ORIX (Tokyo:8591) Q2 2027 Earnings Call

0:00 It's time to begin the meeting. Thank you for taking time out of your busy schedule to join us for the Q2 Earnings Call by RX Corporation. My name is Uchida from Corporate Communications. I'll be serving as the MC. And today we have Member of the Board, Representative Executive Officer, President CEO, Hidetake Takahashi, Senior Managing Executive Officer, CFO slash CSO, Masataka Yamada Executive Officer, in charge of IR, Kazuki Yamamoto Takahashi Yamada will give you the briefing, which will be followed by Q&A.

0:52 We expect this meeting to last approximately 90 minutes. Over to you Takahashi-san.

1:00 I am Takahashi Group CEO. Thank you very much for taking time out of your busy schedule to join us today for the ORIX Group Financial Results Briefing. As for myself, I will provide an overview of our first-half results, the progress of our key initiatives, and the acquisition of Airfin, an asset subsidiary. which will be followed by CFO Yamada who will explain the details of our first half results, the progress of asset management business, the full year focus, and the shareholders returns. Please turn to page two of the presentation material. First of all, net income for the first half was what? 856.2 billion yen, almost three times that of the same period of the previous year, driven by gains on sales of shares, of Oryx Bank and multiple PE investees, as well as sales and value gains on Kyokusha shares, which we hold indirectly, we achieve record high profit for a first-off result.

1:58 Our asset management business in Europe and the Americas expanded AUM on the back of active management, leveraging its quantitative and research capabilities, as well as its global distribution platform, resulting in growing their growing their performances. In addition, the aircraft and ship business leveraged diverse sales channels such as JOLs and funds to advance asset rotation while selectively managing their asset holdings contributing to profit growth. Meanwhile, in the U.S., we are proceeding with a review of our business portfolio. In Greater China, we are prioritizing risk reduction and recovery of new investments and recorded impairments on universities in place of. Please turn to the next page. explain the progress of the key initiatives.

2:43 But, you know, while it is quite varied, but I think we are gaining earnings power. Now, please turn to the next page. Let me explain the progress of the key initiatives we announced at the beginning of The first fiscal year. While we need to closely monitor U.S. political developments, crude oil prices, interest rates, and inflation trends, the overall business environment remains generally solid. In this environment, we steadily executed our key initiatives. As part of portfolio optimization, we transferred all shares of Oryx Bank to Diamond Next Bank in August. We also completed exits from multiple PE investees including Sugiko, Network Connex and Peak. Oryx Capital Partners in the United States now has only two remaining portfolio companies.

3:32 Regarding business model transformation, in May, we invested in Japan Information Industry, a company engaged in system development and operation as the first deal of the PE fund formed with the Qatar Investment Authority. In APAC, we launched RX Fleet covering 11 countries, built around the fleet management and maintenance business model developed in Australia and combined with a northern house from Japan. We are also steadily expanding our asset management business, including forming a fund for a domestic battery storage development project and closing new funds at NXT in the United States. Now, CFO Yamada will explain the progress of asset management business in detail later on. As for the new businesses, we completed the acquisition of Airfim as a subsidiary on November 2nd that allow us to enter the aircraft aftermarket. I will explain the details of this transaction on the next slide.

4:32 Though the execution of these key initiatives, we are making steady progress toward realizing our long-term vision for 2035. Now, please stand to the next page. I will now explain the acquisition of Airfin as a subsidiary focusing on the strategic objectives. Airfin is engaged in the procurement, sale, leasing, and repair of aircraft engines and parts. Airfin has a business base of 600 customers across six continents. Its strength also lies in its high level of expertise in aircraft and engine asset management. Through this acquisition, we will expand our business base across the entire aircraft value chain. By leveraging Airfin's expertise and global customer base, we will maximize the asset value of the aircraft we own and manage and enhance the solutions that we offer to our customers.

5:29 Now, in addition, by adding parts out as a new exit strategy to our conventional aircraft leasing and aircraft sales, we aim to diversify our earnings opportunities. Moreover, by promoting the reuse of aircraft parts and engines, we also intend to contribute to advancing the circular economy. That concludes my presentation. Thank you. I am Yamada, Group CFO and CSO. Thank you very much. My presentation will focus on specifics of our first half results, the progress in expanding our asset management business, and shareholder returns. Now please turn to page 5 to begin with. First, the first half net income and the breakdown of second quarter profit is what I'm just about to explain.

6:18 Now net income for first half was 856.2 billion yen. Of this, adjusted profits were 317.5 billion yen and Kyoxya sale and valuation gains were 538.7 billion yen. Please note that all figures on this slide are shown on an after-tax basis. Now please look at the graph. The red boxes represent adjusted profits and the gray boxes represent Kyoxya sale and valuation gains. Starting from the left, compared with the first quarter adjusted profits of 159.1 billion yen, we recorded core profit of approximately 100 billion yen in the second quarter. In addition to the asset management business led by Robeco, aircraft, ships, and insurance performed well.

