ORIX Corporation (IX) Q2 2021 Earnings Report, Transcript and Summary

Good evening, ladies and gentlemen. Thank you for joining this today's conference of ORIX Corporation for Second Quarter Consolidated Financial Results for the 6-month period ended September 30, 2020. The attendees of today's conference are members of the Board of Directors, Executive Director, President and Chief Executive Officer, Mr. Inoue; Member of the Board of Directors, Senior Managing Executive Director, Responsible Treasury and Accounting Headquarters, CEO; Mr. Taniguchi; and Executive Officer, Head of Treasury and accounting headquarters, Mr. Yano. Materials to be used at today's meeting has been uploaded on the website at around 4:00 p.m. today. Please refer to those materials. Before we begin, we have some requests. [Operator Instructions]. The first half of the meeting will be presented by Mr. Yano, second half by Mr. Inoue, followed by a Q&A session. We have approximately one hour for this whole meeting. Now we would like to begin the meeting. At this time, I'd like to turn the call over to Mr. Yano. Please begin.

So this is Yano. Thank you very much for the introduction. And I'd like to thank all of the participants to the financial results of briefing meeting today, despite of your busy schedule. Now I'd like to explain our financial results for the second quarter of the financial year ending March 2021. Please refer to Page 2 of the financial results briefing materials on hand. Net income for the first half of the fiscal year ended March 31, 2021, was down by 41% year-on-year to ¥93.8 billion, and the annualized ROE was 6.3%. But with the impact of COVID-19 remaining, we revised on our strength of diversified business portfolio to secure solid profits for the group as a whole. As compared to first quarter, the net profit went down by ¥6.2 billion or 12% as a result of a revision of the estimated tax rate. Net income before tax, which are not affected by tax rates, were almost flat, with first quarter at ¥7.6 billion and second quarter at ¥66.5 billion. We booked profits and losses of some companies such as concession business on a monthly respect. Therefore, in terms of the actual business condition, we believe that we are out of the bottom. So let's move on to the next page, breakdown of segment profit. The income for the segment totaled ¥149.5 billion. We explained basic profit and gain on sales separately here. The dark blue color, base profit was down by 33% year-on-year to ¥112.8 billion. The main reason for the decline in profit by ¥54.6 billion was the impact of COVID-19 outbreak. The breakdown explained on the next page. The pale blue colored, gain on sales, was down by 50%, from ¥74.1 billion in the same period of last year to ¥36.8 billion. In the previous fiscal year, there were gain on sales of ORIX saving and the Houlihan Lokey in the United States. We were able to realize a certain amount of gain this year as well by selling assets, like logistics facilities and others. Please refer to the next page. So the page shows the impact of COVID-19 to the financial earnings in the second quarter. As compared to the first quarter, the profit in total decreased by ¥3 billion to approximately ¥27 billion. The impact amount for aircraft leasing business was down in the first quarter, but the impact to the real estate operation business, the car rental business and ORIX U.S.A. is certainly becoming less. Concession had 3 months lag in booking, as mentioned before. And also, as a result of financial market recovery, there was a reversal of liability reserve of ¥5 billion in the first quarter at the -- for Hartford Life. Taking this into account, second quarter can be described as being on a recovery trend. So let us move on to the next page. First is total segment profit. The total segment income was down by 38% from the same period of last year at ¥149.5 billion. Compared to first quarter, the segment of corporate financial services, maintenance, leasing, real estate, banking and credit, ORIX U.S.A. and ORIX Europe achieved higher profits. In addition, the 3 segments of environment and energy, insurance, and banking and credit that are least affected by COVID-19 achieved year-on-year profit growth. Detailed information for each segment presented on Page 15 and onwards. So let me give a brief overview here. As for the three business divisions of the real estate, concession and aircraft leasing that was mentioned at the time of the full year as well as the first quarter financial results announcement, as the businesses that are significantly affected by COVID 19 will be explained in more detail later by Mr. Inoue, the CEO. The first is the corporate financial services and maintenance leasing segment. In Japan, a declaration of state of emergency restricted corporate sales activities, [indiscernible] was also