Resona Stock

Hello. My name is Minami from Resona Holdings. Thank you very much for taking the time to attend today's briefing session despite your busy schedule. Please let me dive right into the explanation. We have conducted an analyst call after the earnings briefing, so I will mainly talk about our growth strategy today.

First, the point we would like to communicate. This shows one of the financial KPIs we focus ROE. With the normalization of monetary policy, the rate rose from 6.5% to 9.2% over the 3 years of the previous midterm management plan. In the new MMP, we aim to achieve 12% ROE, assuming a policy rate of 1%. If the policy rate rise to 1.5%, we will consider around 14% ROE. These are the key points of the new MMP. We would like to show a new form towards becoming a frontrunner in next-generation retail financing in the new MMP.

First, as you see on the left top, we will aim to deliver JPY 1 trillion in top line, mainly around growth of our core businesses. We have been talking about reviving our ability to generate profit, but we aim to take this even further. In the upper right, we will work to create next-generation growth drivers by expanding our value proposition through strategic partnerships, ecosystem development and BaaS. In the middle of this is an ongoing process of structural reform. We are moving quickly to build a management foundation that will support the next generation by reviewing work styles, business processes and IT systems.

Last year, we mentioned that we will aim to reach the 40% range within 5 years for OHR, but we have moved up the target by 1 year, and now we intend to achieve this by the final year of the new MMP. We will create a capital cycle that enhances the group's corporate value over the mid- to long term by allocating our growing capital flows to growth investments and enhance shareholder returns.

Please refer to Page 5. This is the model that Resona Group aims to achieve in the long term. Top right, beyond finance for a brighter future. This purpose is the origin and the ultimate goal of everything we do. In addition to that, we have a long-term vision to become retail #1. On the left, the previous MMP was positioned as the first 1,000 days of taking on corporate transformation, marking the major shift from recovery to new growth.

Resona Group has changed significantly over the last 3 years. Building on this momentum of transformation, we are now launching shift to the next stage, 3 years to create our new ways of doing business with the goal of becoming a frontrunner in next-generation retail finance. Please turn to Page 7. Just one point here. On the left bottom, our group was included in the SX Index yesterday in 2026. This is the first in the banking industry. This recognition reflects our strategy to enhance corporate value to become retail #1 while strengthening our profitability and reforming cost structure at the same time with a focus on corporate transformation.

Please move to Page 11. I will be explaining the specific activities in the new MMP. First is the growth of our core businesses. We will leverage the strength of our high-quality balance sheet that we developed over time, mainly around our retail business. We will maintain low beta as much as possible and enjoy upsides of the net interest income. As you see at the bottom, amid unprecedented monetary easing, the loan-to-deposit ratio and security-to-deposit ratio, which fell to 77% in March 2022 has recently recovered to 92%. And ROA shown at the top has also reversed significantly.

On the other hand, we believe the world with interest rate has already moved into Phase 2. To maintain and expand the strength of our current balance sheet through qualitative improvements and enhancements to our ALM, we will implement a variety of measures on both the asset management and funding side towards the [ next generation. ] This is a simulation of the impact on our profitability in case of interest rate hike. For a while, our net interest income is expected to grow JPY 60 billion for every 0.25% interest rate hike.

This shows deposit, which is the core of indirect financing. The value of deposit base is increasing further while the world with interest rate is penetrating. Left bottom shows the deposit balance since the end of March 2020. While leveraging our strong balance sheet, we are maintaining a growth trend for both corporate and personal customers without placing an excessive burden on our procurement cost. Since the end of negative interest rate, the beta, the pass-through rate or policy rate has been around 34%. It remains within the initially expected 40% range.

We believe that the key to attracting loyal deposits lies in deep connections with households and business networks. The data in the lower right corner illustrates the strength of Resona Group's deposit base. There's also a chart showing the trend of funds transferred to inheritor accounts along with our deposit market share in the Tokyo and Kansai regions, which form the core of our businesses. The inflow of funds from regional areas are continuing driven by factors such as inheritance.

Number of debit card issues that lead to personal accounts becoming the main accounts and having strong link with the group's app has reached 3.43 million. Number of companies naming us as their main bank is 69,000, and we are ranked third, which is higher than some mega banks. However, from a macro perspective, there will be various stresses on deposit. We aim to remain the financial group of choice by enhancing customer touch points through the integration of the physical and digital world and by creating attractive services and innovative systems through our ecosystem.

Moving on to asset management. First, corporate loans. Building on our established presence in the 2 major metropolitan areas, we are expanding our capabilities to handle complex cases by enhancing our consulting expertise in addition to leveraging our traditional strength such as a full range of trust services and strong client relationships. Furthermore, with the backdrop of mild inflation and rising working capital needs and amid ongoing structural changes such as capital investment for growth, business restructuring and succession planning and CX and DX initiatives, we are expanding our portfolio of high-quality loans to respond to a variety of business challenges.

As you see at the left bottom, our corporate loan balance increased significantly by 22% in the 3 years of the previous MMP. We expect to achieve more than 15% growth in the 3 years of the new MMP. Loan rate that improved 43 basis points in the previous MMP is expected to increase another 47 bps in the next 3 years based on 1% policy rate assumption. Right bottom shows RORA, and we will continue to focus on the quality of loans. Next, I will talk about personal housing loans. Left top shows the trend of housing loan rate and new origination.

With the change in interest rate environment and competition, new origination is increasing significantly due to differentiated products and new services. A very high proportion of our housing loans have variable interest rates. And while yield improvements are occurring with a lag, we expect yields to improve by about 43 basis points over the next 3 years. As noted on the right, housing loans, which serve as the foundation for long-term relationships with individual customers are extremely high-quality loan assets. Relatively, housing loans are portfolio with high rural level, but we expect further improvement.

Please move on to Page 19. Now I will talk about fee business. The top shows our image to enhance our fee income over the medium to long term, where different types of fee income builds on top of each other. We are starting to feel that we are getting closer to this image in both B2B and B2C. The pie chart shows the image of our profit structure. Currently, approximately 70% is from net interest income. However, over the mid- to long term, we aim to transition to a next-generation profit structure that is less impacted by interest rates by expanding the scale of our income, strengthening a recurring fee-based income and securing new growth drivers.

