ORIX Corporation American Depositary Shares

for joining this today's conference of Oryx Corporation for Second Quarter Confrontation Financial Results for the six-month period ended September 30th, 2020. The attendees of today's conference are members of the Board of Directors, President of Executive Director, President and Chief Executive Officer, Mr. Inoue, member of the Board of Directors, Senior Managing Executive Director, Responsible Treasury and Accounting Headquarters, Assistant CEO, Mr. Taniguchi, and Executive Officer, Head of Treasury and Accounting Headquarters, Mr. Yano. Materials to be used at today's meeting has been uploaded on the website at around 4 p.m. today. Please refer to those materials. Before we begin, we have some requests. In order to prevent howling, please make sure that you turn off your mobile phone which is nearby or put it away from the telephone. If we experience severe howling during the meeting, we may have to stop the meeting with the agreement of the sponsor, and they have to speak to the participant who's causing the howling. The first half of the meeting will be presented by Mr. Yano, second half by Mr. Inoue, followed by a Q&A session. We have approximately one hour for this whole meeting. Now we would like to begin the meeting. At this time, I'd like to turn the call over to Mr. Yano. Please begin.

This is Yano. Thank you very much for the introduction. And I'd like to thank all the participants to this financial results briefing meeting today, despite of your busy schedule. I'd like to explain our financial results for the second quarter of the financial year, ending March 2021. Please refer to page two of the financial results briefing materials on hand. Net income for the first half of the fiscal year ended March 31, 2021, was down by 41% year-on-year to 93.38 billion yen, and the annualized ROE was 6.3%. While with the impact of COVID-19 remaining, we reveraged on our strength of a diversified business portfolio to secure solid profits for the group as a whole. As compared to first quarter, the net profit went down by 6.2 billion yen, or 12%, as a result of a revision of the estimated tax rate. net income before tax, which are not affected by tax rates, or almost flat, with first quarter at 67.6 billion yen and second quarter at 66.5 billion yen. We booked profits and losses of some companies, such as Consensual Business, on a three-month flat. Therefore, in terms of the actual business condition, we believe that we are out of the bottom. So let's move on to the next stage, breakdown of segment profits. The income for the segment has totaled to 149.5 billion yen. We explained basic profits and gain on sales separately here. The dark blue colored base profit was down by 33% year-on-year to 112.8 billion yen. The main reason for the decline in profit by 54.6 billion yen was the impact of COVID-19 outbreak. The breakdown explained on the next page. The pale blue colored gain on sales was down by 50%. from ¥74.1 billion in the same period of last year to ¥36.8 billion in the previous fiscal year. There were gains on sales of Oryx Living and the Hooligan Lurking in the United States. We were able to realize a certain amount of gains this year as well by selling assets like logistics facilities and others. So please refer to the next page. So the page shows the impact of COVID-19 to the financial earnings. in the second quarter. As compared to the first quarter, the profit in total decreased by 3 billion yen to approximately 27 billion yen. The impact amount for aircraft leasing business was larger than first quarter, but the impact to the real estate operation business, the car rental business, and Oryx USA is certainly becoming less. Possession had a three-month lag in booking, as mentioned before, and also as a result of financial market recovery, there was a reversal of liability reserve of 5 billion yen in the first quarter from her fourth life. Taking these into account, second quarter can be described as being on a recovery trend. So let us move on to the next page. First is total segment profit. The total segment income was down by 38% from the same period of last year, at 149.5 billion yen. Compared to first quarter, the segment of corporate financial services, maintenance, leasing, real estate, banking and credit, Oryx USA and Oryx Europe achieved higher profits. In addition, the three segments of environment and energy, insurance and banking and credit that are least affected by COVID-19 achieved year-on-year profit growth. Detailed information for each segment are presented on page 15 and onwards So let me give a brief overview here. As for the three business divisions of the real estate concession and aircraft leasing that were mentioned at the time of the full year as well as the first quarter financial results announcement as the businesses that are significantly affected by COVID-19 will be explained in more detail later by Mr. Inouye, the CEO. The first is the corporate financial services and maintenance leasing segment. In Japan, a declaration of state of emergency restricted corporate sales activities. Rentech was also forced to slow down its utilization rate at the technology center. Automobiles were also affected by a decline in demand for rental cars and other factors. However, after the lifting of the state of emergency, tourism demand recovered, car rental sales improved significantly, and profits in the car rental distribution recovered from a loss in first quarter, too. positive profit. Corporate financial services commission income recovered significantly in the second quarter due to aggressive sales activities. Next is the real estate. Disposition is continuing at a constant pace, while Daikyo is not significantly affected by COVID-19, both remaining to be strong. Hotel and inn operations reopened and enjoying the recovery trend.

