Good evening, ladies and gentlemen. Thank you very much for joining this telephone conference for ORIX Corporation for First Quarter Consolidated Financial Results for the Three-Month Period Ending June 30, 2020. The attendees at today's conference are Executive Officer, Head of Treasury and Accounting Headquarters, Mr. Yano. And as we begin the meeting, we would like to ask the participants to kindly turn off your mobile phone or other communication devices nearby or move them away from the phone. If during the meeting we find the howling or the noise feedback, we may have to disrupt the meeting and may ask participant to deal with this issue. We hope that you kindly understand. Mr. Yano will give you a presentation for first quarter financial results and we’ll move to a Q&A session. The whole conference will take about an hour. At this time, I would like to turn the call over to Mr. Yano. Please, go ahead.

This is Yano speaking from the Treasury and Accounting department. Thank you very much for your participation on this call, despite of your busy schedule. So without further ado, I'd like to get started with the business performance announcement of 2021 March and first quarter. So I hope you had received the PowerPoint slide in front of you. And I would like to make use of this deck. And please turn to the second page to begin with. So to begin this explanation session, I'd like to give you the procedure of this meeting. First of all, I'd like to explain the summary of business performances. Net income is JPY 50 billion, annualized ROE of 6.8%. ORIX is pretty well diversified in terms of its businesses. And as a result, although some businesses are affected negatively by COVID-19, but we did manage to generate some profit. First half dividend is scheduled at JPY 35. And full year payout ratio of 50% remains unchanged. Second, the segment performance. For the first quarter, we increased the number of segments from six to 10. The remarkably growing overseas businesses, in fact, is growing its significance. So we have decided to split the overseas businesses into four segments and also domestic business that shares the same sales network, as well as reporting line, are expected to enjoy synergy and thereby we have decided to integrate into one, the segment. And also at the same time, we have made environment and energy segment as an independent segment. Our business model is often described to be too complicated and not easy to understand. But we would like to enhance our disclosure continuously, so to facilitate for a better understanding on the part of investment community. And the third, I will be explaining about the financial soundness…

Mr. Yano, thank you very much for your explanation and presentation. So we'd like to move on Q&A session. [Operator Instructions] So, let us move on to the Q&A session. As to your questions, I would like you to limit your questions to just one question. So let us get started with the Daiwa Securities, Mr. Watanabe. Please start asking your question.

My name is Watanabe from Daiwa Securities. So I have to limit my questions to just one. So let me ask you the question with regard to base profit. JPY60.5 billion of profit seems to be pretty high. So in your presentation you had told us that there is a very small possibility of turning to a negative scenario. So do you think that you are higher or lower at this point in time? And as for the second quarter and onwards, if there was to be any overshoot or undershoot, what would be the negative factor or a positive factor that would affect the base profit?

So thank you for your question. So what would happen from the worst scenario? If I were to ask -- answer to the question, it is -- I would like to give the disclaimer that it is very much dependent on how things would unfold from here down the road, because you see the worst scenario is, of course, assuming all the worst that could happen. But, of course, we have been responding to COVID-19 outbreak as much as possible. So we think -- we're pretty confident that we can avoid this worst scenario from happening as a result of this response that we have been taking so far. Well, then -- so JPY180 billion JPY 200 billion whether we will be able to achieve this upside result? I think was your question in a nutshell. So we are going to be furthering our efforts in achieving a better result of course. But in the businesses that we operate, we have hotel operations, accommodation operations, as well as airport operation as well. And it will be affected greatly by whatever that happens from here down the road. So we have no more certainty for the future. So how we can make up for any possible losses that could be generated from these businesses by other lines of businesses? Of course, we would be happy if we can enjoy a better of course development of the COVID-19 and all other situations. But this is how we foresee ourselves I think performing from here down the road. I don't know whether I have -- I managed to answer to your question. But -- so base profit, I think you have asked me the question with regard to base profit.

So with regard to the base profit from second quarter onwards, is there a possibility of undershoot or overshoot as compared to the first quarter base profit result, was my question.

