Good evening, ladies and gentlemen. Thank you for joining this telephone conference of ORIX Corporation for the third quarter consolidated financial results for the 9-month period ended December 31, 2017. The attendees at today's conference are; Deputy President and CFO, Mr. Kojima; Executive Officer and Head of Treasury and Accounting Headquarters, Mr. Inoue. Mr. Kojima will give you a presentation on the third quarter financial results for about 20 minutes, and we will move to a Q&A session. The whole conference will take about 1 hour. At this time, I would like to turn this call over to Mr. Kojima. Please go ahead.

So, this is Kojima, Group CFO. Thank you all very much for taking the time [ on job and ] participating in this session. Thank you very much. So without further ado, let us get started with the presentation of the third quarter consolidated results for FY 2018. Please turn to Page 2 of the handout material where it says overview of the performance. Now, the first page shows you the net income as well as ROE. Net profit for the third quarter of FY '18 was JPY 256.4 billion, which is an increase by 18% year-on-year. Annualized ROE is 13.2%, maintaining the mid-term target of above 11% and indicating a positive performance trend continuing from the second quarter. As you all know, a tax reform was conducted in the United States in December of last year. Now, as a result of this, deferred tax liability was used at the U.S. subsidiary, resulting in a positive profit impact in the third quarter. So on a after-tax profit basis, there was a positive impact by JPY 20 billion. Now, including the impact from the tax reform, the progress made in achieving the net profit target of JPY 300 billion is now at 85%. Although the probability for the overshoot for the full year result going above -- well above JPY 300 billion may have risen, considering a certain downside risk, we have made no changes to the full year net profit target. As to the forecast of the payout ratio for the full year, it remains unchanged at 27% [ and ] announced the guidance at the time of second quarter result. The next page, please. The page shows you the segment profit trend. Total segment profit is now at JPY 356.2 billion, which is an 8% increase year-on-year. So this…

[Operator Instructions] Mr. Muraki from the Deutsche Bank is the first question.

Muraki is my name, from Deutsche Securities. I know that you are entertaining one question at a time. So with regard to the changes to the corporate income tax in the United States, JPY 20 billion of a positive impact was made. From the next quarter onwards, [ will ] there be any changes made to the investment policy due to the change, or the tax reform? It is not just because of this corporate income tax, but also REIT and the -- such as renewable energy investments, there could be some preferred treatment that will be made. If you can foresee any changes that will be made to your investment policy due to the changes happening in the United States, please?

So, first of all, in the United States, the impact from the tax reform, if I could explain in a little more detail. First of all, so the deferred tax asset, no, rather, deferred tax liability, the usage of the liability. In fact, this is just a one-time event and this amounts to JPY 17.5 billion of the usage of deferred tax liability and this is at ORIX USA, or you see the subsidiaries in United States as well as Robeco, the company that operates under Robeco, the asset manager in the United States. So this deferred tax liability was reserved at these entities. And also at Ormat, there is this deferred tax liability as well sitting at. So this could not be posted in the third quarter, but in the fourth quarter about JPY 3.4 billion in amount. The deferred tax liability will be made use of as a result of this tax reform in the fourth quarter as well. Other than that -- so during this term, as to the [ P&L ], in the fourth quarter, or from fourth quarter onwards, from January 1, in other words, a new tax rate is applied for, which in fact results in the decline in the tax payments on our part, which would be a positive contributing factor to our profit. And this is, of course, is likely to continue or will be continuing. So from the business performance perspective, these are the impacts that would be given to us. But from here down the road, any other implications from the tax reform, especially in light of our operations, if there were to be any changes made, overall, we can foresee positive impact that would be given to our U.S. businesses, U.S. operations. But there are some negative aspect to this, though, such as -- so the deal that makes use of the tax effect. So the tax deal may perhaps have experienced some deterioration in its attractiveness, or the appeal, especially in the renewal energy deal, they tend to have this tax effect usage at the time of the deal. So we may have to review the future possible deals to do with renewable energy. But overall, I would say -- I would conclude that there is a positive impact coming from this tax reform.

And the second question does not directly relate to the announcement. Housing loans -- real estate loans I believe is your centerpiece, but apartments, condominiums, a specific level of utilization and occupancy, where do you foresee this? Are there any imminent changes in the ratio?

For our bank portfolio, apartment loans are quite minimum, approximately balance-wise, JPY 100 billion, give or take. So for studio-type apartments for investment purposes and loans for individual consumers, approximately JPY 1 trillion is the balance at the moment. Now, in terms of occupancy, it will depend on the real estate location; some are in Tokyo, some are in the Kanagawa Prefecture, but they are limited to specific areas. So at this point in time, we do not foresee a decline in the ratio, and at the same time, default rates as well. Again, based on past history, extremely low at the moment. So at this point in time, we do not foresee any negative challenges in this regard. However, we will obviously monitor carefully the situation, and this is done by the banking arm and at the members that manage our risks as well, they are focusing on this.

