Good evening, ladies and gentlemen, and thank you for joining us for this telephone conference of ORIX Corporation for the third quarter consolidated financial results for the ninth month period ended December 31, 2020. Today's attendee of this conference is Executive Officer, Head of Treasury and Accounting Headquarters, Mr. Yano.

As we begin this conference, we'd like to ask the participants to make sure that you would turn off your mobile phone or put it away from the telephone in order to avoid acoustic feedback. If we experience severe acoustic feedback during the meeting, we may have to discontinue the meeting for a while and ask the participant to help us.

Please understand. And we would like to have a presentation by Mr. Yano first and then it will be followed by Q&A session. The whole meeting will take approximately one hour. At this time, I'd like to turn the call over to Mr. Yano. Please begin. .

I am Yano, Head of Treasury and Accounting Headquarters. Thank you for joining us today for the FY 2021 March and third quarter business performance announcement of ORIX. Without further ado, I'd like to begin. Please refer to page 2. I believe that you do have our handout. I'd like to begin by sharing the executive summary of the quarter.

First, the performance. The year-to-date net income of the third quarter of FY 2021 was down Y-o-Y or year over year by 42%, ¥142 billion, with annualized ROI of 6.4%. The net income for the third quarter was ¥48.2 billion, which is an increase of 10% as compared to the second quarter.

This indicates a progress of 75% vis-à-vis the target of ¥190 billion for the whole year, which we shared at the time of the interim results announcement. The guidance of ¥190 billion for the full year remains unchanged. The second point is shareholders return. On November 2 of last year, we announced the share buyback program of ¥44.2 billion.

As of January 8 of this year, we have completed the execution of the program by 100%. Repurchased shares were cancelled as planned on January 29. While we would like to use some proportion of retained earnings for new investment, our policy of not retaining any unnecessary capital remains unchanged.

As to the surplus capital, we intend to return them to our shareholders through stable dividend and flexible and agile share buyback program. The third point is new investment. Despite of COVID-19 pandemic, ORIX remained active in making new investment, while being very selective in choosing the target.

At the time of the second quarter announcement, we shared our expectation of ¥200 billion worth of new investment. However, the new deals continued to increase and have so far made an announcement of approximately ¥400 billion worth of new investment.

We will continue to deploy our investment capability widely, with focus on renewable energy and asset management. Last point is financial health. We'd like to continue managing the businesses while maintaining the health of our financial standing.

Liquidity at hand excluding ORIX Bank and life insurance is secured at a high level of ¥1.1 trillion as at the end of December last year. As for credit rating, we maintained single-A or higher, with Fitch keeping their rating as at this third quarter. Now please refer to the next page. From here, I'd like to explain further details of the result.

First, for the net income and ROE, I have shared the numbers a little earlier. If you could refer to the chart on the right hand side of the page, you can see that the trend is on the recovery from the second quarter. Now, please refer to the next page.

I'd like to share the breakdown of segment profit by splitting the profit into base profit and investment gain. Segment profit for the nine months was down by 37.6% year-over-year at ¥231.4 billion.

Base profit trended firmly with the exception of some segments that received a significant impact from COVID-19 outbreak that I'll explain in more detail [indiscernible].

As a matter of fact, the segments such as Environment & Energy, Life Insurance, bank and credit, and ORIX Europe are trending steadily, proving the strength of our diversified portfolio.

Investment gains year-over-year, but we managed to secure a certain level of gains despite of COVID-19, by realizing gains on sale of real estate assets and others in the US and Asia. Please turn to the next page. Next page shows the impact of COVID-19.

And this is shown by business unit impact on profit in the third quarter following the second quarter, starting with the real estate and facility operations. Due to the impact of our Go To Travel campaign, the hotel and in occupation, which was in single digit in the first quarter, improved dramatically in the third quarter.

In Aircraft Leasing business, the impact of COVID-19 still remains, but I will go and explain this in the segment performance later on. But compared to the second quarter, we have seen some improvements.

