Good evening, ladies and gentlemen. Thank you for joining this telephone conference by ORIX Corporation for Consolidated Financial Results for the Fiscal Year Ended March 31, 2023. From IR sustainability, my name is Nakane. I'm the Master of Ceremony today. Thank you for this opportunity. We have two attendees today. Makoto Inoue, member of the Board of Directors, President, Executive Officer and CEO; and Hitomaro Yano, Executive Officer responsible for Accounting and IR. [Operator Instructions] Mr. Yano will take the first half and second half will be taken by Mr. Inoue, followed by Q&A. We expect the duration of the meeting to be approximately one hour. Mr. Yano?

Good evening. This is Hitomaro Yano, Executive Officer responsible for Accounting and Treasury and Investor Relations at ORIX. Thank you so much for joining us today despite your busy schedule. Let me start by giving an overview of FY '23 March end results. Please turn to Page 2. Net income fell 12% year-over-year to ¥273.1 billion. For FY '23 March, it was disappointing to see earnings decline, but we substantially exceeded our forecast of ¥250 billion announced on November 7. ROE was at 8.3%. The right-hand chart shows quarterly trend in net income. Fourth quarter net income was ¥61.7 billion, investment gains and asset management fees from ORIX Europe fell as compared to the third quarter. As we booked some impairments in the fourth quarter, growth was less evident than in the first quarter and the second quarter, but progress in reopening has helped a solid trend for the quarter. Please turn to the next page. This is a breakdown of segment profit. Segment profit totaled ¥381.3 billion, down 28% year-over-year. Please look at the left-hand chart, which shows trends in segment profits. The light blue bar indicates investment gains, while the dark blue bar shows base profit. Base profits fell by 13% year-over-year to ¥297.8 billion, while performance among segments varied, but overall, we were able to secure stable base profits despite our big operating comment. I will go into further details later. The light blue investment gains were down 55% year-over-year to ¥83.5 billion, owing to the absence of last year's substantial gain on the sales of Yayoi. ORIX typically books investment gains of around ¥100 billion each year. Even in a tough environment, we were able to continue our effort of capital recycling and maintain a level of investment gains mostly on par with that of a…

I'm Inoue from ORIX. I would like to start from Page 7 of the handout. So FY '23, March, net income was down 12.5% year-over-year to ¥273.1 billion. EPS came in at ¥232.35. So for the fiscal year ending March 2023, we will pay a dividend of ¥85.6 per share, same as the prior year. So end of the year dividend, the second half dividend, in other words, will therefore be the same as the first half dividend at ¥42.8. Taking into the account ¥50 billion worth of share buyback, ORIX total shareholders' return ratio will be 55.2%. Unfortunately, FY '23 March ROE was 8.3% below our 10% target. We will continue to, however, to work to fulfill this target. Now last March -- last May, when we made the announcement of FY '25 March net income outlook of ¥440 billion. However, we will need to revise this figure downward in light of current market conditions. We now forecast FY '24 March net income of ¥330 billion and revised downward our FY '25 March net income target to ¥400 billion. Now as a result of this downward revision, ROE will be 2% in '24 March end and 10.4% for '25 March end. So for '24 March end, the shareholders' return, we would maintain ¥50 billion worth of shares buyback and the DPS of ¥55.6 per share or payout ratio of 33%, which ever higher. So I would like to further explain referring to the three pages of six, seven and eight. And firstly, let me basically discuss '23 March end results. So firstly, let me discuss the primary reason for FY '23 March net income of ¥273.1 billion. As mentioned at the first half results announcement, COVID-related payout expenses, particularly for patients isolating at home had a substantial negative impact…

Thank you. We're now ready for Q&A session. [Operator Instructions] So, first of all, Mr. Watanabe from Daiwa Securities.

I am Watanabe from Daiwa Securities. So I'm referring to Page 7, and that is to do with your shareholders' return. So the 33% plus, I think, is the payout ratio that you're indicating. May I take it that this is your target and also at the same time, with regard to the capital policy upon this guidance which was provided from the TSE, is there any kind of changes?

