It is time to start. Good evening, and thank you for joining us for this telephone conference of ORIX Corporation for the third quarter consolidated financial results for the nine-month period ended December 31, 2022. My name is Nakone, and I'll be the Master of Ceremony for today. Thank you for this opportunity. Today's conference is attended by Mr. Hitomaro Yano, Executive Officer responsible for Accounting and IR. I would like to ask the participants to kindly turn off your mobile phones or other communication devices or move them away from the telephone to prevent feedback. Mr. Yano will give the presentation followed by a Q&A, and we expect this meeting to take about one hour. Mr. Yano, the floor is yours.

Hi, good afternoon. This is Hitomaro Yano, Executive Officer responsible for Accounting and IR. Thank you for joining us in this financial results briefing today despite your busy schedule. I will begin by explaining the results for the third quarter of the fiscal year ending March 2023. Please refer to Page 2 of the materials on hand. I will first review the executive summary. First, please note that net income for the first nine months of the fiscal year was JPY211.4 billion, although it was only several million at the end, we did manage to record year-over-year growth. The annualized ROE was 8.6%. Net income for the third quarter increased by 50% from the second quarter. This is ORIX's second highest quarterly net income since the pandemic started, following the fourth quarter of the previous fiscal year in which we recorded an investment gain. Second, thanks to progress in reopening businesses that have been strongly impacted by COVID-19, we are continuing to recover towards higher profits. The Insurance segment also experienced a significant decrease in COVID-19 related payout expenses compared to the first half of the year. Third, I would like to highlight capital recycling. In the second half of the fiscal year, we've continued to both make new investments and exit, mainly in our focused businesses of overseas renewable energy and domestic private equity. Through this, we are increasing profitability by replacing assets. The fourth key point is shareholder returns. Last May, we approved a share buyback program of JPY50 billion and have already completed the acquisition and cancellation of 23.43 million shares, which is approximately 2% of our outstanding shares. We plan to pay significant dividends for the full year as previously indicated. So please refer to Page 3 for the third quarter ending March 2023. ORIX recorded a sharp increase of 50% versus the second quarter for quarterly net income. The aforementioned recovery in the Insurance segment played a part while strong performance at Transtrend in ORIX Europe led to the booking of a performance fee. The partial sale of our stake in leading geothermal energy producer Ormat in the Environment Energy segment also contributed. Now please turn to Page 4. The page shows a breakdown of segment profit. Nine months segment profit was up JPY290.7 billion. Please see the bar chart on the right. The breakdown of quarterly segment profit for the past two years is shown. Net income for the third quarter increased 15% year-on-year and 44% quarter-on-quarter to JPY120.7 billion. Please look at the left-hand side bar chart, where you can see that investment gains for the fiscal year have returned to a usual level. I'll explain the details on individual segment pages later. Now please turn to Page 5. This page describes the earnings improvement due to progress in opening up the economy. The bar chart on the left shows the trend in segment profit for the three COVID-impacted businesses of Aircraft and Ships, facility operations, and concessions. In the fourth quarter of the previous fiscal year, we posted losses of JPY11.2 billion, but a steady recovery in profits thereafter resulted in a positive JPY5.6 billion in segment profits for the third quarter. In Aircraft and Ships, the passenger market in North America and Europe remained strong, and aircraft leasing profits are in an upward trend. Hotels and Inns and other facility operations have recently achieved an occupancy rate of about 80%, thanks in part to the government's nationwide travel support program, and the average daily rate has mostly recovered to the fiscal year 2020 level. In the concession business, the number of passengers on international routes has increased rapidly following the Japanese Government's easing of border measures in October 2022. Kansai Airport results are reflected in ORIX's Group earnings with a three-month lag, so we expect a full recovery in profits to occur in the next fiscal year. However, based on the current number of passengers, we believe that we are within striking range of returning to profitability. We expect further improvement in performance in all our COVID-impacted businesses as travelers from China return. Please refer to the following page for a summary of the trends and recovery indicators for each business. Now, the bar chart on the right shows the trend in segment profit for insurance; payout to policyholders with COVID increased, and segment profit fell to JPY2.1 billion in the second quarter, particularly in the wake of the peak of the seventh wave of infections. However, the eligibility criteria for receiving benefits were changed from late September 2022. Only policyholders meeting certain conditions are now eligible for payouts for quarantining at home. As a result, payout expenses have declined from the third quarter and profits have recovered. Please turn to Page 7. Next, I will comment about capital recycling, which supports our sustainable growth. Capital recycling involves constant monitoring of capital efficiency, making exits in assets and businesses as needed while continually making new investments. This will increase the earnings growth rate and lead to improved return on assets and, in turn, return on equity. The box on the left shows exits and new investments in the overseas renewable energy business. As I mentioned earlier, in the third quarter, we sold 7.8% of our 19.7% stake in Ormat shares in the marketplace, resulting in a gain of about JPY15 billion in addition to retaining 10% or more of Ormat shares. We will continue to discuss with outside directors to support further growth of the business. Furthermore, we plan to acquire the remaining 20% of Elawan, where we acquired an 80% stake in July 2021 and make it a wholly-owned subsidiary in the fourth quarter of 2023. In addition to that, we will be able to make more flexible and swift decisions regarding business and financial strategies such as acquisitions and new business development. Now the box on the right shows exits and new investments in our domestic private equity business. In 2014, we acquired a major