Next is the investment and concession. For private equity, There's been some portfolio turnover from the previous year, but the business of each company is solid, contributing to the profit. Weaker concession is due to the three-month lag of closing of the accounts, moving on to energy and the environment. Renewables business, including solar, is solid. It appears to be a reduction in profit compared to the first quarter, but this is due to the one-off profit posted in the first quarter for wind wind power in India. Excluding that, the profit is up compared to the first quarter. Next is insurance. The sales activity face-to-face was restricted, but by utilizing non-face-to-face activities such as online and TV shopping, we could increase the number of policies in force. Again, it seems to be lower profit compared to the first quarter, But this is due to the reversal profit recognized in the first quarter for Hartford Life, excluding that the profit is up compared to the previous quarter. Moving on to banking and credit. Similar to Oryx Life, non-face-to-face and online activities helped grow the assets for real investment loans. We are responding to the new lifestyle and maintaining stable profit. And both against the first quarter and the previous year, the profit was up. Moving on to aircraft and ships. The aircraft lease business, which is the main stay here, worsened due to COVID-19, but we expect a future recovery with an increase in demand in domestic lines. Moving on to Oryx USA. Compared to the first quarter, this was a major increase in profit. Thanks to the appraisal loss in the first quarter, MPE investment turning into gains and also smaller credit losses, in energy-related companies. It seems as if the profit is much lower than the previous year, but this is due to the gain on sales of Hulian Loki posted in the previous year. Next is RX Europe. RX Europe AUM hit bottom in end March 2020 at 233 billion euros, and it recovered to 260 billion euros at the end of September 2020. more than 10% improvement, and also profit growth up compared to the first quarter. Last is Asia and Australia. We recognize the impairment due to lower share prices of the deal that we invested into China, but the local operating companies are doing forward business and excluding the impairment. This is positive profit growth in the second quarter. Moving on to the next page regarding segment assets. Corporate finance services and maintenance leasing. Finance assets are decreasing slowly, standing at 1.7099 trillion yen. At the end of the term, this is 4% down. And insurance was 1.7104 trillion yen, up by 8%, thanks to the increase in the number of policies, banking and credit policies. was up by 3% after 2.6766 billion, thanks to the increase in the real estate investment loans. And Oryx USA reduces asset, focusing on balance sheet business more carefully and also putting the efforts into asset management. In Europe, there's a second wave of COVID-19 and the future is difficult to see, but we are building a profit based on distributed business portfolio, which is a strength. That's all about segment performance. I would like to move on to page seven about financial soundness. To the left, you can see that the financing right now, despite COVID-19, is solid. We have sufficient capacity, both from banking loans as well as capital market. And the long-term debt ratio is above 90% thanks to assets. When we made the four-year announcement in May, we presented the conservative scenario with extensive worsening of operating cash flow as on-hand liquidity stress test. But in fact, the request for referral as well as delayed collection has stayed at the low level. And including the aircraft lease business, the collection rate remains high at 95%. To the right, you can see the shareholder's equity index. employed capital ratio, which is 85% at the end of September 2020, which means that there is sufficient capital for potential future investments. That concludes my presentation regarding the performance for the first half of fiscal year ending March 2021. Next, we would like to invite our CEO, Mr. Inoue, for his presentation.

