ORIX Corp (IX) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to ORIX Corporation's annual financial results conference call. Today's conference is being recorded.

At this time, I would like to turn the call over to your moderator, Mr. Gregory Melchior. Mr. Melchior, please go ahead.

Thank you, Wanda. Good evening, this is Gregory Melchior, and I'd like to welcome you to ORIX's conference call to review our consolidated financial results for the fiscal year ended March 31, 2011. I'm joined here this evening by Mr. Haruyuki Uruta, Deputy President and CFO, as well as Mr. Shintaro Agata, Corporate Executive Vice President and Head of the Treasury Headquarters, and Mr. Takao Kato, Executive Officer and Head of the Accounting Headquarters.

During this evening's call Mr. Uruta will discuss the fiscal year results, and then we will open up the lines to your questions and answers. I presume that everyone has in front of them the document entitled, Presentation 2011 4QE that was posted on the IR section of the ORIX 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 information 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, referred to in the financial statement, consolidated financial results April 1, 2010 to March 31, 2011.

Without further ado, I will turn the call over to Mr. Uruta.

Thank you, Greg. Everyone, thank you very much for joining the conference call. This is Uruta, CFO of ORIX Corporation. Today I will begin with a brief overview of the annual results and [the situation] of the Company before the covering individual segments. Please turn to page 3.

Net income for the fiscal year ended March 2011 was JPY67.3 billion, up 78% year on year. Despite the terrible disaster of the great East Japan earthquakes, ORIX performance was not significantly impacted, and we achieved the level of the upward revision announced in January of this year. This year was a year of transition from our defensive stance that was taken after the financial crisis, towards action with our eye towards our future.

We achieved more than [15%] profit growth for two consecutive years, and we believe that we have the strength for continued growth. Based on this performance, we have increased our year-end dividend by JPY5 to JPY80. We want to show shareholders and investors solid growth of the ORIX Group.

This year, management needs to keep a level of caution, as the business environment remains opaque. However, we need to buckle down and firmly place ourselves on the growth track, aiming for an income before income tax increase of 25%, and a 15% increase in net income, which means JPY77.5 billion.

The ability to constantly create new value, grow while evolving is ORIX's strength. This year, we will fully demonstrate our capabilities, firmly get on the high growth tracks, and strive to achieve a 10% ROE as quickly as possible.

Please turn to page 4. Going forward, [enhancement] to the pursuit of the model constantly create new value, grow while evolving, our direction will take two main directions. The first is to increased the pace of financial services. The second is to embrace growth in emerging markets, such as Asia, which we will do while devoting ourselves to financial services.

We believe that, if we further increase our expertise, there are numerous business fields and areas that we can develop. As long as our DNA [as it's known], we will continue to grow as a Group. We have also undertaken capital participation as a way to include businesses [serviced] by other part of the Group. The mandate that allow us to save time and move in the direction in which we are aiming are meaningful option for future growth. We will increase the pace of our movement, and continuing with finance as our core business, we'll continue to further focus on enhancing service businesses with new value.

Overseas, we have a history that spans more than 40 years. We established a network spanning Asia and the Middle East, conduct business in each country, focusing on influential partners and local clients, which is a major operating base for us.

I'd like to use our entrance in China as an example. Until recently, Japanese manufacturers were the main companies to expand into China. Now, the situation in China is one where the software, such as know-how and expertise of financial companies can we applied to Chinese market. However, there still is [country] risks involved, and we need to keep diversified.

Based on this platform, combining expertise, know-how, investment track record, partners, client base, and network we will further capitalize on the expertise we have acquired through our existing businesses in Japan, and provide additional value to our clients. Going forward, we will actively focus our energies on China and the developing countries of Asia and the Middle East that are seeing [direct] movements stemming from growth.

The environment continues to change, and there is no end to this change. These conditions constantly provide abundant room to create new value. Focusing on new [initiatives] and creating new [themes] is how ORIX business has evolved and provides a [motion] for growth. Our aim is to continue to create services and products that our clients in Japan and around the world appreciate and rate highly, and continue to contribute to [success].

Please turn to page 5. Starting on page 5, I'd like to discuss the performance of individual business segments for the fiscal year ended March 2011, and the business strategy for the current year. Let me begin with segment profits.

The impact of the great East Japan earthquake was around JPY5 billion, primarily accrued as additional provisions. However, both the Corporate Financial Services and the Investment Banking segments returned to profitability, and we achieved the management policy of profitability in all segments that we announced at the beginning of the year.

The Overseas Business segment, in particular, has accomplished significant growth in the past three years, now representing [38%] of the total segment profits. The Corporate Financial segment has contributed the most to the earnings growth for the fiscal year through its return to profitability.