Concessions, we saw 80% recovery compared to the previous international/domestic flights as of December, but since the federal emergency declaration was extended, we need to stay cautioned to this industrial climate together with aircraft leasing.

In these three business units, we still have impact of COVID-19, but the level of impact reduced from the second to the third quarter. Corporate finance services and maintenance leasing and ORIX USA have made solid recovery in the third quarter. No major impact of COVID-19. Moving on to the segment performance on the next page.

For all of the 10 segments, we are showing comparison against the prior quarter and prior year in terms of segment profit. I mentioned the advantage of having a diversified business portfolio.

And in comparison to the second quarter, in 6 out of 10 segments we saw positive growth in profit versus prior quarter and four segments were profitable as compared to the prior year. And the segment details as shown on page 11 and beyond. We would like to refer to those pages now for a brief explanation of each segment. Please turn to page 11.

Starting with our Corporate Financial Services and Maintenance Leasing segment. In automotive, thanks to the tailwind of Go To Travel campaign, rental car demand has recovered. And Rentec, because the operation of the engineering center has recovered, we have seen increase in profit compared to the prior quarter.

The segment asset was down by ¥99.1 billion compared to the previous year-end, but because of the low interest rate, we will continue to maintain the spread and we are not forcing ourselves to build asset balance. Please turn to page 13 for Real Estate segment. Investment and facility operations unit.

In the third quarter, profit was down due to lack of gain on sales of major deals, but the hotel in occupancy improved, pushing up the base profit. And considering the seasonal factor, DAIKYO is doing pretty well. Please turn to page 15, the Investment and Concession segment.

Private equity investment in Japan, we had one in first quarter and three in the third quarter. We are implementing a new investment on a constant basis and now we have 17 investees. Invested business in general are doing well and the earnings are solid.

In January 2020, we newly invested into Kobayashi Kako, which is a company that develops, manufactures and sells generic medicines. And [indiscernible], there was contamination of hypnotics and we would like to provide a sincere response to the victims.

And we will fully cooperate with the investigation by Fukui Prefecture and HOW as well as expert outside panel in order to understand the full extent of this incident and implement measures to prevent recurrence. In order to execute our social responsibility as quickly as possible, we would like to extend our maximum support as investor.

Moving on to the Concession business. Kansai Airport is operating three airports. And in those airports, internal flights recovery is still slow. But since August, we have seen a recovery trend in the domestic passenger traffic and we have made some recovery compared to the previous quarter. Please refer to page 17, Environment & Energy segment.

Solar power experiences seasonality. And for this reason, third quarter profit is down. But overall, it trended well despite of the pandemic. In the first quarter, the one-time evaluation gain was posted from the wind project business in India. By the third quarter, we had made two major investment in the overseas major renewable energy.

So, in India, to Greenko Energy, we have agreed to make over 20% of investment to the outstanding shares. And we aspire to close this deal by end of this year. In Spain, we have invested – we have decided to invest in Elawan Energy with up to 80%. And we aspire to close the deal by end of next year.

As a result of these investments that we have made to these two companies, our exposure to renewable energy has expanded globally. And we have put together a portfolio at this point in time. So, please refer to page 18. So, on this page, we have shown our exposure to renewable energy globally. And it has been mapped out on this page.

So, it is not just limited to the domestic market. But in the United States, Europe as well as in Asia, we have total net owned operating energy of approximately 3 gigawatt and this, in fact, puts us to be the number one in terms of the portfolio for renewable energy here in Japan.

So, while the decarbonization, of course, is gathering momentum, we would like to establish the position as the renewable energy operator and thereby contribute to the sustainable society through our business activities. Now, please refer to page 19.

This shows the insurance businesses, we have refrained from carrying out face to face sales activities. However, thanks to Internet as well as direct mail channel, we did manage to acquire more policies and maintain a stable source of income. On page 21 shows credit as well as bank.

