Sanrio | 8136 |

Transcription

Sanrio | 8136 |

R
LAST UPDATE【2016/2/10】
Sanrio | 8136 |
Research Report by Shared Research Inc.
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.
www.sharedresearch.jp
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Shared Research Report
INDEX
Key financial data ----------------------------------------------------------------------------------------------------- 3
Recent updates --------------------------------------------------------------------------------------------------------- 4
Highlights ----------------------------------------------------------------------------------------------------------------------- 4
Trends and outlook --------------------------------------------------------------------------------------------------- 5
Quarterly trends and results----------------------------------------------------------------------------------------------- 5
Full-year outlook ------------------------------------------------------------------------------------------------------------ 12
Long-term outlook --------------------------------------------------------------------------------------------------------- 17
Business ----------------------------------------------------------------------------------------------------------------- 19
Business description ------------------------------------------------------------------------------------------------------- 19
Businesses and segments ------------------------------------------------------------------------------------------------ 21
Main products --------------------------------------------------------------------------------------------------------------- 30
Profitability snapshot, financial ratios--------------------------------------------------------------------------------- 34
Strengths and weaknesses ----------------------------------------------------------------------------------------------- 35
Market and value chain --------------------------------------------------------------------------------------------------- 36
Strategy ------------------------------------------------------------------------------------------------------------------------ 42
Historical financial statements ----------------------------------------------------------------------------------- 45
Income statement ---------------------------------------------------------------------------------------------------------- 73
Balance sheet ---------------------------------------------------------------------------------------------------------------- 75
Statement of cash flows -------------------------------------------------------------------------------------------------- 78
Other information---------------------------------------------------------------------------------------------------- 79
History -------------------------------------------------------------------------------------------------------------------------- 79
Major shareholders --------------------------------------------------------------------------------------------------------- 80
News and topics ------------------------------------------------------------------------------------------------------------ 80
Top management----------------------------------------------------------------------------------------------------------- 81
Employees -------------------------------------------------------------------------------------------------------------------- 82
Company profile ------------------------------------------------------------------------------------------------------------ 83
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Sanrio ＞ Key financial data
Key financial data
Income Statement
(JPYmn)
Total Sales
YoY
Gross Profit
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
96,670
93,916
69,767
73,875
76,624
74,954
74,233
77,009
74,562
73,400
-2.3%
-2.8%
-25.7%
5.9%
3.7%
-2.2%
-1.0%
3.7%
-3.2%
-1.6%
38,673
39,292
37,663
40,734
46,168
48,116
49,454
53,359
50,562
FY03/16
YoY
-4.2%
1.6%
-4.1%
8.2%
13.3%
4.2%
2.8%
7.9%
-5.2%
GPM
40.0%
41.8%
54.0%
55.1%
60.3%
64.2%
66.6%
69.3%
67.8%
6,222
6,614
6,575
9,289
14,996
18,906
20,198
21,019
17,468
14,000
-14.9%
6.3%
-0.6%
41.3%
61.4%
26.1%
6.8%
4.1%
-16.9%
-19.9%
Operating Profit
YoY
OPM
6.4%
7.0%
9.4%
12.6%
19.6%
25.2%
27.2%
27.3%
23.4%
19.1%
5,575
5,263
5,954
8,249
13,387
18,368
19,646
20,180
18,525
14,300
YoY
-13.5%
-5.6%
13.1%
38.5%
62.3%
37.2%
7.0%
2.7%
-8.2%
-22.8%
RPM
5.8%
5.6%
8.5%
11.2%
17.5%
24.5%
26.5%
26.2%
24.8%
19.5%
4,150
1,114
-1,495
4,373
9,380
14,378
12,536
12,802
12,804
10,000
-45.5%
-73.2%
-
-
114.5%
53.3%
-12.8%
2.1%
0.0%
-21.9%
4.3%
1.2%
-2.1%
5.9%
12.2%
19.2%
16.9%
16.6%
17.2%
13.6%
Recurring Profit
Net Income
YoY
Net Margin
Per Share Data
88,148
88,148
88,148
88,148
89,065
89,065
89,065
89,065
89,065
EPS
Number of Shares
42.58
7.24
-22.74
44.72
104.76
162.56
142.09
145.24
146.53
116.6
EPS (Fully Diluted)
42.28
7.24
-
42.63
96.58
160.56
142.08
145.20 80.0
Dividend Per Share
Book Value Per Share
10
10
10
10
20
40
45
80
80
294.62
257.74
187.08
241.62
301.75
418.13
553.33
699.32
757.07
Balance Sheet (JPYmn)
Cash and Equivalents
Total Current Assets
16,797
12,968
13,891
18,562
21,133
25,893
35,627
52,265
54,816
39,540
35,338
30,984
38,710
39,846
44,009
55,672
72,238
74,311
Tangible Fixed Assets, net
23,423
22,718
20,063
20,353
19,161
18,078
17,648
19,022
18,891
Other Fixed Assets
32,970
30,418
27,536
26,131
24,221
22,650
19,989
21,359
23,569
259
456
448
493
338
3,869
4,000
4,865
5,254
96,253
88,971
79,087
85,765
83,662
88,748
97,425
117,585
122,124
Intangible Assets
Total Assets
Accounts Payable
11,614
8,478
6,453
7,732
6,566
4,486
4,481
4,658
4,821
Short-Term Debt
21,127
23,660
19,109
17,636
21,425
17,112
11,852
11,777
10,828
29,373
Total Current Liabilities
38,328
38,250
30,962
32,223
34,755
28,626
24,879
29,288
Long-Term Debt
14,151
9,116
12,734
13,378
10,508
13,544
14,261
14,059
14,261
Total Fixed Liabilities
21,739
17,724
21,278
21,945
19,715
23,043
23,563
26,413
26,481
Total Liabilities
60,067
55,974
52,240
54,168
54,470
51,669
48,443
55,701
55,855
Net Assets
36,182
32,996
26,844
31,594
29,195
37,078
48,982
61,883
66,269
35,279
32,776
31,843
31,014
31,933
30,656
26,113
25,836
25,089
14,438
Interest-Bearing Debt
Cash Flow Statement (JPYmn)
Operating Cash Flow
5,658
3,810
6,898
8,428
13,211
14,820
17,085
17,448
Investment Cash Flow
-349
-2,396
-2,038
-1,559
-2,120
2,005
-485
-8,651
-7,818
-4,795
-3,858
-2,559
-2,483
-8,554
-10,313
-9,651
-5,417
-11,921
Financing Cash Flow
Financial Ratios
ROA
5.8%
5.7%
7.1%
10.0%
15.8%
21.3%
21.1%
18.8%
15.5%
ROE
11.8%
3.2%
-5.0%
15.0%
30.9%
43.5%
29.2%
23.2%
20.1%
Equity Ratio
37.6%
37.1%
33.9%
36.8%
34.9%
41.8%
50.1%
52.4%
54.0%
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
*Reversal of allowance for sales returns is subtracted from gross profit
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Sanrio ＞ Recent updates
Recent updates
Highlights
On February 10, 2016, Sanrio Co., Ltd. announced Q3 earnings results for FY03/16; see the results section for details.
On December 25, 2015, Shared Research updated the report following the company 1H FY03/16 earnings briefing.
For corporate releases and developments more than three months old, please refer to the News and topics
section.
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Sanrio ＞ Trends and outlook
Trends and outlook
Quarterly trends and results
Quarterly Performance (cumulative)
(JPYmn)
Sales
YoY
Gross Profit
YoY
GPM
SG&A Expenses
YoY
SG&A / Sales
Operating Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
Net Margin
Quarterly Performance (three months)
(JPYmn)
Sales
YoY
Gross Profit
YoY
GPM
SG&A Expenses
YoY
SG&A / Sales
Operating Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
Net Margin
Q1
17,994
4.4%
12,034
0.6%
66.9%
7,717
6.0%
FY03/15
Q2
Q3
35,524
55,742
1.7%
24,675
-0.9%
69.5%
16,206
7.1%
-2.7%
38,350
-3.9%
68.8%
24,369
5.1%
Q4
74,562
-3.2%
50,562
-5.2%
67.8%
33,094
2.3%
Q1
17,049
-5.2%
11,534
-4.2%
67.7%
8,064
4.5%
FY03/16
Q2
Q3
35,458
55,092
-0.2%
24,171
-2.0%
68.2%
16,993
4.9%
-1.2%
36,161
-5.7%
5.6%
45.6%
8,469
43.7%
13,980
44.4%
17,468
47.3%
3,469
47.9%
7,177
46.7%
10,422
-7.7%
-13.2%
-16.4%
-16.9%
-19.6%
-15.3%
-25.5%
3.8%
-0.3%
-4.7%
-8.2%
-15.5%
-19.5%
-28.4%
-10.7%
-22.2%
23.8%
9,021
25.1%
14,912
23.4%
18,525
20.3%
3,623
23.8%
2,805
25.4%
6,046
26.8%
10,155
24.8%
12,804
6.5%
3.4%
0.1%
0.0%
0.0%
17.0%
18.2%
FY03/15
Q2
Q3
17,530
20,218
-0.8%
-9.6%
12,641
13,675
-2.2%
-9.0%
72.1%
67.6%
8,489
8,163
8.1%
1.3%
48.4%
40.4%
4,153
5,511
-18.2%
-20.9%
23.7%
27.3%
4,733
5,891
-3.7%
-10.6%
27.0%
29.1%
3,241
4,109
0.8%
-4.3%
18.5%
20.3%
17.2%
16.5%
Q4
18,820
-4.6%
12,212
-9.2%
64.9%
8,724
-4.7%
46.4%
3,488
-18.8%
18.5%
3,612
-20.4%
19.2%
2,661
0.1%
14.1%
Q1
17,049
-5.2%
11,534
-4.2%
67.7%
8,064
4.5%
47.3%
3,469
-19.6%
20.3%
3,623
-15.5%
21.3%
2,806
0.0%
16.5%
15.6%
Q1
17,994
4.4%
12,034
0.6%
66.9%
7,717
6.0%
42.9%
4,316
-7.7%
24.0%
4,288
3.8%
23.8%
2,805
6.5%
15.6%
21.3%
2,806
20.2%
7,262
20.5%
5,402
FY03/16
% of FY
FY Est.
75.1%
73,400
-1.6%
65.6%
25,739
42.9%
4,316
24.0%
4,288
Q4
74.4%
18.9%
10,676
74.7%
19.4%
7,899
15.2%
14.3%
FY03/16
Q2
Q3
18,409
19,634
5.0%
-2.9%
12,637
11,990
0.0%
-12.3%
68.6%
61.1%
8,929
8,746
5.2%
7.1%
48.5%
44.5%
3,708
3,245
-10.7%
-41.1%
20.1%
16.5%
3,639
3,414
-23.1%
-42.0%
19.8%
17.4%
2,596
2,497
-19.9%
-39.2%
14.1%
12.7%
79.0%
14,000
-19.9%
19.1%
14,300
-22.8%
19.5%
10,000
-21.9%
13.6%
Q4
Reversal of allowance for sales returns is subtracted from gross profit
Quarterly (3-month) performance figures show the difference from the preceding quarter.
05/84
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Performance by Segment (cumulative)
(JPYmn)
Sales
YoY
Overseas
FY03/15
FY03/16
ＦY03/16
Q1
Q2
Q3
Q4
Q1
Q2
Q3
17,994
35,524
55,742
74,562
17,049
35,458
55,092
4.4%
1.7%
-2.7%
-3.2%
-5.2%
-0.2%
-1.2%
10,247
20,171
31,187
41,986
9,489
18,196
26,419
3.1%
-0.9%
-5.2%
-7.6%
-7.4%
-9.8%
-15.3%
11,575
23,657
37,328
49,090
10,945
24,574
39,432
YoY
5.2%
4.6%
0.5%
1.4%
-5.4%
3.9%
5.6%
Licensing
2,182
4,785
7,460
10,198
2,323
5,129
8,133
YoY
Domestic
YoY
Product Sales
YoY
Theme Parks
1.7%
9.7%
6.1%
7.3%
6.5%
7.2%
9.0%
4,672
9,491
15,498
21,051
4,822
10,161
16,472
3.1%
1.5%
-1.1%
-1.9%
3.2%
7.1%
6.3%
1,288
3,467
5,085
6,606
1,580
4,176
6,005
YoY
3.1%
0.6%
3.1%
4.0%
22.7%
20.5%
18.1%
Others
3,433
5,914
9,285
11,235
2,220
5,108
8,822
YoY
11.4%
8.4%
-2.5%
1.1%
-35.3%
-13.6%
-5.0%
Operating Profit
YoY
4,316
8,469
13,980
17,468
3,469
7,177
10,422
-7.8%
-13.2%
-16.4%
-16.9%
-19.6%
-15.3%
-25.5%
Overseas
4,519
8,856
13,710
17,560
3,814
7,080
9,677
YoY
-5.3%
-10.8%
-14.3%
-14.5%
-15.6%
-20.1%
-29.4%
-201
-386
270
-91
-344
97
745
-
-
-62.5%
-
-
-
175.9%
Licensing
1,556
3,267
5,208
6,936
1,599
3,510
5,610
YoY
2.9%
8.5%
7.6%
6.2%
2.8%
7.4%
7.7%
425
664
1,234
1,816
401
732
1,349
14.9%
2.0%
-12.5%
-14.6%
-5.6%
10.2%
9.3%
-300
-281
-383
-611
-129
134
-31
YoY
-
-
-
-
-
-
-
Others
343
320
630
520
116
292
592
YoY
24.3%
4.9%
-10.0%
-14.2%
-66.0%
-8.9%
-6.0%
-2,225
-4,357
-6,419
-8,753
-2,332
-4,571
-6,775
Domestic
YoY
Product Sales
YoY
Theme Parks
Eliminations, Company-wide Expenses
Performance by Segment (quarterly; thre
(JPYmn)
Sales
YoY
Overseas
YoY
FY03/15
Q1
Q2
Q3
Q4
Q1
Q2
Q3
17,994
17,530
20,218
18,820
17,049
18,409
19,634
-2.9%
4.4%
-0.8%
-9.6%
-4.6%
-5.2%
5.0%
10,247
9,924
11,016
10,799
9,489
8,707
8,223
3.1%
-4.7%
-12.2%
-13.7%
-7.4%
-12.3%
-25.4%
14,858
11,575
12,082
13,671
11,762
10,945
13,629
5.2%
4.1%
-6.0%
4.4%
-5.4%
12.8%
8.7%
Licensing
2,182
2,603
2,675
2,738
2,323
2,806
3,004
YoY
Product Sales
YoY
Theme Parks
1.7%
17.4%
0.2%
10.7%
6.5%
7.8%
12.3%
4,672
4,819
6,007
5,553
4,822
5,339
6,311
3.1%
0.0%
-4.9%
-4.1%
3.2%
10.8%
5.1%
1,288
2,179
1,618
1,521
1,580
2,596
1,829
13.0%
YoY
3.1%
-0.9%
9.1%
7.2%
22.7%
19.1%
Others
3,433
2,481
3,371
1,950
2,220
2,888
3,714
YoY
11.4%
4.5%
-17.2%
23.3%
-35.3%
16.4%
10.2%
Operating Profit
YoY
4,316
4,153
5,511
3,488
3,469
3,708
3,245
-7.8%
-18.2%
-20.9%
-18.8%
-19.6%
-10.7%
-41.1%
Overseas
4,519
4,337
4,854
3,850
3,814
3,266
2,597
YoY
-5.3%
-16.0%
-20.0%
-15.3%
-15.6%
-24.7%
-46.5%
-201
-185
656
-361
-344
441
648
-
-
-26.7%
-
-
-
-1.2%
Domestic
YoY
Licensing
1,556
1,711
1,941
1,728
1,599
1,911
2,100
YoY
2.9%
14.1%
6.1%
2.3%
2.8%
11.7%
8.2%
425
239
570
582
401
331
617
14.9%
-14.9%
-24.9%
-18.7%
-5.6%
38.5%
8.2%
-165
Product Sales
YoY
-300
19
-102
-228
-129
263
YoY
-
-82.2%
-
-
-
-
-
Others
343
-23
310
-110
116
176
300
YoY
24.3%
-
-21.5%
-
-66.2%
-
-3.2%
-2,225
-2,132
-2,062
-2,334
-2,332
-2,239
-2,204
Theme Parks
Eliminations, Company-wide Expenses
(% of Est.)
