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SR Research Report
2014/10/24
SATO Holdings Corp. (6287)
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is
to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an
accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and
findings. We will always present opinions from company management as such. Our views are ours where stated.
We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at
[email protected] or find us on Bloomberg.
SATO Holdings Corp. (6287)
SR Research Report
2014/10/24
Contents
Key financial data ....................................................................................................3
Recent updates .......................................................................................................4
Highlights ............................................................................................................4
Trends and outlook ..................................................................................................5
Quarterly trends and results ..................................................................................5
Full-year (FY03/15) outlook ................................................................................. 10
Medium term plan .............................................................................................. 13
Midterm strategy briefing .................................................................................... 14
Business ............................................................................................................... 19
Business description ........................................................................................... 19
Profitability ........................................................................................................ 26
Strengths and weaknesses .................................................................................. 27
Market and value chain ....................................................................................... 28
Strategy ............................................................................................................ 35
Historical financial statements ................................................................................. 40
Income statement .............................................................................................. 52
Other information .................................................................................................. 53
History .............................................................................................................. 53
News and topics................................................................................................. 54
Major shareholders ............................................................................................. 56
Top management/governance ............................................................................. 56
Other ................................................................................................................... 57
Company profile ................................................................................................. 58
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SATO Holdings Corp. (6287)
SR Research Report
2014/10/24
Key financial data
Income Statement
(JPYmn)
Total Sales
YoY
Gross Profit
YoY
GPM
Operating Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
Net Margin
Per Share Data
Number of Shares ('000)
EPS
EPS (Fully Diluted)
Dividend Per Share
Book Value Per Share
Balance Sheet (JPYmn)
Cash and Equivalents
Total Current Assets
Tangible Fixed Assets, net
Other Fixed Assets
Intangible Assets
Total Assets
Accounts Payable
Short-Term Debt
Total Current Liabilities
Long-Term Debt
Total Fixed Liabilities
Total Liabilities
Net Assets
Interest-Bearing Debt
Cash Flow Statement (JPYmn)
Operating Cash Flow
Investment Cash Flow
Financing Cash Flow
Financial Ratios
ROA
ROE
Equity Ratio
FY03/10
Cons.
74,917
-4.2%
31,279
-3.5%
41.8%
2,574
252.6%
3.4%
2,235
527.8%
3.0%
781
-61.9%
1.0%
FY03/11
Cons.
78,368
4.6%
33,018
5.6%
42.1%
4,226
64.2%
5.4%
3,696
65.4%
4.7%
503
-35.6%
0.6%
FY03/12
Cons.
80,536
2.8%
34,217
3.6%
42.5%
4,652
10.1%
5.8%
4,171
12.9%
5.2%
1,953
288.3%
2.4%
FY03/13
Cons.
87,256
8.3%
36,410
6.4%
41.7%
5,452
17.2%
6.2%
5,429
30.2%
6.2%
2,726
39.6%
3.1%
FY03/14
Cons.
96,773
10.9%
41,180
13.1%
42.6%
6,758
24.0%
7.0%
7,084
30.5%
7.3%
4,295
57.6%
4.4%
FY03/15
Est.
100,000
3.3%
32,001
26.0
33.0
1,192
32,001
16.7
34.0
1,157
32,001
64.9
35.0
1,201
32,001
90.6
82
37.0
1,331
33,408
141.6
128
40.0
1,455
156.2
42.0
-
14,043
41,125
11,418
6,208
1,506
60,258
4,666
3,542
22,748
2,000
5,469
28,218
35,985
5,542
10,864
39,841
14,476
6,538
1,389
62,248
4,751
5,573
26,247
1,377
4,957
31,204
34,929
6,950
12,756
44,632
14,125
5,905
1,463
66,128
4,734
9,889
33,621
1,800
5,036
38,657
36,172
11,689
12,670
46,690
18,694
5,536
6,600
77,521
5,180
3,954
27,405
6,041
9,911
37,316
40,205
9,995
17,760
53,647
20,337
5,043
7,708
86,737
5,698
4,137
31,346
3,256
8,656
40,002
46,734
7,393
-
5,860
-2,093
-826
1,595
-4,283
-3
4,434
-7,015
3,273
3,793
-984
-2,839
10,589
-4,776
-1,511
-
1.3%
2.2%
59.7%
0.8%
1.4%
56.1%
3.0%
5.5%
54.7%
3.8%
7.2%
51.7%
5.2%
9.9%
51.7%
-
8,000
18.4%
8.0%
7,900
11.5%
7.9%
5,000
16.4%
5.0%
Source: Company data
Figures may differ from company materials due to differences in rounding methods.
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SATO Holdings Corp. (6287)
SR Research Report
2014/10/24
Recent updates
Highlights
On October 24, 2014, SATO Holdings Corp. announced earnings results for 1H FY03/15; see the results
section for details.
On August 14, 2014, Shared Research updated comments on the company’s earnings results for Q1
FY03/15 after interviewing management.
On July 25, 2014, the company announced earnings results for Q1 FY03/15; see the results section for
details.
For corporate releases and developments more than three months old, see the News and
topics section.
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SATO Holdings Corp. (6287)
SR Research Report
2014/10/24
Trends and outlook
Quarterly trends and results
Quarterly Performance
(JPYmn)
Sales
YoY
GP
YoY
GPM
SG&A
YoY
SG&A / Sales
OP
YoY
OPM
RP
YoY
RPM
NI
YoY
NPM
Q1
21,208
8.3%
8,829
-21.9%
41.6%
7,761
5.3%
36.6%
1,068
18.1%
5.0%
714
-10.5%
3.4%
224
-52.0%
1.1%
FY03/13
Q2
Q3
21,458 22,288
8.9% 8.3%
8,904 9,306
69.0% 6.2%
41.5% 41.8%
7,581 7,912
3.4% 9.0%
35.3% 35.5%
1,323 1,394
37.8% -8.0%
6.2% 6.3%
1,105 1,727
124.6% 8.8%
5.1% 7.7%
505
868
119.6% 198.3%
2.4% 3.9%
Q4
22,302
7.9%
9,371
5.5%
42.0%
7,704
1.4%
34.5%
1,667
31.0%
7.5%
1,883
45.6%
8.4%
1,129
17.0%
5.1%
Q1
22,619
6.7%
9,655
9.4%
42.7%
8,362
7.7%
37.0%
1,292
21.0%
5.7%
1,425
99.6%
6.3%
845
277.2%
3.7%
FY03/14
Q2
Q3
23,494 24,589
9.5% 10.3%
9,825 10,403
10.3% 11.8%
41.8% 42.3%
8,171 8,547
7.8% 8.0%
34.8% 34.8%
1,655 1,856
25.1% 33.1%
7.0% 7.5%
1,764 1,984
59.6% 14.9%
7.5% 8.1%
1,048 1,393
107.5% 60.5%
4.5% 5.7%
FY03/15
Q1
Q2
23,512 24,054
3.9% 2.4%
10,293 10,289
6.6% 4.7%
43.8% 42.8%
8,757 8,807
4.7% 7.8%
37.2% 36.6%
1,536 1,482
18.9% -10.5%
6.5% 6.2%
1,590 1,581
11.6% -10.4%
6.8% 6.6%
886
890
4.9% -15.1%
3.8% 3.7%
Q4
26,071
16.9%
11,297
20.6%
43.3%
9,341
21.2%
35.8%
1,955
17.3%
7.5%
1,911
1.5%
7.3%
1,009
-10.6%
3.9%
FY03/15
% of 1H 1H Est.
99.1% 48,000
4.1%
FY03/15
% of FY FY Est.
47.6% 100,000
3.3%
83.8%
3,600
22.2%
7.5%
89.3% 3,550
11.3%
7.4%
80.7% 2,200
16.2%
4.6%
37.7%
40.1%
35.5%
8,000
18.4%
8.0%
7,900
11.5%
7.9%
5,000
16.4%
5.0%
Source: Company data
Figures may differ from company materials due to differences in rounding methods.
Performance by Region/Segment
(JPYmn)
Sales by Region
Japan
YoY
The Americas
YoY
Europe
YoY
Asia and Oceania
YoY
Sales by Segment
Hardware
YoY
Supplies
YoY
Operating Profit by Region
Japan
YoY
The Americas
YoY
Europe
YoY
Asia and Oceania
YoY
OPM by Region
Japan
The Americas
Europe
Asia and Oceania
FY03/13
Q2
Q1
Q3
Q4
Q1
FY03/14
Q2
Q3
Q4
Q1
FY03/15
Q2
Q3
15,836
6.5%
1,817
20.1%
1,294
-18.2%
2,260
40.3%
16,145
6.8%
1,644
10.6%
1,232
-15.7%
2,436
48.6%
16,800
2.5%
1,817
38.5%
1,407
3.0%
2,262
49.9%
16,102
3.2%
2,069
32.6%
1,582
14.6%
2,548
19.7%
15,707
-0.8%
2,296
26.4%
1,728
33.5%
2,887
27.7%
16,488
2.1%
2,326
41.5%
1,692
37.3%
2,989
22.7%
17,296
3.0%
2,298
26.5%
1,865
32.6%
3,130
38.4%
18,908
17.4%
2,328
12.5%
1,888
19.3%
2,945
15.6%
15,834
0.8%
2,489
8.4%
1,966
13.8%
3,221
11.6%
16,437
-0.3%
2,498
7.4%
1,828
8.0%
3,292
10.1%
8,130
11.5%
13,077
6.4%
8,611
11.5%
12,848
7.2%
8,369
12.4%
13,919
6.0%
9,631
9.0%
12,671
7.0%
8,601
5.8%
14,017
7.2%
9,743
13.1%
13,752
7.0%
9,513
13.7%
15,076
8.3%
11,365
18.0%
14,706
16.1%
9,478
10.2%
14,033
0.1%
-
898
1,169
1,204
1,464
867
1,126
1,353
1,768
1,000
997
6.8%
36.6%
-18.6%
30.5%
-3.5%
-3.7%
12.4%
20.8%
15.3%
-11.5%
95
46
59
145
122
143
111
56
213
171
533.3%
-9.8%
2,850.0%
104.2%
28.4%
210.9%
88.1%
-61.4%
74.6%
19.6%
-48
-65
-41
-57
29
44
81
-30
103
121
-
-
-
-
-
-
-
-
255.2%
175.0%
152
164
113
134
263
376
373
244
278
240
65.2%
24.2%
-29.4%
5.5%
73.0%
129.3%
230.1%
82.1%
5.7%
-36.2%
5.7%
5.2%
-3.7%
6.7%
7.2%
2.8%
-5.3%
6.7%
7.2%
3.2%
-2.9%
5.0%
9.1%
7.0%
-3.6%
5.3%
5.5%
5.3%
1.7%
9.1%
6.8%
6.1%
2.6%
12.6%
7.8%
4.8%
4.3%
11.9%
9.4%
2.4%
-1.6%
8.3%
6.3%
8.6%
5.2%
8.6%
6.1%
6.8%
6.6%
7.3%
Q4
Source: Company data
Figures may differ from company materials due to differences in rounding methods.
1H FY03/15 results (out October 24, 2014)
Sales:
OP:
RP:
NI:
JPY47.6bn (+3.1% YoY)
JPY3.0bn (+2.4%)
JPY3.2bn (-0.6%)
JPY1.8bn (-6.2%)
(-0.9% vs. forecast)
(-16.2%)
(-10.7%)
(-19.3%).
Sales and operating profit came in under the company’s 1H targets of JPY48.0bn and JPY3.6bn
respectively. According to the company, this was due to the pullback from the rush to beat the domestic
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SATO Holdings Corp. (6287)
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consumption tax hike, and an economic slowdown leading to poor sales of supplies. Results at existing
overseas businesses, however, were in line with targets.
SATO maintained its full-year earnings targets.
Japan
Sales:
OP:
JPY33.3bn (+0.2% YoY)
JPY2.0bn (+0.2%).
Sales and operating profit increased slightly. Mechatronics sales were up year-on-year as the company
captured streamlining demand from the manufacturing sector. But supplies sales fell as demand faltered,
particularly from retailers. This was the result of the pullback following the rush to beat the consumption
tax hike and the economic slowdown.
SATO secured large orders of mobile printers for major logistics companies and public-sector clients. It is
also negotiating voice-directed warehousing system orders for multiple clients in the logistics industry
(this sector accounted for about a quarter of domestic sales in FY03/14).
The Americas
Sales:
OP:
JPY5.0bn (+7.9% YoY; +3.5% ex. forex)
JPY384mn (+44.9%).
North America drove earnings across the Americas. SATO began selling the CL4NX series of industrial
barcode printers in April. Unit sales of industrial 4-inch printers were also up by about 40% YoY. The
company secured more orders from original equipment manufacturers (OEMs) for food management
systems, in addition to orders for laser printers for the apparel industry and drugstores.
In South America, results at Argentinian subsidiary Achernar S.A. were in line with targets, and drove
earnings even as the local economy faltered. But sales and operating profit were both down year-on-year
on a yen basis because South American currencies depreciated.
Europe
Sales:
OP:
JPY3.8bn (+10.9% YoY; +1.9% ex. forex)
JPY224mn (+206.8%).
Results were robust in 1H. The company focused on enhancing and expanding the production of stickers
and labels across Europe, sales to new clients and markets, and improving margins. As a result, European
operations are beginning to consistently turn an operating profit.
Operating profit grew by JPY151mn, mostly due to contributions from businesses in the UK, Germany,
and Spain, where the company began booking an operating profit in 2H FY03/14.
In the UK, SATO increased sales to retailers, the apparel industry, and major logistics companies. In
Germany, the company secured major orders for mobile printers for the apparel industry.
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SATO Holdings Corp. (6287)
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Asia and Oceania
Sales:
OP:
JPY6.5bn (+10.8% YoY; +7.8% ex. forex)
JPY518mn (-18.9%).
Sales continued to grow in China. Group companies in Malaysia, Indonesia, Vietnam, India, and Australia
also all reported double-digit growth in sales on a local-currency basis. Sales and profits were both up in
Thailand.
Operating profit was down JPY121mn YoY. This was partly due to upfront investment in Australian
subsidiary SATO Vicinity Pty Ltd., which began operating in December 2013. The leading software
developer in the diamond industry, Rubinstein Software Ltd., adopted SATO’s proprietary radio frequency
identification device (RFID) technology for its enterprise resource planning (ERP) software, Fantasy. The
company plans to continue growing sales of its phase jitter modulation (PJM) technology to clients outside
the healthcare industry.
Q1 FY03/15 results (out July 25, 2014)
Sales:
OP:
RP:
NI:
JPY23.5bn (+4.0% YoY)
JPY1.5bn (+18.9%)
JPY1.6bn (+11.6%)
JPY886mn (+4.9%).
Q1 overview
SATO’s basic strategy—focusing on globalization and customer value—underlies the group midterm plan
(FY03/13-FY03/15)’s goals of sustainable growth and building a firm revenue base.
FY03/15 is the final year of the midterm plan. In Q1, sales and profits grew in Japan and all overseas
regions. Sales were in line with the target, and OPM outperformed the target due to growth in sales of
mechatronic products, which have higher margins than supplies.
Topics
 Sales of the new CL4NX industrial printer for the global market are still modest, but have shown robust
growth; the company is on track to meet its full-year target of 35,000 units, having received inquiries
on 20,000 units.
 On June 5, 2014, the company announced a comprehensive business agreement with the Fonterra
Co-operative Group Ltd., a major global producer of dairy products based in New Zealand. SATO will
provide barcode systems with services such as providing supplies, hardware, and maintenance, to
Fonterra’s factories and delivery centers worldwide. SATO aims to replace competitors’ products used
at Fonterra.
 There was a healthy stream of orders and inquiries in the global healthcare market regarding PJM tags
for surgical implants and machinery. Major supplier of surgical implants, Stryker Corporation, adopted
SATO RFID (radio frequency identification device) technology in six countries in Europe (the UK,
France, Germany, Spain, Italy, and Belgium). Multiple major domestic implant suppliers also decided to
adopt the technology—SATO expects to book sales on these transactions from Q2 onward.
 The company completed tests on the XP1100, an RFID tag issuer for the apparel market, developed
in-house. As it looks to begin global sales of this product, the company aims to promote the XP1100,
convincing customers to replace competitors’ machines.
