ORIX Corporation

It's time to begin the meeting. Thank you for joining us for Oryx Corporation First Quarter Consolidated Financial Results for the three-month period ended June 30th, 2024. I'm from the Investor Relations and Accessibility Department. My name is Nakane. I'll be emceeing this program. And today's attendee is Kazuki Yamamoto, operating officer responsible for investor relations. As we begin, we have a request to the participants. In order to prevent feedback, if you have a mobile phone or other telecommuting devices nearby, please make sure that it is turned off or far away from the telephone. Yamamoto will provide an explanation, and this will be followed by Q&A. The program will last approximately one hour. Mr. Yamamoto, please begin.

Thank you very much for your introduction. And thank you for joining Oryx Group's earnings meeting despite your busy schedule. My name is Yamamoto, Operating Officer in charge of Corporate Planning and Investor Relations. Without further ado, we'd like to get started. Please turn to page two for the Executive Summary. So some of the other four highlights. So the first is on the net income. Q1 net income was up 38% year-over-year to 86.7 billion yen, bringing annualized ROE to 8.7%. This represents 22% of our full-year net income target of 390 billion yen, which is given the seasonality of RX earnings. We view this as a solid start to the year. Finance category in the three categories that we newly introduced in Q4 of last fiscal year continues to generate steady earnings. Profits grew in the insurance segment during Q1. In operation category, airport concessions continue to post earnings growth. Investment category achieved 20% of the full-year profit target, while profits grew significantly at 194% year-over-year thanks to domestic PE exits. The second key point to look at is in inbound tourism. Profits of three inbound related businesses in total was up 78% to 6.9 billion yen year over year. Thanks to aircraft leasing and in aircraft and ships and ongoing profit expansion in the airport concession business, including Kansai International Airport and hotels and in the real estate facilities operation. In aircraft leasing, Both these rates and aircraft prices remain at elevated levels, fueled by expansion in passenger markets and tight supply and demand for aircraft. Oryx has exposure in both the aircraft VC market and sales of pre-owned aircraft on the secondary market, and therefore enjoying better earnings opportunities and foresees strong growth potential in this business. The third point is capital recycling. In addition to a domestic PE exit, or export gains on the sales of investment condos, leading to a total of 35 billion yen in capital gains for the quarter. We also made several key investment decisions that are likely to contribute to future growth, which I will go into some details later on. We expect full-year capital gains to outpace those of the prior year, and we will carefully proceed with each deal as we promote ongoing capital recycling. Now, please enter the next page. As shared at the beginning of this session, Q1 net profit was up 38% year-over-year to 86.7 billion yen, and this represents RX's strongest first quarter since FY18 March and annualized ROE was 8.7%. The right-hand graph shows quarterly net income and ROE trends for the last three years. As you can see, Oryx's next income, net income for Q1 in the past three years were in the 60 billion yen range. So this is the reason why we feel that we made a good start to the fiscal year. In the next few pages, you will notice that we have made some changes to how segment profits and segment assets are calculated. In each case, we have retroactively adjusted data from past fiscal years to reflect the change. For details, please see our supplemental materials, which we'll also release today. Please turn to page 4. This slide explains progress towards our fiscal year forecast in the three categories. The left-hand bar chart shows actual segment profits for FY20 for March end and the target for this year. The right-hand bar chart shows this data for Q1. I will focus on the quarterly data for today's discussion. First, the dark blue finance category is what I want to make use of. Now, at the very top, this dark blue finance category was down slightly by 1% year by year in segment profits to 47.2 billion yen. Please note that Oryx Credit was previously in the finance category, but is now in the investments category from this year. Considering the change, finance category enjoyed a robust quarter, boasted mostly by investment income in the life insurance business and other factors. The category progressed 24% of the full year forecast. Next, please look at the light blue bar, second from the top. This is operation category, which was up 14% year over year in segment profits, which is 53.2 billion yen. The earnings recovery in airport concessions, higher earnings in the European asset management business, and growth in auto all contributed to the expansion. The acquisition of Santoku Senpaku in Q4 last year also provided a profit boost. The operation category achieved 22% of its full-year earnings target, which we feel is a solid result given the seasonality of some of the businesses. Finally, please refer to the pink bar from the top for the investment category, where segment profits was at 36.8 billion yen. While this is just 20% of the full-year target, profit rose significantly by 194% year-over-year. The exit from a domestic PE industry and sales of investment condominiums both contributed, and Oryx was able to grow gains on sales through well-timed exits driven by the weak yen and low Now, as a result, total segment profits