ORIX Corporation (NYSE:IX) Q2 2026 Earnings Call Transcript

ORIX Corporation (NYSE:IX) Q2 2026 Earnings Call Transcript November 12, 2025

ORIX Corporation beats earnings expectations. Reported EPS is $0.99, expectations were $0.568.

Sachiko Nakane: Now that is time. I would like to begin the ORIX Corporation’s second quarter financial results briefing for fiscal year ending in March 2026. Thank you for joining us. I’ll be the facilitator. I’m from IR, Sustainability Promotion Department. My name is Nakane. We have 2 speakers today. We have a Director, Representative Executive Officer, President and COO, Hidetake Takahashi as well as our Operating Officer, Head of IR, Kazuki Yamamoto. First half will be presented by Takahashi. Second half by Yamamoto then we’ll have a Q&A session. We are planning to have 60 minutes for this briefing session. Takahashi-san?

Hidetake Takahashi: Thank you very much for taking your time out of your busy schedule to attend the ORIX Group’s financial results briefing today. I’m Hidetake Takahashi, ORIX Group’s COO. I’ll explain the key initiative as the business progress toward achieving the long-term vision announced in May this year, which is making impacts through alternative investments and operation and business solutions as well as management indicators of 15% ROE and JPY 1 trillion in net profit for the fiscal year ending March 2035. And following this, Kazuki Yamamoto, who is in charge of Management Planning and IR, will explain the second quarter financial results for the fiscal year ending March 2026. If you could please refer to the Page 3.

There are 5 points that I’d like to convey today. First, I’d like to discuss the revision to our earnings forecast. Our first half, all 3 categories, finance, operation and investment performed well and capital recycling is also progressing smoothly. As a result, we decided to raise net profit forecast from the previous JPY 380 billion to JPY 440 billion. We also revised the full year dividend forecast per share from JPY 132.13 based on a net profit of JPY 380 billion to JPY 153.67. And in addition, as we look forward to proceed with optimizing our portfolio and capital structure and considering the completion of the sale of Greenko announced yesterday, we have decided to increase the amount of our share buyback program from JPY 1 billion to JPY 150 billion, (sic) JPY 100 billion to JPY 150 billion and Kazuki Yamamoto will explain in more details shortly.

The second point is the establishment of a PE fund together with the Qatar Investment Authority, which was announced yesterday. ORIX is strengthening our asset management function to help us achieve the long-term vision. As a milestone, we aim to achieve 11% ROE and JPY 100 trillion in AUM by the fiscal year ending in March 2028. Since the establishment of a PE Investment segment in 2012, we have executed over 30 investment in Japan and all utilizing our own balance sheet. We have reached an agreement with Qatar Investment Authority to establish a fund aiming at investing in Japanese companies. For the first time, we will incorporate the third-party funds into this business. Through this fund, which has a total scale of USD 2.5 billion, we will expand our investment, including those in a large-scale project.

ORIX will contribute 60% and QIA, Qatar Investment Authority, 40%. The main investment target will be business section type deals, privatization of listed companies and carve-outs with an expected investment size of JPY 30 billion or larger in EV project. We will intend to continue strengthening our asset management function, including our business segments. The third point is our future business expansion with Hilco Global. In September, we acquired a U.S. company, Hilco, a subsidiary. Hilco provides services globally such as evaluation and disposal of mobile assets like inventory and equipment, intangible assets like IP and trademarks and ABL asset-backed lending. ORIX USA will position Hilco as a platform for creation of ABL investment fund, strengthening its origination capability and expand private credit business.

Q&A Session

Similar to the domestic PE fund mentioned earlier, this is a strategic investment to aid expansion of our asset management business. And further, Hilco’s asset evaluation services are a countercyclical business. In an uncertain economic environment, we believe we have acquired a fee-based business at a good time. Hilco’s evaluation capability, asset disposal expertise will be utilized in assessing risk as we expand credit globally. The fourth point, Osaka IR project, integrated resort. We aim to open the IR in Osaka City around the fall of 2030 and construction began in April of this year. In September, some changes were made in existing plan. Primarily, these involve higher costs after taking inflation into account from currently JPY 1.27 trillion to approximately JPY 1.51 trillion.

After carefully reviewing business income and expenditure plan, we believe that the higher cost will not significantly impact the project profitability. The Osaka-Kansai Expo concluded successfully in October. We were able to confirm growing inbound demand in the Osaka, Kansai area with many foreign tourists visiting — in Osaka, which is also a birth space of ORIX. In the Kansai area, we are engaged in the development and operation of our sales office with offer financial — which offer financial services, Kansai 3 airports and Umekita project and [indiscernible]. We also operate the business such as hotels and inns, we will maximize synergies by adding Osaka IR to these resources. Finally, my final point is portfolio optimization. As I discussed in May, the most important measures to achieve our ROE target are disciplined portfolio management and sophisticated risk management and new business creation, those 3 points.