So this is Inoue from Oryx. Good afternoon. Still affected by the spread of COVID-19, We have to hold this announcement session through teleconference. I apologize for the inconvenience, but I also ask you for your understanding. So let me explain by making use of page eight. So 2021 March end, the first half, the profit before tax was 134.2 billion yen, net profit 93.8 billion yen, and the ROE unfortunately was at 6.3%. In the second half, the business conditions were pretty mixed between and among different countries of the world. And we cannot, of course, foresee the COVID-19 spread ending. And we still think that it is not easy for us to forecast our business ahead. However, we have decided to forecast our net profit to be at 190 billion yen at the end of this fiscal period. So in the case of 190 billion yen, if this was to be achieved, it would mean a decline of 37.2% of profit as compared to the prior year. At the time of the full year announcement back in May, because of the spread of the COVID-19 virus and also the acute slowdown of global economy associated to the pandemic, we thought that the forecasting and impact was not easy. The impact to our financial earning was not to be easy. So we had to explain the two scenarios first. If we would be able to start enjoying the normalization of businesses from the third quarter, a net profit would be between 180 billion yen to 200 billion yen, whereas if the impact is to persist for one year, it will be in the range of 80 billion to 120 billion yen. So although we cannot still see how things would unfold, but we think that we should not except for the worst case, and this is why we have decided to focus our net profit to be 190 billion yen at the end of this term. And also, as to the full year dividend, we are forecasting the amount to be 76 yen, or a payout ratio of 50%, whichever is higher. As for the fundraising, both the operating cash flow and the financial cash flow is remaining to be studied, and we have confirmed that there is no concern So therefore, this 100 billion yen burst up repurchase program, we would like to restart the program by making use of this unused program budget of 44.2 billion yen of a third repurchase program. And we expect to use up this program budget within this year. As for the payout ratio, as well as the shares we purchased for the next fiscal period, I would like to make an announcement together with our strategy going forward at the time of the full year fiscal period announcement. As for the first half of 2021 March end, monetary easing, as well as expansion of public spending in different countries of the world, In fact, the equity, the major equity market metrics is almost back to pre-corona days. And on the other hand, renewable energy, IT-related, real estate are almost unaffected by COVID-19 and they are not going through any price correction. Contrary to the impact of COVID-19, the price may have surged or there is... and some of the prices are remaining to be high. However, we cannot, of course, remain to be optimistic because U.S.-China situation is worsening, and also with the presidential election being scheduled tomorrow, and there seems to be no concerted effort being exercised by the countries of the world, and also the second wave of COVID-19 is affecting Europe, So therefore, we have to anticipate a certain impact, negative impact remaining for the time being. However, although we will be affected by all this, but the 13 trillion yen worth of assets is very much dispersed in terms of the risk, and also we will be able to enjoy the health of our assets. So even if So even if COVID-19 impact would remain, life insurance, banking, the retail segment, in fact, the impact will be very limited. So we are beginning to see things are beginning to settle down as far as our business is concerned. From second half onward, we are going to turn a little more aggressive in terms of our investment in the areas whereby we can foresee a stable source of revenue profit generation and also at the same time a contribution that are made to both ends. So risk-based assets as well as new strategic investment is to be continued, and also we would like to turn much more aggressive and positive in terms of carrying out sales activities so that we will be able to continue to grow at a higher pace. As to the credit rating, S&P Moody's Fitch has given us a single A- with the outlook of a negative, whereas R&I, in fact, has given us the rating of AA minus with the outlook of stable. So dependent on the timing of investment or a disposition, there could be a case whereby the rating may perhaps go down by one notch. But as a result of M&A activities, as well as some replacement of the assets, we would like to continue to build a resilient portfolio, and we take it as our mission. It goes without saying that we would make no change in our policy to maintain financial soundness that commensurate with a single aid rating over mid to long term. However, now, assuming that the rating may go down to triple B, for example, we cannot foresee any major impact. I'm sure the impact will remain to be limited so far as the additional funding capacity and also the funding cost is concerned. please refer to page 10. As for real estate operating businesses, under the state of emergency situation, we have to close our hotels as well as inns, but all reopened except for one. GoToTravel campaign, in fact, is very supportive of these real estate operating businesses. Occupancy rate is on the recovery. We have come out of the worst. As a matter of fact, inns as well as direct operated hotels consignment businesses of hotels and inns, whereas the occupancy rate back in April was 9%, 3%, 9%. However, in July, it had recovered to 32%, 6%, 33%. And moreover, in October, these occupancy rates were 78%, 38%, 52%. 2020 August, Complex Facility Crossgate Kanazawa. In October, Ryokan Inn Hakone Gora Karaku was reopened. Karaku has an open-air hot spring in each of the rooms, so we are targeting at luxury customers. It is an onsen ryokan inn, and the reservation, in fact, is trending well. As for the new logistics facilities development, in light of the current conditions, we have been receiving many inquiries focused around Tokyo Metropolitan District. We are proceeding the development deals with a size of 80,000 tubers, and we have secured 100 billion yen worth of pipeline. The track record at this business, in fact, was around IRR of 25%, so therefore we can continue to expect a positive contribution made from this area. As for the negative information, the government made an announcement to commit itself to the major reduction of CO2 emissions. we do have a biomass coal multi-fixed fuel power plant, Soma Energy Park, as well as Kyonan Energy Park, that in total has a generation of 224,000 kilowatts. At the moment, METI is considering to decommission inefficient coal-fired plant by 2030. As for the generation power plant, The biomass mixed combustion ratio is 35%. So based on the energy saving law, the generation efficiency of the power is sufficient, is sufficing the high efficiency criteria. However, as for this particular plant, we are going to be continuing to operate up and run this power plant until 2038 as planned initially. But in December, METI is scheduled to make the decision on this decommissioning of the fuel plants. So therefore, they may change around their direction, and we may have to perhaps move up the schedule for depreciation. So I will be mentioning later on as to the details. However, in October, we had expressed our support to TCFD as Oryx Group, We would continue to, of course, analyze the risk for the future, and while complying with the government policy, CO2 emission reduction strategy is to be rebuilt. As for the concession business, there are signs of slight recovery. However, we may have to prepare ourselves for the number of international passengers not to recover for some time. On the other hand, the domestic flights are recovering, and also at the cargo level, in fact, trending strong above prior year's level. As for my IR, site selection date was postponed by nine months. Official review process will only start from next year onwards. We will make no change to our original plan, but we'll act rationally based on total analysis of COVID-19 support. Let us move on to page 11.

