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Overview of Results of Operations etc.

Overview of Results of Operations etc.

(As of March 31, 2021)

(1) Explanation of Results of Operations

Consolidated ordinary income amounted to ¥11,720,403 million (down ¥229,782 million year-on-year) and consolidated net ordinary income amounted to ¥914,164 million (up ¥49,706 million year-on-year). Net income attributable to Japan Post Holdings amounted to ¥418,238 million (down ¥65,494 million year-on-year), which comprises consolidated net ordinary income after adjusting for items including extraordinary gains (losses) and provision for reserve for policyholder dividends.

Financial results by segment are as follows.

(Postal and Domestic Logistics Business Segment)

In the postal and domestic logistics business, Japan Post Co., Ltd. (hereinafter referred to as "Japan Post Co.") made efforts to maintain the use of mails through SNS-linked services such as New Year's postcards, as well as to expand profitability and enhance convenience by providing new services for sending and receiving mail. Regarding operations, we popularized and expanded the service for leaving parcels in designated areas, and engaged in total cost control, including more sophisticated labor management, management of personnel expenses for each area of responsibility, and delivery commission expenses. In addition to safety promotion and the optimization of operations using telematics terminals (services utilizing mobile communications systems), we engaged in initiatives such as the commencement of automated receipt of redelivery requests using AI voice recognition technology. Furthermore, we also proceeded with preparations to review our various services in response to the proclamation of the Act to Partially Amend the Postal Act and the Act on Correspondence Delivery by Private Business Operators in December 2020.

With regard to the total volume of items handled for the fiscal year ended March 31, 2021, the volume of mails handled decreased by 6.8% year-on-year to 15,244.03 million, the volume of Yu-Mail handled decreased by 7.5% year-on-year to 3,299.31 million, the volume of Yu-Pack handled increased by 11.9% year-on-year to 1,090.79 million (including an increase of the volume of Yu-Packet handled by 16.1% year-on-year to 496.66 million) at Japan Post Co. (non-consolidated).

As a result of these initiatives and other factors, in the postal and domestic logistics business for the fiscal year ended March 31, 2021, ordinary income amounted to ¥2,071,877 million (down ¥56,310 million year-on-year) and net ordinary income amounted to ¥126,587 million (down ¥22,598 million year-on-year). In addition, operating income amounted to ¥2,068,426 million (down ¥56,887 million year-on-year) and net operating income amounted to ¥123,716 million (down ¥23,788 million year-on-year) in the postal and domestic logistics business of Japan Post Co. for the fiscal year ended March 31, 2021. Increases in the volume of Yu-Pack handled and income from parcels, due to the expansion in e-commerce usage with increased in stay-at-home consumption, etc. were insufficient to compensate for the decrease in income from declining international mails, standard mails and others.

(Post Office Business Segment)

During the fiscal year ended March 31, 2020, issues were discovered in the quality of insurance solicitations by Japan Post Co. for Japan Post Insurance products. We subsequently refrained from sales of Japan Post Insurance products, investment trusts and allied financial instruments (variable annuities, medical insurance with eased underwriting conditions, and accident insurance) at post offices, etc. We decided to commence these business operations aimed at regaining customers' trust, and engaged in initiatives for this purpose from October 2020 onward. Specifically, in addition to displaying posters in locations such as post offices, we distributed pamphlets with our promise to customers, apologized and explained that we would abide by our "Pledge to Regain Customers' Trust." At the same time, we engaged in Japan Post Insurance policy coverage confirmation activities and follow-up service for investment trusts and variable annuities as our primary priorities, endeavoring to resolve the anxieties and uncertainties of our existing customers. We also engaged in measures to radically eliminate improper solicitation actions, including the implementation of multiple checks from the subscription stage to the conclusion of contracts, the strengthening of systems, etc. for properly managing solicitation activities, enhanced oversight through stricter accident evaluation and handling criteria, etc., and the strengthening of the Internal Audit Department. In addition, we implemented employee training to contribute to customer-first sales activities and comprehensive consulting services, and carried out training for managers, instructing them on our new approach to management, and methods for management and direction that incorporate coaching techniques. We engaged in the optimization of the post office network, and progressed with the development of unique and diverse post offices catering to the needs of local communities and customers. We also worked on measures to protect customer data, combat money laundering and the financing of terrorism, as well as for the insurance solicitation problem described above, based on our view of compliance as a top-priority management issue.

As a result of these initiatives, in the post office business for the fiscal year ended March 31, 2021, insurance commissions fell significantly due to refraining from active sales proposal activities of Japan Post Insurance products. As a result, ordinary income amounted to ¥1,245,179 million (down ¥54,751 million year-on-year), and net ordinary income amounted to ¥38,796 million (down ¥6,290 million year-on-year). In addition, operating income amounted to ¥1,243,466 million (down ¥55,307 million year-on-year) and net operating income amounted to ¥37,727 million (down ¥6,871 million year-on-year) in the post office business of Japan Post Co. for the fiscal year ended March 31, 2021.

