ORIX Corporation American Depositary Shares

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.

So this is Inoue from RX. Thank you for the introduction. So I would very much like you to turn to page 6, 7, and 8, which I'm just about to explain. As explained, FY23 March end, first off, profits were down 17% year over year, a net income of 121.8 Japanese yen. Well, I'm sorry to repeat myself, but there were three major reasons for the downturn in profits. First, we booked a total of 21.2 billion Japanese yen for COVID-related payouts in the insurance segment. That's the first. And the second, Oryx USA segment profits were down by 25.5 billion yen year over year. as we limited origination of the new business in the private credit business in the rising interest rate environment and rumens agency lending transaction volume spell. In addition, we did not make any hasty PE exits. Excluding OREX USA and the insurance segment, base profits were in line with our forecast. Majority of market participants believe that the U.S. FRB will continue to raise interest rates. In light of this, I believe we need to carefully analyze risk before undertaking any new lending or investments, at least until the financial market stabilizes. U.S. interest rates impact conditions in other countries around the world, and under these circumstances, I don't feel it is the best course of action to operate with overly optimistic goals. So, for this reason, we will set our FI23 March end full-year net income target at 250 Japanese billion yen. We, of course, intend to exceed this target if at all possible. Although the macroclimate remains challenged worldwide, led by the United States, base profits were robust mainly in the auto, rent-tech, and Asia and Australia business units. Most of OREX's base profits are backed by stable cash flows from our diversified portfolio businesses. In the current economic conditions, I believe it is important to maintain a strong financial base and stable operating cash flows. Our pipeline for domestic PE deals is robust. And when we consider the recovery of COVID-impacted businesses and other factors, I do not see any reason to change our medium-term outlook for net income of 440 billion Japanese yen and ROE of 11.7%, which we have shared last time. I will comment on shareholders' return later. Although Oryx USA's private credit and agency lending businesses are sluggish, we plan to accelerate the shift to an asset-light business model utilizing third-party capital over the medium to long term. We look at current challenging market conditions as an opportunity to hire personnel, enhance governance and rules, and develop effective marketing to build out our asset management business. Earnings in the insurance segment were squeezed by expenses for COVID-related payouts, which totaled to 21.2 billion yen in the first half. However, from late September, eligibility requirements have changed, and now only patients that meet a certain set of conditions will be eligible to receive an insurance payout for isolating at home. Although COVID cases remain high, with several tens of thousands of persons tested positive each day nationwide, we expect the impact of COVID-related payouts to lessen considerably from the second half. Although Oryx now holds multiple investments where returns could be generated, we are continuing our dialogue with the markets to carefully determine the best timing for a sale. Currently, based on fair value fund accounting on our P portfolio, 18 cases in all, we estimate total unrealized gains of around 150 billion Japanese yen. so the health of the portfolio is maintained. Kansai Airport's earnings are consolidated into Oryx Group's accounts with a three-month lag. We expect the easing of border restrictions to help fuel a rebound in international passenger numbers, but the full-fledged recovery in profits should be from the next year and beyond as it will depend on the return in visitors from China. These are the primary reasons why profits may be lower year over year for the full year of FY23 March end. But as I discussed, we see no reason to change our FY25 March end net income target. Now please turn to page 9 as well as 10. We believe that an important theme for Oryx to continue stable growth is capital recycling or the establishment of a model for value creation through investment, operation, growth, and evaluation. Oryx had never been hesitant in reshuffling its portfolio or rather the company regards such activities to be part of its usual business operation and therefore I would like this policy to remain as an important management policy going forward. From FI14 March end through FI22 March end, although there have been some ups and downs, Oryx has grown its net income by 2.8 times. We have accomplished this by both strengthening our financial base and accelerating capital recycling to use capital efficiently and effectively. The Investment and Lending Committee evaluates each opportunity in terms of profitability, efficiency, profits, and prospects for creating value and exit strategy to determine an entry price. Oryx's value creation model helps grow base profits and improve the quality of earnings through group-wide cooperation, including development of sales channels at investees and assisting with business model transformation depending on the investee's needs. In addition, application of Oryx Group's governance and compliance rules