It's time to begin the meeting. Thank you very much for taking time over your busy schedule to join us for the ORIX Corporation Third Quarter Earnings Call for Fiscal Year Ending March 2025. I'm the master of ceremony today, my name Nakane from IR Sustainability Department. Thank you for this opportunity.
And today, we have operating officer in charge of IR, Kazuki Yamamoto, participating in this meeting. And before we begin, we would like to ask the participants to make sure to turn off any communication devices such as mobile phone nearby in order to prevent feedback or keep it away from the phone. Mr. Yamamoto's presentation will be followed by Q&A.
Yamamoto-san, please start..
Thank you for the introduction. Thank you very much for taking time out of your busy schedule today to join us in the ORIX Group's financial briefing. My name is Kazuki Yamamoto, and I'm in charge of Corporate Planning & Investor Relations.
Without further ado, I would now like to explain our financial results for the third quarter of the fiscal year ending March 31, 2025, announced back at 3:00 today. Please turn to Page 2 of the presentation material. First, let me explain the main points I would like to convey today. First, I will discuss net income.
Net income for the third quarter was JPY88.8 billion while the cumulative total for the nine months ending in December 2024 was JPY271.8 billion, which is up 24% year-over-year, and this is an annualized ROE of 9%. And this is a progress of 70% toward the full year FY '25 March end and net income target of JPY390 billion.
This is also a record high for the nine months year-to-date period. The second point is regarding progress in the three portfolio categories. The Finance category continued to be a stable source of earnings.
The increase in Insurance investment income and other factors offset the decrease in profit caused by the transition of ORIX Credit into an equity method affiliate. In the Operations category, in addition to the recovery in the performance of asset management and airport operations, some Santoku shipping contributed to profit.
In Investment, ORIX recorded investment gains in each quarter in multiple segments, including domestic PE, real estate and overseas renewable energy. So as a result, we have managed to achieve the results that I have announced earlier, which is a 24% increase year-over-year. The third topic is shareholder return.
As of December 2024, we completed JPY50 billion in share repurchases, the upper limit of the buyback program announced in May of last year. Our policy has been to limit total holdings of treasury stock to 5% of total shares outstanding and that any holdings exceeding 5% will be canceled.
While this policy remains unchanged, we have decided to cancel treasury stocks exceeding 2% of total shares outstanding in order to refrain ourselves from holding in excess of what we need to hold on to. Full year dividend will remain unchanged from the higher of either the previous year's actual DPS or a payout ratio of 39% of net income.
Please turn to the next page. As I mentioned earlier, net income for the nine months period ended December 2024 increased by 24% year-by-year to JPY271.8 billion. Annualized ROE was 9%. Our performance through the third quarter has been solid, and we are aiming to achieve record high net income for the full year. Now please see Page 4.
On this page, we explain the progress for each of the three categories versus our annual target. The bar chart on the left shows nine months results for FY '24 March end and FY '25 March end. And the bar chart on the right shows the full year results for the FY '24 margin and our FY '25 margin forecast.
Now today, I will use the chart on the left, which shows the cumulative third quarter results. First, the top dark blue color is Finance. Segment profit decreased by 3% year-over-year to JPY137.1 billion and the progress rate versus the full year forecast was 69%.
ORIX Credit profit was included in the Finance category until FY '24 March end, as I had shared earlier. But from this period, the Credit business has been included in the Investment category. Taking this into account, higher investment income in Life Insurance segment contributed to profit growth.
Next, the pale-blue bar chart, which is second from the top, is Operations. Segment income increased by 2% year-over-year to JPY161.4 billion and progress versus the full year forecast was 67%. In addition to strong performance in airport concessions, thanks to inbound travel, profits from the asset management business expanded.
Moreover, Santoku shipping, which joined ORIX Group in the previous fiscal year, also continued to year-over-year growth in this category, so did Rentec as well as Auto. Finally, the dark pink part, which is third from the top, is Investments.
Segment income increased by 86% year-over-year to JPY129 billion with Investments showing a significant increase due to exits in several projects. The progress rate was 69%. As a result, in the fourth quarter, as to the Renewable Energy, Greenko, in fact, is expected to be divested and that is to be incorporated.
So as a result, total segment profit increased by 16% year-over-year to JPY427.5 billion. Now please turn to Page 5. This page updates ROA and asset size for each of the three categories.
In the Finance category, we expect stable earnings supported by changes in the macroeconomic environment, although there are some differences in policies in each region.
