Japan Post warns of losses after blow from Toll

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Japan Post Holdings today said it will make a Y40bn ($360m) loss for its first full financial year as a listed company, reversing previously strong earnings projections and introducing a newly-minted generation of Japanese stock investors to the concept of a profits warning.

The forecast loss at Japan Post arises from a massive Y400.3bn write-down charge on Toll Holdings – the Australian logistics business it bought in 2015. Toll’s operating income tumbled hard between April and December last year as low global resource prices weighed on the Australian economy in general, and Toll’s core domestic business in particular.

Japan Post had previously been forecasting a Y320bn profit for the financial year ending March 31 2017.

Under its former president, Taizo Nishimuro, Japan Post paid around $4.9bn to acquire Toll in a deal that was criticised by analysts at the time for being too expensive and for stretching the Japanese management of the former state-owned postal services group beyond its capabilities.

The purchase of Toll was completed just a few months before the $12bn IPO of Japan Post Holdings and its banking and insurance subsidiaries – the culmination of an embittered, 10-year privatization process. The flotation was made the centerpiece of efforts by prime minister Shinzo Abe to persuade Japanese households to move some of their huge stash of savings from bank deposits into riskier investment. The IPO was heavily pitched towards retail investors – stressing both the rock-solid reliability of the Japan Post brand and the newly globalised profile acquired through the Toll purchase. The IPO is estimated to have lured hundreds of thousands of Japanese families into the stock market for the first time: as well as experiencing their first profits warning, that same group of shareholders has also seen their Japan Post shares trade for extended periods below its IPO price of Y1,400 per share.

Masatsugu Nagato, who became president of Japan Post Holdings last year, was not involved in the original Toll purchase and has privately questioned the logic of the deal, made no apology for the writedown. The decision to book the losses now rather than postponing, he told a press conference in Tokyo on Tuesday afternoon, was designed “to get us to the starting line for a more aggressive management stance by eliminating the negative legacy of the past.”

Referring to Mr Nishimuro’s decision to buy Toll, Mr Nagato acknowledged that the deal represented a good opportunity to gain a foothold in the Australia and Oceania region. But he said that: “the risk management [of Japan Post] at the time was too loose and we were too optimistic about the future of the Australian economy.”

In keeping with many other overseas acquisitions by Japanese companies, Japan Post allowed a large degree of discretion to Toll’s Australian management. But that will now change, said Mr Nagato, who said that communication between Toll and Japan Post would now be “closer” and that governance would be improved by adding Japan Post executives to Toll’s management.

Analysts covering Japan Post had previously warned that any significant writedown on the Toll acquisition could hamper plans by Mr Nagato to pursue more foreign M&A deals. But on Tuesday, the Japan Post president said that Toll would remain the “core” of the overall company’s globalization plans and that he would continue to look for overseas deals.

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