ORIX Q4 2025 Earnings Call Transcript

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May 12, 2025
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Sachiko Nakane
Sachiko Nakane
General Manager, Investor Relations and Sustainability at ORIX

It's time to begin the meeting. Thank you for joining ORIX Corporation for annual results for the course of the fiscal year ended 03/31/2025, despite your very busy schedule. I'll be the master of the ceremony. My name is Nakane from IR and Sustainability Department. Thank you for this opportunity.

Sachiko Nakane
Sachiko Nakane
General Manager, Investor Relations and Sustainability at ORIX

The attendee at today's conference is Member of the Board, Representative Executive Officer, President and CEO, Hideaki Takahashi and also Kazuki Yamamoto, Operating Officer, Responsible for Investor Relations. Now Takashi Yamamoto will give presentation for the Pi Q and A session. The briefing session is scheduled to last approximately one hour. I would like to hand over to Mr. Yamamoto.

Moderator

I am Yamamoto from ORIX. So I would like to now report on the consolidated net income for ORIX for twenty five March end. So please refer to Page three to begin with. So consolidated net income for the fiscal year ending March 2025 was JPY 351,600,000,000.0, which was announced at 03:30. Although it was it fell short by 9.8% compared to the forecast of JPY $390,000,000,000, but the net income was up 2% from the previous year's result of JPY 346,100,000,000.0.

Moderator

ORIX once again achieved record high profit. The full year ROE was 8.8%. At the end of FY twenty twenty five March end, the market had changed significantly with increased uncertainty due to the disruptions in the global supply chain and fluctuations in resource prices. As a result, we reviewed future prospects for our businesses. And after considering these uncertainties, we recorded total impairments of JPY53.1 billion on a pretax basis for some assets and investments.

Moderator

On the other hand, many segments, including PE and concession, aircraft and ships and corporate financial services improved their performance, leading to another record high profit for the full year. On the next page, we will explain pretax profit and segment profit based on the three categories. Now Slide four, if you could refer to the bottom row of the table below compared to the net income of JPY 3 and 51,600,000,000.0 you mentioned earlier, pretax profit was JPY 480,500,000,000.0, which is JPY 10,500,000,000.0 more than the same period last year. The profit from the 10 segments, excluding headquarters costs, came at JPY 544,700,000,000.0. Now I will explain the breakdown using the three categories.

Moderator

First, profit from the Finance category was JPY 176,300,000,000.0. Last year, we booked a gain from the sales of ORIX Credit. So excluding that impact, profits were higher. The main factors behind the profit increase was strong investment income from ORIX Life Insurance and The U. S.

Moderator

Private Credit businesses. The profit from the operation category was JPY 200,200,000,000.0. Profit declined year over year, mainly due to our conservative revision of plans, more than the conservative plan of FY 'twenty two March end for the coal and biomass coal fired power plants, resulting that resulted in an impairment of approximately JPY 20,000,000,000. On the other hand, contributions from Kansai Street Airports, Robeco and Santoko Shipping resulted in higher profits excluding impairments. Regarding the Investments category, segment profits were JPY 168,200,000,000.0, a significant increase of JPY 56,200,000,000.0 compared to the same period last year.

Moderator

Two exits were realized in the domestic PE business, thanks to contributions from significant improvements in profits at investees and investment gains in The U. S. And Real Estate segment and increased profits from equity method investees like Abalone. Next, we will explain segment profit in terms of base profit and investment gains. So please proceed to the next page.

Moderator

Out of total segment profits of JPY 544,700,000,000.0, the so called base profit was JPY 457,100,000,000.0, a 5% increase from the previous year. Investment gains net of impairments were JPY 87,600,000,000.0. Base 87,600,000,000.0. Base JPY 100,000,000,000 in all four quarters for the first time in FY 'twenty five March end. The overall operations and investment portfolio contributed solidly to profits, supported by the recovery from the pandemic, inbound demand and the steady recovery of domestic economic activities.

Moderator

Through value creation in our strong domestic PE investment ships, aircraft leasing and European asset management businesses and in businesses expected to grow further, we will continue to drive sustainable base profit growth for the ORIX Group. Additionally, investment gains through capital recycling are one of the pillars for realizing profits in a diversified operating and investment portfolio. In the fourth quarter, investment gains were a net loss of about JPY 2,000,000,000 due to impairments exceeding JPY 50,000,000,000. However, we were able to record gross investment gains exceeding JPY 50,000,000,000 through PE investment exits in Japan and The U. S, making full year gross investment gains larger than the same period last year and second only to the first fiscal year FY 'twenty two March end when we booked the investment gains on the YAYOI sales.