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SATO Holdings Corp. (6287)
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 On July 14, 2014, the company launched the AmiVoice iPicking wearable voice-directed warehousing
system. This system uses iPods, and was developed in conjunction with Advanced Media, Inc. (TSE
Mothers: 3773). The system makes logistics operations more efficient and helps prevent errors. The
company has received some orders and is in the process of negotiating with multiple customers.
Japan
Sales:
OP:
JPY15.8bn (+0.8% YoY)
JPY1.0bn (+15.4%).
Prime Minister Abe’s economic policies (Abenomics) kick started a gradual recovery, particularly in
consumer and intermediate products. SATO focused on sales operations and tapping into new demand by
developing growth markets and niche-specific offerings. Operating profit was up—not only was the
fallback after the consumption tax hike in April limited, but GPM also improved in line with higher
mechatronics sales centered on the manufacturing sector (mechatronics sales were up 5.1% YoY;
supplies sales were down 1.3%).
Factory automation (FA) market
The FA market accounts for a significant proportion of domestic sales. Sales were up 4% YoY, and plans
call for continued growth year-on-year heading into Q2.
Logistics market
Sales to the logistics industry fell by 2% YoY because major orders were delayed, but the company
expects sales to recover from Q2 onward. The company entered negotiations for large orders of mobile
printers for major logistics companies and public-sector clients. The company began sales of a
voice-directed warehousing system for the logistics industry; it has already received some orders and
multiple negotiations are underway.
Retail market
The pullback following the consumption tax hike meant sales fell 2% YoY in Q1. But according to the
company, by June, sales were back to the same level as FY03/14.
Healthcare market
Sales in the healthcare market grew year-on-year. The company expects more shipments of RFID
products for surgical implants from Q2 onward.
The Americas
Sales:
OP:
JPY2.5bn (+8.4% YoY; +4.8% ex. forex)
JPY213mn (+74.0%).
Orders for quality control systems for food manufacturers and laser printers for apparel manufacturers
drove results in North America. Sales fell slightly in South America as the economy stalled, but profits
grew as margins increased at ACHERNAR S.A. (Argentina).
Europe
Sales:
OP:
JPY2.0bn (+13.8% YoY; +3.5% ex. forex)
JPY103mn (+251.1%).
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SATO Holdings Corp. (6287)
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Across Europe, the company focused on enhancing and expanding production of stickers and label
products, developing new sales, and improving profitability.
In Q3 FY03/14, all group companies in Europe began posting operating profits. The company aims to
grow profits by expanding sales. In Q1, operating profit grew significantly at subsidiaries in the UK and
Germany. In the UK, the company expanded sales to retailers—which are major clients—apparel
manufacturers, and major logistics companies. In Germany, the company began sales of eco-friendly
NONSEPA® linerless labels to a major logistics company.
Higher profits in Spain—where the company began posting an operating profit in 2H FY03/15—also
contributed to a significant increase in operating profit across Europe.
Asia and Oceania
Sales:
OP:
JPY3.2bn (+11.6% YoY; +10.9% ex. forex)
JPY278mn
Operating profit was up 5.6% YoY, but—according to the company—this figure rises to about 30% when
upfront investment in consolidated subsidiary SATO Vicinity Pty Ltd. is excluded.
Despite slowing growth in emerging markets, the economic outlook remains bright. Sales were robust in
China, and—political unrest aside—sales and profits grew in Thailand. The company also posted steady
growth in sales and operating profit in new markets Indonesia and Vietnam.
Argox (Taiwan) manufactures and sells printers mainly to emerging markets. Sales to Brazil and Turkey
slumped last year, but increased significantly this quarter—leading to higher operating profit. The
company made an operating profit even after the amortization of goodwill. The company also expects
OEM (original equipment manufacturer) machinery sales to contribute to earnings from Q2 onward.
As mentioned, in Q1 the company agreed to provide comprehensive services to the Fonterra Co-operative
Group Ltd., New Zealand’s largest global producer of dairy products. Surgical implant suppliers are also
continuing to adopt the company’s PJM (phase jitter modulation) technology.
For details of previous quarterly and annual results, please refer to the Historical financial
statements section.
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SATO Holdings Corp. (6287)
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Full-year (FY03/15) outlook
FY03/15 Forecasts
(JPYmn)
Sales
YoY
CoGS
Gross Profit
YoY
GPM
SG&A
SG&A / Sales
Operating Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
1H Act.
46,113
8.1%
26,633
19,480
9.9%
42.2%
16,533
35.9%
2,947
23.3%
6.4%
3,189
75.3%
6.9%
1,893
159.7%
FY03/2014
2H Act.
50,660
13.6%
28,960
21,700
16.2%
42.8%
17,888
35.3%
3,811
24.5%
7.5%
3,895
7.9%
7.7%
2,402
20.3%
FY Act.
96,773
10.9%
55,593
41,180
13.1%
42.6%
34,421
35.6%
6,758
24.0%
7.0%
7,084
30.5%
7.3%
4,295
57.6%
1H Est.
48,000
4.1%
3,600
22.2%
7.5%
3,550
11.3%
7.4%
2,200
16.2%
FY03/15
2H Est.
52,000
2.6%
4,400
15.5%
8.5%
4,350
11.7%
8.4%
2,800
16.6%
FY Est.
100,000
3.3%
8,000
18.4%
8.0%
7,900
11.5%
7.9%
5,000
16.4%
Figures may differ from company materials due to differences in rounding methods.
Source: Company data
FY03/15 is the final year of the midterm plan. The company is targeting sales of JPY100.0bn (+3.3%
YoY); operating profit of JPY8.0bn (+18.4%); recurring profit of JPY7.9bn (+11.5%); and net income of
JPY5.0bn (+16.4%).
SATO’s sales and operating profit forecasts are the same as the targets in the midterm plan. According to
the company, this is through coincidence rather than design. The year-on-year increase of 3.3% in sales is
smaller than actual results in FY03/14 (+10.9%) and FY03/13 (+8.3%).
Average forex assumptions for FY03/15:
 USD/JPY102
 EUR/JPY138.
Strategies at home and overseas
Domestic/Overseas Targets
(JPYmn)
Domestic Overseas
Sales
68,000
32,000
YoY
-0.6%
12.8%
Operating Profit
5,300
2,800
YoY
3.6%
54.5%
Source: Company data
Domestic operations
Sales and operating profit
SATO anticipates a fall of JPY399mn YoY in domestic sales. The factors behind changes in sales and
profits are shown below. The company anticipates many new large projects from major corporations in
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industries such as logistics. The company aims to return half of any operating profit in excess of targets to
employees as bonuses. The amount returned is naturally expected to be zero—a year-on-year fall, which
means it contributes to an expected increase in profits.
For example, in FY03/14, operating profit was JPY7.0bn—JPY516mn over the initial target of JPY6.5bn. The
company returned half the excess (JPY258mn) to employees, so one might say the result was JPY6.8mn (it is
unclear because the company does not disclose such figures).
Change in Sales and Operating Profit
(JPYbn)
FY03/14
Organic growth
New large projects
End of consumption tax hike related demand
Withdrawal from unprofitable businesses
Higher SG&A expenses
Return to employees (previous year)
FY03/15
Sales
68.4
+1.7
+2.0
-2.0
-2.0
68.0
OP
5.1
+0.6
+0.8
-0.5
-1.0
+0.3
5.3
Source: Compiled by Shared Research based on the company's earnings results
presentation.
Domestic initiatives
Domestic initiatives include:
 Downsizing and withdrawing from unprofitable businesses;
 Growing sales of mobile printers;
 Promoting printer replacement;
 Entering into negotiations with major megastore companies;
 Using new technologies to offer innovative solutions.
Downsizing and withdrawing from unprofitable businesses
This is a continuation of last year’s strategy. The company plans to make fundamental changes in
businesses that had an OPM of less than 7.0% in FY03/14. The aim is to direct resources to highly
profitable businesses.
Growing sales of mobile printers
SATO aims to increase sales at major companies to which it supplied significant quantities of mobile
printers in FY03/14, and expand sales to other companies. It appears many major negotiations are
underway.
Promoting printer replacement
It appears the time is ripe for many printers to replaced in various domestic markets, and there is
significant anticipation of replacement demand in the Japan Automatic Identification Systems Association
to which SATO belongs. The company aims to stimulate replacement demand for about 10,000 printers in
FY03/15.
The consumption tax hike
Sales related to the consumption tax hike were about JPY2.0bn in FY03/14, including printers, handheld
labelers, and supplies. The company’s salesforce were in demand for meetings with customers about the
format of price tags and labels as major retailers moved to change price displays. This meant restraints on
salespeople’s usual activities, and perhaps some opportunity cost.
In FY03/15, the company expects to make up this opportunity cost as the salesforce resumes normal
activities, but it has not factored this into initial targets.
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SATO anticipates lower sales as it withdraws from unprofitable businesses, but does not expect an
improvement in operating profit. According to the company, its targets for FY03/15 are therefore
conservative.
Overseas operations
Sales and operating profit
The company expects higher sales, mainly due to organic growth and new large projects. Despite higher
SG&A expenses, the company forecasts a significant increase in profits on the back of higher sales and
improved gross profit.
Change in Sales and Operating Profit
(JPYbn)
FY03/14
Organic growth
New large projects
Withdrawal from unprofitable businesses
Higher SG&A expenses
FY03/15
Sales
28.4
+1.1
+2.6
32.0
OP
1.8
+0.4
+1.3
+0.2
-0.9
2.8
Source: Compiled by Shared Research based on the company's earnings results
presentation.
Overseas initiatives
Overseas initiatives include:
 Improving the overseas earnings structure;
 Growing sales of new large product CL4NX;
 Taking advantage of synergies with subsidiary Argox;
 Focusing on negotiations with overseas suppliers;
 Expanding sales in the healthcare market.
Improving the overseas earnings structure
In FY03/14, SATO succeeded in turning an operating profit in Europe. Eight group companies posted
OPMs of over 10%, compared with three in FY03/13. It appears restructuring initiatives are paying off. In
FY03/15, the company plans to continue improving its cost structure, including replacing production line
components in factories.
Growing sales of the new large product
On March 18, 2014, SATO announced a new barcode and RFID printer for the global market; sales began
on April 1. This printer features an emulation mode for competitors’ printer commands, meaning it offers
a simple alternative for clients currently using competitors’ machines.
The company considers this new printer a strategic product for capitalizing on replacement demand, and
for taking clients from competitors. Less than two months after the launch, orders hit one third of the unit
sales target for the first year. According to the company, sales are on track to meet targets.
Expanding sales in the healthcare market
At the midterm strategy briefing for FY03/14, management stated that the healthcare market will be one
of two markets that SATO focuses on. The company is aiming for sales of JPY25.0bn in this market in
FY03/21. The plan is to sow the seeds of growth in FY03/15, and reap the rewards from FY03/16 onward.
The company thus considers FY03/15 a year for laying the foundations of its medium term strategies.
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In December 2013, the company acquired a PJM tag business, a type of RFID tag technology. The
company aims to increase sales of this technology in the surgical implant and blood bag markets.
Medium term plan
At the FY03/12 results meeting, the company announced its three-year midterm plan, which runs through
FY03/15, as well as its long-term plan through FY03/21. Under these plans, the overseas business will be
the focus for future growth. SATO would like to elevate the overseas sales ratio, which was at 25.6% in
FY03/13, to 30% in FY03/15 and more than 40% by FY03/21. The company is planning to leverage
synergies with Argox to grow sales in emerging countries. In each of these countries, the company will
define strategic targets (markets, industries, and customers) and transfer its expertise in “DCS (Data
Collection Systems) & Labeling” that it has nurtured in Japan, aiming to succeed in meeting these targets.
More specifically, SATO will focus on the promising seven countries of China, India, Indonesia, Vietnam,
Thailand, Brazil, and Argentina. In addition, the company has expectations for generating synergies
through cross-selling with Argox (see Strategy).
Furthermore, the company highlighted the following measures within its efforts to cultivate new business
areas.
 Reinforcement of the primary label business (established SATO Primary Label International Co., Ltd.,
with annual sales targets of 10.0 billion yen in FY03/15 and 20.0 billion yen in FY03/21)
 Reinforcement of the RFID business (established SATO RFID Solutions Co., Ltd., with annual sales
targets of 3.0 billion yen in FY03/15 and 15.0 billion yen in FY03/21)
 Reinforcement of the environmental business (established SATO Green Engineering Co., Ltd., with
annual sales targets of 3.0 billion yen in FY03/15 and 10.0 billion yen in FY03/21)
In addition, the company created a team from the current fiscal year (FY03/14) mainly made up of young
employees to explore the possibilities of capturing projects related to the 2020 Tokyo Olympics. Under
President Matsuyama’s leadership (since October 2011), ROE targets have been added to the midterm
plan. The company decided to include ROE because it is one of the key financial indicators considered by
investors. It should be noted that the company considers the projected ROE of 12% in FY03/21 to be a
minimum baseline. As the company stresses financial strength, it is exercising caution and not taking on
too much leverage.
The Midterm Plan
(JPYbn)
Sales
OP
OPM
ROE
Overseas Sales Ratio
Overseas Sales
Developed Countries
Emerging Countries
Supplies
FY03/13
87.2
5.4
6.3%
7.2%
25.6%
22.3
15.5
6.8
10.7
FY03/15
100.0
8.0
8.0%
10.0%
30%
30.0
20.0
10.0
15.0
FY03/21
150.0+
15.0+
10%+
12%+
40%+
60.0+
Source: Company data
In line with the midterm plan, SATO’s new leadership structure took hold across the company in April
2012. The European business, traditionally managed by an executive officer, is now managed by the
company’s former vice president (the current director), with the goal of bolstering regional operations. In
addition, the head of product development and the head of sales operations have switched roles. Along
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with other leadership reorganization intended to reinvigorate the company’s structure, the new head of
sales (i.e., the former head of product development) became vice president (the current president) at
SATO Corp., the company’s sales subsidiary.
Revised midterm plan announced March 26, 2014
The company announced a new midterm strategy at the briefing on March 26, 2014, with an FY03/21
target of JPY150.0bn in sales, JPY15.0bn in operating profit, and JPY10.0bn in net income. See below for
details.
Midterm strategy briefing
Overview
On March 26, 2014, the company held its midterm strategy briefing. As per the company’s midterm
plan, Kazuo Matsuyama, president of SATO Holdings, and Hiroyuki Konuma, president of SATO
Healthcare, explained the company’s basic strategy, as well a new strategic launch product, and its
strategy in the healthcare and apparel ID markets.
Mr Matsuyama and Mr Konuma covered some potentially significant topics—namely the business plan for
PJM (Phase Jitter Modulation) RFID technology in the healthcare segment and the potential size of the
market for RFID technology for apparel ID. The company’s explanation of these topics also included
specific target figures.
Midterm Targets
(JPYmn)
Sales
Operating Profit
Net Income
% of Sales from Overseas
OPM
EBITDA
EPS
ROE
FY03/13
Act.
87,256
5,452
2,726
25.6%
6.2%
8,212
91
7.2%
FY03/14
Act.
96,773
6,758
4,295
29.3%
7.0%
9,870
142
9.9%
FY03/15
Target
100,000
8,000
5,000
32.0%
8.0%
11,500
156
10.0%
FY03/21
Target
150,000
15,000
10,000
40.0%
10.0%
18,000
300
12.0%
Source: Company data
The midterm plan: basic strategy
Mr Matsuyama covered two points concerning the company’s basic strategy as laid out in its midterm plan.
First, change the business model, organization, and work of the company to fit a customer value model.
Second, focus on markets with a potential for growth in the medium to long term. As concrete examples
of these points, Mr Matsuyama covered strategy in the healthcare segment and the company’s initiatives
in the apparel ID market.
The customer value model: coming up with solutions based on clients’ situations
The company will reform its organization to fit with a customer value model. It will analyze clients’
situations and come to a full understanding of them before offering solutions.
The company plans to implement a new structure that will fit the needs of its clients worldwide. This
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restructuring will be organized around two themes—adapting to clients becoming global firms, and
providing service tailored to the individual needs and businesses of each client.
Furthermore, the company will split its sales organization into three levels. First, the company will assign
dedicated teams to help offer a unified service to about ten clients, known as its Global Key Account
Business Unit (GKA). Second, business units will link up with area sales and GKA teams to make use of
their expertise in different markets. Third, area sales teams will work to increase contact with clients and
unify sales and service both domestically and in overseas markets. Thus the company will offer solutions
appropriate to the management needs of its clients.
