ORIX(IX) - 2023 Q1 - Quarterly Report

Information on the Company and its Subsidiaries This section provides an overview of ORIX Corporation's structure, activities, and key consolidated financial highlights Consolidated Financial Highlights ORIX Corporation reported an 8% increase in total revenues to JPY 657.8 billion, but income before taxes and net income declined by 15% and 5% respectively | Indicator | Three months ended June 30, 2021 (JPY) | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | JPY 608.813 billion | JPY 657.813 billion | +8.0% | | Income before income taxes | JPY 100.056 billion | JPY 85.015 billion | -15.0% | | Net income attributable to ORIX Corporation shareholders | JPY 65.216 billion | JPY 61.862 billion | -5.1% | | Basic EPS (yen) | JPY 53.65 | JPY 51.90 | -3.3% | | Total assets (period end) | JPY 13.582 trillion | JPY 14.622 trillion | +7.7% | | ORIX Corporation shareholders' equity (period end) | JPY 3.048 trillion | JPY 3.294 trillion | +8.1% | Overview of Activities No significant changes occurred in the company's operations, principal subsidiaries, or affiliates during the quarter - No significant changes were reported in the company's operations or its principal subsidiaries and affiliates during the quarter[14] Risk Factors This section highlights the key risks that could impact the company's business, financial condition, and securities prices Risk Factors Investors are advised to review the Form 20-F for the fiscal year ended March 31, 2022, for a comprehensive understanding of potential risks - Investors are directed to the Risk Factors section of the Form 20-F for the fiscal year ended March 31, 2022, for a comprehensive understanding of potential risks[15] Analysis of Financial Results and Condition This section provides a detailed analysis of the company's consolidated financial performance, condition, liquidity, and cash flows Qualitative Information Regarding Consolidated Financial Results Total revenues increased 8% to JPY 657.8 billion, but higher expenses led to a 15% decline in income before taxes and a 5% drop in net income | Financial Metric | Three Months Ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total revenues | JPY 657.813 billion | +8% | | Total expenses | JPY 574.520 billion | +13% | | Income before income taxes | JPY 85.015 billion | -15% | | Net income attributable to ORIX Corporation Shareholders | JPY 61.862 billion | -5% | | Basic EPS | JPY 51.90 | -3% | | ROE (Annualized) | 7.5% | Down from 8.6% | - Revenue growth was driven by increases in services income, life insurance premiums, operating leases, and sales of goods and real estate, despite a decrease in gains on investment securities and dividends[19] - The 13% increase in total expenses was primarily due to higher life insurance costs, services expenses, and costs of goods and real estate sold[20] Corporate Financial Services and Maintenance Leasing Segment profits decreased 9% to JPY 15.7 billion, primarily due to the sale of Yayoi Co., Ltd. and lower investment gains - Segment profits fell 9% to JPY 15.725 billion, impacted by the sale of the Yayoi Co., Ltd. business and lower gains on investment securities[27] Corporate Financial Services and Maintenance Leasing Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 104.125 billion | -5% | | Segment Profits | JPY 15.725 billion | -9% | | Total Segment Assets | JPY 1.486 trillion | -2% (vs Mar 31, 2022) | Real Estate Real Estate segment profits increased 13% to JPY 11.9 billion, driven by higher services income from facility operations - Segment profits grew 13% to JPY 11.938 billion, primarily due to increased services income from facility operations[31] Real Estate Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 96.865 billion | 0% | | Segment Profits | JPY 11.938 billion | +13% | | Total Segment Assets | JPY 904.248 billion | -1% (vs Mar 31, 2022) | PE Investment and Concession PE Investment and Concession segment profits surged to JPY 2.2 billion, driven by improved concession business performance - Segment profits increased by JPY 2.029 billion to JPY 2.187 billion, driven by improved performance in the concession business, including the three Kansai airports[34] PE Investment and Concession Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 121.778 billion | +22% | | Segment Profits | JPY 2.187 billion | +1284% | | Total Segment Assets | JPY 368.704 billion | +4% (vs Mar 31, 2022) | Environment and Energy Environment and Energy segment profits grew 6% to JPY 4.6 billion, supported by renewable energy and electricity sales - Segment profits grew 6% to JPY 4.592 billion, supported by a renewable energy business in Spain and increased electricity sales, despite a seasonal loss from an affiliate in