We have begun utilizing a dashboard to visualize the status of our business portfolio in finer detail and are progressing with our portfolio optimization. We have sold all of — all or partial shares in Greenko Energy, ORIX Credit and Ormat and Nissay Leasing, Canara Robeco and other businesses. We will continue to review our portfolio based on our 4 criteria: growth potential, capital efficiency and impact on credit rating and group synergies. We will continue to revisit our portfolio. And furthermore, in July, ORIX Bank paid a dividend of JPY 30 billion to ORIX Group. We will also optimize the capital scale of other group companies, not just the bank. As of the end of September 2025, the AUM became JPY 88 trillion, bringing us one step closer to the medium-term target of JPY 100 trillion.

We will also continue to proceed with the transition to an asset-light portfolio. Out of the plan that we disclosed in the mid- to long-term corporate value enhancement is in ROE in order to further improve the efficiency of the capital use. And all the measures that I mentioned that we carried out in the last 6 months is a good sign that we are making the right stride toward achieving a midterm business plan. We will continue to work toward achieving a midterm business plan and to achieve the long-term vision through various tactics and measures. That’s all from me. Next, Yamamoto will explain about the most recent financial results.

Kazuki Yamamoto: Please go to the Page 5 of the presentation material. First, I would like to talk about the first half results and an upgrade — update to our full year forecast. Net income for the first half was JPY 271.1 billion, a record high for the first half year and an increase of JPY 88.2 billion, up 48% compared to the same period last year. At first half, we achieved a healthy 71. — initial full year net income forecast and ROE reached an annualized figure of 12.7%. This is a result of a contribution from gains of sales and valuation gains from a large exit deals such as Greenko Energy. As explained by our President, our forecast reflects that our efforts to enhance profitability through portfolio optimization and beginning to bear results.

And we raised our full year profit forecast upward — as our COO, Takahashi explained, and full year profit forecast is JPY 440 billion, expanded the share buyback program to JPY 150 billion. Our full year ROE is forecasted at 10.3%, an increase of 1.3 percentage point compared to the same period last year. Second point is the 3 categories: earning and capital recycling. First half, all 3 categories, finance, operation and investment booked profit growth year-on-year and ROE improved. And even excluding a gain on the sales of Greenko, first half ROE was healthy at around 10%, exceeding the previous full fiscal year ending in the March 2025 level that was 8.8%. The third point is shareholder returns. In line with the upward revision of net income forecast, should ORIX achieve a full fiscal year net income target of JPY 440 billion.

DPS forecast will increase from JPY 132.13 to JPY 153.67. The share buyback program also expanded from JPY 100 billion to JPY 150 billion. At the end of October, JPY 78 billion has already been repurchased, representing 78 progress rate toward our previous JPY 100 billion. Page 6. Here, I’ll explain the details of revision of our earnings forecast and expansion of shareholder returns mentioned earlier. Based on the stellar performance in the first half and the current business environment, we have revised our forecast and second half earnings, especially — specifically, we raised the pretax profit forecast from JPY 540 billion to JPY 640 billion, net income forecast from JPY 380 billion to JPY 440 billion. This represents an increase of JPY 100 billion and JPY 60 billion, respectively, on increase.

As a result, we forecast a full year EPS of JPY 394. ROE will improve to 10.3%. Outlined earlier, we raised our full year dividend forecast accordingly, expanded share buyback program. Total shareholder return should reach JPY 320.7 billion. Total payout ratio expected to rise from 65% to 73%. While improving ROE and maintaining a healthy D/E ratio, ORIX also aims to expand AUM. As our COO, Takahashi mentioned, total group AUM reached JPY 88 trillion at the end of first half. Addition to growth in the traditional asset AUM such as Robeco, which has performed very well, ORIX aims to expand its AUM in an asset-light fashion and that’s not overly reliant on our balance sheet. Please go to Page 7. And also, we newly announced a joint PE fund with QIA.

The page shows the first half results for the 3 categories and for both previous year and this year and segment profit, pretax profit, net income shown at the bottom. Pretax profit for the first half was JPY 391.5 billion, an increase of JPY 134.5 billion compared to the same period last year. Like the net income, it reached a record high. We implemented capital recycling, not only in the investment category, which achieved a large exit, but also in finance and operation category. All 3 categories achieved a profit growth year-on-year. This page shows the first half results for previous current year, 3 categories: investment on top to bottom. And the dark blue represents finance. Our profit increased 8% year-on-year, JPY 99.6 billion, progress rate of 55% versus full year target.

Gross investment income was strong in the Insurance segment. Asia, Australia saw steady increase in financial income from leases and loans. In addition, as a part of portfolio optimization, contribution from the sales of ORIX Asset Management and Loan Services Corporation, Nissay Lease shares also contributed to the profit gain. Next, the light blue part represents operation. Profit increased by 9% year-on-year to JPY 114.9 billion with a progress rate of 48% versus our forecast, which we raised by JPY 10 billion. Business driven by inbound tourism demand such as Kansai Airports and real estate operation at Inns and hotels continue to perform well. Strong used car market helped auto business with Rentec capture the demand for Windows 11 replacement PCs. Both businesses saw growth increased profit.