Moderator

Finally, we will discuss the progress of capital recycling. Please refer to Slide six. In the fiscal year ending March 2025, we recorded capital gains of JPY 140,700,000,000.0 for the full year. The cash inflow from the sales for the full year was about JPY $645,000,000,000, while new executions amounted to about JPY 600,000,000,000 in total. So therefore, there was a difference in as been indicated.

Moderator

The assets sold were primarily those with strong performance, such as the two domestic PE investees listed here, where optimal bias was selected for the firms from both domestic and international bidders. In Corporate Financial Services, the selection of business succession targets progressed in the micro business succession M and A project faster than the past several years, resulting in three exits. Additionally, there was a significant cash inflow from the sales of a large multipurpose facility in Tokyo, which had been a long term holding while its value was being enhanced. These cash inflows were used for new investments focused on the domestic real estate, domestic PE and aircraft following the usual IRR focused selection process. Now among these, we proactively invested in aircraft based on the assumption that the supply and demand for aircraft will remain tight in the future.

Moderator

For the fiscal year for this fiscal year, we will continue to execute new investment while striking the right balance between recouping investment through capital recycling. We will remain flexible in making a decision if we think the deal will contribute to Oryx's future growth. So you can see the pipeline on the following page. Now the vertical axis representing investment amount and the horizontal axis representing the time required from investment execution to earnings contribution. So at ORIX, from the time of investment, we would try to swiftly try to generate the profit from like ships and aircraft.

Moderator

And also in addition to private equity investment, perspective, we were trying to make an investment that would allow us to enjoy a capital gain for many years to come. So we would try to identify investment that benefits from inflationary environment and also proceed with execution if we can enjoy better terms and conditions for the deal. Now so we would we have roughly about, as you can see, more than JPY 2,000,000,000,000 of investment, and that will remain to be unchanged. And this concludes my presentation. And I would like to hand over to President Takahashi, who will present on our forecast for the New Year.

Moderator

So good afternoon. So I have been appointed to be the President and CEO from January of this year. My name is Takahashi, and allow me to present from starting from Slide eight. So we regret that we were unable to achieve the sales of GreenCo announced in January, and thus, we were not able we were unable to meet the full year forecast net income of JPY $390,000,000,000 for the fiscal year ending March 2025. However, we achieved a record net income of JPY 3 and 51,600,000,000.0 and steady increased base profits despite recording significant impairment due to our conservative forecast.

Moderator

So we would like to continue to grow the base profit in a steady manner going forward. And I think we do perceive this to be our great achievement this year, the last year. ORIX's full year dividend will be JPY 120.01 per share, following our dividend policy of a payout ratio of 39 over the previous year's dividend, whichever is higher. Next, for FY 'twenty '6 margin, we forecast a third consecutive year of record net income of JPY $380,000,000,000. So we will maintain our current dividend policy.

Moderator

And assuming net income JPY $380,000,000,000, FY twenty six March and DPS will be JPY 132. We will also increase the scale of share buybacks to JPY 100,000,000,000, double the usual amount of

Moderator

JPY 50,000,000,000.

Moderator

This is aimed at helping to steadily improve ROE, our most important management indicator. And this has been resolved at the time of BUD today. So as a result, total shareholder return ratio, including dividend and share buyback, will be 65%. Please see the next page. Next, I will discuss our view of the impact of recent macroeconomic developments on our businesses.

Moderator

We believe the direct impact of so called traffic is limited, but we need to keep in mind the indirect effects such as possible recession and exchange rate fluctuations. Regarding the possibility of a recession, for example, some existing investments and loan targets in The U. S. And Japan are expected to face rising procurement costs, posing a risk of deteriorating performance. However, such clients account for a limited accounts for a limited portion of our portfolio.

Moderator

Additionally, due to deterioration in the investment climate, there is a risk that new investments and exits may be delayed as compared to our plans and the realization of investment gains overseas may be postponed to the next fiscal year or later. But on the other hand, domestic real estate and the PE are maintaining solid momentum at the present, and we expect to achieve a good amount of investment gains from these areas in the fiscal year ending March 2026. Given the main knee uncertainties, including geopolitical risks, we believe a cautious approach is necessary for the time being. Meanwhile, during these uncertain times, it is important to conduct the business activities with a focus on enhancing mid- to long term corporate value and to have disciplined portfolio management. Now this means replacing assets with low capital efficiency to improve ROE.

Moderator

At any rate. ROE would have to be improved, and we would exert much of the effort in that regard. Now despite this business climate, which remains to be uncertain, we believe our FY twenty six March end net income target, which represents a new record high, is still achievable. Now please move on to the next slide. Regarding this fiscal year's forecast, we will briefly explain it by breaking it down into three categories.

