ORIX Corp (IX) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to ORIX Corporation's third quarter financial results conference call. At this time, I would like to turn the call over to your moderator, Ms. Yoko Tominaga. Ms. Tominaga, please go ahead.

Thank you. Good evening. This is Yoko Tominaga and I would like to welcome you to ORIX conference call to review our third quarter results for the fiscal year ending March 31, 2011. I am joined here this evening by Mr. Haruyuki Uruta, Deputy President and CFO, as well as Mr. Yuichi Nishigori and Mr. Takao Kato, Deputy Head of the Financial Control headquarters.

During this evening's call, Mr. Uruta will discuss the results, and then we will open up the line to questions and answers. I presume that everyone has in front of them the document entitled Earnings Presentation 110131E that was posted on the IR section of the website this afternoon, here in Tokyo.

The following live broadcast is copyright to ORIX. Statements made today may contain forward-looking information. While this information reflects management's current expectations or beliefs, you should not place undue reliance on such statements, as our future results and business activities may be affected by a wide variety of factors that are out of our control.

You should read the forward-looking disclaimer in our earnings presentation, as it contains additional important disclosures on this topic. You should also consult our reports filed with the SEC for any additional information, including risk factors that are specific to our business. Also, please note that net income used in this presentation is the same as quarterly net income attributable to ORIX Corporation that is referred to in financial statement third quarter results December 31, 2010.

Now, I would like to turn the call over to Mr. Uruta.

Thank you, Tominaga-san. Good evening, good morning, good afternoon. This is Uruta, CFO of ORIX Corporation. Thank you for joining today's conference call. Let me start with an explanation of the third quarter results for the fiscal year ending March 31, 2011.

Please turn to slide 3. Net income for the third consolidated quarter was JPY50.8 billion. We have achieved approximately 90% of the JPY57 billion full year initial target, and we have revised our net income forecast upward to JPY67 billion. Stable segment profit, capital gain contributions, and reduced credit costs have led to our strong performance.

Please turn to slide 4. Again, net income for the third consolidated quarter was JPY50.8 billion, an 85% increase year on year, following a stable trend from the first and second quarters. Also, all segments were profitable for three consecutive quarters.

Please turn to slide 5. Next, I would like to discuss the performance of the individual business segments. All segments have been progressing smoothly for the 9 months up to the end of the third quarter. The Corporate Financial Service segment has continued its accumulation of small-sized quality assets through M&A and the purchase of leasing receivables.

Both segment revenues and profits have increased, due to increased revenues from the environment-related businesses and commission-based businesses, and significant decrease in provisions. Going forward, this segment will serve as a Group relationship manager by enhancing of its function as a Group stable platform, providing the high value-added products and services from ORIX Life Insurance, ORIX [Auto], ORIX Rented, as well as other Group companies.

Please turn to slide 6 for the Maintenance Leasing segment. The Maintenance Leasing segment continues to secure stable profits through the provision of sophisticated expertise and a rich service menu. Owing to seasonal factors, profits tend to be higher in the second quarter, due to higher rental car demand during the summer. The Maintenance Leasing segment provides value-added services that respond to our clients' business challenges, such as cost effectiveness, risk management, and environmental response, and are well received.

Please turn to slide 7 for the Real Estate segment. The Real Estate Finance division, which was previously included in the Investment Banking segment, has been transferred to the Real Estate segment beginning the third quarter. The Real Estate segment has been maintaining low vacancy rates and high yields by focusing on leasing and asset turnover. Segment profit decreased year on year. However, the NOI yield is currently 5.0%, an equivalent level to 5.1% a year ago. The vacancy ratio has drastically improved, from 7% a year ago to 4.2% at present.

During the third quarter, we acquired a commercial building in upscale downtown Tokyo shopping district, through a joint investment with overseas investors. It is a high quality building, expected to produce a stable yield. And by handling asset management ourselves, this kind of project will lead to the expansion of the fee businesses. Additionally, we have begun activities that provide a wide range of real estate expertise to overseas investors, centering on Asia, using our overseas Group network.

Please turn to page 8. This slide shows the joint investment in the commercial building, with overseas investors, which I have explained earlier.

Please turn to page 9 for the Investment Banking segment. With the transfer of the Real Estate Finance business to the Real Estate segment, the main businesses of the Investment Banking segment are non-performing loan businesses, T&B servicing, and equity investment.

Segment revenues have increased installment loan revenues from the non-performing loan businesses. Although big growth was recorded during the [first] quarter of the previous fiscal year, [due to the bankruptcy] of our investments, the segment recorded a capital gain on the sale of a two-business company during the third quarter of this fiscal year, resulting in a drastic increase of segment profits, compared with the same period of the previous fiscal year.

We have expanded the businesses through capital and business alliances, with Tokyo Star Bank in the first quarter and Nagano Bank in the third quarter. These alliances will capitalize on our expertise, business rehabilitation support knowhow, as well as debt management and collection. We will continue to look for such opportunities with other financial institutions.

Please turn to page 10. This page shows the diagram of the capital and business alliance scheme with Nagano Bank, mentioned earlier.

Please turn to slide 11 for the Retail segment. Segment profits for the period have trended smoothly for both the Life Insurance and the Trust and Banking business, although there was a slight drop in revenues year on year resulting from the reclassification of ORIX Credit as equity method affiliates due to the Card Loan business joint venture. The segment recorded a profit surpassing that of the same period of the previous fiscal year, even though there was no capital gain like the JPY7 billion gain from the sale of ORIX [Securities] last fiscal year.

