ORIX Corporation American Depositary Shares

Good evening, ladies and gentlemen. Thank you for joining this telephone conference of Oryx Corporation for Third Quarter Consolidated Financial Results for the 9-month period, ended December 31, 2019. The attendees at today's conference are Executive Officer, Head of Treasury and Accounting Headquarters, Mr. Yano. Mr. Yano will give you a presentation on the third quarter financial results for about 15 minutes, and we will move to a Q&A session. The whole conference will take about an hour. At this time, I'd like to turn the call over to Mr. Yano. Please go ahead.

So good afternoon. Ladies and gentlemen, I am Yano from Treasure Yano County Headquarters. I'd like to thank you all for your participation to this telephone conference. Thank you very much. So without further ado, we'd like to get started with the third quarter consolidated financial results presentation of RX for the nine-month period ended December 31, 2019. Please refer to the second page. So as for the third quarter, the net income grew by 3.4% year-on-year at 244.3 billion yen. Annualized ROE was 11%. The progress year-to-date against the net profit target of 300 billion Japanese yen is now at 81%, progressing nicely. However, due to the market uncertainty, we are not planning to revise the full-year target of 300 billion yen as of now. Please move on to the next page. Let me now inform you the breakdown of segment profits. Please refer to the bar chart on the left. This shows the trend of segment profits for the past five years. Pale blue shows the gains on sales, while darker blue shows the profits other than gains on sales. So the profit other than gains on sales, in fact, has been growing steadily over the past five years. The two bar charts in the middle compares the year-to-date third quarter profits between the two years. Profits other than gains on sales grew steadily 7% YOY, at 238.5 billion yen. Contributions came mainly from NXT Capital as well as Avalon, the investment we made in the prior year. Now, over to profit from gains on sales in the third quarter on a year-to-date basis. It grew from 75.3 billion yen in the prior year to 114.5 billion yen, a sharp growth of 52%. In addition to the sales of RX Living and Hoolihan Loki, we posted gains on sales from private equity investment in investment and operations segment as well as overseas segment. While we are proceeding with a generation of profit from gains on sales, we are continuing to make new investment in a selective manner. And we have shown some of these examples on the table to the right. So some of which are like wind power generation business in the overseas segment, which we have made an investment after the interim announcement, as well as asset management business and real estate capital in the United States. So please refer to the next page. So segment profits and segment assets trend. Segment profit was up by 19% at 352.9 billion yen. As you can see on the bar chart to the left, corporate financial services and maintenance, these things, the profits were down. while all other four segments managed to increase their profits. As a result of Oryx making Daikyo a wholly-owned subsidiary in the third quarter, there was a reversal of deferred tax liability that reduced the corporate tax and others by about 27 billion yen, and thereby the contribution to the profit generation. This is why, although after-tax profit growth was limited to 3.4% in the quarter, both gains on sales as well as profits other than the gains on sales growth contributed to approximately 20% of growth for the segment profit. So as for the segment asset, the asset in fact grew by 861.5 billion yen, out of which impact from change in operating leasing accounting standards accounted for 200 billion yen, and the forex negative impact was 48 billion. If we exclude these negative impacts, the segment asset could have grew by 710 billion yen. So in the retail segment, in the Oryx Bank as well as Oryx Life, the assets grew. And in the overseas segment, the United States assets as well as the Aircross assets were the contributing factors to the growth of the assets. Please move on to the next page. So from this page onwards, I'd like to present on the segment performances. First of all, the corporate financial services. In the corporate financial services, the segment profit grew, unfortunately, declined by 6.6 billion yen at 13.2 billion yen. Agency fee income from life insurance businesses declined. But we are trying to diversify the offering of the products by ways of conducting our sales activities. At the same time, the accounting software, as well as service provision done by Yayoi, we managed to achieve an increase in membership for fee-based support services and sales of packaged products. Impact from the accounting standard change as of the third quarter, the impact was 1.4 billion yen in this specific segment. Now, please refer to the bar chart to the right. Under this negative interest rate environment, despite of the fact that there is a harsher competition, EU zone loans was maintained at above 2%. Now in the domestic, in the Japanese sales, we have been taking a cautious approach to the building of the assets at a lower spread. But also at the same time, we're trying to diversify the service income, such as accounting software that are offered for small businesses, as well as package versions, crowd versions, in order to maintain the top share, and if not, of course, grow the market share. So let us move on to the next page. So this is going to be the maintenance leasing segment. Maintenance leasing segment profit was down by 4.6 billion yen at 25.8 billion yen. Also, the leasing income grew steadily and the rent tech, thanks to the replacement boom in the IT-related businesses, would manage to grow the profit. And in order for us to broaden the client base, unfortunately, we spent more SG&A expenses, resulting in the decline in the profit. Just like the corporate financial services, there was a negative impact from the leasing accounting standard change by 1.9 billion yen. As for the assets, while OTO remained to be flat, Lentec grew as a result of building up IT-related assets. Our X group, of course, is carrying out diverse projects area of businesses. We're taking much consideration into some areas such as environment and in order to achieve a sustainable, to make a positive contribution to sustainability such as promotion of use of environmental friendly cars and providing vehicles that enjoys a better fuel efficiency as well as a better driving method. And as a result of this, from November of last year, we have introduced a hydrogen, a fused cell car using hydrogen.

