Kazuo Kojima - Deputy President & CFO Shintaro Agata - Head of Treasury Headquarters Takao Kato - Head of Accounting Headquarters.

Analysts:.

Welcome to ORIX Corporation's Third Quarter Financial Results Conference Call. At this time I would like to turn the call over to your moderator Mr. Chang Wang [ph]. Please go ahead, sir..

Good evening this is [indiscernible] corporate planning [ph] and I would like to welcome you to ORIX conference call to review our third quarter consolidated results for the nine months period end of December 31, 2016. I'm joined here this evening by the Kazuo Kojima, Deputy President and CFO as well as Mr.

Shintaro Agata, Head of Treasury Headquarters and Mr. Takao Kato, Head of Accounting Headquarters. During this evening's call I will go through the third quarter results and then we will open up the line to Q&A with Mr. Kojima.

I presume that everyone has in front of them the presentation materials that were posted on the IR section of the website this afternoon Tokyo time. The following live broadcast is copyright ORIX. Statement made today may contain forward-looking statements information.

Well this information reflects management's current expectation or beliefs you should not place undue reliance on such statements as they are future results and business activity may be affected by a wide variety of factors that are out of our control.

You should read the forward-looking disclaimer in our earnings presentation as it contains additional important disclosures on this topic. You should also consult our reports filed with SEC for any additional information including risk factors specific to our business.

Also please note that the net income used in this presentation is same as the net income attributable to ORIX corporation shareholders. As referred to in the latest financial statement [indiscernible] consolidated financial results April 1st to December 31, 2016. And without further delay I would like to start the presentation from slide 1.

The net income for the nine month period end of December 2016 was ¥217.1 billion a 1% increase year on year. The annualized ROE remained largely unchanged from the first half of this year at 12.2% which is higher than the management's target range of ROE between 11% to 12%.

Compared to the same period last year where we recognize the sizable gains of ¥39.6 billion associated with the Houlihan Lokey IPO. We think the level of earnings we generated this fiscal year so far is still a solo performance overall. Please turn to slide 2, total segment profit for the three quarter were at ¥329.1 billion.

An increase of 2% year on year. I will explain segment performance in more detail later but basically the third quarter continue the same trend as in the first half of this fiscal year. The following three business segment continue to deliver a positive profit growth. They are investments in operation, real estate and retail segments.

There are always these segments which is represented by the beige color at the top of the bar continue to contribute significant amount of profits for instance in the third quarter we recognized gains about ¥20 billion from exciting one of our investments in the Americas.

Please turn to slide 3, total segment asset have decreased by 1% or ¥75.8 billion since the end of last fiscal year, down to ¥8.8697 trillion. Segment assets decreased in all segments except for the overseas business which actually grew by 6% year-to-date driven by increased investments in the Americas and the aircraft related businesses.

Segment assets decreased in corporate financial service segment primarily due to decreases in installment loan balance as we continue to be selective on new transactions based on profitability. Maintenance leasing segment issued ABS which decreased the asset balance, otherwise the volume of this new transactions actually was higher than last year's.

Segment asset decreased in real estate segment due to continued sales of rental properties. In the investment and operations segment, segment asset remained flat as additional private equity investments and [indiscernible] assets were offset by exits of private equity investment and sales of securities.

In retail segments, segment asset decreased primarily due to the life insurance asset associated with life insurance run of business and the cashing in on catchiness on income assets held by ORIX Life Insurance. These more than offset the modest assets growth by our banking business in the same segment.

Annualized after tax ROE was 3.2% indicating our asset efficiency overall remains higher. Please turn to slide 4, this slide shows major components responsible for the overall profits and asset changes year-on-year.

The chart on the left shows the year-on-year changes in the pretax profits, pretax profit for the first three quarters stay at the same level as last year despite a negative ¥12.5 billion of Forex impact from a strong yen this year.

And look into each of the major components in the pretax profit from existing operations decreased by ¥14.8 billion this year.

We recognize about ¥98.2 billion of gains on sales of investment and at the same time we also recognize on sales of real estate assets, 30.9 billion and together they account for ¥129.1 billion compared to the same period last year we also recognize similar level of gains ¥93.9 billion of gains on sales of investments and also ¥21 billion of gains on real estate assets and last year's total amount was ¥114.9 billion.

