SBI Holdings Inc

TSE:8473

Earnings Call Transcript 2019-Q1

[Yoshitaka Kitao, executive]

Please allow me to begin the presentation. Thank you very much for this big turnout. And I would like to extend my hearty gratitude for your support on this occasion. Thank you very much.

Now I'd like to start the presentation on financial returns of the first quarter of the year ending in March 2019. Some numbers here. The revenue, JPY 91,334,000,000, or up 32.5% year-on-year. Profit before income tax JPY 28,665,000,000, up 94.3%. Profit for the period JPY 20,394,000,000, up 97.8%. Profit attributable to owners of the company JPY 17,879,000,000, up 48.9%. So I believe that this is good performance.

The segment, Financial Services Business, JPY 56,301,000,000, up 11.7%, and the pretax income JPY 16,972,000,000, up 19.2%. Asset Management revenue is JPY 34,440,000,000, up 87.1%. The pretax income JPY 17,737,000,0000, up 221.3%. Biotechnology-related Business, revenue of JPY 887 million, up 36% year-on-year. And the profit before income tax expense is minus JPY 2,712,000,000. It's an improvement of about JPY 129 million.

And the business overview of each segment, the Financial Services, the other business. The gross revenue and profit increased significantly. The operating revenue up 20.5%, JPY 30,544,000,000. Net operating revenue, 23.9% up, JPY 28,908,000,000. Operating income up 35.6%, JPY 14,420,000,000. Ordinary income up 34.9%, JPY 14,388,000,000. Profit attributable to owners of the company, JPY 9,926,000,000, up 30.5%.

In terms of operating revenue structure, big growth came in financial revenues and the other trading gains, including FX-related gains and the underwriting sales commissions. Here, numbers increased as to commissions. In terms of other [ rate ] it decreased significantly.

The comparison of major securities companies. Some online securities companies have already announced their results. Compared to SBI, their numbers are smaller. And the gross Monex, the first quarter of the fiscal year 2017 was so slow, so in the first quarter fiscal year 2018, the change was great. And in Nomura, they had a minus 90.8%, JPY 5,223,000,000; Daiwa, minus 4.4% with JPY 18,534,000,000; and SMBC Nikko, plus 3.5%, JPY 14,996,000,000. Daiwa, SMBC Nikko and probably the other SBI comes after that.

And online companies' number of accounts, deposit assets, operating income comparison. SBI has a dominant position, especially when it comes to share of individual stock trading value, 35.9%, of which individual margin trading, 37.4%. Number of accounts increased significantly with 4,362,000. Deposit assets stands at JPY 13 trillion, which is greater than the other 4 companies combined. Operating income, the same story. Our number is greater than the combination of the other 4 companies. It's a big difference.

Number of accounts. From end of June 2012 to end of June 2018, our CAGR is 10.3%, while Nomura at 1.0%-or-so. So the number of customers there remains unchanged for Nomura and the others. So we already exceeded the Daiwa Securities, and the gap between Nomura and SBI, it's getting smaller. And it's just a question of time that we're going to be the company with the largest number of accounts. And in the retail market, we are dominant.

And the other background of the business expansion. The company -- the government is focused on iDeCo and NISA. And in this area, in May 2018, as of May 2018, the number of accounts compared to May 2017 increased about 1.8x and the other -- this is because of the completely free charge for administrative fees. That's partly the reason. And 401(k) is also increasing, JPY 142 billion.

So looking at this slide. As you can see, the Individual Defined Contribution Pension Plans, namely iDeCo, in terms of the number of the new customers, the SBI SECURITIES is ranked #1 in the industry. And this is the National Pension Fund Association data. And the other data, I was told this should not be the addition here. But we are dominant here again. And about NISA -- SBI, these have 1,250,000 accounts, while Nomura 1,650,000. And kabu.com and Matsui are far below.

And among the other number of NISA accounts, the new customers 58.2%, among which 68% are beginner investors. So NISA and iDeCo are creating new customers for the SECURITIES business.

Junior NISA account, there are about 50,000 accounts, accounting for about 30% of data securities industries Junior NISA accounts.

In June 2018, SBI SECURITIES monthly total periodic investment trust setting amount is JPY 11.7 billion. From here, it started to increase sharply, so the -- here, the total setting amount in NISA accounts, accounts for big part.

So I have been telling you that we'll expand our corporate business. And finally, our IPO underwriting share became 100% for the period from April to June 2018. 20 companies were listed, and the SBI participated in all of these other companies' IPOs as a lead manager or sub-lead manager. In addition, we are working on PO underwriting business as well. For example, the underwriting of RIZAP's public offering as a lead underwriting manager plus 6 other POs increased the underwriting amount of the first quarter fiscal year 2018, 46.5x year-on-year. This should not be temporarily a trend. Continuously, we are going to be more active in this market as well.

And for the corporate bond underwriting business, we underwrote 7 corporate bonds, including that of SoftBank. The underwriting amount increased by 3.2x year-on-year.

So in order to strengthen the corporate business overseas, now we have SBI SECURITIES office in Hong Kong. Along with that, we are going to start our office in Singapore as well as somewhere in Europe: London or Frankfurt or somewhere else. In any case, we are going to establish office in Europe, so that we can work more in the other global financing area.

And we are incorporating the state-of-the-art technology to expand our business. For example, robo-advisor is one of such examples, robo-advisor of WealthNavi. In the industry, it is said that it is the best one, and of course, the Theme-Killer! is also one of the choices. But now we have JPY 35.2 billion customer assets using this WealthNavi and with 45,000 accounts.

Some people, actually many people thought that this year would not be so effective. But now we've reached the JPY 35.2 billion. The new customer assets, actually, increase in customer assets was achieved with this approach.

Now banking-related business. The banking entity has announced its -- the results. On the IFRS basis, it's JPY 1,177,000,000. You might be saying that it's not so big, but it's an increase of 36.2% year-on-year. And the equity -- the method is applied here. And here, this is on a J-GAAP basis. For the first quarter, on a J-GAAP basis, approximately, ordinary income was JPY 4 billion. It was about JPY 4 billion.

