Orix Corp

TSE:8591

Earnings Call Transcript 2022-Q1

[Operator]

Good evening, ladies and gentlemen. Thank you for joining this telephone conference of ORIX Corporation for first quarter consolidated financial results for the 3 months period ended June 30, 2021. The attendee at today's conference is Mr. Yano, Executive Officer, Head of Treasury and Accounting Headquarters. [Operator Instructions]

Mr. Yano will do the presentation, which will be followed by Q&A. The total duration of the meeting is approximately 1 hour. Now we would like to begin the meeting, and I would like to turn the call over to Mr. Yano.

[Hitomaro Yano, executive]

Good afternoon. I am Yano from ORIX. Thank you for joining us today for the FY '22 March end first quarter business performance announcement of ORIX.

So without further ado, let me explain. Please -- I understand that you do have the deck in front of you, so please refer to Page 2, and let me first share with you the executive summary for the quarter.

So first, the net income and ROE. The net income was at JPY 65.2 billion, up 30% year-over-year as well as quarter-over-quarter with annualized ROE of 8.6%. With this, we achieved 26.1% of FY '22 March end net income forecast of JPY 250 billion, marking a very good start for the year.

Next is segment profit growth. Japan, including Tokyo, is still in the middle of the state of emergency due to COVID and, therefore, still affecting the 3 businesses of real estate facilities operation, aircraft leasing and concession. However, thanks to the diverse business portfolio of ORIX, we have a number of business units that are performing well. In fact, for segments namely ORIX Europe, ORIX USA, Real Estate, Corporate Financial Services and Maintenance Leasing posted sharp profit growth.

The third summary point is investment pipeline and new execution. Despite a tough environment, we have a rich pipeline that includes renewable energy and MICE IR. Also, steady progress are made in execution of previously announced projects. While we will remain to be very selective in the choice of the projects, we intend to be active in the new execution as well.

The last summary point is the shareholder return. No change to plan for the full year dividend of JPY 78 per share. JPY 50 billion is the amount for the repurchase program for this year. So far, we are making a steady progress by buying back JPY 10.2 billion already as of June end. We will update you on the progress for July very soon.

Now please turn to the next page. As we explained, the net income for the first quarter was up 30.3% year-over-year and 29.5% quarter-on-quarter with annualized ROE of 8.6%. The right-hand sidebar chart shows the trend of the quarterly net income and ROE over the past 2 years. As you can see, a steady recovery is continuing since we hit the bottom in the second quarter of FY '21 March end. The result this time has exceeded the level of the fourth quarter of FY '20 March end.

Now please refer to the next page. This page shows the breakdown of segment profit. The total of segment profit was JPY 106.9 billion. The bar chart on the right shows the trend of the segment profit over the past 5 quarters with dark blue showing the base profit and pale blue, investment gain. Base profit was up 23% year-over-year at JPY 77.2 billion. As I mentioned at the beginning, many of the segments performed well, exceeding the decline of profit in the 3 businesses that were impacted by COVID-19.

On the other hand, investment gain grew significantly to JPY 29.7 billion, almost double of that of the prior year. The result was reflective of timely exit for both domestic and overseas projects, including U.S. private equity investments and logistics facilities in Japan.

Let us move on to the next page. This page gives you the further details of the segment profit growth. The chart on the left shows the quarterly trend of the segment profit over the past 2 years. The 3 businesses that are affected the most from COVID-19 are shown in gray color while the others are shown in blue.

As you can see, although most of the businesses other than the 3 businesses were also impacted by COVID at the start of the pandemic in the fourth quarter of FY '20 March end, the businesses are recovering steadily with the quarter being the bottom. Moreover, the businesses marked a significant profit growth in this first quarter as compared to the previous quarter. We have made a note of some of the businesses that performed favorably, and I will explain the details later on.

Please now turn to Page 6 and 7. From this page, we share the breakdown of profits and assets. We confirmed a clear sign of recovery with 7 segments expanded their profits as compared to the last quarter, while 6 segments grew their profits year-over-year. By the way, the table shown here, in fact, is pretty optimal in capturing the overall trend of the segment. However, as for the details by segment, please refer to Page 11.