helps investees realize improvement in corporate value. As indicated from before, returning Oryx Group to an ROE of 11% or higher is one of the management's highest priority. In order to achieve this, we recognize that it is vital to quantitatively grasp the balance between earnings and capital costs for each segment that comprises our business portfolio. We are moving forward with efforts to visualize our portfolio as a whole through measurement of ROIC by segment, setting work, and identifying the ROIC spread differential between these segments. Oryx's portfolio is comprised of a wide range of financial operation and investment businesses. that have a mix of pre- and post-leveraged figures among our assets, and there are thus a range of WAGs between segments. Relying solely on ROA as our only management indicator is not perceived as best practice, and we believe that measuring capital efficiency by contrasting ROIC with WAG for each segment will lead to an appropriate evaluation of profitability. So we are currently considering how to best address ROIC and WAC for each segment. After improving the accuracy of our calculations, spreading understanding among our various business lines, and embedding their use in management processes, I would like to disclose our ROIC-WAC guidelines when they have matured to the point where we can introduce them as a formal KPI that can effectively link to our strategy. Let us move on to page 11.

Many of the companies comprising Oryx Group's portfolio contribute to profit growth through synergies with each other. And on this page, we have outlined several examples of investments with outstanding synergies, including Daikyo, Robeco, Kansai Airports and Oryx Bank. Since Oryx first took capital stake in Daikyo in 2005, it has supplied a wealth of expertise. Through its condominium management business and the construction supervision division to the real estate segment, which develops commercial complexes and logistics facilities, among others, Daikyo has grown to the point where it contributes around 20 billion yen in base profits annually. Robeco Group was acquired by Oryx in 2013 as a main platform for global development of our asset management business. In the intervening years, Robeco's sustainable investment expertise has become highly regarded as the ESG became A strong trend, and in FY22, March end, AUM grew to a new record of 339 euros. And since acquisition, it has been contributing approximately 2 billion yen steadily. The company has contributed steadily between 25 to 45 billion yen of base profits each fiscal year. Robeco Group's companies also have differentiation diversification effect, as Harbour Capital, Boston Partners and TransTrend each have different investment strategies. Kansai Airports, which manages three airports in western Japan, was launched in 2016 as Japan's first fully-fledged private airport concession operator. Although the business has unfortunately been loss-making since FY21 March end owing to the COVID-related decline in inbound travellers, Kansai International Airport is expected to return to 30% of its pre-COVID traffic levels and Itami Airport to 70%. And we expect a quick return to the FY20 March end base profit levels quickly as we expect Osaka Expo as well. We can also expect MICE, Synergy and others among many. Oryx Bank entered Oryx Group in 1998 with the acquisition of Yamaichi Trust Bank. And the bank is working to strengthen the earning power through loans for investment into condominiums and merchant banking and collaborates with a corporate financial services business unit. And the Oryx Bank's portfolio remains healthy. And although it has nine consecutive fiscal years of achieving record profits, improving the bank's ROA will be a key for future At Oryx, in addition to pure investments predicated on an eventual exit, such as logistics facilities in the real estate business and PE investments, we also develop exit strategies for group companies that we invest in as a strategic purpose. And through this, we continue to conduct capital recycling. Japan is likely to continue its policy over their interest rates. and we must imagine the possibility that yen could slide to 160 yen by the end of the fiscal year or start of the next. There is also possibility of economic recession. On the flip side, foreign assets buyers are likely to continue to invest into Japanese assets with weekend, and we plan to exit real estate and PE investments in the best time under these conditions. Please turn to page 13. 400 billion yen of execution is expected in the second half and the next fiscal year for Japan PE. In addition to the mid to small sized, we are now looking at larger sizes and we have mobilized experts for this purpose. And as for Toshiba being private, this is now included in these numbers. Once the negotiation is concluded and we deem that it is possible for us to execute, the number will be added. and we plan to develop our renewable energy business primarily overseas. We believe that this is a future growth area, as illustrated, for example, the Inflation Reduction Act recently passed in the United States, and we are still looking for acquisition opportunities overseas. Elowan and Greenco have a rich pipeline, and in addition to that, approximately US$500 million additional investment is planned. Currently, our overseas renewable energy related pipeline is 19 gigawatt valued at about 19 