ORIX Corp (IX) 2026 Q3 法說會逐字稿

It's time to begin. Thank you for joining us despite your busy schedule today for ORIX's earnings call for nine months ended December 31, 2025. My name is Nakane from Investor Relations, Sustainability Department. I'll be the master of ceremony. Thank you for this opportunity.

Today, we have Operating Officer responsible for IR, Kazuki Yamamoto. And he will provide you with an explanation for about and it will be followed by Q&A and the whole program is scheduled to be approximately one hour. Yamamoto-san, the floor is yours.

Thank you for the introduction. Thank you very much for taking the time out of your busy schedule to attend the ORIX Group's earnings presentation. I am Kazuki Yamamoto, responsible for Corporate Planning, Investor Relations, and Sustainability. Let me explain the financial results for the third-quarter of the fiscal year ending March 2026.

Page 2 of the handout contains the key points we want to convey today. The first point is net income. Net income for the nine-month period was JPY389.7 billion, up by JPY117.9 billion from the same period last year. This was our highest third-quarter cumulative net profit level. We achieved 89% of our revised full year forecast of JPY440 billion announced at the time of first half results call.

The second point is pretax profits. Pretax profits were JPY567.7 billion, an increase of JPY184.3 billion, year-over-year, and all three categories of finance, operation and investments saw profit growth compared to the same period last year. Growth was particularly strong in investments, and we still achieved an increase in pretax profits year-over-year, even after excluding a large gain on the sale of Greenko shares and valuation gains on the remaining stake.

The third point is shareholder returns, along with first half results. We also announced the expansion of the share buyback program from JPY100 billion to JPY150 billion. By the end of January, we had completed buybacks equivalent to JPY128.1 billion with a progress rate of 85%. This is the increased program. We will continue to make steady progress on acquiring shares to complete our full share buyback program.

Please turn to page 3. I will explain pretax profits for each of the three categories. This page shows our chart for each of the three categories, Finance. Operation and Investments with nine months cumulative results for the previous and current fiscal year.

First, at the top, the dark blue represents Finance. Segment profits increased by 8% year-over-year to JPY145.5 billion with a progress rate of 81% against the full year forecast. ORIX Life reported growth in investment income, and we were able to increase finance revenues in the Australia and Asia, excluding Greater China.

Next, the light blue bar, second from the top represents Operation. Segment profit increased by 17% to JPY189.5 billion compared to the same period last year with a progress rate of 79% against the full year forecast. In the third-quarter, we recorded a gain on the partial sale of shares held in Canara Robeco, an asset management company in India at the time of IPO of the company.

Airport concessions and real estate operations also saw improved performance in the third-quarter. Moreover, the Auto segment posted strong earnings, thanks to a robust used car market. The Ships business also boosted earnings. with high asset efficiency, having leveraged synergies with Santoku Shipbuilding, which joined ORIX Group the fiscal year ending March 2024.

Finally, the pink bar from the top represent Investment segment's profit -- segment's profit in this category increased by 100% compared to the same period last year, reaching JPY261.4 billion, marking a significant increase in earnings. As outlined earlier, we booked a large gain on the sales of Greenko in second-quarter and sales of Ormat geothermal power business, which also was a contributor.

In real estate, we sold several properties, including Hotel Universal Port VITA as well as office buildings and rental condos. Furthermore, domestic PE investees mostly performed well, resulting in increased profit contributions. As a result, segment profits for the nine-month period increased by 40% year-over-year to a total of JPY596.4 billion.

Further, pretax profits increased by 48% year-over-year to JPY567.7 billion. The difference of JPY28.7 billion between the total segment profits and pretax profit is due to business expenses in the administrative departments and other areas. Steady profit growth across our finance, operations and investment segment was a key feature of our performance in the third-quarter.

For the fiscal year ending March 2026, while building on achievement to date, we aim to drive sustainable growth and further improve capital efficiency. In the fourth-quarter, based on the business plan currently being formulated and the medium-term outlook for each segment, we will continue to take timely and appropriate actions as needed. Accordingly, there is no change to our full year net income forecast at this time.

Now please turn to page 4. This page explains ORIX's progress in capital recycling. The upper section with a light orange background shows sales, while the lower section with a light blue background indicates new investments. Also, the blue and pink circles in the central box shows the category for each of the businesses sold or bought.

For the nine months -- so for the nine-month period, we recorded JPY196.6 billion in capital gains with cash inflow due to divestments amounting to JPY790 billion and cash outflows from new investments amounting to JPY700 billion in total. Now new investments are being continuously pursued both domestically and overseas, focusing on operation and investments among the three categories. A key investment in operations is the acquisition of our Hilco Global, a world-leading company in asset valuation. Furthermore, we have expanded our investments in aircraft supported by generally strong passenger demand.

In Investments, we made a PE investment in LULUARQ, the operator of capsule toy specialty source during the first-quarter. In the third-quarter, a TOB for I-NET, a company listed on the Tokyo Exchange -- Stock Exchange Prime Market was executed. This initiative is part of Pathways, one of our strategic investment areas, which aims to undertake investment in AI infrastructure businesses and DX-related business fields.