So you have quickly identified although we had the kind of roughly indicated this number. As a result of the benefits that would be canceled, that has been provided to the shareholders, we thought that some of the shareholders may decide the retail shareholders may decide to apart themselves from our shares. Although the amount that we were spending on this shareholders benefit will be allocated, the cost will be allocated to the payout of the dividend. And if we can achieve ¥400 billion of net income, I think it would require us to increase the dividend in a significant manner. So we hope that we will be able to pay out more than what we have indicated as a target. So we hope that it will be above 33%. I thought you can perceive it to be 33%-plus.

SMBC Nikko Securities, Muraki-san.

JPY330 billion this year and ¥400 billion next year, this profit forecasts give us some sense of ease. But inflation and banking prices, how does it impact the banking business for ORIX, both in Japan and United States. On Page 8, you're saying that the PE will be mostly focused in the domestic market and some asset management acquisition may happen overseas. I think that is a policy that you're indicating. And on Page 10, there are many keywords, cost increase, procurement environment worsening and also credit is tightening and of balance. There are so many different keywords here. And my question really is in the existing business, what are the concerns about exposures for specific businesses, what kind of scenarios do you need to get ready for? And carve-out as well as the investment into NPL or equity or credit could be maybe provided for risk opportunities? And how do you see those opportunities?

First Japan is concerned, we now have a new governor of BOJ, but the policy will remain the same. That is my expectation. So the interest rate for Japan may increase slightly, but we believe that this is going to be manageable. So as far as Japan is concerned, we will not be changing our policy very much. In other words, we'll be investing into new projects actively. And also overseas investors are still planning to invest newly in Japan as well. So we want to actively promote to capital recycling. So I have not a big concern for the Japanese market. Whilst USA would be the biggest concern. Last year from October and November, the situation became more tight in terms of a new investment. In other words, we have been very careful in selecting new projects. So more than ¥700 million in FY '22. And in the end, we could secure a profit of over ¥400 million, so it was fine. But if we want to increase it to $700 million or $800 million, then it would be too risky, especially for USA, private credit. In other words, lending is the mainstay. So as the interest rate goes up, there's a high risk in implementing loans. So we have basically slowed down the whole process. So for FY '24, contribution to profit is only about $400 million maximum. And of course, as for doubtful debt will have to be increased or has to be considered to be increased. And bank loans, if this is stopped or slow down, well, nonbank like us can continue to lend money, but the target companies will face financial challenges in which case we cannot be lend to those targets. So we have to continue to be cautious. The contribution of profit from the U.S.A. is going to be quite small. That's how we plan the numbers. But these are banks stopped lending and regional banks stopped lending and the banks start to sell assets and asset sales has increased. What would happen is, as we saw in the case of aircraft and ships, banks started selling the portfolio in aircraft and ships from about two years ago, and we are purchasing at a discount basis. And for aircraft and ships, we have increased our exposure. For example, average coupon is LIBOR plus [350] loan to value and the asset is 50%, for example. So these purchase of loans are very safe, and we have many opportunities such as that. And we expect ORIX USA to go through a similar process. Heavy asset financing against those markets providing are offers to us to sell depending on the content we may consider to purchase. And loan to value, of course, has to be kept low. And pricing has to be aligned with what we want. And we now have opportunity to be selective. So we expect such opportunities.

You just told funding costs will have to be also taken into account. And finally, how much profit or revenue can we generate from each deal?

While it's not really reliable but so far recently, but the 600 or 700 so far deals will definitely appear. So we believe that this is another type of opportunity that would be available to us. In terms of scenarios for this year, center around Japan, we will be building good assets and overall promote sales centering Japan. As far as the U.S.A. is concerned, asset management business is currently the focus. But the U.S. market actually, some asset managers are struggling already, which means that will push the prices down and at lower prices, we should be able to purchase things. So private credit deals will appear as I have mentioned earlier. So based on this kind of assumption for the second half of this fiscal year as well as next fiscal year, we will continue to deploy our business. I hope that answers your question.

