E 17 times or so.

 And when we look at the profit return on the stock market, it's now close to 6%, the Diffusion Index, 25 times with 4% is not surprising. So given that current P/E is 17 times, I think it is within the assumption. So I think there is still room for further increase in the share prices.

 Now looking at the trading value by foreigners. Basically, if they are to invest the stock market, maybe not, they're not going to invest in the US market, given the interest rate hike possibilities. Is it China? Again it's rather risky. And with higher interest rates, other emerging markets would be affected. There's a possibility that money would be withdrawn to be flown back into US, so that would mean it would be either Europe or Japan. Some of the foreign investors are investing in the European market, following the Greek crisis passing the worst point. But I think the Japanese market is where the strongest interest is, although over a short-term there could be some interest in the European market as well.

 Now, looking at the domestic IPOs compared to last fiscal year, 1.31 and there is quite a number of IPOs made this year. So I believe that this market is going to remain robust this year.

 With this as a backdrop, how are we doing in the securities business? Usually there is a tendency that with this Greek crisis, people would sell the stocks, but actually this is the time to buy, because securities firms do make money either way, because of the commission fees. So when the volatility is high, that's good for the securities firms and for the liquidity market, that's good as well.

 For your information, we are showing some monthly figures for July. For example, in terms of operating income, we are comparing the first quarter results with the quarterly average of the last fiscal year. It gradually increased and the average daily trading value for month of July was better than the first quarter of the fiscal 2015. In first quarter of fiscal 2015, the operating income improved by over JPY1 billion over the quarterly average of the last fiscal year. And that improvement in operating income was supported by the average daily trading value and this average daily trading value for July was even better than the first quarter, indicating that July was very good. And the liquidity market and for SBI Liquidity Market, operating income before allocation for July was about JPY50 million better than the monthly average of the first quarter of fiscal 2015, which was really good.

 So high volatility is good for our business. It's not declining, in fact as the trend is on the increasing trend, that's good news for us. And in terms of market share, we see gradual and steady increase.

 As of the end of June, 690,000 accounts. By far larger than Matsui and other peers. We are getting very close to Daiwa Securities, maybe we will catch up and exceed that 700,000 accounts as of July 29, with deposits totaling JPY311.9 billion.

 And starting in 2016, tax-exempt investment ceiling will be raised to JPY1.2 million and junior NISA program will be introduced, which is good for us. The people who are familiar with the online trading, I think, are going to participate more in opening those. When e-commerce started in Japan, people who are familiar with that are now over 20 years of age. And therefore, I believe that we can expect a steady increase in the number of NISA accounts, most probably exceeding Daiwa Securities. Especially, 35% of the NISA accounts are the new customers and 66.6% of them are the novice investors. And active account ratio is 58.6% and that's much higher than the industry average of 48.4%.

 And we are now going to challenge in the -- challenge the face-to-face securities companies, going to be very aggressive in a positive way. This growth rate, whether it could be maintained or not, well I think it's a matter of time that we are going to probably exceed Daiwa.

 And in terms of the Investment Trust balance, we want to grow this so as to enhance our earnings base. SBI is 1.61, this is as of the end of June, much better than others. And also, we are going to promote the self-origination of structured bonds. We used to rely on the external financial institutions. We want to make this into a self-origination, complete the process by the end of the year so as to originate structured bonds equivalent to JPY25 billion next year. We also established company called SBI BITS, BITS standing for Better IT Solutions. We have extensive system related cost being paid; in the case of last fiscal year, JPY20.6 billion in total and we want to reduce this by 10% initially by having this systems company within ourselves.

 In particular, we will be modifying the HYPER SBI and we are expediting the process to make it the strongest system and tool in the world. And the full-fledged operation is to start in August and eventually we would like to expand this into overseas securities business as well as banking and insurance business as well. This is the company who is going to be involved in the systems development for all of our financial related businesses.

 In the banking related business, the loan deposit ratio has improved dramatically to 51.2% with the diversification of loans and we are going to continue with that strategy.

 And in the credit card business, we want to turn to profitability as quickly as possible, now that we have transferred this to our banking business. And there is a group-wide support to make this a reality in insurance related business, the auto insurance and the non-life, we are showing the persistency rate and reflux rate, persistency rate of 90.9%, reflux rate of 85.2%.