precious metal recycling company called NET Japan, which we sold in a trade sale in the third quarter. We achieved a high return on the deal with a multiple on invested capital of three times and an internal rate of return of 16.4%. In addition, as recently announced, we acquired a majority stake in DHC, a leading Japanese manufacturer of cosmetics and health foods. By promoting the smooth succession of DHC businesses, further strengthening its compliance system, corporate governance, and implementing a new growth strategy, we aim to increase its corporate value while enhancing profitability and achieve an internal rate of return of at least 20%. Now, Page 8 and Page 9 are a summary of segment information, but today I will explain it by using the specific slides for each segment, so please go all the way to Page 12. The first segment is the Corporate Financial Services and Maintenance Leasing segment. Segment profit decreased 9% year-on-year to JPY56.4 billion, but excluding the set of year-on-year comparisons in fiscal year 2022, the net profit from investment and valuation gains on an investee recorded in the previous fiscal year increased. In Corporate Financial Services, service revenues increased from the previous fiscal year due to strong performance in various fee businesses. The auto unit posted a year-over-year increase in segment profit versus the previous year when it achieved a record high. This was thanks to the continued higher market price for used cars and the recovery in car rentals from the pandemic. Now please see Page 14. The page shows the Real Estate segment. The investment and operation unit showed an increase in profits due to improved earnings at Hotels and Inns, thanks to progress in reopening as I explained earlier. In Daikyo, profits declined versus the previous year. The number of condominium unit sales in fiscal year 2022 skewed to the first half of the fiscal year and in line with our full-year forecast. In real estate too, we operate a capital recycling type business model whereby we procure and develop land by ourselves, lease up property, and then sell it at the right time to the market. Please see Page 16 for the PE Investment and Concession. Now the PE Investment unit posted a loss in the previous fiscal year due to losses at Kobayashi Kako, but the investment portfolio has been sorted for this fiscal year. Even excluding losses at Kobayashi Kako, segment profits increased. In the Concession unit, the number of passengers in international routes continued to increase in addition to those in domestic routes, which reduced losses. Again, I expect earnings to grow at an exciting pace as earnings are already on a recovery track and inbound tourists from China begin to arrive in near earnest. Please see Page 18; this is the Environment and Energy segment. Profit increased 86% year-on-year to JPY34.1 billion. As I explained, in addition to the partial sale of stake in the energy company, we also benefited from higher electricity spot prices in some overseas regions, which led to higher electricity sales revenues. In the domestic market, sales increased in the solar power generation business due to the continued fine weather. We expect the global shift towards renewable energy to accelerate, partly due to the prolonged war in Russia and Ukraine. We are already operating 3.4 gigawatt energy production facilities in Japan and abroad, and we plan to grow this to 10 gigawatt by the fiscal year ending March 2030. In addition to maintaining our position, we will have Greenko, a major Indian renewable energy company where we hold a 20% stake to develop its pipeline. Please turn to Page 20, Insurance segment. As I mentioned, growth in insurance profit decreased compared to the previous year due to an increase in COVID-19 related payout expenses for patients isolating at home. Meanwhile, since last September of last year, eligibility for benefits has been limited to those with a high risk of severe symptoms. We expect the COVID-19 related expenses to taper off in the first half of this year. The number of policies in force has continued to increase, and premium income has risen. In addition, asset management has seen steady results and investment income is increasing. Segment assets decreased. This is due to mark-to-market impacts and rises in both Japanese and global interest rates resulting in our lower valuation. However, the market value of debt has also declined since the duration of policy reserves or liabilities is longer than those of assets. The rise in interest rates, particularly in yen, has been a positive for embedded value. So in other words, the interest rate rise and revenues rose faster than increasing insurance expenses and profits increased. Please turn to Page 22, Banking and Credit. Banking unit revenue from real estate loans for investment continued to be firm despite the absence of a one-time profit booked for the previous year. In the credit business, we are actively investing in advertising to develop a new ORIX money product, which resulted in a decline in profits. However, performance is in line with expectations, and loan balance is increasing. Please turn to Page 24, Aircrafts and Ships segment. Profit increased by JPY14.2 billion year-on-year to JPY17 billion. As mentioned, the aircraft leasing business benefited from the rebound from passenger markets, particularly North America and Europe. In addition to leasing revenue, service revenue from aircraft management is strong and it grew. Avolon earnings are also on an upward trend reducing its losses. Please note that the financing costs from investing in Avolon are included in the profit report. The Ships unit boosted earnings, partly reflecting the sale of ships in response to federal market prices as well as financial income from ships financing deals. Please turn to Page 26, ORIX USA. Segment profit fell sharply from the previous year when it had shipped a record high to JPY33 billion. The decline was primarily due to fewer private equity exits caused by changes in the macro climate and the origination fees and restrictions in real estate lending. Capital gains improved in the second and third quarters compared to the first quarter. Please turn to Page 27. We are currently in the process of adjusting risk controls in our credit units in light of the uncertain economic outlook in the U.S. We have strengthened our governance framework in order to achieve additional growth in our asset management business using investor capital. We are establishing an asset management investment committee in addition to the investment committee. The asset quality of ORIX USA is sound. It appears that the assets have increased due to the FX effect, but we aim to maintain the asset size to a certain level and the dollar-denominated assets have actually declined.

