Earnings Call Transcript - IX Q1 2022

Operator, Operator

Good evening, ladies and gentlemen. Thank you for joining this telephone conference of ORIX Corporation for the First Quarter Consolidated Financial Results for the three months ended June 30, 2021. The presenter at today's conference is Mr. Yano, Executive Officer and Head of Treasury and Accounting Headquarters. Mr. Yano will deliver the presentation, followed by a Q&A session. The total duration of the meeting is approximately one hour. We would now like to begin the meeting and I will now hand it over to Mr. Yano.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Good afternoon. I am Yano from ORIX. Thank you for joining us today for the FY 2022 March end first quarter business performance announcement of ORIX. So without further ado, let me explain. Please refer to page 2 and let me first share with you the executive summary for the quarter. So first, the net income and ROE. The net income was at ¥65.2 billion, up 30% year-over-year, as well as quarter-over-quarter with annualized ROE of 8.6%. With this, we achieved 26.1% of FY 2022 March end net income forecast of ¥250 billion, marking a very good start for the year. Next is segment profit growth. Japan, including Tokyo, is still in the middle of the state of emergency due to COVID and therefore still affecting the three businesses of real estate facilities operation, aircraft leasing, and concession. However, thanks to the diverse business portfolio of ORIX, we have a number of business units that are performing well. In fact, segments namely ORIX Europe, ORIX USA, Real Estate, Corporate Financial Services, and Maintenance Leasing posted sharp profit growth. The third summary point is investment pipeline and new execution. Despite a tough environment, we have a rich pipeline that includes renewable energy and MICE IR. Also, steady progress has been made in execution of previously announced projects. While we will remain very selective in the choice of the projects, we intend to be active in the new execution as well. The last summary point is the shareholder return. No change to the plan for the full year dividend of ¥78 per share. ¥50 billion is the amount for the repurchase program for this year. So far, we are making steady progress by buying back ¥10.2 billion already as of June end. We will update you on the progress for July very soon. Now, please turn to the next page. As we explained, the net income for the first quarter was up 30.3% year-over-year, and 29.5% quarter-on-quarter with annualized ROE of 8.6%. The right-hand side bar chart shows the trend of the quarterly net income and ROE over the past two years. As you can see, a steady recovery is continuing since we hit the bottom in the second quarter of FY 2021 March end. The result this time has exceeded the level of the fourth quarter of FY 2020 March end. Now please refer to the next page. This page shows the breakdown of segment profit. The total of segment profit was ¥106.9 billion. The bar chart on the right shows the trend of the segment profit over the past five quarters with dark blue showing the base profit and pale blue investment gain. Base profit was up 23% year-over-year at ¥77.2 billion. As I mentioned at the beginning, many of the segments performed well exceeding the decline of profit in the three businesses that were impacted by COVID-19. On the other hand, investment gain grew significantly to ¥29.7 billion, almost double that of the prior year. The result was reflective of timely exit for both domestic and overseas projects, including US private equity investments and logistics facilities in Japan. Let us move on to the next page. This page gives you the further details of the segment profit growth. The chart on the left shows the quarterly trend of the segment profit over the past two years. The three businesses that are affected the most from COVID-19 are shown in gray color, while the others are shown in blue. As you can see, although most of the businesses other than the three businesses were also impacted by COVID at the start of the pandemic in the fourth quarter of FY 2020 March end, the businesses are recovering steadily with the quarter being the bottom. Moreover, the businesses marked a significant profit growth in this first quarter as compared to the previous quarter. We have made a note of some of the businesses that performed favorably, and I will explain the details later on. Please now turn to Page 6 and 7. From this page, we share the breakdown of profits and assets. We confirmed a clear sign of recovery with seven segments expanding their profits as compared to the last quarter, where six segments grew their profits year-over-year. By the way, the table shown here is pretty optimal in capturing the overall trend of the segment. However, for the details by segment please refer to page 11. So allow me to make use of this page 11 in briefly explaining each of the segment by using the page. And we may change it to the calculation method of the segment profit. As a matter of fact, it is a change to the allocation method of the interest rate payments, as well as SG&A. And we also reflected the changes in a retrospective manner, so please be careful when analyzing these numbers. Please refer to page 11. First Corporate Financial Services and Maintenance Leasing segment. Segment profit was up 53% year-over-year and the segment ROA improved to 3.4%. Profit for auto grew significantly as a result of positive used car market, as well as recovery of rental costs. Rentec refrained from utilizing the technical center affected by the COVID to the fall in the first quarter of the last year, but the business is recovering steadily, and showing a robust trend. Taking into account the lower interest rate environment, Corporate Financial Services have been very selective in both loans and leasing deals, so this resulted in the decline of the segment assets. So let us move over to the next page, and now we show the Real Estate. Investment, as well as facilities operation have managed to reduce the amount of losses as a result of improvement in occupancy. Stronger demand at the backdrop, the segment posted gain on sales of logistics facilities resulting in the gain of profit. And DAIKYO number of units delivered in the first quarter increased and year-on-year increasing the profit on sales of newly built condos. So please refer to page 15, this shows PE Investment and Concession. Our domestic private equity investment Kobayashi Kako has not resumed their production yet, but the new investments we made in the last year are all performing well, contributing to the profit growth. We will continue to search for and consider new investment deals. Now concession unit. The financial performance of Kansai International Airport is recognized