The chart on the right gives a breakdown of the segment assets changes year to date and as you can see existing operation had an increase in assets ¥287.5 billion and they were other decreases - factors including securitization ¥77.5 billion as the decrease in Hartford life insurance ¥137.8 billion, ¥81.6 billion of sales of that investment and ¥59.4 billion of sales of real estate assets and also note that cumulative basis for the three quarters the asset decrease impact from foreign exchange rate movement ¥7 billion.

During the second quarter the number here was much larger at about minus ¥24 billion of negative impact on assets but in the third quarter the exchange rate between U.S. dollars and Japanese yen sort of recovered somewhat and net all in total for the three quarters the impact was ¥7 billion.

Please turn to the next slide for more details in each segment. For the corporate financial services segment profit decreased by 22% year on year to ¥26.3 billion. Finance revenues have decreased in align with the lower outstanding balance of installment loans gained on sales of securities also was lower than that of last year.

Services income including those from [indiscernible] continue to grow steadily. It has increased by ¥2.9 billion year-on-year. In terms of revenue contribution services income has surpassed finance revenues and is now the largest revenue generator for this segment.

Segment asset decreased by about 1% down to ¥1.389 trillion at the end of nine month period. However segment asset grew by ¥4.5 billion in the quarter on a standalone basis. Please turn to slide 6, in maintenance and leasing segment profits have decreased by 15% year on year down to ¥28.6 billion.

This decrease in profit was mainly due to the wholesale related business, earning on sales of used vehicles which is included in the operating lease revenues in the financial statements has decreased. Segment assets have maintained pretty much flat at ¥731.5 billion after a minor increase of ¥0.2 billion on a year to date basis.

Increased volume of new transaction in the wholesale related business school was the main driver behind the segment had increase which more than offset the ¥37.5 billion of securitization conducted during the first quarter this year and also the decrease in rental asset on the ORIX rent agreement [ph].

Please turn to slide 7, in real estate segment profit increased by 12% year on year to ¥49.7 billion. The real estate market in Japan continues to be strong and we have continued to sell our rental properties generating higher gains on sales compared to last year.

Operating facilities a major source of our services income including our hotels and hospital resorts continue to contribute stable incomes despite a limited level of impact from the Kumamoto earthquake during the first quarter. We also continue to make new investments selectively in operating facility that generates stable cash flow.

Segment assets decreased by 8% down to ¥680.2 billion due to the continued sales of rental properties. Annualized ROE increased from 3.6% last year to 6.4% as of the end of third quarter. Please turn to next page. In investment and operation segment this segment consist of environment energy business.

Our private equity investment business in Japan [indiscernible] and from this year a new addition of construction business. The segment profits for the three quarters have reached ¥68.8 billion an increase of 47% year-on-year.

During the first quarter we sold two of our private equity investment, in the second quarter we saw one investments all these transactions generated capital gains.

Our Environment and Energy business continue to grow in the third quarter with additional power generation capacity for our mega solar and a steady expansion of our electricity in retail and business. Service incomes from the environment energy business grow by 21% year on year.

Our concession business which after incurring expenses in first quarter started contributing profits from the second quarter and continued to contribute more profit into the third quarter. Segment assets decreased by 1% in a nine months period down to ¥697.6 billion due to sales of private equity investment which I just mentioned.

Segment asset environment and energy business namely mega solar asset is growing steadily. As of the end of December 2016 we have secured 940 megawatts of which 520 megawatts have commenced operations. Please turn to slide 9, in retail segments, the segment profits have increased by 23% to ¥60.1 billion compared to the same period last year.

A higher number of policies in force with Hartford life insurance and the sales of fixed income assets such as KGB has contributed to the segment profit growth. Finance revenues also increased in line with the growth in housing loan and [indiscernible] under our banking business.

Segment asset decreased by about 4% down to ¥3.331 trillion year-to-date. The main reason behind such decrease were the cash on fixed income asset held by ORIX life insurance where some of those cash proceeds were kept as cash and cash is not recognized as segment assets.

And also the continuing asset decrease in the Hartford life insurance one off business. Healthy loan and [indiscernible] loan asset balance on the other hand have increased compared to the beginning of this fiscal year.

Please turn to slide 10, the last segment is the overseas business segment, the segment profits has decreased by 18% year-on-year reaching ¥95.6 billion up to the nine month period despite a negative impact of ¥12.5 billion from the forex movement this segment continued to make strong contributions including ¥20.2 billion towards of gains on sales of private equity investment in Americas in third quarter.