Environment and Energy Segment, the gain on the sales of Zeeklite, which operates the waste and final disposal side also losses profit. The pink represents investment. Profit was up sharply, 117% year-on-year to JPY 194.9 billion. The sales of Hotel Universal Port VITA in the first quarter and Greenko in the second quarter as well as a gain from the sales of shares of NYSE-listed renewable energy company, Ormat contributed to this increase. In addition, performance of domestic PE investments such as Toshiba was strong, leading to higher profit contribution. As a result, segment profit, pretax profit and net income all increased by 42%, 52% and 48%, respectively. Next, please look at Page 8. Now on this page, I explain ROE, shareholders’ equity for each of the 3 categories.

You see on the right, at the end of previous year, shareholders’ equity was JPY 4.1 trillion, while annualized ROE was 8.8%. For first half this year, these figures were JPY 4.4 trillion and JPY 12.7 trillion, respectively. Please look at the graph on the right. The dark blue ROE of finance improved from 8.3% at the end of the previous period to 8.5%. The allocated capital finance is JPY 1.8 trillion. Now light blue ROE in the operation category improved from 13.5% to 14% due to the sale of subsidiaries and other factors. Allocated capital here is JPY 1.3 trillion. And then pink ROE in the investment category rose significantly from 7.4% to 16.6% due to sales of Greenko and hotels, allocated capital is JPY 1.6 trillion. The total allocated capital for 3 categories is JPY 4.7 trillion, which is slightly different from shareholders’ equity amount of JPY 4.4 trillion on a consolidated BS.

As explained last time, this is because of the allocated capital is a management accounting figure. Next page shows ROA and asset for the 3 categories. With the start of portfolio optimization, total asset ROA improved by 1.03% from the end of previous period to 3.15%. The ROA for the investment category improved significantly for the reason that I just outlined. ROA for the both finance, operation category also improved in first half. This page shows the progress of capital recycling. In the first half, we recorded a capital gains of JPY 157.1 billion. We had cash inflows from sales amounting JPY 500 billion. Major asset sales included Greenko Energy, that was a cash in of JPY 178.9 billion, capital gain JPY 95 billion. And Hotel Universal Port VITA, cash in about JPY 34 billion, capital gain JPY 21.9 billion.

We also sold ORIX Asset Management and Loan Services Group and Nissay Lease in the Corporate Finance Business segment too, and Zeeklite in Environment and Energy segment too. In all 3 categories of finance, operation, investment, we flexibly recycled capital to optimize our portfolio while balancing new investment. Cash outflows from new investments amounted to JPY 470 billion. The main new investments made in the first half were Hilco Global, JPY 776 million and convertible bonds for the next-generation energy company, AM Green. Hilco Global is a leading asset appraisal company in the United States and a platform for asset-based lending. Additionally, we made a PE investment in specialty capsule toy retailer, LULUARQ as well as new purchases of aircraft where prices are favorable and new investments in logistics.

We also made additional investments in Osaka Integrated Resort project as planned. We continue to have a promising investment pipeline for the future and will carefully select projects. For the year, fiscal year ’26, we forecast realization and new investments of between JPY 600 billion to JPY 800 billion. By flexibly recycling capital in all 3 categories in a well-balanced manner, we will, as Mr. Takahashi explained, work to optimize our portfolio. Page 11 is about our financial strategy. This shows the important balance sheet items and the breakdown on the left and the key indicators from the perspective of financial soundness on the right. In the table on the left, you can see the total assets increased by JPY 738 billion compared to the end of FY ’25, with half of about JPY 600 billion amount, excluding FX effects due to the U.S.-related factors.

The remainder was primarily caused by asset growth in the Insurance segment, which saw strong sales of single premium whole life insurance, JPY 131.4 billion and at ORIX Bank, which increased the new execution of the real estate investment loans, JPY 109 billion. Next, short-term and long-term debt deposit increased by JPY 416.9 billion, mainly due to higher deposit at ORIX Bank and issuance of the corporate bond. We continue to diversify our funding methods and currencies and have realized competitive funding cost levels through this and maintaining a stable ratio of the long-term debt. Insurance contract liabilities and policyholder reserves decreased by JPY 223.2 billion, mainly due to the lower liabilities from the higher discount rate for insurance contract liabilities.

This was offset by the increase in single premium insurance policyholder accounts. Of the JPY 351.9 billion increase in shareholder equity in the row below, JPY 223.2 billion is due to the lower insurance contract liabilities and policyholder accounts explained earlier. Other factors contributed to the increase of the shareholders’ equity are mainly net income. Debt-to-equity ratio was steady at 1.5x. Looking to the graph at the right, we maintained the capital utilization rate at an appropriate level in the 90% range as a result of the capital recycling in the first half. This has helped us sustain an A-level credit ratings at global agencies. While yen funding rates are gradually increasing, including those for the bank group deposits, our overseas currency-based funding costs, mostly U.S. dollars remain in downtrend.