The next question is from Mr. Watanabe from Daiwa Securities.

I have 2 questions. First of all, in the fourth quarter, is there any possibility of an impairment in the fourth quarter, because you have been proceeding with the profit generation, so Sheraton Grande and ARRK, there are some announced divestment. And also at the same time, in the fiscal year '18, I'm sure you'll be generating quite a bit of profit. So there were some operation that had some impairment in the past. Would there be any in this year, if you could be so kind enough to share us, any possibility of impairment?

So you see, it is not the matter of choice for us in impairing any of our asset. In our case, it will be KPMG AZSA, our auditing firm's instruction or they would have to approve of the impairment, should we wish to impair some of our assets. So it is not out of our intent. So from that perspective, we cannot -- I think we are almost over and done with all the impairments that was necessary, so we could not foresee any major assets being impaired sometime in the immediate future. However, of course, at this point in time, a very difficult juncture. We would very much like to lighten our balance sheet if at all possible and this is our hopeful wishes, but -- although I do not foresee any kind of major impairment taking place. Does that answer to your question?

Second question, guidance for next term. For 2018, your profit plan and in light of the Tanshin, I think you've quoted 4% to 8% growth in the mid-term plan. So to the extent that you can disclose, can you share some of your approaches?

So for the next fiscal year performance; profit, sales, revenue, I believe the question implies that will you be generating sales profit at the current moment. If when you look at the past 3 years track record and when you look at how we have disclosed or how we have disclosed, I believe that we will follow suit. So interim dividend payouts will be perhaps announced and sales profit in that regard we are not considering.

Next is from Nomura Securities, Mr. Otsuka.

I have 2 questions. The first question, on Page 5, the document which was explained by Mr. Kojima, JPY 35.1 billion of an increase in the pretax level. Any takeaway by the management of this amount? So due to the profit/loss -- of the gain or loss from the sales of asset, inclusive of real estate, if you could maintain that JPY 35.1 billion, I think this trend can be continued, which means that this will be 10% of an increase at the pretax level, which means that 4% to 8% of an increase, in fact, seems to be quite conservative, because 10% exceeds that level. So are these factors in fact included in your expectations and also is this sustainable?

So this JPY 35.1 billion that you have mentioned, so the gain on sales, in fact, is excluded as a matter of fact in this JPY 35.1 billion. So there are no kind of extraordinary factors that are accounted for. So this JPY 35.1 billion what is included, if I may dare to say so, in fact, you see we have this decline in the loan installment business. But each of the segments may have some fluctuations, ups, and downs. But we feel -- we do not feel [ foreign ] from the guidance that we have so far foresee being achieved at the end of the fiscal period. I don't know whether this answers your question.

But if you could be so kind enough to go into little more details; out of the JPY 35.1 billion, Hartford Life Insurance, in fact, does contribute to this JPY 35.1 billion, how much is that?

JPY 2 billion.

So out of JPY 35.1 billion, JPY 2 billion comes former Hartford for the 9 months, year-to-date?

Yes.

Which means -- so the existing business, on the right-hand side, the increase in the asset, the services, and the product sales, which do not contribute to the asset, in fact, had contributed greatly to the pretax increase?

Yes.

So the second question. This is a very basic question. If you have the numbers, I would like to know the tax ratio. For next fiscal year onwards, the U.S. will drop their rates, so for you, it's approximately 30% is the consolidated, I believe, number that has been quoted. So for next year, what will be the forecast for tax ratio?

Hold on, please. Unfortunately, we do not have the documents in front of us. At this point in time, we cannot answer specifically. So what shall we do? If we can confirm by the end of this call, we will. So 30% or perhaps a little north of 30% is at the forecast or perhaps 30% a very rough number if you will.

Next is from Tsujino san from JPMorgan.

The first question. So you have made use of deferred tax liability, DTL, and which is [ above ] JPY 200 billion and you had talked about some impairment, although there is no expectation of the impairment of the asset, but there is a possibility of exceeding JPY 300 billion for the profit generation. 27%, in fact, is the payout ratio that you're foreseeing achieving. But by making use of further DTL and even if there was to be an additional profit, in calculating the payout, I don't think this was included in the first place. So [indiscernible] for the usage of DTL, If you were to stick to 27% of payout ratio this time around, then, of course, you would be pushing up the payout ratio in the next year. But I think you have made a mention of the payout ratio remaining at 27% in the next fiscal period as well, which means that the dividend may not grow in the next year, or you may imply as such. So from the next year onward, are you going to be fixing this payout ratio, in other words, for the time being, is the first question. And even if you were to achieve JPY 300 billion of profit or exceeding JPY 300 billion, would you still be sticking at 27% of a payout ratio? This is going to be my question.