In March 2018, we recorded record-high income. This plunged in the past because of the BOJ's negative interest rate policy that started from February 2016. So we were impacted by this policy. Then after, we were able to increase earnings substantially. So I think from March 2019, we are going to see good growth. It's already in sight.

As for the customer base, we are continuing to see an expansion. The bank's customer base, we believe, will surpass the securities business customer base eventually because when you consider the number of potential customers, it is completely different when you compare banks and securities. So this is quite obvious. Currently, we have 3.3 million accounts. And for deposits, it is at JPY 4.6509 trillion at this moment.

We started off late from 2007, but we've been able to surpass our competitors.

With regards to the reasons why we've been seeing expansion. First of all, it's mortgage loans. We've continued to see steady growth. With regards to the balance, we are at JPY 3,314,000,000,000 as of end of June.

With regards to the cumulative total of housing loans, it has exceeded JPY 4.4 trillion as of end of July -- as of July 30, that is. So the reason why it's brisk is due to these 3 channels. The first one is -- are the housing loans processed directly by SBI Sumishin Net Bank. We have ones that are through alliances with real estates as well as originations made through banking agencies with their specialized products. And also, we have our banking agency business for Sumitomo Mitsui Trust Bank, through which we offer mortgage loans. And we also have online specialized housing loans. And then, we have the Housing Loan Corporation with its long-term fixed-rate product, Flat 35, which is the Housing Loan Association provided loan.

With regards to MR. Housing Loan REAL, we have raised the lending amount maximum from JPY 100 million to JPY 200 million in order to further increase customer convenience, and we expect further growth in housing loans. And we've been working on the expansion of face-to-face shops of partner companies as well, which has been contributing too. From 2017 January, we've been working with Good Mortgage, and MX Mobiling from October 2017, and I.F. Create from March 2018. For MX Mobiling, on the 19th this month, Shibuya Loan Plaza will open, which is not just online services, but they are going to have real stores in place as well. And we believe this kind of approach is essential as well.

Furthermore, our API linkage is something we're working on, Mametasu, SiraTama, where you're able to accumulate your assets in a friendly -- and finbee are service applications with which we are linked together through APIs. And users will then eventually open up accounts with our services. So the API linkage is contributing to new customer inflow. And from January 2017 through March, if we benchmark the number of customers at 1.0, in the case of finbee, after the API linkage, as of June 2018, the cumulative total of customer inflow grew by 7.8x. So through API linkage, a service provision has led to new customer inflow. And it is contributing to customer acquisition, and our competitive advantage is enhancing. So it's a virtuous cycle that is in place.

So mobile utilization. Basically, we have a mobile-first or mobile priority strategy in place. So by leveraging mobile, there is a PAY ID that is a QR code payment app. And we have started to offer payment services through this app. So it's very convenient. So registered users have exceeded 1 million, and you're able to use this service at more than half a million merchants. So this is another tool through which we are enhancing customer convenience.

Furthermore, we are providing business loan services based on accounting transactions in cooperation with settlement agencies. So we would like to grow this business. And we are currently applying for a bank brokerage. And we are pretty much the only person that is filing. That is what the FSA has been saying. We believe that we'll be able to eventually make an announcement. And I'm sure, it would be -- it may be a surprise for you.

And I talked about robo-advisor as well. And we already have 14,000 accounts, and AI has been implemented.

As for the Insurance business, all 5 companies combined, we say they are comprising the insurance business. So we have the insurance business, Life Insurance business as well as the 3 SSI businesses. The number of contracts has steadily been increasing. And also for the insurances business, we exceeded 1 million as of end of June and the combined ratio is at 81.8. So we're seeing good trends continue. For life insurance, including Group Credit Life Insurance, we have been able to see steady growth. The number of contracts was approximately 110,000 as of end of June.

For SSI, for the 3 companies, we've been seeing growth ever since they've joined our group. For IKIIKI SSI, it's been growing 22.6% year-on-year. And for Nihon Small amount & Short term Insurance Company -- we're going to change it a SBI crown name going forward and then we expect further growth, but this is a very interesting company as well.

Furthermore, the reasons why we've been seeing better performance, for one, is because in our ecosystem, we've been able to increase the number of customers; InsWeb, SBI Sumishin Net Bank have been accounting for 70% of the acquisition ratio. But we have been expanding in other areas as well.

For the other areas where we are seeing growth, we have had high expectations toward regional financial institutions. This is the area of life insurance and group credit life insurance, but when you look at the number of applications, as well as AMP, you can see steady growth has been taking place. So our partner regional financial institutions have been supportive of these initiatives, whether it be Hanno-Shinkin Bank as well as Toyota Shinkin Bank that will be starting from September as well as from this week, Yamaguchi Financial Group will be handling this product. So we will continue to see an increase in the number of financial institutions that handle our product. And with that, we expect the number of contracts to increase.

In the area of SBI nonlife insurance, we are striving to raise customer convenience through implementing technology. For example, offering safety support car discounts. For vehicles that have AEB, autonomous emergency braking systems, installed because the vehicles are safer, the premiums will be cheaper. Or in other cases, there is SBI Insurance's cancer insurance that was certified as an AskDoctor's confirmed product. When you ask questions to doctors, if they want to make a recommendation, 87% of doctors said they would like to recommend the cancer insurance from SBI Insurance.

So 1 out of 2 people will become cancer, and it's said that 1 out of 3 people will die from cancer. Therefore, we believe this is a promising product from a nonlife insurance point of view.

And when doctors say something, I think it's more supportive from a marketing point of view and convincing.

And also we will have an industry-first introduction of Apple Pay payments for auto insurance as well. Other than that, there are various startups that will offer personalized insurance technology to us. And together, we will like to research and develop new products. For example, ADWELL, we believe they're interesting company. We are able to track what kind of food items a person is buying to see how are their diet balance is.

So from the pursing stage, that will be the starting point when analyzing users. Their diet might not be well-balanced, which is not good for the body from a health perspective. And basically, this company offers SHIRUTASU, which is a health management app. So they are a health care startup. And we would like to ambitiously implement this technology.

So these are the 3, 4 companies, which we expect to increase, but for the time being, we will do comprehensive cross-selling.

