ORIX Corp (IX) 2015 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. Haruyasu Yamada. Please go ahead, sir.

Thank you. Good evening. This is [Harry] Yamada, and I would like to welcome you to ORIX conference call to review our first quarter consolidated results for the period ended June 30, 2014.

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. During this evening's call, Mr. Uruta will discuss the first quarter results; and then, we will open up the line to Q&A.

I presume that 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 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 affect our business.

Also, please note that net income used in this presentation is the same as net income attributable to ORIX Corporation shareholders, referred to in the financial statements for the consolidated financial results April 1, to June 30, 2014.

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

Hello, everyone, and thank you for participating in today's conference, announcing our actual results for the first consolidated quarter of the fiscal year ended March 31, 2015. My name is Uruta, CFO of ORIX Corporation.

Please turn to slide 1, where I would like to start with an overview. Our consolidated first quarter net income was JPY68.6 billion; a 52% increase year on year, and 33% against our full-year target of JPY210 billion.

As a result, the ROE, as shown by the red line, has continued its upward trend, surpassing the 10% mark recorded during the same period of the previous fiscal year, to reach 14.2% on an annualized basis at the end of the first quarter.

All in all, the first quarter result has given us a solid start to us achieving a record net income this year.

Please turn to slide 2. Trends in segment profits are shown on this slide. The overall profit growth of the Group was some way driven by the overseas business segment, as shown in red, and the retail segment, as shown in green, where both of these segments recognized large gains on the sale of shares.

Compared to the previous fiscal year, the real estate segment, in purple, has almost doubled its profits; and the corporate financial services segment, in orange, has achieved a double-digit growth. On the other hand, maintenance leasing, in yellow, also continued to be robust during this quarter.

Despite reduced profits compared with the same period of the previous fiscal year, the investment and operation segment continued to recognize a stable profit.

Please turn to slide 3. Next, I would like to explain trends in segment assets. Total segment assets decreased by approximately JPY100 billion compared to the end of the previous fiscal year. This decrease was mainly caused by the continued reduction of the real estate segment assets, and also the sale of STX Energy shares.

The line graph showing segment assets ROA on an after-tax basis has improved significantly to 3.8% on an annualized basis.

Please turn to slide 4. From here onwards, I would like to explain first quarter results and the latest topics for each segment individually.

In the corporate financial services segment, base profits have exceeded that of the same period last fiscal year, due to an increase in financing lease and fee-based revenues.

[RevPar] has been recorded at around the same level compared to the same period of last fiscal year. As a result, segment profits increased by 12% (sic - see slide 4, "112%") to JPY5.9 billion year on year.

Segment assets balance remains at around the same level as the end of the previous fiscal year, at JPY994.8 billion.

As for the segment topics, we have continued expanding sale of solar panels, as well as the financing that accompanies it. In addition to the solar panel sales, life insurance sales and other fee businesses are also performing steadily.

Please turn to slide 5. In the maintenance leasing segment there was no significant change in the base profit year on year, because [in fiscal] strong lease revenues were partially offset by the lower gains realized from the sale of the secondhand cars. There were no additional provisions and impairments, and the segment profits ended up at JPY11 billion.

Segment assets increased at a stable pace, as a result of steady auto-related new transactions, and the overall impact from the [point of contact] hike was quite limited. As a result, segment assets increased by JPY15.1 billion to JPY637.1 billion. The ROA was 4.5% in the first quarter.

As for the topics, demand for truck rental across Japan has increased significantly, due to the current strong demand in the construction sector. In response to this market development, we have opened four new car rental locations, and increased our fleet size by over 20% this fiscal year.

During this first quarter, we have opened four new rental locations in Chiba and in Miyagi prefectures, expanding out nationwide network to 50 locations.

Another area in the auto-related business that we are currently expanding is the retail auto-leasing market. Based on the market trend, the average vehicle usage per period is lengthening. We have accordingly launched a nine years' lease product. We have also launched a new lease product specifically customized towards female customers.

Please turn to slide 6. For the real estate segment, the segment assets have been further reduced by about JPY46 billion in the first quarter, lowering the asset value down to JPY916.1 billion.

Although base profits, including rental and the interest income, decreased compared to the same period of the previous fiscal year by taking advantage of the sliding market environment, we have recorded capital gains that are significantly larger than any forecast during last fiscal year. As a result, segment profits almost doubled year on year at JPY10.8 billion. And the ROA improved to 3%.

As for the topics, in this quarter we have acquired Unazuki New Otani Hotel, located in Toyama Prefecture, as a step towards strengthening our facilities operation business. Furthermore, we have internally approved the plans to develop a logistics center in Joso city in Ibaraki Prefecture.

