Business / Corporate | Taking the Lead

Japan Post chief sees bright future beyond mail services

by Shusuke Murai

Staff Writer

Even for Masatsugu Nagato, an experienced business executive who has worked in prominent companies, making Japan Post Holdings Co. stand on its own two feet as a private company comes as a daunting challenge.

But Nagato, its president, says he is confident he can accomplish the task by taking advantage of its network of over 24,000 post offices nationwide and its abundant real estate resources.

“The IPO was indeed a great step for us — like a ship departing from a harbor to embark on an ocean voyage,” Nagato, 69, said during a recent interview with The Japan Times at the postal giant’s headquarters in Tokyo’s Kasumigaseki district.

Since going public, Nagato says that he believes his company is “destined” to boost its performance because it is no longer a state-run entity.

“But we still have a long way to go,” he said.

The former state-owned postal and financial services behemoth nominally went private in 2007 as a result of then-Prime Minister Junichiro Koizumi’s quest to break it up.

With more than 400,000 employees, the Japan Post group now consists of Japan Post Holdings and three units — Japan Post Co., Japan Post Bank Co. and Japan Post Insurance Co. The holding company’s overall assets stood at ¥291.7 trillion as of September.

The insurance unit boasts the largest assets in the domestic insurance industry at ¥80.3 trillion as of last March. The banking unit holds ¥209.6 trillion, making it the second-largest banking group in the nation after Mitsubishi UFJ Financial Group Inc., which has ¥303.3 trillion in assets.

In 2015, the holding company, bank and insurance units went public on the Tokyo Stock Exchange, marking the second-largest IPO for a former state monopoly since Nippon Telegraph and Telephone Corp. was listed in 1987.

After serving as former vice president at Fuji Heavy Industries Ltd. (since renamed Subaru Corp.) and chairman of Citibank Japan Ltd., Nagato joined the Japan Post group in 2015 as president of Japan Post Bank. He was also a managing executive officer at Mizuho Bank Ltd. in 2002.

He took the helm of Japan Post Holdings in April 2016, succeeding the late Taizo Nishimuro, former president of Toshiba Corp.

Although more than a decade has passed since privatization, progress toward the group’s growth strategy is “still in its early stage,” Nagato said.

Privatizing the postal service wasn’t smooth sailing, given the big losses it incurred overseas.

Last year, Japan Post made headlines after booking a ¥28.9 billion net loss for the business year ended March that dragged it into the red for the first time since its 2007 privatization.

The loss was spurred by a ¥400 billion write-down in the value of Australian logistics company Toll Holdings Ltd., which Japan Post acquired in 2015 as demand for its services waned at home.

The group generates its profit mostly from the two financial sectors — about 80 percent comes from banking and 20 percent from insurance — while its core postal business remains sluggish. The bleak prospects for its core business have been reflected in its stock price.

In September, the government sold a tranche of Japan Post shares as part of the second phase of the stock offering. But its selling price of ¥1,322 was lower than the initial offering price of ¥1,400 in 2015, when the shares rose to as high as ¥1,631 in its public debut.

Nagato shrugged off the drop as not unexpected, citing precedents from the privatization of other state-owned monopolies, including the former Japanese National Railways (now the Japan Railways Group), NTT and Japan Tobacco Inc.

“For the JR Group, their major driver of growth was shinkansen and lines in mega-cities like Tokyo, Nagoya and Osaka. For NTT, it was the information industry, cellphone and real estate businesses,” he said.

Although smoking is on the decline in the country, Japan Tobacco has maintained growth through mergers and acquisitions of other global tobacco companies, including RJR Nabisco’s international tobacco business unit in 1999 and Britain’s Gallaher Group in 2007, he added.

“You may then ask: What would be the strengths of our company? And that’s where our weakness lies,” he said.

