Good evening, ladies and gentlemen. Thank you for joining this teleconference of ORIX Corporation for Second Quarter consolidated financial results for the six-month period ended September 30, 2021. The attendees member of the Board of Directors President and CEO, Mr. Inoue, Member of the Board of Directors and Emerging Executive Officer, Mr. [indiscernible], Executive officer, Head of Treasury and Accounting Headquarters Mr. Yano. Before we begin, we would like to ask you to make sure that you keep your mobile phones and other communication devices away from the telephone or turn them off in order to prevent feedback. If there's severe feedback during the meeting, the organizer may decide to interrupt the meeting for a short while, and the stakes to the participant who may be causing the holding with your kind understanding. We will receive presentation from Mr. Yano, the staff, and then, Mr. Inoue, second half, followed by Q&A. The duration of the meeting is expected to be approximately one hour. With that we would like to begin the meeting. At this time, I would like to call upon Mr. Yano.

I’m Yano, Head of Finance and Accounting Headquarters. Thank you very much for joining us in the financial results briefing today despite of your busy schedule. I'd now like to explain our financial results for the second quarter of the fiscal year ending March 2022. So please, open page two of the financial results briefing material on hand. In the first half of FY 2022, net profit was up 56.3% from the previous year to ¥146.7 billion. This is a progress of 58.7% against a full year profit forecast of ¥250 billion. ROE on an annualized basis was 9.5% although we did not reach our target of [11%] [ph]. We are getting closer to achieving double-digit figure. We will continue to aim for improvement of the performance. Please see the chart on the right this shows the trend of the quarter net income for the second quarter was ¥81.5 billion, the highest level since the COVID-19 outbreak. You can see that we have recovered to the level of the second and the third quarter of the fiscal year ended March 2020. Before the outbreak of COVID-19. So please refer to the next page. The page shows the breakdown of segment profit, segment income totaled ¥240.1 billion, an increase of 53.1% compared with the same period of the previous fiscal year. In this section we explain our result by dividing an inter base profit and investment gains. The dark navy color base profit on the chart shows an increase of 45.6% year-over-year ¥173.5 billion, which accounts for 72% of the total segment profits. In the domestic market, the corporate financial service and maintenance leasing, and we say segments recorded significant increase. As for the overseas, three segments, excluding transportation equipment continue to perform well in the second quarter following the first…

My name is Makoto Inoue, ORIX Group, CEO. Thank you and please refer to Page six and seven. So we got ESG related matters, I will be reporting to you later on. So first of all, ORIX Group reported ¥146.7 billion in net income for the first half of FY '22 March. This is 53.6% year-over-year, an increase that is and this is an achievement of 58.7% of our full year net income target of ¥250 billion. Although the situation remains unpredictable, the impact from the COVID shock is waning and we see some green shoots, that economic activity will normalize in the second half. So for this reason, we would like to accelerate our investment activities. We expect interest rates to turn upwards towards the end of 2021. Central Bank, with the exception of [indiscernible]. Although there are several concerns such as rising resources prices and the surrounding real estate prices in China, we will continue to seek worthwhile new investment opportunities by retaining a somewhat cautious stance. We expect the three COVID challenge businesses, aircraft leasing, hotels and inns operations and airport concessions to steadily recover although they did not contribute to earnings in FY 21 margin, or FY '22 March end results. ROE has improved from 6.4% to 9.5%, so we think that a return to 10% is simply a matter of time. As to the credit rating, S&P upgraded ORIX outlook from A minus negative to A minus stable. As of the end of October, we have made steady progress in share repurchases, completing ¥38.4 billion of our ¥50 billion buyback program which was announced in May of this year. We will also pay an interim dividend of 39 per share in line with a promise full year dividend of 78 per share. As for shareholders…

Thank you. We are now ready for the Q&A session. [Operator Instructions] So the first question comes from SMBC Nikko Securities, Mr. Muraki, please.