with three months lag because in the first quarter of last year included the business result of pre-COVID time. So the profit this time around unfortunately posted a decline. However, international cargo is growing showing some signs of recovery. So please refer to page 17. Environment and Energy segment. Gain on appraisal was temporarily posted in Indian wind power generation in the first quarter, and the absence of that in this quarter meant reduced profit. But new businesses are developing in Japan including PPA model. PPA model means that our company leases land or roof from a client who wants power and we install a solar power generation system and supply the power to that client. This is advantageous for our client because it leads to the reduction of CO2 emission. We expect the market to grow rapidly. New executions are expanding centering around the manufacturing and retail customers both large and middle sizes. And the profit contribution from our overseas new investments will continue to be posted with a three-month lag. Greenko profit will be reflected starting from the second quarter Elawan from the third quarter. Please turn to page 19. This is the Insurance segment. Non-face-to-face including the Internet and the mail order continue to grow. And the insurance agencies, banks, and our reps providing face-to-face consultation were included in the omnichannel. We are providing optimal service depending on our customers' needs. Traditionally we were focused on the third sector including the medical insurance. But now our product lineup has improved including whole life insurance denominated in yen and US dollars in order to achieve a more balanced source of revenue. A reversal of liability was posted in the first quarter for former Hartford and the absence of that meant that the segment suffered a decline in profit. But excluding Hartford, ORIX Life increased its profit. Page 21 shows Banking and Credit. Non-face-to-face sales were utilized taking advantage of online platforms, and the real estate investment loans grew. Profits have been stable. And in credit we had smaller positive impact from a reversal of provisions for losses compared to the first quarter, where there was a slow demand for cash because of lockdown. Please turn to page 23. This is Aircraft and Ships. Avolon reduced profit due to posting of losses from a lease contract for airlines by HNA Group. But HNA Group restructuring is going smoothly. We do not see any big concerns going forward. As the vaccine coverage continues to expand in the US, Europe, and Japan, the outlook for the aircraft leasing industry is looking brighter. In the second quarter earnings announcement of Avolon last week, only 1.7% of the aircraft are on the tarmac which meant major improvement. And for the Aircraft and Ships unit, we saw profit increase due to higher levels of maritime mortgage. Please turn to Page 25. This is ORIX USA. Gains on sales investment gains were posted in multiple PE projects leading to a significant increase in profit. ORIX Capital Partners' dedicated PE investment is part of ORIX USA and the Capital Partners invested in the largest service provider of traffic infrastructure safety called the RoadSafe Traffic Systems, leading to the first exit for our Capital Partners in five years after establishment. It’s not just our own money, but external investors have participated, which means that in the United States we are actually doing asset management business and also in the PE Investment business. The real estate loan origination and asset management of factors loans are done by Lument and Lument continues to be strong. Please turn to page 27, this is ORIX Europe. The ORIX Europe segment handles the asset management business. AUM is showing a recovery trend. The balance at the end of the first quarter was €326 billion, posting a new record. Robeco is strong with a sustainable fund and the AUM of this fund increased leading to a high level of fee income. Please turn to page 30 for Asia and Australia. Profit increased in smaller local and operating companies with a fewer impact of COVID-19. Lease new execution accelerated in China and South Korea and the auto lease in Australia also contributed to the profit. That completes the explanation about each segment. And now we would like to turn back to Page 8. And lastly, I would like to explain about the future pipeline and new execution. In new executions, we will continue to focus on renewables, PE, asset management, and logistics. We have a rich pipeline centering around these areas, and we will continue to promote new executions going forward. In Environment and Energy, we announced the closure of the acquisition of Elawan Energy, which is a major renewable player in Spain. The announcement was made on 27th of July. So we have many development projects led by Elawan and Greenko, and we will continue to accelerate the global deployment of our renewable business. Within Japan, I have already spoken about the PPA model. But in addition, we also have a dry biogas power generation. In June, we completed the construction of the largest biogas power plant in Yorii town Saitama Prefecture. This is now run on a test basis. And in the same month in June, our first retail green bond was issued by ORIX. Other than Environment and Energy, we have a diverse pipeline and we'll continue to build new executions. Within MICE IR, we submitted the proposal to a prefecture in the city of Osaka on the 20th of July. The project is currently under bidding and we will continue to contribute to sustainable growth of the economy and also tourism of the Kansai area and the country. In May, we invested with the right of refusal to the concession project of the water supply industry waterworks and sewage of Miyagi Prefecture. As for logistics facilities, we have multiple development projects in the metropolitan area where the demand is heightened due to the growth in e-commerce. So we develop, we find the tenants and sell. This is a turnover model that we will continue. Now as of today, we're in the middle of a fourth set of emergency and the situation continues to be unpredictable. However, for the first quarter earnings, we could make a very good start. Vaccine coverage in Japan is improving and we're really hoping that the situation will continue to get better. We will continue to pay close attention to the shareholder return. So first of all, we want to achieve the JPY 250 billion of net income and recover to the JPY 300 billion level as soon as possible. And as a next step, we will start preparing for the achievement of JPY 400 billion. We will continue new investments and also sales of assets and continue to improve the turnover in order to achieve an ROE of 11%. That's all for me. Thank you very much for your kind attention.

