ORIX Corp (IX) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to ORIX Corporation's first quarter financial results conference call. At this time, I would like to turn the call over to your moderator, Mr. Gregory Melchior. Please go ahead, sir.

Good day. This is Gregory Melchior, and I would like to welcome you to ORIX's conference call to review our first quarter consolidated results for the period ending June 30, 2012.

I'm joined by Mr. Haruyuki Uruta, Deputy President and CFO; as well Mr. Shintaro Agata, Corporate Executive Vice President and Head of the Treasury Headquarters; and Mr. Takao Kato, Corporate Senior Vice President and Head of the Accounting Headquarters.

During the call, Mr. Uruta will discuss the first quarter results, and then we will open up the lines to Q&A. I presume everyone has in front of them the presentation materials that were posted on the IR section of the website this afternoon here in Tokyo.

The following live broadcast is copyrighted to ORIX. Some 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 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 statements consolidated financial results April 1, to June 30, 2012.

Without further ado, I would like to now turn the call over to Mr. Uruta.

Thank you very much for participating in today's conference call, announcing ORIX's results for the first consolidated quarter of the fiscal year ending March 31, 2013. I am Uruta, CFO of ORIX Corporation.

Please turn to slide 3, where I would like to start with an overview. Consolidated first quarter net income was JPY34.8 billion; an increase of a 1.5 fold year on year.

We have achieved 35% of the JPY100 billion three-year target during this three-month period. As a result, ROE on an annualized basis, shown by the red line in the graph, has climbed to 10%, although, momentarily, we have achieved our mid-term target of 10% ROE.

Despite continued uncertain business environment represented by the European fiscal issues, a slowdown on emerging markets, and the domestic (inaudible) on the economic situation, ORIX has gotten off to a really good start.

Please turn to slide 4. This slide shows the trend in segment profits. The first quarters from three fiscal years are lined up. In the first quarter, profit in the Retail segment, shown in green, increased JPY1.54 billion year on year due to a JPY3 billion evaluation gain, which results from the consolidation of ORIX Credit Corporation.

Also, the Investment and Operation segment, shown in light blue, increased profit due to large collection revenues in the NPL businesses.

And the Corporate Financial Services segment, shown in yellow, also contributed to increased profit.

We can say that all segments have gotten off to a strong start.

Please turn to slide 5. This is a trend in segment assets. Assets are on a growing trend, recovering to the same level at the end of March 2011, having bottomed out in the third quarter of the previous fiscal year.

The three segments of Retail, in green, Maintenance Leasing, in orange, and Corporate Financial Services, in yellow, have all increased assets compared to March 2012.

Our increase in Retail segment assets includes the effect of ORIX Credit's consolidation.

Real Estate segment assets decreased approximately [JPY15 billion] compared to March 2012 and are now JPY1,310 billion, or 21% of total segment assets.

Please turn to slide 6. The line graph on this slide shows ROA by segment. As I mentioned earlier, the ROA of all segments are on an upward trend, and the total segment ROA, shown in red, increased to 2.3%. We are moving one step at a time towards 2.5% ROA, which last year I stated was a target for achieving 10% ROE.

Please turn to slide 7. Now I'd like to give an overview of the segment performance and introduce some of the topics from the first quarter. Starting with the Corporate Finance Services segment, segment profit for the first quarter, which is in the middle column of the table, was JPY6.1 billion; an increase of over twofold compared to the same period over the previous fiscal year.

The base profit, in the first row, increased slightly; however, a significant decrease in provisions, in the third row, led to increased profit.

Segment assets increased slightly to JPY905 billion. This has been on a growing trend, since bottoming out in the third quarter of the previous fiscal year.

New business volume in the first quarter was increased by 1.6 fold year on year.

Also, ROA increased to 1.7% in the first quarter, compared to 1.4% at March 2012.

With regards to business activities, we have been mentioning our focus towards recovery demand, and in the first quarter the Sendai branch made two large scale leasing contracts for incinerators.

Also, for construction equipment, leasing continued to grow, including a hydraulic shovel, crane, crusher, and so on.

In addition, the corporate financial statement is focused on distribution of solar panels; an area in which the government started a feed-in tariff program on July 1.

Please turn to slide 8. This is the Maintenance Leasing segment. Segment profit increased to JPY9.2 billion; up 15% from the same period of the previous fiscal year.

Base profit significantly increased, by 18% year on year, due to increase in operating lease revenue, including lease renewals, and a decrease in costs and SGA.

Segment assets increased approximately JPY20 billion year on year to JPY558.8 billion.

ROA grew further, from 3.9% to 4.2%.

At the end of June, ORIX Rentec started tablet PC rentals, such as Apple iPod, for corporate customers. Rentec is rapidly expanding its product line up, having also begun medical equipment rental in full scale during the previous fiscal year, and industrial robot rental in April.

