Good evening, ladies and gentlemen. Thank you for joining this today's conference of ORIX Corporation for Second Quarter Consolidated Financial Results for the 6-month period ended September 30, 2020. The attendees of today's conference are members of the Board of Directors, Executive Director, President and Chief Executive Officer, Mr. Inoue; Member of the Board of Directors, Senior Managing Executive Director, Responsible Treasury and Accounting Headquarters, CEO; Mr. Taniguchi; and Executive Officer, Head of Treasury and accounting headquarters, Mr. Yano. Materials to be used at today's meeting has been uploaded on the website at around 4:00 p.m. today. Please refer to those materials. Before we begin, we have some requests. [Operator Instructions]. The first half of the meeting will be presented by Mr. Yano, second half by Mr. Inoue, followed by a Q&A session. We have approximately one hour for this whole meeting. Now we would like to begin the meeting. At this time, I'd like to turn the call over to Mr. Yano. Please begin.

So this is Yano. Thank you very much for the introduction. And I'd like to thank all of the participants to the financial results of briefing meeting today, despite of your busy schedule. Now I'd like to explain our financial results for the second quarter of the financial year ending March 2021. Please refer to Page 2 of the financial results briefing materials on hand. Net income for the first half of the fiscal year ended March 31, 2021, was down by 41% year-on-year to ¥93.8 billion, and the annualized ROE was 6.3%. But with the impact of COVID-19 remaining, we revised on our strength of diversified business portfolio to secure solid profits for the group as a whole. As compared to first quarter, the net profit went down by ¥6.2 billion or 12% as a result of a revision of the estimated tax rate. Net income before tax, which are not affected by tax rates, were almost flat, with first quarter at ¥7.6 billion and second quarter at ¥66.5 billion. We booked profits and losses of some companies such as concession business on a monthly respect. Therefore, in terms of the actual business condition, we believe that we are out of the bottom. So let's move on to the next page, breakdown of segment profit. The income for the segment totaled ¥149.5 billion. We explained basic profit and gain on sales separately here. The dark blue color, base profit was down by 33% year-on-year to ¥112.8 billion. The main reason for the decline in profit by ¥54.6 billion was the impact of COVID-19 outbreak. The breakdown explained on the next page. The pale blue colored, gain on sales, was down by 50%, from ¥74.1 billion in the same period of last year to ¥36.8 billion. In the previous fiscal…

So this is Inoue from ORIX. Good afternoon. Still affected by the spread of COVID-19, we have to hold this announcement session through the teleconference. I apologize for the inconvenience. But I also ask you for your understanding. So let me explain by making use of Page 8. So 2021 March end, the first half, the profit before tax of ¥134.2 billion; net profit, ¥93.8 billion; and ROE, fortunately, was at 6.3%. In the second half, the business conditions were pretty mixed between and among different countries of the world. And we cannot, of course, foresee the COVID-19 spread ending. And we still think that it is not easy for us to forecast our business ahead. However, we have decided to forecast our net profit to be at ¥190 billion at the end of this fiscal period. So in the case of ¥190 billion, if this was to be achieved, it would mean a decline of 37.2% of profit as compared to the prior year. At the time of the full year announcement back in May, because of the spread of the COVID-19 virus and also the acute slowdown of global economy associated to the pandemic, we thought that forecasting an impact was not easy to -- that with -- the impact to our financial earning was not to be easy. So we have explained the 2 scenarios. If we would be able to start enjoying the normalization of businesses from the third quarter, our net profit would be ranged between ¥180 billion to ¥200 billion. Whereas if the impact is to persist for 1 year, it will be in the range of ¥80 billion to ¥120 billion. So although we cannot still see how things will unfold, but we think that we should not expect for the worst case,…

[Operator Instructions]. So first, Mr. Watanabe from Daiwa Securities.

So this is Watanabe from Daiwa Securities. May I ask a question about your thinking to capital gain. I understand that you have started to have your body up model started to rotate, and in considering the new investment to be made. So can we take it that you're going to be posting some gain? But I understand that there is no kind of impairment from the aircraft leasing businesses. But do you think that -- so this ¥190 billion of an achievement, in fact, incorporates this absorption of this, if should there be any impairment that may perhaps be posted from aircraft leasing as a result of posting of the capital gain?