Operator, Operator

Thank you, Mr. Yano. We are now ready for the Q&A session. So let us get started with the Q&A. I would advise you to refrain from asking more than one question. First, we have Otsuka-san from JPMorgan. Please go ahead.

Wataru Otsuka, Analyst

Thank you for the opportunity. I am Otsuka from JPMorgan. As for the overseas businesses, I have a question with regard to the interest rate. If you could be so kind enough to explain, looking at the interest payment in the fact book as compared to April to June last year, it has declined by JPY 6 billion in terms of the interest payment. And thank you for sharing the numbers, but 80 basis has declined for the funding cost. I'm sure it is very much attributable to the interest rate movement in the United States. So this pace this JPY 17 billion of interest payment, can I take it that this is likely to persist within this year? But the interest rate is, in fact, declining further. So the interest payment may perhaps improve further and that may affect the yield of the asset as well. So how can I interpret this?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Thank you for the question. So let me answer your question. With regard to the payment — interest payment in the overseas market, because U.S. interest has declined, so therefore it has declined as well the amount. But all the countries are reducing their interest rates. So therefore, this is likely to persist for now, for the time being. So the interest rate payment is going to decline further. But with regard to the financial assets, of course, we are thinking about the ALM. And basically, with regard to the variable asset, we would try to procure the fund by means of variable. Whereas for the fixed, there are just fixed. Therefore, while the interest payment, of course, is going to decline, I think the same is applicable for the yield to be gained on the asset. We may have made a mention of this some time ago, but I think it was JPY 2 billion or JPY 200 billion. There was the mismatch between the fixed versus the variable and the floating rate. But we had halved the fixed rate amount by half or so. Therefore, I think the mismatching factor has been unwound. JPY 1 million or so has been fixed now. We are positioned nicely to benefit from the decline of the interest rate now. This is true for the Asian countries. But the assets in the Asian region, they tend to have a duration of about four years. In actual fact, the duration may perhaps be as short as two years. So that’s where we are. I hope this answers your question.