India[38] Environment and Energy Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 46.801 billion | +60% | | Segment Profits | JPY 4.592 billion | +6% | | Total Segment Assets | JPY 731.133 billion | +4% (vs Mar 31, 2022) | Insurance Insurance segment profits declined 28% to JPY 10.9 billion, primarily due to higher life insurance costs from increased payouts - Segment profits declined 28% to JPY 10.890 billion due to higher life insurance costs from increased payouts, despite growth in premium income[42] Insurance Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 127.542 billion | +17% | | Segment Profits | JPY 10.890 billion | -28% | | Total Segment Assets | JPY 2.082 trillion | 0% (vs Mar 31, 2022) | Banking and Credit Banking and Credit segment profits fell 41% to JPY 7.2 billion, due to non-recurring investment gains and higher advertising - Segment profits dropped 41% to JPY 7.236 billion, primarily due to the non-recurrence of prior-year gains on investment securities and higher advertising costs[46] Banking and Credit Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 20.041 billion | -12% | | Segment Profits | JPY 7.236 billion | -41% | | Total Segment Assets | JPY 2.691 trillion | 0% (vs Mar 31, 2022) | Aircraft and Ships Aircraft and Ships segment swung to a JPY 5.4 billion profit, driven by reduced losses from Avolon Holdings and higher ship lease revenues - The segment swung to a profit of JPY 5.416 billion from a loss of JPY 4.954 billion YoY, thanks to reduced losses at affiliate Avolon Holdings and stronger ship-related revenues[50] Aircraft and Ships Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 14.564 billion | +72% | | Segment Profits | JPY 5.416 billion | N/A (vs loss) | | Total Segment Assets | JPY 723.184 billion | +6% (vs Mar 31, 2022) | ORIX USA ORIX USA segment profits sharply declined 76% to JPY 6.0 billion, primarily due to non-recurring prior-year investment gains - Segment profits fell 76% to JPY 6.039 billion, mainly because of the non-recurrence of significant gains from the sale of investees in the prior-year period[54] ORIX USA Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 35.582 billion | -25% | | Segment Profits | JPY 6.039 billion | -76% | | Total Segment Assets | JPY 1.554 trillion | +14% (vs Mar 31, 2022) | ORIX Europe ORIX Europe segment profits decreased 31% to JPY 9.3 billion, driven by lower investment gains amid weaker markets - Segment profits declined 31% to JPY 9.301 billion due to lower gains on investment securities amid weaker market conditions[58] ORIX Europe Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 43.697 billion | -13% | | Segment Profits | JPY 9.301 billion | -31% | | Total Segment Assets | JPY 409.786 billion | +2% (vs Mar 31, 2022) | Asia and Australia Asia and Australia segment profits increased 48% to JPY 12.6 billion, boosted by investee sales and higher lease revenues - Segment profits grew 48% to JPY 12.617 billion, boosted by gains from the sale of an investee and increased operating lease revenues in South Korea and Australia[61] Asia and Australia Metrics | Metric | Three months ended June 30, 2022 (JPY) | YoY Change | | :--- | :--- | :--- | | Total Segment Revenues | JPY 45.001 billion | +30% | | Segment Profits | JPY 12.617 billion | +48% | | Total Segment Assets | JPY 1.376 trillion | +5% (vs Mar 31, 2022) | Financial Condition Total assets increased 2% to JPY 14.6 trillion, while liabilities rose 3% to JPY 11.2 trillion, impacting equity ratios | Financial Position | As of March 31, 2022 (JPY) | As of June 30, 2022 (JPY) | Change | | :--- | :--- | :--- | :--- | | Total assets | JPY 14.271 trillion | JPY 14.622 trillion | +2% | | Total liabilities | JPY 10.899 trillion | JPY 11.218 trillion | +3% | | ORIX Corporation shareholders' equity | JPY 3.261 trillion | JPY 3.294 trillion | +1% | | Shareholders' equity ratio | 22.9% | 22.5% | -0.4pp | | D/E ratio | 1.5x | 1.6x | +0.1x | - The increase in total assets was primarily due to growth in other assets, installment loans, and investments in affiliates, partially offset by a decrease in cash and cash equivalents[64] Liquidity and Capital Resources ORIX maintains liquidity by diversifying funding and extending debt maturities, with JPY 7.6 trillion in total funding - The company's funding policy focuses on diversifying procurement methods (borrowings, capital markets, securitization) and extending debt maturities to ensure stability and manage liquidity risk[67] - Total funding from short-term debt, long-term debt, and deposits reached JPY 7.573 trillion as of June 30, 2022[69] Debt Composition | Debt Type | March 31, 2022 (JPY) | June 30, 2022 (JPY) | | :--- | :--- | :--- | | Short-term debt | JPY 439.639 billion | JPY 591.178 billion | | Long-term