The bottom chart shows the trend of consolidated fee income. It has been marking a record high for 5 consecutive periods until last year. We will maintain this trend and aim to achieve JPY 250 billion in the final year of the new MMP. We have attached slides related to each businesses after Page 20, so please refer to them later. Please turn to Page 24.

Regarding creating next-generation growth drivers, amid rapidly changing social and customer needs, we aim to acquire the functions, customer base and the capabilities required to maintain the financial group for the customers' choice. The lower section shows the inorganic investments during the previous MMP period. Creating next-generation growth drivers is not necessarily limited to capital-intensive initiatives.

We will significantly expand inorganic investment down the road. As a part of new ways of doing business beyond finance, we have already launched several initiatives. Please take a look at some of them. Our collaboration with Digital Garage, which has become an equity method affiliate, is one example of our new ways of doing business. As in the lower right, we released an update on DG Bank last week. As a part of BaaS, leveraging Digi Garage strength in the payment space and the combination of commercial flow data and AI, we will provide a new banking experience for SMEs.

We will also roll out this functionality to platform providers such as the Tabelog service of the Kakaku.com Group, with which Digital Garage has a partnership. This is another example of our new ways of doing business through the alliance with JR West, which we announced on May 1. It is part of our efforts to strengthen our new regional strategy. Centered on the Kansai region, an important mother market for the Resona Group, we aim to deliver new customer experiences and unprecedented options by integrating mobility, daily life and finance.

At present, our initiatives are built around 3 main pillars. The first is community-based BaaS functions. Specifically, we are establishing WESTER Mirai Bank, which brings together the financial services offered through Kansai Mirai Bank and the extensive customer base and attractive assets and the content of JR West Group. The second is the expansion of settlement functions. Assuming the setup of a joint venture, we will leverage the wider range of customer touch points, data, know-hows and the digital marketing, the capabilities of both companies to realize a new form of payments with excellent UI/UX, convenience and benefits.

The third is community building. By combining the rich assets, content, information and development capabilities of both groups with financial functions, we will promote a new form of community development that makes our customers' lives richer. This is Resona Plus, a new consumer service announced yesterday through our partnership with Dai-ichi Life Group and JCB. This new consumer service is centered on the integration of finance and everyday life.

It is a new ecosystem in which the 3 companies' extensive customer bases are integrated, the diverse expertise and know-how are connected and the wider range of attractive content is delivered to customers through an exceptional UI/UX. We plan to launch the service in late September 2026 and aim to further expand its offerings. And going forward, we intend to extend it to regional financial institutions through our financial digital platform, thereby spreading a win-win relationships.

These initiatives signal that the financial digital platform that we have been working upon is entering a new phase. Starting with the group-wide deployment of digital channels in 2018 and then rolling out to regional financial institutions in 2021, the platform is now utilized by 9 Group 10 banks. With the collaboration that goes beyond finance, it will evolve into a more attractive and competitive financial platform.

From here, let us move on to structural reforms. Structural reforms mean eliminating mismatches in our thinking, systems, processes and other mechanisms in order to support the enhancement of our earning power and rethinking of how we earn.

With human capital, generative AI and data in combination as our core, we aim to enhance our value creation capabilities. In addition to improving OHR, we will transform customer experiences, deliver new value and achieve a notable productivity improvement. We believe that the speed of reforms, including generative AI-driven initiatives across the front, middle and back offices as well as work style transformation will determine our future competitiveness. Aiming to become one of Japan's top companies in AI utilization, we shall continue to tackle with these initiatives.

Please turn to Page 34. And here, let me provide some additional explanation regarding our human capital initiatives. On point one, the total number of group employees had already been streamlined back to the pre-KMFG integration level by the end of March 2023, which served as the starting point of the previous midterm plan. During the previous plan, we leveraged the management resources secured through the streamlining process to expand our investment in human capital, including improvements in compensation, talent development programs and recruitment.

And then point two, through these initiatives, we also have confirmed that employees' sense of fulfillment and engagement has been improving. And point 3 shows the transition of our healing capital portfolio. Through initiatives such as business process improvement, we have been shifting management resources that have long remained fixed. And point four, in the near term, we will continue to raise labor cost per employee while uplifting revenue per head to outpace such cost increase. Lastly, let me talk about the acceleration of capital circulation.

Our basic approach to capital management remains unchanged. However, we have made partial revisions to the shareholder return policy shown in the center of the chart. So let me begin from there. First, we have clarified the lower threshold for the total return ratio by setting it at 50% or higher. In addition, as we have raised our target ROE level under the new midterm plan, our DOE target for FY 2029 is revised upward from the previous around 3% to around 3.5%. While setting a higher target, we continue to pursue stable and sustainable dividend hike. This page illustrates our capital allocation approach. Reflecting the expansion of capital flows, we will further drive capital deployment.

The left-hand side shows the actual results during the previous MMP period, and the right-hand side is the image for the new plan period. Under the new plan, we plan to allocate more than JPY 1.1 trillion in capital flows as shown here. Although our approach to organic investment remains unchanged, we will substantially increase the actual amount allocated to inorganic investment and shareholder returns compared with the previous plan. This page summarizes our shareholder return initiatives. The upper section shows the actions we announced together with the earnings release and the lower section is the trend in shareholder returns.

For FY ending March 2027, our DPS forecast is JPY 37, an increase of JPY 8 year-on-year. The amount of the dividend hike will be double that of last year. We also have announced a share buyback with an up limit of JPY 35 billion. Based on our current earnings target of JPY 310 billion for this fiscal year, the total shareholder return ratio stand at 38.2% at this point. Given our stated target of 50% or higher, however, we will take appropriate actions while closely monitoring the progress of our earnings. In addition to delivering stable and sustainable dividend growth, we will continue to work on EPS growth through flexible share buybacks. We expect the relative weight of share buybacks to gradually decline over time.

