Now we would like to begin the conference. Thank you very much for coming to ORIX Corporation's Second Quarter Consolidated Financial Results for 6-Month Period ended September 30, 2018. I'd like to introduce myself. My name is Haru from Corporate Planning, ORIX. I'd like to serve as the emcee. I'd like to explain the handout material. There are 5 items included in your handout. There's a financial report, supplementary report, [ attachment ] report, press release and a questionnaire. There will be a presentation from our Director Representative Executive Officer, President and CEO, Makoto Inoue, to be followed by Q&A. And we are scheduling to end this conference at 4:00. Now Mr. Inoue will begin.

Good afternoon, ladies and gentlemen. My name is Inoue. Thank you all very much for your participation despite of your busy schedule. I thank you all. So I would like to give my executive summary on the business performance for ORIX. For the first half, the net profit as compared to the prior year of JPY 166 billion, unfortunately, it had declined by 6.6% at JPY 155 billion with ROE at 11.3%. On a full year basis, the net profit, if we were to assume the growth to be at 4%, then the progress that was made at the time of the first half is 47.6%. In the first half, as to the private equity investment, there were no major capital gain and coupled with the fact that unfortunately IL&FS, which we have invested back in 1993 in India, unfortunately had failed. On an accumulated basis in the first half, we had to post JPY 11.5 billion worth of loss and thereby Investment and Operation segment as compared to the prior year, the profit declined by JPY 14.1 billion, 36% of decline. And Overseas Business, unfortunately, had declined by JPY 13.7 billion. So these are the attributing reasons for this decline in the profit. Apart from these segments, the other segments in fact has been trending according -- in line with our schedule, but there has -- due to some timing issues, we have arrived at the figure which I have shared with you right at the outset. We hope to have these being amended in the second half of this year. As to the segment assets, NXT Capital, which we have acquired with Overseas Business segment, as compared to the end of the prior year, JPY 520 billion worth of assets had been increased. In the second half, Avolon…

So let us entertain your questions. If you have any questions at all, please do not hesitate to ask us. So if you have any questions, please raise your hand. We have one of our staff members bringing the microphone over to you. So maybe the first person at the front row?

I am from Daiwa Securities, my name is Watanabe. I have 2 questions. First of all, and this is with regard to capital policy, it is not a shares repurchase, but you have emphasized the payout of the dividend. Why is that? And if we were to assume 4% of growth, so ROE of above 11% in 2019, I suppose there is a second capital adjustment being needed. So why have you -- would you be focusing very much on the payout as opposed to the shares repurchase is the second question -- or the first question. And the second question is with regard to your market forecast. If you were to look ahead in the next 2 to 3 years, what kind of asset class do you foresee as the biggest prospect of growth coming from? So if you could be so kind enough to share your personal market view.

As to the capital policy, first of all, at the time of Avolon investment, it -- there was no -- there was to be no goodwill amortization. So there is no kind of major concern in terms of the conversation that we had with credit rating. But unfortunately, the negative watch was given to us despite of our anticipation. So each of the analysts from different analysts, because there was a negative watch that was accorded to us from the credit rating company, you -- many of -- some of the analysts, in fact, giving us the comment that we cannot proceed with the investment of Avolon. So we were all driven to a corner somewhat at that time. But whether we should maintain A- rating, or in order for us to maintain A rating, we have to perhaps bring up the RAC rate to above 10% and 7%, for A 10%, for BBB 7%. So -- but we have decided to forget about this, but rather if we can maintain 4% of our growth according to our simulation, 11.6% or 11.9% or whatever the figure may be, but that was okay. But if we were to be above 11%, so if it goes to the level of 12%, of course, we have to take it back and reconsider. However, we will not know how things would unfold from here down the road. So therefore, as to the asset that we have, there could perhaps be a possibility of us proceeding with a divestment as well. I would not be able to go into much of the details of this, but we may be able to manage the cash that will be -- the proceed that will be generated. And maybe from December to March in the second half of…

My name is Muraki from Deutsche Securities. I have 2 questions. The first question is about overseas business. Other than IL&FS, the impairment in overseas entities were incurred in several occasions. So with IL&FS, with this, have you already completed all of these concerns? Or do you still have remaining concern or entity at the moment? That's my first question. The second question is about the Real Estate business. For Daikyo, in the past, you have taken off your equity and you said that you may sell Daikyo, that was the stance that you had before. Going forward, for ORIX Real Estate and Daikyo, as you integrate into 1 entity, do you no longer have an option of selling off, divesting Daikyo part? In the case of Daikyo, Daikyo is the seller at this moment. And at the moment, you said that you cannot implement a major M&A. But as an ORIX Group for real estate in Japan and overseas, buying another company in real estate, what is the prospect of acquiring another company in real estate market?

