Go Where No One Has Gone Before

The financial leasing market is crucial for the global economy. You offer businesses flexible alternatives for essential assets. This market is valued at USD 23 billion in 2023, and it is expected to grow at a CAGR of over 5% until 2032. How do you envision this sector and market changing across the next decade?

As you mentioned, the leasing market is expected to grow. I worked in a bank for over 30 years, and the difference between a leasing company and a bank is that the bank needs to take corporate risk and abide by banking laws and regulations. Since a bank manages the savings of clients, there are restrictions on the risk that it can take. In contrast, a leasing company can mitigate the business risk of their counterparts. Our clients are actively using us to leverage their business expansion.

These customers also only want to have the service but not to own or hold the asset. For example, during the summer, only the cool air is needed, not the air conditioning equipment itself. The manufacturer wants to sell the equipment and keep the revenue, but the bank cannot own the assets. This is where a leasing company like ourselves comes into play. We can serve those who only want to receive the service rather than the asset.

Another reason market expansion is expected in the leasing industry is that all companies create their corporate mission on local and global solving social issues and leasing companies can directly cater to solving company needs that are based on social issues. This is a unique business model that we can provide a solution to, so we are indirectly contributing to global social issues solutions.

Also, our partners, like equipment manufacturers, do not have a recurring and subscription system, so they make the products, and we provide this financial service. Therefore, we have a good synergy working together with our counterparts.

You discussed social issues, and something that is becoming a global challenge is the aging population crisis in many countries around the world. This is particularly true for advanced economies, but it’s also becoming true for developing ones. China is on the border of having its own population crisis. Japan is at the forefront of this issue, with the oldest population in the world. This has already created a series of bottlenecks in terms of employment and logistics. How does Fuyo General Lease react to this problem, especially considering the diversified expertise that you have in different sectors?

As a non-financial target, our aim is to reduce non-core work hours of our clients by 1,000,000 hours. That would be achieved through the introduction of Outsourcing and DX, which we call BPS. We don’t have a comprehensive AI and DX solution at this moment. What we are doing now is investing in the venture business and trying to acquire versatile solutions to mitigate the lack of labor issue, but we are still in the development phase.

We are also actively investing in autonomous driving technology, and we own autonomous-driven vehicles. With the potential shortage of drivers for buses and trains for public transport, we are working with local governments to connect major points in the city, like hospitals, local government offices, and the post office.

In June, I met the president of Uber, and he talked about the possibility of rideshare. However, what I said is that in rural countryside, autonomous driving comes first because there are not enough vehicles or drivers. If we could set the routes connecting major points in rural areas and allow people just to raise their hand to have the car stop, that kind of system would need to be prioritized. In areas like Karuizawa that are popular for sightseeing, rideshare may be more popular, so you have to find the right system for each location.

Fuyo General Lease’s mobility division has gone through interesting changes in recent years. For example, you’ve invested in EV adoption and EV infrastructure with your charger business, and you also have, as you just mentioned, autonomous driving that you’ve been co-developing with local governments. One of the big challenges is infrastructure. What positions you as a partner of choice for local governments that want to try out those systems, and how do you expect this division to evolve over the next five years?

The biggest strength that we have domestically is that we can provide a one-stop service for EV vehicle operation, from charging points to maintenance to completing the lifecycle of the vehicle. We are not a manufacturer so we partner with those who specialize in each field, including a charging company and an EV bus company, whose systems we use in Japan.

In five years, I cannot envision how fast EVs will progress or how prevalent autonomous driving will be, but we are investing prior to mass adoption so we can gather data at the earliest point to determine, for example, how virtual mapping should be done for the effective operation of the vehicles. Once we reach a point of mass commercialization, then we want to use the knowledge that we have been accumulating fully.

Currently, autonomous driving is at level three, but next month there will be an introduction of level four, which will be completely driverless. Once the system is launched, we’ll be able to gather data once again, and since we already have accumulated knowledge and know-how about autonomous driving technology, the local governments will start introducing our system with a comprehensive service. Of course, since level four autonomous driving vehicles will be very expensive, governments will surely choose a leasing option, and we are targeting that business opportunity.

In the energy field, we are investing heavily with our European partner in the renewable energy area. In addition, the livestock energy market is quite advanced in Europe, and we expect the same situation will occur in Japan in the upcoming years, so we want to be the pioneer in the Japanese market and be there at the right time. To do that, we are now gathering data and experience through the EU energy market.

Self driving EV bus, ARMA, for a pilot test

We are a financial company, so having a core strategy map is critical. Based on this strategy map, we look for the best partners, M&A prospects, and project clients to execute the strategy comprehensively.

