Q3 2016 SBI Holdings Inc Earnings Presentation
Jan 29, 2016 AM JST
8473.T - SBI Holdings Inc Q3 2016 SBI Holdings Inc Earnings Presentation Jan 29, 2016 / 07:30AM GMT ============================== Presentation ------------------------------ Unidentified Company Representative [1] ------------------------------ (Interpreted) Thank you very much for joining us today. Despite a tight schedule and despite deep with the bad weather. And I would like to extend my hearty gratitude for the support to the other group companies. Please allow me to say thank you on this occasion to your support. Now I'd like to explain about the third quarter finance result. First the outline the numbers have already been announced earlier from April through December 2015 by the end of December. As you can see here on the year-on-year basis comparison you might say that it's not a good result. The profits are declining. But when it comes to comparison. It should be apple-to-apple comparison if not it will be meaningless. So this comparison is like apple-to-orange. Why? Well the fiscal year 2014 does the first nine months we had some of the gains from the sales. In other words get old the SBI Mortgage the current - was sold or SBI Life Living was sold and there were gains from the older sales, one-off effect. Therefore when we exclude those effects the sales revenue increased by 23.8% or the pre-tax profit JPY30,661 million, were up 5.6%. So that's the results. So that is apple-to-apples comparison I would say. By segment. The same story. Apple-to-apple, the Financial Services Business up to 19.5% increase in revenue. Asset Management Business 28% increase, with the JPY60,265 million and Biotechnology related business up 126.4% with JPY3,633 million. The other pre-tax income apple-to-apple plus 3.5%. This is for Financials Services Business, Asset Management Business plus 10.3% and the Biotechnology related business some declining by about JPY93 million, others including the real estate (inaudible) and most of the other real estate businesses were sold, so this a most irrelevant segment. Comparing the July to September and October-December, this can be the apple-to-apple comparison, Financial Services business. The October-December was better than July-September, up 9.4% Asset Management business, there was a turnaround from negative to other positive and the other Biotechnology-related business from positive to negative. The key points for each segments for the first nine months. As I mentioned the other Financial Services business, that has been doing very well. And a cash cow, namely SBI SECURITIES at the top, SBI Liquidity Market, SBI FXTRADE, it's FX the Company, the PTS company is SBI Japannext and SBI MONEY PLAZA, all of them on the nine months basis recorded historical high. And the other SBI, the Sumishin Net Bank, SBI Insurance. SBI Sumishin Net Bank is announcing its results today and I'm going to give you details later. On SBI Sumishin Net Bank, it's not doing bad but on a ticket basis, it is growing very steadily but on IFRS basis are the results. SBIH Comparison Website Business, JPY1,296, the median, historical high. SBI Remit, the turnaround for the first time and the SBI Benefit Systems, historical high. So in most of the financial services related companies, they recorded historical high results. Now let us look at major financial services business companies, SBI SECURITIES. The market trading value, the Individual brokerage trading value per day compared to the nine months FY2015 or compared to the previous term, plus 2.2%, that's the market. But in our case, the case of SBI up 12%. As a result, the operating revenue, plus 20%, operating income close to 21% increase, the ordinary income plus 20.6% with JPY30,199 million and the profit attributable to owners of the Company, the JPY18,613 million plus 27.2%; in all the profit categories, the historical highs were recorded. The online other companies as I announced before the competition, we see the other major online companies were over, and those numbers are the evidence of that and the number of accounts on January 18 exceeded [3.5 million]. And as to the deposit assets almost JYP10 trillion very close to it, it's just a matter of time to reach JPY10 trillion, the share , we're completely dominant in terms of share of individual stock trading value at the rate of 41.3%, the [percentage] of individual margin trading value, the 45.3% we're doing so well. And why are we doing so well with such a big market share , well, in most of the measurements we are number one in the customer satisfaction and the strongest factor there is the lowest level of the Commission and the stock brokerage trading value and the commissions increased significantly 12% for trading value and 13% for commissions and as to open interest credit balance for the other quarterly basis, it is at a very high level. It continues to be at a high level, the financial revenue JPY24,960 million or 18% year-on-year increase and the Investment Trust the quarterly record and Investment Trust Fees with JPY3,387 million or did plus 24.7% year-on-year. As a retailer, SBI's business model has already been completely established, but when it comes to the Securities company, there should be wholesale and retail and on the wholesale side we'd like to use the other strong retail business as ammunition to increase our share as the manager for the IPOs, and that's a big Commission for us and for that, the number of IPOs underwritten is our focus and the IPO underwriting, the ranking in terms of number of underwritten IPOs. It is quite robust and in the nine months of fiscal 2015, ordinary income for those nine months was JPY10.8 billion, so that is how it stands. But the negative interest rate introduction was announced by BOJ and this is something that I had anticipated long ago. So they have used the last card in the deck that was remaining and it is not that we have a much balance. So the impact will be minimal for us, even if BOJ introduces negative interest. The plan was announced today and therefore we are showing steady progress. As for the recent of the deposit balance, JPY3.6 trillion, as of the end of December, JPY3.6119 trillion and number of accounts is 2,521,567 both showing robust growth. Now as for the deposits that have accumulated, what are we doing in order to make profit, which means how do we manage the fund one way is housing loans, it is now JPY2,087.7 billion as of the end of December and the cumulative total of housing loan exceeds JPY2.6 trillion and there are two ways, one is housing loans process strictly by SBI Sumishin Net Bank in order to avoid a lack of balance between long term and short term interest rates, there is also a banking agency business for Sumitomo Mitsui Trust Bank, kabu.com was reported to have been doing this in the newspaper but we have started this already in January 2012, almost all of the