Moderator

We expect double digit growth in profits in the operation and investments category and continued stable growth in finance as well. As to the finance, we are focusing on high premium first sector products targeting corporations and affluent individuals for the insurance businesses. This should allow us to grow premium income at a pace significantly exceeding that of Japanese competition. This customer segment is an area where synergies with the Corporate Financial Services can be expected and we anticipate profit growth through expanded premium income from FY twenty twenty six March. And also, we should benefit from diversification of our investment management as well.

Moderator

In operations, tourism related areas such as airport concessions and aircraft leasing are likely to be the drivers of profit growth. The airport concessions business has completed a major renovation of Terminal 1 at Kansai International Airport in March, expanding international passenger intake capacity by 1.7x. So and preparing for increased passenger traffic due to the Osaka Expo. In investments, we anticipate profit growth through continuous capital recycling in real estate and PE segments by leveraging our extensive network and being capable of real estate development from sourcing properties and projects to exits.

Moderator

Please turn to the next page. Finally, with regard to shareholder returns, previous full year dividend of JPY120.1 per share was a record high and CAGR of 21% in dividends per share since the fiscal year ending March 2011. And we will continue the dividend policy of having a payout ratio of 39% or the previous year's dividend, whichever is higher and based on the forecast net income of JPY $380,000,000,000 that is forecast for this fiscal year will be JPY 132 per share. We intend to continue implementing the share buybacks. I already mentioned JPY 100,000,000,000, but we will do this flexibly to achieve sustainable EPS growth and optimize capital at the same time.

Moderator

Moving on to long term vision and the three year plan. Please skip to Page 13. In formulating the new three year plan, we started with a premise of the ORIX Group's purpose, which was established last year. And based on this, we drew up our goal and targets. And ten years from now, ORIX vision for 02/1935 is to make impact through alternative investments, operations and business solutions.

Moderator

We will work to achieve an ROE of 15% and a net profit of 1,000,000,000,000 in the fiscal year ending March 2035, '10 years from now. And we also recognize that ROE improvement is ORIX TOP's management priority for our newer three year plan, starts this fiscal year. We aim to achieve an ROE of 11% in fiscal year ending March 2028, final year of a three year plan. Please turn to the next page. To realize this long term vision, we have three focus areas I would like to explain about the growth strategy.

Moderator

So we have pathways, growth and impact. These are the three focus investment areas. And we want to evolve our strength in our two business models, alternative investments and operations and business solutions to achieve sustainable growth cycle. Business Solutions there in order to solve or address our customers' problems. With regard to Pathways, the focus is on technological evolution aiming to achieve new areas of impact in the future economy.

Moderator

Growth focuses on global population growth and the demographic changes supporting sustainable growth in a changing world. IMPACT addresses global warming and limited resources. We're aiming to make a positive impact on these issues. While we already have businesses in these key areas, we intend to further strengthen cross segment collaboration combining the strength of each segment expanded over the past decades to develop business at scale in each area. While these two business models are the ones that we have traditionally possessed, The asset value creation model will evolve into an asset management business incorporating third party capital in each business transforming into an asset light business structure.

Moderator

This is our plan. In a model for solving clients' issues, we provide solutions to global clients' challenges such as M and A brokerage focused on business succession opportunities within the Japanese market, which has actually grown to a considerable scale. We aim to strengthen our revenue base with asset light fee based models. Please turn to the next page. Now I would like to explain about specific measures to achieve our long term vision.

Moderator

We will implement the three key measures. The first is disciplined portfolio management second, sophisticated risk management and third, new business creation. These are the essence of management for ORIX Group in my own opinion as well. So we want to execute all three without fail and the details can be found on the bottom of the slide. We also believe that disciplined portfolio management is particularly important for improving ROE.

Moderator

As before, we will realize business value through capital recycling moving forward, but we will also visualize the growth potential capital efficiency impact on credit ratings of each business and asset at a much finer granularity. This will enable us to optimize and reconfigure the portfolio and improve ROE, which is the most important theme for that management of the group. In addition to enhancing our existing businesses, as you saw in the previous page, we aim for sustainable growth of the bottom line through new businesses centered on the strategic focus areas, which was outlined. In the previous page. We will invest management resources to maximize growth in the numerator part of the ROE formula.

Moderator

Please turn to the next page.

Moderator

I would like

Moderator

the ROE targets and initiatives for ROE improvement in our new three year plan in the three categories of finance, operation and investments. In finance, we aim for double digit ROE growth through accumulation of alternative investments and syndication, including addition of third party funds, selection and concentration within Asia and expansion of non financial revenue through the model of solving clients' issues. In operations, we aim to improve ROE through horizontal rollout of asset management business in real estate, renewable energy, aircraft and ships and enhancing service and inbound businesses. We want to improve it to 15%. The in the investment category, our aim may fluctuate depending on exits, but we aim to improve our rate to 11% on a multi year average basis by accelerating capital recycling and forming PE funds.