The future of mail delivery is not so bright, given the growing prevalence of email and messaging services, Nagato admitted. Still, he said that Japan’s postal sector “has a great chance” to turn things around by taking advantage of the domestic post office network.

In June, Japan Post announced it would team up with Nippon Life Insurance Co. to let the insurer’s customers try some of its services on a trial basis, including one allowing a change in beneficiary, at post offices via videoconference. The move is designed to reduce the insurer’s need for manpower in depopulated areas.

“Our strength lies in having established the people’s trust by offering services at 24,000 post offices in Japan,” he said. “I don’t deny that the postal service is going to decline. And we are trying to build a business model that can cover the loss in other ways.”

Acquiring Toll Holdings was an attempt to survive the decline in the domestic market.

Looking back at the acquisition, which took place before he became president, Nagato said the company’s estimate of Toll’s goodwill was “a little too high.” Japan Post acquired Toll for about ¥620 billion, based on an estimated goodwill of ¥500 billion.

But Nagato framed the ¥400 billion write-down loss as a “meaningful” bet.

“As (the population in) Japan will inevitably decline, sooner or later, we need to expand our business scope overseas to pursue further growth,” he said.

“Although we still have a lot of things we can do in Japan, I think it’s not right to say we will be safe as long as we do business only in Japan,” the postal giant chief said.

Last year, Japan Post said it would conduct a massive restructuring at Toll, including cutting 1,700 of its 40,000 employees, to make the organization leaner, he said, claiming that it could bounce back after “hitting rock bottom.”

Although Japan Post experienced significant losses from its overseas businesses, Nagato said it would not stop seeking merger and acquisition opportunities overseas if they “come at the right price and generate a good synergy effect with our business and our culture.”

Another “sleeping lion” for Japan Post is real estate, where it has ¥2.6 trillion in assets, Nagato said.

Among those assets is JP Tower, the office and commercial complex across from Tokyo Station that emerged from the renovation of the central post office, and the Kitte shopping mall inside.

“Our assets are usually located in good places, like near major train stations. I think we have a great potential” to take advantage of these facilities for other purposes, such as for nursery schools and elderly care facilities, he said.

Japan Post was reportedly looking to acquire Nomura Real Estate Holdings Inc. to gain development expertise. The talks ultimately went up in smoke in June after they failed to agree on the purchase price and other terms.

Nagato denied the report, but said the company will strengthen its real estate sector to turn it into a core business “to enable us to quickly turn our operations into profitability.”

“I want to make Japan Post a company that is respected by all stakeholders,” he said.

“Now that we are a listed company, we have to take shareholders’ interests into account. Some people say our stock price is low because people don’t evaluate us well. I want to change that and gain their respect,” Nagato said. “But we are not there — just yet.”

This series presents exclusive interviews with top business leaders and executives.

Japan Post’s history

1871: Starts as a state-run service between Tokyo and Kyoto/Osaka.

1872: Establishes nationwide postal service network.

October 2005: Administration of Prime Minister Junichiro Koizumi enacts laws to privatize Japan Post.

October 2007: Japan Post goes private by breaking up into five companies: Japan Post Holdings Co., Japan Post Service Co., Japan Post Network Co., Japan Post Bank Co. and Japan Post Insurance Co.

October 2012: Japan Post Service Co. and Japan Post Network Co. merge to form Japan Post Co.

May 2015: Japan Post acquires Toll Holdings Ltd. for 6.48 billion Australian dollars (about ¥620 billion).

November 2015: Japan Post Holdings, Japan Post Bank and Japan Post Insurance list their shares on the Tokyo Stock Exchange.

April 2016: Masatsugu Nagato appointed president of Japan Post Holdings, succeeding Taizo Nishimuro.

May 2017: Japan Post Holdings books ¥28.9 billion net loss for 2016 business year — the first since privatization — due to a ¥400 billion impairment loss from Toll Holdings.

September 2017: The government sells off more of its remaining holdings of Japan Post shares in a second-round release.