As for the aircraft leasing business, 85% of OAS's portfolio, OAS stands for Oryx Aviation Systems, is a narrow body, which has smaller price fluctuations. And the rest of the portfolio, including wide body, is leased to major carriers, including flagship carriers. In the first quarter, Several lessees were granted deferrals, but after the period of referral, almost all lessees resumed payment. In September, several major appraisal companies, such as Ascend and Avetis, re-evaluated all the different models of aircraft, and the result was announced. We have compared that result against the present value and the future value of our SS aircrafts and concluded that impairment would not be necessary. We own stakes at Avalon and Avalon's orders to Boeing and Airbus was decreased from 400 units to 286 units from the end of December 2019 to end of September 2020 in order to deal with a lower demand of aircraft carriers. And all the aircraft that would be completed and delivered by 2022 have secured less fees. 650 million unsecured notes issuance was completed in September, which means that we are trying to secure the on-hand liquidity in line with the improvement of financing environment, and that we are maintaining the BBB rating. We are not necessarily optimistic about the aircraft lease business. However, as I mentioned, there is no major concern with regard to valuation of OAS's aircrafts, and Avalon is responding to the situation in a very appropriate manner. A number of travelers within China has already returned to pre-COVID-19 level. And there is a recovery in the number of travelers within Japan as well. These are bright signs, but it is still very difficult to predict how the recovery for the demand for aircraft travelers would turn out, including the tiny. But Oryx has more than 40 years of experience and know-how, and we believe that we can minimize the portfolio-related losses. real estate management, concession, and aircraft leasing. Other than these businesses, impact of COVID-19 is very much limited, and we believe that profit will continue to recover slowly over time. Please turn to page 12. At the time of the earnings announcement for the first quarter, we talked about our investment pipeline was approximately 2 trillion yen, including 300 billion for energy and environment, $200 billion in asset management and $250 billion in private equity. Some of these projects were dropped after review, but each of these single deals are making steady progress and we will be making announcements one by one. And we are convinced that these deals will contribute to our future growth. However, For these deals, for which investments will be done in the future, the cost for the initiative will have to be recognized in advance. And also, appropriate amount of intangible fixed assets and goodwill will have to be recognized if we expect a future growth. And the timing of contribution to the profit will depend on the timing of execution, but we expect each to take approximately one to two years. In September 2020, we were in an announcement about more than 20% investment into Greenco Energy, which is the largest renewable energy company in India. And this deal is moving to the closing stage. The investment amount is approximately US$980 million. And this is the largest player in the renewable energy industry in India. with various business opportunities. They already operate 4.4 gigawatts worth of renewable energy sites, including solar, wind, and hydro. They also have more than 8 gigawatts worth of projects in development. We believe that this company has a high future potential. We are also considering investing into renewable energy in Europe. In addition, we are actively pursuing the opportunity to acquire alternative asset management company in the area of infrastructure, renewable energy, real estate, and ESG. As for asset management, in September 2020, we made an announcement that we would receive approximately 7 billion yen worth of AUM from Boston Capital. which is a US company. And this puts our AUM at Oryx USA at $75 billion, or 7.8 trillion yen. As for domestic private equity investment, we just made an announcement this morning about acquiring total share for Precious Systems. for which there should be high demand for base stations in 5G systems. In the era of COVID-19, the necessity for information communication is only increasing, and we are trying to increase our investment in this area. We cannot disclose information about other private equity deals, both in Japan and outside of Japan, but we do have several deals. and approximately 300 billion worth of deals are now in the final process, and we should be able to disclose this information one by one. Listen to page 13. We believe that it would take time for us to improve ROE. It really depends on how soon COVID-19 situation would improve, but considering the current situation, we believe that it would be probably around fiscal term ending March 2023 when we can go back to the cruise speed, so to speak. It will take several years to go back to the 11% level based on the existing portfolio, but we want to accelerate this