Moderator

Recently, we announced the sale of ORIX Asset Management and Loan Services Corporation and we intend to continue optimizing the business portfolio across the three categories without setting aside any area as a sacred cow. Our strength is being able to approach sectors and visions from three different angles, finance operations and investments and our ability to undertake hands on investment and operations utilizing our expertise in finance, which is our founding business. Over the mid to long term, our portfolio will shift more towards operation and investments. But, it is important to maintain abilities in all three not just categories but methodologies. Please turn to the next page.

Moderator

Finally, I'd like to explain the policy regarding capital allocation and shareholder returns in our new three year plan. While continuing to maintain an A credit rating, we will persist with the policy of distributing 39% of net profit as dividends. And for March 26 fiscal year, we had 100,000,000,000 share buyback. Looking at the capital recycling, we will be flexibly conducting share buyback to optimize capital and also at the same time grow EPS sustainably. We believe that Credit's mission for me is to enhance long term enterprise value and the stock value.

Moderator

Since EPS growth and ROE improvement have high correlation with rising stock prices, I want to reiterate that we will thoroughly focus on capital allocation and portfolio management that emphasizes the growth potential and capital efficiency and impact on credit ratings of each business, while optimizing capital to achieve sustainable EPS growth and ROE improvement. This concludes the brief overview of our long term vision and new year three new three year plan. Please turn to Page 18 and I would like to recap the key objectives once again. We aim for an ROE of 15% and a net profit of JPY 1,000,000,000,000 for the fiscal year ending March 2035 as a management KPI. And there is an interim milestone of ROE of 11% for the fiscal year ending March 2028.

Moderator

This is the most important goal for that new three year plan. And regarding the JPY 100,000,000,000,000 AUM target in asset management, we aim to achieve this within these three years and we plan to further expand AUM. That was a quick view on our long term vision and our new three year plan. Thank you very much for your kind attention.

Moderator

Now we are ready to ready for the Q and A session. So please raise your hand. And this is possible online as well. But please do understand that we would prioritize those people who are attending the meeting in person. So should you wish to ask the question online, please press the raise hand button at the bottom of the Zoom screen.

Moderator

And when your name is called out, please unmute yourself and ask question. We would also like to ask you to state your name and name before asking question. And please refrain from asking more than one question. So please, if you have any questions at all. So to the person at the furthest right on the first row in the venue, I am Watanabe from Daiwa Securities.

Moderator

Thank you very much for your presentation. I would like to ask a question with regard to capital policy. So the buyback is now being doubled to JPY 100,000,000,000 and on Page 17 in the orange box. So maybe JPY 150,000,000,000 or more is expected to be repurchased. So you could be so kind to have to share the idea to the shareholder return as well as the shares repurchase program.

Moderator

So we have been targeting at achieving double digit ROE. And but now we have positioned ROE to be the first and foremost important management target, which means that we need to address both the denominator as well as the numerator in order to improve our ROE. And as for the denominator, we would have to continue to carry out the shares repurchase program in order to achieve capital efficiency. So and also capital recycling, the timing of the investment, we have to strike the right balance in addressing the numerator. So therefore, we would have to carry that out in a very flexible manner.

Moderator

In a short time period, if there was to be, of course, a better opportunity attractive opportunity for us to gain on the investment that is to be made. But the investment and divestment, there could be some discrepancies. We will not be able to perhaps achieve a good enough balance. So divestment amount may perhaps be in excess of the possible investment, then we will be able to allocate such amount to shares repurchased. So in any case, we would like to continue to focus on ROE so far as the management indicator is concerned.

Moderator

And also, you have mentioned about focusing on EPS and which means that you are incorporating the double digit growth. Is there any kind of changes in the idea behind that? No, no changes. But basically, I said that we would turn more proactive in terms of shares repurchase program because 70% of the profit is base profit and the others are consisted of capital gain, basically, that is. But the capital gain in a linear manner to grow this in a linear manner, I think, will be difficult.

Moderator

So this is why. From the perspective of cash in and cash out, as we have said, so there could be a possibility of more cash in than the cash out. Then in such circumstances, by carrying out the shares repurchase program, we'll be able to enhance EPS I'm sorry, my voice is becoming a little croaky. And but at any rate, at EPS, we would like to continue to grow EPS steadily in a linear manner, and that is our idea. Thank you.

Moderator

Second row in the front. SMBC Nikko Securities, Manipuraki. I have a question about your capital allocation. Page 48 on the right hand side, I can see a diagram and ROE improvement in order to improve ROE, investments must be shifted from light red to the darker red in the center and potentially pushed to the upper side of this slide. I think that's what you're trying to do.

