It's time to begin the meeting. Thank you for joining us for ORIX Corporation First Quarter Consolidated Financial Results for the three-month period ended June 30, 2024. I'm from the Investor Relations and the Sustainability Department. My name is Nakane. I've been seeing this program, and today's attendee is Kazuki Yamamoto, Operating Officer responsible for Investor Relations. As we begin, we have a request to the participants. In order to present feedback, if you have a mobile phone or other telecommunication devices nearby, please make sure that it is turned off or away from the telephone. Yamamoto will provide an explanation and this will be followed by Q&A. The program will last approximately 1 hour. Mr. Yamamoto, please begin.

Thank you very much for the introduction, and thank you for joining ORIX Group's earnings meeting, despite your busy schedule. My name is Yamamoto, Operating Officer in charge of Corporate Planning and Investor Relations. Without further ado, we'd like to get started. Please turn to page two for the executive summary. Some of the four highlights. The first is on the net income. Q1 net income was up 38% year-over-year to JPY86.7 billion, bringing annualized ROE to 8.7%. This represents 22% of our full-year net income target of JPY390 billion, which is given the seasonality of ORIX's earnings. We view this as a solid start to the year. Finance category, in the three categories that we newly introduced in Q4 of last fiscal year, continues to generate steady earnings. Profits grew in the insurance segment during Q1. In the operation category, airport concessions continue to post earnings growth. In the investment category achieved 20% of the full-year profit target, while profits grew significantly at 194% year-over-year thanks to domestic PE exits. The second key point to look at is in inbound tourism. Profits of three inbound related businesses in total was up 78% to JPY6.9 billion year-over-year, thanks to aircraft using and in Aircraft and Ships on an ongoing profit expansion in the airport concession business, including Kansai International Airport and hotels and in the real estate facilities operation. In aircraft leasing, both lease rates and aircraft prices remain at elevated levels, fueled by expansion in passenger markets and tight supply and demand for aircraft. ORIX has exposure in both the aircraft leasing market and sales of pre-owned aircraft on the secondary market, and therefore enjoying better earnings opportunities and foresees strong growth potential in this business. The third point is capital recycling. In addition to a domestic PE exit,…

[Operator Instructions] So, from SMBC Nikko, Muraki-san, over to you.

Muraki, this is from SMBC Nikko. So, the market fluctuation, how does it affect your earnings, is what I want to ask you. On page 45, to the right-hand side, so there is a sensitivity to ForEx as compared to large end. So, it is, yen has depreciated or appreciated further. So, that is about the JPY16 billion of adversity I think that you're experiencing. So, if the United States is going to go into recession and the Fed and ECB is going to cut their interest rate, then what would be the impact to your earnings, whether it be to the positive or negative? Thank you.

Thank you for the question. As you have said, as we stand now, after the sensitivity to ForEx, so the current investment as well as loan extension, in fact, is upper basis, and we should be indicating a plus and minus of JPY2 billion. And therefore, what Muraki-san said is true. So, if there was to be any changes in the policy, especially for U.S. dollars as well as euro, interest rate cut should, we are proud to be positive for us. It would be a tailwind for our company. Whereas, for euro, the interest rate in actuality, the decline of the interest rate so far, in fact, has been supportive to the recovery of our earnings. And with regard to aircraft-related businesses, it would work out to be positive as well. With regard to USD, it is the same. Source income the same can be said to be true. And also private equity and also real estate. As of now, we have been refraining from making new investment. We have been continuing our activities so far. But I think we will be able to be provided with some leading space. But of course, it is kind of difficult to indicate the impact in a quantified manner at this point in time. However, these monetary policy changes can be captured as a great opportunity for our earnings. So, we have to make sure that we'll be able to capture that as an opportunity, both in European market, as well as U.S. market. I don't know whether I have been able to answer to your question in a straightforward manner because the market is still kind of going through changes. But that is all for myself. Thank you.

Well, thank you for your answer. So, here in Japan, investment to private equity and also exit in real estate. With regard to that, it is not co-related to NSA 225. But in what kind of condition would you find it difficult to generate gains on sales, do you think?

Well, that is something you have said or asked. Essentially, with regard to real estate businesses, there are certain, of course, funds that we would have to continue to manage. So, we would have to perhaps increase the amount of wage and fees. So, such as investment condos this year, we were able to enjoy a kind of sales which had exceeded or outpaced our initial expectations. And that is the depreciation of yen and also lower interest rate was supportive of these initiatives on our part. However, the adjustment up until now about 2x as compared to the time when it was JPY 110 and JPY 120, in terms of the further space of growth, I think we still have some more space that we can enjoy growth because the expectations of investors would continue to remain to be unchanged. So, therefore, the pipeline deals that we can proceed with can be continued at a similar pace for now. But especially, the investment in PEs, especially FMEs, we would have to be affected by the higher interest rate. However, because of the positive turnaround of the economy, we can expect them to generate more profit. And that is true in the fees as well. They are beginning to show some signs of recovery in their earnings. So, therefore, we'll be able to not just receive any negative impact from the higher interest rate. I don't think the magnitude of impact could be that large. That is all.