recovery scenario through identifying new investments and increasing gain on sales. And also at the same time, we will be attempting to improve the shareholder return. We were hoping that we would be able to share with you our midterm direction, but we decided it was too soon because we don't see an improvement of the situation of COVID-19 just yet. We want to go back to the net income level of 300 billion yen through asset turnover and also successful new investments, And as I mentioned before, we are also aiming to go further to 400 and 500 billion yen. It may be later than what we explained to you before, but we believe that these numbers are still achievable. Moving on to page 14. In October, we announced support for TCFD, Task Force on Climate-Related Financial Disclosures, including climate-related financial information with stakeholders, we will be making efforts to disclose ESG-related information in an appropriate manner. We run business in 34 different countries across the world, and therefore we believe it is an important challenge to deal with climate change and help sustainable growth. We will continue to identify and also realize themes that are important for the whole group, including greenhouse gas emission reduction and high-efficiency energy use for our assets and promotional projects that are environmentally friendly. We will build governance systems that will adhere to the ESG-related principles so that we can disclose information on a regular basis and collect accurate information. We will select projects that are important for a business, and they give them priority, identify risks and opportunities related to climate change, and analyze and utilize information from those analyses so that we can generate future growth. We are faced with unprecedented environmental changes. It is important for us to adapt to this new environment. We need to implement many urgent scenes, including working from home and the digital shift, including the removal of paper from our business. And we have to have a strong commitment, thinking that without these projects, there is no future for Ulrich. That's all from me. Thank you very much for your kind attention.

Thank you very much. Let us move on to Q&A session now. If you have any questions, please push 01. we'll be calling out your name. And once your name is called out, please start asking the question. And if you're going to be canceled your question, please depress 02. So let us get started with the Q&A session. As for the question, we would like to limit the question to just one per person. So first, Mr. Watanabe from Daiwa Security, please. So this is Watanabe from Daiwa Securities. May I ask a question about your thinking to capital gain? I understand that you have started to have your body model started to rotate and in considering the new investment to be made. So can we take it that you're going to be posting some post gain? But I understand that there is no kind of impairment from the aircraft leasing businesses. But do you think that this 190 billion yen of an achievement, in fact, incorporates this absorption of this, if there should be any impairment, that may perhaps be posted from aircraft leasing as a result of posting of the capital gain? I'm sorry about this. So 190 billion yen, the capital gain, the small amount is incorporated into but it is only about the several billions of yen. Some logistics facilities, the two dispositions, and the several dispositions of some real estate assets, but no major disposition or the capital gain is included. As for the private equity in Japan as well, so many fund investors are on their move to wanting to acquire some of these assets. But unfortunately, whereas it was like 60% to 70% of recourse loan, whereas on the other hand, the fund, the acquisition amount, in fact, has been lowered. So we don't have to align with this move. So this is why we have not incorporated a large amount of cash gain in this 190 billion yen of our forecast. But of course, we were thinking about divesting or disposing some of the assets, but it is not, in fact, reflected. This is 190 billion yen of a forecast this time. As for the aircraft impairment, well, it is hard to describe this, but from your perspective, you may wonder why this is the case. But the aircraft that we own, Avalon, in fact, carried out quite a bit of an impairment. And as a result of IFAS accounting, they have to post some losses as a result of this impairment that they have exercised. But as for Oryx, we have not been in the receipt of grounding nor the return of aircraft. So the leasing is continuing. So therefore, we have been receiving the leasing fee And the return condition or the reserve, in fact, has been maintained as well. So this year, we feel no necessity for impairment. And this led me to making the announcement earlier. So if there was to be any impairment, it would be after the next fiscal period. And of course, we would have to make a judgment before we would be posting any impairment. But as for this fiscal period, we foresee none. So I hope this answers your question. Yes, understood. Thank you so much.

