Brady Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
February 10, 2025
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Moderator

It's time to begin the meeting.

Moderator

Thank you very much for taking time. I have a very busy schedule to join us for the Oil Pest Corporation Third Quarter Earnings Call for Fiscal Year ending March 2025. On the Master of Ceremony today, my name is Naka Kane from IRN's Sustainability Department. Thank you for this opportunity. And today we have Operating Officer in Charge of IR, Kazuki Yamamoto participating in this meeting.

Moderator

And before we begin, we would like to ask the participants Mr. Yamamoto's presentation before the Q and A. Ayamoto san, please start. Thank you for the introduction. Thank you very much for taking time.

Moderator

We are busy schedule today to join us in the Orec Group's financial briefing. My name is Susie Yamamoto and I'm in charge of Corporate Planning and Investor Relations. Without further ado, I would now like to explain our financial results for the third quarter of the fiscal year ending 03/31/2025 announced back at 03:00 today. Please turn to page two of the presentation material. First, let me explain the main points I would like to convey today.

Moderator

First, I will discuss net income. Net income for the third quarter was JPY 88,800,000,000.0, while the cumulative total for the nine months ending in December 2024 was JPY 271,800,000,000.0, which is up 24% year over year and this is an annualized ROE of 9%. And this is a progress of 70% for the full year FY twenty twenty five March and net income target of JPY $390,000,000,000. This is also a record high for the nine months year to date period. The second point is regarding progress in the three portfolio categories.

Moderator

The finance category continued to be a stable source of earnings. The increase in insurance investment income and other factors offset the decrease in profits caused by the transition of Oryx credit into an equity method affiliate. In the operations category, in addition to the recovery in the performance of asset management and airport operations, Sampsoku Shipping contributed to profit. In the investment, OREX recorded investment gains in each quarter in multiple segments including domestic PE, real estate and overseas renewable energy. So as a result, We have managed to achieve the result that I have announced earlier, which is a 24% increase year over year.

Moderator

The third topic is shareholder return. As of December 2024, we completed JPY 50,000,000,000 in share repurchases, the upper limit of the buyback program announced in May of last year. Our policy has been to limit total holdings of treasury stocks to 5% of total shares outstanding and that any holdings exceeding 5% will be canceled. While this policy remains unchanged, we have decided to cancel treasury stocks exceeding 2% of total shares outstanding in order to refrain ourselves from holding in excess of what we need to hold on to. Full year dividends will remain unchanged from the higher of either the previous year's actual DPS or a payout ratio of 39 of net income.

Moderator

Please turn to the next page. As I mentioned earlier, net income for the nine months period ended December 2024 increased by 24% year by year to JPY271.8 billion. Annualized ROE was 9%. Our performance through the third quarter has been solid and we are aiming to achieve record high net income for the full year. Now please see page four.

Moderator

On this page, we explain the progress for each of the three categories versus our annual target. The bar chart on the left shows nine months results for FY twenty twenty four March end and FY twenty twenty five March end. And the bar chart on the right shows the full year results for the FY twenty twenty four March end and our FY 2025 margin forecast. Now today, I will use the chart on the left which shows the cumulative third quarter results. First, the top dark blue color is finance.

Moderator

Segment profit decreased by 3% year over year to JPY 137,100,000,000.0 and the progress rate versus the full year forecast was 69%. All expected profit was included in the finance category until the FY twenty twenty four March and as I have shared earlier, but from this period the credit business has been included in the investment category. Taking this into account, higher investment income in life insurance segment contributed to profit growth. Next, the pale blue bar chart which is second from the top is operations. Segment income increased by 2% year over year to JPY161.4 billion and progress versus the full year forecast was 67%.

Moderator

In addition to strong performance in airport concessions, thanks to the improved travel, profits from the asset management business expanded. Moreover, Santoku Shipping which joined Oryx Group in the previous fiscal year also continued to year over year growth in this category so did WEMTEC as well as auto. Finally, the dark pink bar which is third from the top is investments. Segment income increased by 86% year over year to JPY129 billion with investments showing a significant increase due to exits in several projects. The progress rate was 69%.

Moderator

As a result, in the fourth quarter, after the renewable energy, green coal in fact is expected to be divested and that is to be incorporated. So as a result, total segment profit increased by 16% year over year to JPY 427,500,000,000.0. Now please turn to page five. This page updates ROA and asset size for each of the three categories. In the finance category, we expect stable earnings supported by changes in the macroeconomic environment, although there are some differences in policies in each region.