Additionally, we invested in AM Green convertible bonds and logistics facilities. Although not shown on this page, we announced the formation of a PE fund with the Qatar Investment Authority, QIA, last November and although this fund specializes in domestic investment, but investment in LULUARQ and I-NET were before the fund launch. So we plan to leverage the fund for use in future deals.

Gains on asset sales, cash inflows and new investments are all progressing steadily. However, there is no change to our full year forecast from the revision announced at the second-quarter.

Now next page 5 and 6 provide a summary of segment profits and assets. On January 1, 2026, we announced organizational reforms to restructure our 10 segments into 3 business divisions: the APAC business division, Infrastructure Business Division and Europe and America business division as well as new banking and insurance units.

However, for FY26 March end, we continue to manage our business using the existing 10 segment framework. So we will explain our results using these. For detailed information on the performance of each segment, please refer to the slides from page 10 onwards.

First, cumulative segment profit in Corporate Financial Services and Maintenance Leasing for nine months period increased by JPY14 billion, up 21% year-over-year, reaching JPY80.2 billion. The Corporate Financial Services unit in the second-quarter posted a profit on the sales of ORIX Asset Management and Loan Services Corporation and Nissay Leasing. The business enjoyed increased fee income from various activities, including operating lease investments. Together, these resulted in increased profits year-over-year.

The Automobile unit steadily expanded earnings by successfully passing through higher maintenance and other cost increases through pricing with customers understanding. They also sustained strong used car sales. This helped the unit achieve its highest ever profit for the third-quarter.

The Rentec unit achieved growth in inventory style rentals of ICT equipment on Windows 11 related replacement demand and saw robust sales of used rental equipment resulting in profit growth. Despite Auto and Rentec posting growth in new auto lease executions and PC rentals, respectively, segment assets decreased by JPY10.1 billion to JPY1.8745 trillion compared to the previous period year-end due to the sales of ORIX Asset Management and Loan Services and Corporations.

Next, Real Estate segment profit was JPY56.9 billion for the nine months. The Investment and Operation unit posted revenue growth of the sales of -- from the sales of Hotel Universal Port VITA as well as from the operation of Inns and Hotels.

However, it experienced a year-over-year decline in segment profits, owing to the absence of the large-scale gain from the sales of 100 (technical difficulty) in FY25 March. Details concerning the outlook for the facilities operations business will be explained later.

The Daikyo unit was increased profits aided by activities such as the sales of rental condos. Segment assets increased by JPY44.3 billion compared to the end of the previous period, reaching JPY1.2025 trillion. The main reason behind this increase was investment in the Osaka Integrated Resort project, progressing as planned. In addition, assets rose owing to the completion of several logistics facilities by the investment and operation unit and Daikyo also increased its investment in newly built condos.

The PE Investment and Concession segment achieved profit growth of JPY27.8 billion or 42% year-over-year to JPY94 billion. The PE Investment unit reported higher profits year-over-year due to robust performance at current domestic PE investees such as Toshiba and DHC. On a stand-alone third-quarter basis, we did not execute any individual exits from our PE investments.

However, equity earnings from our investment in Toshiba made significant contributions. As a result, quarterly profit exceeded both the first-quarter of the previous fiscal year, which included gains from the sales of Sasaeah Holdings and the fourth-quarter when the exit of Wako Pallet was realized.

Regarding the Toshiba investment, while we recognize its earnings as equity method investment income, there is a three-month lag in reflecting those results in our financial statements. Now the Concession unit continued to perform well as Kansai International Airport saw increased passenger numbers, especially on international flights. We will explain the impact of China later, but please note that earnings at -- the third-quarter earnings at Kansai Airports will be reported together with ORIX's fourth-quarter results with a three-month lag.

While the impact for FY26 March is likely to be minimal, we anticipate a certain downside for the next fiscal year. Data on passenger numbers and other details for the three Kansai Airports up to December are shown on page 7 for your information. The Investments and Concession segment assets was up by JPY127.7 billion from the end of the previous period to JPY1.1506 trillion. The main reasons include new investment in LULUARQ, the successful TOB of I-NET, making it our subsidiary from this third-quarter and increased balances in equity method investments.

Environment Energy segment's profit increased by JPY109.1 billion year-over-year, reaching JPY102.2 billion, a substantial profit increase is mainly due to gains on the sale of Greenko energy and valuation gains on the remaining stake as well as gains on the sale of Zeeklite and Ormat. We completely divested our stake in Ormat in third-quarter.

Domestic earnings show that solar power sales revenue decreased in the third-quarter due to seasonal factors, but electricity retail sales volumes and prices remain strong. Regarding overseas operations, interest income from convertible bonds of AM Green, which were purchased in second-quarter, contributed to positive performance. Additionally, over (technical difficulty) sales are in the recovery trend, we continue to remain cautious on development and operation projects at this firm.