services we have been doing this for many years. But now they are late entrants and Flat 35, we have begun offering in September 2015. As for car loan this is a recent emphasis area and we have seen substantial growth and now balance exceeds under JPY10 billion, specific purpose loans will also be grown. Card was sold by holding and it became a subsidiary of the net bank and going forward on a full-fledged basis, card business profitability will be improved and various measures are now implemented. Looking at the third quarter alone from October to December, ordinary loss is JPY287 million, however, we will make sure that the Company will report profit and for example, efforts will be made and ideas will be implemented. Now turning to insurance business. SBI Insurance is something that I would like to discuss now in terms of number of contracts and direct premiums written, double-digit growth is continuing and 12.8% growth for a number of contracts and 12% growth for direct premiums written. So year-on-year, we have seen strong growth and as for combined ratio, loss ratio and operating expenses ratio added, for the third quarter, 94.7%, so it is 3.3 percentage points lower than the same period last year. So it is now close to - less than 90% and therefore without doubt profit should be recorded and therefore I'm declaring that in this fiscal year, we should be able to report profit and it was plus JPY300 million for October to December, JPY800 million offset that profit because of significant insurance payments that occurred for this fiscal year. There were also impact of our tropical storms and typhoon and longer Silver Week and this time between January to March, what kind of weather conditions we will have, we do not know, it seems that we are having snow every week end these days. So we cannot - rest assured, however we are reducing cost and re-insurance, the percentage that is put up for reinsurance is being reviewed. And therefore on a full year basis, we believe that we should be able to report profit. As for life insurance as scheduled from February 1, new product sales will begin and an announcement was made to that effect. On [flat] basis, preliminary basis, for the third quarter ordinary profit under J-GAAP is around JPY1.4 billion and this includes new organizational preparation sales and marketing activities have been stopped by PCA Life, which was a company under the UK Prudential. And we acquired that company and we have to make preparation to be able to start sales and marketing, and so preparation stage continued and systems and development and marketing costs are incurred as a part of that. And so therefore there will be cost incurred already, have acquired a company with around more than JPY100 billion asset. So we started casualty insurance from zero and although it was sold outside Japan, we also had life insurance business, online life insurance business. We were the first to start such a business, but pureplay online life insurance was not easy and we made that judgment early on and we prioritized on strengthening our base. And how life insurance can be sold with stronger capabilities that is what we considered and new products will also be included in offering. SSI is also showing strong growth after acquisition. A number of contracts have shown 24.4% growth for SBI SSI; and 21.2% for SBI IKIIKI SSI. Money Plaza deposit asset increased 24% in comparison to December 31, 2014. In December 2015, customer deposit asset grew 24%. Number of account is also growing robustly, as for the number of total outlets There are 356 because there have been some consolidation. The number decreased slightly but total number of shops is 356, but we will rapidly increase this and would like to achieve the original target of 500 shops, that I often discussed. Now as for the performance. Sales was up 7.7%, operating revenue was 7.7% up and operating income was 17.7% up year-on-year. Solar power related, and insurance and housing loans inclusive of these, performance is showing steady growth. Now turning to Asset Management business. Last quarter for the interim, the result was miserable, but in October-December quarter the PL based on fair value valuation significantly improved with a slight recovery in the stock market because some of the listed stocks on the portfolio rose in price. In the second quarter, it was a negative JPY8.1 billion because of the stock holding, but now it is plus JPY3.1 billion, as for unlisted stocks, it was negative JPY2.2 billion because of foreign exchange losses et cetera. But in the second quarter, throughout the quarter, stock prices continued to decline, especially on September 30 there was a huge drop in stock prices and so Nikkei has declined substantially and that blew a damage and it's recovering from that very low stage. In the financial sector, IFRS is adopted, which requires much courage in Japan, as a financial sector company, we are the only Company that has adopted IFRS, as far as listed companies are concerned. And this is a mark to market valuation, so under IFRS, there will be greater transparency. As for Korea Savings Bank, after acquisition we have turned around and we have declared that turnaround is now complete. In the third quarter, in October to December quarter, as shown here, profit for the period JPY1.658 billion, revenue is up JPY12.211 billion on IFRS consolidated basis. In Korea, for private company there is a K-GAAP accounting standard that is applied to private company, otherwise, companies are reporting under IFRS. But for six months, this is an accounting period of six months regularly and the numbers shown here are only for six months. And this is for the fiscal year ending June 30, 2015 for 12 months. And in comparison, operating income is about 80% of the accounting period lasting for 12 months. And so, profit for the period is close to 80% even if it's for six months, it is closer to 80% of 12-month accounting period. The reason why we have seen such growth in December [2015], this shows the balance of the performing loans, we bottomed out here and since then we gradually and steadily [seen] the volume of the performing loans. So as we are standing up here, KRW2,662.1 billion, out of which retail loans are KRW1,412.8 billion. Recently, particularly in retail segment, we are seeing growth in the performing loan rates. So this shows the change in new retail credits grew 22.3% from the previous quarter and we released retail mobile credit loan product called Cyder in December 2015. And interest rate ranges from 6.9% and to 13.5%. And the maximum loan limit is at maximum of KRW30 million, so since its launch the loan amount has been steadily increasing. Having said that, the loan balance has been a steady increase but we cannot be relieved, there is a possibility that these may turn non-performing loans, particularly with this intermediate mid-interest rate range product