For Overseas, before IL&FS, we had a [ troubled ] MedGulf. There were some failures, and we have already recorded impairments for all of these. Therefore, our stance towards overseas M&A has become more cautious. So we are rebuilding our structure. So other than IL&FS, we don't have any more entities that might fail going forward. But I can't say 100%. My biggest concern is in Southeast Asia, we have a leasing company network. And since 40 years ago, we have started building this network. And as the leasing companies, we still keep the network. Unfortunately, there is a very intense competition and net spread of 3%, 4%, 5% has been shrinking to 3% to 2% and at 2% level today. Therefore, the question is whether it is worth keeping the leasing company network or should we conduct a scrap-and-build and restructure this network. Otherwise, we might face another IL&FS issue. Therefore, we have to keep monitoring and restructure wherever we can and switch the asset. However, so far, we don't have any concrete entity other than IL&FS. For Daikyo, what is making money in Daikyo is the condominium management. For development business, they have almost no profit. And earnings achievement, well, they only earn earnings in the first quarter only. In savings and cash, they have more than JPY 50 billion. They don't have any borrowings at the moment. However, they have difficulty in taking aggressive stance. So a lot of people there are in the lukewarm water. And there are several capable people in Anabuki as well. They have capability at Anabuki and they have the management capability, property management capability, at Daikyo. And they have a huge asset of the condominiums they have built in the past. How can we utilize those? For example, there are 40…

So if there was to be any kind of additional piece that is needed, do you think that you would be -- try to fill the gap by acquiring some other real estate company?

No is the answer because the price is way too high. So I really hope the real estate market would experience a crash. But for the time being, we would just stick with what we have. And if there was to be a crash of the real estate market, I would now be able to, of course, acquire S class, but maybe A class, B class. We want to prepare ourselves for that opportunity. That would be the answer to your question.

So let us entertain the next question? Any questions? So the person in the middle.

I am from SNBC Nikko Securities. My name is Nakamura, and again, I have 2 questions with regard to capital policy. You talked about the payout ratio being increased. So how -- if you could be so kind and we ask the question about the logic, how you pushed up this payout ratio. But at the time of interim result, why did you make an announcement at this point in time inclusive of what went on behind the scene, especially at the board level, if you could be so kind enough to share with us. And also, to set a minimum amount of payment of the dividend, if there was to be any kind of discussion in that regard, please share with us. And the second point is with regard to the share repurchasing program as compared to the value of the equity, I think you were considering to carry out the -- so to push up the payout ratio. But may I take it that you will remain to be flexible in the execution of the repurchase program?

As to the timing of the payout, it is more about my timing, my personal timing, and it is not the -- more of a company's reason because I really felt the need to push up the payout ratio above 30% over the past 1 month or so. The reason that I wanted this to be more than 30% is because of decline of the profit from one thousand six -- sorry, JPY 166 billion to JPY 150 also billion. So this is why we had to experience this decline in the profit, which we hadn't experienced very much in the past, and I thought there will be a crash of equity price. And to prevent this or in order to stop that, what will be the best way? I started to kind of give -- ponder upon the various different ways and there are various different companies that, in fact, are offering 30% -- or above 30% payout ratio. And at the time of the information session to the retail investors, they often tell us that why can't we not push it up to the level of 30%. And I started to feel that this might perhaps be the answer. So the reaction from the board members, 30% in fact was not one of the major topic because in the actual fact it is above 30%. But I was told, Mr. Inoue, as with regard to the repurchase program, don't ever come out with an easy decision as to execution of the repurchase program. One shareholder, in fact, told me that just to keep the level of the equity price, carrying out the repurchase program is nonsensical, he said. So this is why out of the 6 board members, they were all negative, the 6 members out of the…