Next is the real estate segment. The segment profit grew by 1.3 billion yen year-on-year, and it was 56.1 billion yen. In the second quarter, we transferred Olyx Living shares, and we posted large gains on sales. For Daikyo... Delivery of condominiums happened earlier than the previous year, and the profit was increased by 7.7 billion yen. We are continuing with the sale of real estate assets, considering a strong market, and we are also continuously investing into new projects such as hotels and logistics facilities. One new logistics facility was completed in Aichi Prefecture last October. As we indicated during the interim presentation, In the next several years, we'll be investing into logistics hotels as well as ryokans in the amount of about 200 to 300 billion yen. And as we made a release on the 29th of January, we integrated eight hotel management companies for the 18 hotels that we have to form OLIX Hotel Management Company in order to get talents and educate them and consolidate and standardize operation so that we can really focus on service, specialty and governance so we can further increase the management business. Next is investment operations. Segment profit was up by 24.5 billion yen year-on-year and was 55.6 billion yen. and Konza AG profit uptake started, which we invested into last year in the third quarter, we sold one PE project. And the profit was up by 18.6 billion yen from 11.4 to 30 billion yen. And this was a major increase year-on-year. We also continued a new investment. For example, invested into Kobayashi Kako in January. This company is a generic company, taking care of all the way from API sourcing to manufacturing and sales, and also R&D. Oryx has invested into healthcare businesses, including these finance as well as animal health pharmaceuticals. We have functionalities that have high affinity with Kobayashi Kako. We will continue to expand the healthcare business through the enterprise value enhancement of Kobayashi. Next is energy and environment. Megasolar business is strong. Profit increased from 10.2 to 10.5 billion yen this year, this quarter. And for this fiscal year, we acquired all of the shares of the wind power company, which we co-invested overseas. Now it's a wholly owned subsidiary. And in Japan, we have secured solar capacity of 1 gigawatt for solar. and we are actively promoting geothermal as well as wind power business. Moving on to concession business, centering around airport management, the visitors from overseas is increasing, and in addition to that, we received some insurance payment due to a typhoon damage two years ago, and the profit was pushed up from 9.5 billion yen to 15 billion yen, which is an increase of 5.5 billion yen. In order to deal with an inbound tourist increase, we are doing a large-scale renovation at airports that we manage. In the Osaka International Airport, a new terminal will open in July this year, and we will also begin the renovation of the first terminal building of Kansai International Airport so that it will be completed by Osaka Expo in 2025. Next page, please. This is the retail segment. The segment profit... went up by 4.2 billion yen, and the profit level was 70.4 billion yen. For life insurance, we expanded our product portfolio, including foreign currency-dominated whole life insurance, and the number of policies enforced increased, and the premium income also increased. Profit was up by 2.9 billion yen. It went up from 39.5 billion to 42.4 billion. Moving on to banking. A loan for condominiums for investment is increasing, pushing up our finance revenues. And the gross margin ratio is at the 2% level, which is a high profitability level among the peers in Japan. And we are continuing to grow. Next page, please. This is last segment, overseas business. Segment profit went up by 36.3 billion yen and stood at 131.9 billion yen. With regard to U.S. OCUs, Next capital that we acquired helped grow the asset management business, and the profit went up by 11.3 billion yen from 38.5 to 49.8 billion yen year on year. In the third quarter, we acquired a mortgage loan servicing company called Hunt Real Estate Capital in the U.S. In addition to the license of Fannie Mae and FHA, we will add Freddie Mac licenses. meaning that we can expect further growth in the mortgage loan servicing area. In the former local group, asset management business is done by OCE, and as the market shifts from active to passive, the fee pressure has been very tough, and the profit actually went down by 3.6 billion yen from 28.3 billion to 24.7 billion. Out of this reduction, about half, 1.7 billion, is due to exchange rate between euro and yen. Next is the aircraft and ships. New investment from previous year Avalon, a profit uptake contributed to increase the profit by 5.1 billion yen from 27.7 to 32.8 billion yen. In Asia and Australia, the gain on shipments sale of shares that we have invested in the first quarter, as well as the absence of the negative contribution from IL and FS, which we had to account for in the previous year. The profit went up from 1.2 billion to 24.6 billion, which is an increase of 23.4 billion, major increase. Moving on to the next page, financial soundness. The funding status is very positive. and we have extra room for funding from borrowing from financial institutions as well as capital markets. We are trying to shift to long-term, and the long-term debt ratio is over 90%. In order to diversify our funding methods and manage the company sustainably, we issued green bonds, and the 10 billion yen that's issued will be allocated to our solar power business. Please turn to the graph on the right. This is employed capital ratio. As of December 2019, it stands at 85%. While continuing new investments, we will continue to replace the assets and build the internal reserve, and the number has gone down from the previous year, and we would like to continue to control this carefully. Lastly, the last page shows a summary. Third quarter for the fiscal year ending March 2020, Net income was at 244.3 billion yen with an annualized ROE of 11%. At the interim announcement, we mentioned that we are aiming for 300 billion yen net income for this full year, and we are on track to achieve that, and we will continue to pay attention to shareholders' return and aim for sustainable growth. Thank you very much for your kind attention.