We are working to reduce our cost of capital by keeping competitive A-level credit ratings and by utilized diversified funding source. Pages 12 and 13 are segment summaries. Please refer to the slides from the Pages 16 and onwards for details. Links to supplementary financial materials and the integrated report are included in these slides for your reference. First, segment profits for the Corporate Financial Services and Maintenance Leasing segment increased by JPY 13.1 billion or 29% to JPY 58.6 billion. Corporate Financial Services posted significant growth, thanks to the sale of ORIX Asset Management and Loan Services Corporation and Nissay Lease in Q2. Growth in various fee revenues was also positive. The Auto business continued to enjoy robust used car sales, achieving a record high profit for the first half.

Rentec profit grew on higher rentals from ICT equipment inventories fueled by demand for Windows 11 PC replacement. Although asset for Auto and Rentec increased due to new executions in car leasing and PC rentals, the sale of ORIX Asset Management and Loan Services Corporation reduced the total segment assets by JPY 29.2 billion versus the previous year, totaling JPY 1,855.3 billion. Second, the Real Estate segment’s profit decreased by JPY 1.3 billion, 3% year-on-year to JPY 49.1 billion. The RE Investment and Facilities Operation units saw significant increase in profits from hotel and inn operations in addition to the sale of the Universal Port VITA. However, profits were down slightly year-on-year due to the previous year’s gain from the sale of Hundred Circus.

Meanwhile, the profits at Daikyo units increased on the sale of rental apartments, properties and other factors. Real Estate segment assets remained flat compared to the end of previous fiscal year. In addition, in response to the expanding investor demand, we increased asset size of our first equipment — equity commitment type real estate value-add fund established in January this year from JPY 100 billion to JPY 120 billion. Please refer to Page 18 of the Real Estate. The third is PE Investment and Concession. Segment profit increased by JPY 9.7 billion or 21% year-on-year to JPY 56.7 billion. PE Investment unit enjoyed steady performance of the investees such as Toshiba and DHC, resulting in higher profits even after considering the previous year’s gain.

Regarding the domestic PE fund information with the Qatar Investment Authority mentioned by Takahashi, you’ll find the details on Page 20. The Concession unit saw a significant increase in profits, as Kansai Airports continue to perform well. Please refer to Page 45 for related data, such as passenger numbers. The segment assets for PE Investment and Concession increased by JPY 31.9 billion versus the end of fiscal year ’25, totaling JPY 1.548 trillion. The main reason was the new investment in LULUARQ and increased profit contribution from the investees, leading to an increase in equity method. Fourth, Environment and Energy segment profit increased by JPY 117.3 billion year-on-year to JPY 119.7 billion. Profit was bolstered by sale of Greenko Energy, which resulted in gains on sale and valuation gains as well as gains from the sale of shares of Ormat.

Additionally, the domestic electricity retail business enjoyed both higher sales volume and unit price. Segment asset decreased by JPY 38.8 billion from the previous year-end to JPY 977.4 billion because of the progress in capital recycling. The fifth is Insurance segment profit increased by JPY 10 billion or 24% to JPY 50.9 billion. Continuing the recent trend, asset income rose sharply on growth in investment assets in effort to diversify portfolio management. In terms of business, both the single premium wholesale life insurance Moonshot and revamped income protection insurance Keep Up launched this June are selling well. Insurance segment assets increased by JPY 131.4 billion versus end of FY ’25 to JPY 3,140.6 billion. Sixth, the Banking and Credit segment profit decreased by JPY 600 million or 5% year-on-year to JPY 12.5 billion.

Amid rising interest rates, while deposit procurement costs are increasing, the asset management yield is also improving. The main reason for the decrease versus the first half FY ’25 is the recording of the losses from the sale of public and corporate bonds in Q2 to improve bond portfolio quality. Banking and Credit segment assets increased by JPY 109 billion versus the end of FY ’25 to JPY 3,253.6 billion. Both investment real estate loans and the merchant banking business saw increase in new executions. As explained in Q1, ORIX Bank paid parent group a dividend of JPY 30 billion in July to optimize in capital size. Seventh, the Aircraft and Ships segment profit decreased by JPY 10.1 billion or 31% year-on-year to JPY 22 billion. Aircraft leasing profit for the first half was roughly in line with the previous year.

But with lease rates remaining high, the number of owned aircraft increased and the business climate as a whole is positive. Avolon profit rose year-on-year, partly due to the contributions from Castlelake, which was acquired in January this year. Profits in ships unit was lower year-on-year on the absence of higher charter fees from certain contracts last year, reflecting the impact of marine shipping prices. Segment assets increased by JPY 24.1 billion versus the end of FY ’25 to JPY 1,256.1 billion, owing to aircraft purchases. Segment number 8, is ORIX USA. ORIX USA segment profit decreased by JPY 18.1 billion year-on-year, resulting in a loss of JPY 1.8 billion. Compared to the same period last year, the main reasons for the substantial profit decline were absence of reversals of the provisions recorded in last year, a decrease in capital gains and the booking of credit cost and impairment in the first half this year.