So allow me to make use of this Page 11 in briefly explaining each of the segment by using the page. And we made changes to the calculation method of the segment profit as a matter of fact. So it is a change to the allocation method of the interest rate payments as well as SG&A. And we also reflected the changes in a retrospective manner, so please be careful when analyzing these numbers.

Please refer to Page 11. First, Corporate Financial Services and Maintenance Leasing segments. Segment profit was up 53% year-over-year, and the segment ROA had improved to 3.4%. Profit for auto grew significantly as a result of positive used car market as well as recovery of rental costs.

Rentec refrained from utilizing the technical center affected by the COVID to the fall in the first quarter of the last year, but the business is recovering steadily and showing a robust trend. Taking into the account of lower interest rate environment, Corporate Financial Services have been very selective in both loans and leasing deals, so resulting in the decline of the segment asset.

So let us move over to the next page, and now we show the Real Estate. Now investment as well as facilities operation, in fact, have managed to reduce the amount of losses as a result of improvement in the occupancy. Stronger demand at the backdrop, the segment posted gain on sales of logistics facilities resulting in the gain of profit. And DAIKYO number of units delivered in the first quarter increased and -- year-on-year, increasing the profit on sales of newly built condos.

So please refer to Page 15, this shows PE Investment and Concession. Our domestic private equity investment, Kobayashi Kako, has not resumed their production yet, but the new investments we made in the last year are all performing well, contributing to the profit growth. We will continue to search for and consider new investment deals.

Now concession unit. The financial performance of Kansai International Airport is recognized with 3-months lag because in the first quarter of last year included the business result of pre-COVID time. So the profit this time around, unfortunately, posted a decline. However, international cargo is growing, showing some signs of recovery.

So please refer to Page 17, Environment and Energy segment. Gain on appraisal was temporarily posted in Indian wind power generation in the first quarter, and the absence of that in this quarter meant reduced profit. But new businesses are developing in Japan, including PPA model.

PPA model means that our company leases land or roof from a client who wants power, and we install power generation -- solar power generation system and supply the power to that client. This is advantageous for our client because it leads to the reduction of CO2 emission. We expect the market to grow rapidly.

New executions are expanding, centering around the manufacturing and retail customers, both large and middle sizes. And the profit contribution from our overseas new investments will continue to be posted with a 3-month lag. Greenko profit will be reflected in the -- starting from the second quarter, Elawan from the third quarter.

Please turn to Page 19. This is the Insurance segment. Non-face-to-face, including the Internet and the mail order, continue to grow. And the insurance agencies, banks and our reps providing face-to-face consultation were included in the omnichannel. And we are providing optimal service depending on our customers' needs.

Traditionally, we were focused on the third sector, including the medical insurance. But now our product lineup has improved, including whole life insurance denominated in yen and U.S. dollars, in order to achieve more balanced source of revenue.

Reversal of liability was posted in the first quarter for former Hartford, and the absence of that meant that the segment suffered a decline in profit. But excluding Hartford, ORIX Life increased its profit.

Page 21 shows Banking and Credit. Non-face-to-face sales was used to taking advantage of online, and real estate investment loans grew. Profits have been stable. And in credit, we had smaller positive impact from reversal of provisions for losses compared to the first quarter where there was a slow demand for cash because of lockdown.

Please turn to Page 23, this is Aircraft and Ships. Avolon reduced profit due to posting of losses from a lease contract for airlines by HNA Group. But HNA Group restructuring is going smoothly. We do not see any big concerns going forward.

As the vaccine coverage continues to expand in the U.S., Europe and Japan, the outlook for the aircraft leasing industry is looking brighter. In the second quarter earnings announcement of Avolon last week, only 1.7% of the aircraft are on the tarmac, which meant major improvement. And for Aircraft and Ships unit, we saw profit increase due to higher level of maritime mortgage.

Please turn to Page 25, this is ORIX USA. Gain on sales, investment gains were posted in multiple PE projects, leading to a significant increase in profit. ORIX Capital Partners' dedicated PE investment is part of ORIX USA, and the Capital Partners invested into the largest service provider of traffic infrastructure safety called the RoadSafe Traffic Systems, leading to the first exit for our Capital Partners after -- in 5 years after the establishment.