Now as to this -- as of now, we have not concluded the discussion of the topic that you have just asked the question for. So, therefore, I will not be able to give you the final answer from our company. But as of now, we would like to keep this 27% of POR and that's how we are going to be calculating the dividend from. But on the other hand, talking about DTL, you may say that this is a non-cash calculation, which is true and this has been one of the comment that was made at the time of our discussion -- internal discussion. So we may perhaps be excluding this and calculating the 27% this time. And talking about the next fiscal period, we are setting the target at 27% for POR still, but it doesn't mean to say that we are persistent on this figure of 27%, or it means that we do not deny the possibility of making changes to this payout ratio. But for the time being, we would like to keep the POR at 27% for the coming 2 years. So that was the message that was conveyed. So does that answer to your question?

I do you have a second question. Now, this is in your investment securities sell-off. I believe that the gains are on the rise and they are under the umbrella of corporate finance. Now, for -- unrealized profits are declining, JPY 8.2 billion in December, investment mark-to-market was approximately [ JPY 69 billion ], I believe it was at JPY 8.6 billion. And so, obviously, if I look at the attachment of this -- I'm looking at Page 18, I believe that you will not be enjoying this upward trend. But you do have some leeway for this term. However. If I were to read between the lines, perhaps you can -- you could have perhaps hedged to an extent. So I was wondering what the backdrop to this was, and if you push it too far, at this point in time, what will you do next? So if you could comment on this point.

So this does not relate back to tax ratio, but for next fiscal term, we have to use U.S. GAAP for the mark-to-market. And so, depending on the fluctuation of the stock price, the P&L will be impacted. So what corporate finance, based on the equity method, they have been very conventional cross-hold or cross-held equities. So they were no longer transactionable in a sense. So we request can we not sell off, and ever since the beginning of this fiscal year, this has been a standing policy. So it is not because we wanted to acquire or attain profit, that is not why we did this. And it is not because of specific accounting purposes that we did this. So whether it would be operational investments, this is where the focus is for our investments. So we do not want to have, or we do not have the corporate finance services manage this. I do hope that this answers your question.

So for January 1, 2018, onwards, so for you, you close your books in March and so this is how you have slated this?

So the fluctuation we wanted to mitigate and that is why we took this measure.

So from Mizuho Securities, we have Mizuho Securities, Sato-san.

I have 2 questions. The first, I'm referring to Page 5 of your presentation material, and recently, you have been showing us this breakdown of the waterfall chart, the changes and the capital gain versus the pretax profits. If you were to compare the sets of the 2, I think we have a pretty good graph of the 2. Rather than [ Y-o-Y ] changes, the quarter-on-quarter changes, if you were to refer to that over the past 3 months, if you were to exclude the capital gain at the pretax level, I think it is on a slight decline as compared to the second quarter, I suppose. This is my impression. Is there any specific backdrop to this?

Just a second, please. So for the existing businesses, the positive that comes from existing businesses, in the first quarter, JPY 13.2 billion; [ JPY 25.9 billion ] in the second quarter and JPY 26.4 billion in the third quarter. So from my perspective, the third quarter may have not grown very much, but we don't have a recognition that it has declined either.

Okay, understood. It is going much into the detail, so I may follow up later on. And I have one more question and that is to do with your Real Estate businesses and that is to do with the disposition in the third quarter. I think the disposition was about JPY 200 billion or so -- JPY 20 billion, sorry. And you have only generated JPY 700 million or so of gain on sales, which means that you may have disposed of your real estate assets at almost at the book value. So what kind of -- sorry -- if you could be so kind enough to explain the background to this?

Well, mostly, this is an asset in the regional cities, we have sold in a bulk the retail properties and there are some assets that we have gained some profit. Whereas, there was some realized loss, on the other hand, as well. So it was not the kind of an asset that we could enjoy a large amount of capital gain from -- the proceed from. So it was pluses and minuses, so it was a rather illiquid asset in the third quarter and that this was subject to disposition.

Which means, so rather than pursuing capital gain or the positive proceeds from the disposition of the real estate asset, do you still have those assets remaining in your portfolio?