Also, ORIX Auto opened a new truck rental location in Ishinomaki City, Miyagi Prefecture, in May. It is the second location Miyagi Prefecture after [Sendai]. And the location in Sendai has increased the number of rental trucks to 850 units, from the previous 250 units, since the earthquake.

By the end of this fiscal year, the two locations, expect to expand their combined unit to 1,200 vehicles; that includes dump trucks, cranes, and the cherry picker trucks.

Please turn to slide 9. This is the Real Estate segment. Base profit increased by 164% to JPY7 billion, compared to JPY4.2 billion in the same period of the previous fiscal year, due to the contribution from the Real Estate operating business that newly opened [multiple] facilities during the quarter.

Segment profit increased to JPY1.8 billion, compared to JPY1.1 billion during the same period of the previous fiscal year, despite JPY8.1 billion increase in impairments.

Segment assets decreased by approximately JPY60 billion year on year to JPY1,310 billion. Currently, the Real Estate segment comprised 21% of the total segment assets.

Regarding rental -- regarding the Real Estate portfolio of rental properties, the NOI yield increased to 5.4% in the first quarter, compared to 5.2% of March 2012. Please refer to pages 23 and 24 of the presentation slides for more detail.

Segment (inaudible) includes the start of construction of large scale logistic centers in four locations; in Saitama Prefecture and in [Hagi] Prefecture. All four properties are scheduled to be completed next spring.

The Operating Business has also performed strongly, exceeding their [inshore] revenue and the mid-term number targets for the Kyoto and Sumida aquariums.

Please turn to slide 10. This is our Investment and Operation segment. Base profit was JPY12.1 billion; an increase of 184% year on year. In addition to large collection revenue in the NPL business, revenues from existing investments were robust.

Capital gains were JPY3.8 billion, compared to a negative JPY0.2 billion in the same period of the previous fiscal year.

Although provisions and write-downs totaled to JPY5.2 billion, an increase in base profit has largely contributed to segment's profit of JPY10.6 billion; a two-fold increase compared to the same period of the previous fiscal year.

ROA also significantly increased to 5.7%.

Segment assets decreased to JPY482.5 billion (sic - see slide 10, JPY452.5 billion).

We are continuing our activities, aimed at the execution of new investment, after the (inaudible) in the NPL, private equity investment, and energy and environment businesses.

Especially in the energy and environment business, we are seeking investment opportunities in wide range of areas, both domestically and overseas, including mega solar power generation and waste processing. I will go into more detail about mega solar later in this presentation.

Please turn to slide 11. Next is the Retail Segment. Due to the very steady growth of ORIX Bank and ORIX Life Insurance, base profit increased by 5% (sic - see slide 11, 105%) year on year.

In addition, the segment recorded capital gains of JPY3.3 billion due to a variation gain, JPY3.1 billion, for the conservation of ORIX Credit.

As a result, segment profit increased 1.54% (sic - see slide 11, 146%) year on year to JPY13.4 billion.

ORIX Credit profit is expected to increase after second quarter, in line with consolidation from our equity methods affiliate.

In the Life Insurance business, both life insurance premiums and insurance related to investment income are strong, even with a reduction of a change in US GAAP concerning costs from the fiscal year.

Segment assets increased by more than JPY118 billion, compared to March 2012, to JPY1,921 billion due to consolidation of ORIX Credit at the end of June.

Looking forward, ORIX Credit and ORIX Bank will [strengthen] their cooperation and aim to expand their consumer finance business.

Moreover, in ORIX Life Insurance reached 1.5 million retail policies in force this April. The number grew by 1.5 times in just one year and seven months, having surpassed the 1 million mark in September 2010, and is continuing to grow at a steady pace.

Since last year, we have also been engaging the expansion of agencies, and the number has been growing significantly.

Please turn to slide 12. This is our Overseas Business segment. Segment profit was JPY11.5 billion, or 77% of the same profit during the same period of the previous fiscal year.

In the previous fiscal year, gains on the sales of the municipal bonds was strong in the United States. For this reason, capital gains for the same period over the previous fiscal year were JPY6.9 billion (sic - see slide 12, JPY2.5 bill), compared to JPY2.5 billion (sic - see slide 12, JPY6.9 billion) in the first quarter. This profit was flat year on year.

The segment continued to perform strongly from March 2012.

Segment assets remained flat compared to March 2012 at JPY985 billion.

On a local currency basis, assets are increasing in nature, while remaining [always] flat in the United States. I will explain in more detail on the next slide.

Segment ROA maintained a high level at 2.9%.

(inaudible) the third operation with joint auto leasing company between ORIX and China's leading auto dealer.