For the Asset Management Business, revenue increased by 87.1% reaching JPY 34.4 billion. For profit before income tax expenses, it grew by 221.3% to JPY 17.7 billion. For SBI Savings Bank, it should have grown more; however, it is minus 3.3%. That's because of IFRS amendments. Owing to the application of IFRS 9 in South Korea, the impact of changes in the method of calculating the allowance for doubtful accounts for financial assets kicked in, which was minus JPY 900 million. So on apple-to-apple basis, it was 3.9 versus 4.7, so that was the impact of amendments, as well as the profit loss from the change in fair value and profit loss on sales of investment securities. Listed securities was JPY 4.7 billion and unlisted securities was JPY 7.4 billion out of the JPY 12.2 billion. We invested into FinTech companies that are early stage, and a second fundraising will happen and a third-stage fundraising will happen. And every time, their valuations will go up and so will our evaluations. And thus, this has been contributing in a substantial way.

So as you can read from here, we have now 67 FinTech companies we invest in, a total investment amount of JPY 24 billion. So that is JPY 40.5 billion is invested in FinTech companies.

In 2018, we are expecting 20 companies to go public through an IPO, but actually 3 are ready to be exited because we sold off our stake.

In a company called [ Vision ] came in and suddenly, they bought out all our stake. So we are very grateful. And we didn't think we need to hold onto it. We can go find companies who are willing to buy or we have implemented technology already. So that in itself is a great outcome.

SBI AI and Blockchain Fund, we call it SBI A&B Fund for short. We were saying we will raise JPY 50 billion, but it was accepted quite well, and we have been able to increase the maximum to JPY 60 billion. More than 40 regional financial institutions, as well as institutional investors, large financial institutions, banks, nonlife insurance, corporate pension funds, altogether, 100 companies or so invested together.

So now we're already seeing JPY 60 billion in horizon. In 22 companies, JPY 8.7 billion investment has already been decided. If you include the holding company's investment, that's JPY 13.3 billion altogether. So in addition to JPY 40.5 billion, JPY 13 billion will be invested, so that's JPY 53.5 billion. Now this is not just FinTech. I will explain more in detail later on, but this is AI, blockchain. Industry isn't just our sector, but we cover all sorts of industry sectors.

And CVC. This is becoming quite popular these days. But in 2 years prior to FY 2017, we started 6 CVC funds with JPY 40 billion. Now Subaru wants to do a JPY 10 billion fund size together with us. So this will be altogether JPY 50 billion in CVC. I would say this is the largest in Japan. These are smaller funds, but we are establishing new funds overseas, China and Malaysia.

Also, we're still working on this, but in Russia, we will collaborate with a government fund to -- it's called Russian Direct Investment Fund, RDIF. We will establish a system together. And it will be joined by a major conglomerate in Russia called Iliev Group. So we are considering establishing a fund together.

This is SBI Bond Investment Management. PIMCO is the world's largest bond investor and SBI Bond Investment, it's management is PIMCO's only joint venture fund. And the balance has exceeded JPY 300 billion. It was only in April 2016, it has started. And in 2017, we have achieved JPY 100 billion in total assets under management, so PIMCO was quite surprised. They were overwhelmed by our capabilities to sell.

SBI Savings Bank. This is looking at K-GAAP basis. It's about KRW 91.8 billion. In yen, it's about JPY 9.2 billion. So that's KRW 91.8 billion is won, that's plus 126% year-on-year growth. So you have seen a very nice growth in the first half.

And in terms of the balance of performing loans, it has exceeded JPY 530 billion. In terms of delinquency ratio, it's 5.1%; retail is 4.3%. So it is trending at a low rate.

Biotech-related Business. As for Quark, we are now entering into this stage, it's more difficult to boast about our numbers, but we'll point out that there is greater deficit in first half. And 2 of the 3 Phase III pipeline drugs' development have been completed. So all is left is analysis and result. And we have AKI and this has entered Phase III Stage. So we will spend R&D costs on here. That will come in place in the second half. Initially we had 3 pipelines, but now we will only have 1. So the amount of money we need to spend will be much less. And if we went public, we will be able to gain substantial proceeds. If the result of Phase III is good and if we can prove that it's a drug, then I believe this will be very successful.

SBI Pharma. Pipeline is progressing steadily, and we have increased the development cost. But the development cost in Japan or migration to clinical Phase III, the cost is much less compared to the West, like the U.S., Europe and other regions. They used to carry this out in a large population. So compared to that, it's much less. SBI ALApromo, this has already been profitable. And photonamic, a German-based company, again this is growing very nicely.

SBI Biotech. There are 3 pipelines, which we have licensed out and each milestone, it makes these progresses. GNKS356, this is considered to be orphan drug development, so it's subject to subsidy by AMED. So we can do clinical studies under that program. And we are negotiating with multiple companies on licensing out. And this I have mentioned earlier, AKI in Phase III, we are now expanding our clinical trials to 115 sites, 75 in Phase III for DGF, mainly in U.S., Canada, Germany, Brazil. So it will be done very soon. And then, Biocon, at 66 institutions in U.S. and Europe, so we should be able to see good result.

So this, again, is talking about if Quark has 3 products, it satisfies the conditions for NASDAQ public listing.

SBI Pharma. So we launched IPDT for brain tumor, and for bladder cancer, PDD, we licensed out to Chugai. Peritoneal, we have licensed out [ indiscernible ] cisplatin nephropathy protection. If you take cisplatin, as a side effect, you could damage your kidneys -- I am sorry, renal. So there could be renal damage. So that is why this provides protection. You have mitochondria. We're carrying out Phase III. And we are considering licensing out ischemia-reperfusion disorder. We are working with Oxford University and Birmingham University Hospital. It has passed committees. When you carry out clinical trial -- the professor had to go back to his country. So it slowed down, but it's now moving on again.