Thank you, Mr. Yano. We are now ready for the Q&A session. If you wish to ask a question, please press 01 on your telephone keypad. After you are announced, please ask your question. If you wish to cancel the question, please press 02. If you wish to ask a question, you may ask up to two questions.

This is going to be Mr. Muraki from SMBC Nickel Securities. I have two questions. The first is with regard to capital gain or gains on sales. So in the three months in the third quarter, there is some equity method investment, and also as a result of 25.2 billion yen of sales that was made by selling affiliated companies as well as subsidiaries, in both in Japan as well as the United States, if you could be so kind enough to tell us the size of these sales. And in fact, the level of profit is higher as for the third quarter. So are you expecting to generate around the same in the fourth quarter in terms of the sales of the investment that you have been making in the past? So... Unfortunately, we cannot disclose the names of the businesses that we have invested, but it is about 11 billion yen of an investment. So PE, 8 billion yen of profit has been generated, and 16 billion in Japan. And outside of Japan, it is 8 billion. So we did manage to generate quite a nice amount of profit from these investments that we have made. So we have come so far, but it has been almost planned, and we should be proceeding with the further generation of profit from these investments that we have been making in the fourth quarter as well. So when you say overseas, would you be so kind enough to share with us the geographical location? It is United States. And the second question. Thank you. So rather than the fourth quarter, I think it will impact the next fiscal period, I suppose. So this new coronavirus, so what kind of risk implication do you foresee in terms of profit generation so far as you can foresee, like concessions, hotel management, aircraft leasing? may be affected by the decline of the numbers of passengers declining. So have you been perhaps carrying out some simulation from the past experiences of like SARS in the past? So I think I have to refrain from giving you much of the details from various reasons, but as a result of this new coronavirus outbreak, Kansai International Airport, as well as Osaka International Airport, of course, will be affected, especially Kansai International Airport. The number of flights, in fact, is under-defined, so we will be affected negatively by this. And to begin with, as for KICS, Kansai International Airport businesses, at the time of acquisition, we were, of course, assuming that there will be a pandemic every certain interval. So we have, in fact, incorporated this policy this anticipation into the plant. So, of course, in the next year, we would have to suffer or be affected by this negative impact. And as for the hotel businesses, it is not making a sizable contribution to the profit generation as of now. So you need not to worry very much about this hotel management businesses. As for the aircraft leasing, if it is only for like several months, then we're not affected greatly because, after all, the leasing contract is, in fact, concluded on a long-term basis. So we would not be affected by this because we would be in receipt of the leasing fees. But, of course, if the airline company starts to fail, that may perhaps affect us in the long term. But in our case, our aircraft that we own is focused on a narrow body. So therefore, even if there was to be a failure, we would be able to recover the aircraft and transfer those aircraft to some other airline. So therefore, that's what we think as of now. So it is more of a qualitative description as opposed to quantitative. I'm sorry about this.

Next from... Mr. Sujino, please. Mr. Sujino, please. Thank you. Two questions. Profit of Kansai Airport going forward. Ordinary profit, 26% for the first half of this year. That's the information we've got. And foreign visitors... account for like 30% of all the flight passengers in Kansai International Airport. What about the fixed cost? Or should I say expenses? Can you reduce this in the short term? Can you please give us some insight into this? And the second question is about the PE investment. In Japan... 16 billion yen. This is quite sizable. We don't know when you made the investment, but up until several years ago, you were doing investments of like 10 billion yen ago. But how much investment did you make in the first place in this PE project, and how many years did you hold it which resulted in this number. Can you please also refer to the industry that this PE is involved in? And also for the US project, 8 billion yen per deal seems to be quite large too, and there was no press release about this. So if possible... I would like to know the background. How much did you invest and how many years did you hold? So on and so forth. Thank you for your question. Starting with the Kansai International Airport. In terms of sales, of course, we have to pay a certain amount of rent and variable expenses. is sometimes people-related. And as far as the salary is concerned, or people are concerned, in terms of deal with the BCP, we are discussing what to do, what to do with the part-timers, and so on and so forth. Profit-wise, with pandemic, we have to expect some level of decline. And that's the answer to your first question. Regarding the PE deals, I need to apologize. When we can disclose details, we try to do that as much as possible. But depending on the deal, the counterpart does not want us to disclose information, which means that we cannot disclose information. For the domestic PE deal, this happened in the last several years, within the last five years, I would say. And we are checking how much investment we made in the first place. So please bear with us for a moment. Excuse me, we are unable to give you the accurate information right now. The amount was not very high, but I'm sorry, I don't have the number at hand, so please allow us to get back to you later. But it was not a huge amount, which means that the profit level was quite high. That's our understanding. So is it about 10 billion? Well, we have to check. 10 billion yen-sized deals are becoming more common or normal, and I don't want to give you a wrong answer, so please allow us to get back to you later on. As far as the overseas PE deal is concerned, I don't have any solid number at hand right now, but it was a type of a start-up company. In other words, it was incurring losses in the past. So IRR is not very high, But because we had to account for the losses of the past, the capital gain looks bigger. And the book value right now is very small. The book value when we made the sales looks very small, but of course we are making proper profit. So several billions of yen were invested into this project with this outcome.