In the Operations category, airport concessions, as we have shared earlier, and real estate facilities operations in Japan are healthy and the asset management business in Europe is driving growth. In the Investment category, we will continue to improve profitability by promoting capital recycling. Now please to Page 6.
This page shows the three categories and 10 segments in matrix format. There is no change from the previous version. Now on Page 7, the slide, in fact, explains the progress in capital recycling. Capital gains was JPY95.5 billion for the nine months ended December 2024.
Cash in first from sales was approximately JPY370 billion for Q1 to Q3, while new transactions amounted to approximately JPY430 billion.
In the third quarter, in addition to the partial sales of shares of Ormat, New York Stock Exchange-listed geothermal energy company, we announced the signing of a share transfer agreement for Greenko and a new investment in AM Green.
As announced in our press release of January 20, 2025, the share transfer agreement for Greenko and the new investment in AM Green are subject to the conditions of obtaining a license under the Indian competition law and matters related to the financing for the transferee, and thereby, it is not incorporated in the third quarter results.
The amount of impact on business performance has not yet been determined as the gain on the sales will fluctuate depending on ForEx and other factors. However, based on the exchange rate as of January 16, 2025, which is JPY156.4 to $1, we expect a gain on the sale before deducting various expenses to be approximately JPY96.5 billion.
And in addition, the amount of AM Green's convertible bonds that is to be underwritten will be USD 731 million. Now as for capital recycling, we will continue to execute new investments while maintaining a balance between divestments and acquisitions, primarily in the Investments category. Page 8 and 9 are summaries of segment information.
While details for each segment, the 10 segments, are available on Page 12 and beyond, I will use Page 8 and 9 to explain the summary. First is the Corporate Financial Services and Maintenance Leasing segment. Segment income increased JPY5.6 billion or 9% from the same period last year to JPY66.2 billion.
In addition to gain on the sales of an investee in the Corporate Financial Services unit, ORIX Auto continued to post strong performance in used car sales, while car rentals were also strong on expansion in inbound travel and a recovery in domestic travel.
Rentec also reported an increase in profit driven by Windows PC replacement demand and also the divestment of some of the facilities. These also had proven to be the tailwind for the business. Segment assets were JPY1.8402 trillion, which is up JPY62.9 billion from the end of the previous period.
The Real Estate segment profit increased by JPY7.4 billion or 14% to JPY59.7 billion compared to the same period last year.
The real estate investment and facilities operations unit posted higher profits, thanks to the sales of a large multipurpose property, Hundred Circus and investment condominiums as well as strong performance at hotels and in facilities operations.
In the facilities operations business, the large-scale renovation of Suginoi-Hotel that started in 2019 has been completed. And the third new guest room building, more than 300 guest rooms, Hoshi Kan, opened on January 23, 2025.
On February 3, ORIX Real Estate Investment Advisors announced the launch of ORIVA, the Company's first capital commitment-based real estate fund with an asset size of JPY100 billion. ORIVA invests in real estate in Japan, primarily focusing on office, logistics and residential properties.
It is a diversified fund that seeks to secure earnings and investment returns by actively improving profitability and enhancing property value. Several domestic institutional investors, including financial and business corporations, participated in the plan.
Although profit of DAIKYO decreased year-over-year for the nine months ended December 2024, but we expect an increase in the number of units delivered in the fourth quarter. Segment -- so for the condominium business, just like the others, it is trending well.
As for the segment assets of Real Estate, it rose to JPY1.1521 trillion, up JPY42 billion from the end of the previous period. Now the next is profit in the PE and Concession segment, which increased by JPY42.8 billion or by 184% year-over-year to JPY66.2 billion.
In the PE investment unit, in addition to the gain from the sales of Sasaeah Holdings, higher earnings from PE investees contributed to the increase in segment profit. In the Concession unit, Kansai International Airport continued to perform well.
The ground reopening of the Terminal 1 building, which has been under renovation since May 2019, is now scheduled for March 27, 2025. This is expected to increase the overall international passenger capacity of Kansai international Airport to about 40 million or so.
And in addition, Kansai International Airport should be able to respond to the needs as a result of the expo that is to be held this year. Segment assets in the PE and Concessions segment were JPY981.8 billion, down JPY84.8 billion from the end of the previous period, mainly due to the sales of Sasaeah Holdings.
Profit in the Environment and Energy segment decreased by JPY12.7 billion from the same period last year to JPY17.2 billion. In Japan, the business was impacted by lower profitability in the electric power retail business and increased reconstruction costs of existing facilities.