We have been making use of Internet sales, and thereby, we have captured the real estate investment loans demand, and both assets and profit grew steadily as a result. On page 23, we show aircraft and ships segment. Aircraft leasing, we continue to remain cautious in our outlook. However, aircraft portfolio is mainly consisted of narrowbody.

Moreover, the majority of lessees are flagship carrier that receives here governmental support, so we believe we are relatively better positioned. Avolon interest payment declined, resulting in the recovery on a quarter-on-quarter basis.

As at the end of 2020, the liquidity of Avolon was $6.5 billion in hand, so there is no concerns over the cash management. On the short run, of course, we would remain to be cautious in our outlook for the recovery of the global aircraft business. But I think our exposure is cautiously and successfully managed. Please turn to page 25 for ORIX USA.

In the first quarter, we had to post credit losses and funding valuation losses for energy-related companies. But from the second quarter, we have seen an improvement trend and we saw a big improvement in the third quarter as well.

Three real estate subsidiaries were integrated into a new brand called Lument in the third quarter And by acquiring Boston Capital, we have now become top tier originator in this industry by doubling the AUM for the tax credit program for affordable housing. Please turn to page 27 for ORIX Europe.

AUM in the segment bottomed in at the end of March 2020 at €233 billion. And at the end of December 2020, we have seen a 20% or more improvement to €285 billion. And in the third quarter, net AUM turned positive and product adjusting to relatively high fees and the profits trending quite well. Please turn to page 29.

Again, continuation of the asset management segment. Both inside and outside Japan, we have diversified asset management businesses. And you can see the AUM and the segment profit of different businesses. At the end of the December 2020, group AUM reached ¥45 trillion.

And for this fiscal year, as I mentioned, in addition to Boston Capital, we have announced the acquisition of a unique company called Gravis Capital. AUM is growing. And the stable fee revenue is also growing. And segment profit of this business has grown to become 20% approximately of the whole group in the third quarter. Please turn to page 30.

This is the last segment, Asia and Australia. In the third quarter, we had to post some impairments for some PE industries. But in China, Taiwan and Australia, we have seen solid profit in the local operations where the COVID-19 impact is relatively small. That concludes explanation about the segments. I would like to now go back to page 8.

New investment status. In the beginning of the term, I mentioned that we had pipeline worth over ¥2 trillion. And this fiscal year, we have announced additional ¥400 billion. And again, we're focused on renewable energy, asset management and private equity investments.

As for the details of these new investments, I have provided some explanation when I went through the segment performance. For this fourth quarter and for the coming fiscal year, we will select the deals and continue to switch the assets, so that we can continue with our active investments. Please turn to the next page. Finally, financial soundness.

As I mentioned in the outset, we enjoy high levels of liquidity and our financial soundness is maintained. For specifics, please turn to this page. Look at this page. And that was the last page I wanted to show you. But as a quick summary, as of today, we are still under the sort of emergency.

We don't know when the global travel would resume on a full scale and future is still very uncertain. However, our business portfolio is resilient. Compared to the second quarter, the performance of the third quarter has definitely improved.

And we are not satisfied with the current level of ROE and we will continue to make efforts in order to achieve the mid to long term target of 11%. That's all from me. Thank you very much for your kind attention. .

[Operator Instructions]. We have Mr. Watanabe from Daiwa Securities. .

I have one question to ask and being explained, and that has to do with Kobayashi Kako, what kind of impact is given to this full year business expectations and what do you think about the future from a financial perspective?.

So, Kobayashi Kako, first of all, we are terribly sorry. We offer apologies to those whose health was affected as a result of this incident. And so, as to the PE investment, we, in fact, post the result three months after the accounting, closure of the accounting.

So, in terms of the impact, any impairment or appropriation of reserves would have to be considered. So, at this point in time, we don't know – it is yet to be known, the magnitude of the impact comes from this incident. But as of now, we don't regard to be material, the impact would be.