is launched, we have to continue to have a close monitoring on the balance of loans. So I have asked them, instructed to have a close monitoring, here is the total overall delinquency ratio from a peak of 51.6% down to 18.5% and the retail delinquency rate is now standing at 9.7%. That overall delinquency rate is aimed to be reduced to less than 10% from the current 18.5%. With this, so this is the end of our work on the non-performing loans or delinquency. So Morningstar has already made announcement its financial results, so not much to add, net sales operating income, ordinary income and net income achieved historical highs and as you can see here, here you see the 30% significant increase year-on-year. This is the increase in operating income for the sixth consecutive year. It's a wonderful excellent results shown. Biotechnology related business, in this business, in the second quarter Quark subsidiaries pipeline based upon the pipeline, the milestone fee was generated over about JPY2 billion but this term it was not incurred and usual spending was made in the R&D activities. Therefore, it incurred, still incurred the loss in the current term although we saw no loss in the previous term, so JPY921 million loss and ALApromo, although the deficit was reduced because of the suppression of the spending in promotional activities, but it is slated to be increased going forward. So as you are aware, I will be touching upon the food labeled with the health benefit has been approved, so we're going to start the full-fledged promotion. Regarding the biotechnology principal pipeline drugs are listed here, licensed out to Novartis, now standing in Phase III, the kidney transplantation DGF, now patient recruitment is ongoing at the US institutions and also AKI and Phase II is ongoing with patient recruitment with Biocon limited, India's major pharmaceutical company, non-arteritic anterior ischemic optic neuropathy NAION the patients are being recruited. And also in China, the regulatory approval was received and the preparation is started and we plan to conduct a clinical trial in India pending regulatory approval. Phase II/III is the current phase. Licensed out to Pfizer, that is the diabetic macular edema DME, the Phase IIa has been completed and for glaucoma Phase IIa now, that protocol is being finalized, a protocol will be finalized and together with MedImmune, a pre-clinical trial is ongoing. This is the ALA Plus Tou Down. So the sugar level will be down, that is the name, this supports the normalization of high levels of fasting blood glucose levels and a moderate elevation of post-prandial glucose levels. So this is what we can claim. So this means that this is designated as a food labeled with health benefits. So we're going to commercialize this product largely and we're going to use Hiromi Go, Japanese celebrity, to carry out a new TV commercial campaign starting from February 23. Compared to November, you see in December actually Tou Down was launched as from December 18 and then the number of orders received increased by 1.674, so ALA Plus orders increased. So with the authorization of the labeling with the health benefits, it makes a big difference. 1,510 stores already started dealing in the ALA Plus Tou Down at the end of December and it is expected to exceed 4,800 stores by the end of March. Other new products are as follows. The ALA Plus Sports High Performance, the sports supplement was launched. And cosmetic products moisturizing effects ALA Care PLUS Skincare series, the moisturizing cream and skin lotion, and ALApi, a skin moisturizing cream, these were launched on January 18. And this is the shareholder return policy for FY 2015 and the interim dividend was paid at JPY0.10 per share as you're aware. And as I have said you, total shareholder return ratio is aimed at 40% based upon the full-year financial performance forecast, we have ended the third quarter. And in the fourth quarter now, we are approaching the end of January. So we only have two months, February and March. So based upon the current trend, I believe that we can make a steady progress towards the forecast. So with this, total shareholder return ratio is aimed at the 40%. If we can do further and then we'd like to provide further as well. And this is the shareholder benefits ALAPlus, ALAPlus GOLD, ALAPlus Essential Lotion for those shareholders who have held shares for more than one year or based upon the number of units they have, it decides number of gifts they can receive. Now, I believe we are in the second rapid growth stage since our foundation. When we can make leaps in our business, I would like to take some time to explain why we think that we're in the era for leaps in business. As you know, the market situation, since the beginning of January has declined sharply all over the world. Given China shock or any other various factors causing this decline and regarding the outlook published by IMF for economic growths all over the world. IMF has made a downward revision the other day and there are no prospects or good promising signs with the market prices as well as stock prices and Saudi is still expanding sales given the crude oil price are down and that is causing the decline in the stock markets. I think that is one aspect of the reasons for this downturn in the world economy. But given these market conditions and environment, starting from this fiscal year 2016 - from 2016, I believe that we are in this era of leaps and 16 years ago when I founded this business, Internet and the financial service should be connected. That will happen in all aspects of financial services. That's how we started the business, because of the big trend of Internet and under the administration of Ryutaro Hashimoto, the financial big bang was carried out, given that major deregulation. And then, for example, liberalization of the securities brokerage fees. So given these backdrops, we started out business back then. Then 16 years on and how I now feel; that enthusiasm and passion at the time of starting our business, I once again feel that exhilarating feeling and excitement. First of all, the construction of the domestic Internet financial ecosystem which I insisted and declared 16 years ago, now is being completed and also asset management structure which complement the ecosystem is now completed, nearly completed. That's one thing. With this ecosystem, which should be united to provide a synergy effects and then that will be the most powerful ecosystem. This business ecosystem, this business concepts to support my business for example, when you think about the sole unit of securities firm, right. This is one concept. There are some companies which are running on its own. They are not sure whether or not you can make any profit, but they ask me, what do you want to do by establishing companies one after another while you do not know whether you can make profits? But