The credit losses and impairments stem from the real estate financing originated during the period of monetary easing during the pandemic and legacy assets from before that. The extended period of the elevated interest rate inflation and uncertain economic conditions in the U.S. negatively impacted these assets. More recently, based on our disciplined investment policy, we have conservatively chosen deals, and thus have no exposure to the First Brands Group or Tricolor Holdings. Please see Pages 30, 31 and 32 in this presentation for more details. Excluding the Hilco Global segment assets in U.S. dollars shrunk from JPY 12.2 billion at the end of March ’23 to JPY 11.3 billion at the end of September 2025. With the addition of — this is a decline of 7.4% in the past 2.5 years.

With the addition of Hilco as a subsidiary, we will review the ORIX USA business portfolio and continue to responsibly manage the portfolio while controlling asset risk — asset size. Uncertainty persists in the operating environment for ORIX USA. And we are conservatively reviewing our full fiscal year forecast for ORIX USA compared to the initial plan. Next is ORIX Europe. Segment profit increased by JPY 1.3 billion or 6% year-on-year to JPY 22.1 billion. Net fund inflows grew, thanks to the favorable global capital markets and AUM rose to a record high of EUR 425 billion. This resulted in higher profits even after adjusting for performance fees booked in the same period last year. ORIX Europe assets were flat year-on-year, excluding the currency impacts.

Finally, Asia and Australia. Segment profit increased by JPY 600 million or 3% year-on-year to JPY 19.7 billion. In Greater China, profit contributions from investees decreased versus the same period last year. We maintained a constrained investment stance and reduced our exposure to — in both leases and investments. Meanwhile, the financial income increased in countries such as Singapore, India and Australia, resulting in higher profits. Segment assets increased by JPY 15.5 billion versus the end of fiscal year ’25 to JPY 1,741.1 billion. The main reason was the FX impact, but the breakdown shows a decrease in assets in Greater China region, while there was an increase in Australia and India. And that concludes each segment explanation. Next is Page 14.

Finally, regarding the shareholder returns and enhancing corporate value, we added JPY 50 billion to JPY 100 billion share buyback program announced in May for the new total of JPY 150 billion. Regarding the dividends, the full year DPS forecast was raised from the previous JPY 132.13 to JPY 153.67, 39% increase over our full year net income target. Compared to FY ’25 a DPS, we expect an increase of JPY 33.66 per share or 28%. Since announcing the 3-year plan and long-term vision in May, CEO, Inoue and COO, Takahashi have been engaged in a direct dialogue with institutional investors, both in Japan and overseas. We also plan to provide access to outside directors. And we are providing opportunities to have a direct dialogue from the outside director and the investors.

We continue to enhance the corporate value by increasing opportunities for direct dialogue with the market regarding our most important management KPI, ROE improvement. EPS growth, which is also important and capital cost are also key areas of discussion. This concludes my remarks. Thank you for your attention.

Sachiko Nakane: Now we’d like to move on to the Q&A session. [Operator Instructions] First, from SMBC Nikko Securities, Muraki Masao.

Masao Muraki: Muraki from SMBC Nikko. This is a bit off from results, content briefing material, but I would like to hear more about joint investment with QIA. What led you to this joint PE establishment because in the past, you have been covering everything on your own 100% and the asset was JPY 1 trillion. And do you think for the future, domestic PE, you’re going to run off the existing one and balance sheet will reduce? And the 60% holding of this new PE that you’re establishing with the QIA, it will be on the addition — net additions on the BS, right? ROE or — do you think this will allow you to invest more in a large project. But what kind of impact would this have to the total balance?

Hidetake Takahashi: This is Takahashi speaking. Masao-san, let me answer, take this one. How we came about to establish a joint PE, as I explained in yesterday’s announcement, almost about 2 years, we’ve been negotiating with QIA. We’ve always been in contact, having a dialogue with various sovereign fund and QIA was especially interested in investing in Japan. So in which field we can collaborate. We’ve been discussing that way. And we thought that the domestic PE investments is probably where we can jointly approach. So investment criteria policies, we’ve discussed quite a bit. And this includes a right fit to — we have the right chemistry. That is how we came about this agreement to establish the PE. And regarding the running off of existing portfolio and to focus on the fund with QIA, that is not the case.

As we mentioned in the press release. Our fundamental approach is enterprise value in the market cap of JPY 30 billion or mid-cap larger items, we will leverage this joint fund with QIA. And this JPY 2.5 billion — JPY 370 billion, that’s unlevered base. So 1x or 2x, we will be financing. In the newspaper, I know it says that with the borrowing, we will be able to have this JPY 1 trillion investment capacity, but we don’t know whether we’ll get there. But anything that is below JPY 30 billion for market cap in investment, that’s something that we will continue to handle within the balance sheet. The balance on the balance sheet is — we do have JPY 2.5 billion, 60% is what we are committing. So I don’t think we will see a significant bloating of the asset balance, but we aim to maintain the balance of the current JPY 1 trillion going forward.