forced to slow down its utilization rate at the technology center. Automobiles were also affected by a decline in demand for rental costs and other factors. However, after the lifting of the state of emergency, tourism demand recovered, car rental sales improved significantly and profits in the car rental, this division recovered from a loss in first quarter to positive profit. Corporate Financial Services commission income recovered significantly in the second quarter due to aggressive sales activities. Next is the real estate. This division continuing at a constant pace. While DAIKYO is not significantly affected by COVID-19, both remaining to be strong. Hotel and inn operation reopened and enjoying the recovery trend. Next is the investment and concession. For private equity, there's been some portfolio turnover from the previous year, but the business of each company is solid, contributing to the profit. Weaker concession is due to the 3-month lag of closing of the accounts. Moving on to Energy and Environment. Renewables business, including solar, is solid. It appears to be a reduction in profit compared to the first quarter. But this is due to the one-off profit posted in the first quarter for wind power in India. Excluding that, the profit is up compared to the first quarter. Next is Insurance. The sales activity face-to-face was restricted. But by utilizing non-face-to-face activities such as online and TV shopping, we could increase the number of policies in force. Again, it seems to be lower profit compared to the first quarter, but this is due to the reversal of profit recognized in the first quarter for Hartford Life. Excluding that, the profit is up compared to the previous quarter. Moving on to banking and credit. Similar to ORIX Life, non-face-to-face sales and online activities helped grow the assets for real estate investment loans. We are responding to the new lifestyle and maintaining stable profit. And both against the first quarter and the previous year, the profit was up. Moving on to the aircraft and ships. The aircraft lease business, which is a mainstay here worsened due to COVID-19, but we expect future recovery with an increase in demand in domestic lines. Moving on to ORIX U.S.A. Compared to the first quarter, this was a major increase in profit, thanks to the appraisals in the first quarter, and PE investment turning into gains and also smaller credit losses in energy-related companies. It seems as if that the profit is much lower than the previous year. But this is due to the gain on sales of Houlihan Lokey posted in the previous year. Next is ORIX Europe. ORIX Europe AUM hit bottom in end March 2020 at ¥233 billion, and it recovered to ¥260 billion at the end of September 2020, more than 10% improvement, and also profit was up compared to the first quarter. Last is Asia and Australia. We recognized impairment due to lower share prices of the deal that we invested into China. But local operating companies are doing solid business and excluding the impairment, this is a positive profit growth in the second quarter. Moving on the next page, regarding segment assets. Corporate finance services and maintenance leasing. Finance assets are decreasing slowly, standing at ¥1.7099 trillion. At the end of the term, this is 4% down. And insurance was ¥1.7104 trillion, up by 8%, thanks to the increase in the number of policies. Banking credit was up by 3%, at ¥2.6766 trillion, thanks to the increase in the real estate investment loans. And ORIX U.S.A. reduced its assets, focusing on balance sheet business more carefully and also putting the efforts into asset management. In Europe, there's a second wave of COVID-19, and the future is difficult to see, but we are building a profit based on distributed business portfolio, which is our strength. That's all about segment performance. I would like to move on to Page 7 about the financial soundness. To the left, you can see that the financing right now, despite COVID-19, is solid. We have efficient capacity, both from banking loans as well as capital market. And the long-term debt ratio is above 90%, thanks to assets. When we made the full year announcement in May, we presented the conservative scenario with extensive worsening of operating cash flow, as on hand liquidity stress test. But in fact, the request for deferral as well as the late collection has stayed at a low level. And including the aircraft lease business, the collection rate remains high at 95%. To the right, you can see the shareholder's equity employed capital ratio, which is 85% at the end of September 2020, which means that there is sufficient capital for potential future investments. That concludes my presentation regarding the performance for the first half of our fiscal year ending March 2021. Next, we'd like to invite our CEO, Mr. Inoue, for his presentation.