Although the overseas renewable energy business posted losses in the first half, gains on the sale of Ormat shares and valuation gains on the remaining stake pushed it up back to profitability.
As mentioned earlier, we have decided to sell our shares of Greenko, the renewable company in India, which invested in March '21 and to reinvest in AM Green as part of our capital recycling efforts.
By investing in this next-generation energy business, which has high growth potential in areas such as green ammonia and green hydrogen, we aim to contribute to a sustainable society through our business activities. Segment assets fell to JPY955 billion, down slightly from the end of the previous year mainly due to the partial sale of Ormat shares.
Profit in the Insurance segment increased by JPY7.7 billion or by 14% to JPY61.7 billion, compared to the same period last year. There's a Diversification in asset management led to higher profits, which allowed ORIX Life to outperform the previous year's results, which were strong.
Sales of Moonshot, a single-payment whole life insurance policy launched in November, were robust as well. Segment assets increased JPY83.4 billion from the end of the previous period to JPY3.0053 trillion because of asset management growth. Moving on to Banking and Credit segment.
Profit in segment decreased by JPY5.3 billion to JPY22.1 billion compared to the same period last year due to lower contributions from ORIX Credit.
Segment assets increased by JPY126.6 billion from the end of previous year to JPY3.0608 trillion as a result of asset growth in the merchant banking business, while ORIX Bank continued its policy of increasing profitability through efficient asset turnover.
Both ORIX [indiscernible] and ORIX Bank do not possess large fixed cost burden such as branch network. We aim to grow corporate value in these businesses together with our customers, aided by both product diversification and new client acquisition.
Profit in the Aircraft and Ships segment increased by JPY15.6 billion or by 54% to JPY44.6 billion compared to the same period last year. Aircraft and Avolon both saw year-on-year gains capturing growth in global air passenger demand.
The Ship unit also reported significant increase in profit due in part to contributions from Santoku Senpaku, which joined the group during the previous fiscal year. Segment assets as a result increased JPY156 billion from the end of previous period to JPY1.3256 trillion. Of this amount, JPY44.6 billion was attributable to changes in ForEx.
Profit in the ORIX USA segment decreased by 22% to JPY27.8 billion compared to the same period last year. Of the three business lines, private credit showed solid profitability when last year's investment gain is excluded. Private credit is generally robust.
Real estate mortgage profits were lower owing to prolonged higher interest rates, but origination volumes are recovering. It has already hit bottom according to the signs. We believe that origination will be of higher profitability moving forward. PE in U.S. increased due to the gain on sale recorded in Q3.
We are seeing signs of improvement slowly, but surely in the whole business environment. ORIX USA profits and assets by business line are shown on Page 27 for your reference. Segment assets were mostly flat compared to the end of the previous period at JPY1.694 trillion. Change in FX amounted to JPY72.5 billion.
And assets on US dollar-denominated basis decreased. Moving on to ORIX Europe's segment profit. The profit was an increase of JPY7.7 billion, up 25% from the same period last year to, excuse me, JPY38.1 billion. AUM benefited from favorable market conditions to reach a record of JPY379 billion, and profits rose on an increase in fee income.
Robeco's trend recorded performance fees, which also contributed. And net inflows for Robeco Group were strong and trended positive for the second consecutive quarter. The operating environment is positive. Segment assets increased by JPY53.5 billion from the end of the previous period to JPY715.6 billion. Last but not least, Asia and Australia segment.
The profit in this segment decreased by 7% year-on-year to JPY27.9 billion. Although leasing income increased in South Korea, India and Australia, business confidence remained weak in Greater China. And the segment recorded a decrease in profits mainly due to higher credit costs. Mainland China and Hong Kong remained weak.
And in Taiwan, we still see geopolitical risks, and therefore, we are still remaining cautious. Segment assets increased by JPY38.7 billion from the end of previous period to JPY1.7479 trillion, of which FX accounted for JPY27.4 billion. In Asia, South Korea and Australia, we increased these assets. Finally, please turn to Page 10.
This slide summarizes our view on the current operating climate and direction. As shown on the left, at the announcement of our first half results in November, before the new U.S. administration came in, our CEO, Mr. Inoue, commented that in Japan he expected a scenario where there was a gradual rising in interest rates and weakening of the yen.
Regarding the situation overseas, he commented that the result of the presidential election may accelerate geopolitical instability due to extreme foreign policies and there is also possibility of resurgence of inflation, interest rates staying at high levels and weakening of the yen. Our views currently remain unchanged from those statements.
