Good evening, ladies and gentlemen. Thank you for joining this telephone conference of ORIX Corporation for the second quarter consolidated financial results for the 6 months period ended September 30, 2022. My name is [indiscernible] from IR and Sustainability Promotion. Today's attendees are Member of the Board of Directors, Representative Executive Officer, President and Chief Executive Officer, Mr. Inoue and Executive Officer, Head of Treasury and Accounting Headquarters, Mr. Yano. We would like to ask that participants to keep your mobilephone and other communication devices either away from the telephone or on silent mode in order to prevent feedback. So we will hear from Mr. Yano and then to Mr. Inoue, followed by Q&A. The duration of the meeting is approximately 1 hour. At this time, I would like to turn the call over to Mr. Yano.

Good afternoon. This is Hitomaro Yano, Head of Treasury & Accounting Headquarters of ORIX. Thank you for joining us in today’s meeting despite your busy schedule. Allow me to give you a brief overview of our FY '23 March end second quarter results. I will be making use of the PowerPoint slide in explaining our overview. So please turn to Page 2 of the handout. Net income fell 17% year-over-year to ¥121.8 billion for the first half of FY ;23 March end. This translates to an annualized ROE of 7.4%. Please look at the right hand side chart that shows the quarterly trends of net income. Second quarter net income was ¥59.9 billion, which was down by just 3% quarter-on-quarter despite major changes in the macro economic conditions. As I explain later, the main reason for our lower profits versus the first quarter was an increase in COVID-19 related payouts for policyholders isolating at home in insurance segments Please turn to the next page. Segment profits. This shows you the vector. Now segment profits for ¥170 billion. Please look at the right hand side chart that shows trends in segment profits from the prior year. Investment gains are indicated in pale blue, while based profits are indicated in the blue. Base profits in dark blue were down 18% year-over-year to ¥144.8 billion. This was primarily due to sharp declines in profit at three segments which performed very well last fiscal year, namely insurance ORIX USA and ORIX Europe the asset management business. Meanwhile, the Aircraft and Ships segment posted a major surge in profits driven by a recovery from COVID-19. In addition, strong performance in the environment and energy and Asia and Australia segments helped us maintain stable. There was a profit even with a more challenging macro conditions. The…

Thank you Mr. Yano. So this is Inoue from ORIX. Thank you for the introduction. So I would very much like you to turn to Page 6, 7 and 8, which I'm just about to explain, explain the FY '23 margins. First half profits were down 17% year-over-year, net income of ¥121.8. I'm sorry to repeat myself, but there were three major reasons for the downturn in profits. First, we booked a total of ¥21.2 billion for COVID-related payouts in insurance segment. That's the first. And the second ORIX USA segment profits were down by ¥25.5 billion year-over-year as we limited origination of the new business in the private credit business and the rising interest rate environment and [indiscernible] agency lending transaction volumes fell. In addition, we did not make any hasty PE exits. Now excluding ORIX USA and the Insurance segment, base profits were in line with our forecast. Majority of market participants believe that the U.S FRB will continue to raise interest rates. In light of this, I believe we need to carefully analyze risk before undertaking any new lending or investments, at least until the financial markets stabilizes. U.S interest rate impact conditions in other countries around the world. And under these circumstances, I don't feel it is the best course of action to operate with overly optimistic goals. So for this reason, we will set our FY '23 March end full year net income target at ¥250 million. We of course intend to exceed this target, if at all possible. Although the microclimate remains challenged worldwide, led by the United States, base profits were robust mainly in the auto, rental and Asia and Australia business units. Most of our excess base profits are backed by stable cash flows from our diversified portfolio businesses. In the current…

[Operator Instructions] So the first person from Nomura Securities, Sakamaki. Please go ahead.

Thank you. I’m Sakamaki from Nomura Securities. So I would very much like you to entertain one question of my. So I’m referring to Page 8. And the three segments, you show the over outlook for the three segments for the full year. So PE and concession, You are foreseeing a negative consequences. But other segments, other than the three segments if there's anything that you can share with us, as to the outlook for the whole year, I will be very grateful.