The company will need to offer customer value solutions appropriate to its clients’ value chains. Thus it
plans to create databases for industries and sectors with clear descriptions of its clients’ value chains. In
February 2014, it began preparations for the healthcare market database, and plans to create such
databases for all markets it is involved in within two years.
Strategy in the healthcare segment
Mr Konuma, president of SATO Healthcare, covered two points regarding strategy in the healthcare
segment—namely the development of PJM technology and the collaboration with Cadi Scientific Pte Ltd.
Mr Matsuyama shared that Mr Konuma has over ten years’ experience in the healthcare business, and
that he is the man best equipped to lead its business in this segment. SATO Healthcare was established
on April 1, 2014, after being spun off from SATO Co., Ltd., a subsidiary of SATO Holdings.
Sales of JPY25.0bn in FY03/21, from JPY8.6bn in FY03/14
The company is targeting sales of JPY25.0bn in the healthcare segment in FY03/21, against expected
sales of JPY8.6bn in FY03/14. It plans to achieve this target by expanding the range of markets in which
it offers its services, horizontally expanding its PJM technology, and collaborating with other companies
with valuable technologies.
Expanding the range of markets to which it offers its services: from patient safety to patient
wellbeing, along with preventative and ongoing healthcare
The company plans to expand from the PSS market (Patient Safety Solution), where it is currently active,
to cover the PHS market (Patient Happiness Solution) and the WBS market (Well-Being Solution, aimed at
ensuring ongoing health).
The PSS market covers hospitals, dispensing pharmacists, the manufacturers of medical equipment, and
wholesalers of drugs and medical equipment. The PHS market includes in-hospital services, cosmetic
surgery, nursing care and welfare services, and regenerative medicine. The WBS market covers a range of
healthcare and preventative businesses aimed at the ongoing health of consumers, such as dietary advice,
sports clubs, dietary supplements, and preventative medicine. The company plans to maintain the PSS
market as the core of its operations and also be expanding into the PHS and WBS markets by FY03/21,
when it aims to make JPY25.0bn in sales in this segment.
Sales of over JPY5bn by FY03/21, thanks to the horizontal development of PJM technology
In 2013, SATO Holdings acquired Magellan Technology Pty Ltd. and established SATO Vicinity Pty. This
meant the company also acquired Magellan Technology’s proprietary RFID technology—Phase Jitter
Modulation (PJM). The company planned to use this technology together with its own global sales and
solutions capacity in order to bolster its ability to offer solutions to clients in the healthcare market, and
expand into other markets. Sales related to PJM technology in 2013 were about JPY200mn, most of which
was centered on Australian hospitals. The company is targeting sales of JPY5.0bn in this field by FY03/21.
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Implants Loan Kit with PJM technology
PJM technology is a proprietary RFID technology that belongs to the company. It is fast, accurate, and
resistant to laminating, liquids, and metals. The company has a patent for the key technology. Australian
implant manufacturers began using this technology in 2010, and it was introduced into hospitals in 2011.
The supply chain for implants is such that before surgeries, implant manufacturers load between 100 and
200 orthopedic implants into one or two containers from warehouses, and inspect them before shipping
them out. Upon taking delivery of the shipment, the hospital inspects them and uses some from the
containers, before inspecting the others for return. The manufacturer then takes delivery of the returns,
inspects them, and returns them to the warehouse. All items must be inspected. The introduction of PJM
technology has proceeded thanks to the fact that it is the perfect solution for this supply chain—it is
compatible with metal implants, and allows users to quickly locate implants in containers.
The introduction of this technology to supply chains in the orthopedic surgery market allows
manufacturers to trace implants more efficiently. Also, it allows manufacturers and hospitals to keep track
of shipments and distribution within hospitals more efficiently.
Six companies in Australia—60% of the global market—have introduced PJM technology
According to the company, the total size of the orthopedic implant market is around USD4bn. About 70%
of this market is accounted for by seven companies. Stryker Corporation is the largest of those, with a
market share of around 15%. Of these seven companies, six of them have adopted PJM technology in
Australia (Medtronic, Inc. is the exception). Around 80% of all implants have PJM tags attached, and the
majority of large hospitals use PJM readers.
Stryker Corporation, market leader in medical implants, will introduce PJM technology in six
European countries, after Oceania.
SATO Holdings has identified a potential market of 1,000 hospitals in Japan and 20,000 hospitals
worldwide for this technology. Sales are likely to grow thanks to the combination of SATO Holdings’ sales
capacity and the promising PJM technology.
The company plans to apply the PJM technology to blood bag tracking solution in the blood transfusion
bag market.
Cadi Scientific’s system for preventing the mistaking of new-born babies
The company will also collaborate with Cadi Scientific (Singapore; established 2003; Dr. Zenton Goh CEO)
for the international marketing of a system that uses RFID technology to prevent the misidentification of
new-born babies. The company will offer this system to existing clients of its wristbands for preventing
medical mistakes.
Cadi Scientific focuses on developing a wireless tracing device that encourages patient care and work
efficiency.. The company’s system for preventing the mistaking of new-born babies will be set apart from
other companies’ similar technologies by the fact that it will include technology to prevent kidnapping.
The system works via RFID tags attached to the mother’s arms, the baby’s legs, and the baby’s cot.
Misidentification of the child is prevented by accurate mother-child matching. Also, kidnapping is
prevented by the fact that an alarm will be set off if the tag on the child is cut or separated from the child.
Target market of 66.8mn newborns per year
The company is targeting a potential market of 66.8mn newborn children per year—namely total annual
births across 22 developed countries that the company trades in. According to the company, Cadi
Scientific’s technology also has potential uses in supervising recipients of nursing care, jewelry, and works
of art.
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The company’s collaboration with Cadi Scientific is an example of its aim to grow its business by allying
high level technology from around the world with its own selling power and specialty products.
ID tags (packaging materials) in the apparel market
Seizing the opportunity to expand RFID tags in the apparel ID market
In fall 2013, there were a number of settlements in patent disputes over RFID tag technology. Thus the
risk of patent infringement lawsuits—a potential barrier to the spread of this technology—has been
lessened. Furthermore, the company expects there will be significant growth in sales of RFID tags in the
apparel ID market, thanks to the fact that the price of RFID tags will fall below USD0.10 around 2014 or
2015.
The JPY340bn apparel market
The company estimates that the total size of the global apparel ID tag market is JPY340bn, or 200bn tags,
of which it estimates RFID tags comprise less than 1%. Apparel ID information is split into fixed and
variable information. Fixed information covers things like the brand logo, whereas variable information
covers things like the price and the barcode. The company’s focus is on the latter. The transfer of this type
of information to RFID technology will assist vendors in management—such as inventory
management—and distribution, in addition to helping prevent shoplifting. However, the cost of this
technology has thus far acted as a bottleneck, preventing it spreading further.
RFID market growth: JPY20bn in 2013 to JPY70-120bn in 2020
The company forecasts that the RFID market will grow in size from JPY20bn in 2013 (the unit price of an
RFID tag is between USD0.11 and USD0.14) to between JPY30bn and JPY50bn in 2016 (when the unit
price will be between USD0.08 and USD0.10), and between JPY70bn and JPY120bn in 2020 (unit price of
between USD0.05 and USD0.07). The company aims to take a large share of the market by driving its unit
price down to USD0.05 before 2020.
Targeting the upstream market, with large apparel ID tag volume
The supply chain of apparel companies may be simplified as a move from upstream garment
manufacturing factories through distribution centers, to downstream stores. Thus far, the company has
targeted distribution centers and downstream stores, where a small amount of apparel ID tags are issued.
It did not formerly target upstream manufacturing plans, where a large number of apparel ID tags are
issued. Generally, service bureau companies (business-to-business) provide secondary materials to
garment manufacturing plants. However, if the spread of RFID technology progresses further, these
service bureau companies will need to be able to handle RFID technology in order to secure business. In
this situation, there would be an opportunity for the company to expand its business.
In May 2013, the company invested in Nexgen Packaging, a major service bureau company, with an eye
to increasing brand awareness in the apparel world, and expanding its RFID business internationally. The
company aims to accelerate development and growth in the RFID segment as it focuses on this new
target market. The company also plans to introduce a new printer, the XP1100, in order to tackle its
capacity to issue RFID tags (including volume, speed, and stability), as well as bring the unit cost down
(below JPY10, USD0.10). The actions competitors in the market take will also be of significance to the
company’s success in this segment.
New industrial printer CL4NX
On April 1, 2014, the company conducted the global launch of the CL4NX barcode and RFID industrial
label printer. According to the company, this printer exceeds any other model it has developed thus far,
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and will have a significant impact on the industry. The CL4NX printer comes equipped with an emulation
mode for printers of the industry’s four leading companies, which SATO Holdings hopes will help convince
customers to replace competitors’ models with this printer.
The company will release printers along two general lines. There will be those that are significant global
releases, and those oriented toward particular fields and markets. According to Mr Matsuyama, the
company aims to make significant global releases on a regular basis.
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Business
Business description
Business model
SATO manufactures, sells, and provides support related to barcode printers and labeling/tagging supplies.
The company is a comprehensive manufacturer, specializing in offering business solutions based on
auto-ID technology (barcodes, RFID, etc.). Its customer base includes firms in the manufacturing, retail,
logistics, medical, and government sectors.
SATO’s core foundation in labor-saving technology can be traced back to 1962, when it developed a
best-selling handheld labeler for efficiently applying price tags to products. In 1964, it began
manufacturing labels for use in handheld labelers. When point-of-sale (POS) systems gained popularity in
the 1970s, SATO started developing products to be used in conjunction with the novel technology.
Combining barcode/labeling printers and supplies is unusual in barcode printer industry, both
domestically and worldwide. When a customer purchases a printer, it automatically becomes a long-term
buyer of labeling supplies and support. The business model is very similar to the conventional model of
such printer and copier manufacturers as Canon Inc. (TSE1: 7751) and Ricoh Company (TSE1:
7752)—selling a printer and then continuing to receive steady revenue from the sales of consumable
goods, such as ink and toner. One key difference is that labels tend to be lower price and lower margin
and had been historically seen by manufacturers as something they did not want to get involved in.
For the company, Supplies sales comprise 60% of the total, and Hardware sales comprise the remaining
40%. The gross profit margin is 35% for the Supplies segment and a higher 55% for Hardware. The
company’s relatively high Hardware margin appears to be due to the niche nature of the market and the
fact that SATO manufactures its hardware products in lower-cost countries.
The company calls its business model “DCS (Data Collection Systems) & Labeling.” SATO came up with
the concept and coined the term around 1992 when it faced operational challenges and needed to
transform itself from a mere hardware and supplies manufacturer to a “DCS & Labeling” solution provider.
DCS is about comprehensive solutions that enable precision, labor savings, and resource savings by
matching physical objects with information about them. This matching involves picking up the information
(=data collection), organizing it (=systems), and providing means of output (=labeling).
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DCS & Labeling Flow
Problem
Identification/
Consultation
Solutions
Greater
Accuracy
Resource
Savings
Labor
Savings
Peace of
Mind
Environmental
Conservation
Source: Company data, SR Inc. Research
SATO’s corporate motto is “Ceaseless Creativity.” The company takes pride in paying attention to detail
and quality focus, leveraging its long experience in labeling technologies. It offers a wide variety of
products geared for use in its niche industries, including manufacturing, logistics, healthcare, retail, and
food processing.
SATO thinks that to continue putting forward innovative proposals that exceed customer expectations, it
is necessary to constantly refine its technical expertise in printing and design skills. To that end, it enters
annual competitions to assess its abilities. At the 24th World Label Contest held in Chicago, the U.S. in
September 2012, two of the company’s entries won the top prize in their category: TSUKINOWA in offset
printing (wine & spirits), TSUBAKI ABURA in letterpress (color process).
Tsukinowa
Tsubaki-Abura
Source: Company data
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Winners of the 2011 design awards
CHERRY-BLOSSOMS
NISHIKI
KYOTO DOLL
AT NIGHT
GREEN MINT SYRUP
Source: Company data
Domestic business
FY03/13 domestic sales were composed of 36% Hardware sales and 64% Supplies sales. The Hardware
product segment includes electronic printers, labeling robots, automatic labelers, handheld labeling
systems (known as “hand labelers”), software, and maintenance service. The Supplies product segment
includes labels and tags for electronic printers, labels for hand labelers, integrated-circuit tags and labels,
stickers, tickets, ribbons and cards.
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Printers
Scanners
Scantronics HA200R
Series
Pet mio
Able to support even
very small labels, this
high-performance printer
offers very precise text
placement.
Sets a high standard in
functionality, cost, and
ease of use.
Label-Affixing
Machines
Tougharm
LR4120f Series
Automatic labelaffixing equipment for
jobs that require onsite functionality and
operability.
Printer
Connection Tools
Card Systems
LABEL-IO/Plus
Cards
Handheld
Labeling
Systems
Three-line type
Enables the direct
regulation of a label
printer in a network
environment from an
iSeries device.
The company offers a
wide variety of cardlabeling solutions, from
rewards cards to smart
cards.
Able to print up to
three lines onto
larger labels. Also
supports finely
detailed labels.
Printer Supplies
Non-tree-based tags
Tags that are made from
kenaf plants and bagasse
(sugarcane stalks) rather
than trees.
Primary Labels
Security seals
The company offers seals to
guard against forgery and
product manipulation.
Source: Company data
Overseas business
Overseas sales grew to account for about 30% of the total in FY03/14. The company aims to increase this
figure to 32% in FY03/15, and 40% in FY03/21. Overseas subsidiaries accounted for 26% of total
operating profit in FY03/14, after the European operations began turning an operating profit.
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Performance by Region
(JPYmn)
FY03/10
Sales
74,917
Japan
56,819
US
6,114
Europe
6,875
Asia, Oceania
5,107
Overseas ratio
24.2%
Operating profit
2,574
Japan
3,020
US
231
Europe
-555
Asia, Oceania
-90
Eliminations
-31
Overseas ratio
-15.9%
OPM
3.4%
Japan
5.3%
US
3.8%
Europe
-8.1%
Asia, Oceania
-1.8%
FY03/11
78,368
59,793
6,199
6,214
6,161
23.7%
4,226
3,853
125
-298
500
45
7.8%
5.4%
6.4%
2.0%
-4.8%
8.1%
FY03/12
80,536
61,986
5,872
5,789
6,888
23.0%
4,652
4,299
139
-257
511
-39
8.4%
5.8%
6.9%
2.4%
-4.4%
7.4%
FY03/13
87,256
64,883
7,348
5,515
9,508
25.6%
5,452
4,737
347
-213
565
17
12.9%
6.2%
7.3%
4.7%
-3.9%
5.9%
FY03/14
96,773
68,399
9,248
7,173
11,951
29.3%
6,758
5,114
432
124
1,256
-169
26.2%
7.0%
7.5%
4.7%
1.7%
10.5%
FY03/15
100,000
68,000
32.0%
8,000
5,300
34.6%
8.0%
7.8%
Source: Company data
Performance by region
営業利益
(JPYmn)
14,000
(JPYmn)
1,500
12,000
1,000
10,000
500
8,000
0
6,000
-500
4,000
-1,000
2,000
-1,500
0
-2,000
FY03/03
FY03/04
FY03/05
FY03/06
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
The Americas (OP; right axis)
Europe (OP; right axis)
Asia / Oceania (OP; right axis)
The Americas (sales)
Europe (sales)
Asia / Oceania (sales)
Source: Company data
European operations report an operating profit in FY03/14 as restructuring pays off
SATO’s European operations have been unprofitable since FY03/03. In the aftermath of the financial crisis
of 2008, the company started revamping its European operations in FY03/09 in an attempt to improve
performance. Its efforts centered on regional offices in Germany, Spain, the U.K., and the regional
headquarters in Belgium.
In FY03/10, SATO restructured the U.K. operations and cut overhead in Belgium. In FY03/11, it
restructured operations in Spain. In September 2010, SATO opened a new factory in Poland, where
production costs were lower. It then shut down its label factory in Germany and moved the production to
Poland.
With these moves, the company has significantly reduced fixed costs in Europe. SATO has been since
reinforcing its distributor network throughout the region, aiming to achieve a contribution to earnings
from FY03/15. In Spain, where restructuring got off to a comparatively late start, the company has
implemented its plans to liquidate its Spanish subsidiary in 2013, and continue the business through a
Madrid Office affiliated to the company’s Belgian subsidiary. The company is focusing on reducing the
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staff headcount by two-thirds and serving large clients.