7:07 Adding approximately ¥90 billion in gains on the sales of Oryx Bank while recording approximately ¥30 billion in impairments made in Greater China, second quarter adjusted profits came to ¥158.4 billion. Combined with the first quarter, adjusted profits for the first half totaled ¥317.5 billion, reflecting steady accumulation of profits. Next, regarding Kyoxya's sale and valuation gains, we recorded 417 billion yen in the second quarter, bringing the first half cumulative total to 538.7 billion yen. As a result, net income for the first half was 856.2 billion yen. Now please turn to page 6.

7:55 I will now explain the first half segment profits for APAC Infrastructure Europe and Americas and Insurance segments compared with the same period of the previous year. Total segment profits increased by ¥749.6 billion year-over-year to ¥1,147.4 billion. Three of the four segments posted profit increases. Infrastructure posted a profit decrease due to the absence of the large gains on the sales of Greenco and Hotel Universal Port Vita recorded in the previous fiscal year. First-hour profits for the APAC segment were 916.4 billion yen, an increase of 790.7 billion yen year-over-year.

8:45 Kyokusei sale and valuation gains amounted to 795.7 billion yen, and if we exclude this impact, segment profits decreased by approximately 5 billion yen year-over-year, mainly due to impairments recorded on investees in Greater China. On the other hand, the Private Equity Investment Unit realized a gain of approximately 62.3 billion yen on the sale of Sugiko, So, infrastructure segment profits were 82.1 billion yen, a decrease of 118.9 billion yen year over year, which I mentioned at the outset reflects the absence of prior year gains. In this segment, the transportation equipment unit grew gains on aircraft sales and Leasing Revenues, allowing all subunits, aircraft, abalones and ships posting profit increases. Meanwhile, the Environment and Energy Unit posted a profit decrease as the domestic solar power business was affected by lower insulation and curtailment. Public infrastructure centered on airport concessions also continued to see a profit decrease due to a decline in Chinese passengers.

9:57 Europe and America's segment profits increased by 71.5 billion yen year-over-year to 91.8 billion yen. Oryx USA recorded sale and valuation gains on multiple PE investees, and the asset management business, including Roboco, continued to expand the AUM, driving growth in asset management fees. Insurance segment profits increased by 6.2 billion yen YOY to 57.1 billion yen, supported by new policies from corporate and high net worth clients, centered on yen-denominated whole life insurance products that were revised or newly launched in the previous fiscal year. Resulting segment profit for the first half of this fiscal year was up by 188% year over year.

10:48 Please turn to page 7. I would like to explain the status of our assets for the first half. Segment assets increased by 698.7 million yen from the end of the previous fiscal year to 14.9 trillion yen. In APAC, equity method investments increased significantly due to Kioxia sell and valuation gains. Meanwhile, there was no significant changes in the other three segments. Infrastructure and Europe and Americas were selectively deploying capital in assets in areas with a growth potential, such as aircraft, while selling existing assets at optimal timing.

11:34 Details on segment profits and assets are provided from page 13 onward in the supplementary materials for your reference. Please turn to page 8. This piece shows the progress rate of a segment profit against a full year forecast across the three categories of finance, operation and investment. Since we did not announce full year forecast for each of the four segments at the beginning of the year, I will explain the progress rates according to these three categories. And for the fiscal year, we plan to use this framework to explain the second half as well. Overall progress against the full-year plan was 164%. By category, even excluding Kyoxyo Cell and the valuation gains which are included in investment, finance, operation, and investment have each progressed approximately 50%.

12:31 First half segment profits for finance were 6.3 billion yen. As insurance advanced, according to advance the acquisition of high-value policies in line with the strategy, progress against the full-year plan reached 51%. Operation recorded 123.1 billion yen, with a progress rate of 51%. Although Rentech and Environment Energy were slightly behind plan, asset management including Roboco, Africa's ships and automobiles performed well, and operation as a whole progressed smoothly. Investment recorded 938 billion yen with a progress rate of 323%. Segment profits excluding Kyrgyz sales and valuation gains was 142.3 billion yen. Although we recorded relatively large impairments in Greater China, valuation and sale gains on PE investees in the US exceeded expectations, resulting in a progress rate of 49%. Please turn to the next page, page 9.

13:39 This is about capital recycling. In the first half of this year, we recorded capital gains of 266.1 billion yen and cash inflows from investment recovery amounted to approximately 930 billion yen. The main divestments are listed in the presentation materials. Cash outflows from new investments totaled approximately 340 billion yen. In addition to the P-investment in Nippon Information Industry, the first deal of a fund with the Qatar Investment Authority, we made investments primarily in logistics facilities, aircraft, ships, and U.S. real estate. Capital recovery outpaced new investments in first half, but our pipeline for new investment is robust. And we expect new investments of more than 800 billion yen for the full year.

14:27 And in the second half, we will proceed with investments in domestic real estate, domestic PE, aircraft, Osaka IR and others. As the CEO explained earlier, we have completed acquisition of Airfin, an aircraft parts out company. Please turn to page 10. We are shifting to a model that expands AUM and fee revenue while also leveraging third-party capital, and I would like to explain the progress on this front. In the first half, we transitioned our battery storage plants to an asset management model, closed new funds through NXT Capital, a subsidiary of Oryx USA, and strengthened our distribution structure in the United States.