Within the eCommerce business gaining momentum in this expansion, we expect the demand for large logistics warehousing facilities to grow in the same direction. This particular transaction marks ORIX's 35th investment in the logistics facilities area.

Please turn to slide 7. Moving along to our investment and operation segment, base profits have decreased, partially due to the decreased profits from the loan servicing business. However, base profits in the private equity investments and the environmental and the energy-related business have shown solid growth, compared to the same period of the previous fiscal year.

Further, capital gains have increased year on year.

As a result, the segment recorded a profits decrease on year on JPY9.8 billion. Segment assets, on the other hand, remains around the same level compared to the end of last fiscal year, while we continue to turnover [net assets].

There are two topics in this segment that I would like to mention. First, following the project in Okuhida, which we announced at the end of last year, we have a commercial feasibility study on geothermal business in two new sites; one in Hokkaido Prefecture, and the other in Aomori Prefecture.

The other topic is that we recently announced our decision to invest in two companies; Net Japan, the largest precious metal recycling company; and Arrk, a leading company that provides various development support services to [boat makers].

Please turn to slide 8. For the retail segment, the investment gain from life insurance business and the equity [method] profits from Monex Group are lower than that in the previous fiscal year. However, with have stable growth in the number of life insurance policies and housing loan assets, the base profits are maintained at the high level.

Further, the gain on sale in Monex Group shares was recorded and made a significant contribution to the increase in this quarter's capital gains. As a result, segment profit increased 68% (sic - see slide 8, "168%") year on year to GBP29 billion.

But for segment assets, whilst temporary decrease, due to turnover of ORIX life insurance assets under management, loan balance remained at a healthy level, resulting in the marginal decrease compared to the end of the previous fiscal year, to JPY2.1 trillion.

During this quarter, on July 1, we have completed the acquisition of Hartford Life Insurance. In addition, we have launched a name whole life insurance product named Rise; and also, renewed our investment income guarantee insurance product, Keep.

These two initiatives will help us to strengthen our presence in the first sector. Especially, in the first sector is an important strategy for our life insurance business as we seek additional growth outside of the first sector.

Please turn to slide 9 for the last segment; overseas business. For overseas business, despite strong performance by ORIX USA during the same period over the previous fiscal year, the base profits this quarter has achieved a decent 27% (sic - see slide 9, "127%") growth year on year, with solid contribution from Robeco.

The segment has recorded capital gains greater than that in the previous fiscal year, largely due to the gain on sale of STX Energy shares.

Overall segment profit increased by [2.6 times] year on year to JPY39.7 billion, partially contributed by decrease in the previous -- and the provisions and the impairment.

Segment assets are maintained at just below JPY2 trillion, amid decrease that result from the [unconsolidation] of STX Energy, which was partially offset by asset increase in the US operations.

Two topics included in this slide. First, as we have recently announced, we reached a basic agreement with Hyundai Group of South Korea to acquire Hyundai Logistic. The total [provision] price is expected to be around [JPY12 billion].

The second topic is related to Robeco, where net new money inflow has been very strong, helping the Company to achieve record-high AUMs.

Please turn to slide 10. Next, I would like to explain about the Company's base profits and capital gains. The graph on the left illustrates how our base profits and capital gains have changed over the years. You may have also seen this graph before, but, as you can see here, base profits have continued its high level of growth, while contribution from capital gains has remained quite stable every year.

The graph on the right-hand side shows the capital gain breakdown. This is the first time we have compiled this graph. And please note, that it excludes the large variation gains in fiscal year ended.

In the same graph, you can also see that the real estate-related and the investment-related capital gains, as shown separately, are constantly producing a certain level of profits every year.

Please turn to slide 11. Here, I would like to explain a bit about the base profit structure. The base profit can be divided into interest-related revenues and service-related revenues.

As for the Company's strategic objection of financial services, we have have a -- [we stipulated] before, we have been trying to gradually fund a portion of service-related revenues. The result of our effort is shown in the graph on the left, where you can see the breakdown of the service-related revenues.

Other operating profits are the net accounts of other operating revenues and other operating expenses. The graph shows clearly that the other operating profits are expanding quite significantly.

The graph on the right shows changes in the other operating profits among each segment. For the fiscal year ended March 2014, the overseas business, in red, achieved outstanding growth compared to the previous years. But this is mainly due to strong performance by Houlihan Lokey.

Apart from overseas business, maintenance leasing, in yellow, real estate, in purple, and investment and operation, in blue, are also showing strong improvement when you compare with, say, the fiscal year ended March 2011.

I'd like to go by the performance of investment and operation in greater details, on slide 12. The graph on the left-hand side provides a closer look at the other operating profits generated from the investment and operating segments, as briefly covered in the previous slide.