In FY03/14, business improvement efforts took effect; the overall European business turned profitable in
Q1 and steadily accumulated profits in Q2 and Q3, with operating profit margin improving. The company
said that it has made progress to turn operations in the U.K. and Germany profitable. The Spanish
business reported an operating profit in Q3. As a result, the company’s European operations began
turning an operating profit in FY03/14.
Apparel related demand begins contributing to earnings in North America
In North America, operating profit has trended in the range of JPY100mn to JPY200mn since FY03/09, but
profit increased further in FY03/13 and the company expects a further rise in FY03/14. The market is
dominated by U.S.-based Zebra Technologies Corporation (NASDAQ: ZBRA), the world’s largest label
printer maker. SATO intends to expand in this market by capturing niches of the market where it can offer
high value-added supplies-centered solutions that Zebra is not involved with. Contribution to business
results has started to emerge in FY03/14 in such areas as talks with food manufacturers on materials
quality control systems on an OEM basis and demand to replace laser printers from apparel makers, which
were users of the barcode printer business of Checkpoint Systems, Inc. SATO acquired this business in
2006.
Expanding into new markets
Since FY03/13, the company has been working to bolster operations in its existing markets while building
operations in the emerging economies of Asia and South America, where markets are growing. The
company acquired Argox Information Co., Ltd., a Taiwanese company, in January 2012. In addition to
strengthening its business in emerging markets, it also aims to reinforce the business in advanced
economies with expected synergy effects in product development and sales between Argox and SATO.
Though there have been no major synergies in FY03/14, the company expects new products, jointly
developed by Argox and SATO and scheduled to hit the market in 2Q FY03/15 and on, to contribute to the
business performance.
In Australia, the company established SATO Vicinity Pty Ltd in December 2013, seeking to strengthen
RFID-related products in the medical treatment field (see the Midterm strategy briefing section for
details).
Operating locations
Japan
As of May 2013, the company is operating 27 sales offices spread throughout Japan. The regional
breakdown is as follows: Hokkaido (1), Tohoku (3), Kanto (7), Koshinetsu (2), Tokai (3), Kansai (1),
Chugoku (3), Shikoku (2), Kyushu (3), and Okinawa (1). The company has approximately 700 sales staff
and 200 maintenance staff in Japan (out of a total of 1,741 domestic employees as of the end of
FY03/13).
In addition, the company has 39 support centers nationwide, as well as five maintenance centers (one
each in Northern Japan, Eastern Japan, Chubu, Western Japan and Kyushu). Through these centers, the
company supports the stable operation of its products, systems, and equipment. To enhance its
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maintenance services, the company helps its customer engineers (CEs) improve their skills through
training programs.
Overseas
As of May 2013, SATO maintains three overseas regional headquarters: North Carolina (Americas),
Belgium (Europe), and Singapore (Asia and Oceania).
The company has also sales offices in a number of countries. Locations in the Americas are as follows:
North Carolina, Illinois, Florida, New Jersey, Argentina, and Brazil. In Europe, the company maintains
sales offices in the U.K., Germany, France, the Netherlands, Spain, and Poland. Asia and Oceania sales
offices are located in the following countries: Singapore, China, Thailand, Malaysia, India, Indonesia,
Vietnam, Australia, and New Zealand.
Malaysia, Vietnam, and Taiwan (Argox) act as production bases for the company’s printers. Label
production is carried out in each country where the company operates.
As of April 2013
Source: Company data, SR Inc. Research
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Profitability
The company’s operating profit margin (OPM) declined substantially in FY03/09 and again in FY03/10.
This decline was largely due to clients curtailing their capex spending, which peaked in 2007 and was
affected by the financial crisis of 2008. The company considers revenue management to be an important
issue to tackle from FY03/13 onward, especially after focusing its resources on restructuring overseas
operations in the past.
Profit Margins
FY03/09
FY03/10
FY03/11
FY03/12
(Million Yen)
Cons.
Cons.
Cons.
Cons.
Gross Profit
32,399
31,279
33,018
34,217
Gross Profit Margin
41.5%
41.8%
42.1%
42.5%
Operating Profit
730
2,574
4,226
4,652
OP Margin
0.9%
3.4%
5.4%
5.8%
EBITDA
3,564
5,123
6,416
6,829
EBITDA Margin
4.6%
6.8%
8.2%
8.5%
Net Profit Margin
2.6%
1.0%
0.6%
2.4%
Financial Ratios
ROA
3.5%
1.3%
0.8%
3.0%
ROE
5.6%
2.2%
1.4%
5.5%
Total Asset Turnover
1.3
1.3
1.3
1.3
Inventory Turnover
4.5
5.1
5.7
5.7
Days of Inventory
81.0
71.2
64.1
64.6
Working Capital Requirement
20,463
19,540
20,567
23,164
Current Ratio
173.4%
180.8%
151.8%
132.8%
Quick Ratio
126.9%
144.3%
116.8%
105.4%
OCF / Current Liabilities
0.2
0.3
0.1
0.1
Net Debt / Equity
-14.8%
-23.6%
-11.2%
-2.9%
OCF / Total Liabilities
19.4%
20.8%
5.1%
11.5%
Cash Cycle (days)
125
112
104
111
Changes in Working Capital
-5,163
-923
1,027
2,597
Source: Company data, SR Inc. Research
Figures may differ from company materials due to differences in rounding methods.
http://www.sharedresearch.jp/
FY03/13
Cons.
36,410
41.7%
5,452
6.2%
8,212
9.4%
3.1%
FY03/14
Cons.
41,180
42.6%
6,758
7.0%
8,004
8.3%
4.4%
3.8%
7.2%
1.2
6.0
60.9
24,442
170.4%
134.8%
0.1
-6.7%
10.2%
110
1,278
5.2%
9.9%
1.2
6.2
58.9
25,969
171.1%
137.5%
0.4
-22.2%
26.5%
105
1,527
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Strengths and weaknesses
Strengths
 Dominance in Japan: 40% market share in Japan, supported by SATO’s strong route sales
network, allows the company to thoroughly understand customer needs and offer new customized
solutions and new products. The fact that SATO operates in a narrow niche allows it to cooperate with
system integrators and scanners manufacturers who often help marketing SATO’s products.
 Stable recurring revenue business: Performance is stable thanks to the handling of both hardware
and supplies. Moreover, the Supplies business enables the company to form long-term relationships
with customers.
 Management’s capabilities: SATO’s management team has extensive overseas experience. The
company’s president also has experience working for multinationals bringing a global perspective that
is significantly different from other Japanese companies.
Weaknesses
 Weak overseas sales channels: Direct sales approach is hard and expensive to replicate overseas.
Accordingly, SATO must rely on carefully selected local partners and effectively collaborate with them.
These constraints could mean slower growth, as well as create risks and dependencies.
 Weak relative cost competitiveness: SATO is less cost competitive in hardware compared to its
largest rival overseas. This means the company has to pursue market niches with its Supplies business,
offering customized supplies with higher added value (to justify higher prices). Argox acquisition
improves price competitiveness in the lower end of the market but is likely not enough to achieve cost
parity.
 Uncertain Supplies profitability in local markets: Route sales and other initiatives proven
effective in Japan are hard to execute in overseas markets. Profitable growth in overseas markets
might be challenging until SATO is able to offer supplies solutions both tailored to individual market
needs and profitable for itself.
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Market and value chain
Market overview
According to the Japan Automatic Identification Systems Association (JAISA), total 2013 shipments in the
auto-ID market were JPY224.6bn (-2.2% YoY) (when the results of companies that did not respond to
JAISA’s survey are added, this figure increases to JPY229.1bn—about the same as 2012). Exporters’
earnings picked up as the yen weakened and the rush to beat the consumption tax hike led to capex and
related demand. But it appears full-fledged recovery will begin in 2014.
JAISA expects shipments to total JPY238.5bn (+6.2% YoY) in 2014. JAISA anticipates demand related to
the consumption tax hike and systems replacing Windows XP. JAISA also projects increasing demand in
new markets—such as tablets—coupled capex related demand and replacement demand caused by all
industries’ place on the replacement cycle.
Shipments by Market
(JPYmn)
Auto-ID Devices Total
Barcode Reader
Barcode Printer
Barcode Consumables
RFID
Biometrics
Software
YoY
Barcode Reader
Barcode Printer
Barcode Consumables
RFID
Biometrics
Software
Barcode Printers Total
Standing Printer
Mobile Printer
Auto Labeler
Measuring Instrument
Other Printers
YoY
Standing Printer
Mobile Printer
Auto Labeler
Measuring Instrument
Other Printers
Barcode Supplies Total
Thermal Paper
Thermal Transfer Paper
Ink Ribbon
Tag
Labelling Products
Others
YoY
Thermal Paper
Thermal Transfer Paper
Ink Ribbon
Tag
Labelling Products
Others
2007
257,000
48,500
41,800
102,000
36,800
21,100
6,800
1.6%
-4.5%
-6.5%
8.6%
1.1%
11.5%
41,753
22,888
3,672
2,278
9,825
2,585
-6.5%
102,046
44,859
23,197
14,560
4,410
13,982
1,040
8.7%
10.0%
2.8%
8.4%
3.8%
15.1%
23.0%
2008
234,144
40,192
40,081
92,656
35,812
19,361
6,042
-8.9%
-17.1%
-4.1%
-9.2%
-2.7%
-8.2%
-11.1%
40,081
20,069
4,248
1,400
11,700
2,664
-4.0%
-12.3%
15.7%
-38.5%
19.1%
3.1%
92,656
40,755
23,029
13,916
3,759
10,086
1,111
-9.2%
-9.1%
-0.7%
-4.4%
-14.8%
-27.9%
6.8%
2009
216,835
35,232
33,280
92,794
33,494
16,586
5,449
-7.4%
-12.3%
-17.0%
0.1%
-6.5%
-14.3%
-9.8%
33,280
16,260
3,575
1,040
11,000
1,405
-17.0%
-19.0%
-15.8%
-25.7%
-6.0%
-47.3%
92,794
47,615
20,343
13,087
5,832
5,133
784
0.1%
16.8%
-11.7%
-6.0%
55.1%
-49.1%
-29.4%
2010
220,520
44,341
37,684
96,871
33,949
2,450
5,225
1.7%
25.9%
13.2%
4.4%
1.4%
-85.2%
-4.1%
37,684
14,455
6,040
5,323
11,000
765
13.2%
-11.1%
69.0%
411.8%
-45.6%
96,871
45,316
23,442
14,408
7,118
5,829
758
4.4%
-4.8%
15.2%
10.1%
22.1%
13.6%
-3.3%
2011
211,101
35,853
35,413
102,629
30,126
2,242
4,838
-4.3%
-19.1%
-6.0%
5.9%
-11.3%
-8.5%
-7.4%
35,413
15,364
2,681
5,250
11,102
1,016
-6.0%
6.3%
-55.6%
-1.4%
0.9%
32.8%
102,629
47,912
22,331
13,752
6,221
9,022
3,391
5.9%
5.7%
-4.7%
-4.6%
-12.6%
54.8%
347.4%
2012
229,684
37,576
38,191
116,752
31,551
2,114
3,500
8.9%
4.8%
7.8%
13.8%
4.7%
-5.7%
-27.7%
38,191
16,986
3,078
5,581
11,550
996
7.8%
10.6%
14.8%
6.3%
4.0%
-2.0%
116,752
55,153
20,248
13,261
7,416
16,680
3,994
13.8%
15.1%
-9.3%
-3.6%
19.2%
84.9%
17.8%
2013
224,570
32,335
36,488
113,707
36,542
1,776
3,724
-2.2%
-13.9%
-4.5%
-2.6%
15.8%
-16.0%
6.4%
36,488
15,847
2,657
5,134
12,008
842
-4.5%
-6.7%
-13.7%
-8.0%
4.0%
-15.5%
113,707
55,846
19,931
16,745
6,869
13,224
1,092
-2.6%
1.3%
-1.6%
26.3%
-7.4%
-20.7%
-72.7%
2014 Est.
238,480
36,351
40,165
118,335
36,929
2,363
4,340
6.2%
12.4%
10.1%
4.1%
1.1%
33.1%
16.5%
40,165
18,230
2,975
5,781
12,150
1,029
10.1%
15.0%
12.0%
12.6%
1.2%
22.2%
118,335
56,715
20,594
18,456
7,178
13,797
1,595
4.1%
1.6%
3.3%
10.2%
4.5%
4.3%
46.1%
Source: Japan Automatic Identification System Association
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The barcode printer market
In 2013, total shipments in the barcode printer market were JPY36.5bn (-4.5% YoY). However,
respondents to JAISA’s survey fell from to 35 companies, from 41 in 2012. In 2014, JAISA expects the
market to grow to JPY40.2bn (+10.1%), due to consumption tax hike related demand.
The barcode supplies market
The barcode supplies market is relatively stable as it comprises many general-purpose products. In 2013,
total shipments fell to JPY113.7bn (-2.6% YoY), although—as above—respondents to the survey fell from
to 34 companies, from 40 in 2012. According to JAISA, shipments are about the same as 2012 when the
results of companies that did not respond are added. JAISA expects the barcode supplies to grow by
4.1% in 2014.
Sales by market
Since the economic downturn after the 2008 global financial crisis, capex spending has moved into a
recovery trend, and the situation for the company’s mechatronics products is also improving. In FY03/13
Hardware sales were up 11.0% YoY, while Supplies sales grew by 6.7%. Looking at individual sectors,
sales to the healthcare and logistics sectors were growing substantially as of the end of FY03/13.
Although the level of sales is relatively small, sales to the government sector grew by a substantial 27.3%.
Sales growth by segment (FY03/13)
FA
Logistics
Retail
Healthcare
-0.40%
-7.90%
-7.90%
4.20%
4.90%
4.10%
9.00%
-0.40%
Food
BP
Public
27.30%
Source: Company data
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Domestic sales composition (FY03/13)
BP Public
2.9% 2.8%
Food
9.9%
FA
30.8%
Healthcare
12.4%
Retail
14.6%
Logistics
26.7%
Source: Company data
In the healthcare market, demand is increasing from hospitals for wristbands and labels for
blood-transfusion bags. These products work to prevent medical errors by increasing the traceability of
medical supplies and also help prevent malpractice during health screenings.
In the factory automation industry, the company has been receiving orders from domestic car
manufacturers for automatic label-affixing equipment and other devices to save manpower in their
production lines.
The company stated that it launched new products specifically catering to the logistics market, targeting
previously untapped customer segments, contributing to 4.9% growth in sales to the logistics market in
FY03/13. Growth in the e-commerce market is also expected to drive sales over the long term. According
to the Ministry of Economy, Trade and Industry (METI), the e-commerce (business-to-consumer) market
in Japan for calendar 2011 was up a robust 8.6% to, 8.46 trillion yen, compared with 7.79 trillion yen in
calendar 2010.The share of e-commerce sales within total retail sales continued to grow, reaching 2.83%
in 2011 compared with 2.46% in 2010. In the United States, the corresponding figure was approximately
5% (source: eMarketer.com, U.S. Census Bureau), and Shared Research thinks there is a room for further
secular growth in the Japanese e-commerce market.
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The e-commerce market
(JP Ybn)
9,000
3.0%
8,000
2.5%
7,000
6,000
2.0%
5,000
1.5%
4,000
3,000
1.0%
2,000
0.5%
1,000
0
0.0%
2006
2007
2008
B to C
2009
2010
Internet share (right axis)
Source: Ministry of Economy, Trade and Industry
The market for supplies is expected to expand as well, pulled along by the growth of sales of hardware
that requires supplies for its operation. SATO hopes to offer and sell higher value-added products with
security, environmental friendliness, and safety as differentiating features (see examples below).
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Examples of Primary Labels
Image
Category
Eco-Friendly
Product
Application
These labels are environmentally friendly in that they don't
have release liners. As they manufactured without a liner
backing, they cut down on raw-material usage and the waste
NONSEPA® Labels
processing of liners, ultimately reducing CO2 emissions.
Security
Transferring Seals
Creative Stickers
"Nitera" Portrait
Stickers
Useful for deterring against the breaking of a seal and
detecting if one has in fact been broken. When these seals
are peeled off, they leave lettering, ink, and film on the
product.