Moderator

In the operations category, airport concessions as we have shared earlier and the Rio SA facilities operations in Japan are healthy and the asset management business in Europe is driving growth. In the investment category, we will continue to improve profitability by promoting capital recycling. Now please turn to page six. This page shows the three categories and 10 segments in matrix format. There is no change from the previous version.

Moderator

Now on page seven, the slide in fact explains the progress in capital recycling. Capital gain was JPY 95,500,000,000.0 for the nine months ended December 2024. Cash inflow from sales was approximately JPY $370,000,000,000 for Q1 to Q3 while new transactions amounted to approximately billion. In the third quarter, in addition to the partial sales of shares of OMA, New York Stock Exchange, this is the geothermal energy company, we announced the signing of a share transfer agreement for GreenCo and a new investment in AM Green. As announced in our press release of 01/20/2024, the share transfer agreement for GreenCo and the new investment AM Green are subject to the conditions of obtaining a license under the Incheon Competition Law and matters related to the financing for the transferee and thereby it is not incorporated in the third quarter results.

Moderator

The amount of impact on business performance has not yet been determined as the gain on the sales will fluctuate depending on ForEx and other factors. However, based on the exchange rate as of 01/16/2025, which is $156.46 we expect a gain on the sale before deducting various expenses to be approximately 96,500,000,000.0 yen And in addition, the amount of AN Green's convertible bonds that is to be underwritten weighing US731 million dollars Now as for capital recycling, we will continue to execute new investments while maintaining a balance between divestments and acquisitions primarily in the investments category. Page eight and nine are summaries of segment information. While details for each segment, the 10 segments are available on Page 12 and beyond, I will use Pages eight and nine to explain the summary. First is the Corporate Financial Services and Maintenance Leasing segment.

Moderator

Segment income increased JPY 5,600,000,000.0 or 9% from the same period last year to JPY 66,200,000,000.0. In addition to gain on the sales of an investee in the corporate financial services unit, Oryx Auto continued to post strong performance in used car sales, while car rentals were also strong on expansion in in town travel and a recovery in domestic travel. Rentec also reported an increase in profit driven by Windows DC replacement demand and also the divestment of some of the facilities. These also had proven to be the tailwind for the business. Segment assets were JPY 1,840,230,000.00000 which is up JPY $692,900,000,000.0 from the end of the previous period.

Moderator

The Real Estate segment was profit increased by JPY 7,400,000,000.0 or 14% to JPY 59,700,000,000.0 compared to the same period last year. The Real Estate Investment and Facilities Operations unit posted higher profits, thanks to the sales of a large multi purpose property 100 Circus and investment condominiums as well as strong performance at hotels and in Singapore facilities operations. In the facilities operations business, the large scale renovation of Sukinoi Hotel that started in 2019 has been completed and the third new guestroom building more than 300 guestrooms, Hoshikan opened on 01/23/2025. On February 3, Oryx Real Estate Investment Advisors announced the launch of Orya, the company's first capital commitment based real estate fund with an asset size of JPY 100,000,000,000. OLEA investing real estate in Japan, primarily focusing on office, logistics and residential properties.

Moderator

It is a diversified fund that seeks to secure earnings and investment returns by actively improving profitability and enhancing property value. Several domestic institution investors including financial and business corporations participated in the fund. Although profit of DAIKO decreased year over year for the nine months ended December 2024, but we expect an increase in the number of units delivered in the fourth quarter. Segment so for the condominium business, just like the others, it is trending well. As for the segment assets of Real Estate, it rose to JPY1.1521 trillion up JPY42 billion from the end of the previous period.

Moderator

Now the next is started in the PE and Concessions segment, which increased by JPY 42,800,000,000.0 or by 184% year over year to JPY 66,200,000,000.0. In the PE investment unit, in addition to the gain from the sales of Sasa AR Holdings, higher earnings from PE industries contributed to the increase in segment profit. In the concessions unit, Kansai International Airport continued to perform well. The grand reopening of the Terminal 1 Building which has been under renovation since May 2019 is now scheduled for 03/27/2025. This is expected to increase the overall international passenger capacity of Kansai International Airport to about 40,000,000 or so.

Moderator

And in addition Kansai International Airport we should be able to respond to the needs as a result of expo that is to be held this year. Segment assets in the PE and Concessions segment were JPY 981,800,000,000.0 down JPY 84,800,000,000.0 from the end of the previous period, mainly due to the sales of Safae Holdings. Profit in the Environment and Energy segment decreased by JPY 12,700,000,000.0 from the same period last year to JPY 17,200,000,000.0. In Japan, the business was impacted by lower profitability in the electric power retail business and increased reconstruction cost of existing facilities. Although the overseas renewable energy business posted losses in the first half, gains on the sale of all my shares and valuation gains on the remaining stake pushed it up back to profitability.