Moderator

Now with regard to investments, capital allocation, which part do you intend to shrink? That's my question. And also in terms of share buyback for this fiscal year and the next fiscal year, Page 17 shows about JPY300 billion. I think more than JPY300 billion. Is this the number for the upside at the time of upside or is this based on the standard scenario in terms of investment?

Moderator

What is the scenario for the share buyback on Page 17? In order to improve ROE, there are several things that can be done. One is revisiting capital allocation and low capital efficiency will be released. That's one thing. And another thing is we want to maintain A rating and also conduct share buyback in a flexible manner, as I said before.

Moderator

And we need to set aside some amount. Well, two days ago there was an article about me in the newspaper, 4,100,000,000,000.0 equity and out of that ratio between the goodwill and intangibles, this is about just over JPY 1,000,000,000,000. And in terms of rating, excluding this will have to be excluded for the purpose of rating. So in terms of asset or capital, goodwill and intangibles. The ratio of these two pieces, if the ratio is higher, then we will be less likely to be able to do the share buyback.

Moderator

So my point is there are multiple factors involved and there are pros and cons. And we want to look at them at a higher level of granularity, so asset investment or divestment. What is the impact on our financial statement? We want to look at this, monitor this at a higher level of granularity and we want to visualize it higher level of granularity and based on quantitative data, we want to execute capital recycling. So this is what I meant by ROE improvement.

Moderator

The most important management measure is a rigorous portfolio management. This is why I said that earlier. And with regard to the numbers, I would like to refer this to Yamamoto san. Yes. You have a question about Page 48.

Moderator

I would like to explain about the numbers. 11%, three years. Upside for the investment category, this is not really reflected directly. But based on the current portfolio, the horizontal axis in fact is a percentage of capital allocated. And, this is out of the consolidated capital, how much each category receives in terms of percentage breakdown.

Moderator

So investment will be repeated and accumulated. So divestiture and investment will be repeated over and over and this is how we, enable this. So ROE will be pushed up through this process and this is already taken into account and we want to achieve 11%. For the first year of this plan, share buyback will be now changed from JPY50 billion to JPY100 billion because of this background. And as we move forward with future capital recycling, as I said as we said, there is no sacred cow, no stone will be left unturned.

Moderator

So we will continue to make these efforts in order to achieve 11%. This is what we are trying to show with the bubble chart on the right hand side of Page 48. So withdrawal from law productivity business and also share buyback, how do you incentivize these measures? Because the remuneration for the directors traditionally sees net income as a key KPI and ROE was not really taken into account. There are two things.

Moderator

I assume this position of the presidency in January and Head of Segment and Head of Administrative Departments, for all of them, I have repeatedly delivered the message that we have to be focused on ROE. So I'm trying to change people's mindset. And secondly, having said all that, reflecting this into the executive remuneration, of course, is important, but we didn't have enough time this time around. Starting from January with AGM, we could have introduced a new remuneration system, but there are different potential designs, so we would like to spend some more time discussing different possibilities. And by next year, ROE linked incentive structure hopefully will be introduced.

Moderator

So 11% snapshot achievement in 2028 and going down to 10% or single digit in the following year, that is not really what we want. We want to see rolling, recurring mid to long term ROE improvement and therefore, incentive system has to be in line with that idea. So we'll be carefully designing the system. So starting from next year, hopefully we can introduce a new incentive system.

Moderator

The second person on the second row, Sato from JPMorgan. So for this year, the profit plan, so in what way will you did you apply your conservative estimate? So for the year that had ended, the gross capital gain and net capital gain, if we were to refer to those numbers, so impairment of JPY 50 plus billion or so can be observed. But this time, the segment profit, the increase is roughly about JPY 55,000,000,000. So if impairment is going to go away or you are just expecting the increase in profit by the same magnitude of the possible impairment.

Moderator

So what is your expectations and especially for the like base profit? And also, is there any kind of conservatism that is reflected, if you could be so kind enough to respond? There are some conservatism, but also we are, on the other hand, aggressive or proactive. And at the end of the day, we think that this profit is achievable, and this is why we made the announcement. But for example, unfortunately, but Grinko sales was not executed in the last year.

Moderator

So according to the SBA, it was a long stop date. But after April 2, we had unfortunately, we were not able to reach to the full amount as a result of the procurement of the fund. So the market has been quite volatile every single day. So this is why. But our intent remains to be unchanged.