"Nitera" stickers are an original company product that depict
someone's likeness right on a sticker. They feature key facial
characteristics, making them useful for getting one's face
remembered.
Digital
Small Lot / Quick
Delivery Labels
With these digital "Sokusai" labels it is not necessary to do all
the work normally required before a conventional label is
printed, as these can be printed with design data alone.
Food Safety
Brand Labels
For use in designs that are linked with branding, such as
company logos or mascots. These labels also feature special
processing to guard against counterfeit brand and certification
labels.
Sales Promotion
Eye-Catching
Labels
These labels can be placed directly on products to provide
information/advertisements that it was not possible to place
directly the product's packaging. Useful for effectively getting
one's message across.
Flower Tags/Labels Picture Tags
These tags can pushed into the ground next to seedlings or in
potted plants. The tags are offered in three varieties from
standard size to wide, and the company can also produce
custom-made formats.
Design
The company can provide labels with original character
designs.
Original Designs
Source: Company data
In industry innovation that could constitute market risk for SATO, scanners that can directly recognize an
image (i.e., without the assistance of barcodes or labels) have begun appearing. For example, there are
now scanners and POS cash registers that can detect how many apples a customer is purchasing based
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on color, shape, and size. If these products spread more widely, it is possible labels will no longer be
necessary for a portion of their traditional applications. However, when RFID first appeared, some
believed barcodes would become unnecessary, but the two approaches actually came to be used in
tandem.
Competition
Japan
In Japan, the company has a 40% share of the barcode printer market and a 30%-40% share in barcode
printer labels, each of which constitutes the top domestic share (in financial year 2012). TOSHIBA TEC
CORP. (TSE1: 6588) is the largest competitor in printers. Other competitors include Teraoka Seiko, Ishida,
and Okabe Marking (all unlisted).
Overseas
Globally, SATO has acquired the second largest share following its Argox acquisition (see below) after
dominant U.S.-based Zebra Technologies Corp. (NASDAQ: ZBRA). Zebra is focused primarily on hardware;
by actively growing the worldwide network of distributors and outsourcing manufacturing to EMS
providers, it achieved a de facto industry standard status (47% global market share in 2011). SATO’s 14%
share (7% before the acquisition of Argox) in barcode printers is second to Zebra’s. Both companies’
revenues were similar in 2011 (SATO’s FY03/13, Zebra’s FY12/12; based on USD/JPY85), however, Zebra
was about 2.5 times as profitable (operating profit basis).
Market share (2011)
TSC
2%
Brother
3%
Other
14%
Citizen
5%
Datamax
O'Neil
7%
ZEBRA
47%
Intermec
8%
SATO
14%
Source: Company data
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Sales by category (FY03/12)
(JP Ymn)
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
SATO
ZEBRA
Hardware
Consumables
Zebra sales calculated as USD/JPY85
Source: Company data
Another overseas competitor strong in a specific niche is U.S.-based Datamax-O’Neil, a part of Dover
Corporation (NYSE: DOV), which is strong in mobile printers. The competition with Zebra is mainly in
printers and auto-ID devices. SATO is the only large primary provider of comprehensive solutions based
on labels, focusing on establishing ties with end users.
Zebra has grown its market share through M&A, and its growth strategy is centered on using distributors
rather than pursing end users directly. While SATO does use distributors overseas, it has narrowed their
number to focus on sustainable relationships with these selected distributors who are willing to work and
prosper together with their customers, as it aims to form long-lasting deep ties with them. Zebra appears
to be more focused on sales through distributors. SATO has historically emphasized its relationships with
end users through its principal offerings, supplies, and maintenance services.
Overseas, as SATO’s market shares are still small, its prospective customers in most cases already have
business relationships with its competitors. It is difficult for SATO to directly take printer share in areas
where competitors already have entrenched presence. SATO can, however, offer solutions to those
potential customers who have specific supplies-related issues not resolved by the competitors. It can also
secure business by promoting its printers for certain processes that competitors’ printers are not able to
handle. This strategy focuses on finding a way to make inroads into part of the business of a new
customer through customer needs-oriented services, and then expand the share per that customer by
working together on solving an increasing range of tailor supplies needs.
The company comments that in North America there is a strong unbundling trend where customers seek
to obtain both the best products and the best prices, even if it means buying them from various suppliers.
However, according to SATO, this often causes technical and operating problems that could be avoided if
a single supplier was used. A typical technical issue is when label glue melts under heat from the printer,
something that normally does not happen with authentic supplies. SATO offers an extensive variety of
customized supplies to satisfy each customer’s particular needs, be they in design, paper type, coating,
cut, shape, etc.
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Strategy
In Japan, the company introduced industry-specific sales approach and created separate business units
for each market from April 2010. The company commented that it has been seeing strongly positive
results from this initiative. Several examples of successfully tailoring DCS & Labeling solutions to the
specific industry needs are demonstrated below.
Examples of business negotiations that took place after the introduction of separate business units for each market
Retail
Factory Automation
Food Industry
Logistics
Healthcare
Negotiations on distribution business message standard (BMS) and display labels for convenience stores
Deployment of customer sales for the automobile industry and electronics market
Business discussions on labels for grocery foods with major food companies
Negotiations for baggage label printing with major transport operators and value-added labels for catalog retailers
Business discussions with testing centers, applications for medical supply SCM (for manufactures and wholesalers)
Source: Company data, SR Inc. Research
Sales in Retail Sector
Sales in FA Sector
Sales in Foods Sector
Sales in Logistics Sector
Sales in Medical
FY09 = 100
Source: Company data, SR Inc. Research
SATO’s consulting-based sales proposals are labor intensive, so it is difficult to gain benefits from
economies of scale. Within that environment, collaboration with firms selling solutions to the company’s
customers is one way in which SATO is working to cut SG&A and improve its profitability. While the
company relies on direct sales, it also acts in cooperation with large system integrators, such as NEC Corp.
(TSE1: 6701), Hitachi, Ltd. (TSE1: 6501), and Fujitsu Limited (TSE1: 6702). System integrators would
often approach SATO to come up with a solution for their client, especially when it involves labels
(supplies)—an area where no system integrator has any expertise or interest in. Also, as of May 2012,
SATO did not have any scanners in its offering and that created opportunities to cooperate with
manufacturers of scanners who would often sell their products together with SATO’s printers. According
to the company, it has good relationships with scanner makers.
Six core strategies
SATO has set forth six core strategies from FY03/13 with each strategy developed by the executive who
then took charge of its implementation:
Take the success of market-specific business unit approach to markets outside of
Japan
Define target accounts in each existing overseas market and persist in developing niche-specific offerings.
For each targeted market, transplant SATO’s domestic DCS & Labeling know-how and carefully develop a
model that works in that specific country for that specific market. (Some existing local success stories
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include entertainment/tourism ticketing solution in Singapore and automotive manufacturing solution in
Indonesia.
The company’s view is that prior to FY03/12 it had limited success overseas because it had its hands tied
by the restructuring of the European operations and lack of focus. In its new midterm plan, the company’s
focus is the name of the game—the company would concentrate on only one or two industries in each
country and send an expert on that industry from Japan to build the business.
Develop business in emerging growth markets (Argox synergies)
Seek to maximize the benefits of synergies with Argox with a focus on seven countries: China, India,
Indonesia, Vietnam, Thailand, Brazil, and Argentina. Specifically, develop cross-selling synergies between
SATO’s existing offering and Argox products—sell SATO’s high-end products through Argox channels in
these developing markets and sell Argox’s entry level products using SATO’s distribution network in
mature countries.
Build a high-profit Supplies business
Centralize the chain of command for the company’s global Supplies business, with global sourcing of
equipment and materials based on unified specifications and conditions. Standardize operations and
develop global workforce.
Enhance overall profitability
Solidify services business and develop strategic operations through decentralizing into separate
companies. Build new businesses (e.g., new technologies, licensing, ASP). Develop new unique products
(combining hardware and supplies) capable of capturing the top share in each sector. Optimize cost
structure to lower overall cost both upstream (development) and downstream (customer).
Optimize Group Management
In operations, increase efficiency by simplifying business processes and IT infrastructure. Optimize and
accelerate global supply chain management. In finance, increase efficiency and returns on capital without
sacrificing financial health. In human resources, cultivate global talent and optimize the ratio of
front-office to back-office staff.
Make the environmental business into a core one
Build the environmental conservation business (both products and solutions) as an independent operation.
Actively approach government bodies, industry groups, and NPOs to make SATO products and solutions a
de facto standard with the eventual goal of boosting sales of SATO’s eco-friendly NONSEPA® and
ECONANO® labels.
NONSEPA®: the company’s series of linerless labels; ECONANO® is a series of labels that use nano vesicle
capsule (NVC) technology to add a CO2 absorbent to the label’s adhesive. ECONANO® enables 20% lower
CO2 emissions at incineration.
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M&A strategy
With the acquisition of the barcode printer business of Illinois-based Checkpoint Systems, Inc. in 2006,
SATO made M&A a part of its core strategy. With that acquisition, SATO attempted to expand its sales
network and accelerate global expansion of its “DCS (Data Collection Systems) & Labeling” business
model. However, the company faced difficulties in coordinating its own sales network with distributors’
(particularly in Europe) and in building a structure to promote Supplies sales and maintenance services.
As a result, tangible outcome of the acquisition has not materialized yet. SATO commented, however, this
experience provided many valuable lessons for its subsequent M&A activities.
Focusing on companies with a strong end-user base
SATO commented that in the future its acquisitions strategy is likely to focus on companies with quality
end-user base, such as ACHERNAR, as stated below. Securing end users would result in SATO’s business
model—providing comprehensive solutions, from hardware to labels to maintenance and
support—functioning successfully. SATO also commented that it is interested in acquiring labeling
solutions providers and related entities as it can expect synergies: selling its products to end users of
those solutions providers having strengths in particular industries. The following is the outline of major
M&A results after Checkpoint.
M&A overview
NODOS S.A. in May 2010; ACHERNAR S.A. in March 2012
In Argentina, where the company has been working to expand its business, SATO acquired its
Argentinean distributor NODOS S.A. in May 2010. Then, in March 2012, it followed with the purchase of
ACHERNAR S.A., an Argentina-based company engaged in the manufacture and sale of labels (annual
sales of about JPY800mn). SATO considered ACHERNAR a highly profitable (with operating profit margins
of over 21%) business with an extensive network of customer relationships. For instance, ACHERNAR did
business with state-run enterprises, multinationals in the foods, beverages, and cosmetics industries, and
fruit growers, a core regional industry.
Argox (Taiwan) acquired in January 2012
In January 2012, the company acquired Argox Information Co., Ltd., a Taiwanese company established in
1996 and recognized for its cost competitiveness and strong presence in emerging markets. SATO was
attracted to Argox’s distribution strength, product development capabilities, manufacturing prowess, and
purchasing power.
Enhancing salespower
In terms of distribution, the plan is to leverage Argox’s distributor network to sell SATO products to Argox
customers who have demand for high-end products. Argox’s 2011 market share of entry level compact
printers by sales volume stood at 23% in China, 34% in Brazil, 34% in Turkey, 11% in South Africa, and
9% in Eastern Europe and Russia, commanding the top market share in China, Brazil, and Turkey in 2012.
Enhancing product development
In terms of product development capabilities, the idea is to concentrate resources on areas of unique
strengths of both firms and share development technologies.
Enhancing manufacturing and purchasing
Using Argox’s manufacturing prowess and purchasing power, SATO hopes to boost its overall profitability
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by utilizing Argox’s suppliers in Taiwan that are capable of delivering high quality with quick turnaround
times.
SATO Holdings acquired Argox for JPY5.8bn, which included JPY3.8bn in goodwill to be amortized at a
rate of approximately JPY600mn per year over seven years. Argox’s sales were JPY2.5bn in FY03/13
(JPY2.3bn in FY03/12), with operating profit of JPY530mn (JPY520mn in FY03/12) excluding goodwill.
Business transfer from PT. Indonagatomi in October 2012
In October 2012, the company announced the establishment of a new joint venture, PT. SATO NAGATOMI,
in Indonesia to strengthen sales operations in the country and accelerate business expansion in emerging
markets in general. According to the announcement, the company reached an agreement with
Indonesia-based PT. Indonagatomi regarding the transfer of PT. Indonagatomi’s business (selling barcode
printers and other auto-identification systems) to the joint venture, in which SATO holds 70%. PT. SATO
NAGATOMI will leverage the synergy of SATO’s auto-ID technology and PT. Indonagatomi’s sales network
(five sales branches mainly in Jakarta) to provide solutions based on label printers, scanners, and
consumables to manufacturers, retailers, distributors, and healthcare businesses in the country.
Acquires a stake in Nexgen Packaging in May 2013
In May 2013, the company announced its strategic minority investment in Nexgen Packaging, LLC. as part
of a business partnership with the global provider of packaging materials for the apparel industry. Nexgen
Packaging has operations in the US and Hong Kong, as well as China, India, Vietnam and other
apparel-producing nations. The company designs, produces, and sells product labels, price tags, RFID
tags, and product quality tags to both apparel manufacturers and retailers.
Through the partnership, SATO is seeking to tap Nexgen Packaging’s global network and technology and
expand the two companies’ RFID operations. The market for apparel packaging is expected to expand
globally as the retail and apparel industries increasingly outsource their operations. The partnership may
benefit the company’s earnings starting in FY03/15.
Business transfer (RFID) from Magellan Technology in December 2013
In November 2013, the company announced that it will strengthen its ability to make proposals in the
healthcare market by establishing SATO Vicinity Pty Ltd in Australia. SATO announced that it will acquire
the business related to RFID technology from Magellan Technology Pty Ltd, a pioneer of RFID technology,
for about JPY600mn and start operating the business at SATO Vicinity Pty Ltd, a 100% subsidiary, in NSW,
Australia, in December 2013.
The company said that Magellan has a lot of business experience mainly in the healthcare market for its
unique PJM (Phase Jitter Modulation) radio frequency data transmission technology, which realizes the
high-speed and high-precision reading of IC tags. Some 80% of orthopedic implant kits in Australia were
tagged with Magellan’s PJM RFID Tags and used for consignment management, it said. With the
acquisition of the business, SATO will be the only one-stop company that can provide equipment with
proprietary end-to-end RFID technologies incorporating PJM RFID Chips and Tags, RFID Printers, and
RFID Readers, and offer efficient and accurate traceability systems and maintenance in the healthcare
sector, the company said.
Financial strategy
Financial health and conservatism are at the core of SATO’s financial strategy, meaning that the company
is targeting stable sustainable growth. Within that context, SATO puts an emphasis on ROE as a measure
of performance, aiming to raise it without sacrificing financial stability.
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Outstanding shares
In March 2012, the company announced it had raised JPY5.0bn by issuing JPY-denominated convertible
bonds with warrants attached, maturing in April 2017. The company’s plan was to use these funds to
repay the loans (approximately JPY5.8bn) to acquire Argox in January 2012. The conversion price is
JPY1,464. With the issue of these convertible bonds, the ratio of dilutive shares to total outstanding
shares (32,001,169 as of the end of March 2012) was expected to be 11%.
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Historical financial statements
FY03/14 Results (out April 30, 2014; see the table above)
Consolidated results slightly outperformed the company’s targets. Sales were JPY96.8bn (+10.9% YoY);
operating profit was JPY6.8bn (+23.9%); recurring profit was JPY7.1bn (+30.5%); and net income was
JPY4.3bn (+57.5%).
Sales were up 8.1% YoY in 1H, as non-manufacturing sales offset delays in the recovery of capex demand
from the manufacturing sector. This demand picked up in 2H and—together with ongoing demand from
non-manufacturing industries such as logistics and demand related to the consumption tax hike—led to
robust growth in sales of 13.6%.
Notable points from the year include:
 The supply of mobile printers to major domestic corporations in Q2;
 Demand related to the consumption tax hike in Q4 (about JPY2.0bn);
 Began making an operating profit in Europe;
 Acquired Magellan Technology Pty Ltd., a successful supplier of RFID technology for medical use.
Japan
In Japan, sales were JPY68.4bn (+5.4% YoY) and operating profit was JPY5.1bn (+8.0% YoY)
The company aggressively sought to increase sales as the economy began to pick up. Rationalization
efforts, which were mostly limited to non-manufacturers, such as logistics companies in the first half of
the business year, began to spread to manufacturing companies in the latter half. Demand for
mechatronic products, such as printers, as well as for industrial supply products rose. Products related to
the consumption tax increase also contributed sales of about JPY2.0bn to the company’s earnings.