Please turn to page 6. Next is the trend in segment assets. Since the fiscal year ended March 2008, we focused on both reducing assets and promoting asset turnover, [fiscal year] loans to real estate related companies in the Corporate Financial segment and non-recourse loans in the Real Estate segment. In the fiscal year ended March 2011, we reduced assets in both segments by JPY100 billion. Meanwhile, we have increased the assets in both the Retail and the Overseas Business segment.

Assets in the Retail segment are growing steadily as a result of the accumulation of assets in the newly launched Corporate Lending business of ORIX Investment Banking. Also, the Overseas Business segment has smoothly increased its assets by executing private equity investments in the Asian region and the (inaudible) region, [even the] environment where the appreciated yen has a diminishing effect on assets.

Segment ROA has increased, reaching 1.1% on an after tax basis, due to the accumulation of quality assets and asset turnover. We will continue to turn over assets and accumulate quality assets, and therefore, increase [asset base] while raising the ROA. The current debt to equity ratio of around 3 times will be the bottom of the range.

Please turn to page 7 for individual segment information. Corporate Financial Services segment profit improved to [recognized] JPY10.2 billion in profit, up from a JPY19 billion loss during the previous fiscal year. On the asset side, direct financing leases increased due to the purchase of leasing receivables, and an increase of small sized new leasing transactions.

On the other hand, segment assets were JPY1,006.1 billion, a 15% decrease from March 2010, which is a result of our strategy to selectively work on new lending transactions, and continue the reduction of [impairment] loans to real estate related companies.

Provisions were dramatically reduced from JPY40.5 billion in March 2010 to JPY12.7 billion in March 2011, despite a minor impact from the great East Japan earthquake, approximately JPY2 billion in the fourth quarter. Also, we are leveraging our Group products to enhance our customer platform and expand our Fee business, from which we are starting to see results.

Strategically, the Corporate Finance Services segment will continue to follow the strategy from last year. We will continue to expand our customer base as we strengthen ties with Group companies, particularly with ORIX Auto and ORIX Rentec. As a consequence of a dramatic change in the environment as a result of the earthquake, customer demand now varies, depending on industry, size, and region, and the demand continues to change. We will continue to face these customer demands arising from the current situation, and we strive to acquire revenues by responding to those needs.

Please turn to page 8 for the Maintenance Leasing segment. Maintenance Leasing segment profits increased 12% to JPY26.2 billion from JPY23.3 billion fiscal year ended March 2010, owing to improved gains on sales of used autos, and stable revenues from automotive maintenance, despite an increase of provisions and the impairments in the fourth quarter as a result of the earthquake.

Fee revenues are also increasing. We continue our further forecast on the provision of value-added services. Segment assets were JPY502.7 billion, down 3% from the last fiscal year, as a result of asset securitization in the fourth quarter.

This year's strategy is to expand the client base with new customers by continuing the Group-wide sales activities and providing new services. In addition, we will streamline operations and cost control to maintain high profitability and competitiveness.

We are seeing short-term demand arising from the reconstruction in the form of auto leases and rentals. In addition, personal computers, generators, and measuring equipment in our Rental businesses. Going forward, this segment will be able to demonstrate the full extent of its expertise, and respond to customer needs when large scale reconstruction, such as urban development, begins.

Please turn to page 9 for the Real Estate segment. [JPY34 billion] in provisions and impairments were recorded primarily for the Real Estate Finance and [Condominium] businesses. This is flat, year on year, with last year's [JPY32.5 billion]. Segment profit was also flat, year on year, at around JPY0.1 billion.

This segment is focusing on asset turnover, resulting in an 8% decrease in segment assets, compared to the end of the previous fiscal year. Of this, the balance of assets in the Condominium businesses decreased JPY22 billion to JPY128 billion from JPY150 billion at the end of the previous fiscal year.

Properties under development also decreased JPY38 billion to JPY225 billion, down from [JPY260] billion at the end of the previous fiscal year. Non-recourse loans and specified bonds decreased JPY140 billion. Of this, about JPY100 billion were in cash collection. In addition, roughly JPY100 billion in rental properties were sold, recording a gain of over JPY10 billion.

Moving on to individual businesses. In the Condominium business we delivered over 1,000 units in the fourth quarter. Despite the earthquake, we were able to successfully achieve our target. In the Real Estate Rental business, we maintained stable NOI yield, and the decreased vacancy ratio through the year. In addition, we are starting to see results from joint investment with [40] investors, and the expansion of our Asset Management business by managing the properties in which we have invested as a partner.

Please turn to page 10 for the Investment Banking segment. The Investment Banking segment returned to profitability with JPY13 billion in segment profits, due to gains from the sale of private equity investment in the third quarter, up from a JPY2.8 billion loss last year, due to the bankruptcy of the joint corporation.