And photonamic is working on IPDT. This is done as a treatment. Before, it was done as a diagnostics, but this is for treatment. This is used for a solid brain tumor. You drill a hole and you shed light on it, and basically, you attack the cancer cells. So you use light to attack cancer tumor. And then you have breast cancer. It's not written here. This also uses IPDT. We, photonamic and a Canadian company are working together on this.

photonamic has developed Gliolan in Europe. It's already been marketed in 40 countries. [ Neopharma ] distributes it in Japan. They, of course, use photonamic technology. And finally, we have obtained license in the United States. So we have the official document. And finally, we acquired a company in the U.S. and we established a distribution base. So Europe -- started in Europe, came to Japan and U.S. So we have been able to cover all these advanced markets. We started out with brain tumor, diagnostics drug, and we went to bladder, it went to gastric. So it is expanding like this.

SBI Neopharma. It's a joint venture we formed with Abu Dhabi company. There are 2 things that we do. One is malaria and diabetes licensed out. It also does PBT as well, which -- and also as a supplement, as a health food, it is sold as a natural ALA. ALApromo has grown by plus 41.1% in revenue. PBT will definitely grow. There are more than 1,000 foods considered as a functional claim. And ALAplus Tou Down was ranked 8th in sales in May 2018. And we are ranked in top 30 for 27 consecutive months since March 2016. More than 16,000 stores handle our product now. So I would say all the leading drugstores are selling 5 ALA products.

We also have product expansion. In the cosmetics, we have added cleansing gel and clay wash to the previous lotion and cream.

And as for the health food, 10 milligram -- ALAplus Plus Gold is 10 milligram, but we will be launching this with a larger volume. And also based on this Hawaii University scientific data, we will launch in February 2019, a drug to improve the quality of sleep. And then in middle of 2019, probably in the first half, we will launch a motion function improvement drug. And so we have scientific data ready for reducing fatigue through exercise.

So in any case, we will accelerate as a group, the robotic process automation implementation to improve our operational efficiency. We are already beginning to see a nice outcome.

So in summary, as for the summary of FY 2017 and first quarter 2018, we have always been pursuing customer-centric principal and expanding our customer base. I think that will probably be the #1 reason why we have seen this favorable performance. Another basic strategy we have implemented successfully is the pursuit of synergy among the constituent companies, establishing the Financial Services Business ecosystem. And I believe that we have been able to realize mutual evolution of the group companies. And in the world of FinTech 1.5, we will be able to proactively adopt the financial services. And then basic strategy, we will invest in venture companies. And we ourself will use those technologies. And if it's non-FinTech, we can introduce that technology with a venture company to other investors. And eventually, we can diffuse this or penetrate this. If it's a financial technology, then we can diffuse to the regional financial institutions all around the globe. So those are the processes we intend to follow.

So we will continue to strengthen our alliances with the regional financial institutions.

So now in order to promote further expansion of business performance by strengthening the business foundations, we have these different measures, while contributing to the regional revitalization through strengthening alliances with regional financial institutions, expanding the group's regional operating base. The regional revitalization project of SBI Group is now transitioning to Phase 2. I have been saying this for 1 year now. Phase 1 has almost been completed. And the contributing to the enhancement of regional financial institutions' corporate value through the utilization of the existing management resources including the products and services of SBI Group. This Phase 1 has already been -- almost been completed. And then for Phase 2, through the newly established SBI Neo Financial Services through the intermediary, the holding company, we promote the utilization of new technologies by the regional financial institutions and promote technologies and services owned by FinTech investor startups to SMEs in order to revitalize regional industries.

It's not only about regional financial institutions, but the SMEs and the regional industries themselves should be revitalized and that is important for regional rehabilitation -- revitalization. So what did we do for Phase 1 for the SBI, the securities and the regional financial institutions? We provide intermediary services. Now we count 30 banks in alliance. Now we has as many as 30 regional banks for the intermediary services. And as a result of that, many things are happening. And of course, now we have financial institutional sales department at SBI SECURITIES for the other sales activities. Now 202 client financial institutions to which we sell various financial products such as investment trusts, equity and bond.

As to structured bonds, for the period from December 2015 to June 2018, a total of JPY 39.5 billion was originated and sold.

In the past, we were selling the products produced by the foreign companies with a very high commission. It was like we were a cormorant fishing, meaning that we needed to throw up the customers once swallowed. Now we can create many good products and originate good products and sell them. As a result of that, for the first quarter fiscal year 2018 being -- one, then the equity trading increased 1.3x, investment trust 3.8x and newly issued and existing bond transactions 2.3x. And the rapidly increased, the underwriting of newly issued municipal bonds and public bonds implemented the first foreign bond transaction with institutional investors. And here is the example of SBI MONEY PLAZA. The branches with The Shimizu Bank and now we have the other Shimizu Bank, SBI MONEY PLAZA, co-managed with the Shimizu Bank and also a co-managed shop with CHIKUHO Bank, launched CHIKUHO Bank SBI MONEY PLAZA in the CHIKUGIN Plaza Kurume in June 2018. Now we can provide various financial products. And here is the example of the other co-managed shop with The Shimizu Bank. And we started in October 2017, and in June 2018, deposit assets increased 4.8x, number of accounts 2.7x and revenue 7.9x. This is an evidence that -- how successful this co-managed shop with regional banks. And we will continue to open such co-managed shops all over Japan.

And also at various divisions of -- the various regional banks and financial institutions, we provide services to the developer, their personnel and this is the example of SBI MONEY PLAZA.

The operating lease insurance products through estate's small-lot trust beneficiary rights are being provided. And here we have SBI Insurance, the risk broker is Okazaki Shinkin Bank, TAIKO BANK, AEON Bank. We have decided to sell SBI Insurance products. And in here, the group credit, we have Yamaguchi Financial Group, Hanno Shinkin Bank, Toyota Shinkin Bank. In addition, there are other banks going to start selling SBI Life Insurance Group Credit life.

SBI Ripple Asia. The remittance up for smartphones developed by the Japan Bank consortium using Money Tap. The remittance application for smartphones was developed and the pilot operation is moving very successfully. And after summer, probably in the autumn, we are going to have public launch.

And this is for the other small amount remittance among the individuals. We are going to offer an environment where users can make real-time money transfers safely. The Morningstar Japan offers the tablet app, Investment Trust INDEX to regional financial institutions as a tool to make bigger proposals for local investors. A total of 55,941 tablets have been delivered to 139 companies, including 50 regional financial institutions. Using those tablets, the method explanation can be made to the customers, fiduciary duty, strategy, the code issues will not arise as long as the sales people use those tablets to explain about their products.