Okay, Then -- this -- Yano answer to your question, if I may. So basically, what we have set as an outlook, if the current situation persists, especially with regard to COVID, we are not anticipating a major recovery from COVID, except for insurance 350. And we do foresee some recovery for the insurance. But that's what we do expect in a major way, but other than that -- well -- so these are our expectations for the full year. Other than that, as for ORIX Europe, Transtrend, which is a future business as of December end, the performance fee is something that we can expect to receive at a certain level, so ORIX Europe. So the second half, we can expect for the growth of the profit as compared to the first half this is in no way. That’s for the Concession business. So you see there's a delay [ph] by 3 months in terms of incorporation of the profit. So we cannot expect much of the contribution in the first half and that there will be some two or three exits perhaps. I'm sorry to say so, but the prices may not be that attractive. And we do not try to kind of haste into selling. Those are the price that is not that attractive. There could perhaps be a possibility of some sales. But if that will be 250 -- that will be a top up on ¥250 billion, if there was to be any sales of these investees.

So if you could -- hello? Yes, thank you very much for that, which means that investment gains is what you’re not anticipating very much.

We are not -- I’m not expecting a certain amount, but we will not kind of overstretch ourselves, or haste into selling these investees, just for the sake of it. But there could perhaps be a possibility of selling some of the investees if we think the time is right, but you see, we have to go through certain procedures and we are currently in discussion. And there could be perhaps a possibility of selling them just before March end or in some cases, we may postpone it to like, April. So we just decided to not kind of overstretch ourselves as selling those investees. That's what it is.

Okay. Thank you very much.

Daiwa Securities, Watanabe. Please ask your question.

Yes, this is Watanabe speaking from Daiwa Securities. I have a question about exit. Well, in the beginning of the fiscal year, you said you would exit from of this asset because of weak yen. And earlier you said you want to maintain what the domestic, but for overseas exits, what is your current approach, current stance?

Well, for the overseas items, we are also looking for exits in some other projects. But many investments are linked to ForEx. So -- sorry, share price. So we have to look at the share price, and also the ForEx 160, 150, and depending on that we are moving into some of the exit discussions, but it's not really decided yet. Around the third quarter, maybe we can talk about additional exits. But at this point in time, I have to say that it's still very fluid. I hope that you understand that.

So in the beginning of fiscal year, you were expecting some, you're not expecting those anymore. But if the exit is successful, that will be added on top of the ¥250 billion, is that correct?

Yes, that's correct. Because overseas deals, we need to go through a lot of a process before selling. And also, if we don't do things very well, there is also antitrust law in China, for example and we cannot foresee everything. So if it's done within -- this fiscal year will be added to this fiscal year's number otherwise it will be added to the next fiscal year's number. So we can look forward to that.

I understand that. Thank you.

Thank you for the question.

So from Bank of America, Sasaki, please.

Hello, I am Sasaki from Bank of America. So, I have one question to Mr. Inoue. So, in the second half of this year, the outlook I know that considering are taking into account various different risk, which I have fully understood -- 120% I have understood what you have shared. But looking at the current conditions, in the next year, the current -- of course, macro conditions may perhaps persist because of the policy of the central banks. So what is your idea for the next year onwards? You may remain to be conservative in the second half. But do you think that the business starts to recover or the robustness may perhaps be resumed from April of next year, in consideration of the balance sheet right now? And what is in your mind as of now missing in a way?

So at the beginning of this month, 75 basis points, the bps, interest rate was raised. And I think that there's going to be further 50 bps of interest rate rise in United States. Whether that would put kind of would calm down the inflationary environment pressure, I wonder, it is very much dependent on the moves up by the U.S government. So 4.5% or 5% in terms of the official discount rate, and that will be 5% to 6% in terms of the market rate, and which means that it is several years back. So if the interest rate kind of hits the peak, and if it becomes kind of a standard, then I think the financial market will start to kind of calm down, then I think the new lending may be kicked off, and the private equity transaction may resume. However, having said that, though, from January and February of next year, if the rate is going to be hiked by another 50 bps, I wonder this is going to mark the end of the interest rate hike, I wonder, who knows. So this is why we would very much like to consider what could happen in the next year outlook, in other words over the performance. But you see people would kind of panic at the time of interest rate hiking environment, and people tend to, of course, shift their investment from equity to debt. But if that kind of comes down and settles down, I think we will be able to kick off our new initiative in terms of new deals, new transaction. So which means that we could make a leap forward perhaps in the next year?