As a matter of fact. So by unit by unit, it differs very much. So just as I had told you, corporate financial services and maintenance leasing, I think we have been -- we have managed to adapt to COVID-19 outbreak and there could perhaps be a possibility of an overshoot, whereas concession businesses in fact have been delaying by three months perhaps. And the first quarter, in fact have managed to only capture January to March of this calendar year because, you see airport has started to suffer from February or mid-February to be precise, so the concession businesses -- I think we are going -- we are yet to experience the negative impact from COVID-19 from here down the road as opposed to the first quarter results. So if I were to just name some of the negatives. So there was Hartford Life Insurance for example, the lost generation for example in the first quarter, we did manage to recover. So we did manage to enjoy the positive uplift. So, I cannot draw a kind of an outright conclusion. So, if we were to -- there are negatives as well as positive in the second quarter as I foresee.

Thank you, very much indeed for your answer.

Thank you, very much.

SMBC Nikko Securities, Muraki-san. Please ask your question.

Yes. This is Muraki, SMBC. Aircraft lease. This is where I want to ask a question, page 27 and 28. You are showing us some tables there. From second quarter and onwards, what is the outlook for the aircraft lease? That's my general question. For the first quarter, except for Avalon there is no profit. Profit is down by ¥75 million or so. And this is -- can be explained by the reduction in the proceeds only. And the IFRS versus GAAP, you said there was a difference between the two including the end of the year situation. What is the possibility of incurring impairment? And what is the full year outlook for aircraft lease as a whole?

Air craft lease, let me try to explain this. At this point in time, we cannot really be complacent. In other words, we cannot really definitely say that the outlook is positive. But of course, I have to say it depends on the market development. For Avalon, there is a one-off delay in reflecting the numbers. And also, impairment was not really posted. And the Avalon bought back some of the bond in order to generate profit. And that is why the profit looks a little bit higher, whereas OAS, there was not a lot of profit from sales. And chapter 11 impairment was partially included as well, which meant lower level of profit.

Going forward, payment deferral requests how long will that linger? That's one of the questions. And also during that kind of situation, what would happen to the price of the aircraft themselves? And do we need to recognizing payment or not?

So all of the factors will influence the situation and at this point in time, I cannot say anything bullish about the aircraft lease business. But we have to pay close attention to the profitability of impairment.

According to U.S. GAAP impairment, what is the trigger to including payment in the consolidated segment? What kind of things should we look for?

Well, Avalon themselves say, it's impairment according to IFRS, but not according to U.S. GAAP. Now according to U.S. GAAP, if the price is low in the case of IFRS, impairment does happen. But U.S. GAAP looks at the signs of impairment. And they would say yes, there is a sign for impairment. And it looks like the future cash flow how the lease payments would come in. And the assumption of the cash flow will take place and also residual value several years down the line, the actual selling price will be included in the test in order to decide whether the actual impairment is needed. And currently, the appraisal price is not dramatically dropping. So, if you look at the fair value presently, it's slightly negative, which would be impairment according to IFRS. But this impairment can be recovered in the future. With the improvement test based on U.S. GAAP, whilst it's determined its permanent impairment, it's a big drop and it will never be recovered in the future. So the concept behind each of these accounting standards are different. So Avalon well, we've received the impairment test data based on IFRS from them and we did our own evaluation. We showed it to the accounting auditor. We had some discussions with the auditor. And finally we've decided that there is no need to recognize impairment according to the U.S. GAAP. That is why we have not recognizing payment this time around.

I understand. Thank you, very much.

Thank you, very much for the question.

Let us move on to the next question from JPMorgan. We have Mr. Otsuka asking the question.

This is Otsuka from JPMorgan. Thank you for the opportunity. So this is going to be a very simple question. So once we proceed to the second quarter, I suppose much to the extent, you see we would be left with the second half for the year. So I think, things will be clearer as to how the performance would be for the whole year. So, would you be making your forecast announcement for the full year? Just has been explained by Yano-san of course, it is very much dependent on how COVID-19 outbreak would unfold. But what do you think?

So from that perspective, of course whether we will be making full year forecast or not, I would find it difficult to answer to your question in a precise manner. But once we would be in the second quarter. I think things would be a clear for the – in actual fact. And I suppose the third quarter performance would be – the forecast would be clearer. So I think it will be better for us to make a certain announcement as to how we foresee the whole year unfolding. Of course, I was kind of wondering whether you would be asking the question with regard to shareholders' return as well. So at the time of the second quarter and also full year result announcement, we will be providing you with further information with regard to shareholders' return as well. So from that perspective, I think the business, performance, forecast will have to be announced in combination with how we foresee us paying out to the shareholders. So therefore in the second quarter, as of today, whether we would for sure be making announcements for the full – I mean full year forecast or not is not to be concluded but we would like to of course continue to watch over the development in a vigilant manner.