FY Est.
75.1%
73,400
72.1%
36,660
-1.6%
-12.7%
76.0%
51,884
79.2%
10,272
74.3%
22,166
78.1%
7,687
75.0%
11,759
5.7%
0.7%
5.3%
16.4%
4.7%
74.4%
14,000
-19.9%
71.0%
13,624
-22.4%
198.1%
376
77.7%
7,220
62.3%
2,166
4.1%
19.3%
-
-227
81.3%
728
39.9%
-
-9,511
FY03/16
YoY
Domestic
Q4
Q4
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Overseas Performance by Region (cumula
(JPYmn)
FY03/15
FY03/16
ＦY03/16
Q1
Q2
Q3
Q4
Q1
Q2
Q3
10,247
20,171
31,187
41,986
9,489
18,196
26,419
YoY
3.1%
-0.9%
-5.2%
-7.6%
-7.4%
-9.8%
-15.3%
Europe
2,826
5,724
8,499
10,861
2,344
4,453
5,830
YoY
-0.1%
-7.3%
-13.4%
-16.8%
-17.1%
-22.2%
-31.4%
177
454
700
1,074
411
749
1,143
YoY
5.4%
79.3%
65.5%
44.7%
132.2%
65.0%
63.3%
3,266
5,931
9,261
12,359
2,093
4,129
6,082
-7.8%
-18.1%
-22.6%
-26.1%
-35.9%
-30.4%
-34.3%
691
1,372
2,061
2,645
474
930
1,361
-9.1%
6.7%
2.4%
2.5%
-31.4%
-32.2%
-34.0%
Overseas Sales
UK
North America
YoY
Brazil
YoY
Asia
Q4
(% of Est.)
FY Est.
72.1%
36,660
-12.7%
67.9%
8,583
-21.0%
66.8%
1,710
77.0%
7,899
59.2%
-36.1%
78.1%
1,742
-34.1%
71.2%
16,716
3,285
6,679
10,649
15,030
4,152
7,938
11,903
23.9%
23.2%
22.7%
22.3%
26.4%
18.9%
12.3%
1,573
3,276
4,885
6,588
1,382
2,556
3,991
74.0%
5,396
Taiwan
596
1,234
1,933
2,668
754
1,536
2,256
70.8%
3,185
South Korea
430
780
1,142
1,550
479
865
1,292
74.4%
1,736
China
683
1,398
2,689
4,224
1,537
2,930
4,415
69.5%
6,348
4,519
8,856
13,710
17,560
3,814
7,080
9,677
71.0%
13,624
YoY
-5.3%
-10.8%
-14.3%
-14.5%
-15.6%
-20.1%
-29.4%
Europe
1,441
2,856
4,273
5,260
1,075
2,129
2,528
YoY
-1.3%
-14.3%
-19.1%
-21.2%
-25.4%
-25.5%
-40.8%
28
92
237
424
153
228
348
YoY
-27.6%
284.5%
742.1%
123.2%
437.4%
147.8%
46.8%
YoY
Hong Kong
Overseas Operating Profit
UK
North America
YoY
Brazil
YoY
Asia
1,428
2,652
4,185
5,016
699
1,227
1,585
-25.3%
-32.1%
-36.4%
-42.4%
-51.1%
-53.7%
-62.1%
378
751
1,070
1,263
216
425
635
-1.5%
7.8%
1.7%
-6.2%
-43.0%
-43.4%
-40.7%
11.2%
-22.4%
67.9%
3,722
-29.2%
57.3%
607
43.2%
84.3%
1,881
-62.5%
80.1%
793
-37.2%
69.2%
6,621
1,276
2,555
4,002
5,597
1,730
3,071
4,580
26.2%
30.3%
31.8%
55.6%
35.6%
20.2%
17.4%
Hong Kong
402
874
1,409
1,944
462
882
1,438
74.7%
1,926
Taiwan
291
603
951
1,294
383
718
1,071
71.6%
1,496
South Korea
205
339
500
696
211
310
472
67.7%
697
China
383
739
1,254
1,871
675
1,250
1,847
69.7%
2,650
YoY
Overseas Performance by Region (quarte
FY03/15
FY03/16
Q1
Q2
Q3
Q4
Q1
Q2
Q3
10,247
9,924
11,016
10,799
9,489
8,707
8,223
YoY
3.1%
-4.7%
-12.2%
-13.7%
-7.4%
-12.3%
-25.4%
Europe
2,826
2,898
2,775
2,362
2,344
2,109
1,377
YoY
-0.1%
-13.4%
-23.7%
-27.0%
-17.1%
-27.2%
-50.4%
177
277
246
374
411
338
394
YoY
6.0%
222.1%
44.7%
17.6%
132.2%
22.0%
60.2%
(JPYmn)
Overseas Sales
UK
North America
YoY
Brazil
YoY
Asia
YoY
Hong Kong
3,266
2,665
3,330
3,098
2,093
2,036
1,953
-7.8%
-28.0%
-29.5%
-35.0%
-35.9%
-23.6%
-41.4%
691
681
689
584
474
456
431
-9.1%
29.7%
-5.4%
2.8%
-31.4%
-33.0%
-37.4%
3,285
3,394
3,970
4,381
4,152
3,786
3,965
24.0%
22.4%
21.9%
21.2%
26.4%
11.5%
-0.1%
1,435
1,573
1,703
1,609
1,703
1,382
1,174
Taiwan
596
638
699
735
754
782
720
South Korea
430
350
362
408
479
386
427
China
683
715
1,291
1,535
1,537
1,393
1,485
4,519
4,337
4,854
3,850
3,814
3,266
2,597
YoY
-5.3%
-16.0%
-20.0%
-15.3%
-15.6%
-24.7%
-46.5%
Europe
1,441
1,415
1,417
987
1,075
1,054
399
YoY
-1.4%
-24.4%
-27.4%
-28.8%
-25.4%
-25.5%
-71.8%
28
64
145
187
153
75
120
YoY
-28.2%
-
-
16.1%
446.4%
17.2%
-17.2%
UK
North America
YoY
Brazil
YoY
Asia
1,428
1,224
1,533
831
699
528
358
-25.4%
-38.5%
-42.6%
-61.1%
-51.1%
-56.9%
-76.6%
378
373
319
193
216
209
210
-1.6%
19.6%
-10.1%
-34.4%
-42.9%
-44.0%
-34.2%
1,276
1,279
1,447
1,595
1,730
1,341
1,509
26.2%
34.8%
31.4%
138.4%
35.6%
4.8%
4.3%
Hong Kong
402
472
535
535
462
420
556
Taiwan
291
312
348
343
383
335
353
YoY
18.3%
South Korea
205
134
161
196
211
99
162
China
383
356
515
617
675
575
597
Q4
07/84
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Sanrio | 8136 |
FY03/15
Performance in Europe (cumulative)
(EURmn)
Q2
Q3
Q4
Q1
Q2
Q3
14.1
28.2
42.7
55.5
11.7
21.6
29.8
-14.5%
-15.5%
-19.8%
-22.2%
-17.1%
-23.5%
-30.1%
4.5
8.1
12.9
16.4
2.8
5.3
6.6
-12.1%
-22.6%
-27.1%
-30.3%
-38.6%
-34.6%
-49.0%
Sales
YoY
Operating Profit
YoY
Performance in Europe (quarterly; three months)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
14.1
14.1
14.5
12.8
11.7
9.9
8.3
-14.5%
-16.6%
-26.9%
-29.3%
-17.1%
-29.9%
-42.9%
4.5
3.6
4.8
3.5
2.8
2.6
1.3
-12.1%
-32.5%
-33.5%
-40.1%
-38.6%
-29.7%
-73.4%
Sales
YoY
Operating Profit
YoY
FY03/16
Q1
Q4
Q4
Performance in North America (cumulative)
FY03/15
(USDmn)
Q2
Q3
Q4
Q1
Q2
Q3
24.3
40.9
64.0
84.8
13.7
25.0
36.7
-11.7%
-21.8%
-24.8%
-30.9%
-43.7%
-38.9%
-42.7%
6.8
9.5
15.8
17.2
2.3
1.7
0.7
-31.8%
-46.2%
-46.6%
-58.2%
-65.3%
-81.9%
-95.3%
Sales
YoY
Operating Profit
YoY
Performance in North America (quarterly; three months)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
24.3
16.6
23.1
20.9
13.7
11.3
11.7
-11.7%
-33.0%
-29.5%
-44.7%
-43.7%
-31.8%
-49.4%
6.8
2.7
6.3
1.4
2.3
-0.6
-1.0
-31.8%
-64.8%
-47.2%
-87.7%
-65.3%
-123.3%
-115.6%
Sales
YoY
Operating Profit
YoY
FY03/16
Q1
Q4
Q4
Overseas subsidiaries pay master license fees (booked as CoGS) to the parent (the copyright holder) proportional to royalty income. The
above figures include master license fees remitted to the parent.
Q3 FY03/16 results
▶
▶
▶
▶
Sales:
JPY55.0bn (-1.2% YoY)
Operating profit:
JPY10.4bn (-25.4% YoY)
Recurring profit:
JPY10.6bn (-28.4% YoY)
Net income:
JPY7.8bn (-22.2 YoY)
Robust product licensing in China and Japan was not enough to offset continued sluggishness in Europe and the US,
resulting in a decline in both income and operating profit. Although a weaker yen resulted in a foreign exchange profit of
JPY700mn in Q3 the previous year, this year there was little change in the foreign exchange rate, leading to the company
only booking a small amount of profit. Net income attributable to owners of the parent came to JPY800mn: although
there was a loss in income in the US and Europe due to the high corporate tax rate, profit gain in Asia (where corporate
tax rate is lower) meant that the company managed to diminish losses.
The Domestic segment yielded sales of JPY39.4bn (+5.6% YoY) and operating profit of JPY700mn (operating profit of
JPY200mn in Q3 FY03/15). The Overseas segment yielded sales of JPY26.4bn (-15.3% YoY) and an operating profit of
JPY9.6bn (-29.4% YoY).
08/84
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Sanrio | 8136 |
Domestic
The Domestic Licensing business saw sales of JPY8.1bn (+9.0% YoY) and an operating profit of JPY5.6bn (+7.7% YoY).
Sales in the Domestic Product Sales sub-segment were JPY16.4bn (+6.3%), and operating profit was JPY1.3bn (+9.3%).
Theme Parks business yielded sales of JPY6.0bn (+18.1%), and an operating loss of JPY30mn (JPY380mn loss a year
earlier).
Domestic licensing business
Results were solid for licensed products popular among foreign tourists, such as the instax mini HELLO KITTY camera, and
also for cosmetics products such as the "Little Twin Stars (Kiki & Lala)" branded underwear, facewash and powder. The
licensed greeting stamps produced by Japan Post also proved popular. In addition to Gudetama, Sanrio won new
licensing agreements with broadcasts of its SHOW BY ROCK!! animated series, as well as both product and promotional
licenses for use of mainstay characters such as HELLO KITTY, My Melody, and Pompompurin at cafes and corporate
promotions. It also produced several collaboration products featuring popular characters from other companies.
Domestic product sales
Sales were robust, particularly at stores in urban areas, thanks in part to the growing number of tourists visiting Japan. The
licensed wet tissue die-cut case product continued to sell well, and the Gudetama character were popular among a wide
range of ages. HELLO KITTY products, collaboration products using the "Doraemon" and “Very Hungry Caterpillar”
characters, and brand collaborations with Laura Ashley were popular gift purchases at department stores and directly run
stores, and even contributed to steady sales recoveries at regional and suburban stores that had struggled. Comparable
store sales (at directly run stores and directly run outlets inside department stores) increased 9.0% YoY.
Theme park business
Visitors to Harmonyland increased 19.6% YoY to 372,000 people. Weather conditions were unfavorable, but the
installation of roofs over the parade area was successful, and the new night parades and pool were popular in summer.
Warmer temperatures in the winter also aided visitor numbers, with events continuing to perform well. Operating profit
was up year-on-year thanks to the increase in visitors, despite higher costs such as increased depreciation on roofing
structure/parade upgrades, and higher personnel costs. Sanrio hopes to further increase visitors to the park in Q4, with a
character festival to be held in February and renewals of shows and attractions planned in preparation for the 25th
anniversary of the park’s opening in March.
Sanrio Puroland had 806,000 visitors (+25.0% YoY) as special events such as the “My Melody” 40-year anniversary
celebration and opportunities for fans to meet with entertainers proved successful. Attractions such as a musical show
with an all-male cast and a game attraction encouraging visitors to visit different areas in the park were also popular.
Although there was an increase in expenses, such as personnel expenses, the operating loss narrowed significantly.
The Theme Parks business saw sales increase 18.3% YoY, and the operating loss narrow to JPY300mn, on the back of
1,179,000 visitors (+23.3% YoY).
09/84
R
Sanrio | 8136 |
Overseas
▶
▶
Sales:
JPY26.4bn (-15.3% YoY)
Operating profit:
JPY9.6bn (-29.4% YoY) (sales and profits before eliminations and after master licenses
fees paid to the parent were returned to the respective subsidiaries)
Europe
Sales were JPY5.8bn (-31.4% YoY) and operating profit was JPY2.5bn (-40.8% YoY). Sluggish sales in major Western
European countries, the key region for European operations, continued, and sales in Africa and Middle East regions were
flat. The company aims to increase brand awareness for its other characters that are less well-known than Hello Kitty and
Mr. Men and Little Miss, starting with product licensing before branching out into promotional licensing. It also plans to
build solid businesses in core cities such as Hamburg, Milan and London.
North America
Sales were JPY6.0bn (-34.3% YoY) and operating profit was JPY1.5bn (-62.1% YoY).
Retail floor space continued to be encroached on by mass merchandisers' own movie-related entertainment characters,
and product licensing revenue declined. The company plans to take a multi-character strategy approach to increase
brand awareness of its “Gudetama,” “My Melody,” and “Little Twin Stars” characters through licensee-based flagship
stores in major cities. In August 2015 it opened a Hello Kitty licensed store in New York for a limited period of time, which
was well-received, and it plans to open another at Universal Studio Orlando in March 2016. It opened its first Gudetama
licensed store in the US in November 2015, focusing on selling fashion items, and intends to open further stores across
the US due to its good reception. Going forward, it plans to develop various specialty stores before expanding into major
retailers.
South America
Sales were JPY1.3bn (+11.8% YoY) and operating profit was JPY600mn (-40.7%).