 The car insurance is renewed every year. But when the contract is to be renewed, that's very critical. Compared to 5, 10 years policies, how are we doing with this annual renewal framework? Actually it's 90.9%, very high persistency rate, which compares to 5-year, 10-year policies, which would mean that there would be the accompanying appreciation. Fire insurance, we are considering starting this with the support of the companies in the housing loan services. We would like to start this, we have ARUHI, the formerly SBI Mortgage, we have over 50% equity holding there. So with the launch of the fire insurance, we're going to ask for the strong sales support from this company.

 So personalized insurance products. We think that premium can change depending on the person, that's the future image of insurance products. So in order to do this, we need telematics technology and wearable devices. So we will have one partnership with a company called ZMP Inc.

 Along with this, I believe one important aspect is automobile. Automobile, everything about automobile is connected to the Internet. It's completely computerized. So in one sense, it bears a very high hacking or being hacked risk. So while we promote telematics, we also need to consider how we can defend ourselves from hacking risk and threats. The two need to be combined in order to please the consumers. The hackers can hack the automobile that's been connected to the computers. So we need to make sure that they can't operate the keys or open the door or sometimes a hacker could maybe take over the steering wheel, which is extremely dangerous.

 Airlines, I think when they're up in the air, it's not as dangerous but landing and departures are always very risky. So there's always two sides to the coin, there's good side and then there's always a negative aspect as well. So you need to make sure that there's always equilibrium. So in order to resolve this issue, we're investing as well. So we do this so that we can be connected to the most powerful players on both sides. Now who will be -- who's the most powerful and of course we are searching all around the world to multiple players and we want to be connected all around the world. If you do not consider to this extent, it is very difficult to promote and do business in this area. The more you introduce telematics technology, you become more connected to the world of Internet.

 And also entering into reinsurance business and establishment of insurance holding company, I talked about reinsurance company earlier. We want establish a reinsurance company in our Group so that we can have reductions in the reinsurance premium that we pay to the non-group reinsurers, so savings will be consolidated into this new insurance company.

 Now this insurance company, this holding company, I think, this is my personal opinion, but it's better to list this holding company in the future rather than to list individual companies. Right now, the total of the four companies right now under the J-GAAP basis is about JPY480 million approximately. It's not precise right now, but we think this will be JPY1 billion, JPY2 billion very easily once we engage in this on a full scale basis. So in this way, non-insurance business will become profitable. And I think we will consider IPO as quickly as possible, but if the valuation is too low, then we don't necessarily have the need to go public, so we need to watch this situation and find the most appropriate timing for IPO.

 Now, Asset Management business. So when Chinese stocks fall, our stocks fall as well. And they think that it's bad for the asset management market, but we think that the company's risk, our business in China started in 2005 and whatever we need to recover and pay back, we have been able to, whatever we need to liquidate, we did so. So in that sense, the Company's risk with the respective decline of Chinese listed securities is very limited. So there's not much concern for us, even if the Chinese share prices fall.

 Now here is a breakdown of investment balance based on investee companies' country listings, of course there's Korea in here. Of which approximately half of the amount of JPY7.5 billion is the amount of funds operated by SBI Investment in Korea. So you have Taiwan, Europe. So it's quite diversified. And also the price of securities held by the Company bottomed out in the fiscal year. So basically FVTPL will continue to be positive and also SBI Investment will continue to establish new funds with a commitment amount of JPY15 billion. We also have the FinTech Business Innovation LPS which will be established. So I think the world is starting to recognize FinTech as SBI's business. So we will establish this fund and we will do more and more investments.

 The second fund, so in Malaysia, Brunei and Taiwan, we will pool a larger amount of money and establish number 2 funds, so the preparation is underway. And also in Thailand, SBI Group and Finansia Group are investing 50% each to do an investment in unlisted companies in Thailand, Vietnam, Myanmar, Cambodia and Laos.

 Korea, they have been able to steadily solicit funds from January 2014. They have a total of five funds, which were commissioned by the government agencies to be managed by SBI Investment. The total amount is exceeding over KRW200 billion. And in recognition of the success, we were awarded the Best Fund Raising House Award from the 2015 Korea Venture Capital Awards and Creative Management Award from the TV Chosun 2015 Management Awards.