Thank you very much in answering to my question inclusive of shareholder return. Well then unless the second wave of – or third wave of COVID-19 outbreak is going to be quite significant that does not allow you to foresee the full year forecast. You're going to be making some kind of indication as to how your business performance would unfold from here down the road.

I don't want you to push me into making a commitment. But of course, it will be dependent on how things would unfold. I'm sorry to repeat myself but that's what I think as of now. Thank you.

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

Thank you. I have a question about the situation in the United States. The disclosure has changed I don't really see it very clearly but segment profit is close to zero. And the level is about same as January through March, marketable security is the same and the service revenues are coming down. There are different factors. It is difficult to see what's happening. Can you please explain what is happening? What is the loss due to the marketable securities and the other factors?

Yes, I'm sorry, I didn't provide you with enough explanation about what's happening in the United States. Please turn to Page 29. So FY 2019 first quarter, you can see high profit. Houlihan Lokey Bank divestiture was a big impact. This was just under ¥10 billion or so in the last quarter. So it did not happen in this first quarter. And then there is impairment and provision. Rentec segment I have to explain, as I explained in the fourth quarter in fact is the energy-related portfolio. We call this legacy asset internally. ¥20 billion or so we used to have traditionally but we had to increase the allowance for this in the fourth quarter and the first quarter as well because the situation is getting harder for us. And there are many other factors too. Also some of the funds had to be mark-to-market, which means that the impairment had to be recognized. Now we have to apply certain type of evaluation rules and the discussion had to be had with the accounting auditors because we could not really apply our own rules. And this is something that had to be reflected 10 months later in the first quarter closing, we had to look at the market status as at the month of March, which means that there was a big negative impact on calculation. But looking back, I would say this is probably the bottom. And in the next quarter we have expectation that we will see some recovery. So there are many factors different factors involved. Looking at the earnings results from the United States, you may have many questions in your mind. But from the second quarter, we believe that we will begin to see some recovery. I have an expectation that we will see some recovery in this area. Does that answer your question?

Service revenue is declining but we don't have to worry about that. Is that your stance? In the third quarter and fourth quarter expenses were increasing – it's increasing but it's not decreasing. Do you think you can maintain this level going forward?

With regard to the service revenue companies that were consolidated will be moved from the list of consolidation. And I think that is why you see a big gap while service revenue decline is just noise.

I understand. So it's not really a profit contribution?

That's correct. There was a capital gain posted last year.

So expense reduction is also because of the removal of that converted subsidiary?

Yes, among others that's the reason. And similar to Europe if the performance is poor then performance-based bonuses will be decreased as well. That could be another factor behind all these numbers.

Thank you. Understand.

Thank you very much for the question. So the next person is from Merrill Lynch, Japan Sasaki-san, please.

So thank you for the opportunity. This is Sasaki from Merrill Lynch, Japan. So I want you to tell me this ¥2 trillion worth of investment pipeline. So you had given us some idea of this pipeline. But there is a lot of uncertainty in this fiscal period. So no one knows – well, you have been explaining to us that no one knows exactly what – how things will develop from here down the road. But do you think that you'll be able to execute some of these deals within the fiscal period? What is the probability like the likelihood? So if you could be so kind enough to perhaps elaborate on this investment pipeline?

So at the time of fiscal year-end announcement Mr. Inoue, CEO has said that we are going to put a stop on all the investment because we have no idea how COVID-19 outbreak is going to unfold and we would have to prioritize a liquidity and nothing else. So in other words -- but what we remain by just a major investment and we have been of course continuing to execute small bits and pieces of deal So -- but now this with corona there is a continuing and as for ORIX part. So with regard to the sizeable deals we think that the time is right for us to consider and -- consider the possibility of execution of some of these sizable deals. And so with the current environment and conditions it doesn't mean to say that the price is going to decline quite sharply. So therefore we are not going to stretch ourselves or push ourselves hard in executing these deals. So this is why we have put a suspend or stop at the time of March end, but we have started to reconsider some of these sizable deals whether to restart the consideration of execution or not. So overall, we have been decreasing the number of investment, especially, the sizable deals. But it is very much dependent on the conditions of these investments terms and conditions. But we would like to, of course, continue to make a certain amount of investment of course. Which means that as compared to three months ago may I take it that your -- I think attitude has changed in years.