Thank you very much. So on Page two, you have a full year forecast and the progress that has been made so far. According to Mr. Inoue, so it says your outlook from the second quarter -- second half onward is pretty bright. So why did you not carry out an upward revision? Is it because the upward revision is minimal? Or because in light of the possible divestment of YoY, is there a possibility of revising upward your second half forecast. So what are we to expect going forward?

So, I know that the Investment Committee, you have published various different reports on our company, but with regard to YoY, nothing has been decided as to a possible divestment. Although much has been said. So there are a number of restrictions. So this is why I will have to refrain from sending you anything further than this. But I think at a high probability, there could be a possibility of revising up with our full year results. But at this point in time, to be honest with you, we did not know as to the magnitude of this upward revision. So maybe in the third quarter results, timing perhaps, we will know how much of an achievement can be achieved vis-à-vis course, our three-year forecast. I think decision will be made around that time. And especially with regard to aircraft related businesses. In Europe, the integration and consolidation of the market is underway. So this is yet to be decided as to what is to be done. And as to the hotels and inns, now that the COVID-19 pandemic is almost over and done with so we're beginning to see an increase in the booking. So how much an improvement in terms of the performance is yet to be known. So there are numbers of uncertainty. So this is why, at this point in time, the announcement of the second half or the first half, I'm sorry, the second quarter, we are yet to know as to what kind of magnitude of upward revision may perhaps be feasible. So this is why -- around the timing of the third quarter performance announcement, we may be able to give you further details. I hope this answers your question.

Thank you very much. That was very clear.

And one thing, and that is related to this year's performance forecast. So, you have given us the explanation with regard to the shareholders policy, that you're going to be making a decision at the end of this fiscal year. You're talking about the policy for shareholders return for this fiscal period onward as for this fiscal period. So, ¥250 billion of an achievement would allow us to pay out ¥78 of a full year dividend. So, if we can achieve an overshoot of ¥250 billion, ¥78 yen will not be enough to convince the investment --the community I suppose. So, this is why by referring to the result of the third quarter, we may have to revisit the plan of ours in terms of the dividend payout. So, this maybe the achievement to the end of ¥300 billion or ¥100 billion, how fast can we get to that extent. We would have to of course, listen and decide on the shareholders return policy for the next fiscal year and onward. So, in other words, it applies to the ability in other words, for this fiscal period as well as this year and beyond. And also at the same time, that includes of course, not just the payout, but also at the same time, shares repurchase program as well. So by end of December, at a time maybe at the timing of the third quarter result announcement or maybe at the full year performance announcement, at the moment, it is yet to be decided as to the timing.

Thank you very much, that was a clear Thank you.

Daiwa Securities, Watanabe, please ask your question.

Yes, this is Watanabe with Daiwa Securities. Additional question about shareholder return policy, if the profit level is higher than expected, not just dividend but also share buyback maybe increased, is that a correct understanding? And what about the shareholder return policy from next year and beyond? Are you going to set the actual dividend amount or payout ratio or depending on excess capital, you will create a new formula for shareholder return. What are you considering at this point?

Basically in the last one and a half years because of COVID-19. We make an announcement of about the payout ratio but if the profitability level improves in terms of absolute amount, of course, it will go up, but in terms of payout ratio, we want to go back to normal. And as I explained before, dividend should be based on 1/3 of profit. And in addition, even if the proficiency goes up, if the dividend is lower than the previous fiscal year, it would not be probably acceptable. So we have to set the minimum level and also the cap fee payout ratio we announced the payout ratio. And once we go back to the normal level, how much should be the payout ratio that we will be maintaining for the long-term? So we would like to announce such a plan in the future. In addition to that, we will consider a share buyback on top of that. That's the basic policy.

I see for this fiscal year. Is there going to be an increase of share buybacks?

Well, 39 billion and 50 billion is a target so in December or January, we will probably reach the 50 billion mark. So January, February is not really a good timing, we may announce additional share buyback at that time, or maybe we will announce another one for the next fiscal year instead, we have not decided yet.

The next is Mitsubishi UFJ Morgan Stanley Securities, Tsujino, please.