15:14 Regarding the transition of our battery storage plants to an asset management model, as we announced in September, we began construction of the Yufu Battery Storage Plant and Yonezawa Plant through a joint investment with three external investors. This is the first project in our battery storage plant development to utilize external capital and our equity stake is 23.7%. This initiative enhances our capital efficiency as we will handle asset management services such as supporting decision making and the development and operation of storage plants and business management as well as maintenance. In the United States, NXE Capital recently closed new funds on its largest ever scale through a variety of investment structures.

16:02 In addition to getting new, interesting investors, we also increased commitments from existing investors. And the capital's direct lending business continues to perform solidly, and we intend to further expand it going forward. Oryx USA has also newly established capital formation teams. In addition to giving it product development functions, we are strengthening the organizational structure by hiring a head of the Americas and expanding staffing in priority areas. We will also deepen collaboration with Oryx Europe to further strengthen our product capabilities, client coverage, as well as global distribution capabilities. We are also building a self-structure targeting domestic institutional investors, such as life insurance and pension funds.

16:52 We're also looking to sell various private asset funds formed by RXUSA to Japanese institutional investors. Expanding our asset management business is central to our growth strategy, and we plan to provide updates going forward. Please turn to page 11. This is a four-year forecast. Our net income continues to be significantly affected by fluctuations by the price of Kyokusha shares held by Toshiba. Based on Kyokusha's share price of ¥18,095 at the end of September, we expect to record Kyokusha sales and valuation losses of approximately ¥190 billion in the third quarter.

17:41 Regarding sensitivity over Kyokusha's sale and valuation gains, based on Toshiba's holdings of Kyokusha shares at the end of September, we estimate that every ¥1,000 change in Kyokusha's share price would fluctuate our after-tax gains by ¥12.8 billion. Kyokusha's closing share price last Friday, November 6, was ¥1,000,000. 8,511 yen for your reference. In addition, as it is currently difficult to forecast the Kyokushin sales and valuation gains we will record in the fourth quarter, we are keeping our four-year net income forecast unchanged at 530 billion yen as announced in the beginning of the year. As mentioned earlier, adjusted profits are progressing steadily, driven mainly by asset management business in Europe and the US, as well as aircrafts and ships.

18:37 Please turn to page 12. Shareholder returns. The interim dividend is ¥113.56 per share calculated by multiplying EPS based on adjusted profits by a dividend payout ratio of 39%. This is an increase of ¥19.8 year over year and the interim dividend for the previous fiscal year. Our full-year dividend forecast remains unchanged at 187.36 yen. Regarding share buybacks, against the total repurchase limit of 250 billion yen announced in May, we have repurchased 175.5 billion yen at the end of October, which is a progress of 70%. That concludes my presentation. Thank you very much for your attention.

19:31 So thank you. We are now ready for the Q&A session. If you wish to ask a question, please press the raise hand button at the bottom of the Zoom screen. When your name is called out, please unmute yourself and ask your question. If you wish to ask a question, please refrain from asking more than one question. Also, please tell us who you are and where you're from before asking the question. There will be about 15 minutes of Q&A session for the media, followed by Q&A by the investors as well as the analysts. So let us begin from Nihon Keizai Shinbu.

20:16 Fukawa-san, over to you. Thank you very much for the opportunity. Can you hear me okay? Yes, we can. Thank you. I am from Nihon Keisai Shimbun. Kawa is my name. And the impact from interest rate hike is what I want to be asking you about. While the interest rate is continuing to rise, what is the impact? And also, how have you been dealing with the passing on of the price, passing on to the prices of like leasing, for example? Thank you for the question. So inclusive of the leasing businesses, if there was to be any asset that may fluctuate as a result of the rise and decline of the interest rate, we do it in an ALM manner. And so therefore, impact is not that large.

21:11 but there are of course other businesses such as real estate business and others we do procure the money and thereby the fund and therefore through the increase of the interest rate there will be an impact that is given to the procurement cost but over time we are passing it on to the sales price Inclusive of the inflationary pressure, so that if there was to be any product or services of ours that may have no flexibility in terms of the, excuse me, If I could add to what has been shared from a financial perspective and also as to the sensitivity towards Forex.

22:13 So we have shown on page 38 that we have handed out on the left-hand side bottom. From this time, we have shown you the specific numbers as to the sensitivity. Please refer to it. Thank you. Thank you. Thank you. Next, from Nikkan Kogyo Shimbun, Ishikawa-san asked a question. Yes, this is Ishikawa. Can you hear me? I have two questions. One is about unauthorized access. This is a big management challenge. In the group, in the life insurance company, there was a possibility of breach.

23:00 So what is the size or scope and also what are the countermeasures? That's the first question. Yes, I would like to respond to your first question. As you have pointed out, through the distributors of Oryx Life, information breach due to unauthorized access, and also for private equity investees, DHC and White Essence, B2C, PE investees, also experienced unauthorized access and data breach, unfortunately. For now, we do not recognize any material impact on the management, but we believe that appropriate measures need to be implemented. First of all, for the whole group, minimum security standard is already defined.

23:57 and whether or not this minimum standard is sufficient is reviewed and monitored on a regular basis so that it can be revised as needed. And also stopping the erosion, detecting early and minimizing damage as well as recovering as quickly as possible. These are the measures that we need to implement thoroughly. and also management of the vendors will also help us implement management and control. Thank you. Well, the Democrats really won in the election and data center related policy could be changed. How is this going to impact your business or investment going to future? Yes.