Thank you very much. SMBC Niko Shoken, Muraki-san is the next person to ask a question. Yes, thank you. Energy policy in various companies may be changing. How does it impact the existing portfolio and also the future investments? by Oryx. You said that for biomass, maybe accelerated depreciation may happen in the existing portfolio, but is that going to be a financial impact? And also, with regard to renewable energies, I know that you're making investments in various countries. You have an existing business already, and you have made an announcement about investment in India. And considering the pipeline, in Japan and also in the United States, the policy, the government policy may change. So what kind of impact do you expect? This is 11 billion yen investment in total, and your profit is somewhere between 3.7 and 4 billion. And if we go up to the year 38, then the book value will be zero. So we made this biomass mixed project according to the government policy, but the government is changing the policy, so it may be discontinued at 2030, 30 to 38. So this is an eight-year difference. We need to accelerate the depreciation for this eight-year difference, which is about 20 billion yen in amount. On the ground, people believe that we can go up to year 38, but I don't really trust what the government says. But if it ends up to be 30 years, those are the numbers that are associated with that, which means that from 2021 to 2030, within nine years, that 20 billion will have to be depreciated over time, which is approximately 2 to 2.5 billion yen increase in depreciation. And that's the risk that we foresee. And as far as part of Japan is concerned, CO gas and other types of debt initiatives are going on in the United States. We already have a reserve. We already have provision for that. So we don't expect any major impact in the future. With regard to India and other countries, these are all renewables. And as far as the renewables are concerned, across the globe, the prices are going up. which means that if we take a future project in payment risk, especially for Europe and India, as far as renewable energy is concerned, we cannot really do the contra. So I think it's okay. And we're not doing any coal overseas, so we don't see any risk associated with that either. I hope that answers your question. And was it all the questions you had? Yes, thank you.

Thank you for the question. So the next is from Goldman Securities. Nakamura-san, please. I am Nakamura from Goldman Sachs. Thank you for the opportunity. I have two questions. The first, so just to make sure, as to the shares repurchase program, so what is the change that you have made from the time of the full year financial result announcement? is the first question. And the second is, when you were explaining about page 13, so the recovery pace, in fact, is more moderate or slower than before in terms of the profit generation. So much as you can tell me, would you mind giving some color to this? And on page 30, the green part, the three-segment recovery, and also additional gains on sales. As compared to the plan, the three segments, in fact, are recovering faster, and can we expect this green part to be generated in addition to that? So the new investment contribution, the yellow part, and also with regard to mice IR, any kind of implication in reference to this? the amount of 44.2 billion yen of unused repurchase program. So we have received much criticism from people from investment community. And at the time of Lehman Shock, our global financial crisis, I had to go through a bitter experience of financial difficulty. And this is why we had kept this 44.2 billion yen being unused. But the difference between now and the Lehman crisis is because there was a credit crunch and there was tightness in the financial market last time. But this time, as to the cash management, we're not affected. And rather, in fact, there's an abundant money in the market. So from... May, June, July, I have started to gain some confidence. And as a result, I have decided to continue with this shares repurchase program. So especially from the next year onwards, we may want to perhaps come up with yet another round of repurchase program. So in any case, we want to achieve 190 billion yen of profit as we have for shares. and also to pay out the dividend as we had made the announcement for. And in the next year, hopefully, the COVID-19, we may start to settle down or we start to gain some certainty. So this is why we have decided to restart this repurchase program. So this is at the backdrop to our decisions. And as to Phase 13, so the three segments recovery, that you had asked the question for, the three segments recovery, the real estate operation business and also aircraft business, are the main part for these three segments. So as for the aircraft, the green line, in fact, is the recovery of the revenue and profit. And as to the additional disposition, the ongoing base concern, in fact, has been reflected in anticipation or in expectation of the recovery, that is. And as for the new investment, this is also difficult to give a straightforward answer. In any case, for the new investments that are scheduled, it may take one year or two years before we start to enjoy a positive contribution coming from this new investment in any case. And if we can enjoy in full amount, the return on the investment that we have made, 40 to 50 billion yen. And this is why we have came up with such a chart on this page. And last time, there was some criticism about these charts being difficult to comprehend. However, if you could just perhaps refer to this as an image that we have in our mind as to what we intend to achieve and what we can enjoy in achieving this 300 billion yen, that is, And as for the 300 billion yen, out of which 100 billion yen is gained on sales. So if you were to top that up, then 300 billion yen is not going to be just a dream. So this is why we are kind of imagining to be achieving this 302.7 billion yen of a net profit. By when, I think, I left it to be quite ambiguous because we were not pretty sure at what time we would be able to achieve this. And you see, these all include the disposition of some of our real estate assets that may top up so that in year 2025, 2026, and so on and so forth, we would be able to go back to the prior target of 300 billion yen or so. So if you could interpret this diagram to be so, we would appreciate that. Thank you so much.