Thank you. Next is from Daiwa Securities. Mr. Watanabe, please. So I am Watanabe from Daiwa Securities. I have two questions. First of all, with regard to the progress that is made in terms of the profit generation, the progress is 81%, which is pretty high. And I think there was some uncertainty, but is there any kind of anticipation or assumption that you have for the fourth quarter? And... As for the guidance for the next year, it's going to be the second question. And I'm sure you're going to be disclosing. But as to the dividend, what is your idea as to the disclosure of dividend? Because I think you're going to be sharing us the EPS, expected level of EPS. So the third quarter, I'm very happy that the performance was pretty good. So 16 billion yen of gains on sales. We were not expecting the amount to be as large as that. So in other words, it was not totally unexpected. It was kind of a progress as expected, slightly above our expectation. And I'm sure we'll be able to proceed just as smoothly in the fourth quarter, but we're not foreseeing a great amount of gains on sales to be generated. So the amount will be smaller than that of the third quarter, we think. So how much of an impact will be given from the pandemic in the fourth quarter? I don't think we will be affected greatly because you see from the accounting perspective, there is a delay by three months from Kansai International Airports. And so therefore, this pandemic would affect our financial performances in the next year and not this year. So there should be not much of a discrepancy that is made against the initial guidance, but in terms of the actual performances. But of course, we would have to, of course, go into much of the granularity, which may affect some positives as well as negatives. So in other words, we would have to go through the process of scrutinization And that's what we think about the quarter, the next quarter and the full year. Thank you very much for that. So in other words, there's a high probability of achieving the profit target. I will not be able to say for sure at this point in time, but 300 billion yen achievement is pretty, I think, highly probable, I would say. And as for the second question, as of now, we will not be able to share with you anything more than what we have disclosed at the time of the interim result announcement. So unfortunately, I would have to ask you to wait until the full year performance announcement. But as of now, as we stand, it is exactly the same as the interim result announcement statement that we have made.

Thank you. Moving on to Merrill Lynch, Japan. Mr. Sasaki. Yes. Thank you. And I have two questions. Earlier you talked about inbound tourism. And I would like to know the size of this. You run hotel and traditional Japanese inns. What is the percentage of this annual revenue against the real estate business in total, and how much of that is inbound tourism related? Hotels and inns. Profit-wise, it's several billions of yen. and sometimes it can be zero or negative if we face a worst-case scenario, but that's not what we're really expecting. In terms of inbound tourism, the largest sizes of hotels and inns that we have is actually Suginoi. Suginoi is the largest hotel that we have. Of course, we have visitors from overseas, but the majority of the customer base is domestic customers. and therefore we don't expect a big impact on the biggest hotel we have. We have a small hotel called Cross Hotel in Osaka, which may be more impacted by the change in inbound tourism, but the revenue is quite small there. So I don't think you need to be concerned about the lower revenue from this impact. Thank you. I think the number of flights In Kansai International Airport in February, is it declining? Is it changing? Yes, we have seen some changes with flights to and from China. We don't know the exact number yet. But some of the flights were cancelled. Non-aircraft business, I think you disclosed the regional information, and 70% is China, I think. most profitable non-aircraft business will have to be maybe largely impacted by this. I do agree that there will be some impact by China for this business. Okay. Second question about the outlook of next year. At the interim announcement, you indicated the midterms. direction, and you explained the 1.3 trillion yen pipeline in detail. It's been three months. Has there been any changes to the pipeline? Did it increase? Did it decrease? Any additional information that you can add to the pipeline information? No major changes so far. What we had planned originally is underway. And as was mentioned, Hunt has already been realized. It's solid now. It's been three months, and we always receive more information. So actually, there are some projects which were not in the pipeline at the time, three months ago. And we have to see how many of them can be realized. But unfortunately, we cannot share the details with you yet. It's premature. But please think that we are always considering new projects. So 1.3 trillion yen outlook has not reduced from three months ago. That is correct. If there is anything major, of course, we will try to be flexible, but at this point in time, there is no change in the pipeline. Thank you.