So, the basic investment amount if I could refer to the amount that was the amount of investment that was made, it was a fairly sizable, relatively speaking, but it was in tens of billions of yen. But it was within the range of 100 [ph] from our perspective.

So, we would like to, of course, fulfill our accountability and self-responsibility within the limit of the investment that we have made. And this is so far as much as I can share with you at this point in time. Thank you. .

Mitsubishi UFJ Morgan Stanley, Ms. Park. .

This is Park, Mitsubishi UFJ. Actually, Tsujino speaking. This is not related to the actual performance but share buyback was executed. For the first six months close, you mentioned that you think that you'd have to do this on a continual basis.

Given that way you're thinking, what about the timing of announcement of something like this? I would like to ask you how you plan to make the announcement in the future.

You said on a continuous basis in order to make sure that the investors don't have anxiety, maybe in the beginning of the year or maybe for the full-year earnings announcement, you can talk about the share buyback program and then just implement throughout the year? Or one year ago, on year before or two years before, you could, for example, say that you want to see the results of the first half in order to make the decision.

So, what do you think about the timing of announcements?.

Yes. Our basic stance for share buyback has not really changed. But unfortunately, at this point in time, I can't really say what's next. In the second quarter, we made the announcement and share buyback was completed – was going to be completed in March and it was completed. So, I don't have anything additional to announce at this point in time.

Going forward, we will respond to the situations. So, in the second quarter or the final year closing, we tend to talk about our capital policy. That's what usually happens. So, depending on the performance, investment, as well as dividend policies, we have to take a balanced view. And hopefully, we can talk about share buyback like that in the future.

I'm sorry, I don't have anything specific I can share with you today. Anyway, that is the plan. Thank you. .

The next question is from SMBC Nikko Securities, Muraki san, please. .

As to the outlook, I'd like you to share with us your expectations. So, there wasn't much investment gains, but the share price is remaining to be at a high level. So, taking those into account, the investment gains, on the other hand, there could perhaps be a possibility of some impairment gains in some segments, I suppose.

Would you mind giving us the update as to your expectations?.

For this fiscal period, as to the investment gains, there isn't much that we have planned. So, I would imagine that the amount will be around ¥100 billion or so. So, this year would be around that amount. And the fourth quarter will be around – within the limit of our expectations. So, there will be certain amount of investment gains for sure.

As to the impairment, in the third quarter, there was a small amount of impairment that was posted. Unfortunately, we had to accommodate this impairment. However, it was not sizable. And after the credit, as to the appropriation of the reserves, in the fourth quarter, we do not foresee any major impairment.

Kobayashi Kako, as we have said, we're going to be taking an adequate and appropriate, of course, actions within the limit of our investment size. And as to the fourth quarter, I think I have to refrain from sharing my personal expectations.

But unless there is an acute change that may take place in the market, I would imagine that the current trend may be sustained. So, that's all I can share with you. .

As to the aircraft leasing businesses, you have given us a comment that you remain to be cautious.

With regard to Avolon, for the next three months or so, unless there is a major change this fiscal period, would there be no major impairment that you'll be posting?.

I'm not denying the fact that there will be any kind of impairment. But of course, we will be carrying out the stress test and also the impairment test with, of course, the accounting auditing firm checking against it. But as of now, we are not planning any impairment as of now. And I would imagine that it will be within the limits of our anticipation.

Thank you so much. .

Next from JPMorgan Asset Management, Mr. Ateo [ph] please..

Just have one question in terms of your aircraft leasing business. Can you share your thoughts on the impact of bankruptcy filing of HNA on your aircraft leasing business, either directly and also through Avolon? And what is your expectation on this? And also, how much exposure do you have to the HNA group? Thank you. .

So I listened to the question in Japanese. I would like to respond in Japanese as well. With regard to HNA, it's called bankruptcy, but it's actually more like rehabilitation – civil rehabilitation. Avolon's parent has 70% of the shares. It's called Bohai. Bohai is listed and Hainan only has 28% of the shares.