billion US dollars. And we're moving forward with execution on these projects while carefully monitoring business risk, profitability and others. Within Japan, we have the logistics center pipeline of 14 projects totaling 200 billion yen. We plan to complete these projects during the span of about three years from second half of FY23 March end through FY24 March end and beyond, and then sell them. In aircraft leasing, we plan to purchase 20 narrow-body aircrafts in light of the recovery of the passenger demand. for a total of 1.2 billion US dollars. Although all the planes will be delivered in FY24 March end, we plan to sell most of them to Japanese investors. Please turn to page 14. With the resumption of inbound travel, we expect traffic at Dekansai International to increase steadily. In addition, we moved ahead with a renovation of Terminal 1 during the slow COVID period in preparation for the upcoming Osaka Expo. For real estate facility operations, the increase in tourists as a result of Japan's relaxation of international border restrictions should help fuel a full-fledged recovery in earnings from the second half. Please turn to page 15. From this fiscal year through FY25 March end, we have pledged to pay dividend payout ratio of 33% or FY22 March end dividend of 85.6 yen, whichever is higher. We will pay an internal dividend of 42.8 billion yen per share for the first half of FY23 March end. The dividend for this fiscal year is, although we believe it is difficult to achieve the net income of this fiscal year, it's likely that the four-year dividend will be 85.6 yen per share for this year. In the second half, we expect to exit some real estate and PE investments, but may decide to hold off some of the sales if we are unable to get the desired pricing. We will continue to pay attention to market conditions and the forex. We have carried out share buybacks almost every year since FY17 March end and have already exceeded ¥38.7 billion of the ¥50 billion in buyback programme for FY23 March end at the end of October. Regarding ESG efforts, as a result of identifying material issues and setting key sustainability goals, enhanced qualitative disclosure and the TCFD-based analysis, OREX ratings from ESG ratings agencies are improving. We are a constituent of four of the five ESG indices in Japanese equities adopted by GPIF. We are making steady progress in achieving the seven ESG goals we announced in November 21, and that concludes my explanation. Thank you very much for your kind attention. Now we would like to move on to the Q&A.

Thank you. We are now ready for the Q&A session. If you wish to ask a question, please press the star key, then press 1 on your telephone keypad. After your name is announced, please ask your question. If you wish to cancel the question, please press the star key, then press 2. If you wish to ask a question, you may ask up to one question. So the first person from Nomura Securities, Sakamaki-san, please go ahead. Thank you. I am Sakamaki from Nomura Securities. So I would very much like you to entertain one question of mine. So I'm referring to page 8 and the three segments. You show the outlook for the three segments for the whole year. So PE and concession, you are foreseeing negative consequences. But other segments, other than the three segments, if there's anything that you can share with us as to the outlook for the full year, I will be very grateful. Okay, then. I'll let Yano answer to your question, if I may. So basically... What we have said as an outlook, if the current situation persists, especially with regard to COVID, we are not anticipating a major recovery from COVID, except for insurance, 350. And we do foresee some recovery for the insurance. But that's what we do expect in a major way. But other than that, well... So these are our expectations for the whole year. Other than that, as for Oryx Europe, TransTrend, which is a future business, as of December end, the performance fee is something that we can expect to receive at a certain level. So Oryx Europe. So the second half, we can expect for the growth of the profit as compared to the first half. This is in a way. As for the concession business, So you see there's a delay by three months in terms of incorporation of the profit. So we cannot expect much of the contribution in the first half. And there will be some two or three exits perhaps. I'm sorry to say so, but the prices may not be that attractive. And we do not try to kind of haste into selling those at a price that is not attractive. There could perhaps be a possibility of some sales, but that would be a top-up on 250 billion yen if there was to be any sales of these investees. So if you could... hello yes oh thank you very much for that which means that the investment gains is what you are not anticipating very much we're not well I'm not expecting a certain amount but we will not kind of overstretch ourselves or haste into selling these investees just for the sake of it but there could perhaps be a possibility of selling some of the investees If we think the time is right, but you see we have to go through certain procedures and we are currently in discussion and there could be perhaps a possibility of selling them just before March end or in some cases we may postpone it to like April. So we just decided to not kind of overstretch ourselves selling those investees. That's what it is. Okay, thank you very much.