Thank you very much. Thank you. Just one question about Avalon. You're receiving negative profit coming from Avalon, and IFRS profit is posted. I think that this is a negative profit of maybe for one to one million. Without the impairment, this number should be smaller. According to US GAAP, this impairment is not really recognized, but... Still, this is a deficit three times than what you're taking in as profit. So my question is, what's really happening? As far as Oryx Aviation is concerned, you said there is no impairment. You said this actually with confidence. If you apply your SCAP to Avalon, what would be the risk of impairment? That's my question. Avalon's intention, this is just an intention, it's not finalized yet, but since they have many investors from the United States, they want to switch from IFRS to US GAAP. I think they're considering the possibility. When IFRS is used, after impairment, recovery is possible according to its accounting standards. With US GAAP, impairment is just one time and until something's solved, then you cannot really realize the recovery. So that's the difference between IFRS and US GAAP. Now, Avalon did post-impairment under the IFRS system, which means that they can still recover if they want to. And they had planned that in the beginning, but since the majority of investors are from the United States, there is maybe... to switch to US GAAP, and that is why Avalon is attempting to shift from IFRS to US GAAP. It's not finalized, it's not confirmed, but that's the current status. So we're looking at US GAAP, and this is 25 years depreciation. In our case, it's a lease period depreciation plus RV. So that's another difference. As long as the lease is in place, there is no need for us to post impairment. If the lease is canceled and it is returned to us, of course, we have to review, revisit those numbers. But our expectation currently is that there is zero return and there is zero grounding. And based on that assumption, we do not believe that we need to change the depreciation period or RV. I hope that this answered your question. zero grounding and zero return. Does that apply to the aircraft owned by Avalon? Well, in the case of Avalon, there are returns and therefore impairment. Avalon's business also focused on narrow body, but they also have wide body, and they are trying to reduce the lease amount, lease pricing. And according to IFRS, this is subject to impairment. We have not reduced the lease amount for wide-body at all. And for narrow-body, there were some deferrals, but we have not received any discount request. And that is why we don't have impairment. But for Avalon, they have to do the impairment because some of them are doing this. Yes. And profit from Avalon is negative, despite there is no impairment. Oh, no, I think it's negative profit, including impairment. I would like to add, Avalon, as far as Avalon is concerned, we are shifting from IFRS to US GAAP. And there's a lot of impairment in IFRS, but there is some recovery in the US GAAP, including some small impairment. 737 Max order was cancelled, for example, and this is a very technical explanation. After the order was placed and the deposit was paid and the interest payment was also done, this was capitalized first, but it cannot be capitalized anymore. So it had to be recognized. And this was a special factor, extraordinary factor. And that is why in the first quarter we are seeing a big decrease. in the returns. Does that answer your question? I see. I understand now. So the capitalized things that are recognized versus what is impaired, I was hoping that you can give me the breakdown of that. Yes, we will get back to you with the details and numbers later on. Thank you. Thank you very much.

Thank you very much. So Niwa Sama from Citi Group Securities. Niwa is my name from Citi Group Securities. And I'd like to ask some questions about Europe from two perspectives. First, how do you look at the overall businesses? While M&A, in fact, is preceded in many of the cases, how are you going to be managing the business of WebEco from here down the road? And at your company, As to the M&A, you said that there may be some burden that comes from the goodwill amortization. So, Robeco, I'm sure the goodwill, in fact, is quite sizable. And is there any kind of changes that will be brought about as a result of the current situation? As to Robeco, to be honest, so there are two, to be honest with you, there are same amount of offers that are made from both acquisition and sort of disposition from the United States that they want to be buying and also selling the business or buying the business. At any rate, it is dependent on the pricing and whether there's going to be a synergy or integration, a synergy rather. And at this point in time, I have no strong intent in wanting to sell the business of Robico, the former Robico. I would like to, I think that we are confident in expanding the businesses going forward. We do have the asset management business. And in Europe, there are a number of inquiries that are brought to us. And unfortunately, the asset management business acquisition or rather the sales, the both sales as well as the acquisition of the businesses of asset management businesses You see the rumors spread very quickly in the market and very many cases. Unfortunately, the deal does not come through as a result of the rumors spread earlier than expected. So this is why there may be some cases of perhaps selling the business and on the other hand, some because key employees are in fact leaving the company and asset management businesses acquisition or disposition or divestment. In fact, it's not easy. Robeco's AUM, with the current outstanding amount of the AUM in the market, I don't think the size is big enough, although they are working hard, the people at Robeco, that is. So I think we would have to proceed with the further acquisition in order for us to be full-fledged. in terms of our capacity as well as capabilities, but the timing is not particularly right right now. So as to the asset management business in both Europe as well as the United States, it is important for us to expand our AUM and also to be in the seed of higher or poor seed. So as to the asset management businesses, we need to do something about this in any case, but there could be a possibility of buy as well as sell, so acquisition or divestment as well. And what was the other question? I think that was very clear. And I wanted to ask the question with regard to the goodwill amortization. And looking at the balance sheet, Robico seems to be one of the most sizable of all. So do you think that you should hold on to Robico despite of the fact that it may perhaps affect the credit rating as well? So it's not that we don't regard it to be an obligation. If you're going to, of course, hold on to the asset of Robico, we would have to continue to, of course, expand that. I think there is about 1.5 trillion yen worth of AM, I believe. Is that right? 