Yes, that's very clear.

So from Mitsubishi UFJ Morgan Stanley, Tsujino-san, please.

And the first question that I'd like to ask is with regard to the business in the United States. I want you to answer in a more specific terms. I know that you are remaining pretty cautious on the commercial properties in real estate asset -- but the exposure that you may have directly. So how much of that would you mind sharing in more specific terms as to what you own currently? And one other thing that I would like to ask you. So this time, by segment, if you were to look into the details, it looks as if environment and energy may not be particularly good for a seasonal reason winter, in other words, and also Robeco and in Europe, that is, so interest rate cost is rising. So at the time of acquisition, the -- so the cost of acquisition may have been affected because of the interest rate hike. That was my assumption or imagination. And so it is in the United States was a Imagine. So there are quite a number of negative factors that I need to dig down into. So therefore, environment and energy and also European business. So if you are to dedicate more effort in the next year, what do you think about the business to develop this year?

So you have asked me a lot of questions. So if you could refer to Page 35, ORIX USA credit real estate and PE and segment profit assets breakdown. And so the real estate asset is mostly affordable housing. And the buyer NXT, we do have commercial real estate, but the loan-to-value is pretty low. So mostly, we are participating in the syndication. So therefore, in terms of the value, ¥3,350 million is saved in the real estate, but out of which -- so $2 billion more than $2 billion is housing related. So we are not impacted very much. As to the rest of ¥1 billion, NXT's syndication, it is -- we are participating by NXT syndication. And so as to the appropriation of the loan losses, the reserves, we are not appropriating any reserves yet. So -- but we are remaining to be cautious. Now with regard to credit, they are all private credit. So therefore, there are like two to three deals that may perhaps aggravate and that may, of course, raise the credit cost, and this is why we are adding the reserves amount. But as to the private equity, it is a small amount in any case. But for these, we would continue to up and run the business and the operation has not deteriorated yet. And -- but as the Company -- the Company, the cost of borrowing, of course, is rising. So we need to, of course, manage this well. And as to Robeco, it goes without saying that as of now, AUM in fact, is on the decline. But however, we are making positive profit from Transtrend and also brought some partners, Robeco and Harbor Capital. So we have these major subsidiaries. Transtrend is focused on commodities. So they have been recording -- they have been posting record high, and we should be able to do the same this year as well. Whereas, Boston Partners, up until now, they were very much very focused and the value focus was not particularly good in the past, but the value investment, in fact, is gaining profit. So therefore, I think we can perform better. And Gravis Capital is struggling, but we are, in fact, going to be changing the active ETF. The AUM, in fact, is on the rising trend, expanding trend. So from the later half of this year, we're hoping that we'll be able to generate positive results. And also from the mutual fund, Robeco, that is, we are now trying to commit to active funds and the private credit fund is also to be formulated or formed. And so therefore, there should not be very much of an undershoot. So all in all, I think it is on the upward trend. And what was the other question? And that is to do with the energy and environment.

So if I may perhaps add to, this is Yano. And with regard to environment and energy, just as you have pointed out, there is something that I need to make a note about. There is some seasonal factors, especially in India, that may affect our businesses in a significant manner. But in the domestic market, the solar power business, there was some snow that has affected our business in a negative way, and we had to carry out some construction work, but we decided not to overstretch ourselves. And this is why we have decided to impair some amount, although it is not significant, but rather than repairing it. So therefore, in a very short time period, it looks as if our environment and energy, in fact, has aggravated in terms of their performance, but that is not the case. So the first quarter, we do expect the recovery to take place in the segment.

And as for Elawan, as a matter of fact, electricity, of course, price is rising. So therefore, the earnings, in fact, is on the trend of improvement.