Both sales and profits were lower due to intensifying competition and a sluggish regional economy. Strategies for
increasing sales include working with licensees to expand product licensing categories, hold events targeting general
consumers to raise awareness of its characters, and capture more promotion licenses used for corporate promotions.
Asia
▶
▶
Sales:
JPY11.9bn (+11.8% YoY)
Operating profit:
JPY4.5bn (+14.4% YoY)
Hong Kong
Exports declined as the exporting of some products made in China were transferred to a subsidiary in Shanghai. Revenue
from product licensing also declined as more tourists from mainland China visited Japan due to changes in visa
regulations and a weak yen. Use in novelty goods by a fast food chain and corporate promotion sales including cafes and
events were robust. Sales continued to be solid in Singapore due to sales promotions for post offices.
10/84
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Sanrio | 8136 |
Taiwan
Sales and profits increased due to various character collaborations, including a collaboration with LINE.
China
Master licensee KTL Company (part of the Hong Kong-based Li & Fung Group) exceeded 200 sub-licenses with
continued product category growth, particularly in apparel.
South Korea
Consumption declined following the drop in foreign tourist numbers (including from China) due to the impact of MERS
(Middle East Respiratory Syndrome).
For details on previous results, please refer to the Historical Financial Statements section.
11/84
R
Sanrio | 8136 |
Full-year outlook
Forecast
(JPYmn)
Sales
1H Act.
35,524
FY03/15
2H Act.
39,038
FY Act.
74,562
1H Est.
35,458
FY03/16
2H Est.
37,942
FY Est.
73,400
10,849
24675
13,151
25,887
24,000
50,562
11,287
24,171
13,113
24,829
24,400
49,000
SG&A
16,206
16,888
33,094
16,993
18,007
35,000
Operating Profit
8,469
8,999
17,468
7,177
6,823
14,000
9,504
18,525
7,038
14,300
6,758
12,804
4,598
10,000
YoY
CoGS
Gross Profit
YoY
GPM
SG&A / Sales
1.7%
-7.3%
-9.1%
66.3%
-0.9%
69.5%
45.6%
43.3%
YoY
OPM
-13.2%
23.8%
-20.1%
23.1%
YoY
RPM
-0.3%
25.4%
-14.6%
24.3%
YoY
3.4%
-2.8%
Recurring Profit
Net Income
9,021
6,046
-3.2%
-0.2%
-5.2%
67.8%
-2.0%
68.2%
44.4%
47.9%
-2.8%
-4.1%
65.4%
-15.3%
20.2%
-24.2%
18.0%
-8.2%
24.8%
-19.5%
20.5%
-25.9%
18.5%
0.0%
-10.7%
-32.0%
5,402
-3.1%
66.8%
47.7%
47.5%
-16.9%
23.4%
7,262
-1.6%
-19.9%
19.1%
-22.8%
19.5%
-21.9%
FY03/15
Forecasts by Segment
(JPYmn)
YoY
FY03/16
1H Act.
2H Act.
FY Act.
1H Act.
2H Est.
FY Est.
1H Act.
2H Est.
35,524
39,037
74,562
35,458
37,941
73,400
-0.2%
-2.8%
-1.6%
Overseas
20,171
21,815
41,986
18,196
18,464
36,660
-9.8%
-15.4%
-12.7%
Domestic
5.7%
Sales
FY Est.
23,657
25,433
49,090
24,574
27,310
51,884
3.9%
7.4%
Licensing
4,785
5,413
10,198
5,129
5,143
10,272
7.2%
-5.0%
0.7%
Product Sales
9,491
11,560
21,051
10,161
12,005
22,166
7.1%
3.9%
5.3%
16.4%
Theme Parks
3,467
3,139
6,606
4,176
3,511
7,687
20.5%
11.9%
Others
5,914
5,320
11,235
5,108
6,651
11,759
-13.6%
25.0%
4.7%
Operating Profit
8,469
8,998
17,468
7,177
6,822
14,000
-15.3%
-24.2%
-19.9%
Overseas
8,856
8,704
17,560
7,080
6,544
13,624
-20.1%
-24.8%
-22.4%
Domestic
-386
294
-91
97
278
376
-
-5.4%
-
3,267
3,669
6,936
3,510
3,710
7,220
7.4%
1.1%
4.1%
Product Sales
664
1,152
1,816
732
1,434
2,166
10.2%
24.5%
19.3%
Theme Parks
-281
-330
-611
134
-361
-227
-
-
-
320
199
520
292
436
728
-8.9%
119.1%
39.9%
-4,357
-4,396
-8,753
-4,571
-4,941
-9,511
-
-
-
Licensing
Others
Eliminations, company expenses
Forecasts by Region
(JPYmn)
Overseas Sales
Europe
UK
North America
FY03/15
YoY
FY03/16
1H Act.
2H Act.
FY Act.
1H Act.
2H Est.
FY Est.
1H Act.
20,171
21,815
41,986
18,196
18,464
2H Est.
36,660
-9.8%
-15.4%
5,724
5,137
10,861
4,453
4,130
FY Est.
-12.7%
8,583
-22.2%
-19.6%
-21.0%
454
620
1,074
749
961
1,710
65.0%
55.0%
59.2%
5,931
6,428
12,359
4,129
3,770
7,899
-30.4%
-41.4%
-36.1%
-34.1%
Brazil
1,372
1,273
2,645
930
812
1,742
-32.2%
-36.2%
Asia
6,679
8,351
15,030
7,938
8,778
16,716
18.9%
5.1%
11.2%
Hong Kong
3,267
3,321
6,588
2,556
2,840
5,396
-21.8%
-14.5%
-18.1%
Taiwan
1,234
1,434
2,668
1,536
1,649
3,185
24.5%
15.0%
19.4%
780
770
1,550
865
871
1,736
10.9%
13.1%
12.0%
South Korea
China
1,398
2,826
4,224
2,930
3,418
6,348
109.6%
20.9%
50.3%
8,856
8,704
17,560
7,080
6,544
13,624
-20.1%
-24.8%
-22.4%
2,856
2,404
5,260
2,129
1,593
3,722
-25.5%
-33.7%
-29.2%
92
332
424
228
379
607
147.8%
14.2%
43.2%
2,652
2,364
5,016
1,227
654
1,881
-53.7%
-72.3%
-62.5%
Europe
UK
North America
Brazil
751
512
1,263
425
368
793
-43.4%
-28.1%
-37.2%
2,555
3,042
5,597
3,071
3,550
6,621
20.2%
16.7%
18.3%
Hong Kong
874
1,070
1,944
882
1,044
1,926
0.9%
-2.4%
-0.9%
Taiwan
603
691
1,294
718
778
1,496
19.1%
12.6%
15.6%
South Korea
339
357
696
310
387
697
-8.6%
8.4%
0.1%
China
739
1,132
1,871
1,250
1,400
2,650
69.1%
23.7%
41.6%
Asia
12/84
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Sanrio | 8136 |
Overseas subsidiaries (local currency basis)
Europe
FY03/15
FY03/16
Act
Est.
Sales
（1,000EUR）
Royalties
Product sales
OP
UK
Sales
（1,000GBP）
Royalties
Product sales
OP
North America
Sales
（1,000USD）
South America
42,778
-21.9%
-21.3%
1,101
580
-47.3%
16,384
9,312
-43.2%
5,294
8,215
55.2%
5,237
8,134
55.3%
40.6%
58
81
1,574
2,245
42.6%
84,837
48,078
-43.3%
Royalties
69,500
36,588
-47.4%
15,337
11,491
-25.1%
OP
17,176
166
-99.0%
42,026
33,873
-19.4%
41,935
33,787
-19.4%
91
86
-5.4%
11,428
7,546
-34.0%
-36.5%
Royalties
OP
Sales
（1,000HKD）
380,368
241,668
Royalties
127,555
115,446
-9.5%
Product sales
252,813
126,222
-50.1%
OP
Sales
（1,000NTD）
Royalties
Product sales
（1,000NTD）
OP
South Korea
Sales
（1,000KRW）
57,913
-20.5%
487,310
8.3%
404,732
441,154
9.0%
45,062
46,156
2.4%
140,871
150,018
6.5%
10,616,929
11,164,920
5.2%
Royalties
9,374,211
8,638,345
-7.8%
1,242,718
2,526,575
103.3%
3,760,548
3,134,382
-16.7%
178,458
242,812
36.1%
109,965
137,146
24.7%
68,493
105,666
54.3%
54,307
63,513
17.0%
Sales
（1,000CNY）
72,870
449,793
Product sales
OP
Shanghai
43,358
54,389
Product sales
Product sales
Taiwan
55,490
Sales
（1,000BRL）
Hong Kong
YoY
Royalties
Product sales
OP
In the tables above and the comments that follow, master license fees paid to the parent in Japan have been returned to
overseas subsidiaries, in order to accurately reflect revenues generated by overseas subsidiaries.
Company forecasts (including consolidated eliminations)
Of the JPY73.4bn (-1.6% YoY) in sales forecast for FY03/16, JPY36.6bn (-12.7% YoY) is expected to be generated overseas,
with JPY51.8bn (+5.7% YoY) generated domestically.
The company forecasts JPY14.0bn (-19.9% YoY) in operating profit. Of this figure, overseas will account for JPY13.6bn
(-22.4% YoY), and domestic operations may book an operating loss of JPY300mn (operating loss of JPY90mn in FY03/15).
Recurring profit is forecast to be JPY14.3bn (-22.8% YoY), net income JPY1.0bn (-21.9%).
The company revised its full-year FY03/16 forecast in October, 2015, lowering its forecasts for sales by JPY2.0bn,
operating profit by JPY3.0bn, recurring profit by JPY2.8bn, net income by JPY1.5bn. The revision was prompted by
consideration for the ongoing negative macro-economic outlook in Europe and intensified competition in North America,
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despite strong Domestic Product Sales performance. Visitors are up for the Theme Park segment, and business has been
strong in Asia, particularly mainland China. The dividend plan for the year is unchanged at JPY40 for both interim and final
dividends.
Japan
Domestically, the company is forecasting full-year sales of JPY51.8bn (+5.7%) and operating profit of JPY300mn
(operating loss of JPY90bn in FY03/15). The revised company forecast announced in October 2015 revised sales upward
by JPY1.3bn, but left operating profit at the same level.
Domestic Product Sales
▶
▶
Sales forecast:
JPY22.1bn (+5.3% YoY)
Operating profit forecast:
JPY2.1bn (+19.3% YoY)
Compared to the previous company forecast, the revised company forecast announced in October 2015 projects higher
sales by JPY500mn and operating profit by JPY300mn.
From FY03/15, Sanrio opened duty-free stores in urban centers and tourist areas targeting sales to foreign tourists. From
FY03/16, Sanrio will aim to increase sales by securing retail space at locations frequented by inbound tourists and
increasing the line-up of Japanese made products. For online sales, the company intends to generating synergies between
online and physical stores to drive sales.
Domestic Licensing
▶
▶
Sales forecast:
JPY10.2bn (+0.7% YoY)
JPY7.2bn (+4.1% YoY)
Compared to the previous company forecast, the revised company forecast announced in October 2015 increases the
sales forecast by JPY400mn and operating profit by JPY90mn.
The company aims to cultivate a broader customer base, by leveraging My Melody and Little Twin Stars—characters that
will celebrate their 40th anniversary during FY03/15—along with new characters such as Kirimi-chan, Gudetama, and
Show by Rock, and collaborations with other popular characters. The company aims to boost sales and profits through
growth in licensing for communications applications, household goods, pharmaceuticals and post offices.
Theme Parks
▶
▶
Sales forecast:
JPY7.6bn (+16.4% YoY)
Operating loss forecast:
JPY200mn (operating loss of JPY600mn in FY03/15)
Compared to the previous company forecast, the revised company forecast announced in October 2015 increases the
sales forecast by JPY200mn and operating profit by JPY100mn.
At Sanrio Puroland, the company forecasts full-year sales of JPY5.5bn (+4.6% YoY), operating loss of JPY300mn (operating
loss of JPY500mn in FY03/15), and 1mn visitors (+8.0% YoY). The company aims to boost attendance with a Student Pass
introduced in 2H FY03/15, which has successfully attracted more middle/high school students, and with better provision
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of information about events over social media. From June 2015 it will start shows featuring only popular male actors. It
hopes to leverage appealing events held at the theme parks such as celebrity fan meetings, cosplay (dressing in
costumes), dances and celebrity events.
At Harmonyland, the company forecasts full-year sales of JPY1.8bn (+0.7% YoY), operating profit of JPY600mn (+11.9%
YoY), and 450,000 visitors (+2.7% YoY). Harmonyland is gaining popularity with more roofed facilities prepared in the
park ahead of the Higashi-Kyushu Expressway opening in March 2016. The company hopes to increase sales and move
this park back into the black with more facilities not impacted by rain and other weather conditions, and by attracting
more visitors from the Miyazaki and Kita-Kyushu areas.
Overseas
▶
▶
Sales forecast:
JPY36.6bn (-12.7% YoY)
JPY13.6bn (-22.4% YoY)
Compared to the previous company forecast, the revised company forecast announced in October 2015 reduces the
sales forecast by JPY4.9bn and operating profit by JPY3.0bn.
Europe
For Europe, the company forecasts full-year sales of JPY8.5bn (-21.0% YoY) operating profit of JPY3.7bn (-29.2% YoY). On
a local currency basis, this is sales of EUR43mn (-21.9% YoY) and operating profit of EUR9mn (-43.2% YoY). Compared to
the previous company forecast, the revised company forecast announced in October 2015 reduces the sales forecast by
JPY1.1bn and operating profit by JPY500mn.
With the change of European leadership from Managing Director Rehito Hatoyama to Director Jiro Kishimura, Sanrio will
work to develop the Mr. Men and Little Miss characters and other new characters to become the new Hello Kitty, while
also working on developing its locations (Hamburg, Milan and London).
North America
Sales are expected to be JPY7.8bn (-36.1% YoY) with an operating profit of JPY1.8bn (-62.5% YoY), or on a local currency
bases, sales of USD48mn (-43.3% YoY) with an operating income of USD100,000 (-99.0% YoY). Compared to the
previous company forecast, the revised company forecast announced in October 2015 reduces the sales forecast by
JPY1.9bn and operating profit by JPY1.6bn.
During the preceding year, a movie distribution company secured shelf space for movie character products at a major
mass market retailer. The company lost shelf space, resulting in a reduction in earnings. The ratio of retail shelf space is
fixed for one year during FY03/16, so it will be difficult for the company to recover its share of shelf space.
From 2H FY03/16 onwards, Sanrio plans to open flagship stores in major cities on a franchise basis as a way of supporting
the company’s licensing business. The company intends to work on a multi-character strategy, promoting awareness of
Gudetama, My Melody, and Little Twin Stars. As vice-manager, Director Yuko Tsuji is working on a strategy of developing
new products to retake shelf space at the major retailers, Gudetama products released in November 2015 were a product
of such innovation, and this week its backpack and nametag products were popular at chain stores.
The company is aiming at stabilizing North American profits from products and licensed shops to the point where profits
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cover its fixed costs. By regaining retail space at the major retailers, Sanrio also hopes to turn around its North American
earnings.
Asia
Sales are expected to be JPY16.7bn (+11.2% YoY) with an operating profit of JPY6.6bn (+18.3% YoY). Compared to the
previous company forecast, the revised company forecast announced in October 2015 reduces the sales forecast by
JPY1.4bn and operating profit by JPY600mn. The change was primarily due to a reduced forecast for sales and operating
profit in Hong Kong and South Korea.
