Good evening. This is Chun Yang of ORIX Corporate Planning Department, and I would like to welcome you to ORIX Conference Call to review our first quarter consolidated results for the 3-month period ended June 30, 2016. I'm joined here this evening by Mr. Kazuo Kojima, Deputy President and CFO; as well as Mr.
Shintaro Agata, Head of the Treasury Headquarters; and Mr. Takao Kato, Head of the Council Headquarters. .
During this evening's call, I will go through the first quarter results, and then we will open up the lines to Q&A with Mr. Kojima. I presume that everyone has in front of them the presentation material that were posted on the IR section of the website this afternoon, Tokyo time. The following live broadcast is copyright to ORIX.
Statements made today may contain forward-looking information. While this information reflects management's current expectations or beliefs, you should not place undue reliance on such statements as our future results and business activity may be affected by a wide variety of factors that are out of our control.
You should read the forward-looking disclaimer in our earnings presentation, as it contains additional important disclosures on this topic. You should also consult our report filed with the SEC for any additional information, including risk factors specific to our business. .
Also, please note that the net income used in this presentation is same as the net income attributable to ORIX Corporation shareholders, as referred to in the latest financial statements, titled Consolidated Financial Results April 1 to June 30, 2016. .
And from here on, I would like to start the presentation from Slide 1 of the presentation material. The net income for the first quarter was JPY 76.8 billion, which was 6% less compared to the same quarter from the previous year. Meanwhile, the annualized ROE for the first quarter was 13.2%, which exceeded our midterm ROE target range of 11% to 12%. .
During the same quarter last year, there was significant profit contributions from Hartford Life Insurance and Robeco, and the absence of these profits this time explain the lower earnings in the first quarter this fiscal year. .
The other factors that caused lower earning was the foreign exchange rate fluctuation. The strengthened yen has reduced the profits of our Overseas operation when we translate them back to Japanese yen from foreign currencies.
Nevertheless, we have continued to generate capital gains in both the Investment and Operation segments and the Real Estate segment. Our Environment and Energy business, including the mega solar project, continue to grow steadily.
And we have also made new investments, both in Japan and overseas, which are expected to contribute to future profit growth. .
Overall, considering the fact that the external environment continues to be unstable with many uncertainties, as shown by the increasingly volatile stock market and foreign exchange market after the Brexit, we think the company still made solid progress in this first quarter. Please turn to Slide 2. .
The total segment profits were JPY 115 billion, which was 5% lower than the same period last year. Among the 6 segments, Real Estate segment and the Investment and Operation segments both generated capital gain and achieved profit growth year-on-year. .
Later in this presentation, I will talk about each segment's first quarter result in more details.
But basically, the 3 main factors behind the lower earnings overall were, one, in the Retail segment, there was a significant reduction in Hartford Life Insurance profit due to unfavorable market condition; two, in the Overseas Business segment, Robeco recognized a sizable onetime gain in the first quarter last year and that did not repeat this time; and finally, the third factor was that yen strengthened this quarter, which reduced the profits from our Overseas operations.
Please turn to the next slide. .
Segment assets were JPY 8.5 trillion as of the end of the first quarter, a 4% decrease compared to the end of the last fiscal year. And so the annualized ROA for the first quarter, it was 3.5%. Please turn to Slide 4. .
the onetime gain by Robeco last year, the unfavorable market condition affected Hartford Life Insurance and impacts from foreign exchange fluctuations. If we disregard these 3 factors, then the existing operation will have resulted positive growth. .
On the other hand, gains on sales of both Investments and Real Estate assets in total were JPY 48.7 billion, which exceeded the JPY 43.2 billion achieved during the same period last year by about JPY 5 billion. .
The chart on the right-hand side shows how segment assets had changed over the 3 months period. During the first quarter, segment assets have decreased by JPY 402 billion, and the biggest factor behind that was foreign exchange rate, which was responsible for JPY 207 billion decrease in assets.