So far, we had a majority share. So we had a controlling share so that our target companies, we would try to keep it in consolidated accounting so that we can get benefit from profit. But for this fund, we would apply the fund accounting so then incorporate the fair market value. So the way we would incorporate the profit into our business will be different from the one that we are financing fully on our own.

Masao Muraki: I understand. Is this part of your ROE enhancement effort?

Hidetake Takahashi: Yes, that too, plus goodwill and also recognition of intangible asset will be different, too. And also, there will be an impact on the credit rating, too. That will be eased too, I think. In the last 10 years, we’ve been building up a track record in the private equity area. That’s one thing. And reflecting the market trend and the movement, what we are seeing more and more good quality pipeline in front of us that’s building up. So incorporating that in all into our balance sheet, adding them up would impact us in various different areas. So at this timing, we wanted to leverage our third-party funds to shift to leverage third parties funds to try to capture larger, better quality deals. It would be a benefit in our long-term growth. That’s our strategy.

Operator: Next from JPMorgan Securities, Sato-san.

Koki Sato: This is Sato speaking from JPMorgan. About ROE target and your commitment to that and also net assets, the balance between the 2, I’d like to confirm one thing. Now the JPY 50 billion increase in buyback, I think there are different reasons. But the net profit increase, most of it will be used for the shareholder return, I understand. But at the same time, there is a big impact of the interest rate. So about this insurance with the change of the discount rate, about JPY 200 billion in the 6 months, I think that the profit has expanded. So in comparison to the medium-term business plan, the JPY 20 billion or higher needs to be enhanced so that you can achieve the ROE target. And depending on the macro environment, noncash or cash in without that, there could be some higher risks. So in that sense, in achieving the ROE in order to maintain the probability of achieving that, what kind of initiatives are you thinking of taking?

Sachiko Nakane: Thank you for your questions. Yamamoto will respond to your question.

Kazuki Yamamoto: As you pointed out correctly, for this fiscal year, the interest rate higher and the discount rate, discount and also the insurance account, the net asset increase was a little more than JPY 200 billion. And achieving the 11% ROE, of course, that the numerator will not naturally increase. So we have to take some measures or initiatives that will be necessary. So U.S. accounting and Japanese accounting, there is some gap. So with the shareholders and ORIX, we are trying to consider the various initiatives to be taken. So in achieving the targets of the medium term in the final year, we will be taking initiatives. As for the interest rate, I think we have come to an end of the cycle and this would stabilize. So this increase is not going to continue from now on.

So in other words, if the interest rate comes down, the denominator will be less. So that is something that will be possible to — make it possible to reach the ROE that we want to achieve. So we would like to monitor that closely and communicate to you. But that’s something that we will be doing in the future, but the impact of this in achieving the ROE, yes, we do understand that possibilities.

Sachiko Nakane: Next Daiwa Securities, Watanabe-san.

Kazuki Watanabe: This is Watanabe from Daiwa. This year’s lending forecast and next year’s profit forecast. You said that there will be a reduction — reduced provision for the Bank and the U.S. business. If you have any trend outlook for the second half. For this fiscal year, you will be generating quite a significant profit. What’s your outlook for the next year? Is it going to be challenging? Are you going to go with your current cruising speed? What’s your thought on the next year?

Kazuki Yamamoto: Regarding ORIX Bank, regarding our debt portfolio, liability portfolio. And this is a reversal of what I mentioned about liability insurance. And various portfolio that we are maintaining for the better liquidity together with the interest rate hike, there will be more and more incurred losses. And as much as we can within the profit because we have a profit momentum, we will actively reshuffle the portfolio and recorded some losses from the sale. And this year’s credit loss burden in ORIX USA, as I before mentioned, so far, in the fourth quarter, we usually check — do the checkup of all our assets. But we are doing more flexible risk management. So we have decided to book the loss to some extent in the second quarter, too.

If you could go to Page 32, ORIX USA pretax profit, additional information there as well. For portfolio, as I mentioned, because of the interest rate in the dollar would be plateaued and inflation and equity real estate business-related impact, we are recording capital gain. We are losing opportunity to record capital gain, sorry. And before COVID, we had a real estate legacy asset of the credit loss. That is now materialized. So going forward, what would happen is real estate for multifamily condominium performance. Interest rate hike and insurance premium increase will impact the rent. And I believe that we will need to closely monitor property management and appropriate asset monitoring, too. So those potential risk, we are quite clear at ORIX USA side.

So we don’t foresee this kind of situation will continue. So at least by the end of this second half or at the latest in the beginning — within the first half of next year, we will resolve. We will conclude our countermeasures. And going forward, I’d like to have Takahashi to explain.