Segment assets decreased by JPY11.1 billion to JPY1.002 trillion compared to the end of the previous term due to capital recycling. Profit of the Insurance segment increased by JPY12.4 billion, up 20% year-over-year, reaching JPY74.1 billion. The impact from expansion in investment assets and rotation of portfolio securities has boosted revenue.

In terms of product sales, along with a single premium wholesale insurance Moonshot and income protection insurance Keep Up. Launched -- and in the first half of FY26 March, respectively, sales of whole life insurance, RISE and Yen Can launched in December was also strong. Segment assets increased JPY193.7 billion to JPY3.203 trillion compared to the end of the previous term.

Profit of the Banking and Credit segment decreased by JPY2.2 billion year-over-year, reaching JPY19.9 billion with interest rates rising, while asset management yields have gradually improved, funding costs for deposits are rising ahead of those. The main reason for the year-over-year decrease is the booking of losses from selling long-term bonds through the third-quarter aimed at improving the bond portfolio. We are responding flexibly with priority on maintaining financial soundness and enhancing future profitability.

Segment assets increased by JPY115.3 billion to JPY3.2599 trillion compared to the end of the previous term. New executions of investment real estate loans and lending to strategic areas have grown steadily. Additionally, we explained in the first-quarter, a JPY30 billion dividend was paid out to the parent company, ORIX in July of last year, helping to optimize capitalization.

Profit in the Aircraft and Ship segment increased by JPY4 billion, which is 9% higher year-over-year, reaching JPY48.6 billion. Aircraft leasing saw increased plant sales in the third-quarter, resulting in profit growth during the nine-month period. Lease rates continue to improve and the business environment remains favorable. Of note also advanced aircraft sales and booked profit contributions from the Castlelake portfolio, which was acquired in January last year, resulting in similar profit growth.

Ships saw increased ship sales in the third-quarter, but experienced a slight profit decrease due to the absence of the sharp rise in charter fees in some contracts seen in Q2 of FY25 March. Segment assets increased by JPY46.5 billion to JPY1.2785 trillion compared to the end of the previous term.

Aircraft leasing assets increased on investment of new planes, but assets in the ships unit was lower on sales on owned ships. And overall, it was flat, excluding ForEx.

ORIX USA segment reached JPY14 billion for the nine-month period, showing positive recovery, thanks to valuation gains on investments in PE booking in Q3. However, profits for the nine-month period decreased year-on-year due to the absence of the reversals of the credit costs booked in FY25 March and the credit loss expenses and impairments booked in the same year.

Credit losses and impairments mostly stemmed from real estate lending originated primarily during the post-COVID period of financial easing and legacy assets before those days, higher US dollar interest rates and prolonged inflation and uncertain economic outlook stemming from tariffs and other factors also contributed.

To date, we have strengthened our investment and lending standards, applied more rigorous screening to new deals and enhanced risk management to existing assets. And through these efforts, we continue to improve and reshape our portfolio. Please refer to supplementary information, page 25 and 24 for further details of OCU performance.

Segment assets increased JPY491.6 billion to JPY2.0856 trillion compared to the end of the previous term. Excluding the impact of the Hilco Global acquisition and exchange rate fluctuations, assets are declining, and we are steadily moving forward with rebuilding our business and portfolio rotation.

Profit in ORIX Europe segment increased by JPY9.2 billion, which is a 24% rise year-over-year, reaching JPY47.3 billion. In the third-quarter, ORIX sold a portion of its holdings in Canara Robeco in conjunction with its IPO. Additionally, Robeco Group increased net cash inflows and expanded AUM to a record JPY500.5 billion, boosting management fees and underpinning profits. Segment assets increased by JPY127.6 billion to JPY796.9 billion compared to the end of the previous term, mainly due to exchange rate effects.

Profit in Asia and Australia segment increased by JPY11.4 billion, which is 41% rise year-on-year, reaching JPY39.3 billion. Although the increase in profit this quarter was partly driven by one-off factor and valuation gains and unlisted equities, we continue to restrict investment stance in Greater China, while in other APAC regions, we expanded earnings primarily through financial income generated by local operations, resulting in overall profit growth.

Segment assets increased by JPY125.9 billion to JPY1.851 trillion compared to the end of the previous term. Assets have increased in some regions such as Australia and India, mainly due to exchange rate effects. Please see page 29 for graph showing a segment asset breakdown by country and region, where China has seen recent increase driven by exchange rate effects. That concludes the explanation by segment.

Please turn to page 7. I would like to add some explanation about inbound tourism. Concession centered on Kansai International Airport is reflected in ORIX's consolidated results with a three-month lag through the earnings of Kansai Airport. So for this third-quarter, we incorporate Kansai Airport's July through September performance, which contributed to higher profits.

Since December, the number of Chinese passengers has declined approximately 40% year-on-year, just looking at September. And in addition, late January, major Chinese airlines announced extensions of the deadlines, allowing free cancellations for Japan-bound tickets. As a result, unfortunately, we expect downward pressure on earnings and continue for the time being.