Strategically, we will continue to further enhance our Loan Services business, which is highly and has a large market share. We believe that there are a lot of profit opportunities in key businesses, and we will expand our servicing [platform] for further profits.

We are also able to garner a lot of information through our relationships with domestic and overseas investors, which we will use to seek new opportunities for equity investment. For example, possible investment in a company looking to expand through Asia.

Please turn to page 11 for the Retail segment. In the Life Insurance business, new policies in force have dramatically increased due to the strong sales of medical and cancer insurance. Gains on the insurance rate [of the] investment have also increased steadily, due to increased policies for new products, and [insurance-related] investment income continues to be robust.

In the Trust and Banking business, assets have surpassed JPY1 trillion, due the expansion of corporate lending, with revenues and profits also increasing.

Corporate clients time deposits are also steadily increasing. Profits are down year on year due to gains on sales from ORIX Credit and ORIX Securities in the previous fiscal year. However, profits at ORIX Life Insurance and ORIX Investment Banking are growing.

Going forward, ORIX Life Insurance will continue to develop in the [innovative] products that meet client needs and aim toward enhanced product line up. In addition, the business looks to expand its operation by enhancing its [existing] channel, and to strengthen its framework by further streamlining its operation. Drawing on the corporate financial service client base, the Trust and Banking business will continue to [cultivate] clients and strengthen its relationship with prime clients. ORIX Trust and Banking will continue to expand by capitalizing on Group-wide capabilities.

Please turn to page 12 for the Overseas Business segment. Overseas Business segment profit increased 23% to JPY45.6 billion, compared to JPY37.1 billion last fiscal year. In the United States provision decreased, due to a decrease in non-performing loans, and gains on the sales of municipal bonds were recognized. Both Red Capital and Mariner made revenue contributions, as they were consolidated in the first and the fourth quarters respectively.

In addition, (inaudible) also continued to record high levels of fee revenues increasing its M&A Advisory business in line with the economic recovery. In Asia, profits of subsidiaries in Australia and Malaysia steadily increased, and the Investment business again was recognized on the fourth quarter, the sale of [condominium] development in Singapore.

Segment assets remained flat in the United States and increased in Asia, due to the expansion of the aircraft and the ship related investment business, and the private equity investment in South Korea. From a strategic standpoint we are aiming to increase profitability in the United States through the expansion of the service-based business by capitalizing on the [strategies] of Houlihan Lokey, Red Capital and Mariner.

In Asia and the emerging markets we will embrace the growth in the region by providing various financial services, such as those provided by Maintenance division segment here in Japan, [thus match the stage] of growth and needs in each country while continuing to grow our existing [base and] businesses.

In China we will focus on finding a wide variety of high profitability investment and lending transactions, based on cultivating top tier clients and expanding relationships with business partners utilizing our network throughout greater China. We will do this primarily through our Chinese headquarter in Dalian.

Please turn to page 13. In closing, I would like to talk a little more about the Overseas Business segment. Our growth in this segment is forecast to be the key driver to overall segment growth in the fiscal year ended March 2012. The graph on the left is segment profit with the yellow portion representing the United States, and the purple portion representing the investment and the subsidiaries, primarily in Asia. The graph on the right is segment assets and asset breakdown.

Both the US and Asia have grown dramatically, with Overseas Business segment profit more than double the amount from March 2009. In addition, the Overseas Business segment represents 38% of total segment profit. Profit growth in the United States is already starting to see contributions from Finance + Service businesses such as Houlihan Lokey, Red Capital and Mariner.

Furthermore, growth in the Asian businesses represents the operating base that was established through over 40 years of effort with business partners. Whether in Japan or overseas, our approach in any area is the same. In line with the economic expansion in each country we have expanded from leasing to a neighboring area, and then expanded to another neighboring area, increasing our knowledge and regions in which we operate. We don't call unknown risks a challenge and try to take it.

We have grown through expansion into the areas where we have knowledge and the expertise, joint investment with business partners, and aimed for diversification and risk control. As I mentioned at the beginning, this year still calls for prudence, yet this year we also want to place ourselves firmly on the growth track and aim for a 25% increase in income before income taxes, and 15% increase in net income.

Going forward, we are striving for stable growth through the multilayered use of our domestic and overseas networks. Thank you very much for your attention.

And this concludes the presentation portion of the call. Now Mr. Uruta, Mr. Agata, and Mr. Kato will be happy to answer any questions that you may have.

(Operator Instructions)

Mr. Melchior, there are 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, sir.

Okay, if there are no further questions, that concludes our conference call for this evening. Thank you for joining our conference call. We look forward to meeting with you, whether it be here in Tokyo or in your region of the world. So on behalf of myself, Mr. Uruta, Mr. Agata, and Mr. Kato, I wish to welcome you all a very good afternoon and evening. Thank you.

Thank you very much.

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