Kintetsu transformed by APL Logistics acquisition; weakness in Japan will lead industry to further M&A


Kintetsu World Express (KWE) has reported revenues for the year ended March 31, 2016, of Y420,252m, an increase of 28.4% year-on-year. Operating income was Y15,356m, implying a margin of 3.7%, down from 5.1% a year ago. By far the biggest event in KWE’s year was the purchase of APL Logistics (APLL), which the Japanese logistics provider acquired in May 2015. Excluding the impact of the six months of APLL revenues which were included in KWE’s results, sales actually fell by 0.4%.

APLL was treated as a separate entity, such that KWE’s results by geography include no APLL activities. On that basis, Kintetsu stated that air freight export TEUs in Japan fell by 12.0% year-on-year, “due to a backlash of strong results of automotive-related products to North America handled a year earlier”. Japanese air freight imports (in terms of the number of shipments) fell by 2.2%, although electronic product volumes held up well. For sea freight, export TEUs were up by 4.8% year-on-year thanks to increases in machinery, equipment and chemicals shipments, while the number of import shipments increased 1.7% thanks to robust electronics volumes. In contract logistics, medical products were cited as the driver behind higher volumes. Overall though, Japanese revenues fell by 11.0% to Y109,427m thanks to the air freight collapse and operating income declined by 35.1% to Y4,127m.

Aside from its core Japan division though, margins in all KWE’s other global regions were up. Of particular note was the 25.9% increase in air freight exports in the Americas, which KWE put down to US West Coast port congestion and favourable growth in aerospace and chemical products, though sea freight exports contracted by 13.1%. Sales in yen increased by 20.7%, although Kintetsu noted that on average each dollar in the most recent financial year was worth 14.4% more yen than in the previous one. In East Asia & Oceania, air freight exports fell by 14.2% thanks to falling electronics volumes and less project cargo business.

Going forward, the acquisition of APLL has guaranteed that KWE will be a more diversified entity, both geographically and by the distribution of revenues among its business segments. For the year ended March 31, 2015, air freight forwarding was by far the largest segment (54.8% of revenues), followed by sea freight forwarding (23.4%), logistics (11.2%) and other (10.6%). Two years later, KWE forecasts that its revenue distribution will be far more balanced. Logistics (33.0%) will become the largest segment, followed by air freight forwarding (31.3%), although sea freight forwarding (26.9%) will be almost on a par.

The move to acquire APLL is just one move in what has been a fairly busy period of M&A activity among Japanese logistics providers. Japan Post also acquired Australia’s Toll Group in May 2015, while fellow Japanese providers Hitachi Transport System and SG Holdings entered into a “capital and business alliance” in March 2016 which saw each company acquire a minority stake in the other.

In fact, Japanese businesses across the spectrum seem to have been driven towards M&A thanks to an ageing population, ever-growing competition and an economy that some describe as in “secular stagnation” being hardly a recipe for growth. In addition, historically low long-term interest rates and loose monetary policy have meant that raising funds for acquisitions is relatively easy. The implication is that significant further international M&A activity by Japanese logistics providers seems inevitable – Japan Post alone has a $12bn war chest!

Source: Transport Intelligence, 18th May 2016

Author: David Buckby