Moderator

As mentioned earlier, we have decided to sell our shares of our Grinko, the beautiful industry company in India which invested in March 2021 and to reinvest in M Green as part of our capital recycling efforts. By investing in this next generation energy business which has high growth potential in areas such as green ammonia and green hydrogen, we aim to contribute to sustainable society through our business activities. Segment assets, sales to JPY $955,000,000,000 down slightly from the end of the previous year mainly due to the partial sale of OMA shares. Profit in the insurance segment increased by JPY 7,700,000,000.0 or by 14% to JPY 61,700,000,000.0 compared to the same period last year. That sophistication in asset management led to higher profits which allowed ORIX Life to outperform the previous results which was strong.

Moderator

Sales of Moonshot, a single payment whole life insurance policy launched in November were robust as well. Segment assets increased JPY 83,400,000,000.0 from the end of the previous period to JPY 3,005,300,000,000.0000 because of asset management growth. Moving on to Banking and Credit segment, profit in segment decreased by billion to billion compared to the same period last year due to lower contributions from OREX credit. Segment assets increased by RMB126.6 billion from the end of previous year to trillion as a result of asset growth in the Merchant Banking business, while Oryx Bank continued its policy of increasing profitability through efficient asset turnover. Both Oryx5 and Oryx Bank do not possess large fixed cost burden such as branch network.

Moderator

We aim to grow corporate value in these businesses together with our customers aided by both product diversification and the new client acquisition. Profit in the Aircraft and SuchShips segment increased by JPY 15,600,000,000.0 or by 54% to JPY 44,600,000,000.0 compared to the same period last year. Aircraft and Avalon both saw year on year gains capturing growth in global air passenger demand. The ship unit also reported significant increase in profit due in part to contributions from Santoku Sempaku which joined the group during the previous fiscal year. Segment assets as a result increased JPY156 billion from the end of previous period to JPY1.3 to JPY56 trillion.

Moderator

Of this amount JPY44.6 billion was attributable to changes in ForEx. Profit in the OrEx USA segment decreased by 22% to JPY27.8 billion compared to the same period last year. On the three business lines, private credit showed solid profitability when last year's investment gain is excluded. Private credit is generally robust. Move state mortgage profits were lower owing to prolong the higher interest rates.

Moderator

But origination volumes are recovering. It has already hit bottom according to the signs. We believe that our generation will be of high possibility moving forward. PE in U. S.

Moderator

Increased due to the gain on sale recorded in Q3. We are seeing signs of improvements slowly but surely in the whole business environment. Oryx U. S. Has profits and assets by business line as shown on Page 27 for your reference.

Moderator

Segment assets were mostly flat compared to the end of the previous period at trillion. Change in FX amounted to billion and assets on the store on a net basis decreased. Moving on to Oryx Europe's segment profit. The profit was an increase of JPY 7,700,000,000.0, up 25% from the same period last year to billion. A benefited from a favorable market conditions to reach a record of $379,000,000,000 yen and profits rose on an increase in fee income.

Moderator

Record and trend recorded performance fees which also contributed. And net inflows for Robeco Group were strong and trended positive for the second consecutive quarter. The operating environment is positive. Segment assets increased by billion from the end of the previous period to billion. Last but not least, Asia and Australia segment.

Moderator

The profit in this segment decreased by 7% year on year to billion. Although leasing income increased in South Korea, India and Australia, business confidence remained weak in Greater China. And the segment recorded a decrease in profits mainly due to higher credit costs. Mainland China and Hong Kong remained weak and in Taiwan we still see geopolitical risks and therefore we are still remaining cautious. Segment assets increased by trillion from the end of previous period to trillion of which FX accounted for billion.

Moderator

In Asia, South Korea and Australia, we increased these assets. Finally, please turn to page 10. This slide summarizes a view on the current operating climate and direction. Our perception on the left, at the announcement of our first half result in November, before the new U. S.

Moderator

Administration came in, our CEO, Mr. Inouye commented that in Japan he expected a scenario where there was a gradual rising in interest rates and weakening of the yen. Regarding the situation overseas, he commented that the result of the presidential election may accelerate geopolitical instability due to extreme foreign policies and there is also possibility of resurgence of inflation, interest rates staying at high levels and weakening of the yen. Our views currently remain unchanged from those statements. Impact of Transmeditation's measures to our businesses remain uncertain, but we do have certain scenarios that can be used to make judgment in each of the businesses.

