14 ★ FINANCIAL TIMES Wednesday18 March 2020
COMPANIES
I
n a cash crisis, one of the straightest lines that a global
investor can draw tracks the expanding cash piles of
corporate Japan at the end of each fiscal year. Forfour
decades,this line of retained earnings has advanced
relentlessly to itsrecordlevel of about 130 per cent of
GDP at the end of 2019.
No corporate base anywherein the worldhas saved this
assiduously for a rainy day — or been criticised so consist-
ently by foreign shareholders for doing so.
No one shouldbe as wellplacednow that the rainy day
hasarrived.
Cash, says everyoneat times like these, is king.Yet
there is apparently no reward at the point of coronation.
Japan’s companies have been hit just as hard as everyone
else’s, with the Topix down 27 per cent in the year to
date.Corporate Japan’s cash-rich outrage may be silent,
but it is palpable.
For a picture ofhow far Japanese companies stand
apart from the rest of the world, brokers like to
comparethe Topix, in which 52 per cent of non-financial
companies are net cash, with
otherbenchmarks.
In Germany, home to the
next biggest collection of
cash hoarders, almost 33 per
cent of companies in the
CDAX went into this crisis
net cash. For the FTSE All-
share, MSCI Euro and S&P
500, the ratios were 16.5 per
cent, 16 per cent and 14 per cent, respectively.
The appeal of such comparisons, for brokers trying to
sell Japanese stocks, is that it supplies two reasons why an
investor should buy.
Japanese companies collectively havethe world’s biggest
cushion in times of financial trauma. In recent years, they
havehad the biggest reservesto fund share buybacks if
management teams can bepersuaded to deploy themin
the name of better governance and higher return on
equity. Record successive years of buybacks suggest that
somehave yielded to that pressure.
But the broad problem — and the reasonJapanstocks are
so prone to disappointinginvestors —isthemindset
underpinning the cash piles. Over many years, Japanese
companies have learnt how to justify withholding those
whopping accumulations of cash from shareholders. They
cite successiveshocks — from oil prices in the 1970s and
the bursting of the property bubble in the 1980s to the
Asian crisis in the 1990s and the collapse of Lehman Broth-
ers in the 2000s — to prove the thudding regularitypro-
vided by wads of cash.
They haveconsistently rejected the idea of shareholder
primacy among stakeholders, arguing that they are bound
neither by law, morality nor
best practice to reward
shareholdersabove all other
stakeholders. The tactichas
always been to cast the
inherent short-termism of
investors, real or imagined,
against the Japanese corpo-
rate virtue of long-termism.
Companies havebeen able
to point to the inconsistency of outsiders.
The graph of Japan’s advancing retained earnings may
be arrow-straight, but global investment philosophy has
swayed around it. Last yeartheBusiness Roundtable in the
USrevised its definitionof the primary purpose of a com-
pany to state thatit shouldbenefit all stakeholders: cus-
tomers, employees, suppliers and communities. Japanese
companies, after years of being hammered by investors for
maintaining thatline, could feelvindication.
In reality,both of these justifications are a disguise.
Listed Japanese companies, according to WisdomTree
senior adviser Jesper Koll and others, see their true pur-
pose as increasing cash ingood times and bad. They
achieve that, despite the claims about duty to all stake-
holders, by aggressively raising and lowering wages and
investment according to the prevailing cycle.
If that is correct, thosecash piles tell us a great deal about
the true motivation behind governance in Japan and, by
extension, its vulnerability to alternative ideas pressed
upon it by shareholders. The vast stash of retained earn-
ings sitting in the Topix may offer survivability to the
immediate credit-related shock of a crisis. And that is no
small thing.
But the Topix will only become more attractive thanless
cash-rich peersif, after the shock, Japanese companies can
prove, against decades of form,that they are able to use
that rainy-day money to become the first out of the blocks
post-crisis to reward shareholders.