24:51 AI, Denta, Sator, related exposure in the United States. Well, maybe environment energy would have a favorable environment, but either way, the exposure that we have is very much limited and therefore we do not expect a big impact from this. But prices and interest rates could impact our business and in terms of interest rates. We do have mortgage business in the United States where we have a relatively high sensitivity and therefore we will continue to monitor the macroeconomic trend closely. That's all for me. Thank you.

25:32 Thank you very much for the question. So the next person, anyone who wants to ask the question, please depress the raise of the hand button. No questions? If there are no further questions, excuse me. Just a second, please. Horiuchi-san from Bloomberg, allow me to unmute. I am Horiuchi from Bloomberg. I hope you can hear my voice okay.

26:21 Yes, we can. So thank you for the opportunity. So after the election in the United States, the equity market has declined pretty much. AI as well as semiconductor-related stocks, the stock price has declined. And you will be affected, I'm sure, indirectly because of your exposure to Keoxia. What will be the impact as a result of this share price decline? I'm sure it's still at a stage for you to determine what will be the impact, but especially after this intermediate election, do you have any impact that you foresee?

27:12 In short, that was for sure would be an impact that we would be receiving onto the Kyoxya shares. So far as our earnings is concerned, Toshiba's equity method earnings, in fact, is calculated as of November's share price, the impact. In fact, we will be determined by this month. So the third by three quarters, $190 billion on page 11, as you can see, is what we foresee. But as compared to end of September, the share price is even lower at this point in time. So I think a larger impact will be given to us or to the shares.

27:58 So you see Kiyokusha is held by Toshiba, which we own. So as far as Kiyokusha's share is concerned, I think it is about 16% or so. So in terms of this large size holding that is reported officially, we have already proceeded to the divestment. And whether we would keep up the same pace or not is something that is uncontrollable. However, As a result of selling these shares, we'll be able to mitigate the impact that is given by the shares fluctuation or the share price fluctuation. Of course, the global equity market is continuing to fluctuate. And of course, it would affect Robico and other asset managers' earnings.

28:47 to the end of the year earnings result. That is our understanding. If I may add to what has been explained by our CEO, and if you could refer to the page that is projected right now, just as we said by Takahashi, as of the third quarter, Kioxia sale and the valuation gain, 190 billion yen has been shown. But as of Friday last week, So 8,501 yen or so. So as compared to the previous share price, So it is declined by 9,600. So therefore, if you were to think about post-tax, about 120 billion yen of our sale as well as valuation loss.

29:41 But of course, we never know. It is outside of our control as to how the share price is going to fluctuate over time. But just to indicate where we're at. Thank you very much. Any other questions? Yes, it's me again, thank you. About the transport, I understand that aircrafts and ships did very well. Can you please elaborate on the background of this performance?

30:29 First of all, with regard to aircrafts. Relatively young age crafts are in the center of the situation of very tight supply-demand relationship. And through Joel and also investors, we sold aircrafts and recorded gains on sales. And the situation is very similar with ships, vessels. Our own ships are being sold. And we're also shifting to asset management. This is the group-wide policy. which means that going forward we will not just be simply selling fleets, but also we'll be preparing funds. We are getting ready. We cannot share any details at this point in time today, but quite soon we should be able to provide you with some kind of news release or announcement.

31:38 Especially with regard to aircrafts, We believe that this situation is likely to continue over the mid-term. Therefore, we're bullish on aircrafts and also with ships. Not just buying, selling used vessels, but also ordering new vessels to be manufactured. That's what we do. And we want to exert a presence within the market with these efforts. I would like to add. Mr. Takahashi talked about how well the aircraft business is doing within Oryx Group but also Avalon equity affiliate announced the quarterly results just the other day and they have gained on sale of the aircrafts and the earnings have gone up and

32:40 So any more questions from the media? Please press the raise of the hand button at the bottom of the Zoom screen if you have any questions. No more questions. There seems to be no further questions from the media. It is really earlier than scheduled, but we'd like to conclude the Q&A session for the media. So from here onwards, Tomioka of the IR department is going to proceed with the next section. So we'd like to now invite the questions from the investors as well as the analysts.

33:33 SMBC and Eco Securities, Muraki-san, please. I am Muraki from SMBC NICO. I have one question about the ROE. On page 30, on the right-hand side, so adjusted ROE, your expectation for this year, as well as the next year onwards, your expectation is what I want to know. So the first half was 4.5 trillion yen on average, that was. But Kiyoshiya's profit, so I think you are targeting a 530 billion yen or so for the full year. And that is 11.7% if you were to take that into your account. And just on and around 10% if you were to exclude Oryx Bank.

34:22 So what is your expectations as of now? And 11.0% would be your focus for the next year if we were to put that all together. So what is going to be your expectations for the denominator as well as the numerator in calculating ROE? On page 30, the numbers that we have shown here, so this is really based on the first house actual result, and we have converted it on an annual, it is calculated on an annualized basis. So as you can see, this is the calculation that we have applied. for Kioxia as well. And throughout the year, the ROE for the FU year that is inclusive of, we have to reflect the share price, but there are so many uncertainties that we cannot incorporate in the simulation.

