Business context and reporting period
ORIX Corporation is a diversified Japan-based financial services and investment group operating across leasing, lending, insurance, real estate, asset management, energy and other businesses in 31 countries and regions. This Form 20-F covers the fiscal year ended March 31, 2021 (FY2021), not a standalone 2020 Q4 period. Financial statements are prepared under U.S. GAAP and reported in yen.
Key financial metrics
| Metric | FY2021 | Change vs. FY2020 |
|---|---|---|
| Total revenue | ¥2,292.7 billion | Up 1% |
| Operating income | ¥258.8 billion | Down 4% |
| Income before income taxes | ¥287.6 billion | Down 30% |
| Net income attributable to ORIX shareholders | ¥192.4 billion | Down 36% |
| Basic EPS | ¥155.54 | Down 34% |
| Operating margin | Approximately 11.3% | Approximately 11.8% in FY2020 |
| ROE / ROA | 6.4% / 1.44% | 10.3% / 2.40% in FY2020 |
| Cash, cash equivalents and restricted cash | ¥1,079.6 billion | Down ¥55.7 billion |
| Total assets | ¥13,563.1 billion | Up 4% |
| Short- and long-term debt, excluding deposits | ¥4,724.1 billion | Up 2% |
| Deposits | ¥2,317.8 billion | Up 4% |
| Shareholders’ equity ratio / debt-to-equity ratio | 22.3% / 1.6x | 22.9% / 1.5x in FY2020 |
Operating cash flow was ¥1,095.7 billion, versus ¥1,042.5 billion in FY2020. Investing activities used ¥1,203.3 billion, compared with ¥1,470.5 billion used previously; financing activities provided ¥39.9 billion, down from ¥288.7 billion. These cash flows reflect ORIX’s lending, leasing and investment activity and should not be read as conventional industrial-company free cash flow.
Unused committed credit facilities were ¥524.5 billion at year-end. The filing reports issuer ratings of A− from S&P and Fitch, A3 from Moody’s, and AA− from R&I. The company targets an A rating or higher.
Material changes and segment performance
Revenue was broadly flat, but lower affiliate income and gains on subsidiary and affiliate sales drove the decline in pretax and shareholder earnings. Equity in net income of affiliates fell to ¥0.5 billion from ¥67.9 billion; net gains on sales of subsidiaries and affiliates fell to ¥23.3 billion from ¥74.0 billion. Gains on investment securities and dividends rose to ¥46.1 billion from ¥22.5 billion, partly offsetting these declines.
- Most affected: Real Estate segment profit fell 69% to ¥24.7 billion; PE Investment and Concession fell 92% to ¥3.4 billion; Aircraft and Ships fell 92% to ¥3.8 billion.
- Improved: Environment and Energy segment profit rose to ¥28.6 billion, mainly on an investee sale; Insurance rose 23% to ¥55.1 billion; Banking and Credit rose 23% to ¥48.0 billion, aided by lower credit-loss provision.
- Total segment profit decreased 28% to ¥318.9 billion. Segment comparisons were retrospectively restated following a reporting-segment reorganization.
Outlook, risks and unusual items
Management attributed weakness principally to COVID-19 disruptions, especially lower hotel and recreational-facility occupancy, reduced airport passenger and flight volumes, and pressure on aircraft leasing and airline customers. Management cautioned that effects on these businesses could be longer-term and that the economic outlook remained unpredictable. Other stated risks include borrower deterioration and credit costs, asset-value volatility, funding access and costs, interest and foreign-exchange movements, and the transition from LIBOR.
The company forecast an FY2022 annual dividend of ¥78 per share, equal to FY2021’s declared annual dividend; FY2021’s payout ratio was set at 50% amid uncertainty. Planned FY2022 capital expenditure was approximately ¥578.2 billion, including ¥430.0 billion for operating-lease equipment and property and ¥148.2 billion for power-generation equipment. The filing gives no clear consolidated earnings or revenue forecast for FY2022.
FY2021 results include a ¥4.966 billion bargain-purchase gain and ¥46.1 billion of gains on investment securities and dividends, while some insurance profit benefited from reversals of policy reserves. Adoption of the credit-loss standard reduced opening retained earnings by ¥42.9 billion and changed credit-loss measurement and presentation; prior-period asset-quality comparisons are therefore not fully comparable. Nonperforming net investment in leases was ¥18.9 billion (1.84% of the balance); nonperforming loans totaled ¥87.9 billion, for combined nonperforming leases and loans of ¥106.9 billion. Management reported that pending litigation was not expected to have a material adverse effect, while noting an adverse decision cannot be ruled out.
Auditor KPMG AZSA LLC issued an unqualified opinion on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of March 31, 2021.
Important facts for investors to verify
- Whether COVID-19 recovery supports improved results in real estate facilities, airport concessions and aircraft leasing, and whether airline lease forbearance creates further credit exposure.
- Credit quality and reserve adequacy under the new expected-credit-loss standard, including trends in nonperforming loans, troubled restructurings and charge-offs.
- The sustainability of earnings excluding investment gains, bargain-purchase gains, reserve reversals and prior-year divestiture gains.
- Funding and liquidity resilience: debt and deposit maturities, committed-facility availability, funding costs and the effects of rating or market changes.
- Whether planned ¥578.2 billion FY2022 capital expenditure and the ¥78-per-share dividend remain consistent with earnings, liquidity and capital targets.