So this is Inoue from ORIX. Good afternoon. Still affected by the spread of COVID-19, we have to hold this announcement session through the teleconference. I apologize for the inconvenience. But I also ask you for your understanding. So let me explain by making use of Page 8. So 2021 March end, the first half, the profit before tax of ¥134.2 billion; net profit, ¥93.8 billion; and ROE, fortunately, was at 6.3%. In the second half, the business conditions were pretty mixed between and among different countries of the world. And we cannot, of course, foresee the COVID-19 spread ending. And we still think that it is not easy for us to forecast our business ahead. However, we have decided to forecast our net profit to be at ¥190 billion at the end of this fiscal period. So in the case of ¥190 billion, if this was to be achieved, it would mean a decline of 37.2% of profit as compared to the prior year. At the time of the full year announcement back in May, because of the spread of the COVID-19 virus and also the acute slowdown of global economy associated to the pandemic, we thought that forecasting an impact was not easy to -- that with -- the impact to our financial earning was not to be easy. So we have explained the 2 scenarios. If we would be able to start enjoying the normalization of businesses from the third quarter, our net profit would be ranged between ¥180 billion to ¥200 billion. Whereas if the impact is to persist for 1 year, it will be in the range of ¥80 billion to ¥120 billion. So although we cannot still see how things will unfold, but we think that we should not expect for the worst case, and this is why we have decided to focus our net profit to be ¥190 billion at the end of this year. And also as to the full year dividend, we are forecasting the amount to be ¥76 or a payout ratio of 50%, whichever is higher. As for the fund raising, both the operating cash flow as well as the financial cash flow is remaining to be steady, and we have confirmed that there is no concern. So therefore, this ¥100 billion worth of repurchase program, we would like to restart the program and by making use of this unused program budget of ¥44.2 billion of our shares repurchase program. So -- and we expect to use up this program budget within this year. As for the payout ratio as well as the shares repurchased for the next fiscal period, I would like to make an announcement together with our strategy going forward at the time of the full year fiscal period announcement. As for the first half of 2021 March end, manager easing as well as expansion of public spending in different countries of the world. In fact, the equity -- the major equity market metrics is almost back to pre-corona days. And on the other hand, renewable energy, IT related, real estate are almost unaffected by COVID-19, and they are not going through any price correction. Contrary to the impact of the COVID-19, the price may have served all. There is -- and some of the prices are remaining to be high. However, we cannot, of course, remain to be optimistic because U.S.-China situation is worsening. And also with the presidential election being scheduled tomorrow, and there seems to be no concerted effort being exercised by the countries of the world and also the second wave of COVID-19 is affecting Europe, so therefore we have to anticipate a certain impact, negative impact remaining for the time being. However, although we will be affected by all this, but the ¥13 trillion worth of assets is very much discussed in terms of the risk. And also, we will be able to enjoy the health of our asset. So even if the COVID-19 impact would remain, life insurance, banking, the retail segment, in fact, the impact will be very limited. So we are beginning to see things beginning to settle down so far as our business is concerned. From second half onwards, we are going to turn a little more aggressive in terms of our investment in the areas whereby we can foresee a stable source of revenue -- profit generation and also at the same time a contribution that are made to both ends. So extent of assets as well as new strategic investment is to be continued. And also, we would like to turn much more aggressive and positive in terms of carrying out sales activities, so that we would be able to continue to grow at a higher pace. After the credit rating, S&P Moody's, Fitch has given us single A minus for the outlook of negative, whereas [indiscernible] in fact, has given us the rating of AA- with the outlook of stable. So dependent on the timing of investment or disposition, there could be a case whereby the rating may perhaps go down by one notch. But as a result of M&A activities as well as some replacement of the assets, we would like to continue to build a resilient portfolio and we take it as our mission. It goes without saying that we would make no change in our policy to maintain financial soundness that commensurate with a single A rating over mid to long term. However, now, assuming that the rating may go down to BBB, for example, we cannot foresee any major impact. I'm sure the impact will remain be limited. So for the additional funding capacity and also the funding cost is concerned. Please refer to Page 10. As for real estate of operating businesses, under the state of emergency situation, we had to close our hotels as well as inns but that all reopened except for one. Go To Travel campaign, in fact, is very supportive of these real estate operating businesses. Occupancy rate is on the recovery. We have come out of the worst. As a matter of fact, inns as well as direct operated hotels, consignment businesses of hotels and inns, whereas the occupancy rate back in April was 9%, 3%, 9%. However, in July, it had recovered to 32%, 6%, 33%. And moreover, in October, these occupancy rate was 78%, 38%, 52%. 2020 August complex facility, CROSS GATE KANAZAWA. In October, [indiscernible] Hakone Gora KARAKU was opened. KARAKU has an open hot spring in each of the rooms. So we are targeting at luxury of customers. It is an [indiscernible] reopened inn. And the reservation, in fact, is trending well. As for the new logistics facilities development, in light of the current conditions, we have been receiving many inquiries, focused around Tokyo Metropolitan District. We are proceeding the development deals that -- with the size of 80,000 [indiscernible] And we have secured ¥100 billion worth of pipeline. The track record of this business, in fact, was around IRR of 25%. So therefore, we can continue to expect a positive contribution made from this area. As for the negative information, the government made an announcement to commit itself to the major reduction of CO2 emission. We do have a biomass called multi-fixed fueled power plant, Soma Energy Park as well as Energy Park that, in total, has a generation of 224,000 kilowatts. At the moment, METI is considering to decommission inefficient coal-fired plant by 2030. As for this power -- the generation power plant, the biomass mix combustion ratio is 35%. So based on the energy savings, though, our -- the generation efficiency of the power is sufficing the high-efficiency criteria. However, as for this particular plant, we are going to be continuing to operate up on this power plant until 2038 as planned initially. But in December, METI is scheduled to make the decision on this decommissioning of the few plants. So therefore, they may change around their direction, and we may have to perhaps move up the schedule for depreciation. So I will be mentioning later on as to the details. However, in October, we had expressed our support to TCFD as ORIX Group. We would continue to, of course, analyze the risk for the future. And while complying with the government policy, CO2 emission reduction strategy is to be rebuilt. As for the concession business, there are