Please turn to Page 32. Asia and Australia segment profit decreased 3% compared to the previous year to JPY34.1 billion amid ongoing re-openings in Asian countries. We expected new deals and in India and Indonesia in addition to Australia and South Korea. The decline in profit is due to the absence of gains on sales from the previous fiscal year. This completes the segments.

Please turn to Page 10. With regard to shareholder return, our basic policy is to distribute one third of net income to dividends, one third to investments, and the remainder to retained earnings and share buybacks. The dividend for the current fiscal year is JPY 85.6 or the dividend payout ratio of over 33%, whichever is higher. However, the dividend payout ratio will be 40% assuming the net income forecast announced November last year, over JPY250 billion can be achieved. Including the share buyback of JPY50 billion, the total payout ratio is 60% for the fiscal year. Now, I would like to talk about our credit ratings. Last week, S&P reduced the outlook from stable to negative to reflect our execution as an investment in DHC. Although the downgrade itself is an undesirable change from our perspective, we undertake for our risk management, for our portfolio and plan to proceed with our capital recycling strategy while both maintaining and strengthening the financials. By providing appropriate information disclosure to rating agencies, we hope to improve mutual understanding. Meanwhile, please note that the rating action will not affect the basic policy of our shareholder returns. Lastly, we understand that the economic environment continues to be uncertain worldwide, and strengthening the risk management system is important. Nonetheless, we see some bright news on the horizon, such as the progress of reopening around the holdings in Japan. In the domestic PE and other fields, we are seeing numerous inquiries for potential investments, including large projects. While maintaining a cautious and selective stance, we intend to actively seek investment opportunities towards achieving the mid-term goal of what we announced last May, which is net income of JPY440 billion and an 11.7% ROE in the fiscal year ending March 2025. Thank you very much for your kind attention. Now the floor is open for questions.

Thank you very much. My name is Sakamaki from Nomura Securities. Thank you for the opportunity. Now, I would like to ask you a question. At this time regarding Ormat, I think you're going to be holding onto 10% or more stake. Is your strategy to retain the rest of the 10% or more? And also with regard to geothermal energy, I read an article saying that there have been some changes in the earnings, so if you could be so kind enough to tell us your involvement and intent in the geothermal businesses?