35:17 As compared to end of September, if the trends as it is, I think the profit level would be much lower. So the ROE would be much lower than what is shown here on page 30. 28-month trend, the ROE we target at is 11%. That is our target, as you know, as has been said. But the 28 merchant and the 27 merchant, the difference, if the share price is going to stabilize, and from Toshiba, if Kyoksha sales was to be diversified further below 10%, then of course there will be further fluctuation, especially on the numerator side, that is. And if the share price remains to be unchanged around the same as right now, then...

36:06 So if we were to assume the current share price to remain to be the case, then 28 March end, the ROE, I think will be around the same as compared between the right and the left, but 11% originally would remain to be our target for the end of the year in any case. Well, adjusted ROE has been shown. So the right-hand side adjusted ROE, it is not affected very much by Kioxia share price, but this is regarded to be your potential or kind of earnings power. So 11.7% I think is the calculation that you'll be able to arrive at. But on an adjusted basis, what is the percentage?

36:53 And if you were to aspire to achieve 11%, or are you going to be aspiring to achieve 11% still? Well, in terms of the potential earnings power, So we have sold, of course, our banking subsidiary on the right-hand side. So how you're going to perceive this is something that you have to think about. But I think the potential earnings is a little lower than what you see. But 11% is what we aim to achieve at the end of the fiscal period. And we would do our best for the remaining months in order to achieve the target that we set by to achieve. Okay, thank you very much. This is Takahashi. At the beginning of November, to all the divisions and departments, I have sent out a message.

37:41 So the budget for the next year... By following certain steps, we will go into the process of compiling the numbers for the end of the year. So please continue to watch over the development of this process that is now taking place at our company. Just as we shared by Yamada just now, after the fine-tuning, the adjustment, the ROE, We still do aim at achieving 11% and that remains to be unchanged for now. So in other words, the process that we will be following will be in light of this target. Thank you. Thank you very much. Moken Study Securities, Takemura-san, please ask your question.

38:27 Yes, thank you. This is Takemura Mugunstani, and I have one question about the current status of your investments. Slide number nine. For the first half, you have the actuals, 340 billion. And at the end of Q1, I think this was about 80 billion. So can you please explain the difference between the two numbers? That's my question. And looking at the projects executed, I see US real estate as being the difference between Q1 and Q2, but I'm sure that there are others. Airthene, approximately 100 billion yen. This is probably included in this number.

39:29 That's my interpretation. So can you please explain the difference, the increase? and also for the full year 800 billion target. Do you see still many attractive deals that you could invest into? What is your outlook?

39:49 Thank you. 340 billion yen new investment in the first half and the difference is approximately 260. It's actually quite evenly distributed in terms of which investments are made, not just one big piece. So multifamily debt and also equity, we have entered into that segment in the U.S. real estate as well using a balance sheet. We are doing equity investment. and also logistics facilities. We are investing actively in that area and also we have a very aggressive plan for aircraft as well and everything is progressing smoothly and Osaka IR is progressing according to plan as well.

40:36 So it's evenly distributed across the board. For the full year, we believe that the trend will not change in a large way. So we will continue to focus on these important areas. We understand that the variation is changing, so we have to be careful about investment, but we will continue our investment plan. And depending on the situation, For ships, Australian fleet business, for example, if we have an opportunity like that, we would be actively looking into those opportunities as well. That's very clear. Thank you very much.

41:17 Thank you for the question. From JP Morgan. Mr. Sato-san, please. I am Sato from JP Morgan. I think three months ago, you provided us with the communication. I think we have asked the question, what is the most challenged business? Erawan, Hilco, and the Greater China Equity Investment. So referring to the earnings result this time, so you have carried out an impairment in China, Hilco, just for the quarter. You have generated some profit. So in a renewed manner, let me ask the question with regard to the challenged businesses.

42:11 What is your understanding as you stand right now? Any changes that have taken place over the past three months is my question. So allow me to answer to the question. So just as you have shared, Erawan and Greater China and also United States, especially Hilco. So these are the businesses that we... And I think that's what we have said last time. Hilco for this quarter... We did manage to at least break even, if not generating some profit, but there are special activities. In other words, there was some asset divestment and that had resulted in some profit generation.

43:00 So the fundamental part is still there are no positive changes. So there would be no kind of sanctity so far as the actions that we may have to be taking. So we would have a close communication with our U.S. business in deciding on what to be done. So a capital solution... The pipeline for that over the past 12 months or so, there was no kind of move whatsoever, but we're beginning to see some signs. So on a cost basis, the top line is beginning to show some positive turnaround. So as for Greater China, on the other hand, in the prior quarter, yes, we have carried out some impairment, a small amount this time as well. And So it is an equity method holding on a mark-to-market basis.

44:07 So the book value versus the market value. If there was to be any differences, we had to carry out the impairment. That's what it was. And as for the Greater China, again, you know, we would not perceive anything to be sacred. We would step in and take any actions if necessary. and we would be reviewing the strategy and that is why we may have to be posting some P&L accordingly. As for Eraman, asset allocation has not proceeded and that is the biggest headache for us so the divestment plan has been constituted So we want to accelerate the rotation, and we're working on the plan right now.