In Asia primarily Taiwan and China are expected to see increased sales and profit. In Taiwan, sales are expected to grow to
JPY3.1bn (+19.4% YoY) with an operating profit of JPY1.4bn (+15.6% YoY), or on a local currency basis, sales of
TWD487mn (+8.3% YoY) with operating profit of TWD150mn (+6.5% YoY). For China, Sanrio expects continued growth
with sales of JPY6.3bn (+50.3% YoY) and an operating profit of JPY2.6bn (+41.6% YoY), or on a local currency bases, sales
of CNY242mn (+36.1% YoY) with an operating profit of CNY63mn (+17.0% YoY).
Currency exchange
The effect of currency exchange fluctuations in the overseas subsidiaries during FY03/16 is as follows.
Effect of forex movements on overseas OP
FY03/15 rate (JPY)
FY03/16 rate (JPY)
Change
Sales (local currency; mn)
Forex impact (JPYmn)
Operating profit (local currency; mn)
Forex impact (JPYmn)
EUR
140.71
132.00
-6.2%
43.4
-377
9.3
-81
GBP
174.75
174.00
-0.4%
8.2
-6
2.2
-1
USD
106.38
3.00
10.9%
58.3
677
2.5
28
CNY
17.26
18.40
6.6%
242.8
276
63.5
72
KRW
0.101
0.100
-1.2%
11,164.9
-13
3,134.4
-3
TWD
3.51
3.60
2.6%
487.3
43
150.0
13
HKD
13.72
14.80
7.9%
241.7
261
57.9
62
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Long-term outlook
Regarding the new intermediate business plan, which was supposed to be announced at the FY03/14 results briefing, as
of May 2015 the company is planning to announce the new plan as soon as prospects improve for the bottoming out
European and US results and strongly recognizes the necessity of the intermediate business plan.
As of May 2015, Shared Research estimates that the European and US results have a significant impact on medium-term
forecasts. The current direction of the management structure is as follows.
European business
After focusing on the European licensing business in FY03/08, the region has shown dramatic growth until to FY03/11.
FY03/11 sales increased to JPY20.8bn (FY03/08 was JPY9.1bn) with an operating income of JPY11.1bn (JPY3.6bn for
FY03/08). In addition, the operating income composition ratio was 75% (55% for FY03/08).
However, the European business has experienced a continuing decline in revenue and earnings since FY03/12 with
FY03/15 sales at JPY11.9bn with an operating income of JPY5.7bn. In addition to the struggling economy under the
European debt crisis, the company attributes the decline to the European subsidiary not functioning adequately. When
the company began to seriously develop the licensing business in FY03/08, it had eight sales staff managing 60 corporate
licensees. As of May 2015, it has expanded to over 800 companies, although the structure did not substantially change
until FY03/14. Staff members had their hands full with closing new licensing agreements, and were unable to provide
sufficient support for existing customers.
From FY03/15, the company has been reorganizing its sales structure, replacing licensees. In addition to increasing sales
staff, the sales organization is being restructured to manage major licensees with a dedicated team. From 2H FY03/16,
European leadership will change from Managing Director Rehito Hatoyama to Director Jiro Kishimura, and Sanrio will
work to develop the Mr. Men and Little Miss characters and other new characters to become the new Hello Kitty, while
also working on developing its locations (Hamburg, Milan and London).
North American business
In North America, the product sales specialty shops were restructured starting from FY03/08 and the focus was shifted to
the licensing business. As a result, FY03/14 sales increased to JPY16.7bn (FY03/08 was JPY7.7bn) with an operating
income of JPY8.7bn (JPY2.1bn for FY03/08).
However, in addition to the effect of chilly market conditions in FY03/15, competition intensified in the character product
market due to the release of character products related to hit movies from competing firms. Due to a reduction in the
share of retail shelf space held by major licensees, results for the region dropped to sales of JPY12.3bn (declined 26.1%
YoY) with an operating income of JPY5.0bn (declined 42.4% YoY).
From 2H FY03/16 onward, Sanrio plans to open flagship stores in major cities on a franchise basis as a way of supporting
the company’s licensing business. The company intends to work on a multi-character strategy, promoting awareness of
Gudetama, My Melody, and Little Twin Stars. Sanrio is aiming at stabilizing North American profits from products and
licensed shops to the point where profits cover its fixed costs. By regaining retail space at the major retailers, the company
also hopes to turn around its North American earnings.
Over the medium-term, Sanrio plans to handle the movie adaption of characters such as “Hello Kitty” and “Mr. Men,” the
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production and distribution as well as consider ways to acquire revenue through related character products, derivative IP
and games. In June 2015, Sanrio set up Sanrio Media & Pictures Entertainment, Inc. as a wholly owned subsidiary of its US
entity, for the purpose of developing its animated movie and digital content business.
Direction of the management structure
President Shintaro Tsuji will be responsible for overseeing the Americas and Asia, with Director Yuko Tsuji acting as
vice-manager. Director Jiro Kishimura will be responsible for Europe. Managing Director Rehito Hatoyama will focus on
the movie business.
Since FY03/15 the company has transferred authority to the head of each region and business department and is
determining their capabilities and suitability to establish a new management structure.
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Sanrio ＞ Business
Business
Business description
Business overview
Founded in 1960 on the concept of “small gift, big smile,” with the goal of creating the kind of society where people
make and send each other small gifts to promote friendship. Beginning with the globally popular Hello Kitty character,
the company has created many other characters such as My Melody and Little Twin Stars. Sanrio celebrated its 55th
anniversary in 2015.
Over 50,000 different kinds (as of May 2015) of Hello Kitty merchandise are sold in more than 130 countries and
territories, comprising about half of overseas consolidated net sales. Within Japan, Sanrio sells its branded products at
Sanrio stores, department stores, and nationwide chain stores. The company also operates two theme parks: Sanrio
Puroland (located in Tama, Tokyo) and Harmonyland (located in Oita Prefecture). Additionally, the company is involved
in movie production, publishing, and restaurant operations via Kentucky Fried Chicken franchise stores in Saitama and
other areas.
Shared Research notes that Sanrio is a very unique company not only because of its unique business (as in selling a cute
feline character). Shared Research also notes that Sanrio is currently preparing for the next stage of growth as of May
2014. Its business faced a transition period several years ago, and as a result of changes made during this phase, its
profitability in overseas markets drastically improved. The company is able to take advantage of its experience in overseas
operations, which had been the focus of past reforms, and improve its approach to its domestic operations. The business
description part of this report focuses primarily on Sanrio circa 2008-2012. The older Sanrio and the promise of the new
Sanrio are discussed in the History and Strategy parts of the report.
Business model
Character Incubation and Earnings Source
Diversification through Business Synergies
Product
Sales
Licensing
Overseas
Cha ra cter
Character
i ncubation
Incubation
Others
Theme Parks
Character
Incubation
"Small Gift, Big Smile"
Live Entertainment
Synergistic
Customer
Attraction
Character licensing a pillar for revenue
Sanrio’s business model is extremely simple. The main source of revenues and earnings is character licensing, both in
Japan and worldwide. In addition, Shared Research estimates the bulk of business comes from the Hello Kitty character
(about 80% of sales).
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Sanrio | 8136 |
The company has a host of characters other than Hello Kitty, developed internally. In 2011 the company purchased the
shares of the UK Mr. Men character company, and indicated that it was keen to continue acquiring established character
franchises worldwide to diversify its portfolio.
License characters to receive licensing revenue
When Sanrio licenses a character, it grants the licensee permission to use the character for merchandise, services,
advertising, and sales promotions. The licenses include product licenses (products such as toys, plush toys, T-shirts),
promotional licenses (bank cards, drinks and other ad and sales promotions), and space design licenses (cafes, hospitals,
hotels and other interior designs).
Collaborative Product with Calpis Co., Ltd.
The licenses are generally non-exclusive but the nature of licensing agreements differs depending on the region. As a
matter of policy, Sanrio refuses licenses for merchandise of a sexual or violent nature.
Revenues booked as advance payments in Japan, actual sales in North America
The company records royalty earnings upon shipment in Japan and upon receipt of payment in Europe and the US. Sanrio
uses a “certificate stamp method” in Japan, whereby it attaches stamps to merchandise before shipping. The certificate
stamp system is useful not only for managing product quantities, but also for preventing imitations, serving as a compact
certificate of authenticity. The company also uses this system in Asia. In Europe and the US, the company receives
quarterly fees from its licensees; these fees are based on the licensees’ actual sales of applicable products. In the product
sales segment, the company outsources its in-house developed character goods to specialist manufacturers. These
character goods are sold at directly managed Sanrio stores and sales spaces at department stores and other settings
nationwide.
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Sanrio ＞ Business
Businesses and segments
Segment Sales and Profits
(JPYmn）
Sales
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
Act.
Act.
Act.
Act.
Act.
Act.
Act.
69,768
73,875
76,625
74,954
74,233
77,009
74,562
FY03/15
（YoY）
-25.7%
5.9%
3.7%
-2.2%
-1.0%
3.7%
-3.2%
Domestic
54,455
53,184
50,735
49,035
48,311
48,422
49,090
（YoY）
（Composition）
Domestic Licensing
（YoY）
（Composition）
-29.2%
-2.3%
-4.6%
-3.4%
-1.5%
0.2%
1.4%
68.4%
62.1%
56.3%
55.2%
54.8%
51.6%
53.9%
9,172
8,463
9,796
9,590
9,505
-67.7%
-7.7%
15.8%
9.4%
-10.5%
-0.9%
7.3%
11.5%
9.9%
10.9%
12.1%
10.9%
10.1%
11.2%
25,881
25,405
24,237
10,714
21,749
21,231
21,461
10,198
21,051
（YoY）
-1.2%
-1.8%
-4.6%
-10.3%
-2.4%
1.1%
-1.9%
（Composition）
32.5%
29.7%
26.9%
24.5%
24.1%
22.9%
23.1%
6,194
6,133
6,349
6,606
Theme Parks
（YoY）
（Composition）
Others
6,218
6,206
6,118
-18.9%
-0.2%
-1.4%
1.2%
-1.0%
3.5%
7.8%
7.3%
6.8%
7.0%
7.0%
6.8%
13,184
（YoY）
（Composition）
Overseas
（Composition）
Operating Profit
10,584
10,378
11,357
11,107
7.3%
11,235
-10.3%
-0.6%
-19.3%
-1.9%
9.4%
-2.2%
1.2%
16.6%
15.3%
11.7%
11.7%
12.9%
11.8%
12.3%
25,119
（YoY）
13,110
4.0%
32,406
39,425
39,725
39,892
45,419
41,986
-11.8%
29.0%
21.7%
0.8%
0.4%
13.9%
-7.6%
31.6%
37.9%
43.7%
44.8%
45.2%
48.4%
46.1%
6,575
14,863
14,996
18,906
20,198
21,019
17,468
（YoY）
-0.6%
126.1%
0.9%
26.1%
6.8%
4.1%
-16.9%
Domestic
6,443
5,653
7,074
8,789
8,914
8,743
8,661
（YoY）
-3.9%
-12.3%
25.1%
24.2%
1.4%
-1.9%
-0.9%
（Composition）
41.6%
31.2%
30.0%
32.6%
32.1%
29.8%
33.0%
Domestic Licensing
6,835
5,901
6,561
7,150
6,754
6,530
6,936
（YoY）
-8.2%
-13.7%
11.2%
9.0%
-5.5%
-3.3%
6.2%
（Composition）
44.1%
32.5%
27.9%
26.5%
24.3%
22.3%
26.5%
1,482
1,531
2,126
（YoY）
（Composition）
Theme Parks
1,453
1,736
2,087
28.1%
3.3%
-5.1%
19.5%
20.2%
1.9%
-14.6%
9.6%
8.4%
6.2%
6.4%
7.5%
7.3%
6.9%
-924
-568
-523
-497
-519
-611
-1,348
1,816
（YoY）
20.8%
-31.5%
-38.5%
-7.9%
-5.0%
4.4%
17.7%
（Composition）
-8.7%
-5.1%
-2.4%
-1.9%
-1.8%
-1.8%
-2.3%
-526
-855
-372
426
570
606
520
-32.8%
62.5%
-56.5%
-214.5%
33.8%
6.3%
-14.2%
Others
（YoY）
（Composition）
Overseas
（YoY）
（Composition）
Overhead Expenses
-3.4%
9,042
-4.7%
12,478
-1.6%
16,481
1.6%
18,182
2.1%
18,886
2.1%
20,547
2.0%
17,560
3.8%
38.0%
32.1%
10.3%
3.9%
8.8%
-14.5%
58.4%
68.8%
70.0%
67.4%
67.9%
70.2%
67.0%
8,910
8,842
8,558
8,065
7,602
8,271
8,753
Domestic operating profit is the simple sum of each business before deducting head office expenses.
Composition figures are the simple sum before consolidated eliminations.
In the overseas segment, subsidiaries pay royalty income (master license fees) as cost of sales to the parent company in Japan, who is the
copyright holder. Note that the above figures include master licensing fees that are remitted to the parent.
Domestic Licensing (FY03/15: 11.2% of sales, 26.5% of OP)
Allows licensees to use characters, collects licensing fees
This segment grants permission for licensees to use the characters, collecting licensing fees for their use. Characters are
used for merchandise, advertisements, and sales promotion. Merchandise includes various products such as toys, food,
and apparel that feature the characters, character-shaped products (figurines in the shape of characters), and character
goods. Merchandise agreements are generally require the remittance of royalties at a fixed rate, based on the retail or
wholesale prices of those goods. The company does not disclose its licensing rates, but Shared Research believes that the
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Sanrio ＞ Business
rate is around 5-7% for retail, or 10-14% of wholesale prices.
Domestic Licensing (JPYmn)
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15
Act.
Act.
Act.
Act.
Act.
Act.
Act.
Sales
9,172
8,463
9,796
10,714
9,590
9,505
10,198
Operating Profit
6,835
5,901
6,561
7,150
6,754
6,530
6,936
74.5%
69.7%
67.0%
66.7%
70.4%
68.7%
68.0%
OPM
Sales methodology changed from FY03/09 (Sanrio character merchandise developed by third parties accompanies royalties without exception.)
Over 700 domestic licensees
Domestic licensees totaled more than 700 companies as of FY03/14, representing various industries, from general
merchandise to banking. The domestic market has seen increasingly diversified licensing schemes, including traditional
merchandising licensing, licensing to services industries, and promotional licensing (for corporate sales promotion
activities) as well as collaborative licensing in recent years (to generate synergies with other parties’ brands). Also, lately
licensees have been increasing in the area of leading-edge products, such as smartphone accessories.