Well, taking into account COVID-19, our Aircraft business, Concession ¥80 billion to ¥90 billion with -- if we could go back to normal, in other words, then ¥250 billion, just topping out by ¥90 billion, that will be a totally different kind of profit level. And we are working on it, preparation is underway. So we think that we should be able to achieve the minimum. I mean, I'm sorry to count the checks before the eggs hatches, but this is what I have in mind as of now.

Well, if that is the case, what is in your mind, ROE 11% or higher is priority that the management places you have said. But thinking about the next year, if the market does not proceed in the way that you would wish, is there going to be any kind of -- dynamic kind of decision?

Well, I think we may have to correct our kind of policy, we may, but I think 11% or higher ROE can be achieved still from my perspective, and we do have an abundance of assets and also unrealized gains as well. So if we can realize these unrealized gains, I think we can still be achieving 11%. But whether we can achieve this in the next fiscal year, I think it remains to be uncertain still.

Okay. Thank you very much for that.

Thank you. SMBC Nikko Securities, Muraki please.

Thank you. Six months ago at the earnings call, I would like to know what's changed, please outbid me on that? Current investments that in profits and also negotiation for sales as well as new pipeline, what kind of changes have you seen since then? PE and fund industry, we know that dry powder is preserved. But back finance for acquisition is not really abundant. And your business does not really directly compete against major PE funds. But in terms of investment and exit, what kind of environment change do we see in the last 6 months.

For our PE business, although I cannot really share the details, nonrecourse loan from banks. As far as this type of financing funding is concerned, nothing's really changed. And to be quite honest, last year or 2 years ago, when we had the issue of [indiscernible] we had a nonrecourse loan and all the debt was repaid by us, which means that there is a sense of strong trust for ORIX, which means that nonrecourse loan from banks, well, we call it nonrecourse, but they think that because it's ORIX, they feel secured that we will pay the full amount anyway. So the financing environment hasn't really changed in that sense. As far as overseas is concerned, especially for environmental energy, project finance financing is no problem, but the rate is higher now. And because of the high interest rate we have to look at the productivity and decide which ones are doable or not. And we don't have many low spread project. So for example, IRR may be 20 to 30 basis point worse than before because of the high interest rate, but other than that, we have not really seen any major impacts. Now when it comes to the logistic facilities, ¥200 billion is within our view, and we do have a slight concern about the increasing material prices. It has started to settle down here and of course development in OI is maybe 4%. But maybe it will be 3.9, so on basis lower. Because of this and also exit in OI is supposed to be above 3%. So it has not really changed. So as far as the market environment is concerned, nothing's changed in the last 6 months except interest rate. So we are paying close attention to that as we continue with our marketing activities. And I hope that answers your question.

Yes, thank you. Follow-up question, please. Earlier you talked about Toshiba. And our [indiscernible] Bank was an example in the past. So maybe this is not an exception. But if you cannot get the management control with a project, what is your approach of view? And has ORIX changed its approach in terms of that kind of project?

Well, for Toshiba, [indiscernible] Toshiba negotiation deadline is actually today. And I'm sure that you have read in the newspaper articles, that they are struggling with getting finance from the banks. So they could be like one month extension, or maybe they go back to the drawing board, we don't know. But as far as Toshiba is concerned, it's a huge company. And this is a very small amount of money to control that company. So for Toshiba, we are looking at it as a pure investment. In other words, we will help remove the activist and then existing asset of Toshiba as well as the management of Toshiba would be able to clean up the organization of the company and make the best efforts for being listed once again in the future. And with that, above assurance, we can take a positive perspective. So that's the condition. And we have not really discussed this within the Investment Committee -- and lending committee yet. And we have to make the right decision depending on how it will be done. So Toshiba is a huge company, and Toshiba management are excellent people. And ORIX over, maybe, as the humanities people, we don't know to what extent we can help them. But if we get some bit rights, for example, there would be a problem with the antitrust law in China, and the permission, we will have to wait for another one or 2 years. So we have to look at all these different factors and the balance of these factors and to what extent we can implement the governance. And once a structure is satisfactory from our perspective, we may be entering. That's the position.