That said, we recognize that the current level of shares outstanding remains an issue given the need to maintain flexibility in our future capital policy. We, therefore, will continue to pursue sustainable EPS growth by expanding earnings and optimizing the number of shares outstanding. Let me also go through our policy-oriented shareholdings. For the FY ended March 2026, the reduction amounted to JPY 32.6 billion on an acquisition cost basis for listed stocks. On a consolidated basis, gains on sales totaled JPY 106.5 billion. In particular, these gains meaningfully exceeded our initial plan of JPY 52 billion.

Since launching our new reduction plan 2 years ago, we believe progress has been steady and in line with expectations. As shown in the center of the slide, over the past 2 years, we have reduced the balance by 25% on an acquisition cost basis with the decline in fair value exceeding JPY 260 billion. Even so, due to the rise in the remaining balance, the fair value is yet up by more than JPY 130 billion.

As a result, the earliest possibility for the ratio of policy-oriented stock holdings to consolidated net asset on a fair value basis to hit and pass the 20% level is March 2028. From here, we have prepared several slides outlining our ESG initiatives that support the sustainable improvement of corporate value. I would appreciate it very much if you could review them later. That concludes my presentation. Thank you very much for your kind attention.

Good morning, everyone. I am Minami of Resona Holdings. Thank you very much for joining us today for the presentation of our new medium-term management plan despite your busy schedules. This is our first attempt, but I would like to share with you the basic concepts of the new medium-term management plan. Please note that the financial results for the fiscal year ending March 31, 2026, are currently being compiled, and I would appreciate your understanding that there are some restrictions on what can be discussed at this time. Therefore, the numbers that are set as a starting point for the new plan are also based on the year-end guidance numbers for the fiscal year ending March 2026.

Without further ado, let me begin the explanation. First, our purpose, which we aim for over the medium to long term, beyond finance for a brighter future. This purpose is our starting point for everything and our ultimate goal. Based on this, we have established retail # 1 as our long-term vision. As shown on the left, the previous MMP started in 2023 and was positioned as the first 1,000 days of taking on corporate transformation. It was a plan that shifted gears significantly from revitalization to new challenges, and the Resona Group has changed greatly over these 3 years.

While succeeding the transformation trend in an environment where change is accelerating further, we will strive to be a frontrunner in next-generation retail finance. The new MMP is entitled shift to the next page, Three Years to Create Our New Ways of Doing Business. Our new ways of doing business means drawing closer to our next-generation vision that the Resona Group aims for by further evolving the foundations of our business, such as governance, the way we provide value and our profit structure.

Beyond the long 30 years of deflation, a new world with positive interest rates, generative AI and growth is beginning to move. In this environment, to continue being chosen by our customers, we believe it is necessary to avoid being overly bound by conventional values and common sense and to aim for providing new solutions where finance and beyond finance fuse together.

In this plan, in addition to steady growth of core businesses, we will actively work on strategic alliances, ecosystem building, expanding new value through base and inorganic investments. At the same time, we aim to significantly improve the group's organizational capabilities by continuing to review work styles, business processes and the state of IT through further structural reforms. We believe that the next-generation vision and new winning strategies the Resona Group aims for lie beyond these group-wide transformations.

We have also reorganized our materiality this time, aiming once again to balance the resolution of medium- to long-term social issues with the sustainable growth of the Resona Group. The lower section shows the trend of ROE, one of the financial indicators we put most importance on. Against the backdrop of the normalization of monetary policy, it has risen from 6.5% to approximately 8.8% during the 3 years of the previous MMP. In the current plan, we aim for an ROE of around 12%, assuming a policy rate of 1%. Furthermore, if policy rates were to rise to 1.5%, we would like to have 14% in sight.

Here are the financial targets in the new MMP in chronological order. Please note that these are all based on a policy rate of 1.0%. On the left, as mentioned, the ROE target is 12%. For the top line, which exceeded JPY 800 billion in the previous plan, we will aim for JPY 1 trillion. And for the bottom line, we will aim for JPY 390 billion. On an underlying basis, excluding DTA and special factors, we will finally reach a record high profit level. We have taken a long way around since 2003, but we intend to surpass our past performance as a passing point.

On the upper right, I mentioned a year ago that we aim for an OHR in the 40% range in 5 years, but we hope to achieve this during the period of this new plan. Below that are the indicators related to capital management. We have revised the description of the total shareholder return ratio, which was about 50% in the previous plan to 50% or higher, thereby clarifying the lower limit. Regarding the CET1 ratio, we will continue to operate in the 10% range on a Basel 3 finalization basis, excluding unrealized gains on available-for-sale securities. Going forward, we intend to focus on growth investments for medium- to long-term enhancement of corporate value while simultaneously expanding shareholder returns. I am convinced that there is still plenty of room for growth.

Although the targets we have set this time are by no means easy, we aim to be the frontrunner in next-generation retail finance while continuing to deliver solid results. These are the factors behind the changes in the bottom line. Looking at the bottom, we aim for a profit increase of approximately JPY 140 billion compared to the previous planned final year target of JPY 250 billion. Regarding top line, we anticipate a JPY 260 billion increase in profit through the expansion of loans and securities in both qualitative and quantitative terms as part of advancing our ALM and the sustainable expansion of fee income. While we assume approximately JPY 120 billion as the impact of interest rate hikes up to a policy rate of 1%, we have incorporated upside from our own efforts beyond interest rate factors.

Furthermore, while expanding forward-looking investments in human capital and IT, we will steadily capture the fruits of these investments. In addition, through the continued strict management of costs, we aim to reach an OHR in the 40% range as soon as possible.

This is the provisional calculation of the impact on earnings during Japanese yen interest rate hikes that we have presented previously. On the right, we calculate that for the time being, net interest income can be boosted by approximately JPY 60 billion for every 25 basis point increase in interest rates. As mentioned at the beginning, if policy rates rise to 1.5%, we believe an ROE of 14% is within reach. Of course, the speed of change is faster than expected, and the premise is that we ourselves must continue to adapt to these changes quickly. We believe our daily efforts such as constantly acquiring new profit opportunities and improving productivity through structural reforms are necessary. I will provide more details on this point later.