were up 28% year over year to 137.3 billion yen. Please turn to page five. The page updates the three categories, ROA and segment asset size data trend provided in Q4 of last year within the three categories. We still aim to improve ROEA through finance category positioned as an earning space and aided by the accelerated shift to an asset-managed model in operation category and further promotion of capital recycling centered on investment category. Please move on to page six. This page shows the matrix table of three categories and 10 segments. We added definition for each of the categories as requested by investors. Please also note that the three businesses in red font indicate changes from the investment category to operations category as of Q1. We later actively, as well as MICE IR, that is, We retroactively adjusted the segment profit figures on pages four to five to reflect these changes. Meanwhile, credit was categorized in finance last year, while it is now in the investment category from this quarter. Pages seven and eight give a summary of information by segment. Profits were up sharply year on year. And if the gain on the sales of the partial stake in OREC's credit is excluded, then segment profits will also up, queue on queue. Details for each of the 10 segments can be found in page 13 and onwards of the presentation material. But I will use pages 7 and 8 to go over the general trends. First is corporate financial services and maintenance leasing segment. Segment profits were down 600 million yen or 3% year-over-year to 19.8 billion yen. Profits were lower in corporate financial services on the absence of one-time gains booked in FY24 March end. On the other hand, auto surpassed last year's record high Q1 performance backed by continued strong sales of used autos and growth in the rental car business, spurred by stronger inbound tourism and rebounding domestic travel. At Rentec, profits were up on higher income from operating leases thanks to replacement demands for PCs. Real estate segment profits were up 36% year-over-year, or 3.7 billion yen to 14 billion yen. The real estate investment and facilities operation business posted a surge in profits thanks to the sales of investment condos. Facilities operations, that is hotels and inns, also sustained favorable earnings. Please note that MICE IR business is now part of the real estate segment, which has resulted in slightly higher costs year over year. The PE investment and concession segment Profit was up 455% year-over-year to 32 billion yen, 26 billion yen increase year-over-year. PE investment business earnings grew sharply with the sales of Sasa AR Holdings as well as higher profit contributions fueled by earnings growth at existing industries, including DHC. The concessions unit. Profit was also higher on growth in international passenger numbers at Kansai International Airport and an increase in non-aerial revenues fueled by new shopping facilities opened at the airport. On page 8, you can see that PE investment and concession assets fell by 9%, which is mainly due to the sales of Sasai Air Holdings.

Please go back to the environment energy segment. This segment reported losses of 500 million, down 5.5 billion year-on-year. In Japan, costs rose for rebuilding of existing facilities, as with first quarter, FY24 March, power generation revenues fell due to output caps at solar plants in some regions. Overseas renewable energy tends to be seasonally weak during Q1. In addition to this, profits were lower owing to the costs associated with past flood damage at an equity method affiliate. In Europe, natural gas inventories piled up following a record warm winter, which resulted in lower wholesale electricity prices. However, we expect Europe-wide LNG inventory adjustments to run their course soon. Insurance segment profits were up 2.5 billion yen, or 13% year-on-year, to 21.9 billion yen. Thanks to earnings gains from asset management for trade application in life insurance, insurance segment profits surpassed last year's robust performance. Growth in life insurance premiums also contributed. The banking and the credit segment recorded a 23% year-on-year or 2 billion yen decline in profits to 6.4 billion yen. This was mostly due to lower profit contributions from OREC's credit owing to a partial sale of our stake in the business. Oryx Bank saw higher long-term prime rates applying to loans resulting in an increase in financial income. Segment assets were lower owing to the sale of our credit business. However, the lending balance rose on growth in corporate loans in key assets, key areas such as renewable energy, and loan securitizations continue and trust assets are growing. We continue to prioritize improvements in profitability while efficiently turning over assets. Please note that with the sale of Oryx Credit, it is now an equity method affiliate instead of subsidiary, but it is still included in this segment. The aircraft and ship segment posted a 4.1 billion yen increase, or 54% jump in segment profits, to 11.8 billion yen. At aircraft and avalon, profits were up last year thanks to stronger passenger demand globally, and quarter-by-quarter profits were down sharply in aircraft in the absence of investment gains. but the profit trajectory remains positive. In ships, profits were much higher with the addition of a Santoku Senpaku, which was acquired in the fourth quarter, FY24 March to Oryx Group. Segment assets were up by 135.3 billion yen, even excluding changes in forex. owing to an increase in aircraft purchases and Avalon profit contributions. From this quarter, we will disclose aircraft and ship segment data broken down into three business units, namely aircraft, ships, and