 So this company, SBI Investment Korea has been able to revitalize in a very short term and is now expanding their business very steadily and I think they have been recognized for their efforts and success.

 Now, here's the IPO and M&A deals prospects for 2015. We expect 18 in terms of SBI Savings Bank, we're actually growing and you say, it may suggest that Korean economy is not strong, it's sluggish, slowing down, but actually because it's sluggish, it's very good. If you look at housing price index, the government wants to improve this index, so they implement different measures and they want to also increase their transaction volumes, so they implement measures. So this has been very positive environment for us. And you can see that saving bank's performing loans is steadily (inaudible) you can see delinquency rates, it's falling very steadily. And the balance of the performing loans is increasing. And they will continue to expand their revenue. They will do home equity loans through Internet, which is really the first time for Korean Savings Bank and they will also do auto loans for used cars.

 Another thing, online banking service. We will begin to promote this. Finally, in Korea, there has been deregulation in online banking service. So South Korea, June 18 2015 for the establishment of pure-play Internet banks, the Financial Services Commission, which is a national government agency, introduced a draft proposal that includes the reregulation of the current Banking Act. And as many players are interested in working with us, they want to establish online banking business in Korea together.

 We see a similar move in China. Let's establish our online pure-plays. Alibaba does online banking, but they don't have pure-play business, so they're -- because that concept does not exist in China, so they're not able to start up yet. So we would like our (inaudible) difference so that we can promote this business in the same speed, in the same manner.

 Now forex. So in order to gain liquidity from China and Asian nations, we will have established a Hong Kong subsidiary. So whatever we collect here in Hong Kong will be transferred to SBI liquidity markets. So we want to collect -- consolidate all the liquidity around the world in one central area. And we have already implemented this measure and we think this is very interesting business. And all around the world, we will have this financial ecosystem. SBI Group has built this financial ecosystem, we will be transplanting this all around the world.

 Now, in terms of Asset Management Service business, we are tentatively are naming this company as SBI Global Asset Management. And Morningstar and its affiliate companies will fall under this company. And IAM, the UK hedge fund will partner with us, this is already announced. And there are many other asset management companies that -- as you can see from the examples here, and eventually this will become a public company.

 Bio-related related. As I have been saying from before, during this fiscal year, we are looking at receiving a profit of $20 million. So this is 100% biotech subsidiary and this should come at latest, autumn 2015 and we will start Phase III.

 Novartis Pharma is a mega pharma of the world, and Pfizer, we will complete Phase II a, and we would do sort of Phase II a protocol finalization of Glaucoma and Anti-ILT7 antibody, it's MedImmune, Inc., It's a subsidiary of AstraZeneca, we do autoimmune diseases, it's a pre-clinical stage.

 Next is ALA-related businesses. We have partnerships with more than 90 research organizations in Japan and overseas and a variety of universities, various research institutions, a number of researchers are underway for a variety of target illnesses. Especially the other day, we made this announcement with ReproCELL, Professor Yamanaka, this is the listed company that -- ReproCELL is a listed company that supported Mr. Yamanaka, but from the differentiated cells of better iPS derived, the residual iPS cells need to be selectively removed or else there is a high chance of the residual iPS cells becoming cancerous.

 So by using ALA, we did a joint development with ReproCELL to see whether we can do selective removal of residual iPS cells. So this was reported in the newspaper and it was proved to be possible by using ALA. Here are the patents held by SBI Pharmaceuticals, there are 21 ALA related patents. And in overseas, we have 10 patents already, they are interesting indeed.

 With regards to the R&D, ALAGLIO was launched from September, 2013. In 2008, we established the company and in a mere five years, in 2013, we were able to bring one drug to the market and launch it. Currently we are trying to expand the indications, it was launched as a perioperative diagnostic agent for cancer treatment, but we are trying to seek the indications for bladder cancer. Currently Phase III, five university (inaudible) trials are underway. Also newly, as a physician-led trial, we're seeking indications for a peritoneal dissemination which is a metastasis of stomach cancer. We're seeking opportunities in this area and Osaka University is leading this trial.

 Other than that, we're seeking for indications related to treating cancer, chemotherapy-induced anemia. And there aren't many drugs that can treat malignant anemia, so we are trying to see whether our ALA will work. Phase I was conducted in the UK, we passed the toxicity tests and Phase II is currently being conducted by Saitama Medical University, because the cost is lower.