now, our power of a business conglomerate is penetrating into the market and now given this backdrop in the market as a whole and there'll be many people who will think why we are outstanding out of the peers of the industries. So that will be most and more outstanding and that is the, what I mean by ecosystem, and that is the power of the organization as a whole. Strategy is the most important thing. Now 16 years since its inception, SBI Group has established the Internet based financial conglomerate or ecosystem, now the lifetime medical insurance as well as the term insurance will be launched. And as soon as possible, we like to expand the product lineup so that we can utilize the Group's synergies. Once Life Insurance business was established, and selling and once again, and then, now the time is ripe, I thought, we could not win with the older systems. Now LIFENET is not selling and not doing very well, although they are listed, went public why? On the Internet, it is very difficult to sell life insurance policies, still now. Therefore, we have the comparison website; the SBI Holdings InsWeb and within SBI Group, SBI Securities, SBI Insurance and this SBI Sumishin Net Bank and the SBI SST insurance and SBI IKIIKI SSI insurance and that there are agency network and also Newton financial consulting for call center. We have a 20% stake in that and Financial Agency Inc., we have over 30% as our stake When it comes to face to face channel, it's what we call Hoken insurance shop, Mitsubachihoken Group , our stake is 25% and WebCrew present evidence with the results. In fiscal year 2017, the bad debt will be completely eliminated in next the fiscal year. And in fiscal year 2017 this is expected to produce JPY60 billion to JPY70 billion on annual net income. That is our plan. So within the next fiscal year the accumulated losses will be eliminated. So the biggest, the dominant, the savings bank in Korea, so they are exceeding the deposit amount [of the] commercial banks. The asset management service business has almost completed development of business structure, which is owing to the increase in AUM of SBI Group's institutional investors and promote further diversification of asset management products, banking, securities and insurance, especially the longer - insurance companies need long term fund. And to have life insurance entity, it means a lot. That's why Warren Buffett, the Board of the insurance company before investment [decided] as well. So the SoftBank, so Mr. Son and Mr. Ken the other day - the produced cash cow business, so that you can make more investment. It's Warren Buffett business model. And Mr. Son and Nikesh, and maybe I should say Mr. Nikesh and Warren Buffett, among them, but it's different and we will see the difference among them. In other words, the dominant performance for longer time is possible or not? It could happen, but in the other world of, the world of asset management, investment is not that easy. I have been looking at the world for such a long time. So to ally with good companies because rather than doing everything on our own, which is impossible. In the hedge fund in Japan, there was no hedge fund and in 1989, the big IAM International Asset Management established in UK, it was one of our alliances and also alliance with energy sector. And for that, we established a company for the renewable energy and in particular, the PIMCO alliance to make joint investment. The Estate Finance, the CEM Corporation, the real estate, the mortgage backed lending and we bought it and now it is our subsidiary and the offering, providing collateralized real estate loans primarily in the Tokyo area and we are going to make this company grow. Now the alliance with PIMCO, joint venture with PIMCO. PIMCO invest only 10% in this joint venture company, but you can say, as much as 10%, because it's very rare for PIMCO to invest as much as 10%. There is only one joint venture in the past in Singapore and they discontinued immediately and since then, they did not make any joint venture. But now, PIMCO is there to make this joint venture company with SBI group. They are very interested in SBI's net business, that's the gist of this alliance. PIMCO is one of the largest global asset management companies, very strong in bond management, especially for active management with JPY170 trillion of AUM as of the end of September. The other day with Doug Hodge, CEO. I had dinner with him. He is a wonderful CEO and I thought that now we have a very good cooperation, that is a good company and I'm committed to the deep relationship with them. On their side, it seems that they evaluate very highly of me and they asked me to talk in front of their leaders and I'm very happy to have this very good alliance. So the equity derivative real estate, renewable energy fund, absolute return hedge fund at home and abroad, we have all kinds of investment tools to compete on the global basis and we are going to establish global asset management company; selection and concentration we will continue that effort, SBI Card has done. And I have been talking about this, the Phnom Penh, the Commercial Bank of Cambodia and we are going to sell this Commercial Bank. And as to Autoc one and NARUMIYA INTERNATIONAL, will also be sold, bringing the recovery over JPY15 billion in total. We have about JPY3 billion assets left on the real estate side in (inaudible) does well. In Cambodia, there are some new developments and this is an excerpt from the Korean newspaper article. On January 20, the article about the other potential sales, and here is the translation from Korean. So according to the banking circles, selling price in the range of approximately KRW130billion to KRW150 billion is estimated. And on the basis of the amount of KRW130billion to KRW150 billion that is equivalent to 3 times to 3.8 times the investment amount sales. So when that happens in that range, we will recover about JPY10 billion to JPY11 billion and we are going to have JPY3 billion to JPY4 billion contribution to other pre-tax income. I think that deal will be done by the end of March, it could be delayed into April, but so far so good, there's no problem now. So we think that that we are in the second, the big leap period, FinTech, mobile, Internet of Things, AI, big data, in those areas, new technology development is being accelerated drawing lots of attention on a global basis and we would like to use those technologies immediately, differentiate ourselves from other companies, other banks, other securities firms cannot move as quickly as we do introducing such new technologies. For example, to win, you want to make a joint venture or make investment decision, we can make a telephone call and then the telephone call conference and most of the things are decided over the telephone and invite people over to Japan. That kind of quick action is necessary, quick decision making is