Impact of transformation measures to our businesses remain uncertain, but we do have certain scenarios that can be used to make judgment in each of the businesses. For Japan, the policy rate is now at a new level for the first time in 17 years.
There is a gradual increase in the interest rate and the prices are rising, costs are rising and there is a concern about the excessive weak yen. So we will remain cautious as well for investment judgment. In Asia, we also have some uncertainties with regard to the economic outlook.
Now as for Operations, we aim to continue to enjoy the benefits of being an asset owner and promote the shift to asset manager model. And we expect the inbound business to continue to increase. We will accelerate some efforts and the global asset management business will be promoted.
For Renewable Energy, interest rate, ForEx inflation, construction cost, energy prices, there are certain uncertainties that we need to take -- look out for. But for clean energy, the general demand over the mid- to long term will remain strong. This is our view.
And therefore, we will be selective, but also be promoting existing projects in order to leverage the strength as an asset owner. And as for Finance, for each of the area, there are different trends. We will look out for these differences and continue to build assets and invest based on the risk/return profile.
Last but not least, for investments, up until the third quarter, domestic private equity, real estate and overseas energy in multiple segments, we will be posting a gain on sales so that we will continue to do capital -- effective capital recycling. And ROA, ROE should be pushed up because of these efforts. Finance investments.
Japan, U.S., Europe and emerging markets, we will be looking at these factors in a matrix manner. We know that there are a lot of uncertainties, but we will take advantage of the diverse portfolio to take the best option at any given time.
And from '25 and onwards, we will continue to leverage our diversified business portfolio and identify the right risks and promote new investments and promote exits as well even despite the uncertainty originating in the United States.
Now on January 1, our new COO, Take Takahashi, took office and delivered a new message, which was basically three key points. First of all, ORIX will provide essential solutions to major issues facing society as a part of achieving our group purpose. And secondly, we will maximize the business opportunities between multiple and diversified segments.
And thirdly, Mr. Takahashi will endeavor to create an environment at ORIX where everyone can work with excitement and purpose and fulfill their own individual goals. We are striving to achieve record profits this fiscal year. And I believe that further growth over the midterm to long term is possible if all ORIX employees work to realize this message.
Capital recycling and asset management. This is something that ORIX will be promoting globally to strengthen balance sheet as well as capital and use them effectively so that we can generate effective profitability-generating structure. This is Mr. Inoue's message as well.
We have slightly less than two months left in this fiscal year, and we are considering achieving our net income target of JPY390 billion while discussing how to realize the growth from next year and beyond. That is all from me. Thank you very much for your kind attention..
Thank you. We are now ready for the Q&A session. [Operator Instructions] First, we have from JPMorgan, Sato-san..
I am Sato from JPMorgan. I have one question. So in various different area or on different occasions, I know you have been sharing your view about the U.S. economy, especially ORIX USA.
The subsegment of ORIX USA, do you have any kind of vision or the expectation for the future? And how long would it take before you think that you can normalize the business so that you can turn profitable again? And in addition to that, on Page 27, as you always share, so for the third quarter, the stand-alone third quarter, Credit profit seems to be weak.
So if you could be so kind enough to share with us the reason why for that as well, that would be helpful..
Thank you for your support all this, and I'd like to then explain by making use of Page 27 of our slide deck. As we have said, with regard to the Credit-related businesses, as we have announced, as for our business line, so loan fund generation, NXT Capital, CLO generation origination, Signal Peak capital.
So as to the product, leveraged loans, structured finance, those are the businesses of those business lines for the Credit businesses. So CRE-related businesses, so they are only -- we do make a pure investment only for those that are investable.
So as compared to the prior year, so there is nothing that is to be noted because it doesn't differ from the last year. But as to the origination, Signal Peak, the new CLO, although it was back in January of this year, we did manage to issue a new CLO. So the business impact is improving.
As to -- not just basing on our own balance sheet, we are trying our best to equip ourselves with the capabilities of our sales and marketing so that we'll be able to get the mandate for those funds so that we have been proceeding with the enhancement of the quality or sophistication of these businesses.
So we do not, in an outright manner, just simply expand the size of the business. So this has been the result of those efforts.
And as to the Real Estate in the middle, as I have mentioned earlier, as to the origination environment, each of the agencies, Freddie Mac, Fannie Mae, for example, so because interest rate remains to be high for longer and so therefore we are recovering from that environment, especially with regard to the origination.
But anything that meets our criteria and especially from the perspective of the spread of origination fee, we would -- towards the end of the year in the trend of acquiring businesses that are more profitable, in the second quarter, in the third quarter, the slow start, in fact, is being -- kind of bringing about the negative impact.