In the area of Asset Management-related Business, which will be my focus going forward, it is related to our banking strategy. We are very focused and will remain very focused in this area. So that's why that we will have SBI Regional Bank Value Creation Fund, and the size of the fund will be up to JPY 100 billion. It has already started to work very nicely. And as to the investment: in-kind contribution of regional bank shares is also possible because shareholding is meaningless, and we would like to accelerate our effort here.

And so I have been saying that we are very much focused on other investment asset management. And as one of the measures is to establish SBI Regional Revitalization Asset Management, and now the total number of the participating banks counts 20 through SBI Regional Revitalization Management. And now that we can a support both for customer asset management and self-fund management as well as development of asset management personnel.

For example, this is the example of The Bank of Yokohama. Now we have very good talented people seconded from the Bank of Yokohama and they will learn good technology and then they will take it back to the Bank of Yokohama to use it in their bank.

And similar example, with the Shimizu Bank. So this is the partnership between The Shimizu Bank and BASE. It's about the platform for the online trading or transaction. The venture companies or the [indiscernible], the SME companies will be serviced with such e-commerce platform and no initial cost and the very -- be convenient. Such e-commerce platform would allow rollout all over the nation. The various shops can do that, and so this is business partnership with The Shimizu Bank. And we also provide the website to disseminate the culture of Shizuoka Prefecture, so that they can make an appeal on the products in the region. And also we provide ID payment service called PAY ID.

Moving on to Phase 2. We have covered the content of Phase 1. So what are we going to do on Phase 2 for the coming 1 year? What are we going to do through the newly established SBI Neo Financial Services promoting the utilization of new technologies by the regional financial institutions? Promote technologies and services owned by FinTech investee startups to SMEs in order to revitalize regional industries.

So in the financial field, first of all, what kind of relationship we have accumulated, established, with how many companies? Well, we have been investing in so many companies so far. Please look at these pages later on closely. So this is going to be used as a tool for the nationwide rollout and for the other regional institutions. The promoters will be our employees. I have the study group for the employees in their 20s to join because I expect these young people of SBI to study about these new technologies. And so that they can go to the other various regional banks to talk with them and for those people, who turn out to be very successful in making relationships with these regional banks, they will be promoted, for example, to a President to a certain company.

So it would be very significant promotion for young people, young employees. This is a big chance for them. Young people, employees of SBI who are interested in such new mechanism or the technology will be trained and they will write reports, they will engage in discussions and I'd like to provide the arena for them to be very active.

And here is the nonfinancial sector, the business succession support TRANBI, or M&A matching, already the regional economic revitalization through power generation project. Here, we have SBI Energy. And as to common sector, SBI Process Innovator for BPR and RPA and AntWorks' AI-RPA platform, and Gomez, the UI/UX design users experience and interface improvement related company. And for security, we have the Liquid for biometrics and SBI BITS for system development and Cacco for fraud detection and Goodpatch for UI/UX design. So we are going to change. We are going to make changes through technology.

And the -- one day one regional bank can develop itself to be national presence. And indeed, the FSA will be very reassured with that, and I'm 100% confident because I have an experience. One of the big episodes of experience is that the technology changes the world. For example, SBI SECURITIES started in 1999, now has a dominant share. That is a fact. In addition, in the year 2000, I set up SoftBank branch of SURUGA Bank and the entity achieved a positive profitability immediately and became #1 among all the SURUGA Bank's branches. And the bank and securities connected seamlessly. That is not unusual nowadays, but it was in the past, and I started it.

So we have been doing lots of things, and I am 100% confident in saying that we can change banks, technology can change financial institutions or even the regional economies can be changed via technology. I'm confident.

And the question is how to make that happen smoothly. That's why we have established FinTech platform with shareholder ratio of SBI 6%, SoftBank 20%, IBM Japan 10% and Toppan 10%. And this is to minimize regional financial institutions' introductory costs.

The example of Moven of the U.S. established in 2011 and started business in 2013 and this is the mobile optimized banking app. And we would like this app to be used for the national rollout.

Though I met the CEO of Moven the other day and he had the seminar for the Japanese banks and the presidents of the Japanese banks were there to listen to the CEO. And I was very impressed with his speech. So we are going to make SBI Moven Asia with shareholding ratio of 7:3 between SBI and Moven or the support to sell insurance products, finance their APP, it's Switzerland -- it's a Swiss company, which has Wefox, an insurance product management app to insurance brokers. Using this application, we can avoid overinsurance. So the coverage can be optimized through this data application and also what kind of coverage insurance products are needed, that can also be analyzed using this technology.

And the LendingHome's example for the whole process, from applications to approval, review and dispersal of the loan can be automated. So the housing loan can also be the other national rollout example, and here is the example of the Ping An Group. The announcement was today or yesterday? It's today. Announcement came today about this one. It is -- the 100% subsidiary of Ping An and SBI Group, now in alliance and OneConnect, which is an investee company of the SBI Group, and we are going to form a joint venture.

Ping An Group is #1 in the area of insurance and also the banking and investment. They have all kinds of financial services and it is a world-leading financial services group. And by aligning with the Ping An Group -- because much of their technology in China is more advanced than that in Japan. Especially when it comes to AI, they're very advanced. Why? Because they have tremendous amount of big data. And big data in developing something new is the key. And I'd like to acquire such [ niche ] as well and data as well.

In Japan, most of the payments are cash based. And the accumulation of big data is somewhat delayed. And China is very strong in this area. And I would like to introduce such big data approach and, of course, I am going to change -- we are going to change ourselves and the other financial institutions in this part of the country. And we'd like to operate as a Japanese entity and its color in the China as well. And that will be done with the Japanese regional financial institutions.

For SMEs, we have BASE that I mentioned earlier. They have settlement services as well as offering platforms to open EC sites. We would like to start this in earnest by using our sales force.

Now for M&A. We have a new business succession M&A team under SBI SECURITIES and they will be working on TRANBI, which is an M&A matching platform. And by utilizing this platform, they will develop a new market going forward.