Diver Securities, Watanabe Sandley. Please ask your question. Yes, this is Watanabe speaking from Diver Securities. I have a question about exit. Well, in the beginning of the fiscal year, you said you would exit from overseas asset because of weak yen. And earlier you said you want to maintain the domestic. But for overseas exit, what is your current approach, current stance? Well, for the overseas items, we are also looking for exits in some of the projects. But many investments are linked to share price. So we have to look at the share price and also the Forex 160, 150. And depending on that, we are moving into some of the exit discussions, but it's not really decided yet. Around the third quarter, maybe we can talk about additional exits. But at this point in time, I have to say that it's still very fluid. I hope that you understand that. So in the beginning of fiscal year, you were expecting some, you're not expecting those anymore. But if the exit is successful, that will be added on top of the 250 billion. Is that correct? Yes, that's correct. Because overseas deals, we need to go through a lot of a process before selling. And also, if we don't do things very well, there is also antitrust law in China, for example. And we cannot foresee everything. So if it's done within this fiscal year, it will be added to this fiscal year's number. Otherwise, it will be added to the next fiscal year's number. So we can look forward to that. I understand that. Thank you.

Thank you for the question. So from Bank of America, Sasaki-san, please. Hello. I am Sasaki from Bank of America. So I have one question to Mr. Inoue. So in the second half of this year, the outlook, I know that considering or taking into account various different risks, which I have fully understood, 120% I've understood what you have shared. But looking at the current conditions, In the next year, the current, of course, macro conditions may perhaps persist because of the policy of the central banks. So what is your idea for the next year onwards? You may remain to be conservative in the second half, but do you think that the business starts to recover or the robustness may perhaps be resumed from April of next year in consideration of the balance sheet right now? What is in your mind as of now, Mr. Inoue? So at the beginning of this month, 75 basis point, the BIPs interest rate was raised. And I think that there's going to be further 50 BIPs of interest rate rise in United States. Whether that would put kind of would calm down the inflationary environment pressure, I wonder. It is very much dependent on the moves up by the U.S. government. So 4.5 or 5% in terms of the official discount rate, and that will be 5 to 6% in terms of the market rate, which means that it is several years back. So if the interest rate kind of hits the peak, and if it becomes kind of a standard, then I think the financial market will start to kind of calm down. then I think the new lending may be kicked off and the private equity transaction may resume. However, having said that, though, from January and February of next year, if the rate is going to be hiked by another 50 bps, I wonder this is going to mark the end of the interest rate hike. I wonder, who knows? So this is why we would very much like to consider what could happen in the next year, our outlook, in other words, of the performance. but you see people would kind of panic at the time of interest rate hiking environment and people tend to of course shift their investment from equity to debt but if that kind of comes down and settles down i think we will be able to kick off our new initiative in terms of new deals new transaction so which means that we could make a leap forward perhaps in the next year Well, you know, taking into account the COVID-19 and a cryocrop business concession, 80 to 90 billion yen worth of, you know, if we could go back to normal, in other words, then, you know, 250 billion just topping out by 90 billion, that would be a totally different kind of profit level. And we are working on it. Preparation is underway. So we think that we should be able to achieve the minimum. I mean, I'm sorry to count the chicks before the eggs hatches, but this is what I have in mind as of now. Well, if that is the case, what is in your mind? ROE 11% or higher is the priority that the management places you have set. But thinking about the next year... If the market does not proceed in the way that you would wish, is there going to be any kind of dynamic kind of decision? Well, I think we may have to correct our kind of policy. We may But I think 11% or higher ROE can be achieved still from my perspective. And we do have an abundance of asset and also unrealized gain as well. So if we can realize these unrealized gains, I think we can still be achieving 11%. But whether we can achieve this in the next fiscal year, I think it remains to be uncertain still. Okay. Thank you very much for that.