Moderator

Once the market kind of quietens down and the fund if the fund is available, then we should be able to start this program. And so from that perspective, it is true that we have not incorporated such an amount into the plan. And as to the ForEx, 100 well, mid JPY140 billion was expected. But according to the forward, it is above 144 yen So the forward, if that becomes the spot rate, then there could be a possible downside slightly, that is. So be it upside, downside, putting that all together, JPY $380,000,000,000 of a net income, whether this is enough or not, I'm sure you may have different opinions about this.

Moderator

But we think that this is achievable, and this is why we have made such announcement today. Well, if possible, for this fiscal period, the base profit starting from last year. So I know if you could be so kind not to explain whether you are expecting growth? Well, not a growth by 10% to 20%. You mean by pretax profit?

Moderator

Yes, we are expecting the growth to be enjoyed. So if I may give the breakdown. So in coming up with this plan, and we have taken into account all that needs to and real estate related because of inflation. And for other reasons, the uncertainty is rising, we think, because last year's result was had been pretty smooth. And from that perspective, you may perhaps like to regard this to be conservative.

Moderator

But the condominium sales and also hotels and inns, the inbound tourism related, we had made a fine tuning, taking into account this robustness of the market. But other investment, for example, we may have turned a little kind of conservative And also ships, there may be an impact from Trump tariff, but the ownership of the ships, in fact, the long the distance of sale, in fact, the cruise, in fact, has been extending. So therefore, it had remained to be pretty strong in the last year. So there'll be no negative this year. And then like concession, for example, airport and as for momentum, there seems to be a recovery being experienced.

Moderator

And so therefore, on a year over year basis, we have come up with such a plan that you see. You. You.

Moderator

You very much for waiting. Moving on to the next person. This is Sakamaki Mizo Securities. Profit for the last year of mid term plan, I don't think you have disclosed that. I know that the ratings can be a restriction and share buyback is not unlimited and you have to consider ROE.

Moderator

So in terms of Plan A, what will be the profit level? I know for this fiscal year, there's a lot of uncertainty about the two, three years down the line, the situation will be different. So what level of profit do you think would be achievable or acceptable? We have not announced any numbers today. So I will refrain from talking any about any specific numbers, but you can maybe back calculate, reverse engineer the number.

Moderator

ROE is important for us, as I said before. Gross profit contribution may be there, but if the capital efficiency is low, ROE can be low or weak. And turnaround or sustainable growth cannot be expected if there is such an asset then even if we end up losing the bottom profit for short term, we may want to prioritize ROE improvement. That is our intention. And in 02/1935 JPY '1 trillion of net profit is now being targeted for.

Moderator

This is very challenging. This is not an objective that is easy to achieve. And it goes without saying, in order to improve ROE, we need to shrink the denominator, but also grow the numerator at the same time. We want to be rigorous with the portfolio management and also create new businesses. And we want to allocate maximum management resources for these areas.

Moderator

This is the intention behind that. So rather than being fixated on a single year bottom line, we want to improve the profitability over the mid term, long term in a sustainable manner so that we can flexibly do the share buyback and achieve a linear growth in EPS. So bottom gross profit level is not something that we would like to share with you today. I hope you understand.

Moderator

Thank you very much. Any other questions from the other floor? We would like to move on to entertaining questions online. From SBI Securities, Otsuka san, would you mind unmuting and start asking questions? This is Otsuka from SBI Securities.

Moderator

I hope you can hear my voice okay. Yes, we can. Thank you. So Page 16, referring to the slide. So for the New Year, the ROE plan.

Moderator

So in these businesses, you have ROE plan that has been shown. But for the first time, you have taken such an approach, right? So with regard to the achievement of ROE for each of these categories, the responsibility or commitment, who is going to be to hold accountable for this or responsible for this. So like the person, the Group Officer, I don't think there is anyone who is in charge of Group Officer for Finance, for example. Or you mean the segment like Head of the segment may be finally responsible?

Moderator

Or if that is going to be the case, then the capital would have to be allocated to each of these categories? Or how does it work? Well, if I may respond to your question. As of now, these three categories, the commitment to these numbers, the management who would account the responsible is Inoue, CEO and myself, COO, Takahashi, two of us. But on the other hand, on other pages, as we have disclosed, the finance business, the investment and the operation dependent on the segment, the businesses could be categorized differently.

Moderator

So I'm sorry to perhaps go away from your question. But in particular sector or any market, the two three approaches of finance, operation and investment. So I think this is the strength of Forex that we can approach from these three different perspectives or three aspects of the businesses. So rather than appointing the Head of each of these category under each of the Head of segments, we think that the best thing that could happen is to carry out these category activities. So but we should not make it kind of ambiguous.

Moderator

So as we have said at the time of the portfolio management presentation, as of now, this finance business, so in the three categories, there is a capital allocation. And also in 10 segments, the capital allocation, we do have managerial accounting perspective. So in other words, the distribution is made. But in a more granular manner, we would like to kind of approach this in particular segment. So we may have three different categories.