Hidetake Takahashi: And the second question about the next year’s forecast, let me give some brief thinking about the next year. Usually, the income gains, for example, on the real estate or private equities exit, those gain from sales, we have been recording pretty much on every fiscal year, it’s a recurring gain from sales. But the kind of gains from sales like divestments as Greenko that is almost like a one-off profit. So this proceeds that we received is a reason that we were able to do a share buyback in addition — additional share buyback. And another reason is we averaged out the EPS, and we are intending to continue to increase EPS in a linear fashion. If there is some surplus in capital, and we would use it for that.

And going forward, in the next year, we’ll continue to aim to realize sustainable profit growth. So the sales from a gain, especially something in this scale of almost like a one-off would be volatile. And sometimes we do, sometimes we don’t. And when we have surplus, we will leverage a buyback to continue to increase our EPS linearly. I’m not sure I’m answering your questions, but it’s not that we are aiming to generate a certain amount of profit every single year. That’s a bit different far from our actual business practices in reality.

Sachiko Nakane: Next Mizuho Securities, Sakamaki-san.

Naruhiko Sakamaki: Sakamaki speaking from Mizuho. I’d like to ask some questions on the forecast for the second half. On Page 10, capital recycling forecast. So for this fiscal year, JPY 200 billion or higher for capital gain. So compared with the past range, there could be some upside. So in the second half, the segment profit is only JPY 200 billion. So how should we understand this balance between the 2? If you can explain it?

Unknown Executive: Yes. Thank you. On Page 10, this JPY 200 billion. If I may talk about this further. As you know, usually, our capital gain is about JPY 100 billion. That’s the normalized level. So Greenko part, JPY 995 billion is added. So it’s JPY 200 billion. So that is on track. And the real estate market is very solid and private equity portfolio, the performance, as we mentioned, is good. So if there is good opportunities, we will invest and also realize in a very flexible manner. In the second half, if you deduct that, the pretax income or revenue level, I think that’s what you are referring to. We did not specify the first half and second half, but some of them were already realized in the first half. So there could be some differences. So capital gain — about the capital gain, this is — this can be considered as the income or the profit in other areas. I hope that answers your question.

Sachiko Nakane: From Nomura Securities, Sasaki-san.

Futoshi Sasaki: This is Sasaki from Nomura Securities. I have a question about your performance. This year’s second half pretax profit forecast, the level is quite a bit declining versus the first half. So it looks like a JPY 250 billion pretax profit. This is along the line of your base profit, but you also are going to record some capital gain as well, right? I was wondering, perhaps you have some significant impairment loss or some kind of a negative factor that you’re forecasting for the first half. Is my understanding correct? And regarding next year’s business plan, I’m sure you’re in the midst of discussion right now. If you can share as much as you can about the next year’s plan, please.

Sachiko Nakane: So the first question will be answered by Yamamoto.

Kazuki Yamamoto: Regarding the first point, you’re right, the base profit first half, I mentioned was quite brisk. Within our base profit, we have the profit from the company that we have invested. So that is contributing like Toshiba is performing quite well, that we have invested. And for the second half, we have set that to the regular cruising speed, not buoyant. So for the second half, we are expecting certain base profit plus some capital gain. It is not that we are expecting some one-off significant loss.

Hidetake Takahashi: Let me add to that. This is a bit of details, but as Yamamoto mentioned, Toshiba’s performance is quite good now. And divestment of Toshiba material is recorded in Toshiba’s performance. And KIOXIA’s share price is quite well. So they sold a part of KIOXIA shares. So base profit — our size base profit and our gain from sales — and also the income from equity method affiliate are all recorded under base profit. So what I mentioned is that there are various onetime gains that we experienced from the equity method affiliate. And those happen in the first half, and that’s not necessarily a recurring income that we can continue to expect in the second half. So that’s the reason. And you asked me about the second — next year plans.

Actually, we will start this discussion from next — beginning of next year. What we are sharing right now to the market is ROE of 11%. And by [ FY ’20 ] ending in March, — but of course, we are creating bottom-up plans up to 3 years into the future. What we’ll be discussing going forward is what went well, what didn’t go well for the past year and make a rolling update to what we have established in the last March and this year’s March too our MTP. We are not expecting any downward change to our initial plan. I’m sure next year will be quite positive, but the detail will be discussed from the segment leaders of each divisions. That’s all.

Futoshi Sasaki: May I add one more thing, please?

Hidetake Takahashi: Yes.

Futoshi Sasaki: You mentioned that next year’s profit can be volatile. I got the nuance in your wording. This year, 10% ROE, you need to grow the profit at a certain level. Otherwise, I don’t think ROE can go up to the 10% levels. Is that okay to say that it can be volatile?

Unknown Executive: You have a point. Needless to say, we need to continuously grow. Otherwise, we will never get to 11% ROE. We’re not there yet. So of course, we need a profit growth to get there. And with the current portfolio, what can be sold at what price is something that — some of it where we have a higher probability where we are already in the negotiation process, then we can factor in, but others are just pie in the sky. So of course, we need to make a right decision at the right timing being considered appropriate capital recycling to maximize our gains from sales. As I mentioned, this fiscal year, the proceeds from Greenko is, I would say, a bit extraordinary. So what we’ve been discussing going forward internally is compared to this year, how much base profit that we can increase. And on top, how much gains from sales of asset we can expect. Ultimately, we would like to achieve the ROE target by 2025 that we have. That’s our grand plan.