Character
Hello Kitty
Jewelpet
Cinnamoroll
My Melody (& Kuromi)
Sugarbunnies
Little Twin Stars
Shinkansen
Industries
Major Licensees
Samantha Thavasa Japan Limited/Avex Marketing Inc./First Retailing Co., Ltd./Citizen Holdings Co., Ltd./Bridgestone
Sports Co., Ltd./crocs. Japan/K.K. kitson Japan/SHO-BI Corporation/FUJIFILM Holdings
Corporation/adidas.Japan/Softbank Mobile Corp./Swarovski Japan Ltd./LIBERTY JAPAN LIMITED/Sun-Star Stationery
Co., Ltd./NAIGAI Co., Ltd./anteprima Ltd./World Co., Ltd./McDonald's Holdings Co. (Japan), Ltd./Don Quijote Co.,
Ltd./K.K. Waterdirect/Tokyo Medical University/Pfizer Japan Inc./Shionogi & Co., Ltd./Missha Japan Inc./NIHON
L'OREAL/Fukusuke Co., Ltd./Eitaro Sohonpo Co., Ltd./Morozoff Ltd./Bourbon Corp./Izumiya Tokyo-Ten Co., Ltd./Credit
Saison Co., Ltd./Yamamoto Noriten Co., Ltd./Morinaga & Co., Ltd./Cedyna Financial Corp./Mizuho Bank, Ltd./Fukoku
Mutual Life Insurance Co./MITSUBISHI MOTORS CORPORATION/IKEDA MOHANDO Co.,Ltd./Maxim's de Paris
Finance, AV &
Home Appliance, Ltd./Itoham Foods Inc./Nippon Flour Mills Co., Ltd./S.T.CORPORATION/The Fukushima minyu/Nippon Travel Agency
Co., Ltd./Hisamitsu Pharmaceutical Co., Inc./Kobe Fugetsudo Co., Ltd./Calpis Co., Ltd./Ezaki Glico Co., Ltd./Kibun
Healthcare &
Cosmetic, Apparel, Foods, Inc./Paris Miki Holdings Inc./Daiwa House Industry Co., Ltd./Hankyu Hanshin Hotels Co., Ltd./Daiwa Resort Co.,
Ltd./SAIBU GAS Co.,Ltd./Max Hill Co., Ltd./Japan Racing Association/Rosette Co., Ltd.
Toys &
SHOWA NOTE Co., Ltd./Bandai Co.,Ltd./KOIZUMI FURNITECH CORP./Moonstar Company/Shogakukan Inc./Marumiya
Miscellaneous
Corporation
Goods,
SHOWA NOTE Co., Ltd./NAIGAI Co., Ltd./Tokyo Tomin Bank, Ltd./McDonald's Holdings Co. (Japan), Ltd./Bandai Co.,
Confectionery,
Ltd./Daiwa Resort Co., Ltd./MSD K.K.Co. (Japan), Ltd./Asahi Mutual Life Insurance Co.
Foods,
Automobiles, etc. Samantha Thavasa Japan Limited/anteprima Ltd./SHO-BI Corporation/crocs. Japan/World Co., Ltd./Agatsuma Co.,
Ltd./Asahi Corporation Co., Ltd./Imagineer Co., Ltd./Fukusuke Co., Ltd./NAMCO BANDAI Games Inc./Sun-Star
Stationery Co., Ltd./Hiya Pharmaceutical Co., Ltd./Mitsubishi UFJ NICOS Co., Ltd./Rosette Co., Ltd.
TOMY COMPANY, LTD. (master Licensee)/McDonald's Holdings Co. (Japan), Ltd./
Lion Corporation/Sun-Star Stationery Co., Ltd./Marimo Craft Co., Ltd./World Co., Ltd.
Asahi Corporation Co., Ltd./NAIGAI Co., Ltd./crocs.Japan/Hisamitsu Pharmaceutical Co., Inc./Sakura Color Products
Corp.
Domestic Product Sales (FY03/15: 23.1% of sales, 6.9% of OP)
As of March 2015, the total number of stores was 210. Sanrio stores have several formats: mainstay “Gift Gate” (99 stores
as of March 2014) targeting families; “Vivitix” (10 stores) targeting teenagers; “Hello Kitty Store” (two stores) exclusively
selling Hello Kitty goods; “QUESTINA” (one store) targeting adult women; “Hello Kitty Japan” (three stores) exclusively
selling souvenirs at famous tourist spots which are operated nationwide either as directly managed or franchise; two
outlet stores; four other stores; and 99 consignment buying stores.
Sanrio also sells its character merchandise to department stores and general merchandise stores. Busier stores often have
a “Sanrio Corner,” which houses all of the retail outlet’s Sanrio merchandise rather than spreading it throughout the store.
Store count has been declining due to closing of unprofitable stores. The company has, however, opened new stores in
locations with high customer counts, particularly overseas tourist counts according to the company, including in the
Haneda Airport International Terminal (2010), in the Tokyo Skytree Town Solamachi commercial complex (2012), and in
the DiverCity Tokyo Plaza commercial complex (2012).
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Source: Tobu Railway Co., Ltd.
Number of Stores in Japan
Number of Stores in Japan
FY03/06
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15
Total
1,483
1,465
1,416
1,411
1,394
1,354
1,201
1,147
1,094
1,062
Retail
313
311
271
271
261
232
216
209
212
210
Gift Gate (Directly Managed Stores)
164
162
147
140
139
124
109
111
120
121
Stores (Consignment Purchases) in Department Stores
149
149
124
131
122
108
107
98
92
89
1,170
1,202
1,145
1,140
1,133
1,122
985
938
882
852
Wholesale
60
75
56
56
56
62
63
63
51
47
Mass Retailers
960
988
1,004
1,005
998
997
861
810
791
735
Specialty Stores
150
139
85
79
79
63
61
65
40
70
Stores (Outright Purchases) in Department Stores
Consignment purchasing is a purchasing method used by Japanese department stores (purchasing takes place upon product sales).
Closing unprofitable stores has improved segment profitability. Accordingly, the company expects operating profit
margins to improve.
Domestic Product Sales (JPYmn)
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
26,197
25,881
25,405
24,237
21,749
21,231
21,461
21,051
Operating Profit
1,157
1,482
1,531
1,453
1,736
2,087
2,126
1,816
OPM
4.4%
5.7%
6.0%
6.0%
8.0%
9.8%
9.9%
8.6%
Sales
FY03/1403/15 Est.
Overseas Business (FY03/15: 46.1% of sales, 67.0% of OP)
Overseas Licensing
As of March 2014, most of Sanrio’s licensees were in the apparel industry, and the number licensees by region was as
follows:
▶
▶
▶
▶
▶
▶
▶
Europe: 713 companies;
North America: 372 companies;
South America: 310 companies;
Taiwan: 220 companies;
South Korea: 148 companies;
Shanghai: 197 companies;
Hong Kong: 266 companies.
Examples of European licensees of Sanrio brands include Fashion Lab Ltd. (apparel), Hennes & Mauritz AB (the apparel
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company known as H&M), Royer S.A.A. (apparel), and C&A Buying GmbH & Co. Kg (apparel). In North America, major
licensees include EVY (children apparel), FAB (accessories), AGE Group (underwear, pajamas), Franco Manufacturing
(furniture), and SAKAR (electronics). In South America, Grendene (shoes) is a major licensee.
In Asia, a major South Korean licensee is Jinro Int (stationery). In Taiwan, TCC (logistics licensing) is a major licensee.
Shanghai licensees include China Merchant (banking) and Chow Tai Fuk (jewelry).
Because licensing means Sanrio has to carry neither any merchandise risk nor heavy cost burden, the obvious
consequence (as the chart below highlights) was the explosion of the operating profitability—note how the company’s
operating profit margins are higher in those regions (especially Europe) where it relies more on licensing agreements and
less on direct retailing or wholesaling.
Overseas Business Performance (JPYmn)
Sales
FY03/09
25,119
FY03/10
32,413
FY03/11
39,425
FY03/12
39,725
FY03/13
39,892
FY03/14
45,419
FY03/15
41,986
Europe
12,143
16,464
20,841
18,348
13,301
13,049
10,861
-
-
-
-
699
742
1,074
5,673
6,733
8,205
10,857
14,220
16,731
12,359
UK (Mr.　Men)
N. America
905
1,426
1,796
1,611
2,108
2,581
2,645
6,403
7,890
8,919
8,906
9,624
12,293
15,030
Hong Kong
3,696
5,386
5,688
5,325
5,410
6,455
6,588
Taiwan
1,269
1,340
1,433
1,558
1,636
2,221
2,668
S. Korea
655
404
645
592
939
1,488
1,550
China
783
726
1,073
1,404
1,546
2,128
4,224
Other
-
33
80
27
48
1
-
9,042
12,484
16,482
18,182
18,886
20,547
17,560
5,107
8,203
11,165
9,914
7,016
6,672
5,260
-
-
-
-
231
190
424
1,835
2,326
2,698
5,184
7,579
8,712
5,016
South America
Asia
Operating profit
Europe
UK (Mr.　Men)
N. America
455
763
704
748
1,098
1,346
1,263
1,638
1,265
2,294
2,746
2,993
3,730
5,597
Hong Kong
673
610
992
1,146
1,388
843
1,944
Taiwan
271
221
404
525
593
1,019
1,294
S. Korea
376
160
380
370
319
593
696
China
318
253
519
705
830
1,275
1,871
South America
Asia
For the above presentation, master license fees paid to the parent are returned to respective overseas subsidiaries.
FY03/09 figures for the Americas, Hong Kong and Taiwan are for a nine-month period due to changes in the financial year.
Europe
Sanrio began full-fledged licensing of its characters in Europe in FY03/08, and earnings in Europe grew significantly. Six
European countries—Germany, Italy, France, Spain, Portugal, and the UK (listed in the order of sales levels)—provide
around 60% of Sanrio’s sales in this region.
Around 2008, Sanrio increased its European licensing team to about 30 and began targeting prominent apparel and other
manufacturers. However, subsequent to FY03/13, performance has remained at low levels due to the debt crisis and
adjustments coinciding with depressed economic activity. The company aims to restructure its operating structure under
Hatoyama’s lead during FY03/16.
The company is considering what product categories, licensees, and local markets to introduce for its European
operations. Sanrio’s goal of expanding its European licensing base involves meticulously defining target regions, product
categories, and price ranges, and then granting multiple licenses in those areas.
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North America
In North America, the company started seriously looking at licensing from FY03/08. However, it had only begun to see
performance improvements there from FY03/12, as it had to first restructure the existing directly managed store network
and build a coherent strategy for this vast market. In the US, channel strategy is critical.
According to the company, the FY03/11 North American channel penetration was only at around 3%, meaning that
Sanrio products were available only in limited locations (only 3% of all retail channels in the country) despite Hello Kitty’s
high brand recognition. As a result, in FY03/12, the company increased market penetration to 80%. To raise this rate
further from here, expanding the product categories available at mass merchandisers such as Walmart and Target is
critical. Beginning in FY03/15, Sanrio began sales of its products at over 7,000 locations of CVS Pharmacy (subsidiary of
CVS Caremark Corporation; NYSE: CVS), the second largest drug store chain in the United States.
In terms of relationships with individual mass market retailers in the US, Sanrio does not have a direct licensing agreement
with them, but instead forms licensing agreements with vendors that deliver goods to retailers. As a result, it is common
for Sanrio to form comprehensive marketing strategies while consulting with retailers and vendors. Factors taken into
consideration include product categories, types, and volumes.
Asia
Due to the company’s history of expansion into the Asian market, Sanrio can hope for synergistic effects with the Japanese
market in the realms of character development and cultivation. The company is adopting a business model in which retail
and licensing coexist. However, growth in the proportion of sales attributable to licensing in Asia stands out.
In China, as part of its plan to shift the focus of its Asia strategy from wholesaling to licensing, Sanrio signed a master
licensing agreement with KT Company and the KT Shanghai Company for China ex-Hong Kong and Macau in January
2012. KT Company is a large trading company based in Hong Kong and part of the Li & Fung Group, which has been
aggressively developing its business in China. Sanrio collects a fixed percentage of the sales of KT products, as well as
fixed-rate royalties. The business was started in 2012, and Shared Research estimates the agreement includes a
guaranteed minimum payment (to Sanrio) of USD80mn–90mn over five years. The agreement covers 17 characters,
including Hello Kitty, My Melody, Cinnamoroll, and Kero Kero Keroppi. The company aims to penetrate markets in the
region while avoiding certain risks through the use of agents.
The company also had a master licensing agreement with Aisis Contents for South Korea from January 2008, but the
agreement was cancelled in November 2012 due to contractual violations. Sanrio has been involved in direct licensing in
South Korea from FY03/13.
In Taiwan, a subsidiary showed growth in licensing. Licensing to the service sector in areas such as airlines, hotels, cafes,
restaurants, and hospitals was especially strong, alongside promotional licensing to corporate customers.
Sanrio’s overseas licensing strategy is further explained in the Strategy section of the report.
Overseas product sales
The number of wholesale customers and directly managed stores overseas has been falling as Sanrio focused on
developing the licensing business. The decline in North America has been the most notable. According to the company,
the number of stores there once numbered over 100. This significant number led to the delay in the strategic shift toward
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licensing as the company worked to unwind the store network. Certain stores are still being operated by third parties as
Sanrio product outlets to which the company sells merchandise wholesale.
Sanrio did not have as many directly managed stores compared to Europe and that facilitated a smoother shift of focus
away from direct retailing to licensing.
In Asia, existing agents are still operating stores, giving Shared Research reasons to think the company aims for synergies
of these stores with its growing licensing business. Overall, the company had 15 directly managed stores worldwide as of
the end of FY03/10, but only 1 store as of the end of FY03/15.
Store Counts Overseas
FY03/07
Europe/ MiddleEast
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/15
7
7
13
13
3
3
2
1
Stores Managed by Agents
26
26
37
47
52
70
70
57
44
42
39
26
17
Directly Managed Stores
5
4
4
2
-
-
-
-
-
31
28
32
48
47
32
26
4
6
Contract Stores Managed by Agents
-
-
-
-
61
50
55
39
Wholesalers Managed by Agents
2,500
2,600
2,700
2,000
2,300
n/a
n/a
n/a
n/a
-
Latin America
-
-
-
-
-
1
-
-
-
-
-
-
-
9
1
1
-
-
-
-
-
-
56
73
65
47
Franchise Stores Managed by Agenct
60
48
20
10
10
-
-
-
-
10
10
8
5
5
-
-
-
-
-
-
-
-
-
14
-
-
3
Franchise Stores Managed by Agents
28
29
25
24
25
-
-
-
-
-
-
-
-
-
-
-
-
-
26
26
26
29
34
38
39
38
35
Taiwan
China
FY03/14
7
US
South Korea
FY03/13
-
-
-
-
71
49
47
47
13
12
9
6
44
55
47
31
30
120
-
-
-
-
-
58
75
98
Franchise Stores Managed by Agents
-
50
61
51
61
-
-
-
-
Hong Kong
28
28
29
25
25
23
22
22
22
Other Asia
-
-
-
38
35
48
49
49
59
12
11
11
15
13
4
3
2
1
195
171
182
242
249
276
255
203
196
Total
Wholesalers (inc. Franchise Stores) Managed by Agents
-
-
-
-
155
260
251
254
232
2,588
2,737
2,806
2,085
2,396
n/a
n/a
n/a
n/a
*From FY03/12 the category “wholesalers managed by agents” were renamed “contract stores managed by agents,” and contract stores other than
those permanently standing were excluded from calculation.
*Contract stores managed by agents conduct wholesale to chain stores.
*The table above includes stores that are recognized by the company and its agents.
*Stores managed by agents refer to Sanrio shops etc., operation of which are outsourced to partners.
Theme Parks (FY03/15: 7.3% of sales)
Sanrio Entertainment Co., Ltd. (the company’s wholly owned subsidiary) manages the Sanrio Puroland and Harmonyland
theme parks.
