ORIX Corporation

Since it is time, we now would like to get started. Despite your busy schedule, thank you very much for attending the earnings call by Oryx Corporation. This is the second quarter of fiscal year ending March 2025 earnings call. I will be serving as a moderator. I am from IR Sustainability Promotion Department, Nakane. So at today's earnings call, we have Director, Representative, Executive Officer, President and CEO, Ryo Inoue, and Operating Officer in charge of IR, Kazuki Yamamoto. So before we begin, I have a request to you. To prevent echoing, if there are any communication devices such as mobile phone, please turn them off or put them away from the device that you're using to attend this earnings call. Today, we will be explaining about the progress of our performance and outline of our business. Mr. Inoue will explain, and this will be followed by some additional remarks by Yamamoto-san, and also open up Q&A after that. We plan to hold this about an hour. So, Inoue-san, over to you.

This is Inoue from Oryx. Thank you very much for your attendance. So, let me explain by making use of the slide number two. For the first six months of FY25 margin, Oryx recorded pre-tax profit of 257 billion yen. Net income was 182.9 billion yen, up 42.8% over year, a record high. First half net income for Oryx. Now, this represents 46.9% progress in our full-year net income outlook of 390 billion yen and we expect strong earnings to continue into the second half. So we will continue to work towards achieving our earnings target. First half ROE came in at 9.3% and we will continue to recycle capital in order to meet our full year ROE target of 9.6%. Now, please refer to page three. Here on this stage, we have outlined progress for each of the three categories, finance, operation, and investment. For all three categories, I believe we were able to post first-hand results that were in line with expectations. Segment profits for each category were finance, 92.8 billion yen, operation, 105.8 billion yen, investment, 89.2 billion yen, for a total of 287.8 billion yen. This represents 47%, 44%, and 48% of each category through your target. Pre-tax profits, which are segment profits, minus unallocated HD&N expenses from head office and administrative departments for first half, more 257 billion yen. Please move to page four. In the finance category, the sale of two-thirds of OREC's stake in OREC's credit to NTT Docomo resulted in the the business becoming an equity-method-affiliated firm and reducing the amount of profit it contributes. Despite this, ongoing performance at Oryx Life Insurance contributed to earnings in this category, and therefore we expect finance category profits to grow year by year on an actual basis after excluding last year's $57.2 billion gain on the sales of Oryx Credit Stake. Within Japan, we had expected yen interest rate to go up slowly. However, given the results of Japan's recent lower house elections in the national diet, we now anticipate a scenario characterized by political instability, worsening of Japan's fiscal situation, and further yen weakness. Although I feel there is some room to hope for improvement in finance-related spread and asset management yields, we plan to carefully watch for trends in changes in the interest rate while maintaining our current policies to keep the status quo in the financial segment. In addition, in light of the results of U.S. presidential elections, I think that geopolitical risks and certainty could worsen owing to extreme foreign policy. The U.S. is likely to carry out rate cuts and economic stimulus measures, but these could lead to resurgence of inflation, higher interest rates, and weaker yen. So, as of now, it is difficult to get a read on conditions for 2025 and beyond. In any case, we can say that now is the time to proactively grow the scale of our assets in the Oryx USA business. However, during this fiscal year, we will prioritize a conservative view on credit cards and plan to begin this asset expansion in earnest from FY26 margin and beyond. That said, we are seeing some signs of a recovery in the private equity market and some areas of the real estate market, while the CLO market is clearly on the recovery track. Although we see some room for upside potential during this fiscal year, we have not reflected such expectations on our earnings projections for the segment. In any case, in light of the fact that we are doubtlessly in a period of political uncertainty, we have slimmed down the Oryx USA balance sheet using both secretarization and third-party sales to ¥10.8 billion as of end September 2024, a reduction of about $2 billion over the past two years. We remain cautious on the Greater China region. We have held off new investments in China, including Taiwan and Oryx, owing to the sluggishness in consumer spending and the severe real estate slump. The balance of our investments in Greater China are less than 3% of total group assets, So we view our risk associated with this region as limited. These revenues in other regions of Asia and Australia segment are healthy, and we have no particular concerns regarding these businesses. Please move on to page five. In the operation category, pre-tax profit rose 5.1% to 105.8 billion yen, achieving 44% of our full-year target. We expect profit to rise for the full year as well. At Kansai Airport, the number of foreign passengers has risen to 109% of pre-COVID period. By spring 2025, the renovation of Terminal 1 building will allow us to expand our capacity for overseas route traffic to 40 million passengers. This will position Kansai Airport to be completely ready to host visitors for the Expo 2025 Osaka-Kansai Japan. In addition, an increase in inbound tourists has led to sharp improvements in both occupancy rate and profitability at Oryx's hotels and inns. Outside of Kansai Airport, Oryx's current businesses within the Kansai region include the Umekita Phase 1 and 2 projects, where Oryx Group, Mitsubishi Estate, and Hankyu Hanshin Holdings have worked together as partners to jointly promote redevelopment of this key urban area. In September 2024, this group and six other companies together opened part of the Grand Green Osaka section of the project early, while the full-scale open will be from 2025. In addition, the MICE-IR project development will begin in earnest following the conclusion of Expo 2025. Total project costs are 1.27 trillion yen. Even after accounting for future inflation, Oryx Group and MGM will plan to invest between 300 to 350 billion yen each, while 22 major Kansai firms will contribute around 127 billion yen in total. This and 530 billion yen in financing from banks will complete the capital required for the project, and so we can expect the start operations in fall of 2030. In the environment and energy segment, we announced the acquisition of hydropower resources in Spain by Erevan Energy. 175 megawatt equivalent production, that is, and the signing of a power purchase agreement between Eleland and Google in the United States. In Japan, we continue to steadily move forward with the renewable energy business, such as construction of energy storage stations, while keeping a close eye on interest rates and construction costs. Our main focus continues to be contributing to a decarbonized society over the long term. Turning to the asset management business, Robeco Group, our core asset, saw AEM grow to a record high of 358 billion euro, including Robeco Asset Management Companies in Oryx Group now have assets totaling 74 trillion yen as of June 2024. And we continue to push forward in our efforts to realize scale of 100 trillion yen in assets at an early stage. Please move to page six. In the investments category, we achieved a 200% year-over-year increase to 89.2 billion yen in pre-tax profits. This represents 48% of our full-year target.