I'm sorry about this. So ¥190 billion, the capital gain, the small amount is incorporated, but it is only about several billions of yen. Some logistic facilities to disposition and there are several disposition of some real estate assets, but no major disposition or the capital gain is included as for the private equity in Japan as well. So many fund investors are -- only move to -- wanting to acquire some of these assets. But unfortunately, whereas it was like 67% -- 60% to 70% of loan. Whereas, on the other hand, the fund the acquisition amount, in fact, has been lowered. So we don't have to align with this move. So this is why we have not incorporated the large amount of cash flow gain in this ¥190 billion of our forecast. But of course, we were thinking about divesting or disposing some of the assets, but it is not, in fact, reflected to this ¥190 billion of our forecast this time. As for the aircraft lease -- aircraft impairment, well, it is hard to describe this. But from your perspective, you may wonder why this is the case? But our -- the aircraft that we own, Avalon, in fact, they carried out quite a bit of an impairment. And as a result of IFRS accounting, they would have to post some losses as a result of this impairment that they have exercised. But as for ORIX, we have not been in the receipt of grounding nor the return of aircraft. So the leasing is continuing. So therefore, we have been receiving the leasing fee. And the return condition or the reserve, in fact, has been maintained as well. So this year, we feel no necessity for impairment. And this is -- this led me to making the announcement earlier. So if there was to be any impairment, it will be after the next fiscal period. And of course, we would have to make a judgment before we would be posting any impairment. But as for this fiscal period, we foresee none. So I hope this answers your question.

SMBC Nikko Shoken, Muraki-san.

Energy policy in various companies may be changing. How does that impact the existing portfolio and also the future investments by ORIX? You said that for biomass, maybe accelerated depreciation may happen in the existing portfolio. But is that going to be a financial impact? And also, with regard to renewable energies, I know that you're making investments in various countries. You have the existing business already, and you have made announcement about investment in India. And in considering the pipeline in Japan and also in the United States, the policy -- the government policy may change. So what kind of impact do you expect?

Soma and Hibikinada park. This is ¥11 billion investment in total. Annual profit is somewhere between ¥3.7 billion and ¥4 billion. And if we go up to the year 38, then the book value will be 0. So we made this biomass mixed project according to the government policy, but the government is changing the policy, so it may be discontinued at 2030, '30 to '38, So this is an 8-year difference. We need to accelerate the depreciation for this 8-year difference, which is about ¥20 billion in amount. On the ground, people believe that we can go up to year '38, but I don't really trust what the government says. But if it ends up with 30 years, those are the numbers that are associated with that, which means that from 2021 to 2030, within 9 years, the ¥20 billion will have to be depreciated over time, which is approximately ¥2.2 billion to ¥2.5 billion increase in depreciation. And that's the risk that we foresee. And as far outside of Japan is concerned, fuel gas and other types of debt initiatives are going on in the United States, we already have a reserve -- we will have provision for that. So we don't expect any major impact in the future. With regard to India and other countries, these are all renewables. And as far as renewables are concerned, across the globe, the prices are going up, which means that if we take a future project, impairment risk, especially for Europe and India, and as far as renewable energy is concerned, we cannot really do the contract. So I think it's okay. And we're not doing any coal overseas, so we don't see any risk associated with that either. I hope that answers your question. And was it all the questions you had?

Yes.

So the next is from Goldman Securities. Nakamura-san.

I'm Nakamura from Goldman Sachs. I have 2 questions. The first, so just to make sure, as to the shares repurchase program, so what is the change that you have made from the time of the full year financial results announcement? Is the first question. And the second is, when you were explaining about Page 13. So the recovery pace, in fact, is more moderate or slower than before in terms of the profit generation. So much as you can tell me, would you mind giving some color to this? And on Page 30, the green part, the three segments recovery and also additional gains on sale. As compared to the plan, the three segments, in fact, are recovering faster. And can we expect this green part to be generated in addition to that? So the new investment contribution, the yellow part. And also with regard to IR, any kind of implication in reference to this talk?

The amount of ¥44.2 billion of unused repurchase program, so we have received much criticism from people from investment community. And at the time of Lehman shock of global financial crisis, I had to go through a bitter experience of financial difficulty. And this is why we had kept this ¥44.2 billion being unused. But the difference between now and the Lehman crisis is because there was a credit crunch and there was tightness in the financial market the last time. But this time, as to the cash management, we are not affected. Another, in fact, there's an abundant money in the market. So from May, June, July, I started to gain some confidence. And as a result, I have decided to continue with the share repurchase program. So especially from the next year onwards, we may want to perhaps come up with yet another round of repurchase program. So in any case, we want to achieve ¥190 billion of profit as we have shared, and also to pay out the dividend as we had made the announcement for. And in the next year, hopefully, the COVID-19 may start to settle down or we start to see -- to gain some certainty. So we -- this is why we have decided to restart this repurchase program. So this is the backdrop to our decisions. And as to Page 13, so the three segments recovery that you had asked the question for. The three segments recovery, the real estate operation business and also aircraft business are the main part of -- for these 3 segments. So as for the aircraft, the green line, in fact, is the recovery of the revenue and profit. And actually the additional disposition, the ongoing base concern, in fact, has been reflected in anticipation or in…

[Indiscernible] of Morgan Stanley.