Thank you. That's very clear.

Thank you for the question.

And the next is from Ms. [indiscernible] please.

Thank you for the opportunity. Earlier, you shared with us that there are a number of deals that are under negotiation. And of course, yen is weakening or weakened to that extent. So in the case of Japanese equity, for example, on $1 basis that, of course market capitalization has lowered and everyone's face has become pale. And for the new deals, the price has been -- has become much lower. So as a result, what do you think the attitude about the investors? Do they become even more kind of proactive in acquiring the Japanese assets? Or what do you think?

You see, it may vary from one industry to the other. In the case of overseas, because of dollar appreciation and yen's depreciation, the investment, we're not becoming aggressive in terms of making a new investment. But in the case of alternative asset management, if there was to be some interesting deal, we do have some kinds of appetite, but the multiple hasn't really lowered. So we have to wait a little more, even if the interest rate goes up.

The liquidity of the money is remaining to be abundant. And therefore, in the overseas location, the purchasing or the acquisition of the assets is not underway. But boutique for example, the Rebecca the acquisition in a very small way. But it is about US$10 million or US$20 million or so. So, a major kind of investment is only considered in renewable energy arena and because of course, the electricity cost is rising still. So, this is why renewable energy is the area whereby many other investors are paying a lot of attention to. So, therefore, rather than M&A or acquisition, we may consider perhaps making an investment in a greenfield manner as for the domestic market,

So, far as inclusive of PPE investment, I don't think the situation has changed very much, but the overseas investors are turning quite aggressive, because you see other 30% discount, so, they can acquire the Japanese asset. So, therefore, the foreign investors for sure are turning very aggressive. So, especially the real estate properties, I think we will be able to sell if at all possible, especially the logistic perhaps facilities, we will be able to sell them at a quite attractive pricing. Yes, I do understand.

Yes, thank you very much. That was very clear. Thank you. May I just add one more question, if I may. And you see with the current conditions, there is still unexpected, I'm not expecting you to carry through the shares repurchase. But at the beginning of the year, you in fact shared with us your idea, well, you see, our attitude remains to be unchanged. So, far as those shares repurchase, the buyback is concerned and we should be concluding the current program that is up and running by end of December and of course, there are some pipeline deals. So, we would like to strike the right balance between the two the investment and also the buyback. I know there are many investors who are focusing very much on the buyback, which we do understand you know why the reasons why they, they do put our emphasis on that, But the Japanese investors, I think they have kind of [indiscernible] down in terms of their expectations for the shares repurchase or the buyback. So, therefore, I would think we would like to continue to have a close communication with the market. And if it was to be like ¥50 billion worth of shares buyback, It doesn't affect us in a kind of major way. So, I think we would like to continue to consider the possibility. Thank you very much for that.

Thank you.

Next, JP Morgan Securities, Otsuka San. Please ask your question.

Yes, this is Otsuka, JPMorgan Securities. Can you hear me okay?

Yes, we can hear.

Although this is not an official number, but in the beginning of fiscal year, you mentioned for this fiscal year, the profit level would be basically flat. Maybe US¥300 to US¥310 billion at bottom. So flat from the fiscal, previous fiscal year. And today, you're talking about ¥250 billion, so it's although than what you mentioned. I just wanted to double check, is this because of the negative impact coming from the Insurance business, and also the private equity sales exit, you're not really hurrying with that?