As for SBI Energy, in many ways, this will be engaging in solar power generation, small-scale hydro and wind power generation. And the local communities, they will strive to generate power. And this is a case where they use farmland. I thought it's going to shut off the light. However, by having spaces between the panels, light can be shed on the farmland. So solar power generation can be utilized by using land that is available. And small-scale hydro power generation projects are in place and there's numerous projects in place.

And for Singapore, I mentioned AntWorks earlier, which is an RPA platform. I think they have great technology in the area of RPA and that's the reason why I decided to invest into them.

Japan, China, Korea, Indonesia are areas where we would like to roll this out, and we would like to work together with AntWorks in doing so.

And soon we would like to establish a JV with them or Gomez from Morningstar. Gomez has a variety of technologies available from a UI/UX point of view. They have a number of analysis tools. So we would like to leverage this so that we could create something good for financial institutions.

And also in accordance with the mobile first age, strong security solutions are required. So facial authentication apps have already been developed on our side and a very high quality one has been developed. And I believe this Korean company is great, which is a South Korean company that provides dynamic security systems. It's a company called Everspin that has developed this system, meaning their password changes all the time. Even if there were to be some irregular access, the passwords would change all the time. They used to be static security solutions, but this security solution or module is dynamic that has been developed by this company. And I believe this is great and that is why we took some action around this company.

For digital assets and establishment of new ecosystem around it, you can see that we've been seeing a defining trend, and like the rice revolt that happened in the past, we are seeing a similar pattern in currently people's awareness towards this trend has been swinging away. However, there are other people who are saying that this market can expand up to JPY 4,400 trillion in the future or $40 trillion. It's not me. But I think we can at least reach half of this amount in the next 10 years.

So when it comes to cryptocurrencies, why do people think it's not going to succeed? Because I don't think failure is an option. When you look at market cap or transaction volume and compare with FX or the equities market, I believe there is a sufficient potential for the cryptocurrency market to reach $20 trillion in the next 10 years. So Bitcoin or cryptocurrencies, I believe, will bring about a significant revolution. It's going to be breakthrough.

Of course, there are numerous inhibitors. The greatest one being regulations by the government saying this is not good, you shouldn't do that. However, now we're past that. For example, the SEC, when it comes to Bitcoin or Ethereum, they are saying that it shouldn't be treated as a security. In the case of Japan, including XRP, they're calling it coins, not securities.

Legally speaking, Japan was the most generous and that's why we moved forward and that's why maybe all those issues occurred. But thanks to these trends in many ways, in this field, Japan has the opportunity to leap forward, I believe.

Then with this as a backdrop, in this market, we are always looking at 10 years ahead and what kind of measures are we going to implement. Well, our ecosystem is close to perfection, creating a derivative market as well as we're qualified to participate in exchanges and we'd like to engage in asset management for institutional investors and offer security. And futures market, means to hedge is something we need to offer for our institutional investors or creating a derivatives market is another option. We need to have these options in place in order to ensure that institutional investors come in.

The Chicago Mercantile market already acknowledges cryptocurrencies. We're at that stage and we have already gained that experience. So information provision, we can do it through Morningstar and for token issuances, not just ICOs, tokenized asset offerings, TAO, is something we could do as well. So we issue tokens as a type of security and also providing platforms.

For example, I will introduce, platforms leader Orb and ourselves are going to have S-coin platform in place. And for mining, we have already implemented measures around this. And there are things that are to be announced, but things, chip, a new chip is something we're working on. It's going to be a breakthrough chip and also related to remittances, it doesn't say platform, but prefinanced and we have the CODA platform in place.

For Virtual currencies in Global Max, SBI Group owns these entities. Templum is from the U.S. Then we go into the secondary market for tokens. Clear Markets, it was in the Nikkei today. Investment can be at maximum, 20%. We're currently at 12% with an online swap trading system Potamus as a broker-dealer, 15%. For security, SECOM and ourselves have a partnership, CoolBitX, it's a cold wallet service. And Sepior, this is a cloud-based cryptographic key management system. And Everspin, I mentioned that earlier. And we also have Company S and B from Switzerland, which is close to be closed. We're currently working on the details. It's going to be cold wallet development related and development of wallet apps.

In the area of asset management, we have relationships with CoVenture and SBI CoVenture Asset Management, in which we have a 70% investment. We already started that up, and we also have Clear Markets with its online swap trading system. And we are intending on entering the swap trading market.

And for Morningstar, in the area of information service, we have 49.5% for token issuances and ICO. We have 4% of Templum, with its TAO platform. And for T1R, it's an ICO consultation and financing platform, we have 20% investment. SBI CapitalBase, it belongs to the group.

For the platform, we have Othera, in which we have a 20% investment, securitized receivables by blockchain is what they do. Orb is not disclosed, but they develop DLT platforms. And N2N, which is a Malaysian company, this was also covered in the press, but they're a global trading company, including cryptocurrencies.

For mining, we have SBI Crypto with -- it's a wholly owned subsidiary. We have Etix in which we have a 41% investment. There are about 7 to 8 data centers across the world and it's currently on the growth path. So data centers, I believe, is a growth area, especially this company is expected to grow. And Lancium is a Canadian company. It's a container mining facility operation by wind energy. They are a great company as well.

In the Remittance area, we have Ripple. They have a settlement platform. SBI Ripple Asia belongs to the SBI Group. And for trade finance, we have R3 that manages DLT ecosystems. So in this way, our ecosystem is pretty much close to perfect.

For SBI Virtual Currencies, we have started receiving general applications for new accounts in July 2018 or July 17. We have just communicated that we're going to start receiving applications through our website. We didn't do any promotions. But even so, we still have been able to attract a lot of customers. And going forward, we hope to run promotions.

With regards what we are waiting for, the reason why we are not that aggressive is because, for one, the self-regulating organization, we'll probably work with the FSA to come up with regulations. So we would like to go through that process and we'd like to ensure that the rules are clear before we start our business in earnest. We would like to run TV promotions too. But we believe this stage is a little bit early. So we would like to wait a while. But for the time being, we would like to offer the narrowest spreads in the industry, whether it be for FX -- we have been boasting that, that our commissions are very low, and we've always been that way.