Thank you very much. From J.P. Morgan, we have Otsuka-san. I am Otsuka from J.P. Morgan. Thank you very much for this opportunity. I have a first question. I'm sorry to be persistent, but the FI20 March end, the net profit, as has been shared by Mr. Yano, there could be an overshoot. There is a possibility of an overshoot. At that point in time, I'd like to ask you the question with regard to the dividend market. 30% of payout ratio or 76 yen, whichever higher you said at the time of interim announcement. So if payout ratio is to be 30% and the DPS calculation will be 76 yen, so if 300 billion yen, there's an overshoot of 300 billion yen, there could be a possibility of being higher than 76 yen, which means that 30% of payout ratio is to be applied for. So if the bottom line is to be more than 300 billion yen, so the dividend will be higher than that of 76 yen. Am I correct in thinking so? Yes, exactly. Yes. Okay, thank you very much. This is exactly what we have announced at the time of the second quarter announcement, and we stick to it. And the second question, on page three, you talk about the gains on sales. It is very difficult to see the breakdown by different segments, if you could be so kind enough to share with us. The segment profit increased by 7%, and NXT, Avalon, in fact, contributed greatly to this segment profit. So the corporate financial services and maintenance leasing, in fact, was a negative contributor. So this 7% increased 16 billion yen, as you have said, which means that by segment profit, I'm sure there are some other factors other than what you have shared so far. So would you mind elaborating on this matter? So corporate financial services and maintenance and leasing, there aren't much of capital gain. So the reason why they are negative is because there are some negatives and that was reflected to the negative contribution. And also, for some others, the gains on sales, it's not that we have managed to increased the amount of capital gains greatly, but there was a small contribution. And as for the PE investment that we have sold, 16 billion yen. So this was for the capital gain. On a year-to-date basis, we have some others. So 20 billion yen or so of an addition, in other words, if it was not for the negatives. So even if we were to exclude that, we did manage to increase the profit, be it the Kansai International Airport. We don't have any capital gains, so therefore an increase in profit in such a magnitude. And also, so life insurance, we did sell some real estate, so we don't have that this year. So therefore... we would be going much into the granularity. So life insurance, we acquired hard-fought life insurance in the past, and that was marked in the market. And if the market becomes volatile, it would affect the performance negatively. So in the last year, the hard-fought insurance was negative, but this year it is positive. So this was reflected too. More than anything, the overseas, we managed to increase the profit pretty much, that is. And NXT, Avalon, water contributors, and also IEFS, the negative factors have been eliminated this time. So as for corporate financial services and maintenance and leasing, the expenses are due to the changes in the accounting standard, cost increased and that pushed down the profit level. But in the next quarter and in the next fiscal period, this would be normalized. So, of course, there is a factor of top line that has to be incorporated. However, may I take it that the negative factors will be taken away from here down the road? Yes, that is our expectation. Thank you very much.