It's not just our own money, but external investors have participated, which means that in the United States, we are actually doing asset management business and also in the PE Investment business. And real estate loan origination and asset management of [ factors-needed ] loans are done by Lument, and Lument continues to be strong.

Please turn to Page 27, this is ORIX Europe. ORIX Europe segment does the asset management business. AUM is showing a recovery trend. And the balance at the end of first quarter was EUR 326 billion, posting a new record. Robeco is strong with a sustainable fund, and the AUM of this fund increased, leading to a high level of fee income.

Please turn to Page 30 for Asia and Australia. Profit increased in smaller local and operating companies with a fewer impact of COVID-19. Lease new execution accelerated in China and South Korea, and the auto lease in Australia also contributed to the profit.

That completes the explanation about each segment. And now we would like to turn back to Page 8. And lastly, I would like to explain about the future pipeline and new execution. In new executions, we will continue to focus on renewables, PE, asset management and logistics. And we have a rich pipeline centering around these areas, and we will continue to promote new executions going forward.

In Environment and Energy, we announced the closure of the acquisition of Elawan Energy, which is a major renewable player in Spain. The announcement was made on 27th of July. So we have many development projects led by Elawan and Greenko, and we will continue to accelerate global deployment of our renewable business.

Within Japan, I have already spoken about the PPA model. But in addition, we also have a dry biogas power generation. And in June, we have completed the construction of the largest biogas power plant in Yorii town, Saitama Prefecture. And this is now run on a test basis. And in the same month in June, our first retail green board -- bond was issued by ORIX. And other than Environment and Energy, we have a diverse pipeline, and we'll continue to build new executions.

Within MICE IR, we submitted the proposal to a prefecture in the city of Osaka on the 20th of July. And the project is currently under bidding, and we will continue to contribute to sustainable growth of economy and also tourism of the Kansai area and the country. And in May, we invested with a right of refusal to the concession project of water supply, industry waterworks and sewage of Miyagi Prefecture.

As for logistics facilities, we have multiple development projects in the metropolitan area where the demand is heightened due to the growth in EC. So we develop, we find the tenants and sell. This is a turnover model that we will continue.

Now as of today, we're in the middle of a fourth state of emergency, and the situation continues to be unpredictable. However, for the first quarter earnings, we could make a very good start. Vaccine coverage in Japan is improving, and we're really hoping that the situation will continue to get better.

And we will continue to pay close attention to the shareholder return. So first of all, we want to achieve the JPY 250 billion of net income and return to the JPY 300 billion level as soon as possible. And as a next step, we will start preparing for the achievement of JPY 400 billion. And we will continue new investments and also sales of assets and continue to improve the turnover in order to achieve ROE of 11%.

That's all for me. Thank you very much for your kind attention.

[Operator]

[Operator Instructions] Well, first, from JPMorgan, Otsuka-san.

[Wataru Otsuka, analyst]

I am Otsuka from JPMorgan. As for the overseas businesses, so I have a question with regard to the interest rate. And if you could be so kind enough to explain, looking at the interest payment in the fact book as compared to April to June last year, it has declined by JPY 6 billion in terms of the interest payment. And thank you for sharing us the numbers, but 80 basis has declined for the funding cost. And I'm sure it is very much attributable to the interest rate movement in the United States.

So this pace, this JPY 17 billion of interest payment, can I take it that this is likely to persist within this year? But the interest rate is, in fact, declining further. So the interest payment may perhaps improve further, and that may affect the yield of the asset as well. So how can I interpret this?

[Hitomaro Yano, executive]

Thank you for the question. So let me answer to your question. So with regard to the payment -- interest payment in the overseas market because U.S. interest in fact declined, so therefore, it has declined as well the amount. But all the countries are, in fact, reducing their interest rates. So therefore, this is likely to persist for now, for the time being. So the interest rate payment, in fact, is going to decline further.