44:56 And if it starts to rotate in a positive way, I'm sure we will be able to enjoy some recovery. Okay, thank you very much. Thank you. Thank you. Next, Watanabe-san, DioSecurities, please ask a question. Yes, this is Watanabe, DioSecurities. Page 11. I have a question about guidance. I just said profit. 17.5 billion yen higher. And for the full year, according to best effort, how much will it be? And at the end of December, once Kyokusei price is fixed, you should be able to have a clearer understanding about the profit. So when do you think you can update us on this number?

45:45 Yes, adjusted profit target. I think that's the first question landing outlook. We do not have that yet. As we said in the previous quarter, 530 billion yen was the estimate in the beginning of the year and 80 billion worth of Kyokushin equity related profit was included. So net of that, it should be about 450 and we are progressing. Sorry, 480, excuse me. and we're making steady progress toward that target.

46:33 And also in order to fill this gap, the difference, we are implementing multiple activities and that's all we can share with you at this point in time. Going forward, we expect some updates. And as you said, Kyokushin share price is one big factor. And at the end of December, we want to see where the share price will be. And we would like to provide you with an update without much delay. Before the third quarter earnings call, do you think you'll make an announcement? It depends on the situation. Depending on the situation, it may be possible. Or at the very latest, we should be able to share this information when we do the Q3 earnings call. That's very clear. Thank you.

47:24 So the next person is from Nomura Securities. Sasaki-san, please. I am Sasaki from Nomura Securities. Thank you very much for this opportunity. So from the second half onwards, would you mind sharing your understanding of the earnings On page 5 as well as page 11, adjusted profit. May I ask you the way of thinking? So 100 billion yen and the first half and the second half expectation. So about 100 billion yen of an adjusted profit has been incorporated every quarter. So in three months, so the adjusted profit with the current run rate, Is it correct? So this January to March?

48:19 What is your expectation in terms of the expansion that you foresee? Well, thank you very much. Allow me to answer to the question. So run rate of 100 billion yen or not is something that I would not be able to say yes or no. Because simply put, if you were to build up 100 billion each, then It will be close to 530 billion, but in the first half, it tends to skew towards the first half. So whether the run rate is 100 billion per quarter is, I wouldn't be able to say, conclude that it is the case. But please understand, I mean, so as for 28 margin, well, I would have to repeat the same. So whether the run rate is 100 billion yen or not, It is dependent on Kyokusei as well. And also Oryx Bank's divestment was incorporated as well. So there is some one-time gain that would have to be reflected. So at this point in time, I would not be able to conclude anything in a crystal clear manner. So in the next year then, If I could start conjuring up the image for the next year's earnings, so four times of the adjusted profit, how much more can you top up this 530 bill of this year? How much more can you kind of build up on top of 530? Do you have your image or your idea?

49:51 Please share us. So from SMBC Nikko, I think Munaki-san had asked the question and I had provided the response. We're working on the planning process right now. So just talking about the base, 100 billion times four. So 400 billion for four quarters. Maybe slightly higher than that, but that is just the rough image. But in addition to that, the recurring divestment, but the private equity, real estate related, sales, you know, it is dependent on what we are to incorporate. The pluses and minus may differ in accordance with that.

50:39 It is again, you know, something that we need to specify in the plan that we are working on right now. So if you could give us a little more time. So ROE of 11%, it's not that we have decided to pull down the flag of this 11% of ROE. So we will try to, of course, continue to grow our businesses. So therefore, please know that that is the target that unions may unchange. Okay, thank you very much. Thank you very much. Next, Sakamaki-san, Mizzou Securities, please ask your question.

51:25 Yes, this is Sakamaki, Mizzou Securities. I have a question, just one. Page 9, Capital Recycling. Second half cash-in flow, 1.20 yen is the remaining target. So where do you think this will happen? And also leading up to the second half, Where do you need to de-risk in terms of asset assessment? In Greater China, because of the market price changes, maybe in the first half you had to behave passively, but in Greater China and others, are there any areas you should be de-risking intentionally?

52:10 Thank you. For capital recovery, leading up to the second half, there are some aircrafts as well as ships, capital recycling that will be happening. So that's one way of recovery. And as I mentioned before, in the United States, as well as in China, we will be reviewing our businesses and assets. And we may make some strategic decisions depending on the situation. and that's another way of recovery that is baked into this to some extent. That's the background. As far as the risk is concerned, of course, this is very much related. As the interest rate goes up in the United States, what is the exposure that we should be having? That's one. And also, in Greater China, we have long-standing investments. So for those ones with long durations, which one is core versus non-core, we should discern the differences and think about the risks accordingly.

53:11 Thank you. I have a follow-up question. PE investees in the United States, we still have two of them on the list still remaining. Now, PE exit. What is the expectation for the remaining two projects? You have already shared with us some expectation about the profit. Well, PE profit from Neko Connect is very exceptional. And for the other two, we do not expect that to be at the same magnitude. I understand. Thank you.

53:52 Thank you for the question. So next is from BOA Securities, Tsujino-san, over to you. Thank you for the opportunity. First of all, so this impairment in Greater China, how much has it fallen? So the remaining amount or the outstanding balance is how much? And what was the decision behind this impairment? If you could be so kind enough to share us further details of this.