Moderator

For Japan, the policy rate is now at a new level for the first seventeen years. There is a gradual increase in the interest rate and the prices are rising, costs are rising and there is concern about the excessive weak yen. So we will remain cautious as well for investment judgments. In Asia, we also have some uncertainties with regard to the economic outlook. Now as for operations, we aim to continue to enjoy the benefits of being an asset owner and promote the shift to asset manager model.

Moderator

And we expect inbound business to continue to increase. We will accelerate some efforts and the Global Asset Management business will be promoted. For renewable energy, interest rate, ForEx, inflation, contraction cost, energy prices, there are certain uncertainties that we need to take look out for, but for clean energy, the general demand over the mid to long term will remain strong. This is our view. And therefore we will be selective but also be promoting existing project in order to leverage the strength as an asset owner.

Moderator

And as for finance, for each of the area there are different trends. We do look out for these differences and continue to build assets and invest based on the risk return profile. Last but not least for investments, up until the third quarter, domestic private equity, real estate and overseas energy in multiple segments, we will be posting again on sales so that we will continue to do capital effective capital recycling. And ROA, ROE should be pushed up because of these efforts. Finance investments, Japan, U.

Moderator

S, Europe and emerging markets, We will be looking at these factors in a matrix manner. We know that there are a lot of uncertainties, but we will take advantage of the diverse portfolio to take the best option at any given time. And from 'twenty five and onwards, we will continue to leverage our diversified business portfolio and identify the right risks and promote investments and promote exits as well, even despite the uncertainty originating in The United States. Now on January 1, our new CEO, Taked Takahashi took office and delivered a New Year's message which was basically three key points. First of all, Oryx will provide essential solutions to major issues facing society as a part of achieving our group purpose.

Moderator

And secondly, we will maximize the business opportunities between multiple and diversified segments. And thirdly, Mr. Takahashi will endeavor to to create an environment at ORIX where everyone can work with excitement and purpose and fulfill their own individual goals. We are striving to achieve record profits this fiscal year and I believe that further growth over the mid term to long term is possible if all Oryx employees work to realize this message. Capital recycling and asset management, this is something that the Oryx will be promoting globally to strengthen balance sheet as well as capital and use them effectively so that we can generate effective profitability generating structure.

Moderator

This is Mr. Inouye's message as well. We have slightly less than two months left in the fiscal year and we're considering achieving our net income target of R390 billion or discussing how to realize the growth from next year and beyond. That is all from me. Thank you very much for your kind attention.

Moderator

Thank you. We are now ready for the Q and A session. First, we have from JPMorgan. Sato san, over to you. Thank you for providing me with an opportunity.

Moderator

I am Sato from JPMorgan. I have one question. So in various different area or on different occasions, I know you have been sharing your view about The U. S. Economy, especially Oryx USA, the sub segment of Oryx USA?

Moderator

Do you have any kind of vision or the expectation for the future? And how long will it take before you think that you can normalize the business, so that you can turn profitable again? And in addition to that, on Page 27, as you always share, so for the third quarter, the standard on third quarter credit profit seems to be weak. So if you could be so kind enough to share with us the reason why for that as well. That would be helpful.

Moderator

Thank you. Thank you for your support for this. And I'd like to then explain by making use of page 27 of our slide deck. As we have shared with regard to the credit related businesses, as we have announced, as for our business line, so loan fund generation, NXT capital, CLO generation origination, signal peak capital. So as to the product, leverage loans, structured finance, those are the businesses of those business lines for the credit businesses.

Moderator

So CRE related businesses, so they are only we do make a pure investment only for those that are investable. So as compared to the prior year, so there is nothing that is to be noted because it doesn't differ from the last year. But as to the origination signal peak, the new CLO although it was back in January of this year, we did manage to issue a new CLO. So the business in fact is improving. As to not just basing on our own balance sheet, We are trying our best to equip ourselves with the capabilities of our sales and marketing, so that we'll be able to get the mandate for those funds.

Moderator

So that we have been proceeding with the enhancement of the quality or sophistication of these businesses. So we do not in an outright manner, it just simply expand the size of the business. So this has been the result of those efforts. And as to the we are sitting in the middle as I have mentioned earlier as to the origination environment each of the agencies Freddie Mac, Fannie Mae for example, So because the interest rate remains to be high for longer and so therefore we are recovering from that environment especially with regard to the origination. But anything that meets our criteria and especially from the perspective of the spread of origination fee, we would towards the end of the year in the trend of acquiring the businesses that are more profitable in the second quarter, in the third quarter, the slow start in fact is being kind of bringing about the negative impact, but some of so we are now revisiting some of the asset management and there may be some cases of provisioning that is proving to be necessary, but we are working on the improvement of the assets on hand.