Theme Parks
Number of Visitors (1,000 People)
Sanrio Portland
Harmony land
Average Spend per Visitor (JPY)
Sanrio Portland
Harmonyland
Sales (JPYmn)
Sanrio Puroland
Harmonyland
Direct Operating Profit
Sanrio Puroland
Harmonyland
FY03/07
1,291
940
351
FY03/08
1,154
835
319
FY03/09
1,016
743
273
FY03/10
1,024
723
301
FY03/11
1,087
758
329
FY03/12
1,139
756
383
FY03/13
1,158
769
389
FY03/14
1,207
793
414
FY03/15
1,234
841
393
5,171
4,407
8,229
6,400
1,780
-527
320
0
4,959
4,356
7,663
5,590
1,610
-1,116
-720
-190
4,783
4,304
6,218
4,770
1,380
-1,348
-590
-180
4,657
4,188
6,206
4,630
1,450
-924
-670
-210
4,435
3,897
6,118
4,603
1,473
-568
-461
-107
4,455
3,668
6,194
4,424
1,597
-523
-504
-17
4,274
3,622
6,133
4,454
1,618
-497
-550
53
4,697
3,525
6,349
4,530
1,674
-519
-537
27
4,708
3,463
6,606
4,790
1,558
-611
-593
-15
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Direct operating profit excludes theme park assistance expenses and others.
Sanrio Puroland
Opened in Tama City, Tokyo, in December 1990, Sanrio Puroland offers shows produced by famous creators, as well as a
range of other attractions in a fantasy-world setting. However, by putting the complex indoors to avoid weather
complications, the company made it difficult to achieve profitability —the building size (45,900sqm) dictates the limit on
the peak traffic during weekends and the running cost, especially electricity charges, are much higher than they would
have been if an open air concept was utilized.
From April 1, 2014, Sanrio introduced a new ticket pricing structure:
Old
Age
Adult (18 years and
New
Every day
JPY4,400
over)
Young adult (12-17
Age
Adult (18 years and
Weekdays
Weekends and
Holidays
JPY3,300
JPY3,800
over)
JPY4,000
Child (3-17 years)
JPY2,500
JPY2,700
Child (4-11 years)
JPY3,300
Under 2 years
Free
Free
Under 3 years
Free
years)
*All prices include sales tax.
By charging admittance for children three years of age, Sanrio can increase its sales per visitor, and the company hopes
that price reductions for other age brackets will aid in increasing attendance overall. In 1H FY03/15, the average spend
per visitor was JPY4,674, of which JPY1,861 was for admission fees, JPY1,918 for purchasing goods, and JPY894 for food
and drinks. In many cases, complimentary tickets and discount coupons reduce the cost of entry for visitors.
The company reopened the theme park in July 2013 after renovating some attractions. This is the first time since the park
was created that a major renovation took place. Sanrio Town, a new area of the park designed to offer “the most
Sanrio-like place in the world” is comprised of four attractions and one restaurant featuring Hello Kitty, My Melody, and
Little Win Stars (Kiki & Lala).
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Live Entertainment at Puroland
Photos by SR Inc.
Hello Kitty Show at Puroland
Photo by SR Inc.
A hall with Lady Kitty’s whole piano (Sanrio Town)
Harmonyland
Surrounded by nature, this open-air theme park opened in Hiji (Hayami-gun, Oita Prefecture) in April 1991. Visitors can
enjoy 12 attractions, as well as live performances, including live shows and parades featuring Hello Kitty, Cinnamoroll,
and many other characters. A one-day ticket costs JPY2,900 for all visitors who are four and older. In 1H FY03/16, the
average spend per visitor was JPY3,823, of which JPY1,688 was for admission fees, JPY1,427 for purchasing goods, and
JPY708 for food and drinks. As with Sanrio Puroland, in many cases complimentary tickets and discount coupons reduce
the cost of entry for visitors.
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Parade “NOAH”
Overseas Theme Parks
Sanrio plans to grow its theme park business overseas but do so via licensing agreements rather than direct investment.
However, it plans to do so via licensing agreements rather than direct investment in order to avoid risk. As part of this
strategy, the company opened a 2,000sqm Sanrio theme park in Malaysia through a license agreement with a local
company in October 2012.
In January 2015 Sanrio signed a license agreement with Zhejiang Yinrun Leisure Development to establish the 95,000sqm
Hello Kitty Park (provisional name) in China. The park will be one of the central attractions at the Zhejiang Province Anji
Angel Park (which will cover 600,000sqm and feature hotels, restaurants, and other amusement parks). The project is a
part of the new international leisure development in the Yangtze River Delta, an important part of Zhejiang Province’s
12th five-year-plan to develop tourism within the region.
The company also opened theme parks and other attractions based on Sanrio characters in Turkey (March 2013); Jeju
Island, South Korea (January 2014); the UK (May 2014), and Thailand (August 2014). In December 2014, the company
plans to open a 3D theater in Indonesia.
Overseas theme parks
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Main products
Features of major Sanrio characters
Sanrio characters are very different from other characters existing throughout the world. Simply put, Sanrio characters are
not characters, rather they are product designs. Founder Shintaro Tsuji thought of ways to sell his products similar to
competitors’, questioning how he can differentiate his products from others’. He came up with the concept of fusing
characters and products and, to this end, creating characters with simple designs. Shared Research analyzes that simple
designs are the advantage of Sanrio characters and enabled the rapid growth of the company’s licensing business.
In general, characters of other parties were originally created for illustrated books, animations, games, etc. Due to such
origins, designs of these characters are not usually modified from their originals as modification could mean twists in the
worlds where these characters exist. Therefore, characters with such origins are subject to strict restrictions when used on
products.
Hello Kitty
According to the official character legend, Hello Kitty was born in 1974 in the suburbs of London (her real name is Kitty
White). She did not initially have a surname. Her blood type is A, she is good at baking cookies, and she has a twin sister,
Mimmy. Until the end of the 1970s, the character always faced front, but from around 1980 some versions had her head
tilted to a side. In the 1990s, she began wearing a variety of costumes. In 1993, she exchanged the ribbon on her head for
hibiscus. Later on, Sanrio introduced a greater variety of Hello Kitty goods, including the Hello Kitty Nurse Series (with the
character appearing as a nurse) and the Hello Kitty Quilt Series (various goods using shiny quilting cloth).
One of the speculated reasons for Hello Kitty’s longstanding popularity is a peculiar feature that differentiates it from most
characters ever to hit the market. The character has no mouth. According to the company, in the absence of a mouth, the
palette of attributed/projected feelings broadens—the viewer may see the cat as sad or happy depending on her own
mood. (Those readers familiar with the Dilbert character may also see limits to this argument, or is it something about
wearing nerdy glasses?)
Hello Kitty character merchandise is available in more than 100 countries. After receiving the “UNICEF Special Friend of
Children” title, in 2008 Japan’s Ministry of Land, Infrastructure, Transport and Tourism (MLIT) named her the ambassador
of Japanese tourism in both China and Hong Kong.
Cinnamoroll
Cinnamoroll is a white-puppy character having a tail resembling a cinnamon roll. The character was created in 2001.
Before Cinnamoroll, the company was reluctant to advertise its characters. However, the company adopted an aggressive
advertising strategy for this particular character (using TV commercials and magazines), allowing it to gain significant
popularity shortly after debut. In 2004, Cinnamoroll goods accounted for about 25% of Sanrio store sales, only trailing
Hello Kitty goods. Cinnamoroll’s main target customers range from infants to high school students.
Mr. Men
As part of its strategy to strengthen its character portfolio, in December 2011 Sanrio acquired all the shares of Mister Men
Company (U.K.-based character company) from parent company Chorion Limited. The Mister Men characters were
created in 1971 by English artist Roger Hargreaves within the Mister Men illustrated book series. The lineup of characters
was later expanded with the Little Miss series. 86 Mister Men and Little Miss characters have appeared in the illustrated
books, which have been translated into 15 languages and achieved sales in excess of 100 million copies in more than 30
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countries.. According to the Mister Men official website, the characters have a 98% recognition rate in the U.K.
In Japan, the company began to provide licensing for Mister Men since July 2013. Starting in the spring of 2014, the
company began development of a wide variety of products featuring this character, such as clothing, accessories,
stationery, and food, and provide licensing to advertisers, as well as those engaged in sales promotion and education.
Mr. Happy (Mr. Men)
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Sanrio`s Major Characters
Early 1970s
Year of Creation
Late 1980's
Year of Creation
Bunny & Matty
1974
Hangyodon
1985
Spunky Barrow
1974
GIMMEFIVE
1985
Hello Kitty
1974
Marron Cream
1985
Just For Fun
1985
Little Wonder Story
1985
Dachonosuke
1985
Roberta
1985
CULTURE SHOCK
1985
Patty & Jimmy
Late 1970's
Patty & Jimmy
1975
Noranekoland
1986
The Strawberry King
1975
Dynamities
1986
Little Twin Stars
1975
Brownie's Story
1986
Tiny Poem
1975
Tweedle Dee Dee
1986
Little World
1975
Pokopon's Diary
1986
My Melody
1975
PAJAMAS CLUB
1986
Robby Rabbit
1975
Minnie Le Mieux
1986
Small People
1976
B.HILLS KID
1986
Boy & Girl
1976
Umeya Zakkaten
1987
Lullaby Lovables
1977
Duck a Doo
1987
Kisha
1977
Heart Fushion Folio
1987
Peek-a-boo
1977
Gatorgags
1987
Little Twin Stars Ginga Konchu Chibikko Gang
1977
PAU PIPO
1987
Peter Davis
1977
Stillsmall Tales
1987
Howdy
1977
Mimic Mike
1987
Button Nose
1978
Ri-ru-chi-run
1987
Dopey Demons
1978
Kerokerokeroppi
1988
Captain Willy
1978
KAPPA RUMBA
1988
Tuxedo Sam
1979
TABITHADEAN
1988
Wee Marylou
1979
Petit Prier
1988 Kerokerokeroppi
Qui-Quaks
1979
Vanilla Bean
1988
Mokuba
1979
Flight of Funcy
1989
Seven Silly Dwarfs
1979
Ikkuchan
1989
Rubit Journey
1979
Pochacco
1989
Trip to Wonderland
1979
Winkypinky
1989
PON PON HIETA
1989
Hello Kitty
My Melody
Early 1980's
Tuxedo Sam
Puppy Love
1980
Toffeeroo
1989
Twee Dee Drops
1980
Rururugakuen
1989
Mellotune
1981
Donjarahoi
1989
Goropikadon
1982
WARAU ONNA
1989
Cheery Chums
1982
ROSY POSY
1989
The Vaideville Duo
1983
Ahiru no Pekkle
1989
Zashikibuta
1983
Nya Ni Nyu Ne Nyon
1983
Fun Come Alive
1983
Mr. Bear's Dream
1983
The Runabouts
1984
Nezumikozou
1984
Minna no Tabo
1984
Boo Gey Woo
1984
Mores Brothers
1984
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Early 1990's
Bad Badtz-Maru
Year of Creation
Shinkansen
Year of Creation
1990
Nemukko Nyago
2000
PUKAPUKA PARADISE
1990
Puchimerikko
2000
Tetsunagikuma
1990
Heysuke
2000
Little Cottonwood Cottage
1990
Hannarikomachi
2000
Pinly Bee Chan
1990
Robow@n
2000
Wafflekids
1990
Chocopanda
2000 U*SA*HA*NA
Carousel Design Series
1991
Sweet Coron
2001
Hooty Hoots
1991
U*SA*HA*NA
2001
Kimi-Kame-Rin
1991
Chewppies
2001
Ribonnets
1991
Cinnamoroll
2001
Coara Design Series
1991
Deery-Lou
2002
Monkichi
1992
Pururun Kyupi
2002 Cinnamoroll
Patapatapeppy
1992
Hoshinowaguma
2002
We Are Dinosaurs
1992
Puchipuchi Wanko
2002
Paradise Lives
1992
Formulixz
2002
Chu Chu Taako
1992
DokidokiYummy chums
2003
Honeyfield
1992
Pannapitta
2003
My Friend Pero
1992
Chibimaru
2003 Charmmy Kitty
2003
Friendly Kokkochan
1993
Chihuahua & Friends
Kobutanopippo
1993
Charmmy Kitty
2004
Benjamin Bear
1993
Sugarbunnies
2004
Pups
1993
Late 2000's
Polar Picnic
1993
Kuromi
Bad Badtz-Maru
1993
Cinnamonangels
2005
Kappanopappy
1994
Tenorikuma
2005
2006
2005 Sugarbunnies
Holly's Bear
1994
Mashumaronyanko
Pocketzoo
1994
Best friends' story
2006
Chippy Mouse
1994
Lloromannic
2007
Picke Bicke
1994
Late 1990's
Pompompurin
Early 2000's
Sugarcream Puffs
Pankunchi
2007 Kuromi
Cherinacherine
2008
Accyangaichiban
1995
Sugarminuet
2008
Teruteruporpn
1995
Jewelpet
2008
Kamokamokamonosuke
1995
NYOKKI & PENNE
2009
PUWAWA
1995
Wish me mell
2010 Jewelpet
Chococat
1996
BABYMILO
2010
Pompompurin
1996
Miss Bear's Dream
2010
Rore-More
1996
Framboiloulou
2010
Corocorokuririn
1998
BEETROID
2011
Daisy and Coro
Pink No Korisu Pinkuruchan
Okigaru Friends
Shinkansen
Landry
Dear Daniel
Tonarino Kappasanchi
1998
1998
1998
1999
1999
1999
1999
Go Chan
Ichigoman
Bonbonribbon
2011 Wish me mell
2011
2012
2012
2012
2012
2012 Ichigoman
Darkgrapeman
Honeymomo
Dreamtale Kubear
Show by Rock
Kirimi-chan
2013
HikidashiAita
2013
Roppappu the Thief
2013
Gudetama
2013 Gudetama
Shirirapper
2013
Sengoku Prison
2013
Shinkaizoku
2014
Hummingmint
2014 Kirimi-chan
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Sanrio ＞ Business
Profitability snapshot, financial ratios
Profit Margins
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Gross Profit
38,709
39,254
37,688
40,747
46,111
48,122
49,435
53,355
50,558
Gross Profit Margin
40.0%
41.8%
54.0%
55.2%
60.2%
64.2%
66.6%
69.3%
67.8%
6,222
6,614
6,575
14,863
14,996
18,906
20,198
21,019
17,468
(JPYmn)
Operating Profit
FY03/15
OP Margin
6.4%
7.0%
9.4%
20.1%
19.6%
25.2%
27.2%
27.3%
23.4%
EBITDA
7,588
8,160
8,178
16,247
16,317
20,122
21,505
22,505
19,030
EBITDA Margin
7.8%
8.7%
11.7%
22.0%
21.3%
26.8%
29.0%
29.2%
25.5%
Net Profit Margin
4.3%
1.2%
-2.1%
13.5%
12.2%
19.2%
16.9%
16.6%
17.2%
Financial Ratios
ROA
5.8%
5.7%
7.1%
16.8%
15.8%
21.3%
21.1%
18.8%
15.5%
ROE
11.8%
3.2%
-5.0%
15.0%
30.9%
43.5%
29.2%
23.2%
20.1%
1.00
1.01
0.83
0.90
0.90
0.87
0.80
0.72
0.62
Total Asset Turnover
10.3
Inventory Turnover
Days of Inventory
Working Capital Requirement
Current Ratio
Quick Ratio
35.4
36.7
6.2
58.7
6.8
53.7
7.3
50.1
7.9
8.0
46.0
45.8
7.1
51.3
6.4
56.7
6,910
9,946
7,996
8,016
7,495
8,579
9,381
11,656
10,662
103.2%
92.4%
100.1%
120.1%
114.6%
153.7%
223.8%
246.6%
253.0%
87.0%
77.5%
75.1%
91.4%
89.5%
124.8%
186.0%
221.8%
225.5%
0.15
0.10
0.20
0.27
0.39
0.47
51.1%
60.0%
66.9%
39.4%
37.0%
12.8%
OCF / Current Liabilities
Net Debt / Equity
9.9
0.64
-19.4%
0.64
-42.7%
0.49
-44.9%
OCF / Total Liabilities
0.1
0.1
0.1
0.2
0.2
0.3
0.4
0.3
0.3
Cash Cycle (days)
8.3
20.1
32.8
26.1
15.6
20.4
30.7
36.6
44.2
1,418
3,036
-1,950
-521
1,084
2,275
-994
Changes in Working Capital
20
802
Cost structure
In FY03/15, the largest component of the consolidated SG&A expenses was personnel cost (JPY12.1bn, or 36.5%).