necessarily to catch up with the fast growing era. We need to speed our joint ventures like CyberCash, now it's VeriTrans after the sale or E*Trade, SBI SECURITIES, it's now [EBIT], and InsWeb, InsLoan and [GoodLoan] was the firm that made it public and we bought it back from the market. So there are so many joint ventures in the US and in Japan and the Morningstar is another example. Basically , we have 60% of the stake and our partner 40% in Japan. Now it's not only in Japan, we are doing the similar things over Asia as well. The Financial Services business, as I mentioned, those various technologies within five years will be implemented, introduced into various financial institutions and that makes a big difference whether you use such technology or not. When it comes to loss, they always catch up with something. So the actual practice or action should be to taking first aid, IndLoan, InsWeb, there were some issues, but we made actions first and on a global basis with Bitcoin, for example, some companies accepted others don't including China, China prohibited financial institutions to use Bitcoin. So all you have to do is just to operate in those countries, if it's accepted those new technologies, including Bitcoin. So the question is whether you can do it or not? Over the past several years in Asia, we made lesser investments establishing the various relationships. So that I can give a go right away when it is needed. Did FinTech, mobile, IoT, big data related investment in the investment area that we are making effort in that area and the Financial Service business also we introduced the new technology for FinTech to provide new services and the efficiency of the work and also in overseas that we are going to expand our financial businesses through Internet, mobile, here is Kondratieff cycle, in this cycle we are now standing at the entrance of the new technological the revolution. Around 1955 was the starting point and the various technology revolutions such as TV and washing machine and now we are living in the age of the Blockchain technology, IoT, AI and big data analysis. So you get really excited. The rising global interest in FinTech company, it's not just me, this is an excerpt from the future of FinTech banking report of Accenture . The other global investment in FinTech ventures tripled to $12.21 billion in 2014, clearly signifying that the digital revolution has arrived in the financial services sector. Established financial services suppliers are starting to take bold steps to engage with emerging innovations. We knew that already 16 years ago and we have been making efforts in this area as well. In the investment area, we have established a FinTech fund with about JPY30 billion. The very first investment is Freee. The Freee has the automation and cloud migration technology expert and they have more than 400,000 business sites. And the other SBI Holdings invested in them before and also we are thinking about collaborations with three SBI Sumishin Net Bank and SBI Benefit Systems. Orb is another very good Company. And the SBI invested in Orb, which is the first to provide a platform that utilizes Blockchain technology in Japan by adopting a proprietary authentication algorithm, authentication process in a large data center becomes unnecessary resulting in an overwhelming low cost and short time authentication process only in five seconds instead of 10 minutes, the settlement can be down, not 10 minutes but only in five seconds. In September 2015, released the first installment of a service using the Orb called SmartCoin where anyone can easily issue and manage a virtual currency through the utilization of Blockchain. Planning to apply this technology to electronic contracts in IoT. In addition to settlements. It's a very interesting company, The Ripple Labs Inc., I think that we made an announcement today about them. The Ripple Connect, the [nex-gen] transaction protocol. And XRP, the virtual currency is also issued with Ripple Labs, Chris Larsen, a longtime CEO. I have a long-term relationship with him. And E-loan that was started with 60%, 40% split. And in the US, Prospa, is the peer-to-peer lending entity, and he established that company as well and we thus talked about Prospa in Japan as well. And he decided not to invest in that entity because of some financial problems. So we did it alone, that is SBI Social Lending, now the third joint venture is this Ripple, so we have a very long time established relationship, in Asia, there we are going to establish joint venture company. The next one is bitFlyer, Inc. and I think this is one of the top-class Bitcoin entities in Japan; and its President is a man of high-caliber who used to be working at Goldman Sachs. And bigFlyer, Inc. Japan will promote to spread payment service, crowd funding and point business by using Bitcoin in Japan is in the scope and the Payward, Inc. in the US, Kraken is the virtual currency exchange of the Payward and the biggest in Europe and using the blockchain, promoting to develop financial infrastructure. In addition, in Korea we made an announcement about Yello Mobile, the investment by SBI Holdings to Yello Mobile and also investment to Yello Financial Group, they are the same, are the founder, the sister companies with very interesting other technology. For example, what kind of technology, Yello Financial has, solidware is the one that the Yello Financial Group, the company established in August 2014, the solidware processes analyzes financial industry big data using machine learning algorithms and provides customized customer solutions and it has already implemented a new credit evaluation model development project that applies machine learning algorithms with a Korean Savings Bank and achieved delinquency rate decrease of approximately 3%. So in our net banking area to SME, we need to think about how to lend in A safe manner that is a very big challenge for us. And in that context, AI, big data and its analysis, various technology will be required. So we'd like to put together the good technologies from all over the world and adopt them to suit the Japanese market. Yello Mobile, very strong in mobile business, and they have about 25 million customer bases and with about 12 million download numbers and they have Pikicast and that is the mobile content application somewhere, I wanted to do e-commerce, somewhere in Japan, but I did not do it because - I hesitate to do it because of [Mr. Sang]. And I think, [Mr. Sang] did not engage really in financial businesses because of me. But there is a flow of money and a another side of the coin is flow of things. So maybe not in Japan, in other countries, somewhere in Asia we can do it and (inaudible) in Vietnam company is another investment that we made for e-commerce, Yello Mobile is investing in good companies in South East Asia, in Korea as well. They are very active in e-commerce. And here