As to the capital gain, or if it's a question related to capital gains. In the first half, I know there were numbers of capital gains that you were able to enjoy. And also, private equity related businesses have performed pretty well in the overseas such as in the United States. And also, you enjoy the pretty good performance in terms of the real estate businesses, and there could be divestment of the IOE as well. Which means that in the next fiscal period, so you may have generated a pretty sizable profit in this year, which means that if there was to be an X a quite a large amount of overshoot in this year, they could be -- maybe a negative base effect in the next year, perhaps. YoY for sure, is going to be a quite a significant deal but the pace that you're currently enjoying what maybe the speed was too fast. Would you reckon? And do you think that there could be a slowdown? Or do you think that you can keep up the pace? So what are we to expect going forward?

Well, thank you very much for the difficult question. So I think I would say that this is going to be a cruising speed. And we hope to kind of chalk out a very smooth, upward kind of curve. But of course, capital gains, could of course, experience ups and downs. And so ¥300 billion, and in thinking about the 2030, we may perhaps move up the schedule a bit, or there could be a delay somewhat, but that is very much dependent on the market conditions, after all. So we will have to continue to refer to the market condition. So I don't think it is possible for us to draw out a smooth upward line going forward. So this is why, but hopefully, we don't want to of course, create such a bumpy kind of very volatile kind of line going forward. So this is why the divestment of private equity, of course, is still progressing. So we hope to draw out a slightly smoother line, than perhaps anticipated. So this is why it goes without saying, inclusive of the shareholders return as such as payout ratio, we hope to achieve a smoother kind of line in order to convince the investment community. So I hope this answers your question.

Yes, for sure. Although your profits, of course, a trend may be a little bumpy, but it will not be the case for the shareholders return. That is what you're saying. Now, talking about the concession segment, this time, segment profit was 1.5 billion, I think really, we were so looking at the P&L of this segment, expenses of the segment was worth ¥14 billion. So I think it was reversed back. So I know that the cost of goods may have increased as well. But if you refer to such a number, especially in the investment area, I don't know how much of -- I don't know a push up has been kind of artificially created.

Yano is going to be -- answering to your question.

So if you could refer to the appendix A material and so negative of ¥8 billion of I think segment expenses is what you're referring to. So I'm sorry, but there is a non-disclosure agreement that we cannot -- we have to of course abide with. So, all we can say is there was a certain amount of gain, and of course, we have numbers of investment. And in some cases, we may have to refrain from disclosing the details. And we do not have a fund accounting. So with regards to the investment related businesses, it will appear on the balance sheet, which means that the profit that is generated by this set company will be added to P&L, so the private equities profit and loss, the fluctuation in fact would affect our consolidated earnings. So, please understand that there will be some fluctuation over time. I hope this answers your question.

So, yes, understand, but this fluctuation there are some positives on one hand, but there could be some negatives on the other hand. So, I have to imagine that.

Well, yes, if you were to perceive it in a negative manner, that may be the case, but the each of those indices, if they were to generate the profit means that the enterprise value of course, will be further enhanced in the future. So, this is why -- please do not just focus on the downside. Please refer to the funny side of the metrics if you will. Thank you.

BofA Securities of Sasaki.

This is Sasaki, Bank of America. There are two questions. Long-term performance and how do you view this that’s the question.

Q2 earnings results. No change to the midterm management plan announced this time around. And in Q3 and end of the year, maybe there's going to be additional updates. COVID-19 impact is weakening. And outlook is becoming more clear. So [indiscernible] you have 400, 500 and with COVID-19, you started talking about the 300, for example. Now, the COVID-19 situation is improving.

What is your long-term outlook and the global renewable energy this is my concern. European and American major players, they provided guidances and warnings, saying that the equipment cost is going up environment is changing. And I feel like the tide is changing. There's a sea change. So in addition to the long-term performance outlook, how does it look to you?