Wataru Otsuka, Analyst

Which means on the asset side, the yield that you can enjoy in the short run, you're not affected significantly, may I take it?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

I think that is correct.

Wataru Otsuka, Analyst

Thank you.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Thank you.

Operator, Operator

Thank you. SMBC Nikko Securities, Muraki-san.

Masao Muraki, Analyst

Yes. Environment and Energy business, I would like to understand the impact of your investments. Elawan acquisition was closed. And how does it impact the goodwill calculation for the next fiscal year? And also, how does it affect the rating of the company? In terms of P&L, Greenko consolidated starts from the second quarter, for Elawan from the third quarter. I think that's what you mentioned. For this fiscal year, do you expect them to contribute to the profit at all? Please update us on this information.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Thank you for your question. Allow me to explain. Greenko, this is equity method-based, which means that on the balance sheet this is the equity method, so associated company’s investment is posted. Goodwill and intangible assets do exist. For Elawan, as we mentioned before, the valuation for future projects is possible, which means that a certain amount of goodwill and intangible fixed assets will be included. As for the rating, Moody's is seeing this as a positive move. They have a positive opinion. And S&P, according to RAC calculation has a slightly negative view. That's the situation. But does it mean that there would be some immediate action? We don't know. We cannot say one way or the other. And impact on profit. Well, as I have mentioned before, this project is forward-looking, future-looking. So in the first year, the contribution may be small. But in the following five years or so, we expect the profit to grow. We expect that for both of those projects that you have mentioned. So, maybe ¥1 billion also for the first year. And over five years, maybe they will grow into tens of billions. That's the rough estimate that we have for those projects. Does this answer your question?

Masao Muraki, Analyst

Yes. Thank you. As for the rating, in the financial pages or the end of the package, you are mentioning that if there is a change to the rating, the share buyback, the current plan, and the future investments will not be impacted by the change in the rating. Can you confirm this?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Yes, that is our intention. That is the internal consensus.

Masao Muraki, Analyst

Thank you very much.

Operator, Operator

Thank you for the question. Let us move on to the next person, Watanabe-san from Daiwa Securities.

Kazuki Watanabe, Analyst

My name is Watanabe from Daiwa Securities. I have one question. And I would like to ask about the first quarter net income of ¥5.6 billion. Is it almost in line with your initial expectation? I just want to get the feel of your takeaway from this. And do you think that there could perhaps be upward revision for the full year and also upward revision for the return?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

So, I was anticipating this kind of question to be raised. As a matter of fact, back in May, at the time of announcing the full year result, the first quarter as compared to the time then, the first quarter result was better than we had initially anticipated. We were expecting the businesses to recover from the negative impact from COVID-19. But also at the same time, I think we have been able to fare our time in the COVID days. In other words, so in the first quarter, we did manage to achieve more than 25% of the expected amount of net income that we target to achieve for the full year, which is a very good start. So, what do we think about the whole year, then? To be honest, at the time of the closing of the first quarter, I think it is too early stage for us to comment on the full year results. At the time of the second quarter, we may have a better visibility for the full year. And if there were to be any necessary changes, we would announce the changes then to the full year business performance. But we are fully aware of your expectations. Thank you. I hope this answers your question.

Kazuki Watanabe, Analyst

Thank you very much. Thank you.

Operator, Operator

Thank you. Mitsubishi UFJ Morgan Stanley Securities, Tsujino-san.