Segment assets have increased by 6% since the start of the fiscal year to ¥2.4169 trillion mostly due to expansions in Americas and crop related assets.

For our shipping business has already reported in the media we have agreed to acquire 289 million worth of shipping loans from the Royal Bank of Scotland and part of that have being reflected on the financial statements from the third quarter.

Please turn to the next slide, slide 11 provides the snapshot of the segment profits under the three categories framework for the past three years.

Please do know that for the purpose of illustrating normalized earnings trends gains of significant size and of onetime nature such as capital gains from the Houlihan Lokey IPO [indiscernible] purchase gain recognizing the acquisition of Hartford life insurance are excluded in these graphs.

For details on how these three categories are composed with different sub categories please refer to page 31 in this presentation material. Finance category generate a lower profits on the year on year basis, overseas finance business had a lower profit year on year due to the recognition of some impairment and provision of helpful receivables.

Domestic finance business on the other hand achieved profit growth through housing loans and car loans. In operation categories, maintenance services generated less profits than last year due to lower gains from used vehicle sales which is reflected in the operating lease revenues.

On the other hand environment infrastructure and financial services both achieved proper growth year on year. Environment and energy business continues to expand, procession business also got of a good start this year.

As for financial services our life insurance business delivered higher earnings supported by a greater number of new policies in force and also investment gains. In investment category overall strong capital gains from equity investment and tangible assets have driven this category to higher profits in the last year. Please turn to the next slide.

Here I would like to conclude the presentation with the summary. For the first three quarters which ended December 2016 we have achieved net income at ¥214.1 billion, an equivalent level of running previous fiscal year. Annualized ROE was 12.2% a solid result overall.

Looking ahead the foundation of our future growth will come from investment and operation businesses. We will continue to expand our existing operation in these fields and also seek new business opportunities that have potential to become the next major profit contributor for the group. This ends my presentation. Thank you for listening. And now Mr.

Kojima, Mr. Agata and Mr. Kato will be happy to answer any questions you may have..

[Operator Instructions]. Our first question today comes from [indiscernible]..

I have two questions if I may, the first ones on the retail segment. If I understood correctly you mention that as some of the life insurance fixed income investments have matured. You have held those assets in cash presumably that’s due to the interest rate environment.

So can you give us an idea of how big that is and how you can still achieve the required return on assets, do you need to buy more equity or can you afford to wait for a while before you need to invest that? That’s the first question. Thank you..

So regarding your first question, you are partially correct since beginning of last year with the negative interest policy the stock of fixed income asset that we sold they were not actually matured asset.

They were no investment in the Japanese government bonds that as we sold off before they actually matured and we consider it was the right thing to do.

It's great that some of that is getting cash as cash and we did not reinvest immediately because we are currently looking very closely at the interest rate environment and we believe they might be a better timing than now to start reinvesting in other income assets in the future..

Okay, I see. A few months doesn't change, doesn’t be at risk of not making the return requirements..

That’s correct..

The second area if I may is in the overseas business what can you tell us about the [indiscernible] shipping loans in terms of the type of discount you're buying them at maturity duration and what kind of return you expect to achieve on that invest?.

Because of the nature of this transaction a lot of the details that are fortunately we cannot disclose but basically one thing we can share with you is after the discount on these assets our own estimation of return was roughly around 7% or so..

[Operator Instructions]. [Indiscernible] there are no further questions today. So at this time I would like to turn the conference back over to you for any additional or closing remarks..

Thank you very much. As there are no further questions Mr. Kazuo Kojima has final words, message to share with you..

This is Kojima. Thank you for joining today's conference call. Nine months [indiscernible] in the current fiscal year and we have deliveries roughly the same [indiscernible] last few years. While maintaining the ROE of our management target range. I consider this to be a solid performance given the strong end increased this year.

While we see the business and government contributing to change at a rapid pace. We were apt, as we adapt and discover potential business and at the same time we will focus on expanding our operation and investment regions and continue our efforts towards our medium term goal by 2018 March.

Once again I appreciate your interest and the continuous support to ORIX until now and also in the future. Thank you..

Thank you for participating in tonight's conference call. If you have any questions or comments please do not hesitate to get in touch with us using the contact information found on the last page of this evening's presentation material.

Also a replay of this conference call will be available shortly on the ORIX on the website if you joined pathway through or would like to listen to certain sections again. On behalf of the management and the entire ORIX group. Thank you for your participation.

I hope that we have a chance to meet whether it is in your corner of the world or here in Tokyo..

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