signs of slight recovery. However, we may have to prepare ourselves for the number of international passengers to not to recover for some time. On the other hand, the domestic flights are recovering, and also the cargo, in fact, trending strong above prior year's level. IR site selection date we postponed by 9 months. Official review process would only start from next year onward. We will make no change to our original plan, but we'll act rationally based on total analysis of COVID-19 support. Let us move on to Page 11. As for the aircraft leasing business, 85% of OAS portfolio -- OAS stands for ORIX Aviation Systems, is a narrow-body, which has smaller price fluctuations. And the rest of the portfolio, including widebody, is leased to major carriers, including flagship carriers. In the first quarter, several lessees were granted deferrals. But after the period of referral, almost all lessees resumed payments. In September, several major appraisal companies, such as Ascent and Avitas, reevaluated all the different models of aircraft, and the result was announced. We have compared that result against the present value and the future value of OAS aircraft and concluded that impairment would not be necessary. We own stakes at Avalon. And Avalon's orders to Boeing and Airbus was decreased from 400 units to 286 units from the end of December 2019 to end of September 2020, in order to deal with a lower demand of aircraft carriers. And all the aircraft would be completed and delivered by 2022, have secured less fee. 650 million unsecured notes issuance was completed in September, which means that we are trying to secure the liquidity, in line with the improvement of financing environment. And we are maintaining the BBB rating. We are not necessarily optimistic about the aircraft lease business. However, as I mentioned, there is no major concern with regard to valuation of OAS aircraft, and Avalon is responding to the situation in a very appropriate manner. Number of travelers within China has already returned to pre-COVID-19 level. And there is a recovery in the number of travelers within Japan as well. These are bright signs. But it is still very difficult to predict how the recovery for the demand for aircraft travelers would turn out, including the timing. But ORIX has more than 40 years of experience and know-how, and we believe that we can minimize the portfolio-related losses. Real estate management, concession and aircraft leasing, other than these businesses, impact of COVID-19 is very much limited. And we believe that profit will continue to recover slowly over time. Please turn to Page 12. At the time of our earnings announcement for the first quarter, we talked about our investment pipeline was approximately ¥2 trillion, including ¥300 billion for energy and environment, ¥200 billion in asset management and ¥250 billion in private equity. Some of these projects were dropped after review, but each of these single deals are making steady progress, and we will be making announcements one by one. And we are convinced that these deals will contribute to our future growth. However, with these deals for which investments will be done in the future, the cost for the initiative will have to be recognized in advance. And also appropriate amount of intangible fixed assets and goodwill will have to be recognize if we expect the future growth. And the timing of contribution to the profit will depend on the timing of execution, but we expect each to take approximately 1 to 2 years. In September 2020, we made an announcement about more than 20% investment into Greenko Energy, which is the largest renewable energy company in India. And this deal is moving to the closing stage. The investment amount is approximately USD 980 million. And this is the largest player in the renewable energy industry in India with various business opportunities. They already operate 4.4 gigawatts worth of renewable energy sites, including solar, wind and hydro. They also have more than 80 gigawatt worth of projects in development. We believe that this company has a high future potential. We are also considering investing into renewable energy in Europe. In addition, we are actively pursuing the opportunity to acquire alternative asset management company in the area of infrastructure, renewable energy, real estate and ESGs. As for asset management, in September 2020, we made an announcement that we would receive approximately ¥7 billion worth of AUM from Boston Capital, which is a U.S. company. And this puts our USM -- AUM at ORIX U.S.A. at USD 75 billion or ¥7.8 trillion. As for domestic private equity investment, we just made announcement this morning about acquiring total share for APRESIA Systems, for which there should be high demand for base stations in 5G systems. In the era of COVID-19, the necessity for information communication is only increasing, and we are trying to increase our investment in these areas. We cannot disclose information about other private equity deals, both in Japan and outside of Japan, but we do have several deals. And approximately ¥300 billion worth of deals are now in the final process. And we should be able to disclose this information one by one. Please turn to Page 13. We believe that it would take time for us to improve ROE. It really depends on how soon COVID-19 situation would improve. But considering the current situation, we believe that it would be probably around fiscal year -- fiscal term ending March 2023, when we can go back to the cruise speed, so to speak. It will take several years to go back to the 11% level based on the existing portfolio, but we want to accelerate this recovery scenario through identifying new investments and increasing gain on sales. And also at the same time, we will be attempting to improve the shareholder return. We were hoping that we would be able to share with you our midterm direction, but we've decided it was too soon because we don't see an improvement of the situation of COVID-19 just yet. We want to go back to the net income level of ¥300 billion through asset turnover and also successful new investments. And as I mentioned before, we are also aiming to grow further to ¥400 billion and ¥500 billion. It may be later than what we explained to you before, but we believe that these numbers are still achievable. Moving on to Page 14. In October, we supported -- we announced support for TCFD, Task Force on Climate-related Financial Disclosure. Including climate-related financial information with stakeholders, we will be making efforts to disclose ESG-related information in an appropriate manner. We run business in 34 different countries across the world. And therefore, we believe it is an important challenge to deal with climate change and help sustainable growth. We will continue to identify and also realize scenes that are important for the whole group, including greenhouse gas emission reduction and high-efficiency energy use for our assets and promotional projects that are environmental friendly. We will build governance system that will adhere to the ESG-related principles so that we can disclose information on a regular basis and accurate information. We will select projects that are important for our business. And the given priority, identify risks and opportunities related to climate change and analyze unutilized information from those analysis so that we can generate future growth. We are faced with unprecedented environmental changes. It's important for us to adopt to this new environment. We need to implement many urgent themes, including working from home and the digital shift, including removal of paper from our business. And we have to have a strong commitment, thinking that without these projects, there is no future for ORIX. That's all from me. Thank you very much for kind attention.