And within this rehabilitation program, Bohai is not included. In other words, Bohai has clearly been severed. And our long-term shareholder structure has improved. That's what we think. So, Hainan Group as a shareholder, everything's now clean. In other words, it would have a positive impact. That's what I think.

And another thing I would like to mention is Avolon's exposure to Hainan or our exposure to Hainan. ORIX excluding Avolon has very small exposure, minimal exposure. We do have exposure, but it's nothing to speak of. We do have a joint venture and two or three aircraft. That's all we have in terms of exposure. So, it's negligible.

Avolon itself, I think, discloses this information. Hainan Group is the largest lessee and there are some amounts that's not been collected yet. However, if you carefully read Avolon's earnings announcement, you will find this information.

This uncollected amount is approximately ¥200 million, roughly speaking, and there is also the dividend reserve, which is about the same amount. So, once these accounts are settled, the amount that is yet to be collected is quite small. And our impact is 30% of that small amount.

And Hainan debt will now be cleaned up and Hainan Airline wants it rehabilitated properly. We believe that it's going to be a positive factor for Avolon. That's the current status. Thank you. I hope I answered your question. .

We'd like to move on to the next person. GS securities, Nakamura san, please. .

I am from Goldman Sachs. Nakamura is my name. Just to make sure.

So, the rise in the electricity tariff rates in the third quarter, were there any impact? I believe that there have been no – almost no impact? And also, is there any kind of negative impact that is given to the funding as well?.

Yes, we did receive some kind of impact. But we do have our own self-generating businesses as well. So, the impact was not as major as you may have expect. So, in the fourth quarter – that is inclusive of the fourth quarter, not just the third quarter. There were none in the third quarter, and there will be some impact given to us in the fourth quarter.

But in the flow of things, it is almost negligible. The impact is not that large. .

Next, Sasaki san, BofA. Bank of America. .

I want to talk about the performance of next fiscal year and beyond. I believe that the business plan, the budget for next fiscal year, is probably discussed now. After the announcement of the third quarter performance, I think you usually provide some explanation about the outlook of next year's performance – or budget.

So, based on what's happened so far. Are there any positive or negative changes to the scenario for the next year's budget? That's my single question. .

I need to apologize. I am not really supposed to talk about the details of next year. But basically, no big change from the second quarter. To this date, it's ¥300 billion after tax profit. That's the steady state for us.

So, how can we quickly go back to this steady state over ¥300 billion? How much recovery can we make in the next year? And as you have rightly estimated, we are formulating the budget as we speak, and hopefully, we can share more information with you at the time of the full-year announcement. That's all I can say for now. I hope you understand. .

[Operator Instructions]. The next is Mizuho Securities, Sato san, please..

This is Sato from Mizuho Securities. Thank you for the opportunity. I have one question that is very much into the details. So, after the closing, at the time of the result announcement, you had talked about the two [indiscernible]. And you said you may perhaps carry out an acceleration of the amortization.

But I don't think you have decided on the direction.

But do you have any kind of expectation for this?.

Well, it will be determined by METI, the Ministry of Economics and Trade and Industry. And it is not our idea as such that will be reflected to the decision. But as to the possibility, Inoue had shared his own idea. .

But whether it is moving towards the correct – the right kind of direction, I wonder, because as of now, I don't think we have any kind of pessimistic or optimistic view to that. The risk, in fact, [indiscernible]. .

We had touched upon the possibility of some risk, but it is not zero in – the view of the risk being not zero remains unchanged. So, that's all I can say for now. .

Thank you. JPMorgan, Mr. Otsuka, please. .

Otsuka with JPMorgan. I have a question about page 18, renewable energy. Thank you for the clear summary. Going forward, what would happen to this business? What is the current plan? Up until now, similar to your regular or average business, you have a lead in profit and the future growth potential.