(International Logistics Business Segment)

In the international logistics business, we continuously engaged in the transformation plan of Toll Holdings Limited (hereinafter referred to as "Toll"), a consolidated subsidiary of Japan Post Co. We also continued to expand B-to-B businesses mainly through our contract logistics, utilizing JP Toll Logistics Co., Ltd. Business results continued to be lackluster, however, with a harsh external business environment due a slowdown in the Australian economy, U.S.-China trade frictions and the spread of COVID-19, further compounded by the effect of cyber-attacks, etc. Toll had been considering the sale of its global express business, which was persistently operating at a loss, and in April 2021, it determined to transfer its ownership to affiliated companies of Allegro Funds Pty Ltd.

As a result of these initiatives, income and expenses both increased, due mainly to continuing large-scale handling of COVID-19 prevention supplies by the Global Logistics Asia division, and ordinary income amounted to ¥750,069 million (up ¥114,874 million year-on-year), net ordinary loss amounted to ¥7,003 million (net ordinary loss of ¥21,447 million in the previous fiscal year), operating income in the international logistics business of Japan Post Co. amounted to ¥749,878 million (up ¥114,923 million year-on-year) and net operating income (EBIT) in the international logistics business of Japan Post Co. amounted to ¥3,505 million (net operating loss of ¥8,683 million in the previous fiscal year) for the fiscal year ended March 31, 2021.

(Banking Business Segment)

In the banking business, at Japan Post Bank Co., Ltd. (hereinafter referred to as "Japan Post Bank"), we continued to implement various initiatives aimed at "providing high-quality financial services with a focus on the customer," "promoting sophisticated and diversified investment," "creating a flow of funds into regional areas, etc." and "strengthening the business management system."

As a result of these initiatives, in the banking business for the fiscal year ended March 31, 2021, deposits balance of Japan Post Bank as of March 31, 2021 was ¥189,593,469 million (up ¥6,588,736 million year-on-year). In an adverse business environment because of factors such as the continuation of a low interest rate environment, net interest income dropped owing to a decline in interest on securities, but net other operating income rose due to a decrease in foreign currency funding costs, and ordinary income amounted to ¥1,946,712 million (up ¥147,174 million year-on-year), while net ordinary income amounted to ¥394,206 million (up ¥15,074 million year-on-year).

(Life Insurance Business Segment)

Due to issues in the quality of insurance solicitations for Japan Post Insurance products in the previous fiscal year, Japan Post Insurance Co., Ltd. (hereinafter referred to as "Japan Post Insurance") suspended active solicitation activities, and placed top priority on initiatives to regain customers' trust. As measures to prevent recurrence, we steadily conducted investigations into insurance policies and sales personnel, and implemented the initiatives set forth in the business improvement plan submitted to the Financial Services Agency of Japan: "create a healthy corporate culture and establishing an appropriate sales promotion scheme," "strengthen the appropriate solicitation quality control scheme" and "strengthen the governance function of the Board of Directors, etc."

As we engaged in these initiatives, in the life insurance business for the fiscal year ended March 31, 2021, 124 thousand new policies for individual insurance with a policy amount of ¥390,355 million were acquired. Ordinary income amounted to ¥6,786,226 million (down ¥425,178 million year-on-year), while net ordinary income amounted to ¥345,736 million (up ¥59,134 million year-on-year), mainly due to a decrease in operating expenses reflecting a decrease in new policies, etc.

(Consolidated financial results forecast for the fiscal year ending March 31, 2022)

With regard to the consolidated financial results forecast for the fiscal year ending March 31, 2022, ordinary income of ¥10,600,000 million, net ordinary income of ¥730,000 million and net income attributable to Japan Post Holdings of ¥340,000 million are anticipated.

(Note) Net income attributable to Japan Post Holdings has calculated based on the portion of voting rights to Japan Post Bank (approximately 89%) and Japan Post Insurance (approximately 49.9%), etc. held by the Company.
(On May 14, 2021, the Board of Directors of Japan Post Insurance resolved on a share repurchase through ToSTNeT-3. On the same day, the Board of Directors of Japan Post Holdings resolved on the sale of shares in response to this share repurchase and the establishment of a share disposal trust. Accordingly, the portion of voting rights to Japan Post Insurance held by the Company has come to 49.9%.)

The forecast of segment profit by segment (net ordinary income for each segment) is as follows:

・Postal and domestic logistics business
¥65,000
million
・Post office business
¥15,000
million
・International logistics business
¥(5,000)
million
・Banking business
¥355,000
million
・Life insurance business
¥290,000
million

In addition, net income forecasts at the principal subsidiaries are as follows.