Many SMEs are facing successor shortage, and they are obliged to close their businesses. So our policy is to respect the corporate culture of investees, and along with related stakeholders, we are to develop the businesses. So Oryx, during the investment term, we develop the successors of the investee using the sales network of groups within and outside of Japan and promote the sales of new products of investees, introduce partners who can co-work, including overseas, and enrich a branch network. So apart from capital provisioning, we are proud to be a partner being able to provide various benefits. not only PE investment, but corporate financial service segment. We are sincerely facing the issues of business successor issue of 40,000 clients, including M&A referrals. We are providing various services. Please go to page 7. So sales of Sasa AI Holdings and also sales of 100 Circus. which is a property operation facility. It is contributing to our investment category. In the second half, we are revisiting the portfolio. And for the assets on potential sale, we are now discussing with the potential buyers. So we will continue to do so to achieve the target. During this fiscal year, from sales, we will be collecting somewhere between $520 to $600 billion. and also capital in new investment will be about $700 billion. So capital recycling is working very well. So we will avoid excessive impact on our financials. We will be managing appropriately ALM. Oryx has been targeting unlisted companies, and we have been carrying out marketing efforts focusing on business succession projects But going forward, we will also proactively work on car belts related to restructuring of Japanese companies and also delisting of the investees. As a part of this effort, we have announced investment into projector business of Panasonic Connect. Going forward, we have to gain permits and also go through the procedures of spinoff of business division. So investment will be executed within March 2026. So Panacea Connect will own 20% of the entity. So together, we will operate the business. So in addition, we have invested in Lines, which is a company which develops and sells educational software. So apart from PE investment segment, including inquiries to the group, we have a rich pipeline. We will be selective in carrying out investments. And also, logistics-related investment. We have many under development, but with a higher construction cost, there are impacts on profitability. So we are paying attention to downside risks. Going on to page eight, aircraft and ship segment. There were defects of aircraft by Boeing, and there were also strikes. And the supply of new aircrafts are tight. And there are risk-lease factors and used aircraft prices going up. And airlines' load factors are rising. And the credit is improving. So overall, airline industry is achieving a healthy growth. Oryx Aviation, it owns and manages roughly 200 aircrafts. we plan to increase mainly a narrow body of our fleet. And Oryx has 30% stake in Avalon, and it announced the acquisition of Castle Lake Aviation, an asset management firm of 118 aircraft. And it announced to use its own debt of $2 billion to acquire, including their debt. The Moody's have... decreased the credit rating outlook from BAA3 stable to positive. So we will maintain the financial soundness and expand the business. And going forward, we will continue to work with RX Aviation and build the portfolio focusing on narrow-body, at least long-term, to leading airline carriers. We will continue to do the capital recycling. In March 2023, Santoku Senpaku joined the group, and we purchased 67 ships at a cheap price, including a new ecovessel using methanol fuel. We are proceeding with purchasing three Panamax Volker. So, based on today's market, the portfolio of ships is more than 100 billion yen. Going forward, we will drive with capital recycling, and utilize ship management capability of SANTOKU and manage the vessels of a third party. And we would like to explore joining, entering into coastal business as well. Moving on to page nine. This is about shareholder returns and interim dividend. So at the earnings call of March 2024, we announced that the dividend would be higher of either 39% of annual net profit or 98.6 yen, which was the dividend of last year. Therefore, the interim dividend will be 39% of 182.9 billion yen. This is the first half net income, which means that it will be 62.17 yen per stock. So compared to 42.8 yen, which was last year's interim dividend, it's the dividend hike by 45%, 19.37. And if we can achieve the net income of 390 billion, then the annual dividend per share will be 133 yen. Please go to page 10. While growing profit... we are mindful of ROE. That's how we want to improve our corporate value. That's core policy of Alrix. So for the buyback program of $50 billion, this is underway. And for the buyback of shares, until we improve ROE significantly, we are committed to continuing this program. So improving profit goes without saying, but we will continue to manage the company focusing on EPS. For fiscal year ending March 2025, this will be the final year for three-year plan of 2023, which was announced in 2023. So from the initial plan, $390 billion is nothing that we can be proud of, but we are planning to do our utmost to achieve this level. And in addition, for the next three-year plan, the discussion is already underway. So that stock price can continue to achieve more than one times of PBR in a stable manner. And also, we would like to go on to achieve ROE 11% and 15%. We will come up with measures. So when we announce the results for fiscal year March 2025, we would like to share that direction. That will be all for my end. Thank you very much for your kind attention.