Integrating the virtual and the physical

The Last Inch to IoT

Top Message

Dear Shareholders,

For the fiscal year ending March 2017, SATO Group recorded a rise in revenue but a fall in profits compared to the previous year, finishing with ¥106.3 billion in net sales (up 0.8%), ¥6.1 billion in operating profit (down 5.4%), and ¥3.2 billion in profit attributable to owners of parent (down 12.7%). Our consolidated financial performance for the year was largely impacted by the significant reduction in operating profit overseas (down 37.4%) — a result of declining market conditions in emerging countries and currency fluctuations — which outweighed strong operating gains made in Japan (up 13.8%) from profitability improvements. Moving into fiscal 2017, we aim to implement measures to reverse operating losses with speed and get our business back on track through group-wide efforts.

Kazuo Matsuyama,
President and CEO 


Ryutaro Kotaki,
Executive Vice President and COO

■ Summing up the past year

We will first start by sharing the performance of the four high-priority focus areas we set forth for the past FY 2016.

Japan: Our transitioning from a products vendor to a solutions provider is seeing results show. We have engaged in a growing number of business deals to provide solutions for bettering field productivity, as logistics and manufacturing industries in particular increasingly seek labor-saving investments amid widespread manpower shortages. This resulted in year-on-year increases for both hardware and consumables sales, as well as ongoing improvements in profitability for the Japan business.

RFID: We have established the necessary infrastructure to manufacture and sell SATO-original RFID tags with made-in-Japan quality that would set us apart from our competitors. With this, we can further strengthen our offerings of high value-add solutions for increasing work productivity to address the pressing issues of labor shortage and workstyle innovations faced by many businesses.

North America: While SATO America kept our base business going strong to achieve higher sales and profits through expanding sales of our strategic printer models and winning large-lot orders, SATO Global Solutions, on the other hand, continued to incur costs for the retail digital solution it has been developing as part of our new software-based business. This caused our operating profit for the region to dip slightly on a year-on-year basis.

Argox: Despite efforts last year to strengthen the business structure and expand sales, earnings continued to drop due to the deteriorating market environment and delays in the launch of new products.

In addition, Argentina’s Achernar and Russia’s Okil-Holding, the two primary label companies driving the profit performance of our overseas business, both reported a slump in operating income last year. The former was late in closing deals with specific key customers owing to economic slowdown, and the latter was affected by the recording of inventory disposal and other one-time losses. Although overall operating profit for our overseas business decreased compared to the prior year under such circumstances, our base business has been growing steadily to deliver an increase in local-currency revenues throughout all regions.

■ Our forecast for the new fiscal 2017

We are projecting to achieve ¥113.5 billion in net sales (up 6.8%), ¥6 billion in operating profit (down 1.7%), and ¥3.6 billion in profit attributable to owners of parent (up 11.8%) for the new fiscal year ending March 2018.

These figures are largely based on the performance of our base business in Auto-ID solutions, for which we are expecting highest ever sales and operating profit (of ¥113 billion and ¥7.7 billion respectively) this year on account of its steady growth in both Japan and overseas.

Besides Auto-ID solutions, we will enter our New Materials business full-scale this year with Inline Digital Printing (IDP), a technology invented and patented by DataLase of UK that we fully acquired in January 2017, and ECONANO®, SATO’s very own CO2-reducing technology. For FY 2017, we estimate losses of ¥1.7 billion corresponding to DataLase’s R&D spending and goodwill amortization expenses, and have reflected that accordingly in our forecast for consolidated operating profit mentioned earlier.

Being the one and only technology in the world that uses a special pigment coating to enable heat-sensitive imaging on any substrate, IDP goes well with our core business which is dedicated to bridging the last inch of the last mile challenges by tagging objects with identifier information. This technology is a strategically important investment to us, as it holds the potential to deliver high value-add together with ECONANO® in a way no other company can. We will work to bring this investment to fruition and grow the New Materials business into a new core business alongside Auto-ID solutions, with targets for it to break even in FY 2019 and start contributing to consolidated profits in FY 2020.

As for the North America business which we have identified as a high-priority focus area since last year, we are expecting SATO Global Solutions to complete the development of the cloud-based basic software for its digital solution in the first half this year for official roll-out in the second half. With regards to Argox, we aim to develop new growth markets, fulfill large-lot orders, and launch new products while switching from selling just printers to selling package solutions so as to enhance business profitability.

■ What “SATO Group x IDP” means strategically: a function of multiplication, not addition

Through operating the IDP business with our legacy business, we seek to pursue the following synergic effects to further reinforce our positioning in bridging the last inch of the last mile connecting people, things, and information. At the same time, we also seek to create new value of building emotional connections with the individual consumer, on top of the value propositions (i.e. ensuring accuracy and sustainability, saving labor and resources, and offering reassurance) we are already delivering to the society under our main business.

Synergy 1: Further increase customer value of our Auto-ID solutions. Strengthen our overall Auto-ID solutions capabilities, meeting the needs of customers that demand high-speed/volume printing in production lines or printing of RFID tags, while enhancing our hands-on approach of going on-site to find solutions for customer problems.

Synergy 2: Create sustainable solutions for personalized packaging. IDP can print variable data or change package design at the final stages of production, which allows high-speed and low-cost production of personalized consumer packaging. By combining IDP with ECONANO® and our label/package design propositions, we will commercialize a completely new materials business and stage a Materials Revolution. We believe that, in our IoT world where everything and everybody is connected, this new business will help our customers achieve deeper engagement with their customers (the consumer), and consumers build emotional connections with the product or service.

■ Dividend information

The Group’s proposed dividend for FY 2016 is ¥60 (interim dividend ¥30, year-end dividend ¥30), an increase of ¥5 per share compared to the previous fiscal year. We will strive to improve our capital productivity and shareholder value so as to continue to provide increased dividends in a steady and sustainable manner. On behalf of employees and the management, we ask for your continued support in our business going forward.

May 2017