[Operator Instructions]. So first, Mr. Watanabe from Daiwa Securities.

So this is Watanabe from Daiwa Securities. May I ask a question about your thinking to capital gain. I understand that you have started to have your body up model started to rotate, and in considering the new investment to be made. So can we take it that you're going to be posting some gain? But I understand that there is no kind of impairment from the aircraft leasing businesses. But do you think that -- so this ¥190 billion of an achievement, in fact, incorporates this absorption of this, if should there be any impairment that may perhaps be posted from aircraft leasing as a result of posting of the capital gain?

I'm sorry about this. So ¥190 billion, the capital gain, the small amount is incorporated, but it is only about several billions of yen. Some logistic facilities to disposition and there are several disposition of some real estate assets, but no major disposition or the capital gain is included as for the private equity in Japan as well. So many fund investors are -- only move to -- wanting to acquire some of these assets. But unfortunately, whereas it was like 67% -- 60% to 70% of loan. Whereas, on the other hand, the fund the acquisition amount, in fact, has been lowered. So we don't have to align with this move. So this is why we have not incorporated the large amount of cash flow gain in this ¥190 billion of our forecast. But of course, we were thinking about divesting or disposing some of the assets, but it is not, in fact, reflected to this ¥190 billion of our forecast this time. As for the aircraft lease -- aircraft impairment, well, it is hard to describe this. But from your perspective, you may wonder why this is the case? But our -- the aircraft that we own, Avalon, in fact, they carried out quite a bit of an impairment. And as a result of IFRS accounting, they would have to post some losses as a result of this impairment that they have exercised. But as for ORIX, we have not been in the receipt of grounding nor the return of aircraft. So the leasing is continuing. So therefore, we have been receiving the leasing fee. And the return condition or the reserve, in fact, has been maintained as well. So this year, we feel no necessity for impairment. And this is -- this led me to making the announcement earlier. So if there was to be any impairment, it will be after the next fiscal period. And of course, we would have to make a judgment before we would be posting any impairment. But as for this fiscal period, we foresee none. So I hope this answers your question.

SMBC Nikko Shoken, Muraki-san.

Energy policy in various companies may be changing. How does that impact the existing portfolio and also the future investments by ORIX? You said that for biomass, maybe accelerated depreciation may happen in the existing portfolio. But is that going to be a financial impact? And also, with regard to renewable energies, I know that you're making investments in various countries. You have the existing business already, and you have made announcement about investment in India. And in considering the pipeline in Japan and also in the United States, the policy -- the government policy may change. So what kind of impact do you expect?