At Japan Post Co. (consolidated), net income attributable to Japan Post Co. is forecast at ¥20,000 million (down ¥33,415 million year-on-year), due to a decrease in the volume of mails resulting from progressive digitalization, as well as a decrease in commission income from Japan Post Bank due to factors such as a decline in the number of remittance settlements.

At Japan Post Bank (consolidated), net income attributable to Japan Post Bank is forecast at ¥260,000 million (down ¥20,130 million year-on-year), due to factors related to net interest income, etc. such as a decrease in gains on redemption of foreign bonds and a decrease in revenue from Japanese government bonds, despite increases in revenue from strategic investment and foreign bond investment trusts compared to the fiscal year ended March 31, 2021.

At Japan Post Insurance (consolidated), net income attributable to Japan Post Insurance is forecast at ¥118,000 million (down ¥48,103 million year-on-year), mainly due to a decrease in insurance-related income resulting from fewer policies in force, and an increase in general and administrative expenses in association with the implementation of sales activities.

Net income attributable to non-controlling interests for Japan Post Holdings (consolidated) is forecast at ¥80,000 million.

(2) Explanation of Financial Position

1) Condition of assets, liabilities and net assets

Consolidated total assets were ¥297,738,131 million, up ¥11,639,681 million from the end of the previous fiscal year.

Major factors include an increase in cash and due from banks of ¥9,038,728 million, an increase in money held in trust of ¥2,225,782 million, and an increase in securities of ¥2,576,439 million, as well as a decrease in receivables under securities borrowing transactions of ¥719,115 million, and a decrease in loans of ¥968,670 million.

Consolidated total liabilities were ¥281,667,063 million, up ¥8,185,389 million from the end of the previous fiscal year.

Major factors include an increase in deposits of ¥6,606,901 million and an increase in borrowed money of ¥3,925,980 million, as well as a decrease in policy reserves of ¥2,895,445 million and a decrease in payables under securities lending transactions of ¥417,512 million.

Consolidated total net assets were ¥16,071,067 million, up ¥3,454,292 million from the end of the previous fiscal year.

Major factors include an increase in net unrealized gains (losses) on available-for-sale securities of ¥2,598,250 million, and an increase in non-controlling interests of ¥594,083 million, as well as a decrease in net deferred gains (losses) on hedges of ¥37,452 million and a decrease in foreign currency translation adjustments of ¥14,734 million.

2) Cash flows

Cash and cash equivalents at the end of the current fiscal year were ¥62,637,954 million, up ¥9,034,097 million from the beginning of the current fiscal year.

(Cash flows from operating activities)

Net cash provided by operating activities amounted to ¥6,965,155 million (up ¥6,659,305 million in inflow year-on-year), as a result of investment and procurement of funds in the banking business, along with income from insurance premiums and payment of insurance claims, etc. in the life insurance business.

(Cash flows from investing activities)

Net cash provided by investing activities amounted to ¥2,015,201 million (up ¥974,716 million in inflow year-on-year), as a result of cash inflows mainly owing to proceeds from sale and redemption of securities in the banking business and life insurance business, as well as cash outflows mainly due to purchases of securities.

(Cash flows from financing activities)

Net cash provided by financing activities amounted to ¥50,578 million (down ¥48,424 million in inflow year-on-year), as a result of the issuance of bonds at subsidiaries, etc.

(3) Basic Policy on Profit Distribution and Dividends for the Current Fiscal Year and Next Fiscal Year

The Company considers returning profits to shareholders to be an important management measure and sets out its basic policy to continuously provide stable return to shareholders in accordance with the results of operations.

With regard to dividends from retained earnings, the Company aims to provide stable returns to shareholders while maintaining required internal reserves and paying attention to capital efficiency. Accordingly, the Company aims to sustain stable dividend per share, while maintaining an annual dividend per share of roughly ¥50 until the fiscal year ending March 31, 2026.

The decision-making body concerning dividends from retained earnings is set to be the Board of Directors as per the provisions of the Articles of Incorporation in order to ensure flexible management operations. In addition, it is stipulated that dividends from retained earnings are to be paid with March 31 and September 30 of each year as record dates.

With regard to dividends for the fiscal year ended March 31, 2021, based on a comprehensive judgment of the consolidated financial results and other factors, the annual dividend on common stock will be ¥50 per share. The source of all dividends for the fiscal year ended March 31, 2021 is capital surplus. For more details, please refer to "Breakdown of the dividends paid from capital surplus" described before.

Annual dividend is scheduled to be ¥50 per share for the next fiscal year ending March 31, 2022, taking into consideration the consolidated financial results forecast, stability of dividends and other factors.

Internal reserves will be utilized mainly for investments to capture growth opportunities and capital policies with awareness on capital efficiency, aiming at enhancement of corporate value.

In accordance with Article 11 of the Act on Japan Post Holdings Co., Ltd., payment of dividends from retained earnings or other appropriation of retained earnings (excluding disposition of loss) of the Company shall not be effective without approval of the Minister for Internal Affairs and Communications.