But some of -- so we are now revisiting some of the asset management. And there may be some cases of provisioning that is proving to be necessary, but we are working on the improvement of the assets on hand. So it may take a little while, but we are beginning to -- we think that we'll be able to see the signs of recovery from the next year onwards.
So we would not miss out on those opportunities. And for that purpose, so Constructions and other business opportunities, while, of course, containing the risk, we'd like to expand the scope of our business opportunities. So in terms of the business direction, I think it is on the road or the track of improvement.
Especially the middle market private equity on a continued basis, CPI as well as employment costs and other cost increase, that remains to be uncertain. So the top line as well as the profitability-wise, it is beginning to show some signs of improvement. But we need to absorb all this cost increase.
And before we can enjoy higher activities, I think we would have to wait for some time, which means that we would have to continue to maintain what we do right now and we would have to just watch about the development of the policies of the new administration and wait for the M&A market to improve so that we'll be able to come up with the next round of strategy.
Sorry, that it was a slightly extended kind of response to your question, but I hope this answers your question..
Now with regard to the Credit, the segment profit that you have mentioned, so the base profit and capital gain, you have not broken down the two from this time. So for this third quarter stand-alone basis, [$337 million], I think, profit, I think. So while you were disclosing the base profit, this is a capital gain.
It looks as if the level, the size seems to be smaller.
So CCS buildup was nonexistent, may I take it?.
So it was not a kind of a specific individual kind of provisioning, but the flow of deals, for example, the environment itself has started to show some signs of an improvement. But on a P&L, there was a slowdown for sure. However, originations and also the flow of the deal, there has not been any major concern as such.
So the portfolio -- as to the portfolio quality, the monitoring impact remains to be intact..
SMBC Nikko Securities, Muraki-san..
This is Muraki, SMBC Securities. My question is about midterm plan ROE target and the growth rate target. What is the current discussion? Can you please update us on that? And the financial institutions both in Japan and outside of Japan, they often have EPS growth targets. And one of the growth drivers behind that is very often share buyback.
They position share buyback very clearly in that way. So more aggressive or positive stance on share buyback -- or positioning share buyback as some things that is even more important than before.
Do you have any ideas of doing this within ORIX?.
At the Board meeting today for the Q3 earnings, next midterm plan and business plan was actively discussed. Update is looking at the progress of the discussion of the midterm plan so far. Since we made announcement in May 2022, well, that was actually immediately after COVID-19 pandemic, there were a lot of uncertainties.
But we had the Russia-Ukraine issue and also inflation, high interest rate, all of these different factors happened together more than we had expected. Now going forward, technological advancements and market changes will have to be looked at over the longer term. And then we have to back cast and figure out organic and inorganic growth strategies.
So these are the things that we're discussing. In terms of numerical targets discussion, I believe that this will require some more time before we get there. And under the new COO, we would like to continue our internal discussion. We also have a capital policy.
Now share buyback, as you may know, other companies following the TSE guidance and they are now aware of that, but ORIX has embarked on this much earlier than them. And as you may know, as you can see on Page 37 on the right-hand side, this is a track record of our share buyback so far.
About JPY50 billion share buyback has been done over the last six terms or so – six periods. So in terms of the EPS growth, you can see the information on Page 38, the next page. As you can see, we have been keenly aware of this from very early on. So this is one of the things that we are discussing currently is ROE.
So higher end of the 9%, unfortunately, we are still not double digit. And the 11% is the target that we've been communicating to the market for a while and we still have some way to go. Interest rates going up and financing cost is changing. And A rating, cheap debt strength should be leveraged for the future growth as well.
So we have to discuss the patterns. 11% target achievement or going beyond that, well, we want to show the path to achieve that in our midterm plan as well as the business plan going forward. We believe that this is an important thing for us to show in our plan. So this is already within our sight. I hope you understand.
Last but not least, I think you have asked a question about the profitability growth as well. Leveraging the assets and segments, this is the conventional way. We are also turning a focus on asset management and more diversified financing approaches.
So we want to achieve this on as many fronts as possible in order to sustain the growth of profitability. Profitability growth could slow down because of the changes at least for the short term, so we need to look at the transformation and also the ultimate corporate value enhancement.
And the balance between the two, we will have to discuss for each of the businesses, and that's exactly what we're doing. So each of these steps actually take time. So as soon as we have something that we can share with you, we would like to share that information with you. I hope this answers your question..
So we have Sakamaki-san from Mizuho Securities..
