ORIX Corporation — FY2012 Form 20-F Summary
Business context and reporting period. ORIX is a diversified Japanese financial services group spanning corporate finance, leasing, real estate, investment and operations, retail finance and overseas businesses. This is an audited annual report for the fiscal year ended March 31, 2012—not a standalone 2011 fourth-quarter filing. Financial statements are prepared under U.S. GAAP and reported primarily in yen.
Key financial metrics
| Metric | FY2012 | Change from FY2011 |
|---|---|---|
| Total revenue | ¥972.9bn | +3% |
| Total expenses | ¥847.7bn | −3% |
| Operating income | ¥125.2bn | ¥75.3bn in FY2011 |
| Income before tax and discontinued operations | ¥130.5bn | +40% |
| Income from continuing operations | ¥85.9bn | ¥67.2bn in FY2011 |
| Net income attributable to ORIX | ¥86.2bn | +28% |
| Basic / diluted EPS | ¥801.33 / ¥670.34 | +28% / +27% |
| Operating margin | 12.9% | 8.0% in FY2011 |
| Cash flow from operations | ¥333.0bn | ¥212.4bn in FY2011 |
| Cash flow from investing / financing | ¥41.8bn provided / ¥318.5bn used | Both provided/used less in FY2011, respectively ¥251.6bn / ¥363.6bn |
| Cash and cash equivalents | ¥786.9bn | Up ¥54.8bn |
| Total assets | ¥8,354.9bn | −3% |
| Short- and long-term debt | ¥4,725.5bn | −6% |
| Deposits | ¥1,103.5bn | +4% |
| ORIX shareholders’ equity / equity ratio | ¥1,396.1bn / 16.7% | Equity +6%; ratio up from 15.4% |
| Debt-to-equity ratio | 3.4x | 3.8x in FY2011 |
| Dividend applicable to fiscal year | ¥90 per share | ¥80 in FY2011 |
Operating margin is operating income divided by total revenue. ORIX also reported ROE of 6.3% and ROA of 1.02%, compared with 5.1% and 0.82% in FY2011.
Material changes and segment performance
- Profit improved as revenues rose and expenses fell, particularly due to lower interest expense and credit-loss provisions. Net income attributable to ORIX increased 28%.
- Segment profit rose in five of six segments: Corporate Financial Services ¥21.5bn (up 115%); Maintenance Leasing ¥34.7bn (up 32%); Real Estate ¥1.3bn (from ¥0.1bn); Investment and Operation ¥16.0bn (up 21%); and Overseas Business ¥49.8bn (up 9%). Retail profit fell 8% to ¥21.8bn.
- Revenue growth included operating leases, life insurance and real estate sales. Interest on loans and investment securities declined 13% to ¥147.9bn, reflecting lower loan balances and currency effects.
- Installment loans declined 7% to ¥2,769.9bn, while direct-financing lease investments rose 8% to ¥900.9bn and operating-lease investments rose 3% to ¥1,310.0bn.
- Credit indicators improved: 90-plus-day past-due direct-financing leases fell to ¥17.4bn, or 1.94% of that portfolio, from ¥22.8bn, or 2.74%. The total allowance for doubtful lease receivables and probable loan losses declined to ¥136.6bn from ¥154.2bn.
Liquidity, outlook, risks and unusual items
- Management emphasizes diversified funding, longer maturities and liquidity. ORIX reported ¥427.4bn of unused committed credit facilities within total facilities of ¥464.0bn, and compliance with financial covenants. Long-term debt represented 90% of debt excluding deposits. Ratings cited were S&P A−, Moody’s Baa2 and R&I A.
- Management’s medium-term target is 10% ROE, versus FY2012 ROE of 6.3%; the filing does not provide a specific FY2013 earnings forecast. Strategic priorities include “Finance + Services,” growth in emerging markets, particularly Asia, and innovation in existing businesses.
- Management describes moderate recovery in Japan and the U.S., but flags the European debt crisis, slower emerging-market growth and yen strength. Principal risks include credit losses, interest-rate and currency movements, asset valuations and residual values, refinancing and ratings pressure, regulation, operational failures and investment/affiliate performance.
- Notable items include a ¥12.7bn impairment of the Monex Group investment; ¥15.2bn of long-lived-asset write-downs in operating income, within total impairment losses of ¥20.2bn; and ¥16.5bn of securities write-downs. Discontinued-operations income after tax declined to ¥2.7bn from ¥5.4bn.
- Japanese tax reform reduced FY2012 tax expense by ¥7.7bn through remeasurement of deferred taxes. The company also expected adoption of an insurance-acquisition-cost standard in FY2013 to reduce other assets by about ¥22bn and retained earnings, net of tax, by about ¥15.4bn.
- Guarantees totaled ¥544.5bn of potential future payments; total commercial commitments were ¥447.8bn, including guarantees and committed credit lines. ORIX separately disclosed ¥79.2bn of estimated construction commitments for development projects. Management said pending litigation was not expected to have a material adverse effect, while noting an adverse outcome could not be ruled out.
- Consolidation rules for variable-interest entities adopted in FY2011 materially increased reported assets and liabilities; ORIX provides adjusted, non-GAAP leverage and equity measures to aid comparison. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether credit quality and allowances remain adequate, especially for real-estate-related and non-recourse loans, and whether lower provisions are sustainable.
- How much earnings depend on securities-sale gains, asset disposals, valuation estimates and other nonrecurring items; review the Monex impairment and property write-downs.
- Funding and refinancing needs: review debt maturities, deposits, committed facilities, covenant terms and the effects of any credit-rating changes.
- Progress toward the 10% ROE target and the absence of a specific near-term earnings forecast; assess execution of overseas and fee-based growth plans.
- Exposure to Level 3 valuations: recurring fair-value Level 3 assets were ¥248.9bn, including Japanese SPE bonds and U.S. mortgage-backed securities; test the sensitivity of stated values to collateral, default and discount-rate assumptions.
- Potential calls on guarantees and commitments, including the U.S. housing-loan guarantee exposure, and the impact of the planned ORIX Credit share transfer announced after year-end.