Operating profit margin was 23.4% in FY03/15, but as the company expands its licensing business, personnel costs and
other fixed costs should remain stable or decrease, boosting expected operating profit margins.
SG&A Breakdown
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Advertising
3,182
3,310
3,357
3,578
3,671
3,402
3,580
3,591
3,594
60
94
-
311
514
32
10
854
150
7,295
7,396
7,156
7,368
7,214
7,047
7,068
7,422
7,592
Provision for Bad Debt
Director Bonuses and Salaries
Miscellaneous Wages
-
3,339
3,302
3,194
3,121
2,920
2,794
2,945
3,067
Employee Bonuses
855
879
873
854
901
939
960
1,019
920
Provision for Employee Bonuses
374
419
363
363
365
365
389
447
472
-
19
17
18
19
19
76
16
20
Shipping and Handling
1,559
1,441
1,309
1,207
1,094
949
915
862
841
Rent
3,450
3,374
3,040
3,130
2,971
2,753
2,563
2,642
2,682
891
1,034
1,147
944
873
785
882
899
932
Other
14,782
11,367
10,519
10,473
10,428
9,994
10,018
11,643
12,824
Total
32,451
32,677
31,088
31,445
31,171
29,210
29,255
32,340
33,094
Provision for Director Retirement
Depreciation
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Sanrio | 8136 |
Strengths and weaknesses
Strengths
◤
Brand power of Hello Kitty: Sanrio’s original characters led by Hello Kitty enjoy phenomenal recognition and
popularity among consumers worldwide. While the character business is often transient, with fads-driven
boom-and-bust cycles, Hello Kitty is still popular 40 years after her creation and represents a substantial business
franchise. Shared Research believes the significant popularity of Sanrio characters is thanks to the market analysis
capability that the company strengthened in its product sales business.
◤
Strong financials: The company’s equity ratio has greatly increased, and the company has become effectively debt
free. It has ample free cash flow without the burden of large capex. The strong balance sheet gives Sanrio a
considerable acquisition war chest and immunity against external conditions.
◤
Proven track record of successful licensing business: Sanrio has had a considerable success developing its
licensing operations in Europe creating a blueprint that can be applied to other markets worldwide, including Japan
(see Longer-Term Outlook).
Weaknesses
◤
High dependence on a single character: Sanrio’s high reliance on Hello Kitty means that any drop in popularity
of the character or a similar decline in operating performance related to it would have serious negative
consequences for the company.
◤
Business originated from founders’ passion: Shared Research believes that the company’s founder Shintaro Tsuji
has built a business based on his childhood experiences. He appears to be a true idealist, believing that people can
communicate with each other just by placing small messages in gifts. He is not against money making, but making
money is not the most important thing. His messages of idealism, strange for a typical CEO, permeate the company
culture. If this culture is supported by a pragmatic management team focused on value maximization, Sanrio will be
a money machine.
◤
Management direction and continuity issues: Shared Research feels that one of the biggest weaknesses Sanrio
had was it didn’t have a singular corporate direction. Despite substantial success with licensing in Europe (and
increasingly the US), it appears that the company has not decided on a clear improvement strategy for its business in
Asia as of FY03/15. Running licensing and product sales businesses at the same time without a distinct strategy could
result in disharmonious operations. On the other hand, the company will begin to better coordinate efforts it these
operations during FY03/16. Also, who will be the next successor to take control of the company appears to be the
next key issue.
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Sanrio ＞ Business
Market and value chain
Market overview
Licensing Business
License! Global Magazine published its list of “Top 150 Global Licensors” for 2014 based on global licensing sales.
According to this survey, 2014 licensing sales of the 150 licensors (based on retail sales) were USD259.9bn (+3.2% YoY).
Licensing sales of the top 10 licensors in the list (USD131.4bn) accounted for over 50% of total global licensing sales.
According to the survey, Sanrio had a 2.5% market share with licensing sales of USD6.5bn (making the company No. 6 on
the list).
Licensing Sales（USD bn）
Company
THE WALT DISNEY COMPANY
Phillips-Van Heusen
MEREDITH
ICONIX BRAND GROUP
MATTEL
Sanrio
Warner Bros. Consumer Products
Major League Baseball
Nickleoden Consumer Products
HASBRO
Other
Total
Share
45.2
18.0
17.7
13.0
9.0
6.5
6.0
5.5
5.5
5.1
128.4
259.9
17.4%
6.9%
6.8%
5.0%
3.5%
2.5%
2.3%
2.1%
2.1%
1.9%
49.4%
-
Source: License! Global Magazine
The US has the largest licensing market worldwide, responsible for 60%+ (retail store basis) and 70% (royalty basis) of the
global licensing market.
Licensing Market Scale
watail Store .asis (USD aillion)
9urope, 800
hthers ,
1,000
woyalty .asis (USD aillion)
9urope, 40
hthers, 40
UK, 50
UK, 1,000
Japan, 120
Ja pa n, 3,000
US, 12,000
US, 600
Source: License Business Management (2009, Nikkei Publishing Inc.)
*License Business Management showed market scales based on USD1=¥100. Original USD amounts are shown above.
On a simple average basis, royalty sales in the US, Japan, the UK and EU, and others accounted for 5.0%, 4.0%, 5.0%, and
4.0%, respectively, of the global licensing market (2009).
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Sanrio ＞ Business
License Product Retail market Share by Property (2009)
N. America
12.0%
Europe
13.5%
19.5%
22.4%
Asia
9.2%
16.8%
29.9%
12.9%
25.6%
23.4%
16.4%
S. America
37.3%
6.4%
27.2%
Middle
East/Africa
37.9%
3.5%
31.0%
20%
40%
0%
22.5%
6.1%
12.1% 7.6%
7.9%
39.1%
Oceania
26.4%
60%
18.9%
9.6% 5.4%12.5%
8.2%
Character (Entertainment, TV, Movie)
Sports
Fashion
22.3%
Trademark/Brand
Art
7.5% 5.2% 16.5%
Others
3.5%3.5%
20.7%
80%
100%
Source: Ministry of Economy, Trade and Industry and EPM Communications, Inc. data, SR Inc. research
Licensing involving characters (entertainment, TV, movies) and fashion accounts for a significant portion of the license
product retail market.
Asian License Product Retail Market Share by Property (2009)
5.3%
Japan
39.0%
7.8%
26.1%
9.3%
China (inc. Hong
Kong, Taiwan)
39.1%
8.1%
26.4%
10.0%
12.6%
Sports
4.9%
11.6%
40.3%
8.1%
22.6%
9.7%
India
39.1%
8.7%
23.9%
8.7%
Fashion
Trademark/Brand
6.5%
S.E. Asia
Character (Entertainment, TV, Movie)
12.9%
Art
Others
4.4%
0%
20%
40%
60%
80%
15.2%
100%
Source: Ministry of Economy, Trade and Industry and EMP Communications, Inc. data, SR Inc. research
In the domestic character product market, character use in the apparel industry has been rising.
Domestic Character Product Market Share by Product Category
Source: Ministry of Economy, Trade and Industry data, CharaBiz DATA 2011
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Sanrio ＞ Business
Sanrio character goods show a similar trend, with a high percentage of apparel products, toys, and accessories (characters
can be easily used on these products). In Japan and the US, however, the company’s sales in the apparel industry are
lower than those in Europe, giving reasons for Shared Research to think the Japanese and US markets have room for
additional growth.
Theme Parks Business
According to the Current Survey of Selected Service Industries from the Ministry of Economy, Trade and Industry, 78.2mn
people visited amusement and theme parks in 2014 (increase of 4.0% YoY). The leisure industry as a whole suffered due
to the Tohoku earthquake in 2011, ,but has since recovered and demand has increased since 2012. This favorable
increase can also be attributable to an increase in overseas visitors due to the weakness of the yen against the US dollar.
Number of Visitors: Theme Parks & Amusement Parks
('000 people)
80,000
75,000
70,000
65,000
60,000
55,000
50,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: METI data, SR Inc. research
Theme Parks and Product Sales Businesses
Overseas visitors are one ray of hope for the future of the leisure industry in Japan and, in turn, Sanrio’s theme park
business, which benefits from tourism, and character business, handling globally renowned characters.
In June 2011, the Japan Tourism Agency established the “30 Million Foreign Visitors Program” with the future goal of
attracting 30mn tourists. The plan calls for targets of 15mn tourists by 2013 and 20mn by 2020. The number of foreign
tourists visiting Japan began increasing from the end of 2012 and broke the 10mn mark with 10.4mn visitors in 2013 and
13.4mn in 2014. The increase in the number of tourists visiting Japan from the Asian region is particularly significant.
Visitors to Japan by Country (Number of visitors)
p
y
y(
South Korea
Taiwan
China
Hong Kong
Thailand
Singapore
Malaysia
Indonesia
India
2005
1,747
1,275
653
299
120
94
78
59
59
)
2006
2,117
1,309
812
352
126
116
86
60
63
2007
2,601
1,385
942
432
90
167
152
64
68
2008
2,382
1,390
1,000
550
82
192
168
67
67
2009
1,587
1,024
1,006
450
178
145
90
64
59
2010
2,440
1,268
1,413
509
215
181
115
81
67
2011
1,658
994
1,043
365
145
111
82
62
59
2012
2,044
1,467
1,430
482
261
142
130
101
69
2013
2,456
2,211
1,314
746
454
189
177
137
75
2014
2,755
2,830
2,409
926
658
228
250
159
88
CAGR
5.2%
9.3%
15.6%
13.4%
20.8%
10.3%
13.8%
11.6%
4.6%
Source: Japan National Tourist Organization (JNTO) data processed by SR Inc.
Customers
The company’s main customers are infants to teenage girls, although the average customer age is gradually rising and
there are many adults who are fans of the company’s characters. Although the company itself does not have data on the
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Sanrio ＞ Business
number of adults who are Sanrio fans, it claims to have “50 million Hello Kitty fans in Japan.” Based on Japan’s female
population (about 65 million as October 2012) and assumptions that many of Hello Kitty fans are female, the company’s
claim implies that the majority of Japanese females are Hello Kitty fan.
Source: Character Data Bank and company data processed by SR Inc.
Peer comparison
Within Japan, Anpanman (Nippon Television Network Corp.; TSE1: 9404, and other right-holders), Doraemon (Fujiko F
Fujio Production K.K.; unlisted), and Ultraman (Tsuburaya Productions Co., a subsidiary of Fields Corporation; JASDAQ:
2767) are long-selling characters that have a level of recognition similar to that of Hello Kitty.
Age
60
40
20
Hello Kitty
Character C
Character B
Character A
10
Ultraman
Anpanman
Short-Lived
Long-Lived
Source: Various companies data processed by Shared Research
Walt Disney Company character business is probably the closest comparison with Sanrio on a global basis. Like Hello
Kitty, Walt Disney characters are popular among wide-ranging age groups, from infants to adults.
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Walt Disney overview
Results (FY09/14)
YoY
（ 1,000 Dollar）
Sales
OP
OPM
Sales
OP
Media Networks
21,152
7,321
34.6%
4%
7%
Park and Resort
15,099
2,663
17.6%
7%
20%
7,278
1,549
21.3%
22%
>100%
Consumer Products
3,985
1,356
34.0%
12%
22%
Interactive Media
1,299
116
8.9%
22%
-
48,813
13,005
26.6%
8%
21%
Studio Entertainment
Total
Main Characters
Mickey Mouse, Minnie Mouse, Donald Duck, Goofy, Winnie-the-Pooh
Stitch
Main Theme Parks
Opened
Overseas
Planned
Disney Land Resort （California）
1955
Walt Disney World Resort (Florida)
1971
Aulani Disney Resort & SPA (Hawaii)
2011
Tokyo Disney Resort
1983
Disney Land Paris
1992
Hong Kong Disney Land Resort
2005
Shanghai Disney Resort
2015
Source: The Walt Disney Company data, SR Inc. research
Comparison with Walt Disney
Number of characters
Sanrio
Over 400
Disney
Over 500
Number of countries introduced
109
n/a
Directly managed stores (domestic)
119
47
Source: Company and Oriental Land data processed by SR Inc.
Number of countries introduced: As of May 2012
Directly managed stores: As of end-FY03/14 (Sanrio); as of May 2014 (Disney)
The Walt Disney Company could also be called a comparison peer in the theme park segment, though the strategy differs
between two companies. For Sanrio, theme parks are character incubators, and the means of conveying the philosophy
centered on gift giving, gratitude, and other similar themes. For the Walt Disney Company, theme parks can probably be
seen as a royalty business. In Japan, the Tokyo Disney Resort, the mainstay business of Oriental Land Co., Ltd. (TSE1:
4661), must generate tangible results to pay royalties to Disney, for example.
FY03/15
Tokyo Disney Resort
Number of
Average
Average Spend
Visitors (1,000
Admission Fee
per Visitor (Yen)
People)
(Yen)
31,380
10,955
4,660
Product Sales
(Yen)
Food,
Beverage
(Yen)
4,043
2,252
Space
(sqm)
Opened
Tokyo Disney Land (Chiba)
510,000
1983
Tokyo Disney Sea
490,000
2001
Sanrio
Sanrio Puroland (Tokyo)
841
4,708
1,955
1,852
901
45,900
1990
Harmonyland (Oita)
393
3,463
1,520
1,303
640
235,000
1991
Source: company and Oriental Land data, SR Inc. research
According to 2012 data by Character Data Bank, Ltd., 50 Best Characters included 10 Disney characters and three Sanrio
characters.
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50 Best Characters
1. Anpanman
2. Mickey Mouse
3. Pokemon
4. Hello Kitty
5. ONE PIECE
6. Pretty Cure Series
7. Rilakkuma
8. Winnie the Pooh
9. Super Mario Brothers
10. Snoopy
11. Mobile Suit Gundam Series
12. Minnie Mouse
13. Kamen Rider Fourze
14. Thomas & Friends
15. Miffy
16. Kamen Rider Wizard
17. Duffy
18. Tamagotchi
19. Doraemon
20. Tokumei Sentai Go-Busters
21. Jewelpet
22. Kamen Rider Series
23. Cars
24. Shimajiro
25. Hatsune Miku
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
Inazuma Eleven
Stitch
Tomica
Neon Genesis Evangelion
Ultraman Series
Licca-chan
Inai Inai Baa!