As for Ormat, we sold about 8% of the stake the other time, and I think we would like to maintain the rest of the stake for the time being. Capital recycling, in fact, is a strategy that we are pursuing as we have been explaining. I don't know how long we will retain the shares, but for the time being, we'd like to hold onto it. The reason we decided to sell 8% of the stake is due to capital recycling. In the area of geothermal, we are trying to engage ourselves in geothermal businesses here in Japan, but getting consent, the approval is not that easy because you need to excavate and there seem to be not very many deals that you can engage in. On the other hand, renewable energy, of course, is remaining strong with the share price being steady as well. So therefore, we decided to set off some stake of Ormat and post some capital gain, dedicating the capital we gained from the sales of Ormat to renewable energy elsewhere. This was the decision that we made. And in talking about renewable energy businesses, we definitely have every intent to expand our businesses in renewable energy, but it doesn't mean to say that we have given up on geothermal; it is just that we've chosen to make a selection and concentration in our investments. Elawan is 100% Greenko, and the new development is proceeding, and there could perhaps be a possibility of M&A for new renewable energy-related businesses. I hope this answers your question.

Yes, this is Sasaki from Bank of America. Just one question, thank you for this opportunity. We're now in February and next fiscal year, the business plan must probably be formulated within your organization. At this point in time, how do you see the fiscal year ending March 2024 in terms of business as well as performance as much as you can share with us? Thank you.

Yes. Regarding next fiscal year's numbers, we are planning to talk about that in May when we conduct our next earnings call. JPY250 billion for the fiscal year is the number that we have announced, and we want to achieve JPY440 billion in two years' time. Compared to two years ago when we formulated this plan, of course the environment is different now. And as indicated last May, we may need to revisit these assumptions and that's exactly what we're doing right now. So looking into the next two years, we would like to share some information about next fiscal year in the upcoming May. Recovery from COVID-19 is in sight, which is positive news. According to the original plan, we didn't expect a big number for next fiscal. We may be able to expect a little more than before. That is one thing that I can say. Insurance revenue income may be one of those potential positive factors, but including those, we will have to take another look at if this is clear. Please wait patiently with us until May. Thank you.

So going away from the fifth financial earnings, DHC I know that you had completed your acquisition as you had explained. Could you give us a little more color? The IRR of 10% as compared to last year's profit is still lower than your expectation. So are there any findings that you can see, and how would you be able to realize the turnaround of profit generation going forward?

So JPY300 billion or so, and one thing that I can say for sure at this point is they do have a current asset that is pretty ample. So we would like to make use of that as well, and we don’t think this JPY300 billion is a higher price that we have paid. Talking about this company, DHC, from the prior owner of the business, we have succeeded it. They haven't been utilizing advertisement and promotional costs much. So we will concentrate our efforts on that, and we can foresee ourselves expanding other businesses in overseas locations as well. These are in our plan. On the other hand, we need to reinforce governance and therefore making use of our manpower is also part of the plan for improving the businesses. This means in the next fiscal period, the costs tend to increase, which also indicates that the profit level is not something we can expect to improve in the next year and also financially speaking.

Yes, this is Watanabe from Daiwa Securities. Profit progressing at a high level, what would be the impact, and also the confidence? I think every year, to the fourth quarter, you were doing some measures, and you talked about risk management. Are there any things that we should be careful about going into the fourth quarter, and do you think the current situation would impact the capital allocation in any way except for exceeding the JPY332.1 billion?

I'm sorry, can you please repeat the last part of the question once again?

So, the dividend policy, if you are going to upgrade the dividend, you have to basically exceed the previous year's profit. But if there is going to be something good if you overshoot or outperform the profit from last year or against the target?

I'm sorry, what was the first question?

About the fourth quarter?