Speaking of the energy field, Japan faces three key challenges: limited resources, import dependence, and high greenhouse gas (GHG) reduction costs. In response to this, the government is pushing nuclear power and renewables. Your company has expanded renewables, growing its operating assets to JPY 182 billion. An example of a project you have is wind projects in the UK. You opened a subsidiary there as well. You also entered the grid battery storage business via a joint venture with Daiwa Energy & Infrastructure and ASTMAX. What products, services, and projects are Fuyo General Lease offering to promote the development of renewable energy?

Our focus is on how to realize the carbon neutral society, and to do so, there are two approaches. One is carbon dioxide absorption, and the other is not generating carbon dioxide. Not generating carbon dioxide could be done by using renewable energy sources. In Japan, land for solar panel generation is scarce, so we are now shifting more towards wind power generation. Overseas, the trend is also going more towards wind, so we are actively investing in this field in foreign countries to promote this non-generation of carbon dioxide through energy generation.

As for energy absorption, which is absorbed by trees, we have been investing in the forest fund that Sumitomo Forestry Co., Ltd. has created in the US. Another initiative is a project in Southeast Asia to reduce methane emissions generated during rice cultivation by adjusting the water level in rice paddies. We are now focusing on creating carbon credits to achieve carbon neutrality.

I wanted to ask you about the Fuyo shared values. Are those based on the shared values of Michael Porter?

Yes.

In Michael Porter’s articulation of shared values, something that he stresses is very important is the ability to create concepts that the world abides, regardless of financial or investment motives. If we look beyond the financial targets that you have in your mid-term plan to achieve an ordinary profit of more than JPY 75 billion, what are some of the more intangible things that you believe must be achieved for your shared values to be successful in 2026?

We define CSV as the concept that balances the solving social issues and economic viability. Our perspective is that we provide a direct solution to our customers who are tackling social issues while the leasing business is economically viable for ourselves. When we look at autonomous driving and the circular economy business segment, this hasn’t been economically viable yet, so we are now planting the seeds to have a good balance of this social contribution with economic viability in the near future.

Continuing on the theme of your shared values plan for 2026, it’s a five-year strategy that stands on a foundation of energy and environment, the circular economy, and mobility, while also emphasizing health care and BPO/ICT. Your financial targets include JPY 75 billion in ordinary profits, a 2.5 ROA, a 13-15% shareholder’s equity ratio, and a 10% ROE. Can you tell us how your plan is progressing and what will be the key factors in achieving it?

It is progressing very well. The segment that is performing well as the core business is real estate and aircraft, whereas the transformation businesses that are concentrating their management resources are mobility & logistics, circular economy, energy & environment, BPO/ICT, and healthcare. We are strengthening our core business while simultaneously trying to elevate the transition business so we can achieve the target of JPY 75 billion ordinary profit.

Following up about healthcare, it’s a key focus of your business plan. You aim to maximize by providing a comprehensive one-stop service across medical care, nursing care, and pharmacy dispensing through the Fuyo General Lease platform. You also have financial targets. What will be the key factor in achieving these financial and non-financial targets?

We are trying to provide a one-stop comprehensive service to the healthcare industry. Many Japanese hospitals have aged, often to over 50 years since initial construction, so renovation or reconstruction is needed. With our real estate business, this can become a strong component of our income. Also, to mitigate the shortage of manpower in the hospital industry, introducing DX is the key. This non-asset business is currently well received in Japan, so we hope to provide financial and non-financial services in a comprehensive manner.

Your company was established in 1969, and since then you have become one of Japan’s leading leasing companies, offering a diverse range of services across many sectors. You compete with major players such as ORIX Corporation, Mitsubishi HC Capital Inc., and Sumitomo Mitsui Finance and Leasing Company, Limited. What do you consider your competitive advantages and differences relative to these competitors that make you so appealing to your clients?

The biggest strength that we have, which is our unique advantage, is we don’t have any major parent company. We are not within a bigger company or have a bank or trading firm behind us, so we are at a very neutral stance. This allows us to partner with many other counterparts. For example, because of our neutral stance, we can partner with even different corporate affiliates, such as Mitsubishi or Mitsui. Thus, we can gather much more information, especially in real estate. In fact, it surprises other companies how much information we gather thanks to our many partnerships.

You talk about your ability to gather information, which is evidenced by your diverse portfolio of business activities. What type of synergies are you able to achieve between your different business divisions, and is there an overall advantage to being involved in so many things?

The biggest synergy that we get by having a diverse range of businesses is acting as the instigator of things that lead to other types of business. For example, in the Toshimaen Theme Park, we have a Harry Potter attraction together with Warner Brothers and that led to new business when a client contacted us to work together, so this type of diversification actually brings a lot of new business opportunities.

