ORIX Corporation (20-F): FY2019 Summary
Business context and reporting period
This is ORIX Corporation’s annual report on Form 20-F for the fiscal year ended March 31, 2019, prepared under U.S. GAAP. It is not a standalone 2018 fourth-quarter report; the filing provides annual results and comparative information. ORIX operates across six segments: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operation, Retail, and Overseas Business.
Key financial metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenues | ¥2,434.9bn | ¥2,862.8bn | Down 15% |
| Operating income | ¥329.4bn | ¥336.2bn | Down 2% |
| Income before income taxes | ¥395.7bn | ¥435.5bn | Down 9% |
| Net income attributable to ORIX shareholders | ¥323.7bn | ¥313.1bn | Up 3% |
| Basic earnings per share | ¥252.92 | ¥244.40 | Up 3% |
| ROE / ROA | 11.6% / 2.74% | 12.1% / 2.76% | ROE and ROA eased |
Operating income was approximately 13.5% of revenue, compared with 11.7% in FY2018; net income attributable to shareholders was approximately 13.3% of revenue, versus 10.9%. These ratios are affected by ORIX’s diverse financial, leasing, insurance, investment, and asset-sale activities.
- Cash flow: Operating activities provided ¥587.7bn; investing activities used ¥874.0bn; financing activities provided ¥166.6bn. Cash, cash equivalents, and restricted cash fell ¥121.5bn to ¥1,283.6bn.
- Assets and equity: Total assets rose 7% to ¥12,174.9bn. ORIX shareholder equity increased 8% to ¥2,897.1bn; the equity-to-assets ratio was 23.8%, up from 23.5%.
- Debt and funding: Short- and long-term debt totaled ¥4,495.8bn, up 9%; deposits were ¥1,927.7bn, up 10%. The reported debt-to-equity ratio, excluding deposits, was 1.6x versus 1.5x. Long-term debt represented 93% of debt excluding deposits.
- Liquidity: Cash and cash equivalents plus unused committed credit facilities totaled ¥1,507.6bn. Unused committed facilities were ¥346.6bn.
- Credit quality: The allowance for doubtful lease receivables and probable loan losses was ¥58.0bn. Loans individually evaluated for impairment rose to ¥58.8bn from ¥47.1bn; past-due lease and loan measures were mixed.
- Shareholder returns: The FY2019 dividend was ¥76 per share, up from ¥66; the stated payout ratio was 30%.
Material changes versus FY2018
- Revenue declined mainly as sales of goods and real estate—particularly activity in an Investment and Operation subsidiary—fell. Those sales decreased 45% to ¥596.2bn. Services income increased 5% to ¥818.8bn and operating lease revenue increased 9% to ¥413.9bn.
- Shareholder net income rose despite lower pretax income, principally because the tax provision fell to ¥68.7bn from ¥113.9bn. ORIX reversed ¥27.4bn of deferred tax liabilities related to undistributed earnings of DAIKYO after changing its planned method of collecting those earnings.
- Segment profits increased in Real Estate (20%), Retail (13%), and Overseas Business (18%); they declined in Corporate Financial Services (48%), Investment and Operation (55%), and Maintenance Leasing (3%). Segment comparisons reflect retrospective reclassifications and inclusion of certain securitization entities.
- Installment loans increased 16% to ¥3,277.7bn, including growth associated with the NXT Capital acquisition and Japanese housing loans. Investment in direct financing leases declined 3% to ¥1,155.6bn.
- Interest expense increased 22% to ¥93.3bn. Average funding rates were 0.4% for domestic-currency debt and deposits, unchanged, and 3.3% for foreign-currency funding, up from 2.8%.
Outlook, risks, and unusual items
- For FY2019–FY2021, management targets annual growth of 4%–8% in shareholder net income and ROE above 11%, emphasizing quality asset growth, asset efficiency, capital efficiency, and fee-based businesses.
- Management said uncertainty increased in the second half of FY2019 amid trade tensions and tighter financial conditions; Japan’s economy was gradually recovering, while interest rates remained low. Strategy prioritizes operating and investment businesses, including renewable energy, asset management, concessions, life insurance, and selected acquisitions.
- ORIX planned approximately ¥651.2bn of FY2020 capital expenditures, mainly for operating-lease equipment and property (¥620.0bn) and power generation equipment (¥31.2bn).
- For FY2020, management expected to maintain a 30% dividend payout ratio and forecast an interim dividend of ¥35 per share; the year-end dividend was to be determined.
- Key risks include economic and political shocks, credit deterioration, asset and residual-value declines, interest-rate and currency movements, investment-price volatility, funding access and costs, regulation, cybersecurity, operational controls, and execution of acquisitions and new businesses. Management stated pending ordinary-course lawsuits were not expected to materially affect results, while noting adverse outcomes could not be ruled out.
- Notable accounting and reporting items: new revenue and financial-instrument standards were adopted in FY2019; the new lease standard was expected to add approximately ¥286bn of right-of-use assets and a similar amount of lease liabilities on April 1, 2019. The expected-credit-loss standard, scheduled for adoption in FY2021, was expected to increase the allowance, with the effect still under evaluation.
- KPMG issued unqualified opinions on the consolidated 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, 2019.
Important facts for investors to verify
- How much of FY2019 shareholder net-income growth came from the ¥27.4bn DAIKYO tax-liability reversal, and whether underlying earnings growth supports the FY2020–FY2021 targets.
- Whether the sharp decline in Investment and Operation segment profits and the fall in sales of goods are temporary, and how repeatable gains from asset sales are across segments.
- Credit trends after the increase in individually impaired loans and 90-days-past-due direct financing leases; assess allowance adequacy against portfolio growth and the planned credit-loss accounting change.
- Funding resilience, refinancing needs, foreign-currency funding costs, deposit maturity profile, and the effect of planned capital expenditures on leverage and liquidity.
- Acquisition integration and returns from NXT Capital, Avolon, and DAIKYO, alongside execution of renewable-energy and concession investments.
- The filing says ORIX may have been a PFIC for U.S. tax purposes; U.S. investors should verify current status and consult tax advisers.