54:37 And also, NXT Capital, there is a balance sheet risk, I understand. and the AI Data Center, for example, the exposures that you may have concerns for, how much would that be? Allow me to answer to the question. First of all, with regard to Greater China, for this quarter, the impairment we have posted, So it is an equity method company that is public and the market value versus the book value. There is more than 30% of discrepancy and that would have to be the case for the impairment.

55:29 So impairment. had to follow such a rule. That's what it is, so far as the Greater China is concerned. On the other hand, in Greater China, so not just limited to listed entity that we invest in, even for non-public or anything that has no market value, The investment that we have made to equity or the leasing of the equity and fixed income. So we are in fact reviewing our strategy for that. So hopefully that would lead to a strategic action on our part and whether it would result in profit or loss is what we have to watch over the development for. With regard to NXT Capital, Lower middle market in United States.

56:27 So in the LBO, the senior loan portion, so that is the LBG portion. So huge kind of data center or AI related. It is outside of the scope of our main target, whether it is for the better or worse. Currently, it may be for the better, but that's where we are. If I may add to what has been shared, in the second quarter, 40 billion yen of impairment in Greater China, vast majority of this, so China Water Affairs, There is a listed company which we have the reporting on equity method and just as we said by Yamada, based on the impairment rule, we have just followed the rule and impaired the portion.

57:28 Thank you. Well, in that case, the Greater China, the non-public equity as well as loans, I don't know whether it can be recognized to be a budget. So you did not decide to go further than where you have done, because you do have some certain concerns, right? Well, on the budget basis, well, we don't really take into account so far as the budget is concerned. In coming up with the projection for the next year, We would either impair or appropriate some reserves, I mean provisions for the anticipated losses.

58:21 You know, this is not, you know, we would just treat it accordingly, in accordance with the accounting rule. So, can you not give us any kind of indication as to the extent? Well, at this point in time, we have no idea, to be honest. So... I don't know whether I'm answering to your question in the right way, but we would have to just wait for how it would unfold. Okay, understood. Thank you so much. Thank you. UB Securities, Niwa-san, please ask your question.

59:09 Yes, this is Niwa speaking. This is not about the earnings, but Tsujino-san asked about data center. I would like to ask a question as well. Both in Japan and outside of Japan, data center has become an asset class. And ORIX has discerning capabilities, not just for real estates, including semiconductor related. That is our estimation. So how attractive is Data Center as an investment project from your perspective or is it not attractive? Is it the price factor that is kind of stopping you from investing or are you waiting for the market to mature and expand?

1:00:00 How do you define attractive asset class for Oryx, in other words? Lender or provider of that capital, that from that position, especially for Oryx USA, we do have exposure in this segment. And for Japan, within Japan, you are correct. Logistic warehouse development and also renewable energy development is something that we do. So we have capability to Develop the core to some extent. Oryx Real Estate, for example.

1:00:47 has a secured logistics land and that could be converted into a data center and that is a possibility that we are investigating. And at Oryx Rentech, computing power, GPU lending is also another possibility that we're pursuing. However, relatively speaking, I would say that we are behind other players. I think we have to be honest about that. Mid to long term, what would happen to the demand for AI and data center? Well, if the assumption is that they will continue to grow robustly, then over the mid to long term, Thank you. If you could comment on the following.

1:02:01 In Japan, how do you decide whether or not to accelerate this business segment? What would be the trigger? Well, this is not limited to Japan, but the most difficult thing is to think about not just land, but also power capacity. And there's only a limited number of locations where these things can build. This is the bottleneck. Some kind of policy support would be needed. So if the policy turns out to be supportive, then there would be investment opportunities, more opportunities, not just for us, but for all the players.

1:02:49 I see. Thank you. That was very informative.

1:02:54 Thank you so much. So the next person is from SBI Securities. Otsuka-san, over to you. I am Otsuka from SBI Securities. I hope you can hear my voice okay. Yes, we can. So on page 24, Oryx USA. This is the question. So with regard to the profit level that you foresee, in the middle, the segment profit that we see for this year, the pink PE is 331 and 1 million of profit. Well, the asset is on the decline, but there are some remaining.

1:03:41 And the profit, the generation from the asset is limited, you said. So this one million, so this may perhaps... Takahashi asked me to answer to the question. So the right-hand side bar chart, segment assets, $12 billion or so. It has expanded as a result of Heiko's acquisition, but the profit level of $3 million or so is to be targeted, or is our immediate target, I suppose. But just referring to the first half, we have already achieved that level.

1:04:46 But in the explanation of the first half result, OX Capital partners certain names. divestment had contributed greatly. So if we were to exclude that, the middle of the left-hand side on the segment profit side, you can see a dark blue as well as pay blue part and no colors advisory and the investment is in best Huko. So the core profit, so $200 million 2 million, 3 million, and the ROE of 3%. So we would like to reconfigure or restructure the portfolio is our immediate challenge.

1:05:35 If I may add, the focus of the United States, there are three areas, and I think I may have mentioned this in the previous quarter as well, NXT Capitals, Direct Lending, and then just we have mentioned earlier, So the fund, we are forming a new fund. So therefore, so we think that we'll be able to recoup some profit from there. So capital solution for Hilco, inclusive of liquidation. As of now, there seems to be a sign of a pickup recently. So in the next 24 months, we hope to see the trend becoming a little more refreshed.