However, the number of international passengers and inbound tourists in general, well, you can see the trend after the COVID-19 pandemic and also the impact of Mainland China. You can see that on the right-hand side graph. As for real estate operations in Kansai area, there is an impact of a discount, mainly focusing on group tourists from China. And therefore, currently, it is difficult to increase the unit price.

However, real estate operations directly operated by ORIX, we have been working to improve RevPAR focusing on hotels in Kansai region. The share of Mainland Chinese customers to total assets in both hotels and inns is small. And ORIX Hotels and Inns tend to specialize in individual Chinese travellers and earnings have remained steady. Meanwhile, some facilities have seen bookings slow during the Lunar New Year period. So we are carefully monitoring the situation.

Real estate operations like hotels and inns are affected by inflation and rising construction costs. And therefore, we will aim for sustainable growth while carefully selecting new investments. There's basically no impact on rental cars because driving licenses issued by (technical difficulty) in Mainland China are not valid in Japan. And in Aircraft and Ships segment, we continue to see steady passenger traffic, mainly from Europe and United States and solid supply and demand in aircraft. And therefore, overall ORIX's inbound tourism-related businesses appear to be well balanced.

Thanks in part to the success of the Expo held last year, global interest in the Kansai region rose significantly, both in terms of the economy and opportunities. In our integrated report 2025, we highlighted a range of value creation initiatives, including the Expo Kansai International Airport, advanced opening of Kita district and the launch of globally branded hotels.

We would give a broader audience and effortless way to experience the atmosphere and momentum of this region. And to that end, we are planning to introduce a video -- short video on our website. Apologies for taking a moment during this earnings presentation, but we would like to share this video teaser preview over the next 90 seconds or so.

I believe Kansai is now entering a period of significant change. Kansai refers to a region in Western Japan centered around Osaka, Kyoto, and Kobe. We know that there is a great expectation. So during the World Expo, many dignitaries are participating from around the world, we were able to show the world that Tokyo isn't the only global city in Japan, Osaka is also a global city. We want to be very active in Asia as a result. And I hope that the people understand that what we're trying to do. Thank you very much for viewing the video.

Please turn to the presentation material and turn to page 8. This is our financial strategy, consolidated balance sheet. Financial breakdown is shown on the left and key indicators on the right. Total assets increased by JPY1.2594 trillion compared to the end of last year. Excluding the FX effect, there was an increase of JPY800 billion. And the largest factor was the consolidation of Hilco Global. And then we have a PE investment and also assets increasing in insurance and banking. But for insurance and banking, self-funding is also possible.

Long-term debt, short-term debt and deposits increased by JPY363.4 billion, mainly due to the growth in deposits in ORIX Bank and the new bond issuance. We will continue to diversify funding sources and increase the ratio of long-term borrowings to maintain stable and competitive funding. Insurance contract liabilities and policy reserves decreased by JPY234.2 billion. This was mainly because of higher discount rate used to measure insurance contract liabilities, resulting in a reduction of liabilities on the balance sheet. And this more than offset an increase of new single premium policy sales.

And the total shareholders' equity was increased by JPY495.2 billion, of which JPY234.2 billion was attributable to the reduction in insurance contract liabilities. And the remaining increase primarily reflects the accumulation of retained earnings. Shareholders' equity ratio is 25.3%. The ratio, excluding deposit is still at 1.5 times.

On the right-hand side, the graph shows the employed capital ratio, which remained at around 90% due to capital recycling. By maintaining appropriate employed capital ratio, we aim to maintain an international credit rating at the A level going forward.

Please note that the calculation model has been updated since -- from Q3. There are no changes in terms of risk tolerance or risk-taking policy, but the risk ratios are now defined at more precise business and unit levels than before. While unit-funding costs, including bank deposits are gradually rising, foreign currency funding costs, mostly in US dollars continue their downward trend. We strive to reduce capital costs by leveraging our competitive A-level credit ratings and diversified funding capabilities.

Please turn to page 9. Progress in our share buyback program is as indicated in the executive summary. Payout ratio for full year is 39% of our net income per share. We want to maintain this level. Left bottom, JPY153 or so per share, this is based on the assumption of net income forecast of JPY440 billion. We will give further details at the end of the fiscal year.

That concludes my presentation. Thank you very much for your kind attention.

Thank you. We are now ready for the Q&A session. (Operator Instructions)

JPMorgan [Sato san].

Yes, I am Sato from JPMorgan. So I'd like to ask a question about ORIX USA, a little details. However, at the time of financial results announcement this time, so the closed ORIX Capital partner, I think you have closed it. So is it related to that, is what I want you to confirm?

And Hilco Global, so you have integrated the company under consolidation. And I know that you're going to be revisiting your business plan based on this acquisition. And on page 24, earnings outlook, for example, as compared to three months ago or six months ago, it is going to be revised to downside or rather than upside. And also, if there was to be any kind of progress that is made in terms of other businesses.

