ORIX Corporation

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

This is Yano speaking from the Treasury and Accounting Department. Thank you all very much for your participation in this call despite of your busy schedule. So without further ado, I'd like to get started with the business performance announcement of 2021 March and first quarter. So I hope you have received the PowerPoint slide in front of you and I'd like to make use of this deck. And please stand to the second page to begin with. So to begin this explanation session, I'd like to give you the procedure of this meeting. First of all, I'd like to explain the summary of business performances. Net income was 50 billion yen, annualized ROE of 6.8%. Oryx is pretty well diversified in terms of its businesses, and as a result, although some businesses are affected negatively by COVID-19, but we did manage to generate some profit. First off, dividend is scheduled at 35 yen, and the full year payout ratio of 50% remains unchanged. Second, the segment performance. So for the first quarter, we increased the number of segments from 6 to 10. The remarkably growing overseas businesses, in fact, is growing its significance. So we have decided to split the overseas businesses into four segments and also domestic business that shares the same sales network as well as reporting line are expected to enjoy synergy and thereby we have decided to integrate into one, the segment. And also at the same time, we have made environment and energy segment as an independent segment. Our business model is often described to be too complicated and not easy to understand. But we would like to enhance our disclosure continuously so to facilitate for a better understanding on the part of investment community. And the third, I will be explaining about the financial soundness of our company. Back in July, S&P had announced the maintenance of the current rating, and we have managed to maintain A rating and above with all the credit agencies. And as at the end of June, liquidity on hand, excluding bank and life insurance, will remain high at 1.13 Japanese yen back in June. At the coupon of 0.03%, a very low coupon rate, we managed to issue a straight bond of 70 billion yen in total. So funding environment remains to be favorable. And finally, we'd like to talk about investment pipeline. Despite the current environment, our investment pipeline remains to be rich, and examination is continuing with a view to execute within this fiscal period. So let us move on to the next page. Now, first of all, I'd like to elaborate on the business performance summary. I'm sorry to be redundant, but the first quarter net income declined by 27.7% year-on-year at 50 billion yen. Annualized ROE had become 6.8%. So let me move on to the next page. The next is breakdown of segment profit. Segment profit was 75.4 billion Japanese yen. And I'd like to explain, just like before, by separating the profits into two, base profit versus investment gain. The navy color indicates base profit, year-on-year decline of 23% at 60.5 billion Japanese yen, and mostly affected by COVID-19, that is, the decline. And the As for the pale blue color, in fact, this investment gain, as compared to the prior year of 27.2 billion yen, the generation of investment gain was 15 billion yen this quarter. So this is a reactionary fall due to a large investment gain generated from PE investment in the United States in the last fiscal period. However, we managed to post a certain amount of investment gain this year.

On this page, you can see the impact of COVID-19 in the first quarter on various segments' profit. In May, during the earnings announcement, we identified real estate, aircraft lease and concession, three businesses that would suffer the biggest impact. In addition, Orton Business and Oryx US also had some impact and the segment profits was down by 24 billion yen. On the other hand, environment and energy and retail related businesses such as life insurance and banking and credit were not impacted that much by COVID-19 and the performance was solid. Please turn to the next page. Now I would like to turn to the second point which is change of segments and the segment performance. This is the comparison chart of the increased or improved disclosure of the segment as was explained in the beginning. Last year we started using 6 segments and 16 units to do the presentation, and we changed the segments, but the 16 units remain the same as before, more or less. So this is an easy way of comparing the changes. On the next page, you can see our performance by segment. Starting with our segment profits, Centering on the businesses impacted by COVID-19, as explained before, seven segments were down in profit, but three segments with relatively small impact increased in profit. Your change and the factors are summarized on this table. And also, page 13 and onwards will explain the details. We don't have enough time to go through all the details of page 13 and beyond, but I would like to use the chart on page 7 to explain. Starting with three segments with the biggest impact of COVID-19. At the four-year earnings announcement, we explain the impact of COVID-19 on these three businesses for this fiscal year. For real estate, profit reduction of 25 to 30 billion for aircraft lease 20 to 30 billion decrease and for concessions we mentioned that the net income may be zero or even in the negative territory now looking at the current environment facilities operation which is in the real estate segment let us look at this business first we operate more than 5,000 rooms in hotels and inns throughout Japan. In order to stop the spread of COVID-19, we closed most of these facilities until the end of May, which meant 4 billion yen reduction in profit in the real estate segment. Since the state of emergency was lifted from July, we started operating with maximum of a 50% operation level, and the After August, we'll be removing this upper limit of 50% of operation and review the way these facilities are operated and how the expenses are spent. And therefore, the outlook for this fiscal year's performance is better than initially expected. Moving on to concession business. We own 40% of Kansai Airport, which operates three airports, including Kansai International Airport. And their performance is reflected in our numbers three months later, which means for this first quarter result, we are looking at the performance of Kansai Airport from January through March of 2020. Due to global travel ban, many international flights were cancelled, reduced or cancelled and the number of travellers reduced and in the p-investment acquisition segment we saw a reduction in profit of 5.8 billion yen although there are some recoveries in the domestic airlines since there is a lot of uncertainties we have not really changed the pessimistic scenario that we explained to you last time moving on to the aircraft lease business again Demand for air transport is reducing, mostly around international airlines, and the proceeds for the aircrafts reduced. Some impairments have to be recognized, and the transport segment suffered a 3.3 billion yen reduction in profit.