In addition, Hartford Life Insurance assets in runoff and asset that we sold in our private equity Investment business and Real Estate business, as well as the securitization we executed in our Maintenance Leasing business, all contributed to the decrease in the segment assets overall. .
As for our finance business in Japan, the housing loan and the car loan business under ORIX Bank have been growing. .
I have just explained the first quarter earnings result in a summary and from next slide and onward, I will explain each segment's result in more details. Please turn to Slide 5. .
The Corporate Financial Services segment generated JPY 8.5 billion of segment profit, a 31% decrease year-on-year. This is due to the absence of the JPY 3 billion gains on sales of securities recognized during the same period last year. .
Finance revenues decreased somewhat due to the decrease in installment loan assets. However, services income, even on the basis of -- if you exclude Yayoi portion has display solid growth year-on-year. .
Segment assets decreased by 2% down to JPY 1,033,000,000,000 as a result of the decrease in installment loans. Please turn to Slide 6. .
The Maintenance Leasing segment achieved segment profits of JPY 9.9 billion, a decrease of 15% year-on-year. Gains on sales of leased up vehicles, which is recorded under operating lease revenues, were slightly lower than the first quarter last year by about JPY 1 billion. .
Segment assets decreased by 4% year-on-year, down to JPY 700 billion. The main factor behind the decrease in assets was the securitization of the auto leasing assets of about JPY 37.5 billion. Excluding this factor, the segment asset here would have continued to increase. Please turn to Slide 7. .
In the Real Estate segment, segment profit increased by JPY 23.6 billion or 63% growth on a year-on-year basis. We have recognized gains on sales of rental properties on the back of an active Real Estate market. .
Meanwhile, the facility's operation business remained largely stable during the quarter. Segment asset decreased by 5% year-on-year, down to JPY 705.6 billion, in line with the sales of rental properties that continued during the quarter. Please turn to the next slide. .
In the Investment and Operation segment, segment profit was JPY 31 billion, an 18% increase year-on-year. During the first quarter, we sold 2 investments. One is WingArc1st, is the business software vendor that we sold in May; and the other is Global Business Power Company.
This is a power company in the Philippines that we sold in June and both of these exits generated capital gains. .
As for our Environment and Energy business, with the gradual addition of mega solar project in operation and the expansion of our electric power retailing business, earnings there have been growing steadily. As a result, the services income has increased by 30% year-on-year. .
Segment assets have decreased by 670 -- no, decreased by 4%, down to JPY 678.6 billion as of the end of -- since the end of the last fiscal year, and this is mainly due to the investment that we sold during the period. .
Assets in Environment and Energy business, however, have been growing. As of the end of June this year, we have secured 890 megawatts of solar power generation capacity, among which 470 megawatts have started operation now. .
Please turn to the next slide. In the Retail segment, segment profits in the first quarter was JPY 12.5 billion, a 42% decrease year-on-year.
For Hartford Life Insurance, due to unfavorable market conditions, we have increased the provisions for our liability reserve and, as a result, Hartford Life had a minus 12.4% -- JPY 12.4 billion in segment profit year-on-year.
If we exclude the negative contribution from Hartford Life, the Retail segment would have had an increase in segment profits of over JPY 3 billion year-on-year. .
On the other hand, our ORIX Bank had achieved profit growth. The bar chart in the middle of the slide shows how life insurance premium and related investment income have changed over the last 3 years. The navy portion represents that of ORIX Life Insurance, which has been growing year after year. .
Segment asset have decreased by 2% during the quarter down to JPY 3,384,500,000,000 in segment assets. The decrease was mainly due to Hartford Life runoff business. Please turn to Slide 10. .
In the Overseas Business segment, segment profits were JPY 29.9 billion, a decrease of 13% on a year-on-year basis. And of this, about JPY 3.4 billion decrease in profit was due to the foreign exchange rate changes.
Furthermore, Robeco's first quarter earnings was JPY 3 billion less than that of the same period last year because there was a reversal on the reserve associated with the earnout provision, which contributed JPY 2.5 billion of gain in the first quarter last year. The earnout provision was agreed during our acquisition of Robeco. .