Yes, for sure. This is Yano again. And I think Tsujino-san, I think you're asking about the quarterly trend, the changes that is for the negative. But Elawan, in fact, had -- was boosted and then it may have come down, but Elawan overall is enjoying a positive trend. And what was the other question? I think that answered to all the questions.

[Operator Instructions] UBS Securities, Okada-san.

This is Okada from UBS Securities. I'm looking at Page 11, '25 March consolidated results forecast. Profit plan was actually revised downward. But the domestic nonfinancial and overseas others, actually, the profit plan is increased. So if possible, can you please talk about the forecast of that plan and background of why you have increased the profit, which segment is strong, so on and so forth.

FY '25 March numbers, well, you will see one number actually, but simply speaking, I could say that overseas, environment and energy and aircraft and ships are expected to grow. And excellent ships, this is mostly aircraft, including Avolon. And going forward, we know that there's going to be some movements around narrow-body and also [saw new feel] because of this impact, new model of aircraft will be introduced. So there's going to be cycling. And also [indiscernible] for Japanese investors are receiving a lot of inquiries. Therefore, we believe that we can expect a strong growth. That's our plan. For OCU and OCE, in FY '24, that assumption is hardly any growth. But this is the U.S. So once the recovery happens, it would happen very quickly. So around FY '25, we expect new investments happening, especially in the United States. And as for '25 March, private equity assets that we own will be sold in '24 and '25 gradually, and that is also the background for this number. I hope this answers your question.

Just one follow-up question. Overseas Energy segment forecast was revised upwards. What is the background of this? Is it energy prices? Or is it because of the asset building on your side?

As far as Elawan is concerned, in the beginning of fiscal year, we basically decided to own 100%. And by doing so, we removed partners. In other words, we now have a higher degree of freedom. And the solar power and wind farm developed by Elawan can be turned into funds and we can incorporate third-party money, and we can increase this. And there are many projects in place. And also pension fund ESG investments. Many investors are keen to increase that, which means that we can be more actively promoting investments. However, interest rate is going up, construction cost is also up. So we have to look at this very carefully and find deals where we can get arbitrage and capital gain. And if that is the case, we will be actively doing those deals. As for Greenko, there is the hydropower and also hydrogen as well as ammonia. And these will be developed around Greenko and this is all brownfield. So we believe that they can start contributing to profit starting from FY '25, that is the assumption behind this number.

From JPMorgan, we have Sato-san asking the question.

I am from JPMorgan Securities. My name is Sato. And I'd like to ask a question by referring to Page 47 of the deck, and that is to do with the capital usage. And I think I have been asking the question some time before as well. And so 91% was the ratio of the long term. But employed capital ratio, has it bringing about any kind of impact? Or would there be any changes in the future? And so the risk taking, I know that you're remaining to be cautious, but the risk capital may increase. But on the other hand, the shareholders' equity, on the other hand, and I'm sure you're referring to the capital from the accounting perspective, if the interest rate hikes embedded value even if it was to be kind of added.

I think from an accounting perspective, it could turn to negative. And also, at the same time, it may bring about some negative repercussion. So therefore, I think you may perhaps use up some of the retained earnings. And therefore, that may perhaps affect you. And therefore, the employed capital ratio may go beyond 91%. So would that give any kind of impact in terms of the capital management. So if it starts to kind of impact the capital management, it means that we may have to slow down some of the new investment, execution of new investment. And to be very frank with you, so as to the funding side, we do not foresee any major risk that is not in our assumption. But sometime in the future, as we have been saying, our equity ratio of 22%, 23%, and it may reach to 25%. And this equity ratio, what is regarded to be appropriate is what we need to think about? And also bank borrowing at the moment, we have no issue. But what concerns me is the euro-denominated or U.S. dollar-denominated funding, whether it would proceed in the smooth way as it has done so in the past or not. So we have to take that into consideration. And as I have been saying, I think we have to proceed with this capital recycling effort and there's no way that we can continue to build up our assets as we have done so. So it is currently about ¥11 trillion. And I think it is about the total of ¥14 trillion or so, and the PVR would be 1.5x, and which means that we may have to consider third-party allotment. So even -- unless we reach to that extent, within the ¥12 trillion of an asset, I think we would have to just enhance the profitability and the borrowing ratio -- debt ratio should be maintained. So that is our basic policy. Dependent on the project though, the deal, though, it may perhaps bring about kind of further aggravation, but I don't think it will be the case. So I hope this answers to the question.