Thank you. SMBC Nikko Securities, Muraki-san, please. Thank you. Six months ago at the earnings call, I would like to know what's changed. Please update me on that. Current investments, leading profits and also negotiation for sales, as well as a new pipeline. What kind of changes have you seen since then? PE and fund industry, we know that dry powder is preserved, but back finance for acquisition is not really abundant. And your business does not really directly compete against major PE funds, but in terms of investment and exit, what kind of environmental change do we see in the last six months? For our PE business, although I cannot really share the details, non-recourse loan from banks. As far as this type of financing funding is concerned, nothing's really changed. And to be quite honest, last year or two years ago, when we had the issue of Kobayashi Kako, we had a non-recourse loan and all the debt was repaid by us, which means that there is a sense of strong trust for Oryx, which means that non-recourse loan, from banks. Well, we call it non-recourse, but they think that because it's Oryx, they feel secured that we will pay the full amount anyway. So the financing environment has not really changed in that sense. As far as overseas is concerned, especially for environmental energy. Project financing is no problem, but the rate is higher now. And because of the higher interest rate, we have to look at the productivity and decide which ones are doable and not. And we don't have many low spread projects. So, for example, IRR may be 20 to 30 basis point worse than before because of the high interest rate. But other than that, we have not really seen any major impacts. Now, when it comes to the logistic facilities, 200 billion is within our view. And we do have a slight concern about the increase in material prices. It has started to settle down here. And of course, Development NOI is maybe 4%, but maybe will be 3.9%, so one basis lower because of this. And also exit NOI is supposed to be above 3%, so it has not really changed. So as far as the market environment is concerned, nothing's changed in the last six months except interest rate. So we are paying close attention to that as we continue with our marketing activities, and I hope that answers your question. Yes, thank you. Follow-up question, please. Earlier, you talked about Toshiba, and Aozora Bank was an example in the past, so maybe this is not an exception, but if you cannot get the management control with a project, what is your approach or view? And has Oryx changed its approach in terms of that kind of project? Well, for Toshiba, JIP and Toshiba negotiation deadline is actually today. And I'm sure that you have read in the newspaper articles that they are struggling with getting finance from the banks. So they could be like one month extension, or maybe they go back to the drawing board. We don't know. But as far as Toshiba is concerned, it's a huge company. And this is a very small amount of money to control that company. So for Toshiba, we're looking at it as a pure investment. In other words, we will help remove the activist and then existing asset of Doshiba as well as the management of Doshiba would be able to clean up the organization, the company, and make the best efforts for being listed once again in the future. And with that type of assurance, we can take a positive perspective So that's the condition. And we have not really discussed this within the investment committee and lending committee yet. And we have to make the right decision depending on how it will be done. So Toshiba is a huge company and Toshiba management are excellent people. And Oryx are more of maybe arts and humanities people. We don't know to what extent we can help them. But if we get some bid right, for example, there would be a problem with the antitrust law in China. And the permission will have to wait for another one or two years. So we have to look at all of these different factors. and the balance of these factors, and to what extent we can implement governance. And once the structure is satisfactory from our perspective, we may be entering. That's the position. Thank you.