 Also ischemia-reperfusion injury is another indication we are seeking. If you were to do a heart bypass surgery, blood flow will be stopped and when blood flow is resumed after the surgery, the problem is a blood clot might occur in your brain and the patient may pass away. But if you were to administer ALA five days prior to the operation, the potential of this happening might be lower. An Oxford Professor, Professor Houman did a rat trial and announced the results. So we are working together with him.

 Birmingham University, another university in the UK as well as hospitals are involved in the clinical trial. And the UK authority, MHRA, Medicines and Healthcare Products Regulatory Agency, is the agency to which the test plan was submitted. And opportunities to treat mitochondrial diseases. This is a genetic disease, so drugs are not available, but we believe there is opportunity for ALA, so currently Phase II clinical trials are being conducted. We started in December 2014 and research is steadily underway.

 So going forward, we believe that demand for ALA is going to continue to increase, so what we're trying to do is, how much can we increase production. We should not just leave everything with Cosmo Oil, so we are trying to establish an integrated system on our side as well, so that we can also produce and sell ALA. So steady supply is what we are trying to realize. So we would like to also start production in China, which is currently under preparation.

 In Zhejiang province, the Food and Drug Administration passed a review and we are waiting for the results that come from CFDA, the Chinese Food and Drug Administration. And also, we did a food intervention test in Berlin for type 2 diabetes patients. 53 subjects were registered and we have them take ALA in the food form. All the people have went through the trial and the trials ended in July. With regards to the safety aspects, even if ALA is highly concentrated, it was confirmed that it is safe in the study. So going forward, with regards to the efficacy and effectiveness, the test or trials and analysis will be conducted in the months of August and September.

 So we will run analysis and we are planning to publish a paper. The Arabian Gulf University Hospital as well as RCSI Medical University of Bahrain is also involved. So with regards to the product offering, preparations are underway for a summer launch of a new nutrition drink. We have pretty much decided to whom we are going to sell through.

 Also out-licensing in the field of health foods and drugs is what we're working on. A lot of interesting developments are happening and now we are at a stage where we are trying to select which path we would like to pursue. So we're going back and forth on that. For example, some people are saying we will like a stake in your pharmaceuticals business to have the (inaudible) stake and have a comprehensive partnership with them in the area of pharmaceuticals as well as food.

 So these types of companies are coming up and are approaching us and discussions are heading towards a number of directions. First, it was just health foods to think, but the discussions are starting to become amplified. So it's not just health foods, we're actually for health foods, we have made a submission so that we can get certification for the health foods to become -- have the functional certification.

 We are finally starting to gain awareness around our product and we are growing our earnings. We are also trying to review if out-licensing itself is a good way to go. Of course, if we get the functional food product certification, we haven't yet gained the confidence that we're going to definitely obtain it, we just made the submission, but of course we need to prepare for obtaining the certification.

 Also in the Middle Eastern region, we will increase the number of regions to which we sell health foods. So next part is continuing promotional business selection and concentration for SBI card by transferring it to SBI Sumishin Net Bank, we will be able to recover for JPY4.0 billion and we are expecting a positive improvement effect of several hundred million. And also while we have decided to sell Phnom Penh Commercial Bank, we currently own 47.6% and it's 91% including dilutive shares.

 Of course, the market is interesting and it's a growing business. But the legal framework is complicated, all the shareholders need to agree and we -- to consensus if you wanted to make a decision and do something. Compared to other developed countries, the legal framework is very unique in this country. It's too complicated for people like ourselves who value freedom.

 We regarded that we should sell this entity because there are a lot of potential buyers that have raised their hands. And also NARUMIYA, CEM Corporation and Autoc one, if there are any buyers that are interested, we would like to sell these entities. And also the sales of real estate holdings. We would like to recover JPY4.2 billion, of which JPY1.2 billion has already been recovered, so we are currently discussing selling the balance.

 We're not saying we're going to withdraw from the real estate business, but if there is anything that has high potential, we would like to buy and sell. But I am only interested in real estate when the buyer is already there, because real estate is not liquid, it's illiquid. But I'm only interested in liquid assets or I'm interested in securitizing the assets. That's the only aspect of the business I'm interested in. I have no intention of owning the real estate for a long period of time.