First, regarding our awareness of the business environment, the world is currently undergoing structural changes and its very form is beginning to change. In Japan as well, beyond 30 years of deflation, a new world based on the premise of mild inflation is beginning to move. Although there will undoubtedly be twists and turns, we are at a major turning point toward Japan's regrowth and regional revitalization. Furthermore, as technological evolution in areas such as generative AI and quantum computing accelerates all at once, we feel a sense of crisis that we may not be able to sufficiently meet customer expectations if we remain on our current trajectory. While ensuring that the foundation for growth that is currently being established to lead to certain growth, we will view these changes as opportunities and step out into the next stage.

This slide is a snapshot of our newly defined materiality. Starting from the future society, we hope to realize as expressed in our purpose, we have identified the prioritized areas we need to tackle as well as the internal issues to be overcome to realize the future society. I will not go into the details, but we have the KPIs on Pages 18 and 19. So please have a look at your convenient time. By aligning our strategies and business activities with the new materiality, we aim to resolve the social issues and achieve sustainable growth of the Resona Group at the same time.

This is the overview of the new medium-term management plan. We are moving on to the next stage in order to realize our purpose and long-term vision. As outlined, there are 4 key pillars: First, growth in core businesses; second, creating next-generation growth drivers; third, structural reforms; and fourth, acceleration of capital circulation. Across each of these pillars, we will pursue new ways of doing business. This slide is an update of the financial and nonfinancial approaches we have previously presented to improve corporate value, reflecting the new MMP. We will continue to strengthen our efforts to improve the ROE and lower the cost of capital through which we aim to achieve higher level of PBR.

Let me now provide more detail on each initiative, including the KPIs. First, the growth in core businesses. Simply put, this is all about growing the business driven by 2 engines of growth, the core concept under the previous MMP. We will augment both growth drivers in terms of quality and quantity as we strive to build a new generation version. With regard to strengthening funds flow cycle, we will first leverage our high-quality balance sheet built through our history of retail-focused operations to capture upside in net interest income in a way that is superior to our peers. At the same time, we believe that we are in Phase 2 of the operating environment with positive interest rate. The starting point is the growth of deposits and loans with elevated quality. In a sense, the new way we aim for naturally is the qualitative enhancement and sophistication of ALM. We believe this is a crucial point today. To maintain and further strengthen the competitive advantage of our balance sheet, we will steadily execute the necessary measures.

Going forward, deposit will continue to be under pressure. To secure stable and sticky deposit base, it is essential that we deepen our engagement in customers' daily financial activities and transaction flows, both for corporate and retail clients. We are planning to introduce several new initiatives in the near future to address this. The upper section illustrates the KPIs, while the lower section is RORA based on the net operating profit for different businesses. We aim to manage our loan portfolio strategically with a strong focus on quality. Even in an environment of rising rates and inflation, we will continue to provide stable funding to our customers, thereby supporting Japan's growth in regional revitalization.

Another pillar of core business growth is elevating the robustness of solutions. The new way is stepping up our solutions through co-creation with external partners. As customers' financial behaviors and values become increasingly diverse, we will create new synergies by integrating external capabilities. In addition to solidifying traditional flow-based income, we will focus on maximizing the lifetime value by expanding recurring income and creating new income opportunities. We expect fee income to reach a record high for the fifth consecutive year in FY March 2026, and we intend to further accelerate this momentum. The upper half shows KPIs. Over the 3 years under the new MMP, succession payments and AUM-related fees are expected to continue driving fee income. The lower section illustrates our vision for growing the fee income as we have previously shared. We are beginning to see tangible progress for this image for both the B2B and B2C businesses. The pie chart indicates our target profit structure.

Currently, net interest income accounts for approximately 70% of the profit. Over the mid- to long term, we aim to grow the overall profit while steadily increasing recurring fee income and securing next-generation growth drivers. Through this, we seek to transition to a next-generation profit structure that is less dependent on interest rate environment. We'll continue to focus on creating next-generation growth drivers with our eyes on the future. The new way introduced on the slide is the creation of new value across both peripheral and new business fields. As societal and customers' needs continue to evolve, we will secure the functions and capabilities required for the future and aim to remain as a financial group that customers continue to choose. In addition to scaling our existing financial digital platform initiatives, we are reinforcing partnerships with strong players using the ecosystem in base platform with a view towards rebuilding the optimal earnings mix for the future.

Structural reform remains a theme of extreme importance for us. This involves addressing mismatches in our mindset, frameworks, systems and processes that support how we generate earnings and enhance that capability. The new way implies advancing our value creation by fully leveraging the combination of human capital, generative AI and data. In addition to improving OHR, we aim to transform the customer experience, deliver new value and achieve an outstanding improvement in productivity.

We believe that the progress and speed of structural reforms, including the use of GenAI will be a key determinant of our future competitiveness. The chart at bottom right shows the evolution of our talent portfolio. Through the integration of AI and human talent as well as business process reforms, the shift in our management resources, which has long remained static, will start in earnest.

Last but not least, the acceleration of capital circulation. Three years ago, at the outset of the previous MMP, we stated that we had entered a phase of actively using and deploying our capital. However, in reality, we were still in the early stage. The new way is capital management aimed at accelerating the virtuous cycle of capital creation. As our earnings power recovers, we'll also step up our capital utilization efforts. We updated our shareholder return policy in May last year. And in light of changes in the environment, we have made some revisions this time. Some aspects were kept unchanged. We reiterated the total shareholder return ratio of 50% or higher and clarified our commitment to shareholder return. While expanding shareholder returns, we will also significantly increase growth investments that contribute to long-term corporate value enhancement. In addition, taking into account our target ROE level and market conditions, we will consider further increase in dividends.

We also plan to present an updated policy, including a review of DOE level at the time of our full year earnings announcement. In line with the expansion of capital flows, we will deliver sustainable and stable dividend hikes while continuing to enhance EPS through flexible share buybacks. This slide illustrates our capital allocation framework. What we like to emphasize is that as capital flows expand, we will increase both shareholder returns and growth investments in tandem.

This concludes my presentation. Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Hello, everyone. I am Minami of Resona Holdings. Thank you very much for joining our IR session today despite your busy schedules.

So let us start. Let me go through today's points. I would like to talk about how Resona Group evolves and grows towards next generation. Specifically, there are 3 points to mention. First is to revive our earnings capability.