INSIDE BUSINESS
ASIA
Leo
Lewis
Japan Inc vindicated
over importance of
saving for a rainy day
No corporate
base has saved
this assiduously
or been criticised
so much for it
E M I KO T E R A ZO N O A N D L E S L I E H O O K
LONDON
Impossible Foodshas raised $500m in
a round that will help the US plant-
based burger group to weather the
economic turmoil caused by the coro-
naviruscrisis.
David Lee, chief financial officer, said
the company needed to prepare for the
impact of the coronavirus outbreak.
“It’s too early to tell what changes
among our customers and consumers
will affect our business, but we will be
able to withstand any short-term
shocks,” he said.
The fundraising, which was led by
South Korea’sMirae Asset Global
Investments, and also supported by
Li Ka-shing’sHorizons Ventures, Singa-
pore’sTemasekandKhosla Ventures,
closed last week and comes as several
US states have moved to shut restau-
rants and food service outlets.
The capital increasecomes amid the
backdrop of instability in the financial
markets. Impossible Foods did not dis-
close its valuation, but its rivalBeyond
Meat, which floated last year, has lost
about half its value from a month ago,
trading at $61.80 a shareyesterday.
Although demand for food is
expected to be affectedat retailers, with
restaurant footfall forecast to fall
sharply, “the impact on Beyond Meat
and Impossible Foods will be huge,” said
one investor in Beyond Meat.
The capital increase also comes as the
company is pushing into new markets
and has applied for regulatory approval
in the EU, China and other Asian mar-
kets. It currently sells its patties in the
US, Singapore, Hong Kong and Macau.
Impossible Foods said it would also
use the funds for R&D and the commer-
cialisation of its plant-basedpork prod-
ucts. Pat Brown,chief executive, said
late last year that while the company
had no plans for an imminent public
offering, it had the option to do so as it
had already done much of the legwork.
Food & beverage
Impossible raises $500m from Asia backers
ST E P H E N M O R R I S , O L A F STO R B E C K
A N D N I C H O L A S M E G AWEuropean bankers are trying to calm
fearsof an incipient financial crisis
after steep drops in their securitiesin
the past two weeks, reflecting growing
concernaboutcoronavirusfallout.
Ana Botín, executive chairman of
Santander, saidyesterday that the euro-
zone’s largest lenderwas forecasting
only a 5 per cent drop in earnings this
yearandexpected no impact on its capi-
tal level or mid-term financial targets.
Speaking at the Morgan Stanley Euro-
pean financial services conference,Ms
Botín said the bank’s estimates for one
possibility were based on aV-shaped
scenario, while the lender was “well
positioned to withstand even a severe
stress scenario”.
European and British bank stocks
have dropped more than 40 per cent
this month to the lowest level since
the 1990s.
Loss-absorbing bonds have plunged,
and the cost of insuring bank debt
throughswaps has soared.
Deutsche Bank,whose shares have
more than halvedsince February,is also
seeking to reassure investors.
“I am not underestimating the seri-
ousness of the situation, but thankGod
we did the heavy lifting in 2019,” said
oneDeutsche executive, referring to
the largestrestructuringin its 150-year
historyannounced in July.
Deutschestood by its 2020 targets
on capital, leverage and costs, and
wason track to meet its medium-
term revenue and return objectives,the
executive said.
“Our strong view is that this is more
than likely to be a shortlived crisis than
a long one.”
Some large institutional investors
were not persuaded.
“I think Deutsche has a massive prob-
lem, and a profit warning may just be a
matter of time,” said one of its institu-
tional shareholders.
Financials
Banks attempt to allay fears of a financial crisis
TA N YA P OW L E Y— LONDON
JA M I E S M Y T H— SYDNEY
R I C H A R D M I L N E— OSLO
Theairline industry will need up to
$200bn in emergency support to
weathercoronavirusfallout, as the
majority of carriers face running out of
money within two months, itsmain
trade body has warned.
The International Air Transport
Association saidyesterday that thebulk
of carrierswere facing a cash crisis as
governments’ attempts to contain the
virustriggered ahalt intravel.