Yes. On page 11, the table that you have shown us it didn't quite ring a bell, but like asset management companies, for example, are you thinking of putting a capital into these kind of businesses?

So of course environment and energy I think is easy to understand. But regard asset management businesses, as we have been telling you from long time back we mean by a ride broader definition asset management businesses. So in the case of United States for example, we are a state service-related businesses, we are taking those kind of businesses into consideration. So it is not just limited to a general understanding of asset management businesses. Of course, it is very much dependent on the terms and conditions from here down the road, but if the price is right and if there is a normalization of the pricing, we would like to take into consideration the possibility of acquisition or the expansion of asset management businesses and there are some offers as well I must admit. And the private equity domestically that is we would like to seek for a non-auction deals. It doesn't mean to say that the price is right or the price impact at least I think some inflated portion has been eliminated and we are beginning to see some signs of normalization of the pricing. So if the price is right, we'd like to proceed with the execution.

And if you could be so kind enough to explain about the hotels as well the possibility of investment into hotels?

Well at the moment rather than hotels or real-time inns the deals that are underway is to be preceded just like before. It doesn't mean to say that we are going to turn pretty aggressively making a new investment into hotels and real-time inns. So this is perhaps description perhaps maybe a bit misleading.

Thank you very much for that.

Thank you very much. From Alma Capital we have Mr. Krew [ph].

I was just wondering in the maintenance leasing segment, I think, you were sort of, quite clear about the fact that the auto leasing business would come under pressure. And I was wondering obviously, the Q1 results there were down quite heavily whether that's how much you can read into that as being coronavirus-related? And how much is just the tough environment that you've been experiencing in the last couple of years? And also in that segment Rentec specialist equipment leasing, I was not expecting that to be, sort of as heavily impacted as perhaps it has been in Q1. So could you just comment on that as well? Thank you.

Thank you very much. And I'm sorry that I'm speaking in Japanese. With regard to automotive lease, the biggest impact comes from rental car and car sharing. In the automotive business, we have a lease for corporations and also lease for individuals, which is the smaller in size, and the rental cars as well as car sharing services. Rental cars and car sharing has the biggest impact. And that's the biggest driver behind this number. Of course, suffering from the tough environment over the last couple of years, but this time around that impact is not that great. Second-hand car price has come down. So it really depends on how you interpret that. You could say it's due to COVID-19 or it's not. But anyway it's quite interesting. Unfortunately new cars are not really selling very much and automotive OEMs are really struggling right now. But that means that the second-hand vehicle prices are going up, which means that this business is making a recovery more recently. So we are expecting a slightly positive situation. That's the automotive status. Moving on to Rentec. Rentec maybe causing some noise or issues as you can see from this slide. So the question is, how came quickly in a good status deliver the equipment to the end customers? And due to COVID-19, what is happening is that including our work style things have changed things were disrupted. And unfortunately for the first quarter, the performance went down. However, we are rebuilding what we're doing. In the second quarter and beyond, we are expecting a big recovery. So I don't think this should be a big cause for concern for you. That's all from me. Thank you very much for your question.

Like to move on to the next question from Mizuho Securities, we have Sato-san asking the question.

This is Sato from Mizuho Securities. I am referring to page 5. So the first quarter impact from COVID-19 outbreak has been explained. For the first three, at the time of full year announcement, I think you are indicating some progress that has been made from the time of full year announcement back in May automotive and also domestic as well as services some loan losses as well as impairment. And so as compared to the initial anticipation the forecast, if there was to be any kind of changes that you have been observing in the mix of these businesses, we'll be very grateful. So as compared to the initial anticipation, if there was to be any major changes?

I would have to conclude that, it was almost in line with our initial expectations. But the United States as well as auto, I don't think we have taken much time in explaining about those businesses at the time of full year announcement. I'm sorry about that.

And with regard to the domestic businesses such as financial of course assets are they okay?

At the time of full year announcement, we were a little – we were slightly concerned about this financial asset. We are anticipating perhaps due in payment and as well as request for deferral as well, quite a number of them. But as compared to our initial anticipation we did not receive much of those requests and the credit loss was not as great as we had initially anticipated. This is my impression so far. And as the impairment, just as I have been explaining so far such as aircraft I think we have to remain to be pretty cautious in watching over the development from here down the road. If you could perhaps follow-up in terms of United States businesses.

Thank you for explaining. But how about Asia in terms of credit loss if there was to be any kind of further explanation that you can provide in Asian region?