The Americas
In the Americas, sales were JPY9.2bn (+25.9% YoY; +4.2% excluding exchange rate effects). Operating
profit was JPY432mn (+24.9% YoY). The company continued to increase sales to logistics operators.
Sales of use-by-date management systems for food manufacturers, as well as laser printers for apparel
makers also rose. In South America, ACHERNAR S.A. (based in Argentina), which SATO acquired in March
2012, contributed to robust regional sales.
Europe
In Europe, sales were JPY7.1bn (+130.1% YoY; +104.6% excluding exchange rate effects). Operating
profit was JPY124mn (versus JPY213mn loss for a year before).
Sato expanded production of label-related equipment, opened new sales routes, and implemented a sales
cost-effective sales strategy. In the UK, the company signed a mobile solution deal for retailers and
expanded sales to apparel and logistics operators. In Germany, the company signed an RFID deal for a
major apparel maker.
In Spain, the company resumed sales operations in July 2013. The business posted an operating profit in
the latter half of the business year. As a result, the company posted operating profits in all of Europe on
an annual basis. According to the company, it has succeeded in creating an earnings structure that will
turn an operating profit across its European operations.
Asia and Oceania
In Asia and Oceania, sales were JPY12.bn (+125.7%; +106.6% excluding exchange rate effects).
Operating profit was JPY1.3bn (+222.1% YoY).
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Sales and profit increased from a year earlier after the market in China began to recover in Q2. Sales in
Indonesia and Vietnam, where the company started operations in the latter of FY03/13, were also added.
These emerging markets grew in line with the company’s forecasts. The factories in Malaysia and Vietnam,
which make mechatronics products, contributed to segment profits due to an increase in demand for
printers and cost-cutting efforts.
In Australia, the company established SATO Vicinity Pty Ltd. in Australia in December 2013 by acquiring
operations of Magellan Technology Pty Ltd., a pioneer of RFID technology. Magellan has a lot of business
experience mainly in the healthcare market. SATO has become the only one-stop company that can
provide IC chips and tags, RFID printers and readers, and offer efficient and accurate traceability systems
and maintenance services.
Q3 FY03/14 Results (announced on February 5, 2014)
Revised earnings forecasts for FY03/14
Sales
JPY96bn (previous forecast: JPY96bn)
Operating profit
JPY6.6bn (JPY6.5bn)
Recurring profit
JPY6.9bn (JPY6.5bn)
Net income
JPY4.1bn (JPY3.7bn)
EPS
JPY136.17 (JPY122.89)
Annual dividend
JPY38 (JPY38)
Consolidated sales in cumulative Q3 were JPY70.7bn (+8.8% YoY), operating profit was JPY4.8bn
(+26.9% YoY), recurring profit was JPY5.2bn (+45.9% YoY), and net income was JPY3.3bn (+105.7%
YoY).
Key points for Q3
In the business results briefing President Matsuyama cited four key points in Q3 FY03/14. 1) The results
were record highs in line with a scenario in the medium term business plan. 2) Though 1H domestic sales
were flat (+0.7% YoY) and operating profit was down 3.6%, both recovered in November and December
2013; the core segments of Factory Automation, Retail and Logistics turned up. 3) The overseas business
was broadly in line with the company’s plans. And 4) the financial structure of the company has been
strengthened.
Domestic
In Japan, cumulative sales were JPY49.5bn (+1.5% YoY), and operating profit was JPY3.3bn (+2.3%
YoY). Capex demand both for mechatronics products and supplies, which had been limited, began to
increase. In Retail, demand has emerged for products related to the consumption tax hike.
The FA segment accounted for around 30% of overall sales. Though 1H sales incurred a year-on-year
decrease, Q3 sales turned to show a year-on-year increase. Amid the better business sentiment, capex
demand became noticeable in November and later both for mechatronics products and supplies. The
trend is predicted to continue in Q4.
The Retail segment accounted for 10-20% of sales in cumulative Q3. The company had forecast
JPY1bn in demand related to the consumption tax hike for 2H and actual Q3 sales were JPY200mn (most
of which was recorded in December). Related sales continued to perform well, with the result in January
exceeding that in the previous month. The company does not forecast a significant dip in FY03/15, in
reaction to the rise in FY03/14, thanks to offsetting factors such as the rise in capex demand. Sales
activities for products related to the consumption tax rise helped the company to expand into new
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customer segments.
The Logistics segment accounted for around 30% of cumulative Q3 sales. Sales were slightly higher
year-on-year in Q3 FY03/14, as they were in 1H. For FY03/15, Shared Research notes that demand for
mobile label printers has expanded beyond major logistics companies and distributors.
The Medical segment accounted for more than 10% of cumulative Q3 FY03/14 sales. Though 1H sales
fell below the year-before level, cumulative Q3 sales turned this into a year-on-year increase thanks to
sales efforts. The company plans to spin off the business by establishing a new company, SATO
Healthcare, in April 2014. With the spinoff, SATO hopes for the acceleration of decision making, promotion
of globalization, and enhancing the roles played by expert staff. The company expects that the segment
will expand further in FY03/15 and thereafter, combining contribution from the business related to Radio
Frequency Identification (RFID) technology at SATO Vicinity Pty Ltd, an Australian subsidiary established
in December 2013.
The Americas
In the Americas, cumulative Q3 sales were JPY6.9bn (+31.1% YoY; +5.5% excluding exchange rate
effects) and operating profit was JPY376mn (+87.6% YoY). The foreign exchange rate was
USD1/JPY99.35 on a consolidated basis (USD1/JPY79.95 in cumulative Q3 FY03/13).
In North America, the company proceeded with talks with food manufacturers which needed quality
control systems on an Original Equipment Manufacturer (OEM) basis in Q3, as in 1H. The company has
differentiated its product offerings relative to the competition. Demand is increasing for the company’s
efficiency management solutions and machines for managing expiration dates. For apparel makers,
demand to replace laser printers has emerged and the company expects demand to stay consistent in
FY03/15.
In Latin America, the company has not suffered from the unstable economic environment in that region.
ACHERNAR S.A. (Argentina) contributed to robust regional sales, recording operating profit prior to
amortization of goodwill in cumulative Q3.
Europe
In Europe, cumulative Q3 sales were JPY5.3bn (+34.4% YoY; +5.6% excluding exchange rate effects),
and operating profit was JPY154mn (JPY155mn loss in cumulative Q3 FY03/13). The exchange rate was
EUR1/JPY132.17 on a consolidated basis (EUR1/JPY102.03 in cumulative Q3 FY03/13). The overall
European operations turned profitable, reporting operating profit in Q1 FY03/14 and steady profits in Q2
and Q3. Operating profit margin widened. The Spain arm entered positive operating profit in Q3, owing
partly to a decrease in one-time expenses. In the UK and Germany, sales promotions have begun to work
well, creating a favorable cycle where large contracts prompt greater profitability. The UK business in Q3
posted an operating profit, helped by increased sales to major department stores. The company thinks
that the German arm turned profitable as sales increased, mainly via deals involving RFID orders for
retailers.
Asia and Oceania
In Asia and Oceania, cumulative Q3 sales were JPY9.0bn (+29.4% YoY; +5.6% excluding exchange
rate impact), and operating profit was JPY1.0bn (up 2.35x YoY). Though financial activity in the region
lacked strength due to the slowing pace of economic growth in emerging markets, recovery in China in Q2
contributed to the year-on-year growth in cumulative Q3. Sales in Indonesia, where the company began
operations in 2H FY03/13, and Vietnam were added, and its priority reassessments progressed as planned.
To address political unrest in Thailand, SATO aims to diversify risk by expanding sales channels and other
steps.
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Argox Information Co. Ltd., a Taiwanese subsidiary, showed sluggish cumulative Q3 results in Brazil (sales
-29% YoY) but performed well in China (+27% YoY). Overall sales were almost flat year-on-year.
A combination of higher overseas sales and reduced costs through value analysis (VA)/value engineering
(VE) activities had a positive impact on profits. Operating profit particularly improved in Asia and Oceania.
On the manufacturing lines, the company is replacing printing machines globally to increase efficiency
and decrease costs. In Indonesia, the company has started using new machines to manufacture labels.
The company expects this to contribute to sales and profits in FY03/15.
Revised FY03/14 Forecast
(JPYmn)
Previous forecast
Revised forecast
Revised / previous
Year earlier period
Revised / year earlier
Sales
Operating Profit
Recurring Profit
Net Income
EPS
96,000
96,000
0.0%
87,256
10.0%
6,500
6,600
1.5%
5,452
21.1%
6,500
6,900
6.2%
5,429
27.1%
3,700
4,100
10.8%
2,726
50.4%
122.9
136.2
10.8%
90.6
50.4%
Source: Company data
Figures may differ from company materials due to differences in rounding methods.
1H FY03/14 Results (announced on October 25, 2013)
There is no change to the full year forecasts since disclosure on 26th July.
Full Year Forecasts
Sales: 96billion yen (disclosed figure at the beginning of the FY: 96 billion yen)
Operating Income: 6.5 billion yen (disclosed figure at the beginning of the FY: 6.5 billion yen)
Ordinary Income: 6.5 billion yen (disclosed figure at the beginning of the FY: 6.3 billion yen)
Net Income: 3.7 billion yen (disclosed figure at the beginning of the FY: 3.6 billion yen)
Consolidated 1H sales were 46.1 billion yen (+8.1% YoY), operating profit 2.9 billion yen (+23.3% YoY),
recurring profit 3.2 billion yen (+75.3% YoY), and net income 1.9 billion yen (+159.7% YoY). Sales and
operating profit fell slightly short of management’s 1H forecasts, while recurring profit and net income
were better than forecasts. Nevertheless, sales reached a record high level for a six-month period, while
the company achieved its highest ever profit levels for 1H as well. In addition, recurring profit and net
income achieved high growth, mainly helped by the absence of foreign exchange losses (550 million yen)
recorded as non-operating expense in the previous year and also the normalization of the effective tax
rate by the turnaround to profitability of European group members companies.
In Japan, sales were 32.2 billion yen (+0.7% YoY) and operating profit was 2.0 billion yen (-3.6% YoY).
Capital investments, especially in the manufacturing sector, have been more selective, causing demand
for mechatronics products to continue to be weak. However, increased rationalization efforts, mainly in
the logistics and other non-manufacturing industries seen in the latter half of the 1H, appear to be
contributing to a recovery in demand for such products. A slight decline in domestic operating profit for
the term is partially due to the front-loaded R&D expenditures relevant to new products
In the US, sales were 4.6 billion yen (+33.5% YoY; +7.3% excluding exchange rate effects), and
operating profit was 265 million yen (+87.4% YoY). Existing business remained favorable, supported by
demand for printers from a major drugstore chain and apparel makers, and quality control systems (i.e.,
management of expiration dates) for food production and processing to original equipment
manufacturers (OEM) of food products. Furthermore, In South America, the company benefitted from the
earnings of Achernar S.A. (based in Argentina).
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In Europe, sales were 3.4 billion yen (+35.4% YoY; +6.7% YoY excluding exchange rate effects), and
operating profit was73 million yen (an operating loss of 114 million the previous year). As a result of the
company’s efforts to develop a sales channel for its label products in each European country, as well as
promoting a sales policy based on profitability, its results have gradually increased supported by its
products being distributed in the U.K. and negotiations for large-scale label orders for the retail sector, as
well as RFID business opportunities from a major apparel business in Germany. Despite a sales decline in
Q2 compared to Q1, due to adverse effects from the summer holidays, operations have turned profitable
with operating profit expanding over the previous year. In Spain, the company appears to have incurred a
slight operating loss due to legal fees, but is expected to report profits from Q3 due to the completion of
liquidation proceedings.
In Asia and Oceania, sales were 5.9 billion yen (+25.1% YoY; +2.0% YoY excluding foreign currency
effects), operating profit was 639 million yen (+101.8% YoY). The pace of economic growth in emerging
countries has slowed, but the Chinese market appears to have recovered, with sales in Q2 exceeding the
previous year. Furthermore, sales from Indonesia, which began operations in the second half of the
previous fiscal year, and Vietnam, were added, and its new priority markets progressed as planned.
In addition, the company has also cooperated with Argox of Taiwan, and started supplying products using
their respective sales channels. Both companies intend to increase the pace in developing a presence in
emerging markets to gain a competitive edge
The company also announced that it plans to increase its end of the year (FY03/14) dividend payment to
20 yen from 19 yen, for a total year-end dividend payment of 38 yen per share.
Q1 FY03/14 Results (announced on July 26, 2013)
Consolidated sales were 22.6 billion yen (+6.7% YoY), operating profit was 1.3 billion yen (+21.0% YoY),
recurring profit was 1.4 billion yen (+99.4% YoY), and net income was 800 million yen (+276.6% YoY).
Recurring profit benefitted from a gain in foreign currency due to the weak value of the yen.
In Japan, sales were 15.7 billion yen (-0.8% YoY), and operating profit was 900 million yen (-3.4% YoY).
In the Hardware segment, sales totaled 5.1 billion yen (-4.3% YoY) as capital spending slowed among
manufacturers. The company indicated that there is a correlation between machinery order statistics and
sales in this segment, suggesting that sales were affected by a temporary economic slowdown.
Negotiations on large-scale projects increased about 30% (in monetary terms) in Q2 from early stages of
Q1. Thus, a recovery is expected in Q2 and thereafter.
The company plans to introduce mobile printers as part of a sales strategy targeting large users in
September 2013 and thereafter. The new printers have gained very favorable advance reviews prior to
market launch thanks to excellent durability and printing speed. The company commented that it was in
discussions with several potential customers, mainly from major distribution companies for the new units.
The Supplies segment posted sales of 10.6 billion yen (+1.0% YoY), driven by demand from retail and
logistics companies even though demand from manufacturers and food processors lacked vigor. Although
the company continued to face pressure to cut prices, the operating profit margin improved to 5.8%
(4.5% a year earlier) after reducing costs through changes in the use of raw materials, raising
productivity by upgrading printing facilities, and improving its sales mix.
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In the Americas, sales were 2.3 billion yen (+26.4% YoY; +2.6% YoY excluding foreign currency effects),
and operating profit was 120 million yen (+29.3% YoY). In North America, the company recorded sales of
quality control systems (i.e., management of expiration dates) for food production and processing to
original equipment manufacturers (OEM) of food products, and also started negotiations with a major
drugstore chain. Furthermore, increased demand for printers from major apparel manufactures are
expected to materialize from Q2. Sales in North America totaled 1.8 billion yen (+21.8% YoY), with
operating profit of 90 million yen (+21.7% YoY). In South America, the company benefitted from the
earnings of Achernar S.A. (based in Argentina), which manufactures and sells stickers and labels.
Consequently, sales were 460 million yen (+48.7% YoY), with operating profit of 60 million yen (+18.0%
YoY)
In Europe, efforts to create new sales channels appeared to be bearing fruit. The company concluded
negotiations on a large-scale mobile solutions project for a major apparel company in Germany, while
receiving large-scale orders (from transportation companies and retailers) for labels in the U.K. Positive
signs from structural reforms, as well as upgrading and enhancing printing facilities are starting to
contribute to an increase in productivity, leading to a strengthening of the company’s earnings structure.
As a result, sales were 1.7 billion yen (+33.5% YoY; +7.9% YoY excluding foreign currency effects), and
operating profit was 30 million yen (50 million yen operating loss a year earlier), the first quarterly profit
in five years. Thus, the European business has full-year profitability within its sights (company estimate is
for breakeven). The company’s Spanish subsidiary, which has been operating as a branch of the Belgian
unit since Q2, and working to achieve profitability, has reduced its employee headcount to one-third of
the previous level while focusing on large corporate clients. Despite this downsizing, operations at the
branch are progressing smoothly as of August 2013.
In Asia and Oceania, operations in Indonesia and Vietnam, which began in the latter half of 2012, were
added to sales, which totaled 2.9 billion yen (+27.7% YoY; +3.7% YoY excluding foreign currency effects).