Just one question about Avalon. You're receiving negative profit coming from Avalon. And IFRS profit is posted. I think that this is a negative profit of maybe for ¥1 million to ¥1 million. Without the impairment, this number should be smaller. According to U.S. GAAP, this same payment is not really recognized, but still, this is a deficit 3x than what you're taking in as profit. So my question is what's really happening? As far as ORIX Aviation is concerned, you said there is no impairment. You said this actually with confidence. If you apply this GAAP to Avalon, what would be the risk of impairment? That's my question.

Avalon's intention -- this is just an intention, it's not finalized yet. But since they have many investors from the United States, they want to switch from IFRS to U.S. GAAP. I think they're considering the possibility. When IFRS is used, after impairment, recovery is possible according to the accounting standards. With this GAAP, impairment is just one time. And until something sold, then you cannot really realize the recovery. So that's the difference between IFRS and U.S. GAAP. Now Avalon did post impairment under the IFRS system, which means that they can still recover if they want to. And they had planned that in the beginning. But since the majority of investors are from the United States, there is maybe instruction to switch to U.S. GAAP. And that is why Avalon is attempting to shift from IFRS to U.S. GAAP. It's not finalized, it's not confirmed, but that's the current status. So we're looking at U.S. GAAP, and this is 25 years appreciation -- depreciation. In our case, it's a lease period depreciation plus RV. So that's another difference. As long as the lease is in place, there's no need for us to post impairment. If a lease is canceled and it is returned to us, of course, we have to review, revisit those numbers. But our expectation currently is that there is 0 return and there is 0 grounding. And based on that assumption, we do not believe that we need to change the depreciation period or RV. I hope that this answered your question?

Zero grounding and zero return, does that apply to the aircraft owned by Avalon?

Well, in the case of Avalon, there are returns and therefore, impairment. Avalon's business also focused on narrow-body, but they also have wide-body and they are trying to reduce the lease amount -- lease pricing. And according to IFRS, this is subject to impairment. We have not reduced the lease amount for wide-body at all. And for narrow-body, there were some deferrals, but we have not received any discount request. And that's why we don't have impairment. But for Avalon, they have to do the impairment because some of them are doing this. Yes.

And profit from Avalon is negative despite there's no...

No, I think it's a negative profit, including impairment. I would like to add. Avalon -- as far as Avalon is concerned, we are shifting from IFRS to U.S. GAAP. And there's a lot of impairment in IFRS, but there is some recovery in the U.S. GAAP, including some small impairment. 737 MAX order was canceled, for example, and this is a very technical explanation. After the order was placed and the deposit was paid and the payment -- interest payment was also done. This was capitalized first, but it cannot be capitalized anymore. So it has to be recognized. And this was a special factor -- extraordinary factor. And that is why, in the first quarter, we are seeing a big decrease in the returns. Does that answer your question?

I see. I understand now. So the capitalized things that's recognized versus what is impaired I was hoping that you can give me the breakdown of that?

Yes, we will get back to you with detailed numbers later on.

So Niwa-sama from Citigroup Securities.

Niwa is my name from Citigroup securities. And I'd like to ask some questions about Europe, from two perspectives. First, so what do you -- how do you look at the overall businesses? While M&A, in fact, is preceded in many of the cases, how are you going to be managing the business [indiscernible] from here down the road? And at your company, as to the M&A, you said that there may be some burden that comes from the goodwill amortization. So Robeco, I'm sure the goodwill, in fact, is quite sizable. And is there any kind of changes that will be built about as a result of the current situation?

As to Robeco, to be honest, so there are two -- to be honest with you, there are same amount of offers that are made from those acquisitions as well as disposition from United States that they want to be buying and also selling the business or buying the business at any rate, it is dependent on the pricing, and whether there's going to be a synergy or integration, a synergy rather. And at this point in time, I have not -- I have no strong intent in wanting to sell the business of Robeco, the former Robeco. I would like to -- I think that we are confident in expanding the businesses going forward. We do have the asset management business. And in Europe, there are a number of inquiries that are brought to us. And unfortunately, the asset management business acquisition or rather the sales -- both sales as well as the acquisition of the businesses of asset management businesses. You see the rumor spreads very quickly in the market. And there, in many cases, unfortunately, the deal does not come through as a result that rumors spread earlier than expected. So this is why there may be some cases or perhaps selling the business. And on the other hand, some -- because key employees are, in fact, leaving the company and the asset management business acquisition or disposition or divestment in fact, is not easy. Robeco's AUM with the current outstanding amount of the AUM. In the market, I don't think their size is big enough, although they are working hard, the people at Robeco that is. So I think we would have to proceed with a further acquisition in order for us to be full-fledged in terms of our capacity as well as capabilities. But the timing is not particularly right, right now. So as to the asset management business, in both Europe as well as United States, it is important for us to expand their AUM and also to be in receipt of higher proceeds. So as to the asset management businesses, we need to do something about this in any case. But there could be a possibility of buy as well as sell. So acquisition or divestment as well. And what was the other question?