how to combine all financial technology with their e-commerce capability and how to use it in our agent strategy. That is a very important challenge. Now we have a very important partner with us in mobile and the Internet of things, mobile devices are spreading so fast and the data volume will be so huge. And when that happens, big data analysis will be extremely important. That's why I've been saying big data and big data repeatedly and now we have big data office and the company hiring people for that purpose about 10 years ago but now it's not the era that we do it on our own. We need to put together the world's best brain for business here and we will implement such technology and we're going to operate big data business. The other day Google, the online data management platform, usually the [Densu] is used, DoubleClick Campaign Manager, it's very rare for the corporation like ours that uses this DoubleClick Campaign Manager. And we use it, product development and targeted advertisement. And very soon we're going to make an announcement with a certain entity for big data. We are going to have a basic agreement. This is a very interesting company that I am talking about. And it strengthens the big data analysis, they are negotiating investments and a cooperation with major overseas big data analysis companies. Next, the Financial Services business that is now implementing FinTech related new technology for service development. The MoneyLook, this is the very first account aggregation on a company in Japan that we've made. We did it for the very first time in Japan and a multiple number of financial other companies, the asset data that can be aggregated and we are going to draw on that more and Money Forward is another example. By formalizing a corporation that utilizes the API connection that SBI Sumishin Net Bank offers, we can develop more convenient and secure service and same concept for free and that we consider to develop a new cloud-based accounting service with further convenience toward SMEs and sole proprietors. Next one is FUNDBOX. This is to promote the development of new services through alliances with FinTech companies and we are going to align with FUNDBOX. That is the offering the loans to small and medium , the other enterprises. The loan execution amounts is equal to accounts receivable owned by the company, which aligns for the loan. And it takes only one to three business days to execute the loan from the time of application. And the fees are deducted from the loans, which are made based on the soundness and reliability of the other SME company that applies for the loan. It's a very interesting business model. So, what if the lender goes under, that's the end of the story. So if the customer goes under, that is the end of the story. So it's very important to have the technology to see the soundness of the other company. And I immediately thought that this is a good company and that's what we have been doing continuously with a big net to catch the good companies and pick up the best ones out of them and we brush them up. Proof of concept; we are living in the age of POC where there is no time to have either the study seminars or meetings. This concept should be proved in the business and if you cannot do POC, you would be delayed by 10 years. Benefits of synergies tying up with MoneyLook and Money Forward and [free], there is also tie-up between SBI Benefit Systems in these companies and FinTech promotion department will be establish the Blockchain in the next 50 years. It may turn out to be the biggest technological innovation in the financial sector. Already what is called R3, is a consortium which has participation of 42 largest financial institutions including Japanese megabanks and are discussing standardization of financial services based on Blockchain. It is not in the stage of discussion. It should be in the stage of the implementation. NASDAQ will be using Blockchain based platform and announced Nasdaq Linq which is a platform for private securities transaction. Announcement was made in October 2015 and it is to start with private securities first, I believe that is the right decision and through alliance with companies processing superior blockchain technologies we are trying to develop new services and achieve operational efficiency within the group. We will increase the number of alliances and we will also continue to prove the concepts within the Group. In February 2016, blockchain promotion department will be established. Insurance business and IOT will be converging, so that the personalized insurance product can be developed with ZMP and Kenkou Corporation, we are tying up with them to develop telematics information and variable terminals. Using these technologies, depending on the risk and attributes of persons, we would like to determine the premium of the insurance in a personalized way and we would like to do this as soon as possible. I think that is how insurance ought to be and as we have more IOT, security becomes more important. In automobiles, it is now fully computerized from outside cars may be manipulated and doors may be manipulated, takeover and the passenger may not be able to open the door or steering wheel might be manipulated from outside and we have to protect from such hacking and we're tying up with an Israeli company Argus which is quite interesting company within our group. We already have many FinTech companies, within the group it seems that it is difficult for people to understand the value of the companies that we have present within the group. So we wanted to make the values visible. In case of FinTech companies there are companies such as SBI Remit, SBI Social Lending, SBI Benefit Systems that will be able to benefit for blockchain technologies (inaudible) also FinTech related companies within the group, Business Solution SBI, MoneyLook and big data can be utilized by E-Loan and InsWeb and [OFX] comparison. These are companies within our group and all of them put together, on Nasdaq or some other exchange, we want to bring it public or perhaps, Japan may be an option as well. Lending Club, this has started social lending at the same time as Prosper did. And with this company, the asset under management has grown, although it is still making losses. But in Nasdaq, it is valued highly. On market capitalization basis JPY349.6 billion is the value. Sakura Internet; what is the relationship between Sakura Internet and blockchain? I do not know whether it has any involvement in blockchain but PER is a 117 times Infoteria and kakaku.com. Kakaku.com, it's not directly related to Blockchain whether they want to use the technology or not setting aside - and Metaps . This is an interesting company that deals with big data. On our part, already profit before tax is JPY2.1 billion already and revenue is JPY8.3 billion. And on top of that, blockchain technology valuation can be