Okay, thank you very much. That was very helpful.

Thank you. Daiwa Securities, Watanabe -san, please ask your question.

Yes, this is Watanabe, Daiwa Securities. Panasonic Connect projector business, you have obtained this equity investment and profit contribution size. What kind of synergy do you expect? Can you please outline this, please?

Thank you for your question. As you have mentioned, from Panasonic Connect, 80% of the projector business is transferred to us. And with regard to this project, we have mentioned several times in the past, we are positioning this as a carve-out investment from a large company. The PE expertise can be leveraged, and some aspects will be new to us as well. As you can see in the report, the transfer price, enterprise value, JPY118.5 billion is mentioned. But this actually includes loans. So, our actual investment is different from this number. And we are not disclosing this number yet, because it will take some more time before the deal can be closed. I hope you understand the situation. As for profitability, because this is a carve-out project, because of that nature, this means that compared to the conventional investment project, it may take time for this time to be profitable, to increase in profitability. Because the size of the business and the number of employees and other aspects of this project are larger than traditional. So, it may take time before this can contribute to profitability. But expected ROI in the end will not differ materially from the traditional deals. We believe that there is a good future potential for the return, and we will continue to focus on this. And together with the sellers, we will continue to proceed with the process up until the close of this deal. Thank you.

What about synergy? What do you expect? What about synergy with Toshiba or synergy in terms of MICE IR? Do you have any comments?

Thank you for your question. When we do PE investments, synergy with existing business is not necessarily included in a valuation. And therefore, we believe that this is going to be a potential upside. Specific events, specific planning, well, it will be impacted by the future trend. So, we should not rely on just one factor that would lead us to the wrong decision. And therefore, together with the seller, we are basically assuming this is going to be a standalone business. And rather than synergy, we can have areas of cooperation. So, we have PE know-how from the past, which means that we have experience of hands-on investments in the past. And ORIX has its own unique financial perspective, which can be reflected in this project, and that should contribute to future growth. I know that this doesn't directly answer your question, but this is how we assess, evaluate our investments.

That's very clear. Thank you very much.

Thank you for the question.

The next person is from Mizuho Securities, Sakamaki -san, over to you.

This is Sakamaki from Mizuho Securities. Thank you for the opportunity. So, first, regarding your U.S. businesses, the risk as well as opportunity, if the rate cut is going to start in the United States, you may be able to start enjoying a growth potential. Is there any kind of timeline that you have in your mind, because we don't know how much of the cuts will be conducted, and also whether there will be a recession in the U.S. or not? And also, in terms of the frequency of the rate cuts, at what timing, if you have any ideas of the timeline, and what kind of impacts can be thought about as a result of such timeline?

So, well, then, in that case, if I could refer to page 28, you can see the breakdown of the businesses. Please allow me to refer to this page. And as of now, this is just maybe limited to the impression, but let me answer to your question. So, the credit market in the United States, to a certain extent, we can start to see the signs of recovery. And therefore, our investment as well as our own extension businesses can enjoy expansion of the spread. And moreover, as has been shown, NXT Capital, as well as Signal Peak, in fact, we can make use of the funds that have been provided by our investors. And that would perhaps accelerate the willingness to invest on the part of those investors as well. And also, if there was to be an interest rate cut in the United States, and that may translate into the recovery of the market, and that may contribute to the earnings recovery, and maybe in the second half of next year or so. And as to the real estate businesses, in actual fact, we cannot, of course, foresee how much of a decline can be expected for the long-term interest rate. So, it is very much to do with the policy rate. And how does it affect the development of deals? So, that is what we cannot foresee as to the magnitude of the impact. And so, we would have to foresee how the policy is going to trend, especially in light of the presidential election in the United States. So, but as we look back at the past years, at the moment, as well as Boston Financial Investment, the mortgage investment levels that we used to enjoy in the past, maybe we would have to watch over the development in the next one to two years. On the other hand, as to PE, targeted equity, especially the middle market in the United States, in the general businesses or service businesses, their earnings recovery, and also an M&A business recovery related to such recovery of the market, it may take a little while. So, therefore, we would have to continue to be on the defensive side for now. So, the industries -- the impact to the earnings of the industries is one thing. But on the other hand, the private equity investment, the interest on the part of the investors, we have to see the terms and conditions becoming a little more clear and transparent because it remains to be uncertain still. So, credit-related businesses, we think that the pickup is going to be a little earlier, whereas mortgage, as well as PE, may take a little while until we can see a short recovery in the market. That is all.

Thank you very much for fetailed anpnanation JPMorgan Securities, Sato-san, please ask your question.

Thank you. Yes, just one question about the non-performing assets or asset quality. What is the concentration and the future risks? What is your view on the future risks? In the appendix, page 27, I can see the non-performing. And for the individual loans, the non-performing is increasing. The ratio increases 2.8%. Compared to pre-COVID, I believe that this ratio is probably the highest that you have had for a while. So, where do you see the non-performing assets in each asset type? And how would you account for these losses? Is there a risk that this will hit your PL in the future?