Moderator

So it may take a little while, but we are beginning to we think that we'll be able to see the signs of recovery from the next year onwards. So we would not miss out on those opportunity and for that purpose so constructions and other business opportunities while of course containing the risk we'd like to expand the scope of our business opportunities. So in terms of the business direction I think it is on the road or the track of improvement, especially the middle market private equity on a continued basis CPI as well as employment costs and other costs increase that remains to be uncertain. So the top line as well as the profitability wise it is beginning to show some signs of improvement that we need to absorb all these cost increase And before we can enjoy higher activities, I think we would have to wait for some time, which means that we would have to continue to maintain what we do right now and that we would have to just watch about the development of the policies of the new administration and wait for the M and A market to improve and so that we'll be able to come up with the next round of strategy.

Moderator

Sorry that it was a slightly extended kind of response to your question, but I hope this answers your question. Now with regard to the credit, the segment profit that you have mentioned, so the base profit and capital gain, you have not broken down the two from this time. So for this third quarter stand alone basis, $337,000,000 I think the profit million dollars profit I think. So while you were disclosing the base profit versus the capital gain, it looks as if the level the size seems to be smaller. So CCS build up was non existent may I take it.

Moderator

So it was not a kind of a specific individual kind of provisioning, but the flow of deals for example, the environment itself has started to show some signs of an improvement. But on a P and L, there was a slowdown for sure. However, origination and also the flow of the deal, there has not been any major concern as such. So the portfolio as the portfolio quality, the monitoring impact remains to be intact. Okay.

Moderator

Thank you very much. Thank you. SMBC Nikko Securities, Miraki san please ask your question. Yes, this is Miraki, SMBC Nikko Securities. Hello.

Moderator

My question is about mid term plan, ROE target and the growth rate target. What is the current discussion? Can you please update us on that? And the financial institutions both in Japan and outside of Japan, they often have EPS growth target. And one of the growth drivers behind that is very often share buyback.

Moderator

They position share buyback very clearly in that way. So more aggressive or positive stance on share buyback or positioning share buyback as something that is even more important than before, do you have any ideas of doing this within ORIX? Thank you. At the Board meeting today for the Q3 earnings, next midterm plan and business plan was actively discussed. Update is looking at the progress of the discussion on the midterm plan so far.

Moderator

Since we made announcement in May 2022, well that was actually after COVID-nineteen pandemic, there were a lot of uncertainties. But we had Russia, Ukraine issue and also inflation, high interest rate, all of these different factors happened together more than we had expected. Now going forward, technological advancements and market changes will have to be looked at over the longer term and then we have to back cast and figure out organic and inorganic growth strategy. So these are the things that we're discussing. In terms of numerical target discussion, I believe after this will require some more time before we get there.

Moderator

And under the new CEO, we would like to continue our internal discussion. We also have a capital policy. Now, share buyback as you may know, other companies are following the TSE guidance and they are not aware of that, but Oryx has impact on this much earlier than them. And as you may know, as you can see on Page 37 on the right hand side, this is a track record of a share buyback so far. About JPY 50,000,000,000 share buyback has been done over the last six terms or so six periods.

Moderator

So in terms of EPS growth, you can see the information on Page 38, the next page. As you can see, we have been keenly aware of this from very early on. So this is one of the things that we are discussing currently is ROE. So higher end of the 9%, unfortunately we are still not double digit And the 11% is the target that we've been communicating to the market for a while and we still have some way to go. Interest rate is going up and financing cost is changing.

Moderator

And single A rating, cheap debt strength should be leveraged for the future growth as well. So we have to discuss the balance. 11% target achievement or going beyond that, while we want to show the path to achieve that in our mid term plan as well as the business plan going forward, we believe that this is an important thing for us to show in our plan. So this is already within our sight. I hope you understand.

Moderator

Last but not least, I think you have asked a question about the profitability growth as well. Leveraging the assets and segments, this is the conventional way. We are also turning a focus on asset management and the more diversified financing approaches. So we want to achieve this on as many fronts as possible in order to sustain the growth of profitability. Profitability growth could slow down because of the changes at least for the short term.

Moderator

So, we need to look at the transformation and also the ultimate corporate value enhancement and the balance between the two we'll have to discuss for each of the businesses and that's exactly what we're doing. So each of these steps actually take time. So as soon as we have something that we can share with you, we would like to share that information with you. I hope this answers your question. Understood.

Moderator

Thank you very much. Thank you very much. So we have Sakamaki san from Mizuho Securities. I am Sakamaki from Mizuho Securities. I have a question.