Well, as compared to domestic market in Asian region the payment deferral request in fact was more than that of here in Japan. So the deferral payment has been received the request. And if there was to be any possibility of referral in actual fact, we don't have to of course stop the recognition of the numbers but we would have to take every care in dealing with these reports. And just because the central bank, or the government in fact have made an announcement, we would have to of course defend as to of course appropriating the provision. So – but the size of the businesses from Asian region is not that large anyway. So therefore, even if we were in the position to be appropriate in certain loan loss provision, I don't think it will be as sizable as one may perhaps think. So about ¥2 billion of provision was accounted in the first quarter and so if you could refer to the appendix, we had giving you further details of this. So, of course it varies from one country to the other. Even, if we were to talk about the Asia region as a whole, Korea for example, or China, Taiwan we didn't have much concern. But India for example, it really varies from one to the other dependent on the impact that comes from COVID-19 outbreak.

Thank you very much for that.

Thank you very much. Citigroup Securities Niwa-san. Please go ahead.

Thank you. This is Niwa from Citi speaking. First quarter investment execution, I want to ask some questions about that. I may have missed your explanation, but what is the amount of investment that was executed in the first quarter? ¥500 billion per year, that's the plan. So, how far did you progress? And what was the content? And as far as M&A is concerned, I think there was comment in the first quarter. It's difficult to do, because you cannot really visit outside of Japan. Do you think the initiative has changed due to COVID-19?

Thank you. We don’t want to make a lot of investments in the first quarter. It's less than ¥100 billion in the first quarter. As I mentioned, there is a pharmaceutical company that we invested into and nothing major, because everything was on hold by the strong message by the CEO. Mr. Inoue mentioned this in the full year announcement last time, we don't want to be involved or execute investment projects where we cannot do physical due diligence. But when we started the project on renewable energy recently and we did the diligence once, and also we had local staff nearby. So, although the borders are closed, we can restart due diligence in some of these countries. Which means that outside of Japan, we can still do physical due diligence and continue to push these projects forward, not for every project of course, but we do what we can. So that we can continue to reopen and work on these overseas deals as well.

One additional question if I may. You spoke about ¥2 trillion worth of investment pipeline. Compared to three months ago, is this an increase or decrease or flat? Maybe flat on net, but maybe increased or decreased on a gross basis. Can you explain?

Well, I would say it's flat. We usually have a list of potential investments and then we make selections and decide which ones to go forward with or not. And among the list of deals, some new ones actually were brought to us more recently. And some of them of course, were flatly rejected from the beginning and not even was considering, but we always have a list of deals like this. Compared to three months ago, was there a big change? The answer is no. In other words, we have not really seen a lot of movement, big movement in the last three months. But anyway, we have always about this much in our pipeline.

Thank you very much for your answer.

Thank you for the question. So I think the schedule is almost up. So this is going to be the final question that we're going to be entertaining. From Nomura Securities, we have Sakamaki-san asking the question.

This is Sakamaki from Nomura Securities. So, this is going to be a quick question. With regard to shareholders' return, so you haven't adopted the worst scenario for the business performances. Of course you have indicated quite strongly with regard to the dividend payout. But was there any kind of changes that you have made in the shareholders' return policy?

Although I have not touched upon this topic, in terms of shares repurchase, it doesn't mean to say that we have given up the whole idea of shares repurchase. But it's just that we have put as a spend. We have stopped proceeding with the share repurchase program. But now, until we can foresee how COVID-19 outbreak is going to be developing, we have decided to stop the execution of the program. But it doesn't mean to say that we have given up on the idea altogether. We would, of course, start reconsidering the execution of the program once the time is right. And as to whether we are going to go ahead and proceed with the execution of the program or not, it would be dependent very much on the situation. And -- but as of now, nothing has been concluded or decided as to the restart of the program or not. But as to the buyback of the shares, but it doesn't mean to say that we have given up, so we are progressing about the program altogether.

Thank you very much for that.

Thank you for the question. So, it is almost -- we have come to the end of the scheduled time. So, I'd like to invite Mr. Yano to make final remarks.

So thank you all very much for your participation in this conference, despite of the manifold duties of your work. I'm sure that you may have further questions, please do put them forward to us on an individual basis and we would like to continue to provide further information as we enter into the second quarter. Thank you very much indeed.

So we'd like to conclude the ORIX business performance announcement for the first quarter of 2021 March-end. Thank you very much for your participation. And you may now disconnect. Thank you.