A solid financial base is essential for sustainable
corporate management. We will continue to
work on improving our corporate value by
using the cash flows generated through
sound financing.
Suguru Oshiro
Director and Managing Executive Officer
in charge of Financial Strategy
Looking back on the previous medium-term management plan,JT-2023 Management Plan, the majority of the business and financial KPI targets were not achieved due to the unexpected surge in demand during the COVID-19 pandemic in the first year of the plan and the rebound in the subsequent two years.
However, compared with the targets we set, the financial indicators have generally been maintained and have reached a healthy level.
During the period of the previous medium-term management plan, despite the growth of assets and changes in accounting practices, such as revenue recognition during this period, the equity ratio remained strong: in the 45% range. Net interest-bearing liabilities decreased by about 500 million yen against the cash outflow for capital investment totaling over 27 billion yen, mainly for stores, excluding lease expenses, making it possible to steadily improve the quality of financing as quantity grew (net interest-bearing liabilities = interest-bearing liabilities - cash and deposits).
Specifically, we believe that it was a major achievement to implement and complete, without any delay over the past three years, the initiatives that were essential during the period of the previous medium-term management plan. Employing the financial discipline described above, we made progress on several initiatives: the full operation of the new logistics center;the redevelopment of the Osaka Nipponbashi area; and scrapping stores, a key audit matter (KAM) material issue.
In April last year, the Company’s stock listing was moved to the Tokyo Stock Exchange Prime Market, where there are strong requirements against the PBR falling below 1.0x, based on the request from JPX (Japan Exchange Group) in March this year.
We presented the cost of equity (CAPM) and weighted average cost of capital (WACC) for the Group as the basis for our approach to capital efficiency in JT-2025 Management Plan,our recently announced medium-term management plan, (the “new medium-term management plan”).
Although there is no established formula, we intend to adopt a calculation for capital costs using the standard approach, as much as possible. Based on this value, we will set KPIs. In the new medium-term management plan, we have formulated a plan to develop a medium- to long-term business model as well as sustainable growth by using backcasting. We intend to secure an ROE that exceeds the cost of equity and an ROIC that exceeds the weighted average cost of capital, and through the use of cash flows, we intend to improve our corporate value.
Capital allocation in the new medium-term management plan is based on the goal of generating operating cash flow of approximately 40 to 45 billion yen over a three-year period.
About 70% of this cash is allocated for investments centered on growth strategies, such as existing businesses, M&As, and an improved service infrastructure. The remainder will be used for shareholder returns and reducing interest-bearing liabilities (approximately 35 billion yen in operating cash flow over the three years of the previous medium-term management plan).
We will also strengthen the management of expenditures for intangible assets related to human capital, systems, and DX.(These expenditures are considered expenses for business activities other than cash flow.) We will also work hard to build a business structure corresponding with our improved profitability.
As we stated in the documents, including the notice of convocation, for the General Meeting of Shareholders, the Company’s basic dividend policy is to maintain consistent dividends while fully considering business results and the balance between dividends and internal reserves. In addition,we announced in the new medium-term management plan that we will maintain a payout ratio of 30% or more.
Incidentally, we maintained a dividend of 75 yen per share (payout ratio of 40.2%) in fiscal 2022.
Going forward, there are several approaches that can be taken for maintaining shareholder returns (such as stock buybacks, total payout ratio, and DOE*). We would like to consider optimization strategies while adapting to the current circumstances and will quickly disclose our policy for shareholder returns once it has been determined.
* DOE: dividend on equity ratio
For the shares that we currently cross-hold, the Company qualitatively assesses the reason for cross-holding the shares,including maintaining amicable relationships with business partners and to establish effective supply chains. In addition,every quarter the Board of Directors quantitatively reviews the percentage of net assets, as well as profits and dividends, from business relationships. When the reason for holding any shares is determined to have weakened, the Company sells these shares after negotiating with the other (cross-holding) company.
In the previous year, we sold four stocks.
As of March 31, 2023, cross-held shares consisted of 26 stocks with a total market value of approximately 7.3 billion yen(approximately 7% of net assets).
We will continue negotiations on selling cross-held shares based on our policy for ensuring liquidity. Although the proportion of our cross-holding shares in net assets is not particularly high,even compared with the standards set by proxy advisory, this strategy is line with our requirement as a listed company in the Prime Market, or to maintain market value (liquidity) that appeals to a diverse range of investors.
When looking ahead to the future, the further diversification of shareholders is one of our most important themes. As a result of our steady work, the number of shareholders (based on the number of unit shareholders) increased dramatically: 5,780 from the previous year as of the end of March 2023 (about a 60% increase, totaling 15,239 shareholders as of the end of March).In this way, we are contributing to building up the number of fans at the Company’s real stores and the EC store, which are retail businesses. For details, please refer to the “Engagement with Individual Shareholders” on page 68.
At the same time, over the medium term, we intend to more than double the ratio of investors from overseas, which is currently around 8%, in line with the Prime Market standards required by the Tokyo Stock Exchange.
In addition to disclosing and providing materials in English,all inside directors participate in online individual investor relations meetings with institutional investors and others, in principle.
In addition, we have been holding meetings with securities analysts familiar with the retail industry, striving for a deeper understanding of the sophistication of home appliances through future ICT (information and communications technology) as well as the affinity between Japan’s unique home appliance mass retailer business model and the lifestyle service business. At the same time, in parallel with investors, we are proactively making announcements on our unique business strategy and the practical application of our value creation story.
Going forward, as a company listed on the Tokyo Stock Exchange Prime Market, we will continue to make growth investments that are even more proactive and conscious of capital efficiency, while maintaining a strong balance with improving shareholder returns. We will also further intensify our investor relations (IR) activities, and strive to be evaluated as a target for medium- to long-term investment by a wide range of investors.