My name is Tsujino from Mitsubishi UFJ Morgan Securities. I have 2 questions. First, Avolon. In the past 1 year, the assets increased significantly regarding Avolon. So regarding the group, you had to decrease the leverage of the whole entire group. Regarding that point, what is your view as a company? How are you going to be involved? Earlier, you said that you are dispatching a director or directors and you have a veto right for resolutions. What is the future course? Could you share us more details as much as you could, that's my first point. And the second point is about NXT. The AUM of this business is very big. And for this company or business as well as an asset, there was an increase of asset or BS, balance sheet, itself. So going forward, for NXT, in what manner are you going to increase their profits and earnings without increasing the balance sheet of assets too much? Is it possible to increase -- keep increasing AUM without increasing the balance sheet?

You said the increase of assets and you mentioned that -- rather than that, we are not paying attention to that. The leverage is 2x now, 2.2x leverage now. We don't have any intention whether to increase or -- well, maybe decrease, but we don't necessarily have to decrease. What we are trying to do is to achieve 3% ROA and 11% ROE. These are the benchmarks. So we are thinking about what we have to do in order to achieve those. Well, it happens to be this way that assets are increasing as of today. But it is just like this as of today. But that's not our intention going forward. Of course, if there are good assets, we will increase. And at this time, there was an increase in assets because in life insurance business, we are holding a lot of cash because in the past we sold off a lot of assets. And cash that will be removed from the balance sheet and then reinvested. That's why you think that this is increasing, but it is because of that. As for NXT, out of JPY 600 billion, more than half has been sold to investors. But JPY 200 billion asset is something they will still have. But at the time we acquired this company, we put together the 3% provision -- put aside 3% provision so that we can still keep safety margin even of something like GFC happens again. And we do not intend to increase the asset anymore. We are part of the syndication, so when there are syndicated assets, 90% or 95% of the syndicated loans will be sold off to the investors. This is the premise. It is not our intention to increase our assets in this company.

Sorry, regarding the first point, the Avolon's leverage will be reduced. How -- what will be your involvement in that?

For Avolon, 30% equity method investment is something we made and we cannot make a leverage. But because of that, for this 30% portion, going forward, it depends on the Hainan Group. As you know, Hainan Group has various different issues. Therefore, there is a possibility that the Hainan Group may sell off their stake to a third-party. But at that time, we have a veto. Therefore, it's possible that we might take a majority stake in lieu of Hainan, but it depends on the future situation. Having said that, with Avolon, because of the acquisition with Hainan in the shareholders agreement between Hainan and ORIX, we have secured various different rights. And we have some coordination with Avolon as well, and Avolon wants to utilize our strength in the secondary market. And Avolon's asset will be left up to ORIX so that they can sell their assets and we can secure commissions. And by having ORIX as a player in the specter, there's already a tightening of corporate bonds. So by 50 basis, 70 basis, they are getting a benefit. Because of the ORIX presence, Avolon's credit ratings may go up and then there will be more benefit. And also, Avolon can give their assets to ORIX so that we can sell them to Japanese investors and we can earn some commissions. So there are a lot of synergy opportunities, but when it comes to 30% equity stake, there is no liquidity at all. There is no chance for us to use a leverage for this portion.

Understood. Sorry for asking many times, but I'm finally beginning to understand. So Avolon will give the assets to ORIX to sell to investors? As you do that, what will be the expected speed and what is the expected revenue that you are going to get? Do you have any more details?

To be honest with you, we are still in discussion with Avolon and the acquisition has not been completed yet. Probably the completion will be next week. And after that, on the 13th, I will go to Dublin to attend the very first board meeting. I am -- not as a board member, but regarding the strategy, I will have various discussions there. To be honest with you, we haven't put in the money. Therefore, even if we have this kind of discussion, they wouldn't listen to us 100%. So it might take some more time. Please understand.

So any other questions?

I am Sato from Mizuho Securities. I have 2 questions. The first and I would like to ask questions about Avolon as well. So you talked about it is dependent on Hainan Group. You may perhaps acquire the rest, in other words, becoming a majority holder of the stake. But there are some other buyers it is rumored. So there are various different assumptions. Just as mentioned by Mr. Inoue, you do have an appetite should there be an opportunity. So say if you were to acquire the rest of 70%, it will be 50 billion -- JPY 500 billion. Do you have the financial capabilities? Or are you quite comfortable with this relations with Avolon with 30% of stake holding the company on an equity-method basis is the first question. And the second with regard to the domestic solar power business. So FIT, it is true that the business had already peaked out. So therefore, you may perhaps -- the portfolio, in fact, is designed just for retention purposes. So what kind of -- what would be the changes that will be brought about under what conditions?