In a world with interest rates, we are leveraging our strength, our highly interest rate-sensitive balance sheet. And as a result, our net interest income is steadily increasing. Even under negative interest rates, we have confidence in the fee income we have honed. And this time, we aim to achieve a record profit for the fifth consecutive year. For the full year, top line growth will be driven by these 2 engines, bringing us within reach of the JPY 800 billion mark for the first time in 19 years. In the first half, we achieved the highest profit since Resona Group was founded in 2003, exceeding JPY 400 billion for the first time.

The second point is growth potential through structural reforms. With the integration of Minato Bank operations and systems in January, the foundation for one platform multiregional structure has been completed. Going forward, we will advance business process and unify the middle and back office systems across each bank. At the same time, we will rapidly modernize our business infrastructure and standardize Generative AI across all operations. As the business environment changes at an unprecedented pace, the key is whether we ourselves can adapt and change.

The third point is accelerating capital circulation to enhance corporate value. We have stated that under our current midterm plan, we have entered a phase of active capital utilization with the profits exceeding our midterm plan and increasing capital flows, we are focusing on high-quality lending as the monetary policy gets normalized while working on growth investments for the next generation and shareholder return. The chart below shows the trends in OHR and ROE. We believe our potential is higher, and we are deepening discussions toward formulating a new midterm plan to aim higher.

Now I will explain following the agenda. First is the first half financial results. We have already had an analyst call, so I will briefly touch on the highlights. On the left, the core net operating profit is JPY 171.8 billion, up JPY 41.5 billion or 31.9% up year-on-year. The progress rate against the full year target is 51.3% achieving over JPY 170 billion in core net operating profit in the first half is the first time in 17 years since fiscal March 2009.

In the center, net income attributable to owners of the parent is JPY 142.8 billion, up JPY 28.6 billion or 25% up Y-o-Y. The progress against the full year target of JPY 240 billion is 59.5%. This is due to credit cost remaining low and the steady progress in reducing strategically held stocks, resulting in smooth gains on stocks.

As a result, as on the right, ROE is 10.2% or up 1.9 percentage point year-on-year. This is the trend in top line and the net profit since the establishment of Resona Group. In the upper section, the current year top line target is JPY 800 billion range, the first time since March 2007. Net profit for a few years since the inception of group increased significantly due to some factors such as tax effects. The planned net profit of JPY 240 billion for this year is the highest since March 2013.

Now I will discuss the key 3 points. The first is the revival of our earnings power. This shows the balance sheet as of the end of September, along with loan-to-deposit and securities-to-deposit ratios as well as the moving of ROA. In the lower left, the loan-to-deposit and securities to deposit fell to 77% by the end of March 2022 amid quantitative and qualitative earning, but now is around 90%. ROA is at 0.37%, as you see on the lower right. We are still on the path to recovery, so we will continue to actively take risks and enhance ALM to further improve ROA.

From here, I will discuss 2 engines of our business model, net interest income and fee income. First, let's look at deposits, which support our indirect financing operations. The top left chart shows the trend in deposits, which have increased by 18.5% since March 2020 before the pandemic. Both corporate and personal deposits have grown with the total balance now exceeding JPY 62 trillion. Below that is the comparison of our deposit composition with that of all Japanese banks. One of our strengths lies in the volume of personal deposits and liquid deposits, which are considered sticky.

We continue to maintain a favorable balance sheet structure, preserving a strong deposit base without placing excessive pressure on funding costs. At the bottom left chart, well, 2 years ago, under negative interest rates, our deposit yield was 0%, but now it is 17 basis points. Our current beta or the rate of pass-through to the policy rate of 0.5% is 34%, which is below our assumed level of 40%.

Next is at the right-hand side, the key to acquiring stable and sticky deposits lies in the strong connections with households and commercial flows. Here, we highlight the strength of the Resona Group. We position our group as the retail #1 bank, focusing on convenience through the integration of physical and digital channels.

For example, we have 760,000 housing loan customers closely tied to individuals main bank accounts with outstanding balance exceeding JPY 14 trillion. We serve as the main bank for 69,000 corporate clients, surpassing one of the mega banks and ranking third nationwide. The number of debit cards issued, which are often linked to main bank account usage has reached 3.35 million. In an aging society, inflows, including the funds transferred from regional areas to inheritor accounts continue to expand. However, from a macro perspective, deposit growth is slowing and the various pressures on deposits are likely to persist. We shall continue to enhance our ALM by closely monitoring trends at peers and the changes in customer financial behavior.

The first engine in our dual engine business model and the center of net interest income is lending. As we enter a phase of fully utilized capital and interest rates begin to recover, our operations are naturally focused on the smooth provision of funds. Based on fertile markets centered around Japan's 2 metropolitan areas, we have steadily enhanced our consulting capabilities in addition to our strength in full-line trust banking functions and the customer relation building. This enables us to take on more complex and proposal-driven projects.

On the demand side, we are expanding high-quality lending to address a wide range of customer needs, including increased working capital driven by moderate inflation, CapEx to strengthen supply capabilities, business restructuring and succession, customer experience and digital transformation and responses to structural changes such as labor shortage.

The top right chart shows the Y-o-Y changes in net interest income from domestic deposits and loans. Negative interest rates since its beginning have been a factor of over JPY 75 billion negative effect on earnings on a cumulative basis. However, we finally saw a turnaround starting last fiscal year. The profit increase has expanded further this year.

We also placed strong emphasis on lending quality and our RORA is steadily improving. The bottom right chart illustrates the respective conditions for corporate and retail segments. Since the beginning of the fiscal year, TIBOR has gone above the policy rate and with the interest rate revisions, lending linked to short-term prime rates have progressed smoothly, leading to higher yields on corporate loans.

Loan volume in the meantime, has continued to grow steadily, maintaining an increase of nearly 6% Y-o-Y. At the start of the fiscal year, some companies held off on CapEx due to uncertainty over future tariff impacts. However, the situation has since stabilized, and we aim to capture future funding demand effectively.

On the right-hand side, regarding housing loans, yield revisions on the existing book began in Q2. 6 months after the January rate hike and yield improved. Further increases are expected in the second half.

