Integrating the virtual and the physical

The Last Inch to IoT

General Outline

Financial Result (Kessan Report) for 3rd Quarter of FY2017

The SATO Group has launched a new five-year Medium-term Management Plan (FY2017–FY2021) geared toward the business vision of becoming the leader and most trusted company in the auto-identification solutions industry worldwide, exceeding customer expectations in an ever-changing world, under the slogan of pursuing “Ceaseless Creativity for a Sustainable World.” The entire Group is working together to implement this plan that aims to realize sustainable growth and profit at the group level by increasing earning power in auto-identification solutions and achieving operating profitability in the new materials business by FY 2019 (the fiscal ending March 31, 2020).

With various efforts made in the first nine months, our core auto-identification solutions business, for which we aim to achieve record profits this fiscal year, posted sales and profits better than expected and previous year’s levels, making a strong showing in Japan particularly. For our materials business, centering mainly on DataLase Ltd., R&D activities have progressed largely as planned.

As a result, the SATO Group recorded an increase in net sales, up 8.0% from the same period of the previous fiscal year to ¥85,016 million, and an increase in operating profit, up 9.0% to ¥4,675 million. Ordinary profit increased by 1.6% to ¥4,381 million and profit attributable to owners of parent increased by 30.8% to ¥3,565 million.

By segment, the SATO Group reported the following:

The Group has changed its reporting segments from the former four geographical segments (Japan, Americas, Europe, and Asia and Oceania) to three business segments comprising Auto-Identification Solutions Business (Japan), Auto-Identification Solutions Business (Overseas), and Materials Business, effective from this fiscal year. This is in line with our full-scale move to enter the new materials business this year and develop it as another core business alongside our existing auto-identification solutions business to create new customer value, based on the aforementioned new Medium-term Management Plan. Accordingly, all year-on-year change figures for this quarter are computed by comparing against prior-year values that have been retroactively adjusted to reflect the new segment classifications.

<Auto-Identification Solutions Business (Japan)>

In Japan, the auto-identification solutions business generated a year-on-year increase in revenues across all markets on account of robust demand primarily from the manufacturing and e-commerce sectors. Cumulative net sales at the end of the first nine months reached a record high, leading both sales and profits to finish better than expected and previous year’s levels.
Given the manpower shortages and aging workforce trends in Japan, many companies face the common challenge of having to optimize their business operations through increasing labor productivity. This creates rising demand for automation and labor saving, bringing about a marked increase in business for solutions using RFID and collaborative robots. At the same time, we are also seeing rising needs for accuracy assurance and traceability in manufacturing, healthcare, and food markets for example.
At SATO, we are committed to shifting our business model to become a solutions provider focused on increasing customer value, and have achieved a large increase in sales volume for our strategic CLNX printer series, as well as an increase in business for total solutions combining matching maintenance services, supply products, and software, resulting in higher profitability. Going forward, we aim to further strengthen our ability to propose solutions for increasingly sophisticated challenges at different customer sites while entering into collaborations with partners so as to grow our business stably.
Under these circumstances, net sales increased 6.4% to ¥52,971 million, and operating profit rose 36.0% to ¥4,059 million, compared to the same period of the previous fiscal year.

<Auto-Identification Solutions Business (Overseas)>

Overseas, the auto-identification solutions business posted higher sales and profits for the first nine months of the fiscal year amid moderate recovery in the global economy as a whole. There was, however, an overall decline in profits for our companies specializing in primary labels as the improved revenues/earnings at Brazil’s Prakolar Rotulos Auto-Advesivos S.A. from increased sales of high value-add labels was unable to offset the large decrease in operating profit at Russia’s Okil-Holding, JSC caused by a drop in its gross profit margin from foreign currency effects and increased up-front investments for improving productivity and creating new business opportunities. Our base business at other overseas companies, on the other hand, is generally going strong, with progress being made in selling solutions to improve customers’ field operations based on our strategic CLNX printer series. Region wise, although Europe suffered reduced profitability due to increased costs (resulting from foreign currency effects and new hiring for boosting sales capabilities) and a weaker product mix in large-scale deals, the Americas and Asia and Oceania regions delivered a strong performance to produce an overall increase in both sales and profits.
Under these circumstances, net sales rose 10.1% to ¥31,829 million (an increase of 2.6%, however, excluding foreign currency effects) and operating profit rose 27.1% to ¥1,763 million, compared to the same period of the previous fiscal year.

<Materials Business>

Starting this fiscal year, we will make a full-scale entry into our new materials business with Inline Digital Printing (IDP), a technology invented and patented by the U.K.’s DataLase Ltd. which we fully acquired in January 2017. Besides booking new sales revenue from existing DataLase customers in this first nine months, we also recorded R&D costs as up-front investment on the IDP technology and amortization of goodwill resulting from such acquisition, largely as planned.
For DataLase, we are continuing discussions with multiple partners/customers for joint technology developments and full-scale IDP rollout, and have started working together with Palo Alto Research Center (PARC; Xerox’s wholly owned subsidiary located in California, U.S.) in November 2017 to develop a multi-color platform for the IDP technology. We have also started specific initiatives — such as sharing/exchanging skills between DataLase and other group companies, and uncovering new customer needs — aimed at creating synergies with our existing businesses. Our target for the materials business is to break even in FY 2019 (the fiscal ending March 31, 2020) and start contributing to consolidated profits in the following year. Under these circumstances, net sales rose 178.9% to ¥215 million (free from foreign currency effects), and an operating loss of ¥1,083 million was incurred, compared with an operating loss of ¥158 million for the same period of the previous fiscal year.