I think that was very clear. And I wanted to ask the question with regard to the goodwill amortization. And looking at the balance sheet, Robeco seems to be one of the most sizable of all. And with -- so are you -- do you think that you should hold on to Robeco despite of the fact that it may perhaps affect your credit rating as well?

So it's not that -- we don't regard it to be an obligation. If you're going to, of course, hold on to the asset Robeco, we would have to continue to, of course, expand that. I think there's about ¥1.5 trillion worth of AUM. Is that right? ¥800 billion of a goodwill, that is. And also Robeco and the U.S. asset management company, in fact, accounts for this ¥800 billion. And in any case, the new investment that we may make, such as Greenko. I'm sure we would have to exclude those companies that have tangible assets. And of course, there are intangible assets as well that we may have to take into account for. In any case, with -- through M&A activities, if you're going to carry out some acquisitions, there would always be, of course, the problem or the challenge of, of course, depreciation. And the only way, of course, to carry through our businesses is to continue to amortize these goodwill, maybe over 10 years, 20 years. We are currently discussing all this topic and we may perhaps to follow the U.S. GAAP standard if that is going to be the case. And in any case, as to this goodwill, I think that we should make it as a subject of amortization. So that -- but I don't think it would affect our rating very much. In the case of S&P rate -- for example, in the case of Moody's, they would refer to the P&L conditions of ORIX. So it is not just a goodwill that would affect the rating in any case. So goodwill amortization increasing. So it is very much dependent on the management decision as to whether to expand the amount of goodwill on not. So to the total amount of asset was ¥13 trillion, I kind of think by real sum, maybe 10% is regarded to be appropriate and adequate. But I don't think -- by just expanding the amount of goodwill does not stop us from making a new investment.

It's almost time, so we would like to make the next question the last question. Sato-san, Mizuho securities.

I'm Sato with Mizuho Securities. I have a question about share buyback. ¥44.2 billion that you spoke of, this is because the financing situation is not that tight, and they still have a remainder of the program that you originally designed? I think that's the positioning. But when you make judgment in the next fiscal year and beyond, are there any other materials or information that you would additionally look at? Of course, COVID-19 impact to existing business, investment pipelines and also the U.S. presidential election as well as uncertain situations in Europe. I think there are various factors for you to consider. And if -- well, which one of these assets need to improve for you to consider additional program?

¥44.2 billion, this was still unused. And the decision was to use it. So that's it for this program. For next fiscal year and beyond, we have to really think about ROE being below 6%. This is really a serious situation. We have to bring it back to 11%. But if we conduct ¥100 billion or ¥200 billion of share buyback, the general situation would not change. So we have to invest positively into projects and maintain the cash flow. Osaka prefecture, centralization of government was rejected. The proposal was rejected yesterday, which means that we have to see what happens to the governors, what happened to the project? Will that be suspended? Or will there be no change because LDP is supporting the project? There's some noise in Nagasaki prefecture. And Yokohama's situation is getting more and more complicated. Now as far IR is concerned, maybe last year or 2 years ago, we talked about ¥1.6 trillion, and we have to really think about these numbers once again and whether we should really invest into this project. Social distancing is an issue as well.

How should we take this -- see this in the future?

If the target for investment is reducing, of course, we have to do share buyback in order to make -- move things forward. That's another point for us to consider. And also tomorrow's U.S. presidential election, it may really push the stock prices down. If Biden is elected, then the corporate tax will almost definitely increase. So these are some uncertain factors that we need to take into account. If we do zero share buyback, I don't think that will be accepted by the market. So we will like to continue to do share buyback and also possibly think about potential investments. I think I gave you a similar explanation 1 year ago or 2 years ago. So you may think my answer is the same again, but still we have to consider all these factors and continue to work on this. That's all I can give you today. I hope that answers your question.

So you're not really thinking about discontinuing the share buyback program?

That is correct. We have to do a share buyback. 6.3% ROE, we have to do something about this. So we would like to consider taking all these different factors into account. I would like to close the Q&A session for now.

Mr. Inoue, please give us the closing remarks.

Thank you all very much for taking part in this session. From next time onwards, we would very much like to hold the session in a large venue because I don't know whether you're satisfied with my answer by not seeing your faces. So in the next time, hopefully that the COVID-19 would not further spread, so that we'll be able to meet with you in person. Thank you very much.

So with this, I would like to conclude today's teleconference. Thank you for your participation today, and you may now disconnect. Thank you.