ORIX Corporation — FY2015 Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2015 (not a standalone fourth-quarter report). Consolidated financial statements are prepared under U.S. GAAP and audited by KPMG AZSA LLC, which issued an unqualified opinion. Management and the auditor reported effective internal control over financial reporting.
Business context and performance
ORIX is a diversified financial services group spanning corporate finance, maintenance leasing, real estate, investment and operations, retail financial services, and overseas business. Results reflect organic activity as well as acquisitions and changes in consolidation, notably Hartford Life Insurance K.K. (HLIKK), acquired July 1, 2014.
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Total revenues | ¥2,174,283 million | ¥1,375,292 million | +58% |
| Total expenses | ¥1,917,454 million | ¥1,172,244 million | +64% |
| Operating income | ¥256,829 million | ¥203,048 million | +26% |
| Income before taxes and discontinued operations | ¥344,017 million | ¥286,339 million | +20% |
| Net income attributable to ORIX shareholders | ¥234,948 million | ¥187,364 million | +25% |
| Basic EPS | ¥179.47 | ¥147.75 | +21% |
| ROE / ROA | 11.5% / 2.29% | 10.5% / 2.14% | Higher |
Revenue growth chiefly reflected acquired and newly consolidated businesses, including HLIKK, Robeco and DAIKYO, as well as increased services income and property and goods sales. Finance revenues declined 3% to ¥186,883 million, while operating lease revenue rose 10% to ¥363,095 million and services income rose 56% to ¥765,548 million. The filing changes presentation of income statement line items from FY2015 and retrospectively reclassifies comparatives.
Segments and material changes
| Segment profit | FY2015 | Change | Filing explanation |
|---|---|---|---|
| Corporate Financial Services | ¥25,519 million | +3% | Higher sales and fee income, including Yayoi contribution. |
| Maintenance Leasing | ¥40,366 million | +9% | Growth in operating leases and value-added services. |
| Real Estate | ¥3,484 million | −81% | Lower rents and property sales; higher long-lived-asset write-downs. |
| Investment and Operation | ¥42,414 million | −56% | FY2014 benefited from a DAIKYO remeasurement gain on consolidation. |
| Retail | ¥120,616 million | +142% | HLIKK bargain-purchase gain and Monex share-sale gain contributed. |
| Overseas Business | ¥104,143 million | +49% | Higher fee income, including Robeco, and gain on partial STX Energy sale. |
FY2015 included a ¥36,082 million bargain-purchase gain from HLIKK and gains on investment securities of ¥50,617 million, including the Monex share sale. Gains on subsidiary and affiliate sales and liquidation losses were ¥20,575 million, down from ¥64,923 million in FY2014, which included a ¥58,435 million DAIKYO remeasurement gain. Long-lived-asset write-downs increased to ¥34,887 million; goodwill impairment was ¥9,845 million. The DAIKYO reporting lag was eliminated, with prior periods retrospectively adjusted.
Balance sheet, debt, liquidity and cash flow
- Total assets increased 26% to ¥11,443,628 million; ORIX shareholders’ equity rose 12% to ¥2,152,198 million.
- Shareholders’ equity ratio declined from 21.2% to 18.8%; reported debt-to-equity was 2.1x (adjusted 1.9x). Short- and long-term debt totaled ¥4,417,730 million, and deposits were ¥1,287,380 million.
- Cash and cash equivalents were ¥827,518 million. Cash plus unused committed credit facilities totaled ¥1,246,874 million; unused facilities were ¥419,356 million. The long-term-debt share of debt excluding deposits was 94%.
- Operating cash flow was ¥257,611 million, down from ¥478,006 million; investing activities used ¥467,801 million; financing activities provided ¥213,432 million. Cash increased ¥9,479 million.
- The allowance for doubtful receivables and probable loan losses declined to ¥72,326 million. Loans and leases 90 days or more past due, plus individually impaired loans, totaled ¥123,042 million, down from ¥155,860 million.
HLIKK consolidation materially increased investment securities and policy liabilities and account balances, the latter rising to ¥2,073,650 million. The filing notes substantial short-term liquidity management needs and dependence on bank funding and capital markets; it also reports compliance with financial covenants at year-end.
Outlook, risks and contingencies
- Targets and plans: ORIX targets ¥300 billion net income and ROE of approximately 11%–12% for FY2018. Planned FY2016 capital expenditure is approximately ¥563 billion: ¥500 billion for operating-lease equipment and property and ¥63 billion for power-generation equipment.
- Shareholder returns: FY2015 annual dividend was ¥36 per share, up from ¥23. ORIX projected a ¥22-per-share interim dividend for FY2016; the year-end amount was yet to be determined. Interim dividends were planned to begin in FY2016.
- Management priorities: Expand non-finance businesses, including auto, life insurance, asset management and energy; pursue selective investment and asset turnover; strengthen risk management and fee-based businesses.
- Principal risks: Economic and political volatility across markets; credit losses and collateral/residual-value declines; interest-rate, foreign-exchange and securities-price movements; funding access and credit-rating changes; acquisition integration and goodwill impairment; regulatory, legal, operational and information-system risks. ORIX also identifies the possibility of designation under developing systemic-risk frameworks.
- Contingencies: Guarantees totaled ¥484,724 million and committed credit lines and other commercial commitments totaled ¥459,878 million. Contractual cash obligations totaled ¥5,838,700 million, including deposits and long-term debt. Management said ordinary-course litigation was not expected to have a material adverse effect, while noting adverse outcomes cannot be ruled out.
- U.S. investor consideration: ORIX stated it expected to be a passive foreign investment company (PFIC), potentially resulting in adverse U.S. tax treatment for U.S. investors.
Most important facts to verify
- How much of revenue and earnings growth is recurring versus acquisition-driven or from the HLIKK bargain gain and securities disposals.
- HLIKK’s variable-annuity exposures, related investment and policy-liability fair values, hedging results, and integration into ORIX Life.
- The sustainability of Retail and Overseas profits, and the drivers of the sharp Real Estate and Investment and Operation segment profit declines.
- Liquidity and refinancing capacity, including debt maturities, committed-facility availability, deposit stability and covenant headroom.
- Whether credit quality and collateral values remain sound, including allowance adequacy and movements in past-due and impaired exposures.
- Progress toward FY2018 profit and ROE targets, planned FY2016 investment spending, and the final FY2016 dividend.