Additionally, we have agreed on four investments with a US asset management company, Varde Partners, in the Aircraft Leasing business. I will explain this in more detail later in this presentation.

Please turn to slide 13. Here we will discuss the Overseas Business segment assets in more detail. As mentioned earlier, segment assets at the end of the first quarter were flat compared to March 2012, about JPY985 billion.

The bar graph on the slide shows trend in asset balance of each division on the USA basis. The units are in $1 million. The United States, in red, and China, in green, remain flat compared to March 2012.

In Asia and Australia, in blue, assets are growing in the local currency basis for the main local subsidiaries; that includes Malaysia, Indonesia, and Thailand.

Also, assets in other, in yellow, increased due to execution of new aircraft leasing.

Please see slide 20 for Overseas Business segment assets by region on a Japanese yen basis.

Please turn to slide 14. Next, I would like to introduce a couple of topics. The first is the Solar Panel Related business. ORIX will surely enter the mega solar business following the implementation for the feed-in tariff program by the government on July 1.

We will operate a power generation business that supplies more than 30,000 households by contracting solar generation facilities equipment into 100 megawatts and approximately JPY30 billion in value over the next three years.

As a first step, we are considering to build 10 projects in regions that include Hokkaido, Kanto, and Shikoku that amount to 40 mega watts.

Also, we will operate that business where we install solar panels on the rooftops of factories and warehouses owned by customers.

Even though the scale of power generation for each building may be small compared to the mega solar business, we also expect the 100 megawatts and JPY24 billion in value over the next three years.

While ORIX will operate the mega solar business, we are also engaging in supporting solar panel installation by the customers. Customers are able to enjoy greater benefits by installing the panels at an early stage.

[We will start] currently setting up its business activities nationwide and including a proposal that are still at the early stage, the enquiries was a total of 200 megawatts have been received.

We believe that the Solar Panel Related businesses is, in true ORIX fashion, as we ourselves take the business risks, providing customers with specialized knowledge in a different form, capitalizing on our sales network.

Please turn to slide 15. Now I would like to talk about the Aircraft Leasing business. ORIX will be jointly investing in 27 aircraft with Varde Partners, a leading US asset management company. We will provide leasing to approximately [10] airlines, including the leading airlines in China and LCC in the United States.

ORIX began with the [Aircraft Leasing] business 27 years ago in 1985. In addition to owning and leasing the aircraft to airlines, ORIX has full personal asset management since the 1990s.

ORIX's strength is that we have the capability to provide any and all leasing services pertaining to aircraft leasing on our own. As can be seen on the chart, ORIX possess [assets] that cover all aspects, including lease administration; marketing for purchase and sales; legal and contractual services; as well as accounting and taxes.

Furthermore, ORIX is the only company in the industry that has acquired a servicing ranking by S&P; and that has received the highest ranking of strong in asset management service.

ORIX currently owns and manages 130 aircraft, and its customer base spans 30 countries and 65 lessees.

With a joint investment deal with Varde, and other scheduled [purchase], ORIX owns and manages 170 aircraft. But we look to further expand this to 200 aircraft, and 100 airline customers.

In line with a growing global air travel market, the lease ratio for aircraft has increased to around 40%.

Although negative forecasts, such as fare prices and the European issue, still remain, number of air travelers and GDP growth are said to have a correlation. And economic growth of the emerging markets, such as Asia, will bring about a strong demand for aircraft. ORIX intends to capture this opportunity by [leveraging] on its well-developed expertise to drive future growth.

Please turn to slide 16. In conclusion, here is a summary of the presentation.

Net income for the first quarter was JPY34.8 billion. 35% of the JPY100 billion full year target has been achieved in the first three months.

Segment assets are on an increasing trend.

Segment asset ROA increased from 1.4% to 2.3%, and ROE reached 10% on an annualized basis.

As CEO, Miyauchi, mentioned during the previous fiscal year's results, ORIX is headed -- accelerating the shift from debt to equity, and then onto operation. We have gotten off to a very good start. However, we will remain vigilant as the environment remains volatile and work our way towards new growth.

Thank you very much for your attention.

Thank you, Mr. Uruta. This concludes the presentation portion of the conference call. We would like now to open up the lines to Q&A.

Thank you. (Operator Instructions). Mr. Melchior, there are no further questions today so, at this time, I'd like to turn the conference back over to you for any additional or closing remarks.

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

Also, a replay of this conference call will be available shortly on the ORIX IR website, if you joined partway through or would like to re-listen to certain sections.

On behalf of management and the entire ORIX Group, thank you for your participation. And I hope that we have a chance to meet, whether it is in your corner of the world or here in Tokyo. Thank you.

Thank you very much.

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