Soma and Hibikinada park. This is ¥11 billion investment in total. Annual profit is somewhere between ¥3.7 billion and ¥4 billion. And if we go up to the year 38, then the book value will be 0. So we made this biomass mixed project according to the government policy, but the government is changing the policy, so it may be discontinued at 2030, '30 to '38, So this is an 8-year difference. We need to accelerate the depreciation for this 8-year difference, which is about ¥20 billion in amount. On the ground, people believe that we can go up to year '38, but I don't really trust what the government says. But if it ends up with 30 years, those are the numbers that are associated with that, which means that from 2021 to 2030, within 9 years, the ¥20 billion will have to be depreciated over time, which is approximately ¥2.2 billion to ¥2.5 billion increase in depreciation. And that's the risk that we foresee. And as far outside of Japan is concerned, fuel gas and other types of debt initiatives are going on in the United States, we already have a reserve -- we will have provision for that. So we don't expect any major impact in the future. With regard to India and other countries, these are all renewables. And as far as renewables are concerned, across the globe, the prices are going up, which means that if we take a future project, impairment risk, especially for Europe and India, and as far as renewable energy is concerned, we cannot really do the contract. So I think it's okay. And we're not doing any coal overseas, so we don't see any risk associated with that either. I hope that answers your question. And was it all the questions you had?

Yes.

So the next is from Goldman Securities. Nakamura-san.

I'm Nakamura from Goldman Sachs. I have 2 questions. The first, so just to make sure, as to the shares repurchase program, so what is the change that you have made from the time of the full year financial results announcement? Is the first question. And the second is, when you were explaining about Page 13. So the recovery pace, in fact, is more moderate or slower than before in terms of the profit generation. So much as you can tell me, would you mind giving some color to this? And on Page 30, the green part, the three segments recovery and also additional gains on sale. As compared to the plan, the three segments, in fact, are recovering faster. And can we expect this green part to be generated in addition to that? So the new investment contribution, the yellow part. And also with regard to IR, any kind of implication in reference to this talk?

The amount of ¥44.2 billion of unused repurchase program, so we have received much criticism from people from investment community. And at the time of Lehman shock of global financial crisis, I had to go through a bitter experience of financial difficulty. And this is why we had kept this ¥44.2 billion being unused. But the difference between now and the Lehman crisis is because there was a credit crunch and there was tightness in the financial market the last time. But this time, as to the cash management, we are not affected. Another, in fact, there's an abundant money in the market. So from May, June, July, I started to gain some confidence. And as a result, I have decided to continue with the share repurchase program. So especially from the next year onwards, we may want to perhaps come up with yet another round of repurchase program. So in any case, we want to achieve ¥190 billion of profit as we have shared, and also to pay out the dividend as we had made the announcement for. And in the next year, hopefully, the COVID-19 may start to settle down or we start to see -- to gain some certainty. So we -- this is why we have decided to restart this repurchase program. So this is the backdrop to our decisions. And as to Page 13, so the three segments recovery that you had asked the question for. The three segments recovery, the real estate operation business and also aircraft business are the main part of -- for these 3 segments. So as for the aircraft, the green line, in fact, is the recovery of the revenue and profit. And actually the additional disposition, the ongoing base concern, in fact, has been reflected in anticipation or in expectation of the recovery that is. And as for the new investment, this is also difficult to give a straightforward answer. In any case, for the new investment that are scheduled. It may take one year or two years before we start to enjoy a positive contribution coming from this new investment in any case. And if we can enjoy in full amount, the return on the investment that we have made of ¥40 billion to ¥50 billion, and this is why we have came up with such a chart on this stage. And last time, there was some criticism about these charts being difficult to comprehend. However, if you could just perhaps refer to this as an image that we have in our mind as to what we intend to achieve and what we can enjoy, and in achieving the ¥300 billion, that is. And as for this ¥300 billion, out of which ¥100 billion is gain on sales. So if you were to top that up and then ¥300 billion is not going to be just a dream. So this -- about -- so this is why we are kind of imagining to be achieving this ¥302.7 billion of net profit. By when, I think is -- yes, I like it to be quite vigorous because we were not pretty sure at what time we'll be able to achieve this. And you see these all include the disposition of some of our real estate assets that may top-up, so that in 20 -- year '25, '26 and so on and so forth, we would be able to go back to the prior target of ¥300 billion or so. So if you could interpret this diagram to be so, we would appreciate that.

[Indiscernible] of Morgan Stanley.

Just one question about Avalon. You're receiving negative profit coming from Avalon. And IFRS profit is posted. I think that this is a negative profit of maybe for ¥1 million to ¥1 million. Without the impairment, this number should be smaller. According to U.S. GAAP, this same payment is not really recognized, but still, this is a deficit 3x than what you're taking in as profit. So my question is what's really happening? As far as ORIX Aviation is concerned, you said there is no impairment. You said this actually with confidence. If you apply this GAAP to Avalon, what would be the risk of impairment? That's my question.