Next question comes from Mr. Niwa, Citigroup Securities. Thank you. Two questions. Retail segment and shareholders' return. Retail segment, mortgage loan, continues to be strong, and mortgage loan especially is increasing. Can you tell us the breakdown of which ones are growing and what are the economic terms And is the risk management done properly? What is the rate? And fourth quarter and beyond, how should we look at this? So more details about mortgage loans, please. Yes, I would like to respond to your first question first. This is for investment purposes, studio-style apartments or condominiums. This is a growing industry. At Oryx Bank, we are providing loans for studios, condominiums, and also condominiums with multiple rooms, which are targeted at different markets. If there are multiple rooms, well, we are not really increasing so much, but studio style is increasing. So we are increasing the loan for that. In terms of spread, we are doing our best to maintain the spread. We don't want to go into a price competition. And generally the market is increasing and that is pushing up our assets and that is helping the profit increase. We are hoping to continue with organic growth if possible. As far as risk management is concerned, there are three different steps. So studio-type apartments are developed by certain developers. We have to have a good relationship with those developers so we can assess the assets properly and also assess the credit of the people who want to take out the loan. These are things that are pretty normal, and we just do them properly. And the... Uncollected rate is quite low. And the allowance allocation, 0.1% or below for bad debts. The performance, the number is quite low. In other words, our credit status is very healthy. So that's the first question. Thank you. Thank you for the details. Second question is about shareholder returns. there are two sub-questions. On page 18, you are saying that you want to sustain the growth but also consider the shareholder return. What does this mean? On page 20, you're talking about 100 billion yen of share buyback. Does this change or does it not change? That's the first sub-question. And the second sub-question is, you have not really announced the details of the share buyback that happened in January. And looking at the 100 billion yen share buyback program, do you plan to complete the whole amount? And if you do not complete it, do you have a plan B, a backup plan? Please try to share information as much as you can. Thank you for your question. We did have a hard time deciding how to write page 18. and ended up with an unclear expression. But page 20 says what we explained in the second quarter. We have not changed this intention and we want to follow through. That's the meaning of page 18. In other words, there's been no change. And that's the first sub-question, I think. And the second sub-question, what's happening with the Share Buyback Program? I need to apologize that I cannot really talk about this in this conference call As far as the progress in the month of January is concerned, we will try to disclose the information as soon as possible, which is the day after tomorrow. So please wait for that release. We appreciate your patience. And we will continue to do what we can in a steady manner. That's all we can say right now. And we intend to implement what's indicated on page 20. I see. Thank you.

Thank you very much. From Mizuho Securities, we have Mr. Sato. So please start the question. I'm Sato from Mizuho Securities. The first question is with regard to Abalon investment. As to the actual performance that appears on page 15, the contribution profit from Abalon. So the three months, in fact, was quite sizable. If you were to take out year-to-date as of second quarter. Is it because of the aircraft divestment? And also, the second question is regard to the impact from pandemic. The CEO, with regard to LCC, I think the condition is going to be pretty tough, I understand. So as of now, Abalon, Chinese-affiliated airlines, as well