800 billion yen of a goodwill, that is. And also, Robico and the U.S. Asset Management Company, in fact, account for this 800 billion yen. And the And in any case, the new investment that we may perhaps make, such as Greenco, I'm sure we would have to exclude those companies that have intangible assets. And, of course, there are some intangible assets as well that we may have to take into account for. In any case, through M&A activities, if you're going to carry out some acquisition, there would always be, of course, the problem or the challenge of depreciation. And the only way, of course, to characterize real businesses is to continue to amortize these goodwill. Maybe over 10 years, 20 years, we are currently discussing over this topic, and we may perhaps follow the U.S. GAAP standard, if that is going to be the case. And in any case, as to these goodwill, I think that we should make it as the subject of amortization. So that But I don't think it would affect our rating very much. In the case of S&P, REC rate, for example, in the case of Moody's, they would refer to the P&L conditions of Oryx. So it is not just the goodwill that would affect the rating in any case. So goodwill, amortization increasing. So it is very much dependent on the management decision as to whether to expand the amount of goodwill or not. So to the total amount of assets of 13 two-year yen, I kind of think by rule of thumb, maybe 10% is regarded to be appropriate and adequate. But I don't think by just expanding the amount of goodwill does not stop us from making a new investment. That was very clear. Thank you very much.

Thank you very much. It's almost time, so we would like to make the next question, the last question. Kato-san, Mizo Securities, please. Yes, Sato. I'm Sato with Mizo Securities. I have a question about share buyback. $44.2 billion that you spoke of, this is because the financing situation is not that tight and they still have a remainder of the program that you originally designed. I think that's the positioning. But when you make judgment in the next fiscal year and beyond, are there any other materials or information that you would additionally look at? Of course, COVID-19 impact to existing business, investment pipelines, and also the U.S. presidential election, as well as uncertain situations in Europe. I think there are various factors for you to consider. And which one of these factors need to improve for you to consider additional program? Well, 44.2 billion yen, this was still unused, and the decision was to use it.

So that's it for this program.

For next fiscal year and beyond, We have to really think about our already being below 6%. This is really a serious situation. We have to bring it back to 11%. But if we conduct 100 or 200 billion yen of a share buyback, the general situation would not change. So we have to invest positively into projects and maintain the cash flow. Osaka Prefecture... centralization of the government was rejected, the proposal was rejected yesterday, which means that we have to see what happens to the governors, what would happen to the MySIR project, will that be suspended, or will there be no change because LDP is supporting the project. There's some noise in Nagasaki Prefecture, and the Yokohama situation is getting more and more complicated. Now, as far as my IR is concerned, maybe last year or two years ago, we talked about 1.6 trillion, and we have to really think about these numbers once again and whether we should really invest into this project. Social distancing is an issue as well. How should we take this, see this in the future? If the target for investment is reducing, of course we have to do share buyback in order to move things forward. That's another point for us to consider. And also tomorrow's U.S. presidential election, it may really push the stock prices down. If Biden is elected, then the corporate tax will almost definitely increase. So these are some uncertain factors that we need to take into account. If we do zero share buyback, I don't think that will be accepted by the market. So we will like to continue to do share buyback and also positively think about potential investments. I think I gave you a similar explanation one year ago or two years ago, so you may think my answer is the same again, but still we have to consider all these factors and continue to work on this. That's all I can give you today. I hope that answers your question. Thank you. So you're not really thinking about discontinuing the share buyback program. That is correct. We have to do a share buyback. 6.3% ROE, we have to do something about this. So we would like to consider taking all these different factors into account. Thank you. It's very clear. Thank you very much.

So I'd like to close the Q&A session for now. Mr. Inouye, please give us the closing remarks. Thank you all very much for taking part in this session. From next time onwards, we would very much like to hold the session in a large venue because I don't know whether you're satisfied with my answer by not seeing your faces. So in the next time, hopefully, the COVID-19 will not further spread so that we'll be able to meet with you in person. Thank you very much. So with this, I would like to conclude today's teleconference. Thank you for your participation today. And you may now disconnect. Thank you.