Well, this is basically ¥20 billion of the insurance payouts. And we were thinking around the end of September that there may be another ¥20 billion for the second half. But now we know it's about ¥20 billion, and maybe several billions of yen in the second half only. And yes, ¥20 billion lower than the -- for this is big. Without this, we would have achieved ¥150 billion in the first half. So the insurance payouts are COVID-related item. This is -- this was bigger than expected. That's one factor. Another factor is the U.S. Rate hike was very rapid. And our USA business is in the debt business and new debt, if you try to do that, the spread is too wide and we will not be able to exit later. So to be quite honest, we stopped the USA activities. And that was another negative factor of about ¥20 billion. Without those factors, we would have been able to achieve the level that we mentioned in the beginning of the fiscal year. So those are the two factors. For private equity, we are still active. It really depends on the market. We don't have anything fixed yet, but maybe we will be able to post something in the second half. We don't know. To be quite honest, we don't want to be rush -- rushed to make this decision. So life insurance and the USA operations, stopping the USA operations. Those were the two major factors behind this gap.

So ¥440 billion target 2.5 years down the line, you are still keeping this because you expect this to recover and normalize?

Yes for life insurance ¥20 billion payout is not expecting the second half. And once the rate is settled in the USA business, of course, it's a huge market that business is not shrinking. So spread widening and if we can find a good interest rate transactions, that's what we expect. So as long as we see some situation coming down with regard to the interest rate, we should be able to normalize the business.

Thank you. Understood.

Thank you for the question.

And the next is Sato - Ms. Sato from Mizuho Securities.

This is Sato from Mizuho Securities. Thank you for the opportunity. So, I think you may have shared what I want to hear from you in the answers. So ¥440 billion of an achievement, the feasibility is what I want to know from you. And especially, if the environment starts to kind of settle down and come down and also if we remove this COVID-19 pandemic and FX impact, the risk hedge take into account, do you think that there could perhaps be an undershoot of the performances? So, taking all that into account as compared to 6 months ago, is there anything in addition that you need to undertake in terms of the activities, have you already started to consider any kind of new activities that you may have to undertake?

So U.S dollar availability is what we have started to consider. So, the other procurement is not that difficult, but the cost, of course, is higher. And the more recently, procurement from bank, whether the current terms and conditions are to be maintained, I have a big question mark. So, therefore, procurement, the funding from a bank is not something that we should be dependent on medium term note as well as I think a straight bond, the corporate bond is something that we may have to consider even at a slightly higher cost, we may have to secure other routes for founding other than resorting to bank funding. So because there is an abundance of pipeline, that for us to execute the pipeline, there should not be any difficulty that we may face from the funding perspective from the Accounting and Finance department perspective. So, portfolio at the moment, there are no kind of major problems that we face, but because of the rate hiking, borrowers quality may perhaps starts to deteriorate, that we may have to start addressing. So therefore, while we may have to reinforce a risk management kind of structure or system, so -- but we as you know, we remain to be agile at all time that is ORIX. So therefore, we will try to identify and discover attractive deals, and I'm sure they’re out there still. So we're not overly concerned about the possibility and opportunity.

Okay. Thank you very much for that. As a matter of fact, MBS for example, issuance in United States for example, over the past several months, I think the terms and condition has changed very much. But as to the operation of Lument, anything that you want to comment on?

Well, with regard to Lument from the beginning of this year, because the rate is going to hike, I did in fact give out the guidance of slowing down. But they did not and to Freddie Mac and the agent, the securitization in fact is becoming sluggish although the market is beginning to recover. So I think at the end of the day, we should not overly concerned about this, but the amount the value has expanded. So this is slightly -- a slight concern on my part, but still things are almost going back to normal. And so would it be for Lument as well. But the spread wise it is not no longer that attractive as of now. So I think we need to diversify our activities a little more.

Okay, thank you very much. That was very clear. Thank you.

Thank you.

Niwa from Citigroup Securities, please.

Yes, this is Niwa from Citigroup Securities. For domestic environmental energy, ¥20 billion are just under, that's the target for the FY '25 March end. Maybe this is very challenging right now. Do you have any plan B, and both organic and inorganically, how are you going to deal with this situation?