And based on that, the renewable energy business will also face portfolio turnover. It may be replaced in the future. Or is it going to be part of your ESG initiative? In other words, do you want to keep and maintain these assets? Do you have such perspective of doing this business as a part of your ESG activities? Thank you. .

The basic approach has not really changed. Renewable energy is business for us. And we believe that it's effective as business, but also it leads to sustainability as well. So, we want to actively increase such business. However, it doesn't mean that they will not face any turnovers.

If we can make a big investment and if there is good timing, maybe we will decide to sell some of the assets and maybe try to grow the overall size of the renewable energy portfolio. So, it's not as if we don't plan to sell anything in the future, but we want to expand..

The next person is from Citigroup Securities, Niwa san please. .

This is Niwa from Citi. As to the new investment, I have a question. If at all possible, I would like you to share with us your three views.

So, as at the third quarter, this ¥200 billion worth of increase, as to the speed, what is your takeaway in terms of the speed that you have acquired? And also, the due diligence process, I think you have now gotten used to the COVID-19 pandemic, but as to the speed from the management perspective, are you satisfied or not? And also, the new pipeline? Is it building up? Or is there any kind of changes to the pipeline? So, if you could comment on that so far as you're allowed to.

Thank you. .

As at the third quarter, so we think that we did a pretty good job as of the third quarter. I'm sorry to be kind of self-complacent. But the reason why I say that – we may have made a mention or it was Mr. Inoue, the CEO, who had made the mention at the time of the second quarter.

So, the views that was on our table already, due diligence was already progressing quite smoothly, but there was some deals that were suspended as a result of COVID-19. So, we had resumed the due diligence. So, therefore, we were able to make a quicker decision, I think, as at the third quarter.

So, due diligence is something that we cannot, of course, avoid. We have to carry out a decent and proper conduct of due diligence in proceeding with a deal acquisition. Even despite of the pandemic, I think we can do a pretty good job of due diligence work for sure.

So, of course, taking into account what could – of course, how things would develop, but we're not going to be relaxing our speed and we'll make sure that we will do whatever we need to. And has there been any change to the pipeline, I think was one of your questions. I don't think there has been any major – any changes to the pipeline.

I will not be able to, of course, mention any specific names when it comes to the deals in the pipeline, but there have been, of course, internal analysis of the deals. But we remain to be unchanged in terms of carrying out and remaining to be active in the new investment. Thank you. .

Mitsubishi UFJ Morgan Stanley, Mr. Tsujino please. .

In terms of renewable energy, you had two deals overseas.

How long do you think it will take for you to achieve what level of profit? What's the plan?.

With these two deals, I think they will take time before you can really see that they're generating a lot of profits. As you can see on page 18, we have some existing deals, projects, some in construction. And we also have some expectations for future pipeline as well. Therefore, I would say it would take maybe two to three years for us to expand this.

Of course, we are looking at double-digit of IRR, that's what we're looking for. And ¥10 billion or several billion – or tens of billions yens of profit should be generated in the future. And the question is, how quickly can we do it? I'm sorry, my answer is vague, but please give us some time. That's what I'm trying to say..

So one may be a little bit faster than the other.

Any difference between the two deals?.

Not a big difference between the two deals. Greenko and Elawan, of course, will be generating some level of profit from the beginning. It's not zero. But the idea is that they will grow gradually. And going back to what I said earlier, Greenko and Elawan may not be sold halfway through.

However, they may have different plans and project, and we may exit from those individual plans or projects. And that's a potential scenario. .

[Operator Instructions]. It looks like we have entertained all the questions. So, I'd like to invite Mr. Yano to make the closing remarks. .

Thank you all very much for you to have joined in this session today. So far as I understand, I'm sorry that my answer was too quick and brief perhaps. So, we are going to be finishing earlier. But in any case, if you have any follow-up questions, please do not hesitate to contact us. Thank you. So, we'd like to conclude the session for now. .

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