General Outline

Financial Result (Kessan Report) for 2nd Quarter of FY2018

The SATO Group has formulated a new three-year Medium-term Management Plan (FY2018-FY2020) geared toward the business vision of becoming the leader and most trusted company in the auto-ID solutions industry worldwide, exceeding customer expectations in an ever-changing world. This plan aims to concentrate more resources on the auto-ID solutions business than ever before to realize stronger sustainable growth and stable profits. The Group will particularly focus on the greater potential overseas to develop its auto-ID solutions business globally with the knowledge and knowhow gained from its business in Japan.

Continued efforts in executing the necessary business strategies have paid off in the first six months to produce increased revenues and profits for our auto-ID solutions business, which maintained strong performance both in Japan and overseas. Meanwhile, for our IDP business, R&D costs were recorded in line with plans to invest strategically in the technology as one of our future business pillars.

As a result, the SATO Group recorded an increase in net sales, up 3.0% from the same period of the previous fiscal year to ¥56,489 million, and an increase in operating income, up 30.8% to ¥3,343 million. Ordinary income increased by 34.7% to ¥3,190 million, and net income attributable to owners of parent decreased by 20.4% to ¥1,919 million. In the same period of the previous fiscal year, the Group had recorded extraordinary income of ¥2,726 million from the sale of non-current assets.

By segment, the SATO Group reported the following.

The Group has renamed its “Materials business” reporting segment “IDP business” from the fiscal year under review as the business would now focus on the development and commercialization of the IDP technology in anticipation of its strong future demand, based on the aforementioned new Medium-term Management Plan. The definition of the segment remains unchanged.

<Auto-ID solutions business (Japan)>

The external environment and efforts of our sales frontlines at accurately addressing the pain points of customers have worked in favor of our auto-ID solutions business in Japan. The business was able to post growth in mechatronics sales (primarily printers) with a year-on-year increase in consumables sales, even as natural disasters around the country led to a transient slowdown in its existing growth trend. Verticals driving overall sales growth include the manufacturing sector, where there is strong demand for capital investments in automation and operational visibility, and the retail sector, where our solutions targeted at the growing e-commerce landscape and other surrounding changes have proved successful. Our gross profit margin also improved from increased awareness to “sell the solution” and continued cost reductions.

While labor shortages are creating prominent needs for increasing productivity, tracking work, and automating worksites across all trades, there are also rising needs to comply with new labeling standards in the food and healthcare sectors. Going forward, we aim to strengthen our ability to propose solutions for the increasingly sophisticated challenges of our customers to grow this business stably.

Under these circumstances, net sales increased 1.8% to ¥34,661 million, and operating income increased 28.2% to ¥2,831 million, compared with the same period of the previous fiscal year.

<Auto-ID solutions business (Overseas)>

Overseas, the auto-ID solutions business maintained an overall recovery trend to post higher sales and profits. For our companies specializing in primary labels, Okil-Holding in Russia was able to grow revenue and improve profitability on the back of positive foreign currency effects to contribute toward an overall increase in both sales and profits, even as companies in South America generated lower sales and profits under the significant impacts of economic stagnation and local currency depreciation.

Other overseas companies engaging in our base business made general progress in switching to “selling the solution, not the product” to improve customers’ field operations with solutions involving our strategic CLNX printer series. Sales and profits declined in the Americas, however, due to the absence of large-scale deals that were recorded for North America in the same period last fiscal year and the economic slump affecting South America. Meanwhile in Europe, Asia and Oceania regions, sales and profits increased on account of steady top-line growth.

Under these circumstances, net sales increased 4.8% to ¥21,597 million (increase of 8.6%, excluding foreign currency effects) and operating income increased 11.0% to ¥1,220 million, compared with the same period of the previous fiscal year.

<IDP business>

For the IDP business centering on the Inline Digital Printing (IDP) technology that we own after fully acquiring UK-based DataLase in January 2017, an increase in sales was recorded for the already commercialized base business.

As the IDP technology is still in the development phase, R&D costs were also recorded in the form of up-front investment as initially planned. This technology is key to the success of the IDP business for which strong future demand is anticipated, and we are targeting to achieve commercialization and operating profitability in FY 2020.

Under these circumstances, net sales increased 43.8% to ¥230 million (increase of 41.0%, excluding foreign currency effects), and an operating loss of ¥676 million was incurred, compared with that of ¥745 million for the same period of the previous fiscal year.