I am Sakamaki from Mizuho Securities. I have a question. So this is going to be slightly shortsighted, but with regard to the achievement of your plan for this year, Greenko divestment will be towards the end of the month.
If this would not be executed by the deadline, do we have to think about the second plan? Would you remain to be flexible in order to achieve the plan for the year? And what would happen to the dividend payout should this be not being reflected to the earnings of the full year?.
First of all, with regard to Greenko, it goes without saying it is dependent on the buyer of the shares, but we think that there's a high probability of the sales being executed within the end of the -- by the end of the year. So this, we would give priority to this action and we think that there is a high likelihood.
But of course, if this cannot be executed by the end of the year, so JPY96 billion and also pretax profit, there will be a certain impact should this not be achieved. So would we be able to fill the gap? Is there any kind of plan B? Of course, it is very much dependent on the counter-party.
And also the -- it is based on the assumption of the best practice execution. So therefore, it is, of course, dependent on how things will trend dependent on Greenko sales. So we have no plan B or plan C by filling the gap, in other words. So JPY390 billion of our profit achievement unfortunately cannot be achieved if this is not to be executed.
However, having said that, so it was for every year there is a base profit and other profits that we generate. And it looks as if there is going to be an overshoot as compared to the initial plan for other profit expectations.
I know I'm being a little optimistic, but even if there was to be the full execution of this Greenko sales, we would be able to fill some gap, but we will not be able to fill the entire gap by end of March.
Of course, it is dependent on the reasons why we were not able to execute the Greenko sales and I think we would have to just continue to discuss over this topic with the executive officers and also the Board members..
Daiwa Securities, Watanabe-san..
Yes. This is Watanabe, Daiwa Securities. Page 10, on the right-hand side, this is the current status. Domestic Financial Services and inbound business, asset management seems to be the focus.
Based on the macro environment, Finance business in Japan do you have a different view now on its profitability? And the base profit is in the attachment and have you made any changes to the way you think about the quality of the base profit?.
Thank you for your question. I will start with the right-hand side of Page 10, Finance business in Japan. Our view has not changed very much. But the interest rate is definitely climbing and the yield for asset management for life insurance and others are now working positively for us. So this will underpin stable profit for us.
Inbound and domestic demand, and looking at the economy, I believe even at the global level, it is maybe on par. But the construction cost for new projects -- new development projects, well, usually, it takes three to five years or sometimes longer for development and MICE-IR large projects are in our portfolio.
And therefore, we have to manage the total risk and need to have foresight. Now focus on asset management. Sometimes this can be misleading, but we want to leverage third-party asset or capital to grow our business and we can provide our business expertise to scale the business.
So focus on asset management, this is one of the ways of diversifying our financing and the finance and investment hybrid model will be promoted. And this is where we can expand profitability and grow as a corporation or corporate value..
Is it going to be base profit or gain on sales or fee income?.
It will be more and more diversified going forward. I didn't skip this page because I neglected it, we just said I didn't have enough time. But the base profit growth is something that the Board is very much interesting and we received a lot of instructions and comments from the Board about this.
So we will continue to focus on that and combine it with capital recycling. That is the policy that remains unchanged. So please feel reassured..
Thank you very much. The next, we have Tsujino-san from Bank of America Securities..
So this is going to be a short question. However, with regard to the sales of Greenko, so it is a business in India, but they do have entities in Europe as well. So I don't know how you have been responding to our questions in the past.
But however, as for this year as well as last year, we thought -- I recall you sharing with us that there was a possibility of some sales that was to be executed, but it did not happen. But then this year, you had announced the sales of Greenko.
So what was in your mind when you shared this idea of selling some of your businesses in the past? Was it Greenko or the power generation, for example, the facilities that you own under Elawan in Europe? Was it in your mind? So as we look back, so you were perhaps assuming maybe for about 1.5 years selling something from Elawan, some of the assets.
Why was it not executed, if that was in your mind. But in addition to that, if you could, so this time, in the investment business, Toshiba's contribution from the perspective of the profit Q-on-Q basis, I thought that you were able to generate about JPY4 billion worth of profit from Toshiba in the -- not the concession, but the investment.
But the reason why you were not able to generate that much, is there any reason why?.
So first of all, with regard to Greenko and the positioning within the Investment business, as has been said by Tsujino-san, so it is located in emerging country and also minority position and the development is, in fact, sizable.
And other than ORIX, there are other shareholders, sovereign wealth fund, mostly, they are -- so therefore, we were, in fact, thinking about this -- or positioning this business to be target for capital recycling in the future. So after '21, we have been making an investment at the renewable energy facility.
