Japan Post Holdings Co. is set to post a deficit of around 40 billion yen for the fiscal year ending in March 2017 -- a steep drop from its initial projection of a 320 billion yen profit.
The decision to make the downward revision came on April 24, after the company had initially estimated a net profit of 320 billion yen. That was dropped to several billion yen, after accounting for around 400 billion yen in losses incurred due to poor performance by Toll Holdings Ltd., an Australian transportation and logistics company the Japanese group company acquired in 2015. However, a consolidated loss of around 40 billion yen is now expected according to the company's latest projection.
This is the first time Japan Post has fallen into the red since the company was privatized in 2007. To take responsibility for the company's poor performance, Japan Post President Masatsugu Nagato and other company executives are expected to give back a portion of their salaries. The final decision is scheduled to be announced on the evening of April 25.
Japan Post had aimed to raise share prices with the acquisition of Toll Holdings once the company and two other group firms were listed on the Tokyo Stock Exchange in November 2015. As a strategy led by then Japan Post President Taizo Nishimuro, the purchase was intended to add momentum to the internationalization of Japan Post's logistics business.
However, the Australian economy slowed down due to a drop in the price of natural resources, and Toll's performance has continued to stay below expectations. At the time of the Toll acquisition, Japan Post added a certain amount to Toll Holdings' purchase price for goodwill -- intangible assets expected in an acquisition -- in anticipation of its future earning power. The goodwill value stood at 386 billion yen as of December 2016, but because earnings fell below expectations, the company decided on the disposition of loss in a lump sum.
Japan Post Bank Co. and Japan Post Insurance Co. -- both under the Japan Post Holdings umbrella -- have maintained solid results, but Japan Post Holdings was still unable to eke out a net profit. Meanwhile, Japan Post Service Co. President Kunio Yokoyama and other executives will also return part of their salaries.