New loan originations reached JPY 660 billion, marking a strong 11% Y-o-Y increase and setting a record high for the first half. This is an update on the impact of interest rate hikes on earnings. Excluding changes in balance, we have quantified the increase in NII since the fiscal March 2024 when interest rates were negative and described it as the effect of interest rate fluctuations.

The second column from the left shows the actual results through the first half, totaling JPY 50 billion. This represents a JPY 39 billion Y-o-Y increase in gross operating profit. To the right, the estimated upside in earnings expected within this fiscal year is around JPY 105 billion on a cumulative 2-year basis with a projected Y-o-Y increase of JPY 72 billion for this year alone.

For the next fiscal year onward, assuming full year contribution of interest income following rate revisions, we estimate a cumulative top line increase of JPY 113 billion based on a 50 bps hike from the current policy rate as shown in the rightmost column. Should rates go by up to 75 bps, an additional JPY 54 billion upside is expected, bringing the total projected increase to JPY 167 billion.

Based on the current capital level, 10% ROE, which the Tokyo Stock Exchange uses as a benchmark is within reach. This estimate does not include fluctuation in the balance of the impact on fixed rate loans with maturities exceeding 1 year, suggesting there may be further upside. We hope this serves as a useful reference for your sensitivity analysis of top line performance.

Next is related to the fee business, which is the second engine of the 2 income sources. We aim to build a broad base of recurring and stock-type fee income by continuously introducing new businesses while refining our traditional strength in areas such as trust, real estate, succession planning, corporate solutions. The upper section is just one example, but it demonstrates the steady expansion of foundation for stable revenue streams for the next generation.

The number of users for investment trust, fund wrap and insurance has surpassed 1 million. The number of debit cards issued has increased to 3.35 million, a 2.2-fold increase compared to 6 years ago. App downloads, we used to be less than 1 million have now surpassed 12 million. The number of companies using financial digital platforms has expanded to 9 financial groups and 10 banks.

One characteristic of these businesses is that once they accumulate beyond a certain volume, they generate significant impact on the income and high stability. For example, the upper right shows the trend in debit card income. Income 1 year after release reached JPY 700 million. 6 years later, it reached JPY 2.3 billion. Meanwhile, income today, 11 years later with transaction volume significantly accumulated stands at JPY 7.6 billion a year. It should exceed JPY 10 billion soon.

The lower section is a conceptual diagram, but steady and diverse efforts in both B2B and B2C areas will gradually develop into new income opportunities over time. The strengthening of our capital and business alliance with Digital Garage implemented in the first half of the year is also an investment in sowing new seeds. In other words, an investment to provide new value to our customers. We have maintained a long-standing collaborative relationship with Digital Garage. This time, we increased our ownership stake in its common stock to 30.9%, making it an equity method affiliate.

We project ROIC for this matter to reach 10% plus alpha by the fiscal year ending March 2030. Digital Garage is already one of Japan's largest payment platforms and a growing company supporting Japan's payment infrastructure. We aim to capture cash flow generated from Digital Garages established business models while also promoting DX solutions for Resona Group's 500,000 corporate clients.

Furthermore, we seek to jointly develop next-generation payment methods and new financial services for both B2B and B2C markets by combining the strength of our company and Digital Garage. In any case, for banks to adopt to changing times and secure competitive advantages, it is essential to transcend conventional thinking and integrate with outstanding external expertise, know-how and talent.

Now let me move on to the second point, growth potential through structural reform. This is a conceptual diagram of the structural reform as we are currently undertaking. Frontline reform, middle and back office reform, investment in human capital and work style reforms. Through the series of reforms, we will rebuild the foundation for the group's next-generation growth and aim to overcome the high-cost structure inherent in retail operations.

The first half OHR stands at 57%, but we aim to achieve a rate in the 40% range within 5 years through future income growth driven by 2 income sources and efficiency gains from various reforms.

I'll add a few comments about each reform. First, frontline reform and transformation of customer touch points. The diagram above illustrates the concept of next-generation retail finance. The concept is to make special in-person moments that require deep consulting as the pillar of differentiation while connecting 100% digitally for everyday financial services.

As you see on the middle left, we released the group app in February 2018. Today, approximately 70% of our customer interactions occur through the app. For individuals, excluding cash transactions, app and tablet usage has expanded to cover 70% of transactions. The middle right section shows an example of the effect that the app delivers.

The graph shows that the growth rate of assets under management per person has approximately doubled for those with the app versus those without. The number of cross-sell products is also approximately 1.6x higher. Focusing on in-store administrative reduction driven by apps, the number of slips requiring dedicated terminals has decreased by 40% over 5 years. Tax and public fund payments have decreased by 30%, significantly contributing to operational efficiency.

Furthermore, as shown in the lower left, the insights and know-how gained from the group app have significantly contributed to the development of corporate apps and in-store group tablets.

On the right bottom, the group app, which has delivered various benefits up to this point is currently undergoing development for the next-generation iteration. We aim to release it to the world as soon as possible.

Now moving on to middle and back office reforms. With the completion of Minato Bank's operation and system integration in January this year, the foundation has finally been established to accelerate the shift to a single platform for the group. We are working to integrate the operation to streamline the middle and back-office functions within the group.

Below, we have once again outlined our one platform multiregional strategy. As shown at the bottom, integration synergy between KMB and MB have already been significantly realized before the normalization of monetary policy. This stems from synergies such as top line growth and cost reductions achieved through the integration.

Going forward, the income for both companies will further increase through rising interest rates and the full utilization of functions across the entire Resona Group.

Moving on to workstyle reforms. This fiscal year, we will drive a renewal of our internal operation infrastructure and the standardization of Generative AI. We will break away from familiar business processes, eliminate sacred calls and streamline operations to fundamentally transform how work is conducted.

In May, we signed a strategic framework agreement with Microsoft Japan, and we are driving this initiative through both infrastructure reform and human resources development. Beyond reforming the work size of 30,000 employees, efficiency improvement and improving quality and quantity of output, we will aim to create new customer experiences and value offerings by embedding Generative AI into our operations, products, services and functions going forward.