as low-cost carriers, if you could be so kind enough to share with us your idea as of now. So first of all, with regard to Avalon, as you have pointed out, there was some gains on sales. So therefore, it tends to fluctuate from quarter to quarter. In the third quarter, there was gains on sales, as a matter of fact. But there was some accounting twist as well, which had impacted the overall performance. as of the third quarter. So if you could be so kind enough to share with us the size. It is not that large, however, but it is in the... I think it was in the range of several billion of yen. So that was one factor. And so if you... could go into a little bit about details. I don't think we should go into much of the details because I don't think it will be helpful. So at the time of M&A, the acquisition, at the time of acquisition, so after the accounting treatment, so after a year, there was some adjustment that was made from an accounting perspective, accounting treatment. And because you see, that happens fairly often because we carry out M&A quite often, like Robico, for example, PPA was conducted after a year. And we have checked with the, of course, auditing firm as to the conclusion from the accounting perspective. But what we have done to Abalon, there was some gap and there seems to be, of course, some discrepancy from quarter to quarter. And Avalon, the size was fairly large and therefore there was an impact from this accounting treatment changes. And so there has been some differences that was caused as a result. Okay, thank you very much for that. And as to the exposure, if you could be so kind enough to share with us the exposure for the Avalon. I think Avalon does disclose some numbers which we can share with you. Let us check. the numbers. So for Asia Pacific, 40-some percentage is the disclosure. So Asia Pacific, we have a little more exposure to Asia Pacific region for sure. And the exposure to LCC seems tend to be shorter in terms, time period, and also that these terms tend to be better and higher for the fees, and so it will be affected by the decision, the management idea and control, and that's where we should be good at. So the second, no one has asked a question, so I feel, but I dare to ask, and And that is with regard to the holding code. So by when, what is to be done, whether you're going to be migrating the holding structure or not, I know that you have not arrived at any kind of decision that the net profit on a long term, the growth, I know that you have indicated the growth to be achieved in the long run. So in the next three to like five, six years. So I think the gains on sales was included in this next profit generation that you foresee, an ROE of 11% to be recovered in the not too far out in the future, I think was said. So gains on sales, the profit from gains on sales, so on an interview or like on a report or presentation by CEO, Mr. Inoue, Is it connected? Is it linked to what he has been stating? It is not linked very much. Of course, we would try to generate a steady amount of profit. There were some articles that appeared in the newspaper which could be misleading, I have to admit. In a way, our CEO has been sharing with you from a long time back. He is very mindful of the governance structure of Oryx and each and every group of companies would have the governance remaining to be intact, and thereby the business being operated in a healthy condition. And each of the companies, of course, you know, like carrying out an IPO, being listed, and the parent company maybe being delisted. It sounds very healthy, but he did say that, but it is not something that we plan to happen or let it happen in a short time period in a foreseeable future. So the group governance, we have to make sure that we would do a good job of group governance by ways of building a healthy structure, and that's what we are thinking about. So in other words, we're not trying to change the structure in a dramatic way and thereby causing problems to the investment community. That is not in our idea.

