The Yomiuri Shimbun Japan Post Holdings Co. is considering booking heavy impairment losses, which may reach as much as hundreds of billions of yen, for fiscal 2016 due to a deterioration in earnings of an Australian logistics company it acquired in 2015, it has been learned.
Japan Post Holdings’ strategy of buying foreign companies seems to have backfired, and there have been a series of similar cases in which Japanese companies have suffered massive losses over foreign subsidiaries. For example, Toshiba Corp. was forced to book a huge loss in connection with a U.S. nuclear power arm it had acquired.
With the domestic mail business remaining sluggish, Japan Post Holdings acquired Toll Holdings Ltd., an Australian logistics company, for about ¥620 billion through Japan Post Co., the holding company’s postal unit. With the acquisition, Japan Post Holdings aimed at making a full-scale entry into the international logistics business, a field where future growth is expected.
Toll Holdings is a major Australian logistics company that was founded in 1888, and has strength in the fast-growing Asia-Pacific region. At the time of the acquisition of Toll Holdings, Japan Post Holdings was about to go public on the Tokyo Stock Exchange in autumn 2015.
Japan Post Holdings aimed to strengthen its earning power by expanding its international logistics business, with its acquisition of Toll Holdings as a stepping-stone.
However, Toll Holdings has been underperforming in its original business plan following a downturn in the Australian economy due to a decline in the prices of natural resources such as iron ore.
Under corporate accounting rules, when a company buys another company, it is required to post goodwill — the acquired company’s brand value — on its books. If the acquired company’s performance worsens, the parent company must review the goodwill and book related losses. The goodwill of Toll Holdings stood at ¥386 billion as of the end of 2016. Of this amount, Japan Post Holdings may book hundreds of billions of yen as impairment losses.
Japan Post Holdings expects its consolidated net profit for fiscal 2016 to be ¥320 billion. If it books the losses, it will likely drastically revise down its earnings projections.
The government, which currently owns about an 80 percent stake in Japan Post Holdings, plans to sell off part of it again as early as the end of this year to secure resources to fund reconstruction projects after the Great East Japan Earthquake. The possible expansion of the losses may negatively affect this plan.