 Also, the number of IPOs is increasing. SBI Biotech is what we're preparing for -- for biotech, we have reorganized ourselves and we are ready to go. However, one of the Directors that has joined us, which is a professor from Keio, was actually fired and dismissed. He was originally from Tokyo University. And considering consulting a professor, he was a very intelligent person, but he did something that was not wise and that's why he was dismissed. So we had no option but to dismiss him. And we needed to change the people.

 The CEO is a person from a pharmaceuticals company. We were decided on that person, but that person fell sick, unfortunately. Then the CEO, we decided another person from the inside, who was originally from a bank and within the field of finance at our company, so that person became the CEO. But this company is a pharmaceutical company, so we need to have a person that is well versed in pharmaceuticals and that person was selected to become a Director but it caused the problem. And now we are talking to a new candidate. But basically, the reorganization process is quite cumbersome and is taking time.

 MONEY PLAZA is going well. As for SBI Japannext, if we wanted to IPO this company, we can do that anytime. However, in order to substantially raise the value of the company, there are things that we need to do. First of all, margin trading needs to be possible and the 10% rule need to be abolished. If you reach 10% of trading volume, currently there is this ludicrous system where you need to gain an exchange status. As you know, in New York, there was this large system failure before. However, when that happened, 80% of trading was covered by PTS.

 In a place like Japan, if a DDoS attack were to occur, and the TSE were to come to a halt, for let's say three hours, if margin trading is not possible in PTS, what is going to happen? This is (inaudible) didn't think about the opportunities of having PTS substituting the stock exchange. But in a world where we have DDoS as well as hackers attacking the system, we need to have backup or substitute systems or else, it's a very dangerous world.

 Especially when it comes to stock exchanges, it is prone to attacks. Of course, it's impossible to have a perfect response, it's all about catching up and going ahead of hackers, so we co-exist with hackers in this world. But if these things are taken care of, I think the value will shoot up by several times.

 So we are telling Goldman Sachs that we shouldn't be in a rush and I'm doing all of this for public purposes. The Company doesn't even have to have SBI name, the shares can be flexibly transferred to other players. There have been some people who've been interested in, we have been giving them shares in the past as well. Even Goldman Sachs approached us. And they said that in exchange for the shares, they will do the market making.

 So I'm not thinking about making money out of this, this is for the sake of the Securities business, that is why I established this company. I'm top of the Internet Commission now, I'm a member the Online Securities Association. So I'm making a lot of candid comments these days, but I'm making these comments for the industry. I'm not making these comments for the sake of our profits. If the issues I mentioned earlier happened in Japan, what are we going to do about it? With DDoS, if a lot of things come from China, and the Japanese exchange comes to a halt, what are we going to do? You can't say, oh, we didn't give it any thought, this is something that the TSE needs to think about as well as the government needs to think about.

 At these council meetings, I always make these comments. So what is the FSA going to do, they need to think about this issue as well. I talked about the example of automobiles that things are going to become dangerous going forward, also airplanes are going to become dangerous as well. So let's say there is a President on a car and someone is going to attack it by hacking the car, that is going to become feasible and possible in the future.

 I talked about SBI comparison website business and it has exceeded JPY500 million in one quarter. So that's another candidate and FX trade is something that's being prepared as well.

 So we are also trying to reduce interest expenses as well through refinancing. For example, in Korea, because of our awareness, in order to show that we are in a position to do funding, we have paid high rates to borrow, it would be cheaper if we lent the money from Japan, from our company and of course that needs to be adjusted going forward. In Japan, we would like to reduce funding cost as much as possible so that P&L can become better.

 So the outlook for our fiscal 2015 based on the first quarter consolidated financial results and the current business environment is what I'd like to talk about next. For the Financial Services business, volatility is high, but there are positives associated to that. This will definitely turn out to be a positive for us.

 Further Asset Management Business, I mentioned a number of things earlier. We will be establishing large-sized funds and we believe this is going to have a positive impact. And also we'd like to improve the earnings base for our savings bank. For a while, we are going to see $20 million come in and within the fiscal year, we believe for ALA, there is going to be a large alliance, or a capital alliance for this business.