We’re grateful that our counterparts let us realize the new business opportunities. There are many things that we’re not aware of, but one thing leads to another that lets us know and learn about new types of businesses.

I want to touch upon the importance of M&A. In 2022, you acquired Human CentriX and made it a consolidated subsidiary. In 2024, you acquired Thailand’s PLIC and made it an equity-method affiliate. What can you tell us about your current efforts to secure M&A activity and which regions you are focused on?

Our merger and acquisition strategy is to fill in the pieces that are missing in our strategy map. For example, Human CentriX, you mentioned, is part of the BPO process where our group companies delegate the making of videos and PR materials. We acquired PLIC in Thailand to deepen our presence in forklift leasing. It would be difficult for us to go for one million vehicle leases, so we want to specialize. Rather than leasing ordinary passenger automobiles, we can work with forklifts. In the US, we acquired Pacific Rim Capital, which also specialized in forklifts, so we are looking for companies which can help us grow and strengthen our strategy map.

Forklift leased by PRC

Speaking of your 2023 purchase of Pacific Rim Capital, Inc.,（”PRC”） it was already one of largest independent material handling equipment leasing companies in North America, with a big expertise in forklifts. Can you tell us why you believed PRC was a good partner to expand in the US.

The reason we acquired PRC is that it has a unique business model in equipment financing. When they purchase equipment, they instantly convert it into a fluid asset.

I want to discuss your full international game plan. You have 24 subsidiaries across the US, Europe, Asia, and Latin America. Can you run us through your international strategy and the markets that you have identified as key for global expansion over the next five years?

Our overseas strategy is not centered on the leasing business. Rather, the focus is on the business operation of, for example, energy, aircraft, and real estate. For energy, there’s a potential that we may look into Africa for green hydrogen and blue ammonia business. The key is finding partners. Once we have the right partner, we can enter new markets. In Europe, we have partnered with Aquila Capital Group in Germany and Copenhagen Infrastructure Partners P/S in Denmark. Four or five other potential partners are in discussion. The more partners we have, the more we can expand into Europe.

Could you tell us a bit more about any of those partnerships you are in discussion with?

The partnership is not on a contract basis. Instead, it will be based on trust. It’s a matter of whether we can create a relationship where we receive the first call from the partners. We don’t want to access remaining or lower-priority real estate or other projects. We want to be the first partner of choice, although we may do only one out of ten as our criteria are quite severe.

From January 2023 through early April this year, your stock performed very well, increasing by over 60% to top around JPY 14,000. Since then, however, we’ve seen a slight decrease with the stock trading around JPY 11,000 today. What do you think fueled the market optimism in 2023 and early 2024, and how do you explain the recent slight slump in the company’s market cap?

Although there are a variety of factors that are intertwined with each other, I believe that one of the reasons for the large increase in the share price was the market's evaluation of our business performance, including the progress of our medium-term management plan. For the same reason, it is difficult to explain the reasons for the share price slump, but we believe that solid performance improvement will lead to an increase in the share price.

One of the TSE's key guiding principles is to promote capital efficiency among Japanese companies. We have already seen some positive progress from the reforms being pushed by the TSE. For example, another record year for share buybacks by Japanese companies is on the horizon. Does Fuyo General Lease see this as a way to promote shareholder returns in corporate finance?

As stated in our medium-term management plan, our policy for the time being is to increase the amount of dividends, including increasing the dividend payout ratio. Currently, we have no plans to buy back our own shares, but we believe that this is a possibility in the future.

Fuyo General Lease was founded in the late 1960s and there’s been a succession of different presidents. Beyond the midterm strategy, is there an objective or ambition that you would like to achieve during your time as president?

On my first day as president, I announced I want to lead the company in a way that Fuyo General Lease would be trusted by our group companies and by our customers.

The biggest difference between a leasing company and a bank is that there are no legal restrictions or regulations, and a leasing company is similar to a trading firm in that it can be open to many business domains, so the possibilities are infinite. We ourselves are diversifying our business range and opening up to more business segments. We currently have six or seven but plan to increase that to over ten while deepening each of the businesses, and I am confident that the financial results will follow. When I meet customers or clients that I worked with in the past during my banking days, they say that I look very happy and excited, and that’s because I have no restrictions and the possibilities are infinite. I’m able to pursue and execute all those possibilities, and that is how I am approaching my time as president.

We want to be the representative company of many business segments. We are now regarded as Fuyo General Lease, but we also want to be recognized as an autonomous driving company, a carbon credit company, and other fields as well.

For more information, visit their website at: https://www.fgl.co.jp/eng/