Thank you.

We received a question earlier about the PE investment in Japan, and I said, please, let us get back to you, but... We found out that the original investment was approximately 10 billion yen, and the 16 billion yen gain on profit was posted. And we have also incorporated the net income as well during this time, so the total profit is actually larger than the number mentioned today. Mitsubishi SJ, Morgan Stanley, Sugino-san. Yes, it's me again. Question about the share buyback. At the end of October, you gave us a presentation saying that ROE has been declining for a while and dividend payout, 30%, can it be kept? That was one of the questions that came up. And 1 trillion yen buyback is too big, but 100 billion yen per year is possible, and 100 billion yen. And the 65%, the total return, is the way to look at the shareholder return these days. That's a trend. Now we are facing May and June coming. So the number of flights are declining. It may not be a pandemic yet, but... We will have a clearer number for the Kansai Airport by June, and more numbers will be coming out. And for the next fiscal year, as was mentioned in the previous presentation, the situation is going to be quite tough. So what about the timing of a share buyback? What is your plan? What is your intention going forward? That's my question. Before you made the change last autumn, you were maintaining 11% or 12%. In order to do that, you would do share buyback, but the decision will have to be made. Excuse me, excuse me. I think the sound is breaking up, and I had a hard time listening to you. So I don't want to prolong this question. The question really is, when do you make the decision about these things? You said something two and a half years ago, which was you make the decision sometime during the fiscal year, and that was okay. But have you changed the way you think about the timing? The basic thinking has not really changed from what I explained in the second quarter, but what decisions do we make during the fiscal year about share buyback, decision about share buyback? You mentioned before that the share buyback would be leveraged in order to maintain the 12%. That was your story previously. Not the current story, but the previous story. And at that time, I think you said because of this method, it is difficult to make the decision before the beginning of the year because you don't know what the ROE is going to turn out to be. So you said that it was okay, acceptable to make decision flexibly sometime during the fiscal year. At least that's how I remember the story to be. And I was wondering whether your thinking has changed or not since then. So your question really is, during the period of Chair PIBAC program, do we change our attitudes? No, no, no. That's not my question. I'm talking about something that's separate from what's happening this fiscal year. For this fiscal year, I understand it's middle of May. But after that, what do you do? Oh, I see. I understand your question now. As mentioned before, we have not really changed our stance from what we said last time. So, 100 billion yen was announced as a program. We're trying to do this right now. And for the next program, we will formulate a policy again and share that with you. So... We have not changed our stance since we spoke to you at the end of October or beginning of November last year. I see. Thank you very much.

We are now ending the Q&A session. Mr. Yano, please go ahead.

So thank you all very much for your participation despite of your busy schedule. Thank you for taking part in this teleconference. I'm sorry that I may not have been able to reply to some of your questions in the optimal manner, but I would like to follow up if necessary. Thank you very much.

Thank you. That concludes today's conference. Thank you for your participation, and you may now disconnect.