The development progress, dependent on the progress that we were making, we were always putting this on the table for consideration as to when are we to sell the project. So whereas Elawan, in fact, is exposed to industrialized nations or advanced nations. So we wanted to, of course, enhance the capability as a developer.
And as to the ones that are completed, so it will be perceived as development model. In other words, long-term PPA was to be acquired, so that we'll be able to generate a long-term kind of liquidity flow.
So on the other hand, as to the energy prices in Europe, with Ukraine -- in nation of Ukraine and also, at the same time, the pricing trend, in fact, has been fluctuating and also the subsidy that has been provided by different, of course, government has been affecting the spot prices.
So therefore, the development project at Elawan, some of the major capital gains that we were expecting, unfortunately, was not to be gained. But the basic policy remains to be unchanged. And one other thing, you asked the question with regard to Toshiba. We are not disclosing the profit that we generate from this Toshiba deal.
And also the other day, KIOXIA, which was listed just the other day, went public, so there is going to be some time lag before we can pick up the income on the equity that we invested.
But as to the direction, as you had shared, is what we expect as well, whereas with the business partner heading the initiative, as for the EPA, Toshiba's portfolio, in fact, has been changing over time as well. So from an accounting perspective, we need to adjust ourselves as well.
So what you may have simulated may not match against the reality for that reason. So maybe the after kind of process, related to us being LP, the LP holding of ours, but the business environment itself is trending for the better, for sure. So this may not be matching with your numbers..
So this is why the LP kind of gain, so rather than -- I think there should be some technical ups and downs.
I was imagining that is affecting your earnings, right?.
Yes..
I see, I see..
But having said that though, if you were to look into the details of the investment, as you have said, there is an accounting treatment. And that, of course, incorporates the financial structure and also the engineering of the fund itself. So this is why there are some technical challenges that we are facing.
But as to the business itself, we -- the business structure-wise, it is following a trajectory towards improvement for sure..
Nomura Securities, Sasaki-san..
Yes. This is Sasaki, Nomura Securities. My question is about the new midterm plan. You have already explained to some extent. But I'm sorry, I couldn't quite understand, so let me clarify some points with you. In reviewing the current midterm plan, you identified more new risks, so you want to apply a more conservative approach.
Is that what you said? Was that your message? And also with regard to financial KPIs, you have not really discussed those yet. That's what you said. But we are already in the middle of February, and considering when ORIX usually formulates a business plan, maybe it is getting late.
So does that mean that you're struggling with the discussion? And last but not least, 11% or more ROE, I think you said that this is within sight. That was my interpretation of your comment earlier.
Now how can you say that 11% or higher ROE is already in sight? What is the justification, rationale behind that according to the management's perspective.
Can you please elaborate?.
I have to apologize. I maybe misunderstand that we're talking about a conservative point of view. So we looked at the previous plan, inflation, wages, also interest rates based on these different circumstances. In January '22, we formed the plan and made some announcements in May and then things changed after that.
If we try to project what happens down the line, three years, it doesn't really work, that's what we realized. So what am I going to do? Well, rather than basing our scenario on these indices, the time frame differs from one business to another, but five years, seven years or 10 years down the line.
For MICE, we have something opening in 2030 and we have a stable operation from that point onward. So within these different time frames, where do we want to be? This is what we are discussing and we're trying to back cast from that and then figure out what to do in the next coming three years in terms of internal control and the budget management.
So these are the two phases -- two-phased approach, time frame for each business and where we want to be in the future. And with regard to this aspect, we are trying to aggressively grow the businesses. So this mindset has not really changed. And based on that, we try to back cast.
And this way of plan is different from the cadence of every three years for each midterm plan, excluding for the pandemic period. So the cadence will be different -- or the approach will be different. So we don't just extend on the current situation in terms of midterm plan.
Over the mid- to long term, one of the important focuses is to increase the ROE. Capital efficiency, we don't want to worsen the capital efficiency. So capital recycling and asset management business model should be leveraged or they will become essential.
And without that, we will not be able to achieve the ROE of 11% or higher, or at the very least, it's not going to be easy. So this is something that we're discussing for different businesses. So we're not trying to aim for something just for the short term. But in order to achieve the long-term goal, we are going to change.
So we have a sense of urgency and we are focusing on these big challenges, including outside independent directors, we are discussing this time and again at the BOD, so that we can figure out when is the best time for us to communicate this with you going forward. So this is how we are sharing this information with you.