So first of all, OCP evaluation -- profit within the portfolio, the investees, there was a growth of EBITDA, and that was quite significant. And as a result, that evaluation gain was -- occupies the majority. And also other closed deals, so we are aspiring to exit sooner rather than later. And at the end of the day, we are considering to exit out of those investments.

And as for Hilco Global, thank you for your question, has been shown, so we have 100 days plan, which is currently being executed. And so ORIX Group Global and Hilco and also out of the entire group, -- so what -- how can we enjoy the collaboration, in fact, is what we are foreseeing.

On page 25, as you can see, so Hilco Global, where it is heading to, like automotive, like parts and components and also at the same time, advisory businesses. So it is quite speedy. So without losing any kind of strength of Hilco, we would like to acquire new kind of businesses that would work out to be positive.

And also OCU as a whole, Hilco Global inclusive, the overall picture of the matter is in the business plan that we are formulating currently, leveraging on our balance sheet, we are, in fact, scrutinizing the details so that the OCU business can be rebuilt, and we hope to be able to explain that at the next earnings call. So I hope this answers your question.

Well, in that case, just so that I'll be able to have a better understanding. So what was closed back in January. In the next quarter, irrespective of the size, I understand that there will be a profit that will be generated.

As to your question just now, towards the closing, so there will be an evaluation that will be conducted. And so additional kind of gains on sales is not to be expected because the valuation gain has already been incorporated.

Morgan Stanley, MUFG Securities, Takemura-san, please.

This is Takemura, Morgan Stanley. I have a question about the overall progress and your view on the progress. third-quarter was closed. In the second-quarter, you upgraded the plan, and even against that plan, the progress was quite fast. So compared against the plan, what was better or worse or was stronger or weaker? Can you please share as much as possible.

And also because of the high progress rate, maybe in the fourth-quarter, do you expect some downside that will offset this faster progress.

Thank you for your question. In the first nine months, first of all what is progressing strongly. This is page 3. I would like to use this page to explain. As I have mentioned, as for investment, this is JPY261 billion and Greenko JPY95 billion. And in terms of investment efficiency, this is very good. Toshiba noncore business divestiture and also Kioxia post IPO. So these are all captured with three months for LP earnings, and this is progressing faster than expected. But we're talking about the semiconductor share prices. So this is not something that we should be commenting on, but the share price level is quite high in our view.

As for the operations, as we have explained, Canara Robeco again, this was very smoothly launched. And with remaining share, this is equity based investment. We will continue to move to a situation. But including the emerging markets, we see this kind of business definitely growing.

And the third point I would like to mention is based on the result of the election, we expect the domestic economy to grow stronger. I talked about inbound, but automotive, lease, IT and also funding requirement. We believe all of these are moving very solidly. And until we close the fiscal year, we will continue to build up the deals, and we are really hoping that we can do better than the plan in terms of finance business as well.

However, with regard to the first-quarter, as I have just explained, for the full year, it seems to be good, but performance for next fiscal year or the next three years, we need to verify the outlook and think about the capital efficiency as well as the solidity of the earnings plan. And based on that understanding, we will continue to address the situation.

So I'm not talking about specific deals or projects, but we will be evaluating things on a regular basis as appropriate. And right now, I don't have anything specific that I can mention. But we will continue to scrutinize the business plan and share information. And I hope that answers your question.

Yes. Just one point of clarification. USA, gain on valuation, was this part of the plan?

Thank you for your question. Ultimately, company's situation is always looked at in detail. So this is within our expectations, we can say. But invest in ORIX USA and ORIX Capital Partners website, when you look at website, you know who are investing and the telecom network data center service investees impacted by the AI boom in the US performing very strongly.

And the EBITDA growth of those companies can be incorporated at fair value, which means that this domain is growing stronger than we had expected. And this is one of the factors that was reflected in the performance in the third-quarter.

Masao Muraki, SMBC Nikko Securities Inc.

I am Muraki from SMBC Nikko Securities. So I may repeat some questions, but towards the fourth-quarter in terms of cost incurrence, is there anything that we need to be mindful of. So in posting some of the losses in the past, such as ORIX Bank, ORIX Life. There was some loss on sales of some fixed income products. And also in the United States, credit cost of JPY4 billion was generated as well. So there was some credit loss that had incurred as well.

So in more precise manner, I wasn't able to hear you. But with regard to Elawan, with the individual kind of project, I think you said taking a cautious and careful step. I suppose there is a goodwill. Can you carry it over the goodwill for Elawan. So I know that there are a lot of technical kind of details, financial technical details, but.

Okay. I would like to answer one by one. First of all, as I have mentioned, in whatever the way the cost that may incur, so it's not that we are being careless, but such as the public AI or data center that has been remaining to be pretty robust, but also tariff related, trade related, in fact, remains to be uncertain.

So therefore, it's pretty mix. And real estate although the short-term interest rate is coming down, but long term, especially super long-term interest rate is still rising. So the credit cost may be posting dollar interest rate, while it was almost zero, especially the short-term rate, especially the mortgage loan that is increasing.