Moderator

So this is going to be slightly short sighted, but with regard to the achievement of your plan for this year, GreenCo divestment will be towards the end of the month. If this would not be executed by the deadline, do we have to think about the second plan? Would you remain to be flexible in order to achieve the plan for the year? And what would happen to the dividend payout should this be not being reflected to the earnings of the full year? First of all, with regard to GreenCo, it goes without saying.

Moderator

It is dependent on the buyer of the shares, but we think that there is a high probability of the sales being executed within the end of the by the end of the year. So this we would give priority to this action and we think that there is a high likelihood. But of course, if this cannot be executed by the end of the year, so JPY96 billion and also pre tax profit, there will be a certain impact should this not be achieved. So would we be able to fill the gap? Is there any kind of plan B?

Moderator

Of course, it is very much dependent on the counterparty and also the it is based on the assumption of the best practice execution. So therefore, it is of course dependent on how things will trend dependent on GreenCo sales. So we have no plan B or plan C by filling the gap in other words. So JPY $390,000,000,000 of a profit achievement They unfortunately cannot be achieved if this is not to be executed. However, having said that, so it was for every year.

Moderator

There is base profit and other profits that we generate And it looks as if there is going to be an overshoot as compared to the initial plan for other profit expectations. I know I'm being a little optimistic, but even if there was to be a full execution of the ScreenCo sales, we would be able to fill some gap, but we will not be able to fill the entire gap by March. Of course, it is dependent on the reasons why we were not able to execute the green coal sales. And I think we would have to just continue to discuss over this topic with the executive officers and also the Board members. Okay.

Moderator

Thank you very much. Thank you. The Securities, Watanabe san. Please ask your question. Yes.

Moderator

This is Watanabe, our Securities. Page 10, on the right hand side, this is the current status domestic financial services and for inbound business asset management seems to be the focus. Based on the macro environment, finance business in Japan, do you have a different view now on its profitability and the base profit is in the attachment and has it made and changed to the way you think about the quality of the base profit? Thank you for your question. I will start with the right hand side of Page 10, finance business in Japan.

Moderator

Our view has not changed very much, but the interest rate is definitely climbing and the yield for asset management for life insurance and others are now working positively for us. So this will underpin stable profit for us. Inbound and domestic demand and looking at the economy, I believe even at the global level it is maybe on par. But the construction cost for new projects, new development projects, well, usually it takes us three to five years or sometimes longer for development. And MICE IR large projects are in our portfolio.

Moderator

And therefore we have to manage the total risk and need to have foresight. Now focus on asset management, sometimes this can be misleading, but we want to leverage third party asset or capital to grow our business and we can provide our business expertise to scale the business. So focus on asset management. This is one of the ways of diversifying our financing and the finance and investment hybrid model will be promoted. And this is where we can expand profitability and grow as a corporation or corporate value.

Moderator

Is it going to be base profit or gain on sales or fee income? It will be more and more diversified going forward. I didn't skip this page because I neglected it. We just didn't have enough time, but base profit growth is something that the Board is very much interested in and we receive a lot of instructions and comments from the Board about this. So we will continue to focus on that and combine it with capital recycling.

Moderator

That is a policy that remains unchanged. So please feel reassured. Thank you. Thank you very much. The next we have Tsujino san from Bank of America Securities.

Moderator

So this is going to be a short question. However, with regard to the sales of the GreenCo, So it is a business in India, but they do have entities in Europe as well. So I don't know how you have been responding to other questions in the past, but however, as for this year as well as last year, we thought I recall you sharing with us that there was a possibility of some sales that was to be executed, but it did not happen. But then this year you had announced the sales of Gringo. So what was in your mind when you shared this idea of selling some of your businesses in the past?

Moderator

Was it Gringo? Or the power generation, for example, the facilities that you own under Erwan in Europe? Was it in your mind? So as we look back, so you will perhaps assuming maybe for about one point five years selling something from El Aland, some of the assets, why was it not executed if that was in your mind? But in addition to that if you could, so this time in the investment business, Toshiba's contribution from the perspective of the profit, the Q on Q basis, I thought that you were able to generate about JPY 4,000,000,000 worth of profit from Toshiba in the not the concession, but the investment.

Moderator

But the reason why you were not able to generate that much, is there any reason why? So first of all with regard to GreenCo and the positioning within the investment business, just as being said by Tsujin ho san, so it is located in emerging country and also minority position and the development is in fact sizable and other than Oryx there are other shareholders. So, Sobeing Wealth Fund mostly they are the So therefore, we were in fact thinking about this or positioning this business to be target for capital recycling in the future. So after 2021, we have been making an investment and at the renewable energy facility the development progress dependent on the progress that we were making, we were always putting this on the table for consideration as to when are we to sell the project. So whereas Elawan in fact it's exposed to industrialized nations or advanced nations.