But with regard to the financial assets, of course, we are thinking about the ALM. And basically, so with regard to the variable asset, we would try to procure the fund by ways of variable, whereas for the fixed, there's just the fixed. So therefore, while the interest payment, of course, is going to decline, I think same is applicable for the yield to be gained on the asset. And we may have made a mention of this some time ago, but I think it was JPY 2 billion or JPY 200 billion. There was the mismatch between the fixed versus the variable and the floating rate.

So -- but we had halved the fixed-rate amount by half or so. So therefore, I think the mismatching factor has been unwounded. And so therefore, so JPY 1 million or so, in fact, has been fixed now. So the decline of the interest rate, we are positioned nicely to benefit from the decline of the interest rate now. So that is true for the Asian -- the countries of the Asian region. But the assets in Asian region, they tend to be -- the duration tends to be about 4 years. In actual fact, the duration may perhaps be as short as 2 years. So that's where we are. So I hope this answers your question.

[Wataru Otsuka, analyst]

Which means on the asset side, the yield that you can enjoy in the short run, you're not affected significantly, may I take it?

[Hitomaro Yano, executive]

I think that is correct.

[Operator]

SMBC Nikko Securities, Muraki-san.

[Masao Muraki, analyst]

Environment and Energy business, I would like to understand the impact of your investments. Elawan acquisition was closed. And how does it impact the goodwill calculation for the next fiscal year? And also, how does it affect the rating of the company?

In terms of P&L, Glenco consolidated -- sorry, Greenko consolidated starts from the second quarter; for Elawan, from the third quarter. I think that's what you mentioned. For this fiscal year, do you expect them to contribute to the profit at all? Please update us on this information.

[Hitomaro Yano, executive]

Thank you for your question. Allow me to explain. Greenko, this is equity method-based, which means that on the balance sheet, this is the equity method. So associated, the company's investment is posted. And goodwill and intangible assets do exist.

For Elawan, as we mentioned before, the valuation for future projects is actually possible, and that is why we have acquired them, which means that a certain amount of goodwill and intangible fixed assets will be included.

As for the rating, Moody's is seeing this as a positive move. They have a positive opinion. And S&P, according to RAC calculation, has a slightly negative view. That's the situation. But does it mean that there would be some immediate action? We don't know. We cannot say one way or the other.

And impact on profit. Well, as I have mentioned before, this project is forward-looking, future-looking. So in the first year, the contribution may be small. But in the following 5 years or so, we expect the profit to grow. We expect that for both of those projects that you have mentioned. So maybe JPY 1 billion also for the first year. And over 5 years, maybe they will grow into tens of billions. And that's the rough estimate that we have for those projects. Does this answer your question?

[Masao Muraki, analyst]

Yes. As for the rating, in the financial pages or the end of the package, you are mentioning that if there is a change to the rating, so the share buyback, the current plan and the future investments will not be impacted by the change in the rating. Can you confirm this?

[Hitomaro Yano, executive]

Yes, that is our intention. That is the internal consensus.

[Operator]

Let us move on to the next person, Watanabe-san from Daiwa Securities.

[Kazuki Watanabe, analyst]

My name is Watanabe from Daiwa Securities. I have one question, and I would like to ask about the first quarter net income of JPY 5.6 billion. Is it almost in line with your initial expectation? I just want to get the feel of your takeaway from this. And do you think that there could perhaps be upward revision for the full year and also upward revision for the return?

[Hitomaro Yano, executive]

So I was kind of anticipating this kind of question to be raised. As a matter of fact, back in May, at the time of announcing of the full year result, the first quarter as compared to the time then, the first quarter result was better than we had initially anticipated. So we were, of course, expecting the businesses to recover from the impact -- negative impact from COVID-19. But also, at the same time, I think we have been able to fare our time in the -- with COVID days in other words. So in the first quarter, we did manage to achieve more than 25% of the expected amount of net income that we target to achieve for the full year, which is a very good start.

So what do we think about the whole year then? To be honest, at the time of the closing of the first quarter, I think it is too early stage for us to comment on the full year results. So at the time of the second quarter, we may have a better visibility for the full year. And if there was to be any necessary changes, we would announce the changes then to the full year business performance. But we are fully aware of your expectations. Thank you. I hope this answers your question.