As you can see in this graph, environment and energy-related business, in green, has achieved remarkable growth. In addition, [recently-created] new investments has also boosted the private equity investment related profits, in orange, in the segment.

The graph on the right is an updated version of the one that was included in our interim financial results presentation for the previous fiscal year.

We ae currently funding our renewable energy business at a rapid speed. The target budgets from some mega-solar power business in the fiscal year ended March 2017 (sic) is almost double the size of the budget we previously stated in our interim financial reporting last year.

Please turn to slide 13. I would like to conclude this presentation with a summary. The net income for the first quarter was JPY68.6 billion; a 15 -- 52 increase -- 52% increase year on year; and a 33% progress towards the full-year target.

Segment asset ROA was 3.8%; and annualized ROE was 14.2%. This is a strong start for this fiscal year, and a step towards achieving record full-year net income.

Regarding the [actual] business activities in the first quarter, we have decided to make a number of new investments in the investment and operation segment, and overseas segment, And at the same time, we have also realized large capital gains through the process of asset turnover.

We have broadened our operation business portfolio with investment in new facilities.

We also have strengthened our sales platform with the opening of new rental locations.

Furthermore, in the environment and energy-related fields, we have planted seed for future profit growth in the form of further expansion in the mega-solar power generation business, as well as taking initiatives in developing new geothermal power business.

I think overall we have not only had a greater start -- great start towards achieving a record net income this year, but we have also accelerated the implementation of our strategy of financial services this quarter.

This concludes my presentation. Thank you very much for your attention.

Thank you. (Operator Instructions). Raj Chaudhary, Odey Asset Management.

Thank you for doing the call; and especially, thank you for doing the base profit breakdown in slides 10 and 11. I think those are calculations that many investors will be doing themselves, so it's very helpful that you do it for us.

I have a couple of questions. Firstly, I wanted to understand, in the investment and operation segment, when you mention the pressure on the loan servicing, is that to do with rates being low? Or are there some other factors that perhaps you could expand on?

Okay, thank you very much. Regarding our [servicing] business, [in several] investment and operation segment, that is a so-called non-performing loan businesses.

Around 10 years ago, here in Japan, under the new regulations, we have started non-performing businesses. And for the first couple years, many Japanese banks gave us opportunities to do businesses in the non-performing loan business areas. But recently, we see that here in Japan we don't see any new bigger size of the non-performing new assets from the banking side.

For the last couple of years, we have basically focused on just only the reduction of our collection of the investing non-performing [loan] assets. And so, basically, unfortunately, for the last three years, under the quite active [various] market situations, we have earned much better revenues or profit through the sale of our real estate [portfolio].

But in this segment, as you see, that we have currently much more want to focus on the private equity investments, as well as the environment and the new energy business areas. That's the current situation and the strategy in this segment.

Thank you very much. So, in a way, you are suffering from the economy improving, because the NPLs are not informed at the same rate?

Lucky, or unlucky. But on the other side, of course, under the very good environment of the Japanese economy, we can expect more activities in different areas. So either situation -- under either situation, we believe that there will be a big difference as to the opportunities here in Tokyo.

And just, you highlighted how you've achieved one-third of your guidance. What's holding you back from raising that guidance?

To be honest, our first quarter really does shown a very strong start for target of this fiscal year. But as of today, we don't have idea to change our target to upside, because there are still three quarters remain.

And most probably, in the second quarter, because of the finalizing of the transaction with Hartford Life Insurance acquisition, so during the second quarter we can expect some good financial results again. But those -- the fact [half] the financial results, basically, within our original plan, or our overview of our forecast.

So, of course, during the first quarter we have shown a very good track record in the results. But -- and to be honest, a little bit better than our original plans for the first quarter, but not so big jump, to be honest, compared with the original plan.

I see. And so the Robeco performance looks impressive. That was within your plan?

To be honest, a little bit better than our original plans regarding the results by Robeco.

Okay. Just one last one, quickly. There's a story today about you issuing a note in the US. Would that be a fixed income instrument, or more equity? It wasn't clear.

Are you asking about our US operations right now?

There's a story about issuing a 144A Reg S dollar note. Is that looking for dollar funding?

We have not fixed any ideas about the next opportunity to issue the US bond. So, sure, over year we are always looking for the opportunities. So after the various discussions for the future expectations of the US dollar operations, of our euro operations, or maybe the Asian currency operations, we will determine that at the final phase.

As of today, we have not speak to any ideas about the new, next issuance of the US dollar bond.

Okay. Thank you very much for the call.

Thank you very much for you interest.

(Operator Instructions). Mr. Yamada, 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 further 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 found on the last page of this evening's 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 section.

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

Thank you.

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