Avalon. Oryx USA segment posted 3% earnings decline in profits to 11.8 billion yen. In light of the U.S. business climate, we continue to carefully manage risks for both new deals and existing investments. Through these risk management efforts, we have been able to control the balance of non-performing loans within expected levels. Also, as we broked larger impairment during Q4 of last fiscal year, credit costs were minimum during the first quarter. Over the three business lines, private credit posted stable growth in financial income, but the real estate and PE businesses are in slump. This is the reason for lower profits. Segment assets were down, excluding the impact of exchange in FX. and the details are shown by business line on page 28 for your reference. Oryx Europe segment profits were up 4 billion yen or 56% year-on-year to 11.2 billion yen. Segment profits were up substantially on well-timed growth in fee income and the expansion in under management. In the Asia and Australia segment, profits were down ¥2 billion to ¥8.9 billion. However, this is mostly due to the absence of valuation gains at an affiliate booked in the previous fiscal year. In ASEAN countries, the business climate is healthy In South Korea, India, and Australia, new lease executions for auto are growing, while financial income and operating lease income is also expanding. Assets in this segment rose by 93.7 billion yen, but 91.5 billion yen of this was due to FX change. We remain cautious on Greater China, and the segment assets for this region are lower, excluding FX impact. That's all about the explanation for each segment. Now please turn to page nine, and I would like to explain the key topics. Starting with inbound tourism. We grouped the aircraft and ships, real estate facilities, operations, and airport concession businesses into the inbound tourist-related category as they took earnings hit following the pandemic but are seeing a strong recovery thanks to inbound tourism demand and growth in global travel demand. Segment profit trends of these three businesses are shown on the left and right. Aircraft and ships, pink. Concession business, grey, have purchased a particularly strong recovery, as you can see. Q1 segment profits for these three businesses were up. 78% year-on-year to 57.7 billion yen. In aircraft leasing, as I mentioned before, tight supply demand for jets has led to not only higher rates, as you can see on the upper right graph, but also rising prices for aircraft is contributing And we see steady growth potential here for Oryx as the secondary market is one of our areas of expertise. Please look at the lower right graph on the right. Visitor arrivals to Japan continue to outpace 2019 levels from all countries and regions except China. And also the number of visitors from the China mainland is recovering. At Kansai International Airport, new shopping venues that were part of the large scale of innovation during the pandemic have opened, and the non-aero revenues are increasing. Expo 2025 is coming to Osaka next year, and we anticipate even greater increases in inbound tourism as a result. Capacity additions made to the airport as part of innovation should help boost earnings. Please note that Kansai Airport's results are posted to Oryx Group earnings on a three-month lag. The Q1 results reflect the January through March period. Let's move to the next topic, which is capital recycling. In Q1, Oryx posted 35 billion yen in capital gains. The cash inflow of 135 billion yen from these transactions have been used for investments in growth areas such as domestic real estate, overseas renewable energy projects, and the aircraft purchases. Since our last earnings call in May, we are moving forward with many transactions as anticipated. New investments are shown in the blue box on the bottom right-hand side. And over the last three months, Oryx has made multiple investments that will continue to contribute to future growth. By accelerating capital recycling based on our value creation model, we expect capital gains of FY25 March to exceed those in the prior year. We continue to work on to achieve the best pricing and conditions for each individual deal. Please turn to the next page. This is a breakdown of our segment profits. And this is base profit versus investment gains, separated as usual. Please turn to the quarterly trend on the right-hand side. Base profit is blank blue, investment gains is in light blue. Base profits rose 6% year-on-year to ¥103.8 billion, while investment gains were up 261% year-on-year to ¥33.5 billion. Looking at past Q1 results, we feel that this represents a strong start for FY25 March, both base profits and investment gains. by capturing market timing. And you can see that active initiatives are being taken. ORICs plans to respond flexibly to changes in the macro climate, such as interest rates and the FX. And our financial strategy remain unchanged from the details outlined by our CEO, Makoto Inoue, in our May earnings release. We continue to work toward providing easy to understand disclosure and explanations in an effort to deepen investors' understanding of Oryx, despite the quick changes in the market. Q1 results were largely in line with our expectations. For Q2 and beyond, we will endeavour to improve company-wide profitability, utilising the stable earning space of the financial category and through growth opportunities and operational despite some uncertainties. First, we'll be focusing on achieving our 390 billion yen net income target for FY25 March and continue with investments that will contribute to future growth in the following years. And that's all from me. Thank you very much for your kind attention.