[Operator]

Mitsubishi UFJ Morgan Stanley Securities, Tsujino-san.

[Natsumu Tsujino, analyst]

It's hard to ask just one single question. With this earnings announcement, impact of Kobayashi Kako, this is the investment -- business investment segment, and all the other projects did relatively well. And Kobayashi Kako is unable to operate its business. How much negative impact did it actually generate? That's my first question. And also, going forward, I understand that you're considering selling, disposing. And what do you think is the likely scenario would be?

[Hitomaro Yano, executive]

Thank you for your question. As far as Kobayashi Kako is concerned, manufacturing and sales activities are suspended. So they're running deficits, to be honest. And maybe we did talk about this in the previous meetings before, but the sales is basically 0. And if we continue to operate, we are running about JPY 1 billion deficit. And that is probably the amount of the losses that we're posting in the first quarter as well.

And naturally, we are focusing on rebuilding, restructuring the company. And I don't remember the exact wording of your question, but you are suggesting that we are considering selling Kobayashi Kako off, but no, that is not what we're considering. I do understand that from the investors' view -- investment view, that may be an option. But for the time being, we are purely focused on restructuring and rebuilding the company.

[Natsumu Tsujino, analyst]

So JPY 3 billion deficit generated by Kobayashi Kako, and based on that, it means that all the other projects did much better to make up for that. So which ones did well? And do you think that performance would be sustainable? Or is it just temporary?

[Hitomaro Yano, executive]

Well, we believe that it is sustainable. Our investees do contribute in terms of net profit for the term. For example, last year, you may remember our announcement, the CORNES milking robot company, and there are some other companies. Some of the companies that we bought last year are already contributing to our profit. So for our PE investment, no one is really suffering from a big loss due to COVID-19. So in other words, all these projects are making sustainable positive contributions.

[Natsumu Tsujino, analyst]

But compared to the last year's level, maybe about 3 companies are doing much better than before. And I was wondering if you could name names. Well, you did mention CORNES and you also mentioned companies that you bought last year, I guess.

[Hitomaro Yano, executive]

Right. And I am not very clear about which companies' names I'm allowed to announce or not. So that is why I'm struggling with the answer. I'm not trying to hide any information from you. Please don't misunderstand. I'm sorry.

[Natsumu Tsujino, analyst]

Understood.

[Hitomaro Yano, executive]

I wonder if there is any list of names I can refer to. Right, APRESIA is another example who did pretty well.

[Operator]

The next is Sakamaki-san from Nomura Securities.

[Naruhiko Sakamaki, analyst]

I'm Sakamaki from Nomura Securities. I have one question. ORIX Europe is the question. So referring to the segment profit, it is very much related to ESG fund, I believe. But how do you foresee the growth of ESG funds from here down the road? What is your growth expectation?

[Hitomaro Yano, executive]

Excuse me, because we really wanted to make a strong appeal of the strength that is enjoyed by ORIX Europe, and this is why we have made a mention of ESG, but the market, in fact, overall was favorable. And this is why the market, in fact, was supportive of the growth of the business of ORIX Europe. So AUM, in fact, of course, will grow as a result of the price hike of the names of different securities, but also at the same time, as I have said, the new money had flown in as well, and as a result of, of course, ORIX Europe's capability being evaluated highly.

So ORIX Europe, there are 4 major different asset managers. And Robeco, of course, is playing a central role and which, in fact, has been displaying their capability in the sustainability-related investment. And the sustainability-related asset, in fact, has been growing. And they are carrying out an active investment and not passive investment. And thereby, they had benefited from the investment that they have been making.

I'm sorry, my explanation may perhaps be a little brief, but that is all I can share at this point in time. And talking about how much of a growth has been enjoyed by sustainability fund, I'm sorry, I don't have any statistics readily available, so I won't be able to share the numbers.

[Naruhiko Sakamaki, analyst]

That's fine.

[Operator]

BofA Securities, Sasaki-san.