Moderator

So we wanted to of course enhance the capability as a developer and as to the ones that are completed, so it will be perceived as development model. In other words, long term PPA was to be acquired, so that we'll be able to generate a long term kind of liquidity flow. So, on the other hand, asset of energy prices in Europe with Ukraine, Invasion Of Ukraine and also at the same time the pricing trend in fact has been fluctuating and also the subsidy that has been provided by different of course government had been affecting the spot prices. So therefore, the development project at Airman, some of the major capital gains that we were expecting unfortunately was not to be gained. The basic policy remains to be unchanged.

Moderator

And one other thing, you asked the question with regard to Toshiba. Excuse me, let me we are not disclosing the profit that we generate from the Toshiba deal and also the other day Kioxia which was listed just the other day went public. So there is going to be some time lag before we can pick up the income on the equity that we invested. But as to the direction as you had shared is what we expect us out. Whereas with the business partner heading the initiative as for the EPA, the ProShipa portfolio in fact has been changing over time as well.

Moderator

So, from an accounting perspective, we need to adjust ourselves as well. So, what you may have simulated may not match against the reality for that reason. So maybe the after kind of process related to us being LP, the LP holding of others, but the business environment itself is trending for the better for sure. So this may not be matching with your numbers. So this is why the LP kind of gain, So rather than I think there should be some technical ups and downs I was I'm imagining that is affecting your earnings, right?

Moderator

Yes. I see. I see. Thank you very much. But having said that though, if you were to look into the details of the investment as you have said there is an accounting treatment and that of course incorporates the financial structure and also the engineering of the fund itself.

Moderator

So this is why there are some technical challenges that we are facing. But as to the business itself, we the business structure wise, it is following a trajectory towards improvement for sure. Okay. Thank you very much for that. Thank you.

Moderator

First, Nomos securities, Sasaki san. Please ask your question. Yes, this is Sasaki with Securities. Thank you. My question is about the new mid term plan.

Moderator

You have already explained to some extent, but I'm sorry I couldn't quite understand. So let me clarify some points with you. In reviewing the current mid term plan, you identified more new risks. So you want to apply more conservative approach. Is that what you said?

Moderator

Was that your message? And also with regard to financial KPIs, you have not really discussed those yet. That's what you said, but we are in the February. And considering when Orichesia formulates a business plan, maybe it is getting late. So does that mean that you're struggling with a discussion?

Moderator

And last but not least, 11% or more ROE. I think you said that this is within sight. That was my interpretation of your comment earlier. Now, how can you say that 11% or higher ROE is already in sight? What is the justification rationale behind that according to the management's perspective?

Moderator

Can you please elaborate? Thank you. I have to apologize. I made a misunderstand that we're talking about conservative point of view. So we looked at the previous plan, inflation, wages and also interest rates based on these different circumstances.

Moderator

In January 2022, we formulated the plan and made some announcement in May and then things changed after that. If we try to project what happens down the line three years, it doesn't really work. That's what we realized. So what are we going to do? Well, rather than basing our scenario on these indices, the timeframe differs from one business to another, but five years, seven years or ten years down the line for MICE we have something opening in 02/1930 and we have a step operation from that point onward.

Moderator

So within these different timeframes, where do we want to be? This is what we are discussing and we're trying to back cast from that and then figure out what to do in the next coming three years in terms of internal control and the budget management. So these are the two phases, two phased approach, timeframe for each business and where we want to be in the future. And with regard to this aspect, we are trying to aggressively grow the businesses. So this mindset has not really changed.

Moderator

And based on that we try to backcast. And this way of our familiar plan is different from the cadence of every three years for each midterm plan excluding for the pandemic period. So the cadence will be different or the approach will be different. So we don't just extend on the current situation in terms of the term plan. Over the mid to long term, one of the important focuses is to increase the ROE, capital efficiency.

Moderator

We don't want to worsen the capital efficiency. So capital recycling and asset management business model should be leveraged or they will become essential. And without that, we will not be able to achieve ROE of 11% or higher or at the very least it's not going to be easy. So this is something that we're discussing for different businesses. So we're not trying to aim for something just for the short term, but in order to achieve the long term goal, do we what do we need to change?

Moderator

So we have a sense of urgency and we are focusing on these big challenges, including outside independent directors. We are discussing this time and again at the DoD so that we can figure out when is the best time for us to communicate this with you going forward. So this is how we are sharing this information with you. I know that I'm not giving a very clear answer. I'm sorry, but the discussion is still underway.