Oh, I'm sorry. We will just continue to account for impairment as we usually do in a steady manner. It's not as if we will do something special for the fourth quarter, but in the second quarter and fourth quarter, generally speaking, we tend to see these numbers come up. It's not as if there is no impairment or any write-off right now. Of course, we are doing many things and we will continue to see some level of a write-off, but we have not really identified any big potential issue so far. That is the current situation, but there will be some write-offs here and there. That's the current situation. So that's the first question's answer. Now as far as the dividend is concerned, 33% of the previous year's number or whichever is higher, that is what we have communicated for this fiscal year and this will stay the same. This will be unchanged. That's all I can say to you. Would that be okay?

Well, first of all, with regard to the U.S., if you could be so kind as to give me some idea as to your approach right now. I think there are some losses of JPY10.5 billion from the securities that were held, and on the other hand, there's JPY4.2 billion of profit. I was looking into these perhaps noises, and the segment profit is about JPY5.1 billion, and it was lower than the first quarter, but then higher than April to June. So this sales, the impairment loss that was posted, where did it come from? And also, how's the business like right now, and Lument, how would it perform going forward into 2023?

Well, on Page 27, if you could refer to Page 27. Yes, as you mentioned, the PE investment, the capital gain has been generated from some PE investment. I would like to refrain from mentioning the actual specific names, but there are different pieces of PE investment that we have made and generated some capital gain from. As you have said, the appropriation was made. There are two: a specific appropriation of reserves, and also to see through. So when we change some outlook of the future, we may have to add some reserves. Referring to Page 27, the credit base profit has declined as a result of the reserves that we had to increase and the other factors that affected our performance. We have state in Lument and also what we refer to as BFIM – Boston Financial for low-income bracket people, where we develop housing and securitize it. These deals can create fluctuations in earnings. But the first quarter was the bottom, and we managed to recover somewhat from there. So, the real estate Lument has not fully recovered yet, and that's due to volatility in interest rates. However, we are not particularly worried about credit at this time. Of course, we must maintain a conservative outlook so far as the reserve appropriation is concerned, but there is nothing major that concerns us. As for PE investment, I think there are actions that will be taken, whether these actions will occur in the fourth quarter or in the next fiscal period, some amount of exits are expected. Toward the next fiscal period, how we can improve earnings is yet to be determined, but we aim to increase profit. We do not intend to increase our assets dramatically. So we wish to recover ORIX USA's business cautiously with gradual improvements.

I am Okada from UBS Securities. I have one question. As you have mentioned earlier, the outlook for the USA, I would like you to follow up a bit. I know that you are becoming a little more stringent in the control of businesses, but the segment profit of JPY105 billion is expected as well. So how do you strike the right balance between the profit outlook and also risk management? Going forward, what are your expectations in areas like PE, credit, and real estate?

Yes, as I have mentioned, as of today, so the profit that has declined, we don't think the question you had asked is unjustifiable because I think in two years, whether we will be able to recover back to JPY105 billion or not is questionable. We would not like to indicate that we will change the split. But if possible, we would like to, of course, grow the business. And regarding businesses in the U.S., the answer to your question is no; we will not give up on those. While becoming more stringent in our risk management, we continue in the asset management businesses, PE, credit, and real estate. We want to continue generating profit, utilizing other people's capital and leveraging our investments. We will continue to evolve our strategy and risk management on one hand, but in terms of broader asset management, we will use other people's capital to pursue our goals. In this fiscal year, there was a slowdown in the United States. We have made some investments. In the last year, we didn't really have to do anything, and they basically sold one after the other, but unfortunately, within this fiscal year, the situation is very different. Thankfully, in domestic real estate, the situation continues to be positive. In domestic PE investments, we continue to look at how to increase value and potential buyers, and we spend time working on these. However, I don’t believe that our situations have deteriorated that much, and aviation is showing signs of recovery, and we expect to continue working on exits in the next fiscal year as well. I want to emphasize once again that capital recycling is what we promote. It's not just increasing investments randomly; we maintain a strategy of recycling to make ourselves stronger and more profitable. Therefore, we will work on our exit plan, and do not have any specific concerns at this time. So once again, I would like to thank all of you for joining us in this briefing session. We managed to generate a notable profit, a pretty decent profit in the third quarter, and going forward, we would like to continue our efforts in building even more profit. So please continue to watch the development of our businesses. If there are any further questions, please contact our IR Department. We are happy to answer your questions individually. With this, I would like to conclude today's conference. Thank you for your participation.

Thank you for your participation right to the end, and you may now disconnect.