added or other technologies that I've mentioned including joint venture with overseas companies, and this may be made public on Nasdaq and then, we will be able to enjoy a very large valuation. Outside of Japan, governments are taking initiatives to promote online and mobile financial services. So we would like to expand overseas, Financial Services Business as well. In China, Alibaba is already doing this. In Korea, where online pure play banks will be established and they were sounding whether we were interested to participate. And in Thailand, we are the first to start online securities company in Thailand together with Finansia Syrus. We have 55%, Finansia Syrus has 45% and we are also growing because we believe that there are government efforts to revitalize domestic equity market including NISA, the start of NISA program. And three companies in Japan Post Group's were listed and Junior NISA will be introduced. Corporate type defined contribution pension ceiling was raised and the individual type defined contribution pension eligibility will also be relaxed through amendment of law. So these are all supporting us in terms of our business and BOJ has introduced plans about negative interest rates, to what extent will it go. And then BOJ might as well buy stocks outright on the market, some are speculating. So I think, BOJ is taking all [out majors] and there may be same day election for both the upper house and lower house. New customer acquisition for NISA, at the end of first December 780,000; Daiwa is 740,000. So we have overtaken Daiwa. Nomura has 1.59 million accounts, but this is as of the end of September, so they may have increased the number of accounts. 780,000 account that is as of the end of December, 2015 and deposit under management is JPY3.272 trillion, 40.3% of our NISA customers are new customer and of that, 66.8% are beginner investors. Thanks to NISA there are novice investors who are interested in investing in stocks. And our active account ratio is 61.6%, whereas for the industry average 53.5%. So it's substantially higher. We are also focused on our general NISA and workplace NISA of savings sign. As for DC pension, it took time before it is becoming more active. As an independent Company, we have being offering this service and revision [of raw] took more time than I expected, so it took more time. But now we will be able to make full-fledged efforts, so we can be quite strong. As for Biotechnology-related business, I believe that this is also in a stage of huge increase and growth. So we are entering a full scale growth stage through steady progress and strategic moves and we're further expanding business and developing the pipeline. As for Quark Pharmaceuticals as there are already two that are in Phase III in the pipeline that are in Phase III in the pipeline and so this meets the requirement for taking the company public on NASDAQ. So we have begun a discussions with several US securities firms. As for ALA-related business, there will be integrated operation, including active ingredient development, manufacture and sale. We have completed such integrated operation in photonamic that was dealing with ALA business in Germany. We have 20% equity, but we have now made it a 100% subsidiary. So it will be global technology, global marketing and global licensing out. So three global, that is what we will be doing in relation to ALA business. Now SBI ALA Hong Kong; this is an intermediate holding company and in the end, ALA related companies will be brought under the umbrella of SBI ALA Hong Kong eventually and worldwide, we plan to extend our network. In Japan; pharmaceutical companies in Japan alone should not satisfy us because we have this breakthrough compound ALA. We would like to make efforts so that everyone in the world will be able to take ALA and be able to benefit from the efficacy of ALA. So we will be tying up with appropriate partners. In China alone, there are many people, diabetes patients in China alone exceed the entire population of Japan, according to some information. SBI Pharma, photonamic and in China we've 40% share in Yian Biotech, SBI ALApromo, the top person was determined and I will be commanding from here and on a full-fledged basis, we will be making efforts to make ALA business profitable business. Photonamic has two drugs and Alacare has been made into a drug and in 2009, approval was obtained in Europe and in Australia approval was also obtained. So Alacare business will start in Japan. And Phase III is already done in Japan and in Europe and in the United States. There will also be efforts, we believe that, that is what we should be doing, especially at photonamic, what is attracting attention is PDT or Photodynamic therapy. This is used in bringing a tumor which is thought to be inoperable with MRI site will be identified and the skull will be drilled and there will be light, a long wave light that will be emitted, but before that ALA will be given orally and light will be emitted and cancer cells will be killed. And that will be done with the photonamic and Medical University and has been quite successful and looking at that, Osaka University wanted to do this in Japan. So jointly, clinical trials will be carried out. Furthermore, there are more that we will be doing and starting from those that will be happening earlier. Carcinoma vesicae, diagnostic agent for cancer treatment is Phase III, so not just Glioma but Carcinoma vesicae will also be the target for intra-operative diagnostic agent. And I am also focused on mitochondrial disease. Saitama Medical University is running an investigator-initiated trial. And this is something that I am greatly interested in. When we have results from the trial, I am hoping that we will have spectacular results. Mitochondrial diseases is a hereditary disease, there are no drug to treat the disease. And most of the people who have mitochondrial disease will die at the age of two or three. At very fast pace they are getting older. Mitochondrial will become dysfunctional or malfunctioning and that is aging. That is the same as aging. We human beings are producing mitochondria in the body and it peaks in 17 years of age and the capacity to produce mitochondria will decrease. And according to a theory, that capacity will be depleted at the age of [20], so mitochondrial production is expected to be related to aging. Any mitochondrial diseases because of malfunction of mitochondria, there may be very premature aging. Phase II/III is carried out, it is designated as orphan drug and trial is underway in Saitama Medical University. If this is successful, then we expect to file submission in March 2019. Worldwide, there are many people who are dying from mitochondrial disease. And if the Japanese can develop a drug to cure mitochondrial disease, that would be a dramatic news worldwide. ALA research is carried out in diverse fields. Functional amino