That's very clear. Thank you for the question. And the next is from Mitsubishi USJ, Morgan Stanley. Tsujino-san, please. Thank you for the opportunity. Earlier, you shared with us that there are a number of deals that are under negotiation. And of course, yen is weakening or weakened to a lot of extent. So in the case of Japanese equity, for example, on a dollar basis, of course, market capitalization has lowered and everyone's face has become pale. And for the new deals, the price has become much lower. So as a result, what do you think the attitude about the investors is? Are they becoming more kind of proactive in acquiring the Japanese assets or what do you think? You see, it may vary from one industry to the other. In the case of overseas, because of dollar appreciation and yen depreciation, the investment, we are not becoming aggressive in terms of making a new investment. But in the case of alternative asset management, if there was to be some interesting deal, we do have some kind of appetite for but the multiple hasn't really lowered. So we have to wait a little more. Even if the interest rate goes up, the liquidity of the money is remaining to be abundant. And therefore, in the overseas location, The purchasing or the acquisition of the asset is not underway. But the boutique, for example, the Robeco, the acquisition in a very small way, but it is about 10 million or 20 million U.S. dollars or so. So a major kind of investment is only considered in renewable energy arena. And because, of course, the electricity cost is rising still. So this is why renewable energy is the area whereby many other investors are paying a lot of attention to. So therefore, rather than M&A or acquisition, we may consider perhaps making an investment in a greenfield manner. As for the domestic market, so far as inclusive of PE investment, I don't think the situation has changed very much. But the overseas investors are turning quite aggressive. Because you see, at the 30% discount or so, they can acquire the Japanese asset. So therefore, the foreign investors for sure are turning very aggressive. So especially the real estate properties, I think we will be able to sell if at all possible. especially the logistic perhaps facilities, we will be able to sell them at a quite attractive pricing. Yes, I do understand. Yes, thank you very much. That was very clear. Thank you. May I just add one more question, if I may? And you see with the current conditions, I'm not expecting you to carry through the shares repurchase, but at the beginning of the year, you in fact shared with us your idea. Well, you see, our attitude remains to be unchanged so far as the shares repurchase, the buyback is concerned. And we should be concluding the current program that is up and running by end of December. And of course, there are some pipeline deals happening. So we would like to strike a right balance between the two, the investment and also the buyback. I know there are many investors who are focusing very much on the buyback, which we do understand the reasons why they do put an emphasis on that. the Japanese investors, I think they have kind of quietened down in terms of their expectations for the shares repurchase or the buyback. So therefore, I think we would like to continue to have a close communication with the market. And if it was to be like 50 billion yen worth of shares buyback, it doesn't affect us in a kind of major way. So I think we would like to continue to consider the possibility. Thank you very much for that.

Thank you. Next, JP Morgan Securities, Otsuka-san, please ask your question. Yes, this is Otsuka, JP Morgan Securities. Can you hear me okay? Yes, we can hear you. Although this is not an official number, but in the beginning of the fiscal year, you mentioned for this fiscal year, the profit level would be basically flat. Maybe 300 to 310 billion at bottom. So flat from the previous fiscal year. And today you're talking about 250 billion. So it's lower than what you mentioned. I just wanted to double check. Is this because of the negative impact coming from the insurance business and also the private equity sales exit? You're not really hurrying with that. Well, this is basically 20 billion of the insurance payouts. And we were thinking around the end of September that there may be another 20 billion for the second half. But now we know it's about 20 billion and maybe several billions of yen in the second half only. And yes, 20 billion yen lower than before. This is big. Without this, we would have achieved 150 billion in the first half. So the insurance payouts or COVID related item, this was bigger than expected. That's one factor. Another factor is the U.S., Rate hike was very rapid. And our USA business is in the debt business. And the new debt, if you try to do that, the spread is too wide and we will not be able to exit later. So to be quite honest, we stopped the USA activities. And that was another negative factor of about 20 billion. Without those factors, we would have been able to achieve the level that we mentioned in the beginning of the fiscal year. So those are the two factors. For private equity, we are still active. It really depends on the market. We don't have anything fixed yet, but maybe we will be able to post something in the second half. We don't know. To be quite honest, we don't want to be rushed to make this decision. So life insurance and the USA operations, stopping the USA operations, those were the two major factors behind this gap. So 440 billion yen target two and a half years down the line. You are still keeping this because you expect this to recover and normalize. Yes, for life insurance, 20 billion yen payout is not expected in the second half. And once the rate is settled in the USA business, of course, it's a huge market. That business is not shrinking. So spread, widening, and if we can find good interest rate transactions, that's what we expect. So as long as we see some situation coming down with regard to the interest rate, we should be able to normalize the business. Thank you. Understood.