So some credit loss that may incur has been incorporated and also legacy assets out of the corporate is what I have mentioned is kind of corporate risk. There are certain provisioning that may perhaps prove to be necessary. So this is why every quarter -- so some of the fixed income assets that we will be kind of listing them out for seeing some risk that may generate some losses.

So as for the fourth-quarter, I think the same kind of procedures will be undertaken. So from that perspective, with regard to the credit cost for this year, so we will not wait until the fourth-quarter. And at the regular pace, we would continue to revisit the situation so that we'll be able to in advance incorporate the losses, if there was to be any.

So as you have mentioned about Elawan, on an individual project by project basis, we have been taking a very careful and also cautious stance. So Elawan's goodwill and also at the same time, the project that is in progress, for example, work in process, for example, and we have been incorporating some intangible assets as well. So the business progress as compared to our initial plan, especially at the reset of the economy and other factors taken into account, there has been some delay, however, in the project, but we are beginning to see some signs of improvement.

So therefore, the plan will be reviewed. And so this is what we need to do, we know. But if there was to be any kind of aggravation in terms of the P&L, then we will not wait until the very end, but rather to review the project itself. So Elawan at the center on a midterm business plan perspective by project by project, we are scrutinizing each and every project and also reflecting the result of the assessment. And in light of all the individual assets, we would like to take necessary measures so that there will be no carryover of any kind of negative legacies onto the next term.

So as has been mentioned, this year as well as the last as a result of yen's interest rate rising, if there was any loss incurring from the bond of fixed income assets, we are incorporating some of the foreseeable losses by the third-quarter. In terms of the amount, it is not that sizable, to be honest. So we would not have unrealized loss, not a huge amount. And as a result of some impairment that has been conducted, there should be no further impact that we can foresee.

On the other hand, life insurance, it is true that the unrealized loss is enlarging. However, basically, -- so we have -- we do kind of match it against the policy kind of asset as well. So in terms of the switchover, order churn has not been happening very much, which means that from an operation perspective, there seems to be no kind of -- the accounting kind of loss that we may have to calculate. We are not prepared to be doing so at this point in time, so I think we still have some leeways. I will not be able to say anything in definitive terms, but that's all I can share at this point in time.

Kazuki Watanabe, Daiwa Securities.

Securities. I would like this question about page 8. 92% at the end of September, now 89%. This is improving the employed capital ratio. And you have explained this in your presentation, but what did you change? And did the target level change. And in thinking about how to use the excess capital, do you have any updates on the capital strengthening for the insurance?

Yes, please turn to page 8 for employed capital ratio. (technical difficulty) was updated in the third-quarter. So I would like to add some explanation. As was said before, year-end team looks at the risk dashboard. We have been improving the dashboard. Portfolio risk management is now more detailed. We can look at this on a project-by-project basis. We are trying to do that. And the risk volume that we were looking at as a lump sum was broken down to project level and the risk level was actually lower than we expected.

So the employed capital ratio is now lower. And maximum loss based on global financial crisis. That was what was used as a parameter, but we also reviewed that. So from 91% to 81%, the ratio has come down. Does it change our risk appetite?

Well, this is just a result of calculating in great detail, so it doesn't directly impact our risk appetite. However, 10% investment capacity of buffer is present. And also in terms of PE ratio and the equity ratio, this is quite conservative. But as long as it doesn't negatively impact our rating, it is actually possible for ORIX to make flexible investments.

And your second question about liability for Life assessment. Thank you for your question. On the left-hand side, on the table, you can see the insurance contract liabilities, reduction of JPY234 billion. I was explaining that. And this is mark-to-market based on the long-term bonds.

As you may know, toward the end of last year, 20-year or 30-year term bond issuance reduced. So there are fewer bonds that we can refer to. So what can we do now? Now the life insurance company is looking into various parameters. Financial institutions and accounting auditors, they are discussing these details in order to review the references so that we can improve the index to provide more stable evaluation of the assets.

And as a result of the improvement, the life insurance company wants to introduce better indices. And if they can do that, we believe that is an improvement. And this is still in discussion. And we're just telling you what kind of initiatives are being done. So bond issuance was smaller, spread was expanding. These factors had impacts, and we wanted to make some adjustments. I hope you understand, I'm sorry that my answer is not very clear, I know.

So after the adjustment, if you can just step evaluation, can you utilize the excess capital for shareholder return, for example, growth investment?

Well, the liability assessment evaluation, we don't need to be overly discounted. So we have to check that first. Utilization of net assets is not really the focus. We're looking at the parameter whether the parameters are accurate. We wanted to evaluate the accurateness of the parameters.

Naruhiko Sakamaki, Mizuho Securities.

I am Sakamaki from Mizuho Securities. I have one question. So this time, from the deck, so capital profit and base profit, I think, was not incorporated because I think there is a lot of evaluation gain or evaluation profit. So how -- what was your takeaway in accordance with the previous way you were expressing?