Operating profit was 260 million yen (+72.9% YoY). In China, while operating profit fell (-4.0% YoY) due
to slowdown in the economy, on a monthly basis it rose 1% YoY in June, and appears to have made
steady growth in July. Argox Information Co., Ltd., (Taiwan), whose operations had been stagnant, is
showing strong signs of recovery from the latter half of Q1. Furthermore, the increased production
efficiencies at its manufacturing facilities in Malaysia and Vietnam are starting to make a positive
contribution to earnings, as favorable overseas sales improve productivity (i.e., profitability).
Consolidated operating profit was in line with the company’s forecast. However, the company made an
upward revision to its earnings forecast due to foreign exchange gains attributable to the weaker yen
against the U.S. dollar. The company has maintained its foreign currency assumptions of 95 yen against
the U.S. dollar and 125 yen against the euro. Overseas operations grew faster than expected, and a 1 yen
fluctuation in Q1 had an impact of 70 million yen on sales (dollar and euro impact combined) and 7 million
yen on operating profit. The company had initially expected that a 1 yen fluctuation would have an impact
of about 300 million yen on sales (dollar and euro impact combined) and 30million yen on operating
profit.
Q1 FY03/14 Results (announced on July 31, 2013)
Consolidated sales were 21.2 billion yen (+8.3% YoY): Hardware sales at 8.4 billion yen (+14.7% YoY)
and Supplies sales at 12.8 billion yen (+4.6% YoY).
Operating profit was 1.1 billion yen (+18.1% YoY), recurring profit was 700 million yen (-10.4% YoY), and
net income was 200 million yen (-52.0% YoY). Lower recurring profit YoY was due to the weak euro, while
net income decline YoY was due to the reversal of deferred tax assets.
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In Japan, sales were 15.8 billion yen (+6.5% YoY), and operating profit was 9.0 billion yen (+6.8% YoY).
SATO’s market-specific sales approach was received well, resulting in an increase of inquiries for
large-scale transactions. Certain products in the Supplies segment seemed to suffer lower gross profit
margins.
In the US, sales were 1.8 billion yen (+20.0% YoY; +22.0% excluding exchange rate effects), and
operating profit was 100 million yen (5.9 times higher YoY). ACHERNAR S.A. (based in Argentina), which
SATO acquired in March 2012, contributed to the results.
In Europe, sales were 1.3 billion yen (-18.2% YoY; -8.1% excluding exchange rate effects), and operating
loss was 50 million yen (vs. 70 million yen operating loss in Q1 FY03/12). Sales fell YoY due to weak
economies attributable to debt crises, while profitability saw a slight improvement thanks to cost
reductions.
In Asia and Oceania, SATO put Chinese operations under the direct control of its headquarters in Japan.
In addition, SATO was accelerating regional market penetration in cooperation with Taiwan-based Argox
Information Co., Ltd. (acquired in January 2012). Sales in this region were 2.3 billion yen (+40.3% YoY;
+43.9% excluding exchange rate effects), and operating profit was 150 million yen (+65.1% YoY).
Due to the weak euro and the reversal of deferred tax assets, SATO downwardly revised its forecasts for
1H recurring profit and net income (full-year forecasts were maintained). Exchange rate assumptions
were changed from 104 yen to 100 yen to the euro (the assumption of 78 yen to the dollar was
maintained).
FY03/13 Results (announced on April 26, 2013)
Consolidated cumulative sales were 87.3 billion yen (+8.3% YoY), operating profit was 5.5 billion yen
(+17.2%), recurring profit was 5.4 billion yen (+30.2%), and net income was 2.7 billion yen (+39.6%).
These are in line with the company’s forecast.
In Japan, sales were 64.9 billion yen (+4.7% YoY) and operating profit was 4.7 billion yen (+10.2% YoY).
SATO’s market-specific sales approach was received well, resulting in strong results. In Hardware,
manufacturers and retailers slowed down their capex spending, but entering Q4 (January-March 2013),
they appeared to be reaccelerating facilities investment. On the other hand, SATO was steadily expanding
its Supplies customer base. As a result, domestic sales reached a record in FY03/13.
In the Americas, sales were 7.3 billion yen (+25.1% YoY; +19.3% excluding exchange rate effects).
Operating profit was 346 million yen (2.5 times the year before). Printer demand was strong from large
logistics operators and medical institutions. Also, business conditions appeared to be recovering, with
SATO engaging in negotiations with a food manufacturer for use-by-date management systems and
accepting more outsourced label/tag printing work from an apparel maker. In South America, ACHERNAR
S.A. (based in Argentina), which SATO acquired in March 2012, contributed to robust regional sales.
In Europe, sales were stagnant due to debt crises and resultant economic slowdown, and SATO did not
return to profitability. Sales were 5.5 billion yen (-4.7% YoY; -4.3% excluding exchange rate effects).
Operating loss was 213 million yen (versus 257 million yen loss for a year before). Sales in Q4
(January-March 2013) were 1.6 billion yen (+1.4% YoY), showing signs of recovery. SATO won a deal for
merchandise discount management systems from a large department store operator in Germany. In the
U.K., the company signed label-related deals with a large logistic operator and a department store
operator. In the UK, owing to an increase in pension expense led to an increase in operating loss despite
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higher sales (UK sales: FY03/12 1.5 billion yen, FY03/13 1.6 billion yen; UK operating loss: FY03/12 10
million yen, FY03/13 70 million yen).
In Asia and Oceania, SATO was accelerating efforts to capture demand from manufacturers, large logistic
operators, and public projects in Asian countries. At the same time, in addition to Chinese operations,
SATO put Thai, Vietnamese, and Indonesian operations under the direct control of its headquarters in
Japan. Furthermore, SATO was accelerating regional market penetration in cooperation with Argox. Due
to these activities, regional sales were 9.5 billion yen (+38.0% YoY; +31.7% excluding exchange rate
effects). Operating profit was 565 million yen (+10.5% YoY). In Q3 (October-December 2012), economic
slowdown in China and the Japan-China territorial issue meant temporary weakness in SATO’s
performance. However, sales began to recover in Q4 (January-March 2013)
The company raised its planned year-end dividend to 20 yen a share. As a result, the company is likely to
pay annual dividend of 37 yen a share (an increase of 2 yen from previous year.)
Q3 FY03/13 Results (announced on February 5, 2013)
Consolidated sales in cumulative Q3 were 65.0 billion yen (+8.5% YoY), operating profit was 3.8 billion
yen (+12.0% YoY), recurring profit was 3.5 billion yen (+23.2% YoY), and net income was 1.6 billion yen
(+61.7% YoY).
In Japan, sales were 48.8 billion yen (+5.2% YoY), and operating profit was 3.3 billion yen (+3.0% YoY).
SATO’s market-specific sales approach was received well, resulting in strong results. In Hardware,
manufacturers and retailers slowed down their capex spending, but entering the Q4, they appeared to be
reaccelerating facilities investment. On the other hand, SATO was steadily expanding its Supplies
customer base. As a result, domestic sales in the Q3 (October-December 2012) alone and in the
cumulative Q3 period were both record highs.
It should be noted, however, that domestic operating profit in the Q3 alone was down 18.6% YoY due to
an unfavorable change in the mix of products sold (e.g., a temporary drop in Hardware sales offset by
relatively strong Supplies sales) and to a decline in gross profit margins for certain Supplies products.
According to SATO, since the 2011 disaster, companies have been increasingly purchasing supplies from
at least two suppliers from a risk management standpoint, which has caused harsher price competition.
In response, SATO was strengthening cost-cutting efforts and earnings structure to improve results in Q4.
In the Americas, sales were 5.3 billion yen (+22.4% YoY; +21.1% excluding exchange rate effects), and
operating profit was 200 million yen (2.9 times YoY). Printer demand was strong from large logistics
operators and medical institutions. Also, business conditions appeared to be recovering, with SATO
engaging in negotiations with a food manufacturer for use-by-date management systems and accepting
more outsourced label/tag printing work from an apparel maker. SATO plans to sell printers manufactured
by Taiwanese subsidiary Argox Information Co., Ltd. under either the SATO or Argox brand in this region
from March 2013, and this suggests that the printer market there could expand rapidly in FY03/13 and
beyond. In South America, ACHERNAR S.A. (based in Argentina), which SATO acquired in March 2012,
contributed to robust regional sales.
In Europe, sales were stagnant due to debt crises and resultant economic slowdown, and SATO did not
return to profitability for the cumulative Q3 period. In spite of this, SATO has won a deal for merchandise
discount management systems from a large department store operator in Germany. In the U.K., the
company signed label-related deals with a large logistic operator and a department store operator. As
such, SATO was gradually enjoying the benefits from expanded sales channels. Sales in Europe were 3.9
billion yen (-10.8% YoY; -5.6% excluding exchange rate effects), and operating loss was 155 million yen
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(171 million yen loss in cumulative Q3 FY03/12).
In Asia and Oceania, SATO was accelerating efforts to capture demand from manufacturers, large logistic
operators, and public projects in Asian countries. At the same time, in addition to Chinese operations,
SATO put Thai, Vietnamese, and Indonesian operations under the direct control of its headquarters in
Japan. Furthermore, SATO was accelerating regional market penetration in cooperation with Argox. Due
to these activities, regional sales were 7.0 billion yen (+46.2% YoY; +45.1% excluding exchange rate
effects), and operating profit was 430 million yen (+12.1% YoY). In the Q3 alone, economic slowdown in
China and the Japan-China territorial issue meant temporary weakness in SATO’s performance, resulting
in the Q3 sales for the region falling about 6% YoY. Regional performance was recovering in Q4, though.
Based on its cumulative Q3 results, SATO revised its full-year FY03/13 forecasts, as shown below.
Revised FY03/13 Forecast
(Million Yen)
Revised forecast
Previous forecast
Revised / previous
Year earlier period
Revised / year earlier
Sales
Operating Profit
Recurring Profit
Net Income
87,000
88,000
-1.1%
80,536
8.0%
5,400
5,800
-6.9%
4,652
16.1%
5,200
5,200
0.0%
4,171
24.7%
2,500
2,600
-3.8%
1,953
28.0%
Source: Company data, SR Inc. Research; figures may differ from company materials due to differences in rounding methods.
SATO assumes 88 yen and 118 yen for a U.S. dollar and euro, respectively, for the Q4 (January-March
2013). For the full year, the company assumes 82 yen and 106 yen for a U.S. dollar and euro, respectively.
These assumptions seem somewhat conservative to Shared Research.
Q2 (1H) FY03/13 Results (announced on October 26, 2012)
Consolidated 1H sales were 42.7 billion yen (+8.6% YoY), largely in line with company estimate (43.0
billion yen): Hardware sales at 16.7 billion yen (+11.5% YoY) and Supplies sales at 25.9 billion yen
(+6.8% YoY).
Operating profit in this 1H was 2.4 billion yen (+28.3% YoY), and recurring profit was 1.8 billion yen
(+41.0% YoY), and net income was 729 million yen (+4.6% YoY). Operating profit was largely in line with
estimate (2.4 billion yen). In contrast, recurring profit was below estimate (2.0 billion yen) due to the
weak euro, and net income fell short of estimate (1.0 billion yen) mainly due to the reversal of deferred
tax assets.
In Japan, sales were 32.0 billion yen (+6.7% YoY), and operating profit was 2.1 billion yen (+21.8% YoY).
SATO’s market-specific sales approach was received well, resulting in an increase of inquiries for
large-scale transactions. In particular, Hardware sales were robust, centering on electronic printers.
According to SATO, negotiations related to large orders received in Q1 were going smoothly in Q2,
including radio frequency identification devices (RFIDs) for inventory controls for an apparel company and
RFIDs for cart rack management at a distribution center of a large supermarket chain. On the other hand,
certain Supplies products seemed to continue suffering lower gross profit margins in Japan mainly due to
harsher competition.
In the U.S., sales were 3.5 billion yen (+15.4% YoY; +15.8% excluding exchange rate effects), and
operating profit was 141 million yen (2.2 times YoY). ACHERNAR S.A. (based in Argentina), which SATO
acquired in March 2012, saw steady sales growth in primary labels, remained profitable even after
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goodwill amortization costs, and contributed to the strong regional results. In North America, some
original equipment manufacturing (OEM) negotiations were behind schedules, but SATO commented it
would book related sales in 2H.
In Europe, sales were 2.5 billion yen (-17.0% YoY; -8.2% excluding exchange rate effects), and operating
loss was 114 million yen (121 million yen loss in 1H FY03/12). Sales declined over the previous year due
to weak economies attributable to debt crises, while profitability saw a slight improvement thanks to the
transfer of production to Poland where manufacturing costs are lower.
Restructuring in Germany meant SATO’s operating loss there shrank from 129 million yen in 1H FY03/12
to 20 million yen. In Spain, operating loss increased YoY from 46 million yen to 63 million yen mainly due
to the strong yen. In response, SATO appeared to have sent personnel to Spain to better control sales,
operation, customer services, etc. (as of November 2012).
SATO claims that its fixed costs in Europe are at the lowest possible level, meaning that the company
must now expand sales to improve profitability. To this end, SATO intends to shift away from the
direct-sales model and strengthen cooperation with distributors. The company commented that it would
aim to return to the black in 2H FY03/13 in Europe ex-Spain and in Europe as a whole in FY03/14.
In Asia and Oceania, in addition to Chinese operations, SATO put Thai, Vietnamese, and Indonesian
operations under the direct control of its headquarters in Japan. In addition, SATO was accelerating
regional market penetration in cooperation with Taiwan-based Argox Information Co., Ltd. (bought in
January 2012). Sales in this region were 4.7 billion yen (+44.5% YoY; +46.8% excluding exchange rate
effects), and operating profit was 316 million yen (+41.3% YoY). Argox sales and profit were higher YoY.
SATO plans to expand printer sales in this region through Argox’s sales channels. Japan-China frictions
appeared to be affecting negotiations with businesses affiliated with the Chinese government. SATO
indicated that it might sell its products under the Argox brand should the frictions intensify.
Due to the weak euro and the reversal of deferred tax assets during 1H, SATO lowered its full-year
FY03/13 forecasts for recurring profit and net income. Exchange rate assumptions were changed from
104 yen to 100 yen to the euro (the assumption of 78 yen to the dollar was maintained). SATO appeared
to have begun taking necessary steps to minimize the exposure of its euro-denominated accounts
receivable and loans to exchange rate fluctuations.
Revised FY03/13 Forecast
(Million Yen)
Revised forecast
Previous forecast
Revised / previous
Year earlier period
Revised / year earlier
Sales
Operating Profit
Recurring Profit
Net Income
88,000
88,000
0.0%
80,536
9.3%
5,800
5,800
0.0%
4,652
24.7%
5,200
5,600
-7.1%
4,171
24.7%
2,600
3,200
-18.8%
1,953
33.1%
Source: Company data, SR Inc. Research; figures may differ from company materials due to differences in rounding methods.
SATO maintained full-year sales and operating profit forecasts and appeared confident about meeting
these and other targets.
Q1 FY03/13 Results (announced on July 27, 2012)
Consolidated sales were 21.2 billion yen (+8.3% YoY): Hardware sales at 8.4 billion yen (+14.7% YoY)
and Supplies sales at 12.8 billion yen (+4.6% YoY).
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Operating profit was 1.1 billion yen (+18.1% YoY), recurring profit was 714 million yen (-10.4% YoY), and
net income was 224 million yen (-52.0% YoY). Lower recurring profit YoY was due to the weak euro, while
net income decline YoY was due to the reversal of deferred tax assets.
In Japan, sales were 15.8 billion yen (+6.5% YoY), and operating profit was 898 million yen (+6.8% YoY).
SATO’s market-specific sales approach was received well, resulting in an increase of inquiries for
large-scale transactions. Specifically, SATO was contracted to provide mobile printers to a public-sector
client (introduction schedule: FY03/14-FY03/16). Also, the company won an order for auto labelers used
to help traceability of agricultural crops (introduction schedule: Q2 FY03/13). Furthermore, the company
won a business for providing an apparel company with radio frequency identification devices (RFIDs) for
inventory controls (introduction schedule: from September 2012) while gaining a business for providing
RFIDs for cart rack management at a distribution center of a large supermarket chain (introduction
schedule: from Q3 FY03/13). Shared Research thinks there is significant potential for the RFID application
for apparel inventory controls. In fact, such RFID application could spread throughout the apparel
industry due to such benefits as centralized inventory controls with greater accuracy and efficiency. The
company commented should such RFID application spread in the apparel industry, it would target at least
a 50% share of RFIDs used in the industry.