“Only 30 airlines drove the improve-
ment in profitability that we saw in the
last10 years,” said Brian Pearce, chief
economist at Iata. “Obviously there are
a number of airlines that are in a much
stronger position to weather this lack of
revenues, but the majority are in a very
fragile place.”
TheIataoutlook comes a day after a
large number of airlines grounded most
of their fleetand announced plans to lay
off thousands of staff as they confront a
crisis that executives say dwarfs previ-
ous periods of turmoil.
Moody’syesterday loweredratings for
many European airlines.It said it was
cutting the long-term rating ofeasyJetto
Baa2, whileLufthansawas reduced to
Baa1.British Airways’ Baa3 long-term
rating was put under review for a down-
grade, as was that ofparentIAG.
Thecrisis has prompted airlines to
turn to governments.
Carrierswould need between $150bn
and $200bn in cash injections as well as
loan guarantees, Iatasaid.Its previous
worst-case scenario, made just over a
week ago, that the industry could be hit
with losses of up to $113bn was
“undoubtedly” too lowafter the virtual
closure of the North Atlantic market.
It is expected to make revised esti-
mates next week.
In the UK, the Foreign Officeyester-
day advised the public against all
non-essential travel globally for the next
30 days.
Tim Alderslade, chief executive of
Airlines UK, a trade body, said the move
would bring “yet more devastation to
the airline and wider travel industries”.
The USindustry has already called for
$50bn in emergency support. Airlines
for America, thebody that represents
the largest USairlines includingUnited,
DeltaandAmerican, said on Monday
that it wanted the government to pro-
vide $25bn of loans and $25bn of grants.
The organisation warned that all
seven of its members that carry passen-
gers would run out of money before the
end of the year if the crisis continued.
Australiawill unveil a A$715m rescue
for the domestic airline industrytoday.
The package involves the refunding and
waiving of government charges, includ-
ing aviation fuel excise.
Yesterday Regional Expresswarned it
would not surviveunlessCanberra
stepped in withmeasuresincluding a
state guarantee over new loans.
QantasandVirgin Australiahave
said that they have enough cash
reserves to survive the crisis, though
Virgin has more than A$5bn net debt on
its balance sheet.
Norwegian politicians are discussing
potential airline nationalisations and
other measures.
Norwegian Air Shuttleis seen as one
of Europe’s most vulnerable airlinesdue
toits high debt burden.
Additional reporting by Myles McCormick
Travel & leisure
Airlines appeal for $200bn lifeline
Iata says most carriers
face running out of cash
within two months
They have
consistently
rejected the idea
of shareholder
primacy
L AU R E N I N DV I K
Lanvinchief executiveJean-Philippe
Hecquetis to leave the French fashion
house owned byFosun International
afterjust18months.
His departure is effective immediately,
the company saidyesterday. Joann
Cheng, chairman of Fosun’s fashion unit
and Lanvin, is stepping into the role of
interim chief executive, overseeing the
brand’s strategy and operations until a
successor is announced.
“We will continue to work together
with the management team to ensure
that Lanvin has the right capital and
strategy to succeed,” Ms Cheng said.
His departure comes just as Lanvin,
which was acquired by Chinese con-
glomerate Fosun for €120m in 2018,
appeared to be hitting its stride.
Mr Hecquethired Bruno Sialelli, the
former men’s creative director of
LVMH-ownedLoewe, in January 2019,
and his women’s and men’s collections
have been well-received by critics and
buyers. Lydia King, fashion and buying
director ofHarrods, noted Lanvin was
one of her top buys for the Autumn/
Winter 2020 season that recently
showed in Paris.
At the time of the acquisition, Fosun
pledged to invest more than €100m in
Lanvin, the longest continuously run-
ning couture house in France and one of
the few legacy European luxury brands
under Chinese ownership.
Mr Hecquet told Vogue Business last
year that revenues had finally returned
to growth after struggling in the after-
math of designer Alber Elbaz’s depar-
ture in 2015.