[Futoshi Sasaki, analyst]

This is Sasaki, Bank of America. I have a question about how to read the performance. First quarter performance ended up being better than what you estimated in May. JPY 250 billion was the original plan. If you exceed this, the difference in profit, will that be returned to the shareholders? Or will you spend it in order to strengthen the financial health of the company? Or will you invest this? And what is the likely usage of this difference? If your performance progress is favorable, when do you think you can go back to JPY 300 billion? Do you think it will happen earlier than what you announced in May?

[Hitomaro Yano, executive]

Thank you for your question. JPY 250 billion, can we achieve this at all? Well, we have to do the JPY 200 billion first for this fiscal year. So we should not sound too courageous at this point, but we will not be satisfied at JPY 250 billion. We will go attempt to go higher.

And once we exceed the original plan, what do we do with the difference? You have mentioned 3 options. And depending on the situation, we want to strike the right balance among these 3 options. That's all I can say at this point in time. But the shareholder return, of course, is one of the important themes for us. So we will, of course, keep that in mind.

Either way, going forward, after we see some more progress, we will come back to this discussion point maybe at the next opportunity. And at this point in time, I'm sorry, but I cannot really share any more specific details with you. Was there another question -- second part of the question?

[Futoshi Sasaki, analyst]

Yes. When do you think you can return to JPY 300 billion? Is it going to happen earlier than what you said in May? Or is the scenario still the same? Or what are your thoughts? Is it going to be delayed?

[Hitomaro Yano, executive]

No, I don't think it's going to be delayed than what we have announced. Of course, we are expecting it to happen earlier rather than later, but it's very difficult to say exactly when. But our hope is to achieve earlier rather than later.

In the case of the JPY 300 billion, is it the next fiscal year or this fiscal year or fiscal year after the next? I think that is the question that you're asking, but I have to apologize, I cannot really say anything at this point in time. But our hope is to achieve this number as early as possible. And our feeling is that it will happen earlier than what we expected before, but I cannot really say anything definitive because we don't have solid numbers.

[Futoshi Sasaki, analyst]

So are you already certain that this will not happen in this fiscal year, before the end of this fiscal year?

[Hitomaro Yano, executive]

I cannot really say anything that would give you the wrong impression. So I should not say anything further because otherwise, I'll just be giving you a specific outlook for the performance.

[Futoshi Sasaki, analyst]

I understand.

[Operator]

The next person is from Citigroup Securities, Niwa-san.

[Koichi Niwa, analyst]

So one question. So U.S. asset management businesses, on Page 25, AUM and AUA as well, referring to the chart to the right, so it looks as if you had already peaked out and the decline seems to be quite significant. So the decline in the first quarter, what was the reason behind this decline? And what do you see -- foresee happening in the future? The organic investment may perhaps be lagging perhaps. So if you could be so kind in that to explain the trend on this Page 25 to the right.

[Hitomaro Yano, executive]

Sorry for that. For the first quarter, the decline for the AUM, so that -- so the Brazil -- in Brazil, there is that RB Capital. So we had to dispose of the business. And this is why [ RER ] capital. And we do, in fact, reshuffle our portfolio every now and then.

And so as for the existing asset management businesses, we intend to, of course, increase the asset under management. And we do have some pipeline as well. And for sure, our intent, of course, is to increase the AUM, and that is -- that remains to be unchanged.

In the previous fiscal year, SPCM, as you can see, so we had some replacement as well. So we did dispose of some of the investments, and we have been, of course, acquiring some of the new assets as well on the other hand. And I think this is just as usual, in other words, a rebalance of the portfolio. So it doesn't mean to say that it is an experience of a rundown, but rather, it is as a result of some reshuffling of the portfolio.

[Operator]

Mizuho Securities, Sato-san.

[Koki Sato, analyst]

This is Sato with Mizuho Securities. Kobayashi Kako's future risk, that's what I want to ask you about. Specifically, associated companies are preparing for litigation for liability. We have heard these comments. So what about the risk for liability compensation by the business partners? Have you made assessments? Maybe it's difficult to talk about specific number, but can we expect this not to impact the overall profit in a significant way?