Moderator

We may have different businesses or different risk return profile. So therefore, granularity with finer granularity asset and operations are separated so that the capital allocations are made accordingly. And so that we'll be setting the ROE target for each of those businesses. So and in we kind of balancing the portfolio. But we are still in the middle of the way, but we do not intend to take much time in completing this task of ours in the next three years.

Moderator

In this three years midterm plan. We would like to, of course, enhance the sophistication of the portfolio discipline, the management. But how far are we going to kind of disclose to you the numbers is yet to be decided, though. So I hope this answers to your question. Well, if I may just confirm then, in that case, operation wise, to the Head of Segments, so there would be there is a quasi kind of capital that has been allocated to them and that is already up and running.

Moderator

But incentive wise, you are going to be designing this incentive program. Yes, exactly. So by segment, although it is up and running already, but that is on a segment by segment basis. So there will be different asset classes in each of the segments. So we may have to break it down with much more finer kind of granularity so that we'll be able to manage our portfolio in a much better way.

Moderator

So that will be our approach. Thank you.

Moderator

Suzino san, please unmute and ask your question, if you're ready. Yes, this is Suzino, BofA. Can you hear me? Yes, we can hear you.

Moderator

Thank you.

Moderator

In fourth quarter, equity based investment of about JPY 10,000,000,000 in Asia and also in Europe, some amount. And I'm just imagining that Grinko sales may have been possible until the last minute and you wanted to revisit this and you were considering impairment. That is my read on the situation. Brinker didn't work out, but still you did this impairment process. But the size of the impairment is quite large.

Moderator

Why were you able to do this at this time? And why did you want to do this at this time around and not before? That's my first question. And actually, the mixed firing impairment, the environment business impairment is also related to this. Considering the current environment, I think, Ibikinata in Japan Well, this timing, I just want to know whether timing of this can be justified.

Moderator

That's my first question. And considering the size of the impairment, if we can exclude the impact of impairment, you could have done $380,000,000,000 and you gain from exit to a great extent last year, I understand that. And this may not be present in the coming fiscal year, I understand that as well. But also at the same time, this JPY $380,000,000,000 reflects various types of risks. Now in what kind of situation would you not be able to achieve $380,000,000,000?

Moderator

What would be the conditions or parameters that will realize that kind of scenario? Thank you for your question. Impairment, it goes without saying, has to be implemented according to accounting rules. It's not something that we can control the timing of, so please understand that point to start with. I'm sure that you can imagine various scenarios, but there are specific reasons.

Moderator

And of course, no impairment is the best possible scenario. But in the prior fiscal year, we had to process necessary impairment. As we posted impairment, we had to relook at the assumptions and become more conservative. And if you believe that the assumptions are too conservative, maybe the impairment was too big from your perspective or if it's the other way around, maybe it's the other way around. But and gain on sales, matching both of them in order to control the profit, well, I wouldn't say that we never do it.

Moderator

But in terms of a divestiture, of course, CEO in OA says that we have to buy low and sell high. And of course, we should sell high at the maximum profit level if possible. So we do not arbitrarily control the timing of divestiture. And if the outlook of the business is poor and we have to post impairment that will affect our capital as well and that will improve ROA as well. So rather than doing buyback, throwing the money out of the organization, if we do that instead and post impairment, we can optimize the capital, which will improve the ROE in the future and improve the quality of capital and body of asset.

Moderator

So that's another management approach. So as necessary at the right time according to the accounting rules, we will be posting impairment and we want to be flexible with our share buyback. So this is a policy that's been long standing, it has not changed. Now with regard to JPY380 billion, I believe you're talking about the forecast for this fiscal year. Under which scenario we will not be able to achieve this?

Moderator

Well, every morning we wake up to new set of news. For example, Trump tariff are causing recession in The United States and that may cause global economic downturn. If that becomes a reality, of course, our base profit will be affected by that. And as I said before, if the sales of the venture is faced or if the investment that is planned cannot be executed at that time, things will shift or change. So those are the big factors that I can think of.

Moderator

And Matsun, do you have anything to add? With regard to how we formulate the plan, I would like to respond to your questions. As you know, JPY three eighty billion forecast. In the prior fiscal year, we applied some conservative measures. So I think the plan is more credible this time around.

Moderator

And in the fiscal year JPY140 billion or more gain on sales was achieved. Well, that was a plan and we could achieve that based on various assets. But of course, when it comes to sales divestiture, we have to think about the buyer situation. We try to distribute that over the four quarters and some of them are already underway. And in the end, we want to realize all of these in a satisfactory manner.