So for BTC, that has already started, Bitcoin Cash as well as XRP. For BTC, XRP and Bitcoin Cash, when you look at our spreads compared to competition, you can see that on a -- we are the narrowest by a high margin compared to others. And we haven't even advertised this, but we do believe we can communicate this going forward. But we would like to make this claim that our spread is the narrowest going forward.

And then our competition is going to start to not be as profitable and for the companies who were considering on entering, they're probably not going to enter in the end. And maybe the FSA can skip doing the screening process even.

And within fiscal '18, we currently have exchange model, but we would like to start the cryptocurrency physical exchange services using the call option or Itayose method on top of the sales office model. We will be able to leverage our system, and we would like to thoroughly push this through. As for commissions, we could do it free of charge for the time being.

And for the Ethereum, we would like to increase the handlings as well as for deposit and withdrawal services. We would like ensure we have rigid security measures in place that handles -- that can counter anti-money laundering issues because banks are very conservative right now and they're saying that they're not going to handle cryptocurrencies. Every bank is saying that. But that's a consequence of the things that have happened in the past.

In our case, we would like to ensure that those things don't happen by taking preventative measures. And we would like to ensure that we grow the cryptocurrency market in a decent way. We're not going to go after short-term profit. We're not going to go after 85% profitability. We're not going to be a lame company that has always ran commercials in order to attract customers. We would like to continue to be customer-centric. That is the SBI style of things.

For security vulnerability, the companies I mentioned earlier is the companies with which we're going to work with, as well as for a wallet vulnerability and for general security -- all of these companies' technologies are going to be unified together. So that BITS can develop a new security solution. It will probably take about 1 year to develop the solution, but we are making progress. And then, in the end, we will probably have the strongest security measures available in the world.

In order to nurture institutional investors, a market is necessary, and whether it be cryptocurrencies or other short-term U.S. treasuries, we would like to create a fund that they can invest into. So swap exchange services is what we would like to offer through Clear Markets. And what's great about them is they're already licensed. So they already have a swap execution facility license from the U.S. Commodity Futures Trading Commission, and they already have derivative brokerages licenses in the U.K. and 32 countries in Europe and also Financial Instruments business operator engagement. Type 1 Financial Instruments business registration is what they have as well under the Financial Instruments and Exchange Act and electronic trading infrastructure provider licenses. So this is very important for us because for cryptocurrencies, it is a tool for us to go nationwide. Think about it. Whether it be Google or Amazon, they were able to globally roll out their services overnight. But for financial services, you need to be authorized by the FSA. It's a licensed industry. It's very hard to enter.

However, if it's cryptocurrency, it's a distributed type of product. It's not centralized. Therefore, you can roll out your services globally. So what we're thinking about right now is what are regulations like in Japan as well as in the world. Maybe in South Africa as well, what are regulations like there? If you buy something with bitcoin, maybe you don't have to pay VAT. So those kind of markets are emerging in Africa, in some countries. The currency of that country itself, some people think bitcoin is more reliable than their fiat currencies. In the African market, they have took measures by having these things in mind.

So you need to be global when you think about strategies around cryptocurrencies and even account for e-commerce as well. So I have this grand vision in my mind, and step-by-step, I would like to ensure that we bring our vision into realization.

So for Morningstar. It's the largest news media information. They have tied up with CoinDesk, which is the largest distributor of news and price information on cryptocurrencies. So ICOs, tokenized asset offerings.

Consultations are going to happen through SBI CapitalBase. And for S Coin platform, I'm not satisfied in this area yet, because with regards to S Coin, how are we going to connect this to value? We don't want it to be like J-Coins or M-Coins. Maybe we could track inflation or CPI with S Coins and have it linked together and use it in order to lock up customers, not just for our own convenience, but for regional banks. If they use the S Coin platform, they can issue their local coins, like Hiroshima Bank coin, Okayama Bank coin, Fukuoka Bank coin or things like that. So it's a common platform. So all you have to do is connect the things together. It's not about fighting over your turf. The settlement network can be acquired with less labor. So that's what I would like to bring to fruition. In the case of UC, they have Odaiba Coin and PoC has already started. And I believe usage will be increasing.

And this is about the mining situation on Bitcoin Cash. I didn't mention about this much before, but we are actually mining, especially Bitcoin Cash. And from 2018 January, we started mining in U.S. Virginia, and thanks to Mr. Trump, electricity is very cheap because coal plants are all gone -- were gone, but Trump reinstated it, so we have cheap power. And then we also started mining in Sweden from July. And in Iceland, we carried out a very large-scale mining at Etix. It's a big data center, which we are constructing. So we will start full-scale operation there. And then, in Texas, we have a wind farm, so we want to utilize that as well.

Furthermore, when you talk about wind farm, I think about Mongolia. SBI Energy, before them, SoftBank Energy started power generation in Mongolia. So electricity, it's hard to bring that to Japan. So I'm thinking maybe using it in Mongolia is cheap.

Ultimately, we will acquire a total mining share of 30% for Bitcoin Cash. And as for the wind farm I just mentioned earlier, in Texas, this was Lancium. And then as for distributed ledger technology, DLT, like I said before, we have Japan Bank Consortium, which we will realize. Ripple will also use DLT. And if you combine that with XRP, it will be empowered. So you have the Ripple solution here.

We also implemented SBI Remit here as well. So these are the remittance service providers. I believe that they will begin to use it before the banks. If that happens, then the banks must follow. It's a matter of time. Like Money Forward, maybe they will begin to use it.

Banco Santander began using it. R3, they are progressing and developing their ecosystem. More than 200 companies, regulators, trade associations, financial institutions are participating in this consortium, and we are the largest outside shareholder. We have also Dispatched director. So for example, let's say that the trade finance transaction requires just a few days to settle since there are over 10 task steps to be completed within -- between the 3 parties, but let's say, it's shortened to just an hour, then it will be -- make a big difference. So we will -- from 2017 November, we began offering the service on behalf of R3, and it's called, Corda Training Program. And the synergy will continue to be pursued. Once you build this ecosystem, then we will thoroughly pursue synergy. What's that? Well, is that you do mining and Bitcoin Cash when -- if you can mine it cheap, then we can offer this market at a cheap price.