Certain products in the Supplies segment seemed to suffer lower gross profit margins in Japan. According
to the company, since the 2011 disaster, companies have been increasingly purchasing supplies from at
least two suppliers from a risk management standpoint. Such a purchasing scheme has forced the
company to retain customers through discounts, leading into lower GPMs for Supplies products. On the
other hand, SATO appeared to have acquired new customers thanks to companies adopting the
purchasing scheme. In June 2012, GPMs for Supplies products recovered to the level seen in April, and
the company accordingly saw the GPM deterioration as a temporary situation.
In the U.S., sales were 1.8 billion yen (+20.0% YoY; +22.0% excluding exchange rate effects), and
operating profit was 95 million yen (5.9 times higher YoY). ACHERNAR S.A. (based in Argentina), which
SATO acquired in March 2012, contributed to the strong results.
In Europe, sales were 1.3 billion yen (-18.2% YoY; -8.1% excluding exchange rate effects), and operating
loss was 48 million yen (vs. 69 million yen operating loss in Q1 FY03/12). Sales declined over the previous
year, mainly attributable to weak economies attributable to debt crises, while profitability saw a slight
improvement thanks to the transfer of production to Poland where manufacturing costs are lower. Sales in
Spain dropped 34.4% YoY. SATO intends to penetrate the European market through its label offerings.
In Asia and Oceania, SATO put Chinese operations under the direct control of its headquarters in Japan.
In addition, SATO was accelerating regional market penetration in cooperation with Taiwan-based Argox
Information Co., Ltd. (bought in January 2012). Sales in this region were 2.3 billion yen (+40.3% YoY;
+43.9% excluding exchange rate effects), and operating profit was 152 million yen (+65.1% YoY). Argox
sales and profit were higher YoY. SATO plans to expand printer sales in this region through Argox’s sales
channels.
The Supplies segment returned to profitability overseas, posting an operating profit of 65 million yen (vs.
roughly 70 million yen operating loss in Q1 FY03/12). The improved profitability was driven by
performance in South America (contributions from ACHERNAR) and a sales rebound after a decline due to
the floods in Thailand. To sum up, all regions saw sales and profits improve.
Due to the weak euro and the reversal of deferred tax assets, SATO lowered its forecasts for 1H recurring
profit and net income (full-year forecasts were maintained). Exchange rate assumptions were changed
from 104 yen to 100 yen to the euro (the assumption of 78 yen to the dollar was maintained). The weak
euro in Q1 was somehow unexpected. From Q2, SATO expects to see large business negotiations start
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rolling and, accordingly, remains confident about meeting its full-year forecasts for all-time-high profits.
Revised 1H FY03/13 Forecast
(Million Yen)
Revised forecast
Previous forecast
Revised / previous
Year earlier period
Revised / year earlier
Sales
Operating Profit
Recurring Profit
Net Income
43,000
43,000
0.0%
39,279
9.5%
2,400
2,400
0.0%
1,864
28.8%
2,000
2,300
1290.0%
1,290
55.0%
1,000
1,300
-23.1%
697
43.5%
Source: Company data, SR Inc. Research; figures may differ from company materials due to differences in rounding methods.
FY03/12 Results (announced on April 27, 2012)
Consolidated sales came in at 80.5 billion yen (+2.8% YoY), and operating profit grew to 4.6 billion yen
(+10.1% YoY). Both were approximately in line with expectations (sales were 0.7% above forecast while
operating profit was 3.1% below). The segment breakdown was as follows: Hardware sales rose to 31.3
billion yen (+6.2% YoY) and Supplies sales increased to 49.2 billion yen (+0.7% YoY). By region,
domestic sales came in at 62.0 billion yen (+3.7% YoY), and operating profit grew to 4.3 billion yen
(+11.6% YoY). Overseas sales were down slightly at 18.6 billion yen (-0.1% YoY), but operating profit
climbed to 390 million yen (+19.9% YoY). If currency exchange effects are excluded, overseas sales
actually grew 4.6% YoY.
Looking at Q4 FY03/12 (i.e., January-March 2012) alone, sales were 20.7 billion yen (+6.7% YoY), and
operating profit came in at a strong 1.3 billion yen (+33.3% YoY). The retail and (automobile) factory
automation sectors drove sales, while mechatronics products also performed well. The company acquired
Argox Information Co., Ltd. (based in Taiwan) and ACHERNAR S.A. (based in Argentina) in Q4 and they
contributed to Q4 results. Specifically, Argox and ACHERNAR collectively contributed approximately 600
million yen to Q4 group sales, but due to their goodwill write-offs they did not make contributions to
FY03/12 group operating profit. SATO had tried to return to profitability in Europe but fell short of its goal,
with an operating loss of 80 million yen for the region—in part because of the after-effects of structural
reforms and increased allowances for bad loans (a result of anxiety over the economic slowdown in
Europe). However, Q4 was nonetheless a strong quarter for the company as a whole.
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Income statement
Income Statement
(million yen)
Sales
Hardware
Supplies
FY03/10
Cons.
74,917
28,363
46,553
FY03/11
Cons.
78,368
29,460
48,908
FY03/12
Cons.
80,536
31,300
49,236
FY03/13
Cons.
87,256
34,741
52,515
FY03/14
Cons.
96,773
-
FY03/15
Est.
100,000
YoY
Hardware
Supplies
-4.2%
-9.5%
-0.6%
4.6%
3.9%
5.1%
2.8%
6.2%
0.7%
8.3%
11.0%
6.7%
10.9%
-
3.3%
CoGS
43,637
45,350
46,319
50,845
55,593
31,279
-3.5%
41.8%
33,018
5.6%
42.1%
34,217
3.6%
42.5%
36,410
6.4%
41.7%
41,180
13.1%
42.6%
28,705
38.3%
28,791
36.7%
29,564
36.7%
30,958
35.5%
34,421
-
2,574
252.6%
3.4%
4,226
64.2%
5.4%
4,652
10.1%
5.8%
5,452
17.2%
6.2%
6,758
24.0%
7.0%
214
553
225
755
557
1,039
311
334
679
353
2,235
527.8%
3.0%
3,696
65.4%
4.7%
4,171
12.9%
5.2%
5,429
30.2%
6.2%
7,084
30.5%
7.3%
143
349
1,246
61.4%
-
42
2,986
247
32.8%
1
93
149
2,160
52.5%
1
6
454
2,248
45.1%
6
51
126
2,704
38.6%
8
Net Income
781
503
1,953
2,726
YoY
-61.9%
-35.6%
288.3%
39.6%
Net Margin
1.0%
0.6%
2.4%
3.1%
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
4,295
57.6%
4.4%
Gross Profit
YoY
GPM
SG&A
SG&A / Sales
Operating Profit
YoY
OPM
Non-Operating Income
Non-Operating Expenses
Recurring Profit
YoY
RPM
Extraordinary Gains
Extraordinary Losses
Tax Charges
Implied Tax Rate
Minority Interests
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8,000
18.4%
8.0%
7,900
11.5%
7.9%
5,000
16.4%
5.0%
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SATO Holdings Corp. (6287)
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Other information
History
Post-Founding Period (Post-WWII Reconstruction Era)
The company was founded in 1940 to manufacture and sell machinery for processing bamboo. In 1962,
the company founder, Yo Sato, invented the world’s first handheld labeler, which became a global
bestseller. In 1964, the company began in-house manufacturing of labels (for use in handheld labelers),
moving beyond the machine manufacturer model and building the foundations of its supplies business.
Growth Period (Spread of Barcodes)
With the emergence of point-of-sale (POS) systems in the 1970s, SATO developed a string of new hand
labeler models that were compatible with optical character recognition (OCR) and barcodes. In 1981, it
emerged as the leading manufacturer of in-store marking solutions when it developed the world’s first
thermal transfer printer for JAN/UPC/EAN POS systems. In subsequent years, RFID, which communicates
and reads information using radio waves, began attracting attention and achieving rapid progress as an
advanced authentication method. In response, the company leveraged the auto-ID expertise it had
gained over many years of producing barcodes and 2D codes to develop and market Japan’s first RFID
printer in 2003.
The company’s stock was listed on the Japan Securities Dealers Association’s OTC market in 1990, on
TSE’s Second section in 1994, and TSE’s First section in 1997.
Expansion Period (Globalization)
In mid-1996, the company set its sights on expanding overseas and acquired 100% of shares in
U.K.-based Nor Systems (now SATO UK). In the first half of 2000, DCS & Labeling became the company’s
core business. Then in 2005, the company purchased 100% of shares in French company L’étiquetage
Rationnel (now SATO France). In the same year, the company began operating a factory in Vietnam. In
2006, the company acquired the barcode printer businesses of Checkpoint Systems, Inc. (and established
five new companies overseas). Then in 2007, SATO America acquired TrackIT Systems’ businesses.
Transition Period
Restructuring in Europe
In 2009-2010, SATO began structural reforms aimed at revamping European operations (mainly in
Germany, Spain, the U.K., and Belgium). In 2011, the company transferred production to a new factory in
Poland (lower manufacturing costs) gradually from Germany and eventually liquidated its label
manufacturing subsidiary in Germany, thus completing a series of structural reforms. Through these
reforms, the company started to see the possibility of returning to profitability in Europe.
Emerging Countries
In May 2010, SATO established a sales base in Argentina as a step to make inroads into South American
markets. In September 2011, SATO made a Brazilian distributor a subsidiary. In January 2012, the
company acquired all shares in Argox, a Taiwan-based company engaged in the manufacture and sale of
printers and boasting strengths in emerging markets. To enhance its label business, SATO acquired
ACHERNAR in Argentina in March 2012.
Japan
In April 2010, the company launched separate business units for each market, improving performance
through market- and industry-specific sales activities.
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News and topics
November 2013
On November 27, 2013, the company announced that it will strengthen its ability to make proposals in
the healthcare market by establishing SATO Vicinity Pty Ltd in Australia.
The company announced that it will acquire the business related to RFID (Radio Frequency Identification)
technology from Magellan Technology Pty Ltd, NSW, Australia, a pioneer of RFID technology, for about
600 million yen and start operating the business at SATO Vicinity Pty Ltd, a 100% subsidiary, in NSW,
Australia, in December 2013. The company said that Magellan has a lot of business experience mainly in
the healthcare market for its unique PJM (Phase Jitter Modulation) radio frequency data transmission
technology, which realizes the high-speed and high-precision reading of IC tags. Some 80% of orthopedic
implant kits in Australia today are tagged with Magellan’s PJM RFID Tags and used for consignment
management, it said. With the acquisition of the business, the company will be the only one-stop
company that can provide equipment with proprietary end-to-end RFID technologies incorporating PJM
RFID Chips and Tags, RFID Printers, and RFID Readers, and offer efficient and accurate traceability
systems and maintenance in the healthcare sector, the company said.
May 2013
On May 23, 2013, the company announced its strategic minority investment in Nexgen Packaging, LLC.
The company said it acquires a stake in Nexgen Packaging as part of a business partnership with the
global provider of packaging materials for the apparel industry.
Nexgen Packaging has operations in the U.S. and Hong Kong, as well as China, India, Vietnam and other
apparel-producing nations. The company designs, produces, and sells product labels, price tags, RFID
(radio frequency identification) tags, and product quality tags to both apparel manufacturers and
retailers.
SATO is seeking to tap Nexgen Packaging’s global network and technology and expand the two companies’
RFID operations. The market for apparel packaging is expected to expand globally as the retail and
apparel industries increasingly outsource their operations. The partnership may benefit the company’s
earnings starting in FY03/15.
April 2013
On April 26, 2013, the company announced FY03/13 results and an increase in dividend payment.
February 2013
On February 5, 2013, the company announced Q3 FY03/13 results.
October 2012
On October 26, 2012, the company raised its year-end dividend forecast.
SATO has decided to discontinue its shareholder benefit program. The company still sees shareholder
return as an important management issue and, accordingly, decided to raise its year-end dividend
forecast by one yen to 19 yen per share, for an annual per-share dividend forecast of 36 yen.
On October 11, 2012, the company announced the establishment of new joint venture PT. SATO
NAGATOMI in Indonesia.
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According to the announcement, the company reached an agreement with Indonesia-based PT.
Indonagatomi regarding the establishment of the new joint venture. PT. Indonagatomi’s business (selling
barcode printers and other auto-identification systems) had been transferred to the joint venture, which
began operations in October 2012.
PT. Indonagatomi has sold barcode printers, hand labelers, and other SATO products through its five sales
branches located in the heart of Jakarta. Through the joint venture, the company intends to expand its
business in Indonesia.
PT. SATO NAGATOMI will leverage the synergy of SATO’s auto-ID technology and PT. Indonagatomi’s sales
network to provide solutions based on label printers, scanners, and consumables to manufacturers,
retailers, distributors, and healthcare businesses in the country. SATO plans to own 70% of the joint
venture.
September 2012
On September 25, 2012, the company announced the launch of a cloud service targeting retail
vendors.
The company announced that subsidiary SATO CORPORATION started “Retail COM-PASS,” a data
standardization service targeting retail vendors, from September 2012. The service was jointly developed
with Intec Co., Ltd. and Intercom Inc.
Retail stores tend to use various messaging methods, data settings, and data items, although they are
compliant with the distribution business message standards (BMS). “Retail COM-PASS” is a cloud service
that helps standardize the data format, etc.
“Retail COM-PASS” helps retail vendors introduce and operate distribution BMS with lower costs and
operational burden. These benefits are possible because the service uses common software interface, can
be used for multiple retailers and wholesalers, and offers one-stop services covering everything from
order control and price tag and label creation to shipping inspection.
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SATO Holdings Corp. (6287)
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Major shareholders
Top Shareholders
Sato Yo International Scholarship Foundation
Japan Trustee Services Bank, Ltd. (Trust account)
Northern Trust Co. (AVFC) Re 15PCT Treaty Account
SATO Employees' Stockholding
SATO HOLDINGS CORPORATION
Arena Co.
Mieko Yokoi
Shizue Sato
The Master Trust Bank of Japan, Ltd. (Trust account)
Mari Iwabuchi
Amount
Held
11.33%
7.52%
4.76%
4.26%
4.18%
3.75%
2.70%
2.68%
2.67%
2.55%
Source: Company data, SR Inc. Research
As of March 31, 2014
Top management/governance
The company’s top management team has a number of executives who have previously held important
positions outside Japan.
Kazuo Matsuyama first worked at SATO in 1987-1991. He became a director and vice president in charge
of the international sales department in 2009. After becoming an executive vice president in December
2010, he ascended to his current role of president and CEO in October 2011. While Mr. Matsuyama had
joined the company early in his career, he later left to earn an MBA at Northwestern University (where he
majored in marketing, finance, and accounting). After graduating, he worked in marketing at P&G and
Ciba Vision (a unit of Novartis) before returning to SATO in 2001 and growing the company’s overseas
business.
In corporate governance, in 2003 the company introduced an executive officer system that works to
separate management decision-making and oversight functions of directors from the business functions
of executive officers. This was intended to speed up internal decision making.
As of June 2014, the company’s board of directors is composed of 11 individuals, five of whom are
external directors who advise from an independent perspective, thereby working to strengthen
management oversight functions. Furthermore, to ensure fairness in deliberations, there is no hierarchy
within the board of directors, and the chair (i.e., moderator) rotates. With the board’s rotating
chairmanship, the company’s representative director does not necessarily manage board meetings. In this
way, the company has given consideration to forming a board with effective corporate governance. Also
of note, the company has three executive officers in their 30s.
As of June 2014, six executive directors and five non-executive directors sit on the company’s board.
President Matsuyama, Vice President Keisuke Yamada, and CFO Akihiro Kushida are concurrently
executive officers of the company.
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Other
Under the company’s corporate motto of “Ceaseless Creativity,” all employees worldwide are conscious of
the importance of both cooperation and creativity, as they work together to achieve the company’s goals.
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SATO Holdings Corp. (6287)
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Company profile
Company Name
SATO HOLDINGS CORPORATION
Phone
+81-3-5745-3400
Established
May 16, 1951
Website
http://www.satoworldwide.com/home.aspx
IR Contact
IR Mail
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Head Office
Knowledge Plaza
1-7-1 Shimomeguro, Meguro-ku
Tokyo, Japan 153-0064
Listed On
Tokyo Stock Exchange 1st Section
Exchange Listing
August 9, 1994
Fiscal Year-End
March
IR Web
http://www.satoworldwide.com/investor-relations.aspx
IR Phone
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