To be honest, I think the domestic is already finished. And setting some of the solar projects that we have, maybe a couple of them. And also, FIT is still a high if that -- if that's the case, sometimes we get it or [indiscernible]. But basically wind farm is over, that is my understanding. Looking at the trade firms, they are trying to do this with little spread, and they're very active in this. So if we wanted environmental energy, we have to focus on Europe and the United States. Greenko is India. But we can use Greenko and Elawan, and also developer of renewable energy in the United States, we need to capture those players, otherwise, it would be difficult for us to do environmental energy business. For domestic market, the new power companies businesses are shrinking. So I don't think there is any point in pursuing this actively. So ¥400 billion is the balance sheet that is planned, but maybe you will have to make some adjustments. That is correct. We want to shift our money into what's profitable. So if it is not profitable, we will take the money away and put it something else. So we want to be very flexible in doing this. So environment energy market in Japan, especially the new utilities, looking at the current situation, I think there's a huge question mark in this business right now.

I see. That's very clear. Thank you and congratulations on the baseball championship -- winning the championship.

Yes, the cost will be pushed up, but I'm sure that we can deal with that. Thank you.

Thank you for the question. So this is unfortunately, we have to bring this session to a close. So from UBS Securities, Okada, this is going to be the final question that we're going to be entertaining.

So with regard to U.S., I have two questions. So first of all, so the interest rate hike, what has been the impact to your businesses? I want to better understand. And that you have been starting new businesses, business execution, but in the second quarter, I think you may perhaps be paying more of an interest kind of expenses as opposed to interest rate income that has been enjoyed. So if you could give us a little more color to this. And the second question with regard to Lument. So the improvement with the government agency is underway, I heard. But with regard to the second half outlook, so the base profit deceleration is something that you cannot avoid? Or can we call the second quarter to be the bottom? And so far as you can share with us, what is your outlook?

First of all, let me start from the Lument. So you see about ¥10 billion of profit has been generated over the years. But I'm sure it is going to be a lower -- I wouldn't say 50% of a decline, but talking about the housing market. It is a B2C businesses. And if we were to securitize that and selling to Fannie Mae as well as Freddie Mac, which means that during that time the spread will become tightened or become tighter. And of course, there are several months before we can divest or dispose, and we work on the floaters basically, but the spread of course, would widen. So, therefore, with regard to the disposition, our spread will be impacted quite naturally. So, therefore, ¥10 billion also profit that was generated in the past, whether it will be halved or it will be lower by 50%, but it will be lower in any case. And as to the interest rate impact, and we work on the floater and therefore, with regard to our existing portfolio we are not affected by the interest rate hike, but because of the industry hike, the borrower's quality unfortunately may deteriorate, there is such risk. So this is why I think we have to do a better job of risk management. And if there was to be any kind of deterioration of the quality, there may be cases whereby we may perhaps sell some of the assets, even at a loss that may perhaps be generated. But the fixed rate deals are almost none. We work on the floaters, basically. So we're not basically affected by the hike of the interest rate, however, because the spread is going to be widened. And if we were to sell our asset to the third-party, we may have to sell at some certain discount, otherwise, we may not be able to make a smooth exit. So therefore, in the first half of the next year, between January to March, we may have to watch kind of carefully as to how things would transcend kind of proceed.

Okay. Thank you, I just want to add one. So, by quarter-by-quarter, the base profit in fact has been improving with what kind of product the improvement was bought about?

Yano will answer to the question.

So credit, you said credit, you mean by credit USA? Okay. I think it is more of a volume attributable to the volume. Volume, in fact, has been declining. And especially on the other hand, on a deal-by-deal basis, there has not been any major deterioration. So therefore, it has not been rising as a result. I hope this answers your question.

Yes, thank you. That was clear.

Thank you.

It's time to close the Q&A session. Since it's time to close this call.

¥250 billion, this is a number that we are embarrassed to disclose but looking at the market situation. I hope that you can understand and accept this, but ¥250 billion is the bottom that we expect, which means that there is an upside. We really appreciate your patience in supporting ORIX going forward. Thank you very much.

That concludes the second quarter earnings call for FY '23 March end. Thank you very much for being a part of this meeting until the very end.