The company has been concentrating
its growth efforts in China, where it
opened three stores last year and which
Mr Hecquet said could make up 35 to 40
per cent of sales. Ms Chengtold the
Financial Timeslast year the brand was
looking to raise a further $100m by sell-
ing a minority stake to outside inves-
tors.
Prior to joining Lanvin, Mr Hecquet
was chief executive of French contem-
porary brandSandrofrom 2014 to 2018.
He was one of several high-profile
appointments Fosun made at its fashion
companies over the past two years.
Retail
Lanvin chief
Hecquet
exits after
18 months
Mulberrycreative director Johnny
Coca is to leave the upmarket British
handbag maker this month after five
years at the company.
The Aim-listedgroup’s shares fell 17
per cent after the announcement
yesterday. The stock has fallen 83 per
cent over the past two years as the
progress of its four-pillar turnround
strategy — spanning product, brand,
omnichannel and operations — has
stalled. Its market value has
fallen from a peak of £1.47bn
in May 2012 to roughly
£72m.
Losses widened to £9.9m
on the back of sales of
£68.9m last year, a slight
decline from the £9.1m loss
and £68.3m revenues posted
in 2018.Global revenues,
led by Asia, grew in
the double-digitsbut
were offset by a 4 per
cent decline in the
UK.
Mulberry, which was founded in
1971, has suffered from the tough
trading conditions on the UK high
street and was hit when department
store chain House of Fraser went into
administration before being bought.
The brand is a significant supplier to
House of Fraser and also has a number
of concessions in its stores. It was
forced to write off roughly £3m when
the chain entered administration in
2018, before being acquired byFrasers
Group, the conglomerate owned by
retail billionaireMike Ashley.
Last month, Frasers, bought astake
in Mulberryworth roughly £20m at
the time.
Neil Saunders, managing director
and retail analyst at GlobalData Retail,
described Coca’s departure as a loss
that only added to existing problems.
“While there is no doubt that Johnny
Coca has injected some newness into
Mulberry’s collections, the company
still has a lot to prove,” he said. “It
needs to make more efforts to stand
out and appeal to a younger
generation.”
Mr Coca, a Paris-educated Spaniard
who began his career dressing store
windows for Louis Vuitton, joined
Mulberry in 2015 fromCéline, where
he was director of accessories.
He replaced Emma Hill, who left in
2013 after efforts to take the brand
further upmarket by then-chief
executiveBruno Guillonled to
falling sales and three profit
warnings, shaving two-thirds off
Mulberry’s market value between
2012 and 2014. Mr Guillon left in
2014 after just two years and was
succeeded byThierry Andretta.
During his tenure, Mr Coca
introduced a 1970s-inspired logo for
the houseandlaunched handbags
including the Amberley and Iris —
neither of which achieved the
success of his earlier designs for
Céline. He also rolled out new
categories including eyewear and
sneakers, oversaw the relaunch of
men’s accessories and jewellery, and
brieflyreturned Mulberryto the
London Fashion Week show
schedule with a refreshed women’s
ready-to-wear offering, which later
transitioned into smaller twice
yearly presentations in Paris.
“We continue to focus on our
strategy to build Mulberry as a
global luxury brand,” Mr Andretta
said in a statement.
“We remain committed to
developing responsible, innovative
products, underpinned by a strong
in-house creative team and our
international direct-to-customer
omnichannel business model.”
Lauren Indvik
Stepping down
Creative head
exits Mulberry
A Mulberry handbag on display at London Fashion Week in 2016 and, below, outgoing creative director Johnny Coca— Niklas Halle’n/AFP
Moody’s cut
ratings for
easyJet and
Lufthansa
while BA
was put
under
review for a
downgrade
His departure comesjust
as Lanvin, acquired by
Fosun in 2018, appeared
to be hitting its stride
MARCH 18 2020 Section:Companies Time: 17/3/2020-18:34 User:andrea.crisp Page Name:CONEWS1, Part,Page,Edition:USA, 14 , 1