Natsumu Tsujino, Analyst

It's hard to ask just one single question. With this earnings announcement, the impact of Kobayashi Kako, this is the investment — business investment segment and all the other projects did relatively well. Kobayashi Kako is unable to operate its business. How much negative impact did it actually generate? That's my first question. And also, going forward, I understand that you're considering selling or disposing. What do you think is the likely scenario?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Thank you for your question. As far as Kobayashi Kako is concerned, manufacturing and sales activities are suspended. So, they're running deficits, to be honest. And maybe we did talk about this in the previous meetings before, but the sales are basically zero. If we continue to operate, we are running about ¥1 billion deficit. That is probably the amount of the losses that we're posting in the first quarter as well. Naturally, we are focusing on rebuilding and restructuring the company. I don't remember the exact wording of your question, but you are suggesting that we are considering selling Kobayashi Kako off, but no, that is not what we're considering. I do understand that from the investors' view, investment view, that may be an option. But for the time being, we are purely focused on restructuring and rebuilding the company.

Natsumu Tsujino, Analyst

So ¥3 billion deficit generated by Kobayashi Kako and based on that, it means that all the other projects did much better to make up for that. So, which ones did well? And do you think that performance would be sustainable, or is it just temporary?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Well, we believe that it is sustainable. Our investees do contribute in terms of net profit for the term. For example last year, you may remember our announcement, the Cornes milking robot company and there are some other companies. Some of the companies that we bought last year are already contributing to our profit. No one is really suffering from a big loss due to COVID-19. In other words, all these projects are making sustainable positive contributions.

Natsumu Tsujino, Analyst

But compared to last year's level, maybe about three companies are doing much better than before. I was wondering if you could name names.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Right. I am not very clear about, which companies' names I'm allowed to announce or not. So, that is why I'm struggling with the answer. I'm not trying to hide any information from you. Please don't misunderstand. I'm sorry.

Natsumu Tsujino, Analyst

Understood.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

I wonder if there is any list of names I can refer to. Right, APRESIA is another example who did pretty well.

Natsumu Tsujino, Analyst

Understand. Thank you.

Operator, Operator

Thank you for the question. The next is Sakamaki-san from Nomura Securities.

Naruhiko Sakamaki, Analyst

I'm Sakamaki from Nomura Securities. I have one question. ORIX Europe is the question. So, referring to the segment profit it is very much related to ESG fund I believe. But how do you foresee the growth of ESG funds from here down the road? What is your growth expectation?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Excuse me because we really wanted to make a strong appeal of the strength that is enjoyed by ORIX Europe and this is why we have made a mention of ESG, but the market in fact was overall favorable. This is why the market was supportive of the growth of ORIX Europe's business. AUM, in fact, of course will grow as a result of the price hike of the names of different securities, but also at the same time, as I have said the new money had flown in as well. As a result of, of course, ORIX Europe's capability being evaluated highly. ORIX Europe is for major different asset managers, and Robeco, of course, is playing a central role and has been displaying their capability in the sustainability-related investment. The sustainability-related assets have been growing. They are carrying out active investment and not passive investment. Therefore, they have benefited from the investment that they have been making. I'm sorry my explanation may perhaps be a little brief, but that is all I can share at this point in time. And talking about how much growth has been enjoyed by sustainability fund, I'm sorry, I don't have any statistics readily available, so I won't be able to share the numbers.

Naruhiko Sakamaki, Analyst

That's fine. Thank you.

Operator, Operator

Thank you. BofA Securities, Sasaki-san. Please ask your question.