And under AI governance, how far can we leverage AI in decision-making, how far can we expand revenue opportunities using data as our weapon, how far can we transform our organizational culture, we aim to take on those new challenges. In any case, we aim to become one of Japan's top AI utilizing companies.

Next is about investment in human capital. As you see in the middle left section, the total group headcount was reduced by 3,400 over the 3 years of the previous midterm plan, while shifting personnel to strategic areas are falling to pre-KMFG integration levels. Under the current midterm plan, we are expanding our investment in human resources by enhancing compensation, developing talent and strengthening recruitment, all while leveraging the management strength gained through these processes.

As you see in the lower right, our employee survey indicates that enhancing job satisfaction and motivation will be crucial in moving forward.

Third point is accelerate capital circulation to enhance corporate value. Once again, this is the direction of capital management under the current midterm plan. As we enter the phase of fully leveraging capital, our fundamental policy to expand growth investment and shareholder returns while maintaining soundness remains unchanged.

The upper section revisits and organizes the approach to shareholder returns. While aiming for a total payout ratio of around 50% regarding dividends on the left side, we will pursue sustainable dividend growth based on the DOE target. Last year's DOE performance was 2.1%, but we will raise this to around 3% by fiscal year 2029.

Furthermore, as you see on the right side, we will conduct share buybacks depending on our performance. The return actions for this period based on this approach are listed below.

First, in May, the full year dividend forecast was increased by JPY 4 year-on-year to JPY 29. In addition, a share buyback program of JPY 30 billion was established and completed by July. And last week, at the time of the interim results announcement, we released an additional action of share buyback program with a maximum limit of JPY 35 billion. This means that we are allocating 54.6% of the JPY 240 billion guidance based on forecast and total payout ratio through those actions.

This page shows the trend in shareholder returns. This fiscal year, we have increased dividends by JPY 4 and expanded share buybacks to up to JPY 65 billion for the year. This shows the trend in ROE number of shares outstanding and EPS. Regarding ROE, we will pursue further increases while driving structural reforms amid the ongoing normalization of monetary policy.

On the right side, the level of total shares outstanding remains an issue considering the need for flexibility in future capital policy. We will continue to focus on achieving sustained growth in EPS through expanding earnings and optimizing the number of shares outstanding. This is the image of capital allocation and utilization during the midterm plan period.

The upper section reflects assumptions made during the midterm planning stage. The lower section represents the results of the first 2 years of the current midterm plan and this fiscal year's plan based on the results during the interim period. While capital flows have exceeded the plan due to earnings surpassing the midterm plan, alongside expanding returns to shareholders, we are increasing growth investments to strengthen high-quality loans as a natural approach amid rising interest rates.

Regarding the inorganic domain, we made Digital Garage our equity method affiliate during the current interim period, but this investment falls within the allocation set by the midterm plan. The CET1 ratio, excluding valuation adjustments on other securities based on full Basel III implementation at the end of September continues to be close to the midterm target.

Going forward, we intend to demonstrate sustainable growth by expanding returns while maintaining high financial soundness, by driving capital utilization in both organic and inorganic growth areas.

Now on to policy-oriented stock holdings. The reduction achieved during the current interim period amounted to JPY 11.1 billion for listed stock on acquisition cost basis, while consolidated gains on sales totaled JPY 33.4 billion. We started the reduction plan last fiscal year that goes on to the end of March 2030. At the midpoint, 1/4 of the plan period has elapsed. Cumulative reduction based on acquisition cost stands at JPY 45.6 billion with a progress rate of approximately 26%.

During the same time, market value decreased by JPY 118.5 billion and sales reduced the holdings by JPY 166.2 billion, but the market value increase added JPY 47.7 billion. We will continue to drive reductions while engaging in dialogue with our customers to achieve our goals.

This concludes my explanation.

Hello, everyone. I am Hideki Somemiya, CFO of Resona Holdings Corporation. Thank you very much for your understanding and support for our company.

Let me explain the financial results overview of Q3 of fiscal 2025. Page 2 is key takeaways. There are 3 things that I'd like to communicate to you. First, core operating profit in Semiconductor and Electronic Materials segment reached a record high on a quarterly basis. In Q3, products for advanced semiconductors used for AI and others were strong. In addition, there was inventory demand for smartphones and others. Second, core operating profit increased year-on-year, driven by the strong performance of the Semiconductor and Electronic Materials segment, which more than offset the weakness in the Chemicals segment. Third, compared to fiscal 2025 forecast announced on February 13 this year, we made steady progress through Q3. Forecast numbers remain unchanged.

Now let me explain Q1 to Q3 financial results. Slide #3 shows the summary of Q1 to Q3 consolidated results comparing fiscal 2024 to '25. Q1 to Q3 revenue was JPY 986.3 billion. Semiconductor and Electronic Materials revenue grew considerably year-on-year. However, Chemical segment and Process Chemicals segment revenue decreased. Overall revenue declined by JPY 43 billion year-on-year. Core operating profit was JPY 72.8 billion, up JPY 4 billion year-on-year. As for nonrecurring items, gain on sale of former headquarters land and buildings were booked the same period last year. During Q1 to Q3 this year, impairment losses on this sale and the restructuring were recorded. Nonrecurring items turned negative to JPY 51.4 billion. IFRS-based operating profit was JPY 21.5 billion, down JPY 64 billion year-on-year. Profit attributable to owners of the parent was JPY 6 billion, down JPY 58.8 billion year-on-year due to the nonrecurring items, which turned significantly negative as mentioned earlier.

EBITDA was JPY 143.9 billion, almost flat year-on-year. EBITDA margin was 14.6%, improvement of 0.8 point. Excluding Process Chemicals for which we are considering partial spinoff, EBITDA margin was 17.8%. In Q3, the EBITDA margin was 18%. Excluding Process Chemical, it was 20.7%. So we exceeded our target of 20% or higher. Page 4 is the breakdown of core operating profit changes from JPY 68.8 billion last year to JPY 72.8 billion in Q1 to Q3 2025. Looking at the breakdown of JPY 4 billion year-on-year increase, sales volume was JPY 7.2 billion, mostly improvement impact of semiconductor and electronic materials. Sales price pushed down the profit by JPY 19.2 billion. Sluggish graphite electrode market led to lower sales price. Naphtha price was down year-on-year and sales price also declined in Process Chemicals segment. Variable and fixed cost pushed up the profit by JPY 13.8 billion. Although fixed costs such as labor mainly increased in each segment and raw material costs rose in Process Chemical, lower naphtha price pushed up the profit.