Avalon's intention -- this is just an intention, it's not finalized yet. But since they have many investors from the United States, they want to switch from IFRS to U.S. GAAP. I think they're considering the possibility. When IFRS is used, after impairment, recovery is possible according to the accounting standards. With this GAAP, impairment is just one time. And until something sold, then you cannot really realize the recovery. So that's the difference between IFRS and U.S. GAAP. Now Avalon did post impairment under the IFRS system, which means that they can still recover if they want to. And they had planned that in the beginning. But since the majority of investors are from the United States, there is maybe instruction to switch to U.S. GAAP. And that is why Avalon is attempting to shift from IFRS to U.S. GAAP. It's not finalized, it's not confirmed, but that's the current status. So we're looking at U.S. GAAP, and this is 25 years appreciation -- depreciation. In our case, it's a lease period depreciation plus RV. So that's another difference. As long as the lease is in place, there's no need for us to post impairment. If a lease is canceled and it is returned to us, of course, we have to review, revisit those numbers. But our expectation currently is that there is 0 return and there is 0 grounding. And based on that assumption, we do not believe that we need to change the depreciation period or RV. I hope that this answered your question?

Zero grounding and zero return, does that apply to the aircraft owned by Avalon?

Well, in the case of Avalon, there are returns and therefore, impairment. Avalon's business also focused on narrow-body, but they also have wide-body and they are trying to reduce the lease amount -- lease pricing. And according to IFRS, this is subject to impairment. We have not reduced the lease amount for wide-body at all. And for narrow-body, there were some deferrals, but we have not received any discount request. And that's why we don't have impairment. But for Avalon, they have to do the impairment because some of them are doing this. Yes.

And profit from Avalon is negative despite there's no...

No, I think it's a negative profit, including impairment. I would like to add. Avalon -- as far as Avalon is concerned, we are shifting from IFRS to U.S. GAAP. And there's a lot of impairment in IFRS, but there is some recovery in the U.S. GAAP, including some small impairment. 737 MAX order was canceled, for example, and this is a very technical explanation. After the order was placed and the deposit was paid and the payment -- interest payment was also done. This was capitalized first, but it cannot be capitalized anymore. So it has to be recognized. And this was a special factor -- extraordinary factor. And that is why, in the first quarter, we are seeing a big decrease in the returns. Does that answer your question?

I see. I understand now. So the capitalized things that's recognized versus what is impaired I was hoping that you can give me the breakdown of that?

Yes, we will get back to you with detailed numbers later on.

So Niwa-sama from Citigroup Securities.

Niwa is my name from Citigroup securities. And I'd like to ask some questions about Europe, from two perspectives. First, so what do you -- how do you look at the overall businesses? While M&A, in fact, is preceded in many of the cases, how are you going to be managing the business [indiscernible] from here down the road? And at your company, as to the M&A, you said that there may be some burden that comes from the goodwill amortization. So Robeco, I'm sure the goodwill, in fact, is quite sizable. And is there any kind of changes that will be built about as a result of the current situation?

As to Robeco, to be honest, so there are two -- to be honest with you, there are same amount of offers that are made from those acquisitions as well as disposition from United States that they want to be buying and also selling the business or buying the business at any rate, it is dependent on the pricing, and whether there's going to be a synergy or integration, a synergy rather. And at this point in time, I have not -- I have no strong intent in wanting to sell the business of Robeco, the former Robeco. I would like to -- I think that we are confident in expanding the businesses going forward. We do have the asset management business. And in Europe, there are a number of inquiries that are brought to us. And unfortunately, the asset management business acquisition or rather the sales -- both sales as well as the acquisition of the businesses of asset management businesses. You see the rumor spreads very quickly in the market. And there, in many cases, unfortunately, the deal does not come through as a result that rumors spread earlier than expected. So this is why there may be some cases or perhaps selling the business. And on the other hand, some -- because key employees are, in fact, leaving the company and the asset management business acquisition or disposition or divestment in fact, is not easy. Robeco's AUM with the current outstanding amount of the AUM. In the market, I don't think their size is big enough, although they are working hard, the people at Robeco that is. So I think we would have to proceed with a further acquisition in order for us to be full-fledged in terms of our capacity as well as capabilities. But the timing is not particularly right, right now. So as to the asset management business, in both Europe as well as United States, it is important for us to expand their AUM and also to be in receipt of higher proceeds. So as to the asset management businesses, we need to do something about this in any case. But there could be a possibility of buy as well as sell. So acquisition or divestment as well. And what was the other question?