[Hitomaro Yano, executive]

As far as Kobayashi Kako is concerned, the biggest risk would be brand impairment of Kobayashi Kako and how we can rebuild that, how we can restart the production and also the sales activities.

As far as litigation is concerned, I don't think it would be appropriate for us to make any comments about what we are thinking or doing because there are other companies involved. But of course, we take the situation into account, and we are responding to these situations. Asset value estimation has been done, and the impairment was calculated as necessary. So going forward, we will continue to respond to the situation as necessary.

[Koki Sato, analyst]

Understood.

[Hitomaro Yano, executive]

Well, either way, as of today, I cannot really show you any optimistic scenario for Kobayashi Kako. But if you think about our group as a whole, on the whole, Kobayashi Kako should not have a huge negative impact for the group's profit.

[Koki Sato, analyst]

It's very clear.

[Operator]

The next person is from UBS Securities, Okada-san.

[Taiki Okada, analyst]

I am Okada from UBS Securities. So I would like to ask the question with regard to new investment execution amount, and the JPY 500 billion is the amount that you have made newly in terms of the investment. How -- what is the progress for the first quarter? And with regard to PE investment, dependent on the region, so the level may have been remaining to be at a high level. But what do you think about the investment environment going forward?

[Hitomaro Yano, executive]

So first of all, so far as the first quarter is concerned, I don't have the accurate number in front of me. But so far as the first quarter is concerned, there were no major investment that was made. Whereas in the second quarter, just as I have mentioned, so Elawan, in fact, we'll be closing the deal. So therefore, JPY 100 billion also will be the amount of investment. And so we will be consolidating about JPY 200 billion or excess of JPY 200 billion in terms of assets.

So there are some major investments going forward. And as for private equity investment, both in Japan as well as in the United States -- China, they have their different way in making such investments. So let us put that aside. But in any case, not just limited to U.S. or Japan, in Europe as well, in United Kingdom, in London, we have an office. And we are -- we have acquired a company called Gravis, as we had announced previously, and we are putting different views on the table for discussion. So by -- in different locations of the world, we are considering different deals, and we would remain to be so.

And in terms of the investment environment, I think divestment may be favorable, but I don't think the market would allow us to carry through major investment acquisition. It will not be a favorable market for acquisition. But for sure, we do have a rich pipeline. And we are quite hopeful and we may be able to share with you some results sometime in the future.

[Operator]

[Operator Instructions]

[Hitomaro Yano, executive]

This is Yano speaking. If there are no further questions, why don't we lift the limitation of one question per person because it seems that some of the people who have already asked the questions may want to ask additional questions.

[Operator]

Mitsubishi UFJ Morgan Stanley, Tsujino-san.

[Natsumu Tsujino, analyst]

Aircraft lease, ORIX non-Avolon business, no gain on sales posted this time around. Investment into aircraft lease, I think the investors' appetite is coming back. It's recovering. That's what I hear. And maybe we're beginning to see that. And do you think the situation will enable you to have more investment gains from that?

Another question about the aircraft lease. Some of the deferred portions, is it the right way to say this? I don't know. But I think you can collect more, there's more opportunities for that for Avolon. But for ORIX Aviation, maybe the situation is the same. But depending on the situation, let's see.

Accrual-based is shifting to cash-based and cannot be posted as a revenue, and that's pushing down the profit. If the situation goes back to normal, maybe the profit will increase, it will grow?

With Avolon, this cash is about 10% or 11% according to the previous earnings announcement. I want to know the situation with ORIX business. And when do you expect the recovery to take place? When do you expect to go back to the way things were?

[Hitomaro Yano, executive]

Thank you for your question. Aircraft actually becoming more active, dynamic, and we are actually thinking about buying things that some investors are interested in buying. But ORIX Aviation is the sale to Japanese investors to get a huge investment gain. But those investors have not really come back yet. I think we have to wait for a little bit more.

Yes, there are some sales or divestitures, but it hasn't really come back to the original level. Some investors are professionals who really understand the aircraft, and other investors do not understand. But I think things are moving ahead. Investors who used to buy aircraft are now buying ships, for example. So there are some movements on the ship front.