Lastly, the others pushed up the profit by JPY 2.2 billion. This includes the hard disk media business in Semiconductor and Electronic Materials segment having sold off high-cost inventory in the same period last year. Pages 5 and 6 show breakdown of segment core operating profit changes. These are for your reference. Page 7 is results by segment. revenue, core operating profit and EBITDA margin as shown by segment comparing fiscal 2024 and '25. Semiconductor and Electronic Materials grew 11% in revenue and 40% in profit year-on-year, driving overall results. However, revenue and profit decreased in other segments, especially in Chemicals segment, sluggish graphite electrode market led to a considerable decline in revenue and the segment ended in deficit.

Page 8 is quarter results by segment. In Semiconductor and Electronic Materials segment, in addition to the demand for smartphones, volume of products for advanced semiconductors used for AI and others steadily grew in Q3. Both revenue and core operating profit reached record highs. EBITDA margin was 31.3%. As a result, overall Q3 revenue was JPY 344.2 billion. Core operating profit was JPY 38.2 billion. EBITDA margin was 18%. Pages 9 to 13 are segment summaries. Page 9 is the Semiconductor and Electronic Materials. Revenue grew by 11% year-on-year to JPY 365.7 billion. Core operating profit increased by JPY 21.2 billion year-on-year to JPY 74 billion. Higher revenue and profit were driven mainly by back-end semiconductor materials, whose volume grew for advanced semiconductors, mainly for AI and others and Device Solutions, where hard disk media revenue rose on a demand recovery for data centers. We understand that the growth of the hard disk media for data center is driven by storage demand expansion, including those based on AI.

Segment EBITDA margin improved greatly from 25.5% the year before to 29.1%. Page 10 is Mobility. Revenue decreased by 12% year-on-year to JPY 132.1 billion. Core operating profit decreased by JPY 1.9 billion year-on-year to JPY 2 billion. Lower revenue is mostly due to divestiture of secondary victory packaging materials and food packaging materials in Q1 as well as a decline in demand for some domestic customers. Both revenue and profit were down. Page 11 is Innovation Enabling Materials. Revenue decreased by 5% year-on-year to JPY 67.9 billion. Core operating profit decreased by JPY 0.7 billion to JPY 8.1 billion. Revenue and profit decreased due to lower demand for certain products impacted by sluggish automobile market. Page 12 is chemicals. Revenue declined by 17% year-on-year to JPY 125.9 billion. Core operating profit declined by JPY 9.2 billion to the loss of JPY 7.4 billion. Lower revenue and profits come mostly from graphite electrode business, where both sales volume and price dropped due to weak graphite electrode market conditions. While gains from the reversal of the inventory write-downs were booked same period last year,in Q1 to Q3 this year, there were valuation losses.

The last segment summary, Page 3, shows Process Chemical. Revenue decreased 8% year-on-year to JPY 222.8 billion. Core operating profit decreased by JPY 1.8 billion to JPY 3.3 billion. Lower naphtha prices led to lower selling prices and revenue dropped. Core operating profit decreased due to a deterioration in inventory valuation differences. The results by segment has been completed. Page 14 is the major items below the core operating profit. On the left, we have the list of the nonrecurring items. On the right, year-on-year comparison of the financial income cost and equity in earnings.

Starting with left, nonrecurring items, which worsened by JPY 68 billion year-on-year. Because of the gains on sale of the former headquarters land and building, this was positive same period last year. In Q1 to Q3 this year, we booked impairment losses for transfer of businesses and provision for business structure improvement. This is mainly for the business transfer of FIAMM Energy Technology engaged in lead acid battery business and automotive molded parts business. Other items during Q1 to Q3 have not changed much since the first half. Gain on business reorganization and others was JPY 6.9 billion, mainly from divestiture of secondary battery packaging materials and food packaging materials. Total of business restructuring expenses and extra retirement payments was JPY 5.3 billion, mainly from restructuring of graphite electrode business.

Moving to the right-hand side, total financial income costs improved JPY 3.8 billion year-on-year. While FX loss was recorded in the same period last year were weaker yen during the Q1 to Q3 this year led to small FX gain. As there was a negative impact of onetime cost adjustment during the same period last year, the equity in earnings increased by JPY 2.5 billion year-on-year.

Next, Page 15 shows consolidated balance sheet. Starting from the left. Total assets at the end of September this year was JPY 2,069.7 billion, down JPY 102.9 billion from the end of December last year. This is mainly due to the lower cash and cash equivalents due to the corporate bond redemption and others. Assets held for sale increased due to the transfers from the trade receivables and inventories and others following the decision to transfer FIAMM Energy Technology and automotive molded parts business. Total liabilities were JPY 1,398.2 billion, down JPY 82.4 billion from the end of December 2024 due to the lower interest-bearing liabilities. Total equity was JPY 671.5 billion, down JPY 20.5 billion from the end of December last year. Biggest reason behind the decline is stronger yen up to JPY 148.4 to the dollar at the end of September, as shown in appendix, which led to JPY 13.6 billion decrease of the conventional foreign currency translation adjustment or exchange differences on translation of foreign operations under IFRS.

Major indicators are shown at the bottom. Net D/E ratio increased to 0.98x from the 0.78x at the December end. This was due to the early repayment of JPY 137.5 billion of subordinated loans, which are recognized as 50% equity by Japan Credit Rating Agency through the regular senior loans and others at the end of April. We continue to improve our financial position, targeting a stable net debt-to-equity ratio of 1x or lower. Lastly, equity ratio attributable to owners of the parent, which corresponds to the conventional equity ratio improved slightly to 31.2% from December end. Page 16 and onwards are appendix, and these are for your reference.

That concludes my presentation. Thank you very much for your attention.