Moderator

But maybe JPY 10,000,000,000 saw fluctuation may occur because we don't necessarily want to push the sales. Now JPY $380,000,000,000, Green Co. Does not include does not is not included in this number. In other words, this base number is quite conservative, but still 80 increase on net profit for this fiscal year. So overall, the plan itself is a little bit more aggressive rather than just conservative.

Moderator

And hopefully, we can give you more information going forward. Thank you very much.

Moderator

So this is going to be the last question. So from online, Sasaki san from Nomura Securities. Please unmute and start asking question. I am Sasaki from Securities. I hope you can hear my voice okay.

Moderator

Would you mind speaking up a little more? I am Sasaki from Nomura Securities. I hope you can hear my voice okay. So I'd like to ask a question about the Slide number six. So this time, so non efficient businesses may be divested in a much more kind of proactive manner than before.

Moderator

But in the new investment, JPY 500,000,000,000 to JPY 700,000,000,000 is the idea that you may have. And if you're going to be reviewing the asset portfolio and the size of the sales of asset, would that match against this JPY 500,000,000,000 to JPY 700,000,000,000? Or do you have any other size in mind? And also time line wise, whether it would happen in the first half of this year or the second half, do you have any idea as to the timing as well? And if at all possible, the risk is heightening in different parts of the world, you had explained.

Moderator

But on the other hand, as to your businesses, as we enter into recession, you do have the strength of being able to enjoy such situation. So in this time of uncertainty, is there any kind of new business opportunity that you foresee? Well, as to the first part of the question, Yamamoto is going to respond later. So let me respond to the second part of your question to begin with. As you had rightly pointed out, you see we have diversified really diverse area of businesses and countercyclical in the past as well, such as the timing of global financial crisis, IT bubble burst and so on and so forth.

Moderator

So we did manage to post positive result on our P and L. So and I think that is the reason why you had asked the question. As for the future, it just so happens today in the morning, we have made a press release. So Hiroko Global, Hiroko Training, the acquisition, nonbinding MOU has been exchanged and concluded. So what they do is they would carry out the appraisal of real estate asset and also they carry through what is recognized to be liquidation process in United States, such as the inventory, for example, they'll be purchasing the remaining inventory and also to liquidate them as well.

Moderator

So therefore, they are truly countercyclical businesses that we are now just about to acquire. So from an organic perspective, at the time when the cycle the economic cycle is on the downturn, we will be able to make profit, although it sounds a little kind of weird, but still, we would very much like to make the most out of our strength. So if we can move on to the first part of the question. So this is going to be Yamamoto. Allow me to add to what has been said by Takashi so far.

Moderator

So JPY 500,000,000,000 to JPY 700,000,000,000, so recouping of the investment. So we have not taken into account that part. So in terms of the cash in, that would work out to be an upside. And in other words, from a P and L perspective, even if it was to be flat, capital release will be proceeding. So therefore, as ROE management, I think we would have more options.

Moderator

And I hope this answers your question. If at all possible, do you have any size in mind as well as the timing? Or how kind of firm the plan is? Well, in the three years, the execution is to be done during the three years period. So it is very different from the usual PE investment, like execution, exit in the first half and then exit in the second half, this is not going to be such a case.

Moderator

So we should not refer to it in a snapshot manner. But just I had explained, whether there is any room for improvement of the businesses or improvement in the financials. So in the during the three years, we will be scrutinizing all the businesses in the pipeline. And so that hopefully, there will be no much of a decline from the current level. But of course, there will be some little fluctuations for the ups up or down.

Moderator

But even if we have JPY 20,000,000,000 of a deal, we will not be able to reach to that extent. So please do understand that there would be a kind of an imaginable kind of size. So I think it will be in the range of JPY 500,000,000,000, 7 hundred billion just as you have asked the question for. Thank you very much. Thank you.

Moderator

So we have just gone over the time that was scheduled to conclude the session. I'd like to hand over to Takahashi to give us the closing remarks.

Sachiko Nakane
Sachiko Nakane
General Manager, Investor Relations and Sustainability at ORIX

Thank you very much for joining us today. I'm sure that there are still some questions left, but we have introduced the strategy and the measures today. And by implementing them on a quarterly basis, we would be looking forward to providing you with a progress so that you can monitor the progress. And we appreciate your kind support, continued support. Thank you very much.

Sachiko Nakane
Sachiko Nakane
General Manager, Investor Relations and Sustainability at ORIX

That concludes the earnings call for the fiscal year ending March 2025. Thank you very much for staying until the end of this program. Thank you and goodbye.

Executives
    • Sachiko Nakane
      Sachiko Nakane
      General Manager, Investor Relations and Sustainability
Analysts
    • Moderator
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Earnings Conference Call
ORIX Q4 2025
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