We have not gotten rid of all the assets, but I think we are almost over and done with, this is my understanding. In other words, there is no other major asset that may give a significant impact to the overall performance, such as roadside stores, for example, outlets -- retail outlets, for example, the cluster for example, if you could interpret it that way. Otsuka san raised a question, the tax rate question for this fiscal term, 31.5% -- 31.5%. It will depend on the profit in the U.S. business, but it will not drop dramatically, perhaps a decrease of 1%. So that is the forecast that we have at the moment.

From Macquarie Capital Securities, Moriyama-san.

I do have one question, this relates to the Real Estate question that was just raised. The segment profit for October-December approximately JPY 100 million -- I'm sorry, JPY 8.1 billion -- JPY 8.1 billion. But in preparation for the end of the term, perhaps you're undergoing a manage-down, so to speak, policy. In other words, you are not persistent on generating profit. So you're putting it on the back burner, so to speak. So is that the intent, is that the sentiment?

For real estate sales, it is a more or less manageable and we do believe that by the end of this fiscal year, our performance will supersede our expectations, and so we do not have to force ourselves to sell off real estate.

So for you, it is quite easy because the market is quite abundant at the moment, there is strong demand and so it is easier for you to enjoy gains?

I do not believe that the market sentiment will change drastically in the upcoming few months.

Next question comes from [indiscernible] from JPMorgan Asset Management.

First question is in regards to your plans for asset growth. I believe you have grown your Overseas assets by quite a bit, [ 12% ] year-over-year and you also made a comment earlier that you also would like to lighten up on your assets. So in light of these comments and -- what is your expectation in terms of asset growth for Overseas and also which areas of the business will you focus on in the growth?

So with regard to the growth of the asset, roughly speaking, JPY 500 billion or so kind of increase every year is our plan. And as a matter of fact, the new investment has been in the range of JPY 600 billion to JPY 700 billion, which means -- it doesn't mean to say that we are trying our utmost in order to lighten our asset. But thinking about the current environment, rather, in the Overseas, the increase in the asset -- in the overseas locations, there could perhaps be double-digit growth in the next 2 to 3 years, I think in the Overseas location. And having said that, talking about the geographical locations, United State is one candidate and China is another in terms of the growth of the asset that we foresee. And looking at the trend for the past 1 year, the leasing company in Asia once again, we can expect for a 10% or so of growth in the asset as well. In terms of the sector -- the business sector, asset management business, inclusive of M&A investment globally, environment and energy investment are the areas where we think that we will be focusing very much on. And in China, I would say not the 100% wholly-owned investment, but the growing segments, such as FinTech in China, minority investment is -- could be a possibility as well. So this is our idea as to the possible investment. So does that answers to your question?

This will be the last question in the interest of time, from Citigroup Securities, Niwa-san, please.

I would like to ask about new investments and it does overlap with some of your responses. But for Q3, the JPY 600 billion new investments that you made versus the full year forecast, how are you progressing, and if you can perhaps quantify this number for us? Second question, for the year ending March 2019, you want to move forward in new initiatives and you did mention that you have an abundant investment portfolio for new businesses. So is it as described on Page 13, or are there any other new businesses that you are eyeing? So if you could give us some certain guidance.

So, the JPY 600 billion new business investments that we have highlighted, this is more or less the level that we had anticipated. Slightly, perhaps, lower was the equity investment in the U.S. We are on par with the expected plan. 1 or 2 deals can be executed for the full year, but here domestically only 1, the Primagest was the only project that we underwent. And the variation is the high EBITDA, multiple 10, or more. So this is where we stand. Now, for environmental, infrastructure, financial services, as well as fixed income, aircraft; are again, pretty much in line with what we had anticipated at the beginning of the year. Now, for the overall assets, approximately we are less by JPY 200 billion. This again is reflected on the fact that leasing here domestically was not growing, the loaning was not growing as we expected, but 90% I think we have fulfilled in terms of our anticipated new business investments. Now for future guidance, you asked. As listed here, environment, infrastructure, financial services will be our focus. But needless to say, this will not be a driver for high growth. So this does mean that we will need some type of new business investments to uplift this. So inclusive of detailed deals, we are in the midst of discussions and negotiations. Does that answer suffice?

It's time for us to conclude this information meeting. So, Mr. Kojima, if you would like to give us the concluding remarks. Thank you very much.

So I'd like to thank all the participants to have taken the time and [ traveled ] in participating in this teleconference session. I would like to seek for your continued support and -- because we will be working hard at achieving our initial guidance. And as to the growth going forward, it will not be just on the extension of where we are. This is our attitude and approach. So I would like to -- as I say, continue to seek for your support in that regard. Thank you very much.

Thank you. That concludes today's conference. Thank you for your participation, and you may now disconnect.