Moderator

I hope you understand. So you need to do the capital recycling and you have to focus on asset management type business. Otherwise, you cannot achieve 11% or higher. So this is the same discussion as before. I understand.

Moderator

My question is, when it comes to specific measures, do you have now deeper discussions taking place? Because looking at what's happening around the world, there is maybe major reorganization or restructuring going on. So I don't think you can spend a lot of time just discussing. So do you already have specific plans being discussed at the BOD level? As you have rightly mentioned, whether we are accelerating or not, your buy low, sell high, capital recycling, capital gain, realization, maybe that's not the only aspect.

Moderator

Within the existing investees, maybe the growth rate or the return is not as high as it could be. So we should apply more stringent view and going one step further in terms of discussing the capital recycling because without doing that ROE resilience could weaken slowly over time. So in order to avoid that situation with regard to existing investees or existing projects, we need to shed more stringent light and this is something that we're discussing at a very detailed broken down level. Without that discussion, we would find it difficult to improve ROE going forward. So it's not only for the new project, but also existing items in portfolio and existing business lines.

Moderator

We are reviewing them at a greater granularity. Thank you. When to communicate with the market, is that when you close the financial year or is it going to be before that? That's my last question. So the book closing of course discussion will deepen and CEO Takashi san asked him position in January and what is the management strategy that's going to be applied working together with our CEO in Oisin.

Moderator

We want to increase the number of opportunities where we can communicate about this with you. And we don't know if there's going to be a midterm announcement or not. We still have to discuss this to figure it out, but we want to do as much as we can and also share information as early as possible about strengthening of our management of the company. Thank you very much. That was very helpful.

Moderator

Thank you very much. So we have gone over the scheduled time. So we'd like to entertain the next question as the last question. So, Otsuka san from FBI Securities. This is Otsuka from SBS Securities.

Moderator

I hope you can hear my voice okay. Yes, we can. Thank you. So on Page four, so I am referring to page four. And in the investment, so GreenCo's profit was three incorporated, I understand in this investment.

Moderator

And according to the number that you have shared, so this will be an in excess 100%. But this finance and also operation, the profit the probability of achieving this profit forecast, if you could share with us your expectations in the fourth quarter, can you expect is there any other deals that would allow you to build up more profit in order for you to achieve 100% by end of the year? Or would it be behind if you could just give us a color whether you'll be behind your plan or not. But just as you have shared as to Grinkl the sales related the profit based on the asset. So, it will allow us to overshoot the initial budget of Abbots so far as the profit of investment is concerned.

Moderator

So, we would of course continue to do our best in achieving 100% for each of these categories, but within finance China and also the recovery being slow in United States for example, would we need to be the factors of uncertainties especially in Greater China. So we don't try to build the asset just for the sake of achieving these numbers. That would not be the case. So that was being asked by Tsushima san earlier. So, especially with regard to renewable energy, we are affected by the spot market pricing.

Moderator

So, therefore, we would be making the optimal and appropriate decision whenever it proves to be necessary. So we may be affected in a negative way as a result. But if I may repeat myself, so we are of course continue to do our best in achieving what we have aspired to for the full year. So but the investment of course the largest contribution would come from Glinko sales. I'm sorry, but I may not be answering to your question in a straightforward manner, but still.

Moderator

So from your responsibility and your title, so this achievement, green coat sales is incorporated. So, the likelihood of this achievement is heightening. Well, it's kind of difficult to answer directly to your question. So finance operation, there are some aspects of the strength that is enjoyed, but there are some variance. In other words, there are some businesses that are not performing just as well with us as compared to others.

Moderator

So this is why we need to proceed with this sales of green coal and for sure that would allow us to achieve what we have intended to. Thank you very much for giving us the color. Thank you. Thank you. So with this, we'd like to conclude the Q and A session.

Moderator

And I would like to ask Yamamoto to share our closing remarks. Thank you very much for spending a long time with us and sorry that we have a short schedule. Interim plan and the new management, we have received many we want to make sure that our disclosures and the message will not suffer because of these changes. Now management is being strengthened within the organization, which means that we don't want to do just what we have done in the past. With regard to the concept about the new management, we want to include Inoue san and Takahashi san maybe separately or together and increase the number of opportunities to communicate to you.

Moderator

So when such opportunity arises, we hope that you can give us your valuable time to listen to our stories. Thank you very much for your kind participation. That concludes the third quarter earnings call for ORIX Corporation. We really appreciate you staying until the end of the program. Thank you.

Analysts
    • Moderator
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Brady Q3 2025
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