acid a 5-aminolevulinic acid study is underway by 48 leading research scientists and there is a paper published on this and cancer treatment diagnosis in addition to these, for example, Hokkaido University is conducting research on Alzheimer's disease, the Shimane University on Parkinson's disease and Tokyo University and [TIT] on malaria, so various diverse applications are being researched by 90 research institutes. So with the same substance, diverse research fields are available. So this is very rare case where we can expect many researchers all over the world will conduct research activities, there are joint research organizations and collaborators are expanding one after another. The patents we have already obtained are the patent approval for 26 and that's of December 18 and out of the 26, 10 patents have been granted overseas. By establishing Global Marketing Division, we strengthened the overseas pharmaceutical sales structure. In Europe, which was not our territory, but in European countries going forward we'd like to start marketing our products in those countries in Europe and our team members are focusing on the US market. And once we can gain the market entry there and then that will bring about the great opportunity for us for the intra-operative diagnostic agent and that is why we acquired this company entity in the US. China, Yian Biotech in order to register this compound as the new food material it is filing to the Ministry of Health and then expert panel will provide the official feedback and without any objection from the expert and then there'll be the two or three months of the public information period and then the approval will be provided. And then the plant is ready now. Bahrain, this is for the first time in Bahrain, based upon the good clinical practice, a food innovation product trial is being conducted as regards to GCP, the University of Tokyo has cooperated fully with the people in Bahrain to carry out this trial. In Bahrain, Arab patients with Type 2 diabetes with high hemoglobin A1c level, therefore those patients who are taking the drugs for treatment of diabetes but the high dose 200 milligrams dosage of the compound ALA as contained in the food product, the 200 milligram ALA containing products as food and there was no safety issues. Furthermore, after 12 week of ingestion of test meals, hemoglobin A1c level decreased significantly. I believe that this will be published in academic papers in Western countries. In Bahrain, we will target the new indications of the diabetic neuropathy, sickle cell anemia, the erythrocyte's shape is turning to sickle. And therefore the transportation of the oxygen is compromised. The progenitor of heme is ALA, a heme combines to an iron to make a hemoglobin and a hemoglobin will be able to carry and transport nutrients and oxygen throughout the body. So that whole entire function will be compromised. That is the type of the disease. Sickle cell anemia may be indicated for this compound. Therefore the clinical trial is planned and that PDS of photodynamic screening used for cancer diagnosis. Protoporphyrin is a kind of a substance that will gather, tends to gather in tumor and intra-operative diagnosis for the brain as well, because that substance gathered in the tumor cells with the light beam emitted on that part with a specific frequency and then, you can diagnose and identify the tumors. But Protoporphyrin urine analysis is used for testing that. With certain high dose ALA is taken by the patient for three days and how much Porphyrin is generated will be measured. With the net level of the Porphyrin generation is low and then that substance is absorbed by tumor cells, therefore that means that, that person may have tumors. So that will be tested in various trials conducted in Bahrain. Functional food, food labeled with health benefits. Earlier I explained ALA Plus Tou Down. The ground for this, the clinical trial is being conducted at Hiroshima University on 212 patients with slightly high blood sugar levels, and a similar trial was also conducted at the University of Hawaii, therefore this label was approved. And we are targeting to apply this food product for - as the measures for hangovers and a male fertility improvement and improvement in exercise capacity for elderly. At various universities, this research is being conducted. Together with Kenkou Corporation, we have tied up with them to carry out the joint promotion for ALA. And Seto san of Kenkou Corporation is committed to deliver results and they are re trying to achieve a 70% awareness of 5-ALA. From February onward, ALA Plus Tou Down promotion will be started on bus routes in Tokyo. The door side ads will be post on the JR Easter trains, for three locations in total 17 lines in late February for about a week and we are planning to conduct a joint development original products containing 5-ALA for RIZAP members from next fiscal year. So they have a quite aggressive plan for promotion. SBI Pharmaceuticals progresses the licensing out of technology and a business partnership in Japan and overseas. In Nikkei newspaper and the Yomiuri Shinbun there was a front page headline news showing the patents obtained by us. In the front page news, experts or for pharmaceutical companies these will be - this was published. This news was carried in the front paper. Expectedly, there are many inquiries from various companies asking for us to license out these technologies and there such inquiries from many sources. In Middle East, in Jordan we have started to expand our sales area from Abu Dhabi or Bahrain to Jordan. In Mexico, the livestock feed manufacturer in Mexico approached to us by mixing ALA into feed. They don't have to use antibiotics for feed. For example, because they are using too much antibiotics for broilers feed and then by eating a broilers, the human bodies may become resistant to antibiotics. Therefore antibiotics will not be effective anymore. So that government is now putting ban on the use of antibiotics. So if so if that happens, so that's concern in Mexico, because of that possibility. So they tried ALA and then they got a favorable interim report out of the trial and they would like to start a trial on a full-fledged basis. With this, I would like to conclude my presentation. I believe that I have used up my time. Now it's exactly 6 o'clock. ------------------------------ Editor [2] ------------------------------ 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. ------------------------------ Definitions ------------------------------ PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the Transcript has been published in near real-time by an experienced professional transcriber. While the Preliminary Transcript is highly accurate, it has not been edited to ensure the entire transcription represents a verbatim report of the call. 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