Sachiko Nakane: Next from BofA Securities, Tsujino-san.

Natsumu Tsujino: Some detailed question about Environment and Energy. If you look at the quarterly number, JPY 117 billion segment profit. The Greenko sales, gain on sales is JPY 95 billion. So the gain on securities, Ormat sales gain on sales is included, I think. But we don’t know how much that is. So that means it is said that for JPY 15 billion, but the equity method, this is JPY 83 billion. So Ormat gains on sales and also if you deduct the JPY 95 billion, you are in red in terms of segment profit. So in Environment and Energy segment, excluding the gains of sales of those 2, what is happening? Was there any kind of impairment? And if so, what was it? And what about the impairment risk of others in coming months and years?

Sachiko Nakane: Takahashi-san will respond.

Hidetake Takahashi: Sorry, this is Takahashi responding. If I may talk about the details, the renewable energy in Japan, especially the mega solar that is already operating, and we operate that. So we are getting a stable profit. And also, we are in the Energy Business in the previous year, Hibikinada and Soma, there was our impairment loss, and that led to the lower depreciation and amortization and maintaining the sales volume included and this part was profitable. And in Environment and Energy, the major one is Elawan, and Elawan concerning that, it is breakeven or just slightly in red. So a lower interest rate and also the ones that we are developing projects and also the program has started. So in terms of business, we are in the recovery phase.

Also on the Environment side, the ORIX Environment is a circular economy company, and they are generating stable profit. So ORIX [indiscernible] or resource recycling, which is engaged in the interim processing, and they are going through the rebuilding or replacement phase. So we expect some red deficit. And in actual performance, they are in red. So it’s a mixed performance, but we are not seeing the signs of the major impairment loss. I do not recognize that.

Natsumu Tsujino: Okay. So a way of thinking, if you calculate this, you are in red, as I said. So is that correct understanding?

Hidetake Takahashi: Yes. We do not recognize this as a major deficit. It’s really close to the breakeven level. It’s a very small deficit.

Natsumu Tsujino: I see. But if you calculate the [ JPY 117 billion ] minus JPY 98 billion, sorry, the loss of JPY 8.2 billion or so, you’re talking about Q2?

Hidetake Takahashi: Okay. So Q2, as you said, yes, that’s a correct calculation. But Ormat, it depends on what kind of number that you would include in Ormat. But we did not recognize that in Q2 only. But I think if you look at the bigger picture, it will be almost breakeven.

Sachiko Nakane: Now we are reaching the closing time. So we would like to take one last question from Morgan Stanley, MUFG Securities, Takemura-san.

Atsuro Takemura: I’m Takemura from Morgan Stanley, MUFG. I have a question about some numbers. You have made a revision to the lending forecast. Page 7, bottom right, in financial, it’s remaining 180.0 so no change. Were there any changes under — regarding the business profit, an increase of JPY 10 billion. What’s the reason for investment, GreenKo of JPY 95 billion addition plus JPY 80 billion. So I would like to know why you are postponing some of it, the reason for that, which is the best way you can, please share. Regarding ORIX USA, I understand that you have a revised performance forecast. So how that impacts this overall segment, please?

Kazuki Yamamoto: What you explained toward the end is very much a reason for that for finance and life insurance included, we did quite well in asset management. We have management income in the bank, we also recorded a loss of our debt liabilities. And in order to improve the portfolio quality and the credit-related business, we have conservatively recorded some new losses too. And those are what’s impacting this finance business. For business, many of the operating units are quite brisk. But in ORIX USA real estate origination, the fee environment, competitors — competitive landscape, we are having quite a difficult situation. So that’s impacting our profit. Regarding investment, the third point, you are right regarding JPY 95 billion addition from Greenko’s divestment, doesn’t mean that we put some of the sales plan for the sales to the later date at all.

We did have certain uncertainty in the fair value part about the future gain from the sales that ORIX USA is doing in the PE business. As Takahashi-san pointed out, regarding ORIX USA, we have more conservative outlook because of intransparency.

Sachiko Nakane: Thank you very much. We would like to conclude the Q&A session. Now we’d like to have our last remarks from Takahashi.

Hidetake Takahashi: As I said at the outset, there are a mixture in terms of the business performance between the segment. The businesses are diversified. And also in May, we announced the strategy. We are executing that steadily in the first half. Relatively speaking, I think we kept good results. But we would like to stay focused, and we took notes of what you pointed out, and we will continue to take initiatives. And we consider those target numbers are not easy numbers and also in the medium-term plan and the long-term vision, the numbers that we are committed to, we would like to make sure to try to achieve those targets. And I hope you would continue to support us. Thank you very much.

Sachiko Nakane: With that, we’d like to conclude today’s conference, the briefing on the second quarter results. And thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]