Futoshi Sasaki, Analyst

Yes, this is Sasaki, Bank of America. I have a question about how to read the performance. The first quarter performance ended up being better than what you estimated in May. ¥250 billion was the original plan. If you exceed this, the difference in profit will that be returned to the shareholders, or will you spend it in order to strengthen the financial health of the company, or will you invest this? And what is the likely usage of this difference? If your performance progresses favorably when do you think you can go back to ¥300 billion? Do you think it will happen earlier than what you announced in May?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Thank you for your question. Can we achieve ¥250 billion at all? Well, we have to focus on reaching ¥200 billion first for this fiscal year. We shouldn't be overly optimistic at this stage, but we won't be satisfied with just ¥250 billion. We will aim to exceed that. Once we surpass the original plan, we need to consider what to do with that additional profit. You mentioned three options, and depending on the circumstances, we want to find the right balance among them. That’s all I can say for now. However, returning value to shareholders is certainly a key priority for us, and we will keep that in mind. After we make some more progress, we will revisit this topic, possibly at our next opportunity. At this time, I’m unable to provide any more specific details. Was there another part to your question?

Futoshi Sasaki, Analyst

Yes, when do you think you can return to ¥300 billion? Is it going to happen earlier than what you said in May, or is the scenario still the same, or what are your thoughts? Is it going to be delayed?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

No, I don't think it's going to be delayed than what we have announced. Of course, we are expecting it to happen earlier rather than later but it's very difficult to say exactly when. But our hope is to achieve earlier rather than later. In the case of the ¥300 billion, is it the next fiscal year or this fiscal year or fiscal year after the next? I think that is the question that you're asking but I have to apologize, I cannot really say anything at this point in time. But our hope is to achieve this number as early as possible. Our feeling is that it will happen earlier than what we expected before but I cannot really say anything definitive because we don't have solid numbers.

Futoshi Sasaki, Analyst

So, are you already certain that this will not happen in this fiscal year before the end of this fiscal year?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

I cannot really say anything that would give you the wrong impression. So I should not say anything further otherwise I'll just be giving you a specific outlook for the performance.

Operator, Operator

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

Koichi Niwa, Analyst

So, one question. The US asset management businesses on page 25, AUM and AUA as well, referring to the chart to the right, it looks as if you had already peaked out and the decline seems to be quite significant. So, the decline in the first quarter, what was the reason behind this decline? And what do you foresee happening in the future? The organic investment may perhaps be lagging. If you could be so kind in that to explain the trend on this Page 25 to the right.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Sorry for that. For the first quarter, the decline in the AUM occurs because in Brazil, there is that RB Capital. We had to dispose of the business. This is why RER capital. We do in fact reshuffle our portfolio every now and then. And just as for the existing asset management businesses, we intend to, of course, increase the asset under management. We do have some pipeline as well. And for sure, our intent, of course, is to increase the AUM and that remains unchanged. In the previous fiscal year, SPCM, as you can see, we had some replacements as well. We did dispose of some of the investments, and we have been acquiring some of the new assets as well on the other hand. I think this is just as usual, in other words, a rebalance of the portfolio. So it doesn't mean to say that it is an experience of a rundown, but rather it is as a result of some reshuffling of the portfolio.

Unidentified Analyst, Analyst

Okay. Thank you very much.

Operator, Operator

Thank you. Mizuho Securities, Sato-san. Please ask your question.

Sato-san, Analyst

This is Sato-san with Mizuho Securities. Kobayashi Kako's future risk that's what I want to ask you about. Specifically, associated companies are preparing for litigation for liability. We have heard these comments. So what about the risk for liability compensation by the business partners? Have you made assessments? Maybe it's difficult to talk about specific numbers, but can we expect this not to impact the overall profit in a significant way?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

As far as Kobayashi Kako is concerned, the biggest risk would be brand impairment of Kobayashi Kako and how we can rebuild that, how we can restart the production and also the sales activities. As far as litigation is concerned, I don't think it would be appropriate for us to make any comments about what we are thinking or doing because there are other companies involved. But of course, we take the situation into account and we are responding to these situations. Asset value estimation has been done and the impairment was calculated as necessary. Going forward, we will continue to respond to the situation as necessary.

Sato-san, Analyst

Understood. Thank you.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Well, either way, as of today, I cannot really show you any optimistic scenario for Kobayashi Kako. But if you think about our group as a whole, on the whole, Kobayashi Kako should not have a huge negative impact on the group's profit.

Unidentified Analyst, Analyst

It's very clear. Thank you very much for your answer.

