ORIX Corporation — FY2010 Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2010; U.S. GAAP. This is an annual report, not a standalone 2009 fourth-quarter filing, and the supplied text does not provide separate Q4 results. KPMG issued an unqualified audit opinion on the consolidated financial statements and internal controls over financial reporting.
Financial performance and position
| Metric | FY2010 / March 31, 2010 | Prior comparable period |
|---|---|---|
| Total revenues | ¥932.8 billion | ¥1,053.5 billion; down 11% |
| Operating income | ¥29.6 billion | ¥53.4 billion; down 45% |
| Income before tax, discontinued operations and extraordinary gain | ¥55.6 billion | ¥8.7 billion |
| Net income attributable to ORIX | ¥37.8 billion | ¥21.9 billion; up 72% |
| Basic / diluted EPS | ¥370.52 / ¥315.91 | ¥246.59 / ¥233.81 |
| Total assets | ¥7.740 trillion | ¥8.370 trillion; down 8% |
| ORIX shareholders’ equity / equity ratio | ¥1.299 trillion / 16.78% | ¥1.168 trillion / 13.95% |
| ROE / ROA | 3.06% / 0.47% | 1.80% / 0.25% |
| Cash and cash equivalents | ¥639.1 billion | ¥460.0 billion |
| Short-term / long-term debt | ¥573.6 billion / ¥3.836 trillion | ¥798.2 billion / ¥4.454 trillion |
| Deposits | ¥853.3 billion | ¥667.6 billion |
| Dividend per share applicable to fiscal year | ¥75 | ¥70 |
Operating margin, calculated as operating income divided by total revenues, was approximately 3.2%, versus 5.1% in FY2009. Net income attributable to ORIX was approximately 4.0% of revenues, versus 2.1%. These are simple calculations from reported figures.
Operating cash flow was ¥209.3 billion, investing cash flow was ¥432.8 billion provided, and financing cash flow used ¥466.9 billion. Cash and cash equivalents increased by ¥179.1 billion. The allowance for doubtful lease receivables and probable loan losses was ¥157.5 billion; impaired loans were ¥348.1 billion, with a ¥100.3 billion valuation allowance on loans requiring one.
Changes versus FY2009
- Revenue and operating income declined as ORIX reduced assets and new transactions, particularly loans and direct financing leases, and held back sales of real estate. Total assets contracted 8%.
- Despite weaker operating income, pretax income rose more than sixfold and ORIX-attributable net income increased 72%. Contributing factors included a recovery in securities markets, improved equity-method affiliate results, and gains on the ORIX Credit and ORIX Securities transactions.
- Brokerage commissions and net gains on investment securities shifted from a ¥12.3 billion loss to a ¥23.3 billion gain. Equity in affiliate income shifted from a ¥42.9 billion loss to an ¥8.6 billion gain; gains on subsidiary and affiliate sales were ¥17.5 billion.
- Credit-loss provisions fell 7% to ¥71.5 billion, but individually evaluated loan provisions rose 4% to ¥57.6 billion and charge-offs of impaired loans increased substantially. The allowance-to-loan-and-direct-lease ratio rose to 4.89% from 3.76%.
- Assets and funding were reduced, while a July 2009 share offering raised approximately ¥83 billion net. ORIX’s shareholders’ equity ratio improved to 16.78%.
Segments, outlook and material items
- FY2010 segment profits: Corporate Financial Services loss ¥17.6 billion; Maintenance Leasing profit ¥21.7 billion; Real Estate profit ¥9.4 billion; Investment Banking loss ¥12.0 billion; Retail profit ¥31.1 billion; Overseas Business profit ¥37.1 billion. Retail and overseas profits improved; the other profitable segments declined, while Investment Banking’s loss narrowed.
- Management said it would prioritize profitability while maintaining the stronger equity ratio, with a medium- to long-term ROE target of about 10%. Its stated strategies were “Finance + Services,” expansion in Asia, further risk management, and selective investment. This is a strategic target, not a specific near-term earnings forecast.
- Management described signs of recovery in some markets but continuing uncertainty: weak demand and high unemployment in developed economies, stressed real estate markets, and financial stability concerns in Europe. It cautioned that funding access and asset quality could deteriorate if market conditions worsen.
- Liquidity measures included diversified funding, more than 200 lending relationships, resumed bond issuance, and available committed credit facilities of ¥385.9 billion at year-end. Long-term debt repayments due within one year were ¥1.203 trillion; deposits due within one year were ¥460.3 billion. Short-term debt was ¥573.6 billion. Funding access, refinancing, covenants and ratings remain material risks.
- Effective April 1, 2010, new consolidation standards were expected to increase reported assets by about ¥1.140 trillion and liabilities by ¥1.165 trillion, and reduce retained earnings by about ¥25 billion after tax. ORIX stated that the change would not alter the underlying economics or net cash flows; creditors of the relevant SPEs would have no recourse to other ORIX assets.
- Fair-value measurements using significant unobservable inputs (Level 3) totaled ¥402.4 billion, about 5% of assets, including Japanese SPE bonds and U.S. mortgage- and asset-backed securities. These valuations depend on management assumptions and are sensitive to collateral values, credit losses and liquidity premiums.
- Other notable items included ¥23.6 billion of securities write-downs, ¥7.0 billion of long-lived asset write-downs, ¥8.7 billion of discontinued-operations income after tax, and ¥17.5 billion of gains on subsidiary and affiliate sales. The filing reported ordinary-course litigation and stated that management did not expect pending matters to materially affect results, while giving no assurance against an adverse decision.
Key facts for investors to verify
- Whether the earnings rebound is repeatable without the securities-market recovery and gains from the ORIX Credit and ORIX Securities transactions; operating income and revenue both fell.
- Real-estate and other credit exposure, impaired-loan trends, recoveries and collateral values, and whether the ¥157.5 billion allowance adequately covers future losses.
- Liquidity against near-term debt and deposit maturities, availability and conditions of credit lines, refinancing costs, and compliance with financial covenants and rating requirements.
- The quality and sensitivity of Level 3 valuations, and the actual balance-sheet and retained-earnings effects after adoption of the new SPE consolidation standards.
- Progress toward management’s approximately 10% medium- to long-term ROE target, and the sustainability of the ¥75 per-share dividend.