I usually show you the 300 billion and 400 billion chart. And this is on Page 47, this time as reference material. COVID-19, impact is actually lessening. And we can go back to 300 billion, much faster than expected. And based on that 300 and 400 billion mid-term objective is shown here. But maybe we have to reconsider the timeline. Because aircrafts and concession and hotels, if all of them go back to normal, we're talking about approximately additional return of 80 billion to 100 billion. So if the target is 300 billion, 400 billion and there's capital gains, as you can see on page 47. Well, we have to maybe reconsider this chart and present it to you otherwise it will become just a graphic representation. That is why it is not in the main part of the slide deck. Yellow one and Greenco and the other projects.

What would be the profit contribution and when will it begin, for example, Avolon?

For next fiscal year, we expect a big increase, but we don't know exactly how much by how much. So that is why we could not really provide a specific explanation this time. But the 300 billion market targets should be cleared quite easily, and maybe even 400 billion as well. But going forward, including MICE-IR, we will be doing more greenfield projects. Yellow one has a little pipeline, but many of them, most of them actually greenfield which means that it will take them two three years before they start contributing to the profit. And we need more time before we can show you a nice steady constant growth plan. In other words, we cannot really share the detailed numbers at this point in time. Please give us some more time. And please understand that explanation is a little bit vague because of that reason What was the other question?

Well, I don't really need that detailed number. But how do you feel, Mr. Inoue? 400 billion and 500 billion was the target before COVID-19? Do you think you can go higher than that? Is that the sense I'm getting from you? But is that correct interpretation?

Well, I'm always as positive as you know. So I always feel positive. And I want to go back and recover as quick as possible. And in the beginning, we thought it would take maybe one or two years longer. But now it seems that we can go back to the previous level more quickly. So it's a half hope and half confidence. That will be the correct interpretation, I think.

Understood. Renewable energy you see players profit outlook becoming more challenging. We're seeing more warnings coming from those players. But over the mid to long-term performance for ORIX, do we have to be concerned about that? You mentioned that there are many greenfield projects? And how do you see this?

Well, with renewable energy, we have many things in our pipeline. And there are three things or three things you can do. One is rigid holding those projects to enjoy the full year profit. The second is, once it's established, we can sell it to a fund -- pension fund at a cap of 3%. Many investors actually buy these projects. So our target is about around 8% NOI. So we try to sell the project so that we can get gains, or hold, or we can the fund and manage the funds. So these are the three different methods that are being considered. We need to figure out what is the best way. And if we're going to build a fund of our own, how big is it going to be? Because if it's less than 1 billion fund size, it's not really meaningful. So we are discussing this involving U.K. We don't want to be cherry picked too much but the good ones we want to hold and the medium NOI, we want to sell. And if it's low but it's a good project, maybe it should be included in the funds. So that would be the strategy. So this is more of a profit adjustment, so to speak. So profit growth trend can be more consistent and steady. Does that answer your question?

Understood. And last but not least, in your presentation today, you talked about ESG spent a lot of time as the CEO to explain about ESG that's my impression.

Contributing to the society does not necessarily equal contribution to the shareholders. That's my impression.

So in your mind, ORIX initiative toward ESG, how should it be reflected in the share price? Can you please simply talk about this.

To be quite honest. If you look at other manufacturers and trading companies and compare them against ORIX, 1.26 million tons of CO2 emission is not such a big emission. And out of that 900,000 tons come comes from something we started 10 years ago, probably my fault, but in Fukushima and Osaka prefecture, we have the fuel mix, a combustion and ¥17 billion costs will be incurred if we're going to deal with it. And scope three includes automobile, ships and aircraft, we need to really understand the needs of our customers. So we can use low emission engines or may be convert it to electric vehicles. But anyway, we will not be receiving a big negative damage. If you look overseas, our auto lease for coal companies and also at least for plants, this balance is approximately 23.5 billion and the risk is just five years. So we can make necessary adjustments and reduce the emission without causing a big damage to the business. So we promote ESG initiatives and we do not consider that we are causing any damage to our investors through these efforts.

So from JPMorgan, Otsuka, please.