In the Life Insurance business, insurance premiums remain strong, due to steadily increasing contracts resulting from our wide product lineup that meets customer needs. Also, our insurance-related investment income was strong in the first half. ORIX Trust and Banking is steadily growing its assets, centered on [housing] and corporate loans. Both the Life Insurance and the Banking are regulated businesses. However, we would pursue business expansion with particular focus on providing unique services that are distinctive of ORIX.

Please turn to page 12 for the Overseas Business segment. Overseas, both the Asia and the US operation maintained high profitability. Despite a slight decrease in segment revenue, segment profit increased year on year, due to strong recent business in Asia, and decreased provisions in the United States. Operations in both Asia and the US have recorded segment profits, although there were no major topics for the third quarter, such as capital gains from our investments.

Furthermore, assets increased during the third quarter due to an increase in new businesses, such as the projects of municipal bonds and the investment in Mariner, in the United States, increased investment in aircraft operating leases, and the equity investments in Vietnam and South Korea.

Please turn to page 13. This slide shows a general overview of two new investments we have undertaken during the third quarter; the Chinese headquarters building project and the Indochina Capital.

Please turn to slide 14. Next, I'd like to go over our accomplishments during the current fiscal year. At the beginning of this fiscal year, I said that ORIX is focused on the three areas of finance plus services, Asia, and the new areas, such as energy and the environment, for the next growth stage. We have undertaken various initiatives, and I think that you can see the results of our actions in each of these areas.

In terms of finance plus services, we pursue M&As and alliances that will lead to expansion of the service function and fee business. In the United States, we acquired the loan servicing company RED Capital and their asset manager, Mariner. In Japan, we formed capital and business alliances with Tokyo Star Bank and Nagano Bank in areas such as business rehabilitation support.

In Asia, we promoted the investment mainly in China, Vietnam, and South Korea to capture the economic growth of Asian countries. In China, we are growing the investment business. We established China's largest renminbi-denominated funds with the Uni-President Group, Taiwan's largest food manufacturing and logistics company, and Shanghai International.

In addition, in continuation with our investment in the Dalian-based Haichang Group, we have launched the ORIX China headquarter building project with Haichang as our partner. Moreover, we have also invested in a Japanese-operated company, and we will support their expansion into China.

In Vietnam, we invested in DI fund, a fund that targets growing Vietnamese companies, as well as Indochina, a leading asset management company investment, in a move towards acquiring future business opportunities.

In South Korea, investment opportunities abound, thanks to our investment track record and we invested in PUREUN 2, a high quality mid-sized Korean mutual savings bank.

The third area, new area, such as energy and the environment, is still fairly small in terms of its scale. However, it is an area where we'll be seeing growth, going forward. We are providing value-added services, such as retail electricity sales, and ESCO business.

Additionally, in Asia, we formed a comprehensive alliance with the Chinese Academy of Science, and together, we are considering various types of projects in the environment field. We will acquire to advance that business, focusing on energy and the environment areas as an area where we are able to demonstrate our expertise as we shift further into finance plus services and Asia.

Please turn to slide 15. Finally, I will discuss the future of ORIX. Our business strategy will not change from finance plus services, which combines finance with expertise. Within this strategy, we are focused on the following. First, we will further enhance our expertise, the core strengths in our existing businesses, raising the quality and broadening the range of our expertise. We will proactively pursue M&As and alliances as a means to do so.

Second, we will strongly pursue the global expansion of our expertise, the expertise found in each business will transcend borders and combine cross-functionally, thereby funding the fields in which we can demonstrate the full capability of our expertise. Our top priority is to expand the expertise of our domestic businesses in Asia.

There are a multitude of companies in the world that simply provide financial provisions, but ORIX is unique in that there are no other companies that combine finance with value-added services products. For example, we will customize a wide automobile maintenance lease lineup in Japan to meet the needs and conditions of different countries overseas. In doing so, we will capture the market demands of those countries and expand in areas in which we can demonstrate our automobile business expertise.

Further example is the Chinese headquarters building project, as well as condominium development projects in the Philippines and Singapore; joint ventures with global partners where we can capitalize on our real estate value chain, (inaudible) through real estate developments in Japan.

Also, the non-performing loan business is an example of importing a business model from the United States, and this knowhow is driving success in Asian countries, such as Taiwan and Malaysia.

ORIX is a corporate entity that continues to grow through constant change. ORIX has been constantly changing, aiming for further betterment since its establishment. Going forward, we will strive to achieve the mid-term target of 10% ROE by continually changing for further betterment based on finance plus service.

Thank you for your continued support. This concludes the presentation portion of the conference call.

This concludes the presentation part of the conference call this evening. I would like to go ahead and open up the line to Q&A.

Thank you. (Operator Instructions) Ms. Tominaga, seeing no questions in our queue at this time, I'd like to turn the conference back over to you for any additional or closing remarks.

Okay, thank you. If there are no questions, I would like to take this opportunity to thank you for participating in tonight's conference call. If you have any questions or comments, please do not hesitate to get in touch with us, using the contact information that can be found on the last page of this evening's presentation material.

On behalf of management and the entire ORIX Group, thank you for your participation.

Thank you very much.

Thank you. That concludes today's conference. Thank you for your participation, and you may now disconnect.