So with regard to Avolon, to begin with, you see we started out the discussion in holding the stake to a majority and that will be quite interesting and attractive. So we will be able to come up with a consortium we thought, and that was the first suggestion. So if we can have a majority, then if we were to have syndication, our investment will be JPY 200 billion. So it would be done on a consortium basis. But then after the discussion, it was brought down to 30%. But as Hainan Group, they are under pressure to make a further divestment and that they are, in fact, considering to -- and they did make an offer for the Hainan container leasing business as well, but we declined it. So as Hainan Group, in China, at the asset management committee meeting, the aircraft leasing businesses, other than that, they have decided to dispose of the businesses and the China development bank is going to be right behind it, standing full support to the company. Well, while we think that they may perhaps keep the Avolon because that was a decision that they had made, but we don't want them to be selling the rest of the stake to someone that we don't particularly kind of form a partnership with, and we would not be able to pay the rest of the JPY 500 billion. But we will be able to come up with a syndicate and create a consortium. And we had -- because we were already in discussion because we were making an investment to 51% initially, that was the proposal. But if we don't have the financing capabilities, then we may decide to just let go of the opportunity. It has a value, so therefore, from a third-party's perspective, our equity, the 30%, could be quite an interesting stake to acquire from other investors' perspectives so...

So how about the solar power?

As to the solar power business, the operations and maintenance, we are trying to internalize our effort as much as possible. If we were -- whether we divest it or not divest it in the next 20 years or so, the capacity of electricity, in fact, is going to deteriorate. So if we were to leave it as it is in the next 20 years or so with 1,000 megawatt, JPY 25 billion worth of deterioration may perhaps take place, which means that we have to maintain it. So the technology would have to be dedicated, so that we have -- we can protect the facility to deteriorate any further than where it is right now. So which means, I may have said this before, but we have an intent in not wanting to maintain it for the rest of our life, but rather we have, of course, an intent in wanting to divest it and you may perhaps have a question what would we do with the proceeds, of course, we are of course considering what can be done with the proceed that we may be able to generate.

So I think it's time, but I think this is going to be the last question that we can perhaps entertain.

I'm Sasaki from Merrill Lynch Japan. I have 1 question. For the Kansai airport, unfortunately, there was a typhoon and trouble. So what is your understanding of the event? And for the near future, is there any concession business impact? And the IR in Osaka, because of the Kansai Airport issue, is it possible that this issue may impact the IR in the future?

For the Kansai Airport, with VINCI Group, we have a joint operation for the last 2.5 years -- for more than 2 years, and very good high profitability was enjoyed so far. And towards the mass media, we didn't necessarily do a good job. Because of that, there was a certain bashing. That's the situation. The problem is as follows: for BCP, for the B2B business, ORIX does have an experience. But with the BCP for B2C business was not something that we were very good at. 3,000 people plus 4,000 people were involved, and at the beginning, the employees who were not needed should just stand by at home. So B2B BCP, this is just acceptable. But for B2C, that is different. All of the employees have to go to the Kansai Airport to help the customers, but we didn't do that. Because of that, the 7,000 employees that we have were not necessarily utilized so well to help the customers. And also, the electricity was all in the underground floor. We couldn't secure all the water and electricity and there was a blackout and announcement did not work so well. So all of the lessons we learned and we are involving the national government today in the improvement plan committee to talk about the bank protection plan and how to utilize the electricity, which is still kept underground at the moment. Within this month or by the middle of November, we should be able to announce specific plans and in discussion -- we are in discussion with the national government. The national government may or may not secure the budget for that. But problem with the Kansai Airport this time, what was unexpected was the tanker crashing into the bridge, which blocked the traffic. That was something we…

Thank you very much for all your questions. We'd like to conclude the Q&A for now. And also, I would like to ask a great favor. Please read out the questionnaire before you make an exit from this room. Thank you all for much for this -- in your participation for this information meeting. Thank you so much.