 So I presented in a rush, but next I would like to talk about this part, which is important, which are measures to promote the realization of SBIH's corporate value. So our stock prices are very low. This is what some institutional investors are saying. So when you look at what they're looking at, as for -- we have a diverse range of businesses, Financial Services, Venture Capital and Biotechnology, and it's difficult to understand the Company. So because our business is diverse, you can't follow it with one analyst, you need several analysts. And ultimate valuation needs to be agreed upon between the analysts, but that's hard to do because they need to unify the valuations for SBI Holdings.

 So when it comes to sell side analyst reports, there's only two foreign securities companies, which is Deutsche and Morgan Stanley, MUFG Securities that cover us. There's no Japanese securities companies that cover us. One reason is because we have the large online securities company, SBI SECURITIES and we are their competitor, maybe that's their thought process. And although each of the businesses may be attractive, because we have so many businesses, maybe the conglomerate discount is being applied.

 So the institutional investors own 62.3% of our Company, which is quite high, especially for foreign institutional investors that's at 43.3%. For listed companies in Japan, which are 3,598 companies, we're ranked 62 from a foreign investor holding ratio point of view. So it's relatively high. So if you look at our business areas well, you should understand our Company's value. In 2015 March, institutional investor of the holding's ratio was 62.3%, which was 7.3% higher year-on-year.

 So how are we trying to solve these issues as a CEO? To give you the conclusion, we would like to realize SBIH's corporate value through the listing of intermediate holding companies. We would like to maintain the listing of SBI Holdings at TSE, but with regards to intermediate holding companies, SBI Capital Management, SBI Global Asset Management and as SBI ALA Hong Kong, we will like to list them on the overseas stock markets so that they will have a market value. And as a consequence, we will like to realize the value of SBI Holdings. We will like to do this within the next three years.

 In order to do that, we are preparing in many ways. In fact, from November 2010, we established intermediate holding companies in each business segment and we set forth a policy that we would like to bring back to market to visualize our corporate value, we didn't announce this. However, step by step we decided to make this real and put this into materialization. First of all, the parent-child listing company was an issue, so the parent is listed. So how is the subsidiary or the child company going to be listed? The TSE says, you can't do that in Japan. But we didn't think a situation like Japan posed will happen, but basically the TSE's perspective was the parent-child listing in Japan is not allowed.

 So first of all, we looked at the Hong Kong Stock Exchange to see whether we can list there. How should we reorganize ourselves, what kind of conditions do we need to make in order to open up the way for a listing there? So by listing on the Hong Kong Stock Exchange, we were able to overcome technical difficulties. It took a lot of time and it took a lot of cost, however, then KOSPI of Korea, we were the first Japanese company to list there and GTSM Taiwan was another market we've listed our subsidiaries as the first Japanese company.

 So these alternative markets were which we looked at so that we could see which market will be the best for our subsidiary to be evaluated at its highest. In March 2012, we decided to promote business selection and concentration. And we were the sixth listed company in Japan to apply IFRS as the first Japanese financial firm. This was since fiscal 2013 March. This was a challenge, there was a lot of difficulties attached. However, our finance people and accounting people worked together and overcame the challenges so that we can adopt IFRS. So it's mark-to-market and that's how we are going to be evaluated, especially, the Asset Management business is going to evaluated mark-to-market, but by doing this, we were able to improve our transparency substantially, and our options for listing in overseas markets expanded.

 We have been making improvements accordingly so as to improve transparency all along. Furthermore, for the main three businesses that we have, we established intermediate holding companies, SBI Financial Services for the Financial Services business, SBI Capital Management for the Asset Management business, and the representatives of these businesses were people that were not myself, and SBI ALA Hong Kong is led by myself, but this was a biotechnology-related business that was established in Hong Kong in fiscal and it's into the three intermediate holding companies. SBI Global Asset Management will be newly established in the Asset Management business as the intermediate holding company.

 So it is very hard to be the first Japanese company to list in these markets, but it's probably ourselves only that would be able to do this kind of endeavor. So we are professionals and that's the reason why we were able to make this achievement. And apart from the Financial Services business, we would like to list the three intermediate holding companies and do a lot of tax adjustments that are necessary so that we can bring them to market. And when we bring them to market we will be able to see our true value. So that concludes my presentation and that leaves us five minutes to six. Thank you very much for your kind attention.

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Questions and Answers
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Editor   [1]
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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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