Our aircraft-related business had a profit growth. .
Segment asset have decreased by 9% during the quarter and ends at JPY 2,068,000,000,000. In yen terms, segment asset decreased by JPY 217 billion and JPY 207 billion of that was the result of the strengthened yen. Please turn to the next slide. .
During the full year earning announcement for the last fiscal year, we have introduced a new way to look at our business in 3 different categories. That is Finance, Operation and Investment. For the Finance category, the Corporate Financial Services segment had a profit decrease.
However, the banking and ORIX Life Insurance business -- I'm sorry, banking business under the Finance category had a profit increase year-on-year. .
For the Corporate Financial Services segment, while the interest rate competition there continues to be very fierce, we continue to avoid competition on interest rate, and we're focused on enhancing our fee earning services. .
For the Operation category, in the Environment and the infrastructure businesses, mega solar and the electric power retailing have been growing steadily. And as for the infrastructure business, we are expecting our concession business to start contributing profits from the second quarter. .
In the Financial service subcategory, we have recently announced an acquisition of Boston Financial in the United States. This company is the largest syndicator of low income housing tax credit in the country. With this acquisition, and together with our other U.S.
subsidiary, RED Capital, we will pursue further growth by strengthening our business platform in the finance market for rental housing in the United States. .
And as for the Investment category, aircraft-related business has contributed profit increase in the quarter. And for the equity Investment, in Japan, we have made the decision to acquire -- to invest in the largest veterinary pharmaceutical in Japan. .
Going forward, in the coming years, we will continue with our strategy of avoiding direct competition and seek new and quality investments in the health care, IT, food and lifestyle supporting services industries. Please turn to next slide. .
Here, I would like to conclude the presentation with a summary. We have achieved net income for the first quarter of this fiscal year at JPY 76.8 billion. This is slightly lower than the same period last year. However, this had actually exceeded our internal budget.
And given the current environment where the interest rate continues to go lower and the foreign exchange rate market looks -- still looks very unclear as for which way it will go, we will continue to act cautiously and focus on operation and investments towards the company's goal of long-term sustainable growth. .
This ends my presentation. Thank you for listening. .
Our first question today comes from Mr. Harish [indiscernible] from [indiscernible]. .
Can I ask whether the asset sales in the Real Estate segment, is that just to -- are you making concerted efforts there to increase the pace of sales as a result of, perhaps, an increased conviction that we might be near the top of the market? Or is that -- is it more just a function of the offers that you happen to have received on buildings, et cetera?.
Please let me clarify the question.
Are you asking whether we are pulling back or refrain from selling our assets?.
No, no, whether you're accelerating the Real Estate asset sales. .
Yes, I see. Okay. Hang on a second. Thanks for waiting. The answer to your question is, we did not intentionally try to accelerate the sales of those rental properties in the Real Estate segment. They were the result of actual -- well, normal market activities. .
Okay. So -- sorry, just to clarify, there's no change in view regarding the Real Estate market.
You don't think that it's getting kind of -- your view of the risk in that market hasn't changed?.
That's correct. Thank you. If there are no further questions, Mr. Kojima has some final words to share with you. .
This is Kojima. With many uncertainties in the external environment and the financial market condition becomingly increasingly challenging, together with Chun Yang, I think the first quarter still showed a relatively solid progress, including a number of new investments that we made. As we continue to work together, our medium-term goal.
We will have [indiscernible] with caution and focusing on -- focus on expanding our operation and the investment of businesses. Having said that, I appreciate your interest and continuous support to ORIX until now and also in the future. Thank you. .
Thank you for participating in tonight's conference call. If you have any questions or comments, please do not hesitate to get in touch with us using the contact information found on the last page in this evening's presentation material.
Also, a replay of this conference call will be available shortly on ORIX IR website if you joined halfway through or would like to listen to certain sections again. On behalf of the management and the entire ORIX Group, thank you for your participation.
We -- I hope that we have a chance to meet whether it is in your corner of the world or here in Tokyo..