Thank you for the question. And the next is Sato from Mizuho Securities. This is Sato from Mizo Securities. Thank you for the opportunity. So I think you may have shared what I want to hear from you in the answers. So 440 billion yen of an achievement, the feasibility is what I want to know from you. And especially if the environment starts to kind of settle down and calm down, And also, if we can remove this COVID-19 pandemic impact, the risk hedge, take into account, do you think that there could perhaps be an undershoot of the performances? So taking all that into account, as compared to six months ago, is there anything in addition that you need to undertake in terms of the activities? Have you already started to consider any kind of new activities that you may have to undertake? So U.S. dollar availability is what we have started to consider. So dollar procurement is not that difficult, but the cost, of course, is higher. And more recently, procurement from bank, whether the current terms and conditions are to be maintained, I have a big question mark. So therefore, procurement, the funding from bank, It's not something that we should be dependent, a medium-term note, as far as I think a straight bond, the corporate bond, is something that we may have to consider. Even at a slightly higher cost, we may have to secure other routes for funding other than resorting to bank funding. Because there is an abundance of pipeline, in order for us to execute the pipeline, there should not be any difficulty that we may face from the funding perspective, from the accounting and finance department perspective. So portfolio at the moment, there are no kind of major problems that we face. But because of the rate hiking, followers' quality may perhaps start to deteriorate that we may have to start addressing. So therefore, we may have to reinforce a risk management kind of structure or system. So, but we, as you know, we remain to be agile at all time. That is RX. So therefore, we would try to identify and discover attractive deals. And I'm sure there are a lot out there still. So we're not overly concerned about the possibility and opportunity. Okay, thank you very much for that. As a matter of fact, MBS, for example, issuance in United States, for example, Over the past several months, I think the terms and conditions have changed very much. But as to the operation of Lumet, anything that you want to comment on? Well, you know, with regard to Lumet, from the beginning of this year, because the rate is going to hike, I did, in fact, give out the guidance of slowing down, but they did not. And to Freddie Mac and the agent, The securitization, in fact, is becoming sluggish, although the market is beginning to recover. So I think at the end of the day, we should not be overly concerned about this. But the amount, the value has expanded. So this is a slight concern on my part. But still, things are almost going back to normal. And so will it be for lumen as well. But the spread, you know, the spread wise, it is not no longer that attractive as of now. So I think we need to diversify our activities a little more. Okay, thank you very much. That was very clear. Thank you.