I think that was very clear. And I wanted to ask the question with regard to the goodwill amortization. And looking at the balance sheet, Robeco seems to be one of the most sizable of all. And with -- so are you -- do you think that you should hold on to Robeco despite of the fact that it may perhaps affect your credit rating as well?

So it's not that -- we don't regard it to be an obligation. If you're going to, of course, hold on to the asset Robeco, we would have to continue to, of course, expand that. I think there's about ¥1.5 trillion worth of AUM. Is that right? ¥800 billion of a goodwill, that is. And also Robeco and the U.S. asset management company, in fact, accounts for this ¥800 billion. And in any case, the new investment that we may make, such as Greenko. I'm sure we would have to exclude those companies that have tangible assets. And of course, there are intangible assets as well that we may have to take into account for. In any case, with -- through M&A activities, if you're going to carry out some acquisitions, there would always be, of course, the problem or the challenge of, of course, depreciation. And the only way, of course, to carry through our businesses is to continue to amortize these goodwill, maybe over 10 years, 20 years. We are currently discussing all this topic and we may perhaps to follow the U.S. GAAP standard if that is going to be the case. And in any case, as to this goodwill, I think that we should make it as a subject of amortization. So that -- but I don't think it would affect our rating very much. In the case of S&P rate -- for example, in the case of Moody's, they would refer to the P&L conditions of ORIX. So it is not just a goodwill that would affect the rating in any case. So goodwill amortization increasing. So it is very much dependent on the management decision as to whether to expand the amount of goodwill on not. So to the total amount of asset was ¥13 trillion, I kind of think by real sum, maybe 10% is regarded to be appropriate and adequate. But I don't think -- by just expanding the amount of goodwill does not stop us from making a new investment.

It's almost time, so we would like to make the next question the last question. Sato-san, Mizuho securities.

I'm Sato with Mizuho Securities. I have a question about share buyback. ¥44.2 billion that you spoke of, this is because the financing situation is not that tight, and they still have a remainder of the program that you originally designed? I think that's the positioning. But when you make judgment in the next fiscal year and beyond, are there any other materials or information that you would additionally look at? Of course, COVID-19 impact to existing business, investment pipelines and also the U.S. presidential election as well as uncertain situations in Europe. I think there are various factors for you to consider. And if -- well, which one of these assets need to improve for you to consider additional program?

¥44.2 billion, this was still unused. And the decision was to use it. So that's it for this program. For next fiscal year and beyond, we have to really think about ROE being below 6%. This is really a serious situation. We have to bring it back to 11%. But if we conduct ¥100 billion or ¥200 billion of share buyback, the general situation would not change. So we have to invest positively into projects and maintain the cash flow. Osaka prefecture, centralization of government was rejected. The proposal was rejected yesterday, which means that we have to see what happens to the governors, what happened to the project? Will that be suspended? Or will there be no change because LDP is supporting the project? There's some noise in Nagasaki prefecture. And Yokohama's situation is getting more and more complicated. Now as far IR is concerned, maybe last year or 2 years ago, we talked about ¥1.6 trillion, and we have to really think about these numbers once again and whether we should really invest into this project. Social distancing is an issue as well.

How should we take this -- see this in the future?

If the target for investment is reducing, of course, we have to do share buyback in order to make -- move things forward. That's another point for us to consider. And also tomorrow's U.S. presidential election, it may really push the stock prices down. If Biden is elected, then the corporate tax will almost definitely increase. So these are some uncertain factors that we need to take into account. If we do zero share buyback, I don't think that will be accepted by the market. So we will like to continue to do share buyback and also possibly think about potential investments. I think I gave you a similar explanation 1 year ago or 2 years ago. So you may think my answer is the same again, but still we have to consider all these factors and continue to work on this. That's all I can give you today. I hope that answers your question.

So you're not really thinking about discontinuing the share buyback program?

That is correct. We have to do a share buyback. 6.3% ROE, we have to do something about this. So we would like to consider taking all these different factors into account. I would like to close the Q&A session for now.

Mr. Inoue, please give us the closing remarks.

Thank you all very much for taking part in this session. From next time onwards, we would very much like to hold the session in a large venue because I don't know whether you're satisfied with my answer by not seeing your faces. So in the next time, hopefully that the COVID-19 would not further spread, so that we'll be able to meet with you in person. Thank you very much.

So with this, I would like to conclude today's teleconference. Thank you for your participation today, and you may now disconnect. Thank you.