debt | JPY 4.427 trillion | JPY 4.716 trillion | | Deposits | JPY 2.276 trillion | JPY 2.266 trillion | Summary of Cash Flows Cash and cash equivalents decreased by JPY 96.8 billion, driven by operating and investing outflows, partially offset by financing inflows - Cash flows from operating activities turned to an outflow of JPY 31.746 billion from an inflow of JPY 223.672 billion YoY, primarily due to income tax payments from the sale of the Yayoi Co., Ltd. business[76] - Cash used in investing activities increased from JPY 120.756 billion to JPY 226.961 billion YoY, mainly due to an increase in purchases of available-for-sale debt securities[77] - Cash flows from financing activities shifted to an inflow of JPY 138.552 billion from an outflow of JPY 47.650 billion YoY, driven by increased proceeds from long-term debt[78] Management Policy and Strategy No significant changes were reported for the company's management policy and strategy during the quarter - No significant changes were reported for management policy and strategy in the quarter[79] Financial Information This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in equity, and cash flows Condensed Consolidated Balance Sheets (Unaudited) Total assets increased to JPY 14.62 trillion, while liabilities rose to JPY 11.22 trillion, with shareholders' equity at JPY 3.29 trillion | Balance Sheet Item | March 31, 2022 (JPY) | June 30, 2022 (JPY) | | :--- | :--- | :--- | | Total Assets | JPY 14.271 trillion | JPY 14.622 trillion | | Installment Loans | JPY 3.863 trillion | JPY 3.967 trillion | | Investment in Securities | JPY 2.852 trillion | JPY 2.913 trillion | | Total Liabilities | JPY 10.899 trillion | JPY 11.218 trillion | | Long-Term Debt | JPY 4.427 trillion | JPY 4.716 trillion | | Deposits | JPY 2.276 trillion | JPY 2.266 trillion | | Total Equity | JPY 3.371 trillion | JPY 3.403 trillion | | ORIX Corporation Shareholders' Equity | JPY 3.261 trillion | JPY 3.294 trillion | Condensed Consolidated Statements of Income (Unaudited) Total revenues increased to JPY 657.8 billion, but rising expenses led to a decrease in net income attributable to shareholders to JPY 61.9 billion | Income Statement Item | Three months ended June 30, 2021 (JPY) | Three months ended June 30, 2022 (JPY) | | :--- | :--- | :--- | | Total revenues | JPY 608.813 billion | JPY 657.813 billion | | Services income | JPY 175.714 billion | JPY 205.836 billion | | Operating leases | JPY 113.466 billion | JPY 126.199 billion | | Total expenses | JPY 506.834 billion | JPY 574.520 billion | | Selling, general and administrative expenses | JPY 122.085 billion | JPY 132.082 billion | | Income before Income Taxes | JPY 100.056 billion | JPY 85.015 billion | | Net Income Attributable to ORIX Corporation Shareholders | JPY 65.216 billion | JPY 61.862 billion | Condensed Consolidated Statements of Comprehensive Income (Unaudited) Comprehensive income attributable to shareholders increased to JPY 98.2 billion, driven by foreign currency translation adjustments | Comprehensive Income Item | Three months ended June 30, 2021 (JPY) | Three months ended June 30, 2022 (JPY) | | :--- | :--- | :--- | | Net Income | JPY 70.600 billion | JPY 64.288 billion | | Net change of unrealized gains (losses) on investment in securities | JPY 6.381 billion | JPY (81.373) billion | | Net change of foreign currency translation adjustments | JPY 9.041 billion | JPY 114.119 billion | | Total other comprehensive income | JPY 16.243 billion | JPY 43.496 billion | | Comprehensive Income | JPY 86.843 billion | JPY 107.784 billion | | Comprehensive Income Attributable to ORIX Corporation Shareholders | JPY 81.293 billion | JPY 98.180 billion | Condensed Consolidated Statements of Changes in Equity (Unaudited) Shareholders' equity increased to JPY 3.29 trillion, driven by comprehensive income, partially offset by dividends and treasury stock - Shareholders' equity increased by JPY 32.3 billion during the quarter, reflecting net income of JPY 61.9 billion and other comprehensive income of JPY 36.3 billion, less dividends of JPY 55.7 billion and treasury stock acquisitions of JPY 10.3 billion[90] Condensed Consolidated Statements of Cash Flows (Unaudited) Cash and equivalents decreased by JPY 96.8 billion due to operating and investing outflows, partially offset by financing inflows | Cash Flow Item | Three months ended June 30, 2021 (JPY) | Three months ended June 30, 2022 (JPY) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | JPY 223.672 billion | JPY (31.746) billion | | Net cash used in investing activities | JPY (120.756) billion | JPY (226.961) billion | | Net cash provided by (used in) financing activities | JPY (47.650) billion | JPY 138.552 billion | | Effect of Exchange Rate Changes | JPY 1.167 billion | JPY 23.335 billion | | Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash | JPY 56.433 billion | JPY (96.820) billion | | Cash, Cash Equivalents and Restricted Cash at End of Period | JPY 1.136 trillion | JPY 994.992 billion | Notes to Consolidated Financial Statements This section provides detailed notes on the accounting principles, fair value measurements, credit quality, commitments, and segment information Overview of Accounting Principles Utilized The consolidated financial statements adhere to U.S. GAAP, with key differences from Japanese GAAP highlighted - Key differences between U.S. GAAP (used in this report) and Japanese GAAP include: - Goodwill: Not amortized under U.S. GAAP (tested for impairment), but amortized under Japanese GAAP - Allowance for Credit Losses: U.S. GAAP uses an expected lifetime loss model, while Japanese GAAP is based on prior charge-off experience - Cash Flows: Certain items like purchases of lease equipment are classified as Investing Activities under U.S. GAAP but as Operating Activities under Japanese GAAP[98][104][109] Fair Value Measurements Fair value assets totaled JPY 2.91 trillion, mostly Level 2, while liabilities were JPY 285.5 billion, with JPY 205.6 billion in Level 3 instruments Fair Value Hierarchy (June 30, 2022) | Fair Value Hierarchy (June 30, 2022) | Level 1 (Quoted Prices) (JPY) | Level 2 (Observable Inputs) (JPY) | Level 3 (Unobservable Inputs) (JPY) | Total (JPY) | | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | Available-for-sale debt securities | JPY 3.912 billion | JPY 2.047 trillion | JPY 176.919 billion | JPY 2.228 trillion | | Equity securities | JPY 99.579 billion | JPY 143.019 billion | JPY 124.735 billion | JPY 367.333 billion | | Total Assets at Fair Value | JPY 104.321 billion | JPY 2.491 trillion | JPY 314.406 billion | JPY 2.910 trillion | | Liabilities | | | | | | Derivative liabilities | JPY 0.204 billion | JPY 79.735 billion | JPY 24.801 billion | JPY 104.740 billion | | Policy Liabilities (Variable annuity) | JPY 0 | JPY 0 | JPY 180.791 billion | JPY 180.791 billion | | Total Liabilities at Fair Value | JPY 0.204 billion | JPY 79.735 billion | JPY 205.592 billion | JPY 285.531 billion | Credit Quality of Financial Assets and the Allowance for Credit Losses Allowance for credit losses decreased to JPY 67.9 billion, while non-accrual financial assets increased to JPY 84.3 billion Allowance for Credit Losses | Allowance for Credit Losses (JPY) | Beginning Balance (Apr 1, 2022) | Provision (Reversal) | Charge-offs | Ending Balance (Jun 30, 2022) | | :--- | :--- | :--- | :--- | :--- | | Installment loans | JPY 49.406 billion | JPY 0.464 billion | JPY (2.510) billion | JPY 48.210 billion | | Net investment in leases | JPY 16.303 billion | JPY 0.459 billion | JPY (0.780) billion | JPY 16.665 billion | | Subtotal | JPY 64.134 billion | JPY 0.838 billion | JPY (3.290) billion | JPY 64.875 billion | - Total financing receivables past-due 90 days or more increased to JPY 66.0 billion as of June 30, 2022, from JPY 55.3 billion as of March 31, 2022[303] - Non-accrual financial assets increased from JPY 73.4 billion at the beginning of the quarter to JPY 84.3 billion at the end, primarily driven by an increase in overseas corporate loans[305][306] Commitments, Guarantees and Contingent Liabilities Total potential future payments under guarantees reached JPY 1.20 trillion, with JPY 58.9 billion in recorded liabilities and significant funding commitments Guarantees (as of June 30, 2022) | Guarantees (as of June 30, 2022) | Potential Future Payment (JPY) | Book Value of Liabilities (JPY) | | :--- | :--- | :--- | | Corporate loans | JPY 442.543 billion | JPY 4.937 billion | | Transferred loans | JPY 458.437 billion | JPY 3.917 billion | | Consumer loans | JPY 284.314 billion | JPY 47.354 billion | | Real estate loans | JPY 7.607 billion | JPY 2.647 billion | | Total | JPY 1.195 trillion | JPY 58.907 billion | - The company has commitments to fund ongoing real estate development projects totaling JPY 133.606 billion[453] - Total unused credit and capital commitments available to customers and funds amounted to JPY 450.982 billion[454] Segment Information (Note) This note details segment revenues, profits, and assets, with Japan being the largest contributor to revenue and pre-tax income Geographical Information (Three months ended June 30, 2022) | Geographical Information (Three months ended June 30, 2022) | Total Revenues (JPY) | Income before Income Taxes (JPY) | | :--- | :--- | :--- | | Japan | JPY 515.472 billion | JPY 50.449 billion | | The Americas | JPY 48.817 billion | JPY 8.125 billion | | Other | JPY 93.524 billion | JPY 26.441 billion | | Total | JPY 657.813 billion | JPY 85.015 billion |