ORIX Corporation

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

Good afternoon. This is Ichitomaru Yano, Head of Treasury and Accounting Headquarters of Oryx. Thank you for joining us in today's meeting. Despite your busy schedule, allow me to give you a brief overview of our FI23 March and second quarter results. I'll be making use of the PowerPoint slide in explaining our overview. So please turn to page two of the handout. Net income fell 17% year-over-year to 121.8 billion yen for the first half of FI23 March end. This translates to an annualized ROE of 7.4%. Please look at the right-hand side chart that shows the quarterly trends of net income. Second quarter net income was 59.9 billion yen, which was down by just 3% quarter-on-quarter despite major changes in the macroeconomic conditions. As I'll explain later, the main reason for our lower profits versus the first quarter was an increase in COVID-19-related payouts for policyholders isolating at home in the insurance segment. Please turn to the next page. Segment profits. This shows the breakdown. Segment profits were 170 billion yen. Please look at the right-hand side chart. That shows trends in segment profits from the prior year. Investment gains are indicated in pale blue, while base profits are indicated in dark blue. Base profits in dark blue were down 18% year-over-year to 144.8 billion yen. This was primarily due to sharp declines in profit at three segments which performed very well last fiscal year, namely insurance, OREX USA and OREX Europe, the asset management business. Meanwhile, the aircraft and ship segment posted a major surge in profits driven by a recovery from COVID-19. In addition, strong performance in the environment and energy and Asia and Australia segments helped us maintain stable levels of profit even with more challenging macro conditions. The light blue investment gains were down 52% year-over-year to 25.1 billion yen due to the absence of capital gains posted from multiple PE exits at Oryx USA during the same period last year. We will continue to monitor changes in the market climate carefully to determine the optimal exit timing for each investee and not make hasty exits simply to boost short-term investment gains. Please turn to page 4 and 5 that shows the results by segment. The page shows a breakdown of profits and assets by segment to give you an overall picture of the current situation at all our segments. Detailed explanations for the segment performance can be found from pages 17 and onwards. I'll briefly go over some of the highlights now. First is the corporate financial services and maintenance leasing segment. Although profits were lower, this was due to investment gains posted in the first half of FY22 March end as well as the related valuation gains. Excluding these one-off gains and profits from Yayoi sold last year, segment profits were healthy. In the auto business, robustness of used car market continues into FY23 March end. Furthermore, recovering rental costs, which have been impacted by COVID, allow the business to sustain strong profits. Renting continues to fare well, supported by growth in demand for rental products. Next is the real estate segments. Profits were down year-over-year due to multiple gains on the sales of logistics centers and other properties booked in the previous fiscal year. Diageo's profits were also lower year-over-year as condominium sales were skewed to first half in FY22 March end. However, segment profits are in line with a full-year target. Occupancy rates at hotels and inns were impacted by the seventh wave of COVID cases but have recovered after benefiting from summer travel demand. We expect a further recovery from second half aided by upbeat news, such as a start to Japan's nationwide travel subsidy campaign, the end to the restriction on the number of inbound visitors, and resumption of visa-free travel and independent tourism. Now next is the PE investment and concession segment. While some investees have been impacted by changes in the macroclimate, leading to mixed earnings performance at portfolio companies, the portfolio as a whole is healthy and recorded profit growth.

In the concession unit, passenger numbers on both domestic and international routes are on an uptrend and losses are shrinking. We expect to see an additional recovery in international passengers following the government's decision to scrap the cap on entrance into Japan. Next is the environmental energy segment. Segment profits were up 11% year-near to 10.6 billion yen. In the domestic energy business, power generation from mega-solar projects increased thanks to favorable weather leading to higher revenue. Overseas, power generation revenue was strong, aided by higher prices in the spot electricity market in some regions. Segment assets were up, but this was primarily due to changes in the forex. As I will explain later, growth in assets at all of our overseas segments can also primarily be explained by forex effects. Next is the insurance segment. Where profits were down sharply earlier owing to higher COVID-19 related payout expenses caused by a surge in infections. Q2 coincided with the so-called seventh wave of COVID infections in Japan, leading to a much larger decline in profits versus Q1, which was impacted by the sixth wave. As of September 26, since payouts for in-home isolations are now limited to persons at high risk of developing complications, payout-related expenses are expected to hit bottom in the second quarter and decline from the third quarter on. and the number of policies in force continues to grow, and the investment income is rising as a result of strong performance. Next is banking and credit. Banking profits were down year-on-year owing to a one-time profit booked in the same period last year. Nevertheless, earnings from real estate investment loans remained solid. In credit, segment profits were down 27% year-on-year owing to aggressive ad spending to support development of a new lending product Oryx Money. However, this is in line with our projections. next is aircraft and ships where segment profits were up ten point three billion yen year on year to ten point six billion yen ships posted major profit gains as the business accelerated sales of owned ships in first quarter to take advantage of high marine shipping prices The favorable interest spread on the large tranche of ship collateralized lending executed last year also contributed to earnings. In aircraft leasing, earnings are on an uptrend as passenger markets primarily in the U.S. and Europe are recovering to pre-COVID levels. Next is Oryx USA. Segment profits were 21.6 billion yen, a major decline compared to last fiscal year's record profit levels. Two major reasons were decline in capital gains and lower base profits at Lumont, which is involved in real estate lending. Markets have taken decidedly cautious turn owing to inflation and rapid pace of interest rate hikes, and our business started to feel the impact. Nonetheless, capital gains and base profits both improved significantly from first quarter to second quarter. Please refer to page 33 for detailed explanation. Although the risk of recession looms in the US, Oryx is diligently monitoring our portfolio, and although we have not seen any deterioration of asset quality at this time, we will remain vigilant. Next is Oryx Europe. Declining equity market caused AUM to fall, leading to lower profits. Fortunately, Oryx Europe has a diversified portfolio of asset managers in its roster, including Boston Partners, Value Investor, ESG, Growth, and Alternative Investment-focused managers. TransTrend, a commodity trading advisor, has performed particularly well recently and should contribute to profits through a performance fee booked at the end of December. Finally, Asia and Australia segment. In addition to selling an affiliate in Singapore, countries in Southeast Asia are recovering from COVID closures and segment profits were up 21% year-on-year. The car leasing business in Australia and South Korea continued to be robust, which also contributed to the profit growth. This ends my comments on the first half of FY23, March end results. And I'm pleased to have Mr. Inoue, Oryx's CEO, to speak next. Thank you, Mr. Inoue.