So capital gain -- as to the capital gain versus base profit, we did not incorporate such a page this time, but I think we had some mention of this. So capital gain, in fact, is shown in the capital recycling page. So let me make sure. So JPY195.6 billion. And if you were to subtract that, you would end up seeing how much was generated as the best profit.

So as a result of this JPY196.6 billion, and so therefore, you see this was not to be kind of replicated. So therefore, some -- from investment community had said that it is quite misleading. So this is why, as a result of escalating this to the Board and we have decided to disclose on a fee category basis and Canara Robeco's gain on sales, for example.

So capital gain business of finance could be a possibility as well. So it's not that we have decided to refrain from disclosing what we used to. But as for the base profit, for sure, it is steadily growing. And so therefore, we just wanted to prioritize this closure based on those three categories. And so the base profit versus capital gain, so we do, of course, respond. Should you have any questions and should you want the precise numbers by all means. Thank you very much.

Futoshi Sasaki. Nomura Securities.

This is Sasaki, Nomura Securities. Just one point of clarification. Performance up to Q3, pretty strong. Credit cost is posted. And in the fourth-quarter, certain things may happen. And as a result, next fiscal year, or the next three years, how is the plan shared with the management or how is it aligned?

With Takahashi-san as a new CEO, more emphasis were placed on ROE. The biggest point of your question, I believe, is can we invest actively into high-quality deals. And this is a focus of our discussion internally. PE investments generating new profit. As Takahashi-san mentioned, this is one of the important strategic pillars. So wants specifically, which domain do we want to promote this?

This is the most imminent discussion. And once we have the results for FY27 March and '28 March, we should be able to aim for continuous growth in profit. But divesture will also happen and as a turnover will also happen during this time period, and we may have some new capital.

So JPY150 billion of share buyback. So we added JPY50 billion. JPY150 billion is not the baseline going forward. But we increased from JPY50 billion to JPY100 billion in the beginning of the year. So we want to be flexible in considering the shareholder return as well. So this is something that we're discussing for the short term.

For JPY100 billion of performance as we said when we made the adjustment, this is the highest in accord, and it reflects the major sales like (technical difficulty). And for next fiscal year and beyond, we have to check again. But our own watermark has -- high watermark has also increased. But we will not just look at that. We will also think about high capital efficiency investments. I don't think I'm answering your question very directly, but I hope that's okay.

What you have just said is profit growth will continue to some extent. And we want to increase ROE and meet the 11% target for ROE. Is that the correct understanding. Because first half and second half had slightly different nuance.

Absolute amount of growth in terms of profit, I'm not saying that we are committing to that within this structure. Whatever contributes to capital efficiency, well, in terms of P&L losses, we will not be just focusing on that, we will try to do that. But the ultimate objective is increased capital efficiency.

So if we do something financially and the PL profit drops from this year's high level, well, that kind of thing could happen. But business plan for next fiscal year has not been translated into financial plan just yet. But once we have a better idea, we would like to explain that perhaps at the end of the fiscal year presentation.

Natsumu Tsujino, BofA Securities.

This time I think you had some evaluation gain and also capital gain in Asia as well as in North America as well. So with regard to PE investee in US as well as in China, up until now, you had -- you, in fact, shared your idea as to being stringent in terms of the scrutinization necessary for those investees. And this is why you did not revise upward your earnings.

And so why you thought that you have to remain cautious, you did manage to enjoy gain on -- enjoy capital gain or evaluation kind of gain as well. So was your outlook wrong? Or were you anticipating some loss generation from some kind of investment or investee. So this is why you have not made any kind of changes or the revision to your earnings despite the fact that you have been exceeding your expectations. So that is the first question.

And then can I expect the fourth-quarter to be even on upward trend. And -- but of course, it may have to be revisited perhaps. So it's just that your outlook was slightly kind of wrong and PE investee in US was pretty strong. But then of course, Elawan is emerging and that is kind of encouraging you to have the heads up.

So I hope that I will be able to answer to your question as you have in accordance with your intent. So in China as well as in United States, so the capital gain as well as evaluation gain as a result of the evaluation that we have conducted on an individual basis. So the risk appetite as well as the direction going forward, which I mentioned earlier, in terms of the P&L of that just as been pointed out by Tsujino. So the nuance may be slightly different from what we have mentioned in the past that is something that I will not be able to deny.

So especially USP investee, in the areas of technology, for example, it is expanding on a fair value basis. So therefore, it is really based on the individual P&L. And also in the United States or North America, we were proceeding with reducing down the position. So therefore, we hope that this evaluation gain should lead us in generating the actual gain on sales. So Asia, while we enjoyed some evaluation gain, but from an accounting technicality, so it's not -- but it is recovering from the bottom, in other words, in some cases.

So therefore, on an individual name-by-name basis, there were mixed situations. So therefore, in terms of the risk appetite-wise towards investment, we remain to be kind of conservative or we remain to be -- we would contain from making aggressive investment, refrain from making such investment. But at the end of the day, what is proceeding in a strategic manner -- so those, unfortunately, will start to perhaps dilute in other words, going forward.