Operator, Operator

The next person is from UBS Securities, Okada-san.

Unidentified Analyst, Analyst

I am Okada from UBS Securities. Thank you very much. I would like to ask about the new investment execution amount, specifically the JPY 500 billion that you have recently invested. What is the progress for the first quarter? Additionally, regarding private equity investment, which depends on the region, it seems the level has remained high. What are your thoughts on the investment environment going forward? Thank you.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

So first, as the first quarter is concerned, I don't have the accurate number in front of me. But regarding the first quarter, there were no major investment that was made. Whereas in the second quarter, just as I have mentioned, Elawan in fact we'll be closing the deal. Therefore, ¥100 billion will also be the amount of investment. We will be consolidating about ¥200 billion or exceeding ¥200 billion in terms of assets. So there are significant investments going forward. As for private equity investment both in Japan and the United States, China, they have their different ways in making such investments. So let us put that aside. Not just limited to the US or Japan, but in Europe as well, in the United Kingdom in London we have an office. We have acquired a company called Gravis as we had announced previously, and we are putting different views on the table for discussion. In terms of the investment environment, I think divestment may be favorable, but I don't think the market would allow us to carry through major investment acquisitions. It will not be a favorable market for acquisition. But for sure, we do have a rich pipeline, and we are quite hopeful and we may be able to share with you some results sometime in the future. Thank you.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

Mitsubishi UFJ Morgan Stanley, Tsujino-san. Please ask your question.

Natsumu Tsujino, Analyst

Aircraft lease ORIX non-Avolon business, no gain on sales posted this time around. Investment into aircraft lease, I think the investors' appetite is coming back. It's recovering. That's what I hear. Do you think the situation will enable you to have more investment gains from that? Another question about the aircraft lease. Some of the deferred portions is the right way to say this? I don't know. But I think you can collect more, there's more opportunities for that for Avolon. For ORIX Aviation, maybe the situation is the same. But depending on the situation, let's see. Accrual-based is shifting to cash-based and cannot be posted as a revenue and that's pushing down the profit. If the situation goes back to normal, maybe the profit will increase and grow? With Avolon, this cash is about 10% or 11% according to the previous earnings announcement. I want to know the situation with ORIX business. When do you expect the recovery to take place? When do you expect to go back to the way things were?

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Thank you for your question. Aircraft are actually becoming more active dynamic and we are thinking about buying things that some investors are interested in buying. But ORIX Aviation is the sale to Japanese investors to get a huge investment gain. But those investors have not really come back yet. I think we have to wait for a little bit more. Yes, there are some sales or divestitures, but it hasn't really come back to the original level. Some investors are professionals who really understand the aircraft and other investors do not understand. But I think things are moving ahead. Investors who used to buy aircraft are now buying ships for example. There are some movements on the ship front. Avolon results reflected one quarter later. So HNA Group for the first quarter posted negative figures. But the profit coming in June to Avolon will be translated into our numbers soon. This will happen more going forward. As you have rightly mentioned, lease revenue cash-based and maybe sometimes the loss is posted and then there is a recovery afterward. We are expecting some recovery. But the question of when, to be honest, I would like to ask you for your opinion. I don't know when the recovery will take place. We do have a plan or the estimate. Our estimate is not a big recovery in aircraft. Even in the second and third quarters, we do not expect a dramatic recovery in this particular segment. In the first quarter, it's especially bad because of Hainan, but we do not really expect significant improvements in our estimates. I hope that answers your question. Thank you for the questions.

Operator, Operator

Since we see no further questions, we would like to close the Q&A session. Mr. Yano, please share your closing remarks.

Hitomaro Yano, Executive Officer, Head of Treasury and Accounting Headquarters

Again, I would like to thank you all for today. This is the current status of our performance. I do understand that there are some more details that you would like to check with us. In which case, please contact our IR team without hesitation. Thank you very much again for joining us today.

Operator, Operator

That concludes the telephone conference by ORIX Corporation. We would like to thank you all for staying until the end of this meeting. Thank you and goodbye.