Thank you. This is also Otsuka from JP Morgan. So please refer to page three. So, in the first half, you managed to generate ¥173.5 billion. But what is your takeaway as a management? And I'm sure there are a number of factors that are contributed to this profit generation inclusive of Forex, and also supported by the market conditions for sure. As compared to your initial expectation is ¥173.5 billion, what is your assessment, and if you were to double this 173.5 billion, in fact, it is larger in terms of the profit sizes compared to pre-COVID period. So this is the one and only question of mine.

So as compared to pre-COVID period, or referring to this number, this is a more of a cruising speed, I would regard. And to be honest, this is something that we were able to achieve without exerting a huge amount of effort, but for sure, the corporate financial services has done pretty well and also banking and credit and the life insurance, they were not affected by COVID-19 in a negative way that is and that is why they were able to generate more profits and in Asia as well as in Australia. So during the pandemic, they will, they have to of course, keep to the moratorium or they have to refrain from carrying out the aggressive operation by the government direction. So this was done without exerting huge amount of effort in other words. So like, what, do you have included in the base profits, such as the sales of secondhand cars, for example. In fact, in other words, without, exerting a huge amount of effort, is that right? So you see, it is more of a secondhand cars -- leasing of those secondhand cars are pretty profitable. So this is why automotive business, in fact, has enjoyed the expansion of their profits. And also, the sales of secondhand car was a pretty -- had trended pretty well as well. So for automotive segments, for automotive businesses, I think they were pretty grateful for what had happened as a result of pandemic. So thank you.

Sato-san, Mizuho Securities.

Yes, this is Sato, Mizuho Securities. Page 52 about the capital utilization rate, 91% is the recent number and can we please talk about this. Depending on the investment and turnover, it may go up and down or up or down. And I think your target was around 80 some. Accounting wise, some things are not counted as laid in profit, which is not, which is part of this. So, if you add those things, can we expect the available capital level to be quite high? So 91% from the management perspective, what does this number say to you?

Yes. This is Yano, responding to your question. The reason that this number went up is Greenco and Elawan mostly. 80% is not really a target for us, right now, we don't want to have any excess capital. So we feel comfortable with a number around 90%. But we have to respond to the situation in case something happens. And this is also an internal calculation, it’s not an absolute number, please understand that as well. So there is portfolio turnover, which is happening on a day-to-day basis. So we don't expect the number -- this number to worsen. We believe that maintaining the current level is fine for us. I hope this answers your question.

Just one thing. In that case, rather than thinking that you have excess capital, you will be actively making investments. So it's a balance between the investment cadence and also the turnover. And is this the right level?

Well, it's not that we have to replace or turn them over? Well, we don't decide everything based on just shareholders capital, we look at risk and return or what we have and make the final decision. So this is not the only criteria for decision-making. Please understand that there are many other factors involved. So you want to enhance the capital and asset efficiencies and increase the absolute profitability and profitability per share. And based on those assumptions, we will be changing the items in our portfolio.

From UBS Securities, Okada.

Okada is my name from UBS Securities. For myself, I'd like to ask question about Osaka, MICE-IR, on page 11. Referring to the KPI number, the number of traffic and also the expectation for the revenue as compared to what was announced by Osaka Prefecture as well as City, I think it is exceeding the numbers that was announced by the prefecture and the city. So, what is at the backdrop in revising up with the numbers that you have shown on this page and also providing that there is going to be a disclosure. So, the return on investment to this project, is there any kind of expectation that you have as of now.

So, with regard to MICE-IR the numbers, in fact, has to the numbers that the Osaka Prefecture entity has announced, this is just a tentative expectation and the inbound service was of course, taken into account from several years back, but at the moment, the traffic in fact that we expect is just limited to the Japanese people and that is the basis of the plan. This is going to be a pretty difficult simulation, but in the next 10 years or 20 years, and of course, it depends on how long we can run this -- operate this facility, but IR have 20% in fact it is expected. And so, this is why we came up with this ¥1.08 trillion of an initial investment. Out of this ¥1.08 trillion, ¥580 billion accounts for the construction cost and all others are expenses for the operation. So 10% and above IRR is pretty, I think achievable we think. So with that in mind, we have come up with this simulation. So MGM in fact has come up with a number which is almost double of our number, but we have -- we don't -- expectation is not as high as MGM, but because we have only limited the traffic to the Japanese people and we have not extended over and beyond certain expectations. So this is how we have arrived at this number.