Thank you for your question. In terms of amount, total NPL is just over JPY60 billion. And then you have the traditional -- so, this is actually higher than the traditional number, JPY30 billion to JPY40 billion. There are different factors behind this. U.S. real estate business. In terms of classification, we have to include some of the items here. And this is why the disclosed amount of NPL is higher than before. So, real-estate related financing deals. This is what I'm talking about. And some of them will be recovered according to the disclosure assumption. So, we have no big concerns for those items. And also, the unknown value is recognized here by us. So, the real estate, which is part of the mortgage, we will continue to pay close attention to this. So that we can deal with the potential of losses in the future. So, we have not really accounted for this in a large way, in a big way at this point in time. But as I mentioned before, interest rate trends and also including mortgage, the business environment surrounding real estate may take time to recover, which means that at the moment, unbalanced or securitized assets, management status will have to be enforced. And we have already started this effort by reviewing the insurance. And also, we are doing this in a more granular manner right now. So, in terms of recognized assets by us, the quality of the assets, I would say, is now shared and managed at a higher level than what it used to be. In other words, in that sense, the transparency is improving. I hope you understand this point and that's my answer. Thank you.

Thank you very much.

Suzuki, thank you for the question. The next is Suzuki-san from Nomura Securities, over to you.

This is Suzuki from Nomura Securities. Thank you for the opportunity. Allow me to refer to slide number 10. So, there's one question to ask about this slide. So, referring to the bullet point, for the full year earnings, so capital gain is to be targeted which is to surpass that of '24 March end. So, I think you have changed the wording here. Can I take it that the likelihood has increased? This is something that I want to you to confirm. And it is not just dependent on the gain on sales, but also the new investment? Because of the market fluctuation, the volatility, how does it affect you in making or executing those decisions? Because the valuation may perhaps decline, that may allow you to make further investment. And also, yen has started to appreciate. So, some of the hesitancy that you used to have may go away. So, would you mind giving us some flavor to your idea because of the changes in the market?

So, while we were targeting, we can expect, we have said, and that is at the time of the earnings result, we have made such expression that we targeted with what we have said last time. But this time, we have said that, we can expect or we expect. And that is based on the first quarter result. But there is not much of a change except for the fact that we have now concluded the first quarter. So, the market continues to be volatile. But as to the deals that we foresee executing, of course, we will continue to watch over the development by carrying through the negotiation. As to the likelihood, it is only one quarter of the purpose that we were able to meet in the first quarter. But as to the new investment, as you have asked the question, the valuation may have gone down. But the yen appreciation, especially in the first one or two years, if you were to compare to our actual investment. So, as a result of yen depreciation as well as low interest rate, we have been focusing very much on investment here in the domestic market. So, with the current rate against the U.S. dollar, the yen at JPY144, would that be perceived as attractive enough, it's yet to be determined. But as to the negotiation that we have been carrying out, it is true that we will be able to enjoy a little more tailwind, thanks to this depreciation of yen. But we may turn a little stronger in allowing the growth to take place, not just on shore, but also abroad as well.

Thank you very much.

Thank you. The floor is open for questions. [Operator Instructions] Citi Group Securities, Niwa-san. Please ask your question.

Yes, this is Niwa from Citi. I would like to ask you about the shareholder return. I believe that the variation is now lower, maybe partly due to the external environment. Investment into growth versus return for the shareholders, how do you evaluate this? And also, share buyback, do you think maybe there is room for you to be more agile, mobile about this? So in terms of share price support, is there anything that you can announce to us today? Thank you.

Rationality of share buyback, well, we have to compare that against the expectation for the investment into growth, and this is something that is discussed by board meeting as well. So today at BOD, we met early in the morning. So we were actually not really talking about how the market would perform during the afternoon, but BOD, including our internal and external directors, the discussion included the reasonableness of the share price. This has always been discussed. Share buyback to support a share price, whether we can do this in an agile manner, well, we have not really discussed this extensively. I'm not really talking about specific thresholds, after which we would move very quickly, but we would like to receive this question and try to learn a little bit more about this going forward. I know that, I'm not really answering your question, but we are only talking about the return to shareholder as a comparison against the investment for growth. And in terms of the share buyback, we may decide it quickly, but we will not be doing that just because the share price fluctuated. That's all. Thank you.

Thank you very much for your very dynamic explanation. That's very informative.

Thank you for the question.

We are still waiting for your question. If you have any, please come forward. There seems to be no further questions, so we would like to conclude the Q&A session for now. I would like to call upon Yamamoto, who will be providing the closing remarks.

Thank you all very much for joining us in this briefing, despite the very busy schedule. So that was the trend for the first quarter, and thank you very much for many questions. So, we would like to, of course, capture whatever the changes that will take place in the market to be a great opportunity that will make a positive contribution to the earnings. So, we will continue to watch over the development of the deals that are existing as well as in the pipeline, and thank you very much for your time again.

So, we would like to conclude the 2025 March-end first quarter results earnings briefing. Thank you all very much for taking part in this session.