We can do a narrow spread. It's possible to realize that. So all of these things will be possible. Or XRP, we have 10% stake. Ripple is our -- we have 10% stake. So again, they can realize that at a low cost as well. So we can -- we have this enormous strength, and that is why we can be the main player. We are at the background. And we have the leverage here. And everyone wants to join us.

So again, digital token distribution. Again, we can issue and distribute. And the cryptocurrency, what became clear is that it's ultimately young people that actually use cryptocurrency, people in their 20s. If you look at our ecosystem, whether it be securities, insurance or Internet banking, many are in their 20s. So it very limited 20s, most are 30s, 40s. But here, cryptocurrency is much larger, nearly 30%, so we want to do customer sharing. They can be in their teens, in fact.

And as for the virtual currencies, they will pursue synergy between and out of the group and generate profit in short term. I'm thinking by the end of this year, this company will be profitable, completely breakeven and profitable. And from next year, we'll begin to generate profits in terms of billions of yen. It's easy to say and is easier said than done. But you have SBI BITS team's assets and wisdom of the group and passion, which will help us realize that.

When we're doing margin transaction, the same thing. 2008, November 17, we began operation in Liquidity Market when the economy was in a very difficult situation. SBI SECURITIES was in difficulty, so we began operation, and we were all hoping we would be able to achieve JPY 400 million in operating profit, but now in 2008, they generated JPY 840 million in SBI Liquidity Market. SBI SECURITIES, because they implemented customers here, there was a contribution of JPY 1.83 billion operating profit from Liquidity Market. But, of course, there are some necessary conditions to generate billions of yen, like I said earlier. Certification by the Japan Virtual Currency Exchange Association, as I said, regulatory organization will be necessary. FSA must certify it. And once they do so, then we can accelerate establishment of uniform industry rules. We don't want these suspicious players to lose the entire industry credibility. And we also need to see full-scale entry of institutional investors. I talked to 4 institutional investors. They are all edgy about wanting to do this. They want to do it. They're eager to do it. If, for example, Goldman Sachs does it, then I know that there'll be one after another who will be following suit.

And if you look at the futures market, the fact that there are 2 in United States, it's very significant.

One more point, once this problem is resolved, would be really nice is the Ripple's XRP, if that is certified as a coin. So in Japan, it's a coin, but if it's a security in the United States. That's fine, they can come to Japan. But right now, only population between 20 to 70 living in Japan can engage in this transaction, but it is supposed to be global. So if it's not possible in Japan, then I think we can go global. Wherever we can, we will do it. I will put in all resources to do this. We should -- Japan should do it. Because with this, we can create a world-leading financial industry.

Number 4, acceleration of initiatives for international use of cryptocurrency: SBI Remit, Cambridge Global Payments, MoneyGram, Western Union and other remittance service providers are promoting the use of XRP for international remittances. And remittance cost and time will be reduced significantly. There is no way of not using this. If someone uses it, then that player can be at the higher advantage, so others will also want to use it.

And today, Ripple announced the xSpring initiative. It's an offering of a financial backing to companies developing services and products that utilize XRP. So this is something that we have been doing from before.

And then the SEC's approval of the cryptocurrency ETF. It was not approved this time, but it's a matter of time, I believe, because they're saying everything is not ready, not fully ready, but the important thing here is manipulation. Insider -- there's nothing about insider trading here. It's a matter or it's a problem of manipulation. Some people think it's like securities, there's insider-trading, but no, it's not about insider-tradings. It's not a security, it's not issued. This is all about manipulation. So if they manipulate coins or if they send out fake news as Mr. Trump would say, sending false information, so manipulation must be dealt with rigidly, stringently.

So by utilizing new technology, the SBI Group will continue to promote its slogan of "Focusing on Finance to Transcend Finance."

If you look at the AI market in Japan, it was approximately -- they expect to be approximately JPY 2 trillion in 2030, and they say the global market is JPY 6 trillion, but I don't think it will stay at that level. I think it's much larger than that. So between next 10 to 20 years, 47% of the U.S. work will be automated. That's the risk. That's about this article. So that's how much AI will be utilized.

As for medicine, too, big data and AI are combined more and more, so that they can carry out the accurate diagnosis. And you see announcements like this one after another. Even in the television program, I had an interview with [ Professor Kidu ] whom I invited. He has diagnosed 300,000 patients and he has a clinical data of 30,000. And he has identified what is cancer. And on a glance, he can diagnose, and there's no biopsy. And this is called diagnosis accuracy rate, which is 91% for specialist patients and AI does 89%, which is hardly different from the specialist. And as for a nonexperienced doctor, it's 76%. That's how powerful AI is today.

And if it's linked to [ superior ] big data, it brings about a great result. I've been saying this from yesterday, but this was published in [ E.K. Writers ] yesterday -- on Sunday, and I thought it was just a great data. So you can see that blockchains are expected to [ grow ]. They say they will account for 20% of the financial tech by 2021, up from 5% in 2017. So blockchain will be used in almost everywhere. In all financial institutions, it's been tested out. So I believe that we can be #1 in any area because we are carrying out tests everywhere.

But we have a securities consortium, and we have different consortiums in different sectors. So we don't want to monopolize this technology, but in terms of securities, we started out with 35. Now, we have about 50-or-so. So with this securities consortium, we can do know your client, KYC, or anti-money laundering initiatives. So I believe it's better to develop this together. And if -- I think we should go ahead and promote that to reduce cost and implement it together, so that we can improve the overall industry level and that is where I am promoting.

And in order to do that, blockchain is effective in terms of security and also in terms of recording, it remains -- it's speedy. So I believe blockchain will continue to be used.

Market size of blockchain, there's a different forecast everywhere, but it is utilized in different industries, medical, judicial, real estate, retail. And the other day, we invested 20% in OBook, and this company developed auto management system, but they also developed food tracking system. It allows you to trace where the food comes from, so that they cannot deceive other people.

So I went over time by 5 minutes, but that is all from me. If you have questions, I would love to take it. Thank you very much for your kind attention.