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Business trends

Spending at Japan companies soars to record in fiscal 2018

Funds poured into M&A, tech and dividends in break with past practice

Investing in labor-saving technology such as robots as helped Japanese companies deal with a labor shortage.   © Reuters

TOKYO -- Japanese companies, notorious for stockpiling cash, boosted spending to record levels last fiscal year, putting more money to work and betting on growth even as China's economy cools and other headwinds intensify.

Nikkei examined cash flows, assets, liabilities and other data at about 3,600 nonfinancial businesses. Aggregate cash flow from investing activities -- which includes purchases and sales of businesses, factories and equipment -- grew 3% to 51.6 trillion yen ($475 billion), marking a third straight year of all-time highs. Investing cash flow has risen more than 20% over the last five years.

With Japanese investors focusing more on corporate governance, companies have come under greater pressure to "enhance investment and shareholder returns rather than let capital pile up ineffectively," said Takashi Miwa, chief Japan economist at Nomura Securities. Spending in these categories exceeded operating cash flow, or income generated from regular business, at about 1,630 companies -- nearly half the total.

Investing cash flow declined in much of the manufacturing sector, including among electrical machinery companies and automakers, while nonmanufacturers picked up the slack. The pharmaceutical, chemical, textile, retail, construction and service industries all logged record highs.

Last fiscal year saw major overseas acquisitions by drugmakers and chemical companies, including Takeda Pharmaceutical's deal for Shire and the purchase of part of American industrial gas producer Praxair's European operations by Taiyo Nippon Sanso, a unit of Mitsubishi Chemical Holdings.

Nonmanufacturers spent heavily on labor-saving technology. The value of general contractor Taisei's intangible assets, such as software, has surged 160% in five years thanks partly to increased investment in computerized construction.

Supermarket operator Aeon has introduced registers with touch-screen panels to simplify the checkout process. This, along with expansion of its shopping mall business in China and Southeast Asia, helped the company's investing cash flow grow 50% last year to about 660 billion yen.

On top of this, companies are returning more money than ever to shareholders. Dividend payouts rose 2% to 11.4 trillion yen, while net share buybacks jumped 70% to 5.4 trillion yen.

This aggressive spending came even as aggregate operating cash flow among the companies examined slid 7% to 59.5 trillion yen, owing partly to China's economic slowdown. Investing cash flow came to more than 86% of operating cash flow, an increase of five percentage points from fiscal 2017. Investment and shareholder returns together exceeded operating cash flow by nearly 9 trillion yen.

This indicates that Japanese companies are moving away from their cash-hoarding habits. Even as cash on hand edged up just 1% to 122 trillion yen, interest-bearing debt grew nearly 4% to 251 trillion yen. Net interest-bearing debt, or debt minus cash, rose for the first time in four years to 129 trillion yen.

The investment trend looks set to continue, with companies planning to boost capital spending 10% in fiscal 2019, according to a Nikkei survey this month.

But "because of the uncertainty surrounding factors such as the U.S.-China trade war, we're in an environment where investment is more prone to slowing," said Saisuke Sakai, senior economist at the Mizuho Research Institute.

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