Citi Group Securities, Niwa.

About ESG business opportunities. This is a follow up to the fact on question. Other than power generation when it comes to supply chain as a whole, aircrafts, automobiles and ships were identified as a big impact areas. What are the initiatives that are already underway and what are your near future plans for these areas, accelerating the purchase, you think. And what is ORIX advantage as opposed to the competitors within the domestic market?

Depending on the segment, what we do is different. With a aircraft, whether this is fortunate or not, stage four engine, younger aircraft, that's what we have. And with Avolon again we have new models. CO2 emission is not really critical for us. Within the aviation industry by 2030, CO2 has to be reduced and maybe zero emission by 2050, what is the alternative fuel, the whole industry is already moving in the direction. So we will continue to provide aircraft according to those changes to the aircraft and to the companies. Within scope three, of course, we have to monitor the CO2 and not just scope one, scope two, but also scope three has to be taken into consideration as we continue to manage our ESG initiatives. So employers and the supply chain, we have to monitor the CO2 emitted by them. So how to do this is, we just see same thing with automotive and also ships. We have to convert into eco ships as early as possible, which means that we may have to accelerate the replacement of these assets. I suppose the automotive we are focused on hybrid vehicles right now. But there are still a lot of our internal combustion engines. And very few customers who actually use EVs, how to convert to electric vehicles, is there going to be the biggest challenge for our automotive segment. In the next few years, we need to see progress in terms of CO2 reduction contribution, we have to change the models. And asset-based lease and finance team will face this challenge. This is going to be the biggest challenge, I think. So we have a target for 30 and 50. We are basically binding ourselves to these targets as we continue to manage the company. I hope that answers your question.

Thank you. A follow-up question, compared to the existing players, competitors, what would be ORIX’s strength?

ORIX strength is fast decision-making and selling off assets, which produce a lot of CO2, even if we have pushing payments. We are much more agile than other players. I hope that you will see us that way.

So it is time for us to close this session. So this next person is going to be the final question. Sakamaki from Nomura Securities.

I have one question. I know that, sorry for being persistent. But with regard to shareholder return as well as investment, you may not be able to give us a clear answer as compared to the prior briefing sessions of what has been the changes in your mindset, because your business performance expectation, in fact, the prospect is becoming kind of brighter. So do you think that you are turning a little more aggressive in terms of making further investment? I understand. So is there any kind of the changes in mindset of the CEO?

There have been no changes in my mindset, as a matter of fact, because after all, talking about the business performance, you see, 1/3 will be -- should be appropriated for the payout and the rest for the investment and that remains to be unchanged. So the ¥250 billion, as has been announced at the beginning of the fiscal period, and that we will very much affected negatively by the COVID-19. And you see it was COVID-19 everywhere until summer, but all of a sudden, beyond expectations, I don't know whether the government has come up with a fake number, but in any case, it looks as if the pandemic is beginning to show some signs about closing down so. But of course, still, things remain to be unpredictable. So and of course, if there was to be a big kind of increase in terms of the profits, we don't want to be that kind of volatile in our expectations. So I really want you to wait until the next quarter. This is my request before you hear anything more -- any more from our company.

Thank you very much. So with this, I would like to conclude the Q&A session. So Mr. Inoue, would you like to give us the closing remarks.

Thank you very much for asking a lot of questions. So the questions were related to ESG and because of the COVID-19, the market is pretty volatile. And we were not sure as to how -- to what extent we were able to achieve our target. But you see, we have not come to an extent whereby we can loudly say that we are confident in achieving our profits. 250 billion is quite achievable but how far can we go over and beyond this 250 billion is yet to be known. And of course, we're sure we are going to continue to consider the shareholders return. So if you could wait a little more before we can make further announcements. So that is my request.

So that concludes today's financial briefing session of ORIX. Thank you for your participation. And you may now disconnect. Thank you.