So listening to you just now, at the end of the day, I know that you would try to strike that balance by referring to different numbers. But if you were to think about the capital in light of the risk, what you need to do on the capital side, the risk control, I think, comes first, I suppose. And on the other hand, you may perhaps increase the retained earnings, which may perhaps put a pressure on the payout. In other words, so that may perhaps be the kind of the last result kind of strategy.

That is true, but everything is kind of interrelated. So I will not be able to give you a straightforward answer, but I think we would have to refer to ROE after all because if you can raise that to the level of 11% or we would have to exit that asset to bring it up to 11%. And -- but by -- of course, increasing the retained earnings, the ROE would be lower. So this is why we have to strike the right balance. And if there was to be any kind of new deals and new project that is attractive, they may perhaps be a case whereby the shares repurchase may be carried out, but we are still trying to achieve what we had intended to. And so therefore, we -- this is our idea to retain earnings level. And also as the borrowing, they may have the repeat of the global financial crisis, who knows. So therefore, I think we need to keep the right balance between offensive as well as defensive attitude I suppose. I don't know whether this answers to your question.

But as of now, I think you have given us the best possible, I think, answer.

Citigroup Securities, Mr. Niwa, please.

Yes. This is Niwa. Can you hear me?

Yes, we can hear you.

This is not about the earnings but more about the long term. 2030 March ¥600 billion level of profit, that is the ultimate target. And I think '25 March is just a milestone. ¥400 billion was just a milestone. That was my understanding. And there are some environmental factors too, but you're struggling maybe to achieve ¥400 billion, which is just a milestone. So ¥600 billion or higher. Is this still your target over the long term? And I understand that overseas may be a growth factor, but is it really true and '25 March, which is supposed to be a midpoint or milestone. I understand what happened with [indiscernible] but what about beyond '25 March? Are you going to revise downward or maintain the original target? Or is it too early to say?

To be honest, I don't think this is the right time to talk about that right now. 2030 is seven years more to go, I'll be dead by then. In other words, the next generation of leaders will have to make the commitment. I don't want to leave my wrong legacy assets. So I don't want to say the wrong thing. But right now, we're opportunistic in participating in all the different types of segments. And we are not necessarily successful for the board. But generally speaking, we are maintaining growth. And compared to 10 years ago, we have grown a lot, and we want to maintain this trend going forward. And right now, environment and energy and overseas market as well as asset management are in our focus. We want to grow them. But several years down the line, maybe we will focus on a different segment or different area because they will emerge, and we want to capture this opportunity in a timely manner. We want to be able to do that. We want to have the capability for that and also funding to be able to do that. So ¥400 billion is just a milestone for us. And if possible, we want to achieve ¥600 billion. We're not really a trading companies. So it's really difficult to say that we can achieve ¥1 trillion easily, but ¥600 billion is definitely within our sight. We have not really revised that downward.

It is almost time for us to conclude this session. It looks as if there are no more questions, we would like to conclude today's conference. And I would like to invite Mr. Inoue to provide us with the closing remarks.

Because of COVID, and I think it's been 4x since we have been carrying out this briefing session in this way, teleconference. In other words, we would very much like to perhaps hold a session in in-person manner. And I'm sure we'll be receiving much tougher questions if we were to meet you in person, but still we look forward to seeing you then.

So with this, we would like to conclude today's briefing session. Thank you for your participation. And you may now disconnect. Thank you so much. Thank you.