Thank you. Niwa-san from City Group Securities, please. Yes, this is Niwa from City Group Securities. For domestic environment and energy, 20 billion or just under, that's the target for the FY25 March end. Maybe this is very challenging right now. Do you have any plan B? And both organic and inorganically, how are you going to deal with this situation? To be honest, I think the domestic is already finished. And selling some of the solar projects that we have, maybe a couple of them. And also, FIT is still high. If that's the case, sometimes we get it or sell it. But basically, wind farm is over. That is my understanding. Looking at the trade firms. They are trying to do this with a low spread and they're very active in this. So if we want to do environmental energy, we have to focus on Europe and the United States. And Greenco is India, but we can use Greenco and Elowan, and they're also developer of renewable energy in the United States. We need to capture those players. Otherwise, it would be difficult for us to do environmental energy business. For domestic market, the new power companies' businesses are shrinking, so I don't think there is any point in pursuing this actively. 400 billion is the balance sheet that is planned, but maybe you will have to make some adjustments. That is correct. We want to shift our money into what's profitable. So if it is not profitable, we will take the money away and put it something else. So we want to be very flexible in doing this. So environment energy market in Japan, especially the new utilities, Looking at the current situation, I think there's a huge question mark in this business right now. I see. That's very clear. Thank you. And congratulations on the baseball championship, winning the championship. Yes, the cost will be pushed up, but I'm sure that we can deal with that. Thank you.

Thank you for the question. So this is, unfortunately, we have to bring this session to a close. So from UBS Securities, Okada-san, this is going to be the final question that we're going to be entertaining. With regard to U.S., I have two questions. First of all, the interest rate hike, what has been the impact to your businesses? I want to better understand. You have been stopping new businesses, business execution, but in the second quarter, I think you may perhaps be paying more of an interest kind of expenses as opposed to interest rate income. um that has been enjoyed so if you could give us a little more color to this and the second question with regard to lumen uh so the improvement with the government agency is underway i heard but we got to the second half outlook so the base profit um is something that you cannot avoid? Or can we regard the second quarter to be the bottom? And so far as you can share with us, what is your outlook? First of all, let me start from the looming. So you see about 10 billion yen of a profit has been generated over the years. But I'm sure it is going to be a lower, I wouldn't say 50% of a decline. But talking about the housing market, it is a B2C businesses. And if we were to securitize that, and selling to Fannie Mae as well as Freddie Mac, which means that during that time, they spread. will become tightened or become tighter. And of course, you know, there are several months before we can divest or dispose. And we work on the floaters basically, but the spread, of course, would widen. So therefore, with regard to the disposition, our spread will be impacted quite naturally. So therefore, 10 billion yen or so profit that was generated in the past, whether it would be halved or it will be lower by 50%, but it will be lower in any case. And as to the interest rate impact, and we work on the floater, and therefore, with regard to our existing portfolio, we are not affected by the interest rate hike. But because of the interest rate hike, the borrowers' quality, unfortunately, may deteriorate. There is such risk. So this is why I think we have to do a better job of risk management. And if there was to be any kind of deterioration of the quality, there may be cases whereby we may perhaps sell some of the assets. even at the loss that may perhaps be generated. But the fixed rate deals are almost none. We work on the floaters, basically. So we're not basically affected by the hike of the interest rate. However, because the spread is going to be widened, and if we were to sell our asset to the third party, we may have to sell at some certain discount. Otherwise, we may not be able to make a smooth exit. So therefore, in the first half of the next year, between January to March. We may have to watch kind of carefully as to how things would transcend and kind of proceed. Okay, thank you. I just want to add one. So, you know, by quarter by quarter, the base profit, in fact, has been improving. With what kind of product the improvement was brought about? Yano will answer to the question. So credit, you said credit, you mean by credit, USA? Okay. I think it is more of a volume, attributable to the volume. Volume, in fact, has been declining, especially on the other hand. On a deal-by-deal basis, there has not been any major deterioration, so therefore it has not been rising as a result. I hope this answers your question. Yeah, thank you. That was clear. Thank you.

It's time to close the Q&A session since it's time to close this call. Mr. Inouye? 250 billion yen. This is a number that we are embarrassed to disclose, but looking at the market situation, I hope that you can understand and accept this. But 250 billion is the bottom that we expect, which means that there is an upside. We really appreciate your patience in supporting Oryx going forward. Thank you very much. That concludes the second quarter earnings call for FY23 March end. Thank you very much for being a part of this meeting until the very end.