And as a source of profit, Avolon, the other day, did their second quarter earnings announcement. And they mentioned that the Chapter 11 and this allowance for impairment and the debt was sold and there was some profit coming from that. So I think this will continue to happen on a small scale. Avolon results reflected 1 quarter later. So HNA Group for the first quarter posted negative figures. But profit coming in June to Avolon will be translated into our numbers soon. So this will happen more and more going forward.

And yes, as you have rightly mentioned, lease revenue, cash-based, and maybe sometimes the loss is posted and then there is a recovery afterwards. So we are expecting some recovery. But the question of when, to be honest, I would like to ask you for your opinion. I don't know when the recovery will take place.

And we do have a plan or the estimate. And our estimate is not a big recovery in aircraft. Even in the second and third quarters, we do not expect a dramatic recovery in this particular segment. In the first quarter, it's especially bad because of Hainan, but we do not really expect significant improvements in our estimates. I hope that this answers your question.

[Natsumu Tsujino, analyst]

If I may ask another question, I've been dying to ask. Avolon Chapter 11, so that was sold and profits were posted. What about the recovery rate? How much could they actually recover? Or what about the -- against the impairment amount, how much could they actually recover in the end or collect in the end?

[Hitomaro Yano, executive]

I'm sorry, I cannot really give you an immediate answer. I'm not really hiding the information, but I don't have the answer in front of me.

[Natsumu Tsujino, analyst]

I hope there's going to be a next opportunity for me to ask this question.

[Operator]

The next person is Jefferies Securities, Ban-san.

[バン, analyst]

So you may have already made a mention of what I'm just about to ask. For the first quarter, well, you seem -- your business seem to be following the recovery trajectory despite the COVID and -- so first quarter is going to be the jumping board, allowing you to continue to recover your business. So the businesses that were impacted by COVID, you had already made a mention. Does that mean that there are no business units or segments that are going to experience a slowdown from here down the road?

And also credit, I know that you have been quite cautious in terms of the credit business. So these are write-backs from the overseas. But in Japan, the corporate businesses, is there any credit issue that you are watching over the development in a careful manner here in Japan?

[Hitomaro Yano, executive]

Well, to be honest, with regard to the credit, yes, for sure, we are paying a lot of attention and because there are abundance of money on no -- 0 interest rate, but it doesn't mean to say that the principal is not to be repaid down. So we have to see how things would land or achieve a soft landing. And it doesn't mean to say that we have a major concern.

Do we have enough provision? You may wonder, but I would say that we have enough provision, allowance to prepare for any kind of mishap. But the asset, in fact, is on the decline. So therefore, I think the risk on our part is more than one may perhaps anticipate. So I hope this answers your question.

If there was to be any kind of area of concern, I may have made a mention during the course of the presentation, Asia, in India as well as Indonesia as well as in Malaysia, whether the current situation is going to persist for some time for now, then that may affect the businesses. So we are remaining to be cautious so far as the credit is concerned.

[バン, analyst]

Okay, understood. So the impact from COVID, so first quarter is going to be the jumping board, may I take it? And I hope that you are going to kind of recover the pace much faster as the quarter kind of proceed.

[Hitomaro Yano, executive]

So of course, we will be affected -- we would be continuing to be affected, especially for the hotels and inns. And -- but it's not that the things had improved dramatically in our favor -- to our favor. But -- so therefore, I don't think the downside is something that is major, however. As to other businesses here in the Japanese market, I think people are getting used to -- the businesses are getting used to COVID. And the economy has started to up and run, getting used to the -- with COVID days. And in U.S. as well, they are recovering faster than Japan, and things are much better than before, for sure. So I hope this answers your question.

[Operator]

[Operator Instructions] Since we see no further questions, we would like to close the Q&A session. Mr. Yano, please give us your closing remarks.

[Hitomaro Yano, executive]

Again, I would like to thank you all for today. And this is the current status of our performance. I do understand that there are some more details that you would like to check with us, in which case, please contact our IR team without hesitation. Thank you very much again for joining us today.

[Operator]

That concludes the telephone conference by ORIX Corporation. We would like to thank you all for staying until the end of this meeting. Thank you, and goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]