1:06:21 And the third is the real estate, if I could repeat myself, multifamily equity is the area that we have entered. We are trying to build up the balance as of now, so we hope that those will be the contributing factor for the earnings. What has been shared by Yamada-san just now? So I think that there is no reflection onto the numbers that we foresee. So this is something that we can foresee going forward. Yes, for sure. That is the focus area. Multifamily equity, for example, we are trying to build up the balance. and the Hilco as well. We can start to see or we have started to see the signs of a turnaround.

1:07:09 NXT as well. We have raised the fund as well. So these are some of the expectations that we have. In terms of the timeline, So from the outside of RX, I feel that you said 3% of a target. It may take a little while until you can achieve such a target. So what is your understanding so far as the timeline is concerned? Well, as soon as possible, that will be better for sure. But I would, to be honest, two to three years from now. Okay, thank you very much. Thank you. Thank you. The floor is open for questions. If you have a question, please press the raise the hand button at the bottom of the screen.

1:07:57 JP Morgan Securities, Satoru-san, please ask your question. Thank you. This is my second round. Munaki-san asked a question and you responded. But I didn't quite understand that response, the answer. So can we go back to ROE for next fiscal year once again? Your view on ROE. You say adjusted. This fiscal year volatility is high and that is why you are using this reference number. That's my understanding. And next fiscal year you have the 11% target. And you're not necessarily saying that 11% after adjustment?

1:08:44 I want some clarification, especially for equity increase. What is your response on page 29, for example? Share buyback. ROE 11% is the focus and you'll be doing a share buyback. Dynamically, depending on the situation, and on a cumulative basis, you would have a profit and loss coming from Kioxia shares. And is that going to be included in the equity trimming scope or not? That will change the picture, that will change the situation. So can you please provide some additional explanation? Yes, I would like to respond. It is very difficult to give you a straightforward answer because according to the page that you're referring to, the ROE page, page 30, I believe.

1:09:37 Again, on the left-hand side, we have the usual formula, which results in 35.8%, and then adjust the ROE of 14.1%. There's a huge gap between the two. And again, the assumption is that this is an annualized number based on the performance, actual performance of the first half. So Kyokushu's share price is trending at a certain level. And based on that, the profit and equity, the numerator number is bigger because of that. But as of last Friday, and as of today, if you look at the share price, this gap, even for this fiscal year, is smaller than what you see. and for 28 March, fiscal year end.

1:10:25 If the number trends steadily around this level, then the gap for the denominator is not that big and also the numerator difference is also not so big. But if the share price fluctuates again and goes back to the end of September price, then it would come back to the number that you see on this slide. In other words, the gap will be bigger. I apologize, I cannot give you a straightforward answer because everything's dictated by the Kirkshire's share price trend. So we want to look at the Kyokusha share price at the end of December in order to figure this whole thing out and then report back to you. So as far as timing is concerned, at the very least, at the Q3 earnings call, we would like to tell you about the 11% March end 28. And based on that, and what are the numbers that we're using and what the indices will be following, I would like to share, we would like to share all of that at that timing.

1:11:30 I would like to add, if I may. Yes, please. No cash loss on... I think there are other things as well if you look at the details. So if I'm to give you as straight an answer as possible, Kioxia volatility is too high and also impact on a consolidated performance is too big. This is why we introduced the adjusted ROE concept in the first quarter of the fiscal year. Having said all that, Non-gap financial indices to be used as target is not necessarily ideal.

1:12:23 That's how we're thinking. As long as the current trend continues, as long as the current trend persists, Toshiba will be dribbling down on Kyoxya's shares. And over time, in line with that, volatility impact on our performance should also get smaller. So allow us to have some more time to understand the overall trend and then decide which indices we will target. And also for the numerator, net profit. This actually relates to the dividend payout. And inclusive of that, please give us some more time to deliberate on this a little bit further. And as Yamada-san has already explained, after the new year beginning, by the time we do the third quarter earnings call, including the outlook for the full year, we're hoping that we'll be able to provide you with an answer.

1:13:26 That's all from me. Thank you. Understand. Thank you very much.

1:13:31 Thank you for the question. So we see no hands. So we'd like to conclude the session for now. And I'd like to invite our CEO, Takahashi, to give us the closing remarks. Well, I think there was a lot of concentration on one particular topic so far as the Q&A is concerned. Kioxia's sale and valuation, of course, gain on loss, in fact, is one of the hardest topics. I'm terribly sorry we were unable to give a straightforward answer to the question because I really want you to focus on the base profit. For sure, what we can do is to continue to grow this base profit and to strengthen our potential in profit generation power. And if that is strengthened, then we'll be able to carry out this capital recycling and add to the base profit any gains on sales So we would like to take a step-by-step approach in those executions. So I would seek for your continued support and please watch over the development of our businesses.

1:14:58 So thank you very much. So 2027 March and the second quarter earnings briefing, we'd like to conclude the session. Thank you all very much for joining us despite the busy schedule and right through to the end. Thank you so much.