In this briefing:
- Japan: The 2018-Q3 Cash Flow Stakes – Runners, Riders & Red Flags
- Belluna: Growing by Selling Gentility to the Expanding Older Market in Japan
- Japan Retail Review 1H2018: Top Retailers Outperform
- NTT Buybacks Will Roll On
- Time-Out Not Time up for Trade War
1. Japan: The 2018-Q3 Cash Flow Stakes – Runners, Riders & Red Flags
JAPAN CORPORATE CASH FLOW UPDATE – This insight updates our previous Insight Yen Weakens > Normal Service Resumed with data from all of the most quarterly reports filed last month. Our aggregate cash flow model reformulated cash flows into eight categories which sum to Change in Cash – Free Cash Flow (Operating Cash Flow less Investing Cash Flow), Financing Cash Flow, Shareholder Cash Flow (Equity Cash Flow and Dividend Cash Flow) and Minorities. In the last three months, Japan’s non-financial companies generated ¥12.1t in Operating Cash Flow while investing ¥9.2t – the largest quarterly amount of capex since 2016-Q4. Of the total ¥2.9t in Free Cash Flow, 65% was returned to shareholders of which half was in the form of reductions in equity – an improving and welcome trend which we covered in an earlier Insight. After a ¥0.8t increase in debt and a ¥0.3t increase in Minorities Cash Flow, aggregate cash rose by ¥2.2t for the quarter. Since 2011-Q4, 58% of the ¥102.7t in cumulative FCF has been allocated to shareholders and 40% to cash, leaving considerable room for improvement in the relative size of these ratios.
SECTORS & STOCKS – In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including Softbank Group (9984 JP), Kawasaki Kisen Kaisha (9107 JP), Hanwa (8078 JP), Open House (3288 JP), Macnica Fuji Electronics (3132 JP), and Digital Garage (4819 JP).
2. Belluna: Growing by Selling Gentility to the Expanding Older Market in Japan
While Nissen and Senshukai (8165 JP) have hit new lows in the past five years, Belluna (9997 JP) has gone from strength to strength by sticking with printed catalogues and tying these to e-commerce and retail store expansion.
The company’s strategy is also helped by the core customer demographic being women over the age of 50, one of the few population segments that is still growing.
As a result, group sales have risen by 28.8% in five years and operating profit has almost doubled from ¥7.8 billion to ¥13 billion.
The acquisition of Sagami, a kimono retailer that suffered from lack of attention under Uny’s management, could also result in a boost to profits in the next year.
3. Japan Retail Review 1H2018: Top Retailers Outperform
Leading Japanese retail chains across all the major formats had a strong 1H2018 with surprisingly few exceptions.
Although some saw operating profits fall, and most of those that did expect profits to be lower for the year as a whole, other results were particularly impressive given the difficult operating conditions this year due to weather and natural disasters.
The following is a quick snapshot of the state-of-play at major Japanese retailers.
4. NTT Buybacks Will Roll On
There is an extensive history of writing on the NTT (Nippon Telegraph & Telephone) (9432 JP) family (and indeed Japan telecom sector) buybacks – their modalities and methods, impacts, legal and accounting requirements, competition, push-me-pull-you effect, etc.
One of the longstanding features of buybacks for NTT is that NTT is subject to the NTT Law which requires (for the moment) that the government hold at least one-third of the shares outstanding in NTT.
Today, the Nikkei carried an article noting that the Japanese government’sFY2019 budget currently being formed proposes a sale of JPY 160bn of shares to help fund any revenue impact from the upcoming consumption tax rate hike from 8% to 10% next October. The article helpfully notes that they plan on selling when NTT is buying back shares.
This news is not unexpected to Smartkarma readers of the ongoing series. And there are implications and read-throughs.
5. Time-Out Not Time up for Trade War
- Xi and Trump walk away from Buenos Aires with something to sell at home
- But trade negotiations will be dominated by fraught disagreements
- After 90-day negotiations, further delays to tariff escalation are likely