I know that I'm not giving a very clear answer, I'm sorry, but the discussion is still underway. I hope you understand..
So you need to do the capital recycling and you have to focus on asset management type business, otherwise, you cannot achieve 11% or higher. So this is the same discussion as before, I understand.
My question is when it comes to specific measures, do you have now deeper discussions taking place because looking at what's happening around the world, there is maybe major reorganization or restructuring going on. So I don't think you can spend a lot of time just discussing.
So do you already have specific plans being discussed at the BOD level?.
As you have rightly mentioned, whether we are accelerating or not, buy low, sell high, capital recycling, capital gain realization, maybe that's not the only aspect. Within the existing investees, maybe the growth rate of return is not as high as it could be.
So we should apply a more stringent view and going one step further in terms of discussing the capital recycling. Because without doing that, ROE resilience could weaken slowly over time.
So in order to avoid that situation, with regard to existing investees or existing projects, we need to shed more stringent light and this is something that we're discussing at a very detailed -- broken down level. Without that discussion, we would find it difficult to improve ROE going forward.
So it's not only for the new projects, but also existing items in the portfolio and the existing business lines, we are reviewing them at a greater granularity..
When to communicate with the market, is that when you close the financial year? Or is it going to be before that? That's my last question..
So the closing, of course, discussion will deepen and COO, Takahashi-san, assumed position in January and ORIX management strategy that's going to be applied working together with the CEO, Inoue-san. We want to increase the number of opportunities where we can communicate about this with you.
And we don't know if there's going to be a midterm announcement or not, we still have to discuss this, to figure it out. But we want to do as much as we can and also share information as early as possible about strengthening of our management of the Company..
Thank you very much. So we have gone over the scheduled time. So we'd like to entertain the next question as the last question. So Otsuka-san from SBI Securities..
This is Otsuka from SBU Securities. I hope you can hear my voice okay..
Yes, we can. Thank you..
So on Page 4, So I am referring to Page 4. And in the investment, so Greenko's profit was reincorporated, I understand, in this investment. And according to the number that you have shared, so this will be in excess of 100%.
But this finance and also operation, the profit -- the probability of achieving this profit forecast, if you could share with us your expectations in the fourth quarter.
Can you expect -- is there any other deals that would allow you to build up more profit in order for you to achieve 100% by end of the year or would it be behind? If you could just give us a color whether you'll be behind your plan or not?.
But just as you have shared. As to Greenko, the sales related, the profit based on the asset, so it will allow us to overshoot the initial budget of ours so far as the profit of investment is concerned. So we would, of course, continue to do our best in achieving 100% for each of these categories.
But within Finance, China and also the recovery being slow in the United States, for example, would we need to be the factors of uncertainty, especially in Greater China. So we don't try to build the asset just for the sake of achieving these numbers. That would not be the case.
So just as been asked by Tsujino-san earlier, especially with regard to renewable energy, we are affected by the spot market pricing. So therefore, we would be making the optimal and appropriate decision whenever proves to be necessary. So we may be affected in a negative way as a result.
But if I may repeat myself, so we, of course, continue to do our best in achieving what we have aspired to for the full year. But the investment, of course, the largest contribution would come from Greenko sales. I'm sorry, but I may not be answering to your question in a straight-forward manner, but still..
So from your responsibility and your title, so this achievement, Greenko sales is incorporated.
So the likelihood of this achievement is heightening?.
Well, it's kind of difficult to answer directly to your question. So Finance, Operation, there are some aspects of the strength that is enjoyed, but there are some variance. In other words, there are some businesses that are not performing just as well with that as compared to others. So this is why we need to proceed with the sales of Greenko.
And for sure, that would allow us to achieve what we have intended to..
Thank you. So with this, we'd like to conclude the Q&A session. And I would like to ask Yamamoto to share his closing remarks..
Thank you very much for spending a long time with us, and sorry that we have a short schedule. Midterm plan and the new management, we have received many questions about those as well. So I would like to make sure that this message will be relayed back to the executive management and the Board meeting.
And we want to make sure that our disclosures and the message will not suffer because of these changes. Now management is being strengthened within the organization, which means that we don't want to do just what we have done in the past.
With regard to the concept about the new management, we want to include Inoue-san and Takahashi-san, maybe separately or together, and increase the number of opportunities to communicate to you. So when such opportunity arises, we hope that you can give us your valuable time to listen to our stories. Thank you very much for your kind participation..
That concludes the third quarter earnings call for ORIX Corporation. We really appreciate you staying until the end of the program. Thank you..