So towards the fourth-quarter in each of the business lines, so while we are scrutinizing each and every business line. With regard to Elawan, that is one category and also with regard to real estate as well, we are doing the same, so that we'll be able to take necessary actions earlier rather than later. And so dependent on the business environment changes, external factor changes against such a backdrop, if we cannot foresee an immediate recovery in some of the businesses, we do not wait until the very end but rather take earlier actions.

So in other words, we will prioritize taking actions as opposed to wait and see. So from that perspective, we may have some further evaluation gain or losses. But Elawan, for example, is one. And also with regard to real estate, there will be some kind of preparation in terms of procurement and so on and so forth.

So therefore, I mean, so far as we haven't gone as far as being able to explain one by one, to the investment community, but there is some kind of progress that we may be able to make going forward. So I just wanted to indicate the direction going forward. I hope this answers your question in some way or the other.

Well, if I could ask a question about Robeco's AUM on a QoQ basis, it is increasing quite significantly. What is that the backdrop? So it is increasing by 18%. So is there anything that you can explain as an appeal?

So page 27, yes, we have shown. So the Robeco, the asset management fee is under pressure, but the AUM is what we feel the need to kind of increase on a two-dimensional basis, but also at the same time, we are trying to enhance the profitability as well. So relatively speaking, we did manage to win the mandate for a quite sizable fund or deal. And that, in fact, was reflected.

And also equity market is remaining to be strong, and on the other hand, the fee income competition, especially advisory as well as index, it needs to be tough. And so therefore, we would like to remain to be competitive and centered around Robeco, of course, in proceeding with this business. So AUM, it is true that it is growing significantly, but we hope to be able to generate growing of profit out of this growth of AUM as well as AUA.

Okay. Well, in that case, in this there is no kind of specific strategy that worked out to be positive. You will not be able to mention that?

Well, we hope to be able to share some further details. But as to Tsujino-san knows, like index related, for example, what was build, what was not, if you were to -- you will be able to perhaps enjoy a better inflow of the fund, but the needs are quite limited.

So therefore, if you were to seek for the quantity, for sure, you may be able to benefit from it. But of course, we will have to ensure, as I have said, that leads to our betterment of profitability. So this is what we need to work on. So it is not just the quantitative improvement but also we are trying to achieve qualitative improvement at the same time.

Before we run over the scheduled time, this is going to be the last question. (technical difficulty), please ask your question.

This is Niwa speaking. Follow up question to what Tsujino-san asked. My question is management resource allocation and also appetite for Japan. Real estate was covered broadly. And my question is, in Japan, what is better areas that you would like to focus on? And is there a sign for improvement in terms of demand for financing? 17 strategic domains have been identified by the central government. And are there some of them in line with the business that ORIX is trying to do?

More domestic market, as I explained during the real estate mid-market private equity and manufacturing included new economy-related area is seeing increase in the interest rate. So lease and CapEx investments demand strengthening. This is our impression. For example, for auto lease cost increase. Well, we asked people to send that, and it was not really accepted, but recently negotiation is most smooth, retention is going up.

So based on the financial capacity, tangible asset-related business is looking very promising in Japan as well. In relation to the strategic focus, ship loading, well, we are not really thinking about going directly into ship loading. So there is nothing within the 17 areas that are committed. But we believe that intermediary business will grow. For example, (technical difficulty), which we made a release the other day, we are getting a good sense that this is going to be a good business. And we have adjacent areas surrounding the 17 pillars mentioned by the central government, and we will discern, identify good areas for us to enter. So that's one direction.

And in addition, I'm sure that (technical difficulty), but the result of the election was very clear. So looking at the governmental budget and financing, we believe that we will be able to see which private sectors will be more active and we will try to capture those. I think the budget is still yet to be discussed in detail. So we will continue to monitor that and listen to the customer needs, our customers' voices, and response to their needs for financing, and we have great expectations as we try to build the business plan for next year.

Another related question. Overseas business domestic ratio compared to what you had in the midterm plan, maybe the ratio of domestic business is going to be bigger? Is that true or not?

Well, the domestic market is not expected to improve dramatically. And for overseas, when you look at aircraft, for example, in aircraft, crafts and ships, in Asia, we were controlling risk taking. So we believe that there is a good expectation there. In terms of overseas versus domestic ratio, my impression is that this is not going to change largely, but hopefully, we can provide more information in May.

We would like to close the Q&A session. And lastly, we would like to ask Yamamoto-san to close.

Thank you very much. So the third-quarter remains to be strong. Thank you for your support. And just as I had explained, so we will be revisiting the business plan. And from Takahashi-san CEO, we hope to be able to share our plan going forward at the time of the earnings call at the end of the fiscal period.

So after working hard at the fourth-quarter businesses, so we will then continue to seek for your understanding as well as your support. So with this, would like to bring third-quarter earnings call to a close. Thank you very much for your participation.

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