My Melody
Toy Story
Dragon Ball Series
Kobito Dukan
My Neighbor Totoro
Donald Duck
Puella Magi Madoka Magica
the bear's school
Naruto
Kaizoku Sentai Gokaiger
ShellieMay
Mushroom Garden
Disney Princess
Dragon Warrior Series
Little Battlers eXperience
Plarail
Moomin
Sylvanian Families
Source: Ministry of Economy, Trade and Industry, CharaBizDATA 2012
*Pink: Sanrio characters; Orange: Disney characters
A different survey, by a US culture magazine Paste, was conducted in the US—a nationwide survey on the top 20 cats in
the history of popular culture. Hello Kitty ranked fourth; Disney characters Cheshire Cat (Alice in Wonderland), Aslan (The
Chronicles of Narnia), and Thomas O’Malley (The Aristocats) ranked in the top 20.
Note that cats are not a religious taboo in any nation and are therefore easily developed into characters worldwide. The
company claims that Hello Kitty has 50 million fans in Japan and 200 million fans worldwide. Given the worldwide
popularity of cats, Shared Research wonders if the number of overseas fans can be increased over time. Whether or not
the number eventually approaches the claimed 40%-of-the-population fan base remains to be seen. However, the
assumption that the global customer base has room to grow appears valid.
The 20 top cat characters
1. The Cat in the Hat, The Cat in the Hat
2. Tom Cat, Tom & Jerry
3. Cheshire Cat, Alice in Wonderland
4. Kitty White (Hello Kitty)
5. Aslan, The Chronicles of Narnia
6. Felix the Cat
7. Thomas O’Malley, The Aristocats
8. Mufasa, The Lion King
9. Lion-O, ThunderCats
10. Garfield, Garfield
11. Milo, The Adventures of Milo and Otis
12. Keyboard Cat (on YouTube, etc.)
13. Smelly Cat, Friends
14. Snowball(s), The Simpsons
15. Salem Saberhagen, Sabrina the Teenage Witch
16. Toonces the Driving Cat, Saturday Night Live
17. Sassy, Homeward Bound: The Incredible Journey
18. Meowth, Pokemon
19. Snacks the Cat, pet of Bethany Cosentino, the vocalist of US rock band Best Coast
20. Mr. Bigglesworth, Austin Powers
Source: US culture magazine “Paste”
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Strategy
Early Strategy
The company’s business model was to participate in every stage of the supply chain, from product manufacture and
transport through sales. Due to this model, the company has had a strong “we do everything ourselves” culture. In terms
of sales channel, the company emphasized the importance of directly managed Sanrio Shops inside department stores
and mass retailers. The company’s market analysis capability (nurtured through the product sales business) was
responsible for the company succeeding in creating many popular characters.
Character Strategy
The Hello Kitty character is loaded with messages and symbols. The mouth is absent to enable the character to “share”
the mood and feelings of a person looking at it. The original color of the ribbon, red, expresses cuteness. As previously
stated, Hello Kitty is not a character that originated from movies or comics so she does not have a specific personality.
This makes Hello Kitty accessible to everyone and allows the character to be adapted to any type of design. This in turn
makes it possible to keep Hello Kitty current and allows producing multiple variations to suit different products, target
markets, and sales seasons.
“Smiles Not Money”
The company put emphasis on seemingly philanthropic activities, such as expanding the circle of friendships and
happiness through Hello Kitty, stimulating communication among people through greeting cards, and helping people
approach a better, peaceful world. According to the book “The Story of Sanrio,” during the Oil Shocks of the 1970s, the
manufacturers were forced to raise prices across the board. Sanrio, with its policy of “good price,” resisted hiking prices of
its merchandise. That helped gather substantial publicity and the initiative ended up helping, not hurting company
profits. This anecdote serves as a notable example of this strategy that Shared Research would attempt to summarize as
“smiles not money.”
Strategic shift from FY03/08
Sanrio’s primary strategic shift in recent years was from direct product sales to licensing. In FY03/08 the company began
to allocate more management resources to licensing.
Europe
In Europe, by FY03/12 Sanrio has successfully expanded the licensee base. In FY03/13 and beyond, the strategy in the
region is more multifaceted and includes focusing on characters other than Hello Kitty, continuing to develop new
licensees while deepening the relationship with the existing ones.
Sanrio believes there is little organic growth left in such mature markets as Germany, Italy, France, and Spain, and further
increases in character exposure in these countries would be counterproductive (the UK continues to show sustained
growth). Subsequent to FY03/13, performance has remained at low levels due to the debt crisis and adjustments
coinciding with depressed economic activity. The company aims to restructure its operating structure during FY03/16.
At the same time, the company is seeing significant growth potential in the Middle East, Eastern Europe, Russia, and India
as well as in the UK where the company has yet to bolster its presence. Sanrio’s strategy is to allow its existing licensees to
expand in those markets. At the same time, the company plans to localize its business by hiring personnel who
understand local conditions and have experience in licensing business.
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North America
There was a delay in shifting to the licensing business model in this region due to store network restructuring. It was only
from FY03/12 that the company started all-out efforts to push the licensing business.
To accurately identify the signals of oversaturation, the company is monitoring the sell-through in each region and
channel. Cannibalization (e.g., higher sales of Hello Kitty merchandise at Target negatively impacting sales of similar
merchandise at Walmart) is also a concern.
Sanrio is increasing its market reach by expanding from the East and West coasts into the Midwest. In terms of
profitability, the company is aiming to raise operating profit through deeper channel penetration (i.e., increasing the
number of categories its characters are presented in).
Latin America
In Mexico, the company has employed a local agent in 2011 and is looking for licensing business there to expand
150%-200% YoY in two to three years. The company plans to employ agents in Brazil, Chile, Argentina, Peru, and
Columbia, fueling expectations for further regional growth. Looking at its success in expanding channels and customer
base in areas in the US with a large Hispanic population, Shared Research thinks that success in Mexico is likely.
Asia
Like in other regions, in Asia Sanrio is increasingly focusing on licensing. In January 2012, it has signed a master license
agreement covering China (excluding Hong Kong and Macao) with KT Company and KT Shanghai Company (the
agreement took effect in February 2012). The company is expected to speed up new store openings in Indonesia,
Thailand, and Singapore through agents, possibly leading to greater character exposure and synergies with the licensing
business.
Japan
It appears to Shared Research that in Japan, a number of legacy issues have been impacting growth and profitability. Two
issues loom—whether the current Japanese licensee portfolio strategy is maximizing revenues and the currently low
profitability in Tokyo. Behind these two issues is a deeper question of whether Sanrio has a value-maximizing
company-wide strategy at all.
Things appear to being changing for the company. The company now recognizes the importance of licensing, and, up
until now, its licensees had been small and medium-sized domestic companies. However, it is strengthening its
relationships with large domestic companies, as well as global companies from Tokyo similar to its strategy in North
America and Europe. For FY03/15, operating profit for the domestic license business segment reached JPY6.9bn
(operating profit margin of 68.0%), making the licensing the main domestic earnings driver.
In FY03/14, the company intends to aggressively invest in systems as part of strengthening its marketing activities, with an
aim to strengthen and deriving synergies from its license business and product sales segments.
As part of its cost control measures, the company introduced key performance indicators (KPIs) to monitor processes
aimed at achieving corporate targets and strategies in FY03/10. The result was a small cultural shift in priorities from sales
to profits, highlighting the need to control SG&A expenses. In FY03/12, Sanrio established a “Structural Reform Office,”
which conducts vendor negotiations to bring down the cost and frequently employs outside consultants to benchmark
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best practices. Some early results were encouraging—one anecdote mentions lower China-Japan shipping charges by
over 70%.
It is instructive to compare the company with US-based Marvel Entertainment, Inc., which was acquired by Walt Disney in
2009. Marvel’s operating profit margin for 1H 2008 (immediately before the acquisition) was 64.1%, and SG&A-to-sales
ratio at 25.5%. Sanrio’s SG&A-to-sales ratio in FY03/15 was 44.4%. While two companies may not be the perfect
comparison, this example may suggest that Sanrio could be much more profitable in Japan.
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Sanrio ＞ Historical financial statements
Historical financial statements
1H FY03/16 results (announced on October 30, 2015)
▶
▶
▶
▶
Sales:
JPY35.4bn (-0.2% YoY)
Operating profit:
JPY7.1bn (-15.3% YoY)
Recurring profit:
JPY7.2bn (-19.5% YoY)
Net income:
JPY5.4bn (-10.6 YoY)
Robust product licensing in China was not enough to offset continued sluggishness in Europe and the US, with a decline
in both income and operating profit. Although a weaker yen resulted in a foreign exchange profit of JPY400mn the
previous year, this year the company recorded a foreign exchange loss, further impacting income. Net income
attributable to owners of the parent came to JPY600mn: although there was a loss in income in the US and Europe due to
the high corporate tax rate, profit gain in Asia (where corporate tax rate is lower) meant that the company managed to
diminish losses.
Domestic
▶
▶
Sales:
Operating profit:
JPY24.5bn (+3.9% YoY)
JPY90mn (JPY300mn operating loss in 1H FY03/15)
There was an increase in revenue and profit in the Domestic Licensing, Domestic Product Sales, and Theme Parks
sub-segments.
The Domestic Licensing business saw sales of JPY5.1bn (+7.2% YoY) and operating profit of JPY3.5bn (+7.4% YoY).
Results were solid for licensed products popular among foreign tourists, such as the instax mini HELLO KITTY camera, and
also for cosmetics products such as the "Little Twin Stars (Kiki & Lala)" branded underwear, facewash and powder. In
addition to Gudetama, Sanrio won new licensing agreements with broadcasts of its SHOW BY ROCK!! animated series
starting from April. In addition to product licensing, Sanrio won new promotional licenses for use of its characters at cafe
convenience stores and corporate promotions.
The Domestic Product Sales sub-segment saw sales JPY10.1bn (+7.1% YoY) and operating profit of JPY700mn (+10.2%
YoY).
Sales were robust, particularly at stores in urban areas, thanks in part to the growing number of foreign tourists visiting
Japan. The licensed wet tissue die-cut case product continued to sell well, and the Gudetama character were popular
among a wide range of ages. HELLO KITTY products, collaboration products using the "Doraemon" and “Very Hungry
Caterpillar” characters, and brand collaborations with Laura Ashley were popular gift purchases at department stores and
directly run stores, and even contributed to steady sales recoveries at regional and suburban stores that had struggled.
Comparable store sales (at directly run stores and directly run outlets inside department stores) increased 8.3% YoY.
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Sanrio is targeting inbound tourists by increasing sales space in areas frequented by foreign tourists and expanding the
range of Japanese-made products. In July, the company opened the Sanrio Gallery Kyoto, a large new street-level store in
Kyoto. The EC business also expanded 16.6% YoY with new sites and events with mall operators.
Theme park business
The Theme Park business saw sales of JPY4.1bn (+20.5% YoY) and operating profit of JPY100mn (200mn operating loss in
1H FY03/15).
Harmonyland saw sales of JPY1.0bn (+18.9% YoY) and operating profit of JPY100mn (+90.9% YoY). Weather conditions
were unfavorable, but the installation of roofs over the parade area was successful, and the new night parades and pool
were popular in summer, with visitors increasing 18.6% YoY to 259,000 people. Operating profit was up year-on-year
thanks to the increase in visitors, despite higher costs such as increased depreciation on roofing structure / parade
upgrades, and higher personnel costs. Sanrio hopes to recover to a full-year profit by increasing marketing to the areas
reached by the extended Higashi-Kyushu Expressway and attracting visitors with the new roof and parades.
Sanrio Puroland saw sales of JPY2.9bn (+22.4% YoY) and operating profit of zero (JPY300mn operating loss in 1H
FY03/15). Sanrio Puroland had 547,000 visitors (+26.5% YoY) as special events such as the “My Melody” 40-year
anniversary celebration proved successful. Sanrio Puroland controlled SG&A expense and increased operating profit by
moving away from television and other media for summer vacation advertising, focusing on Chanrio Maker instead.
“Chanrio Maker” is a free internet service for that allows users to arrange face, hair and clothing parts and create their own Sanrio styled
avatars.
Overseas
▶
▶
Sales:
JPY18.1bn (-9.8% YoY)
Operating profit:
Lower sales and profit in Europe and North America was partially offset by increased earnings in Asia, but overall the
Overseas segment saw reduced sales and profit.
Europe
Sales were JPY4.4bn (-22.2% YoY) and operating profit was JPY2.1bn (-25.5% YoY). On a local currency basis, sales were
EUR21mn (-23.5% YoY) and operating profit was EUR5mn (-34.6%). Increased sales in Eastern Europe and the Middle
East were not enough to offset sluggishness in major Western European countries, the key region for European
operations.
North America
USD24mn (-38.9% YoY) and operating profit was USD1mn (-81.9% YoY).
Retail floor space continued to be encroached on by mass merchandisers' own movie-related entertainment characters,
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and product licensing revenue declined. At the same time profit decreased on increased SG&A expense associated with
cafes, live events, and other new marketing approaches.
South America
Sales were JPY900mn (-32.2% YoY) and operating profit was JPY400mn (-43.4%).
Both sales and profits were lower due to intensifying competition and a sluggish regional economy. Strategies for
increasing sales include expanding product licensing categories, holding events targeting general consumers to raise
awareness of its characters, and capturing more promotion licenses used for corporate promotions.
Asia
Sales were JPY7.9bn (+18.9% YoY) and operating profit was JPY3.0bn (+20.2% YoY).
Hong Kong: Exports declined as the exporting of some products made in China were transferred to a subsidiary in
Shanghai. Revenue from product licensing also declined on a drop in the number of tourists from mainland China. Use in
novelty goods by a fast food chain and corporate promotion sales including cafes and events were robust.
Thailand: Sales declined in Thailand after a surge in special orders from financial institutions during the year-earlier
quarter, but grew in Singapore and Malaysia on sales promotions for post offices.
Taiwan: Sales and profits increased on promotional licensing to distributors and popularity of characters Gudetama
adopted along with Hello Kitty, My Melody and Little Twin Stars characters in a major convenience store promotional
campaign.
China: Master licensee KTL Company (part of the Hong Kong-based Li & Fung Group) exceeded 200 sub-licenses with
continued product category growth, particularly in apparel.
South Korea: Consumption fell along with foreign tourist numbers, including from China, due to the impact of MERS
(Middle East Respiratory Syndrome).
Summary of 1H FY03/16 earnings briefing
The briefing was attended by President and CEO Shintaro Tsuji, Managing Directors Susumu Emori, Kazuyoshi Fukushima,
Rehito Hatoyama, Takahide Nakaya, and Directors Jiro Kishimura and Yuko Tsuji.
Earnings briefing by Managing Director Susumu Emori
1H FY03/16 results
Sales decreased 0.2% YoY. The fall in overseas sales (-9.8% YoY) was partially offset by higher sales in the domestic
segment (+3.9%). The Overseas segment struggled in all areas, and SG&A expenses increased year-on-year.
Nevertheless, net income for the quarter was 8% higher than initially estimated, due to improvements in extraordinary
income and a reduction in the tax burden.
Similarly, lower profit in the Overseas segment was partially offset by increased profit in the Domestic segment. Overseas
segment profit fell year-on-year as the Europe and North America businesses struggled, while profit increased YoY for all
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domestic segments. The domestic licensing business experienced earnings growth due to deals for LINE stamps,
household goods, pharmaceuticals, and an alliance with Japan Post. Comparable store sales increased 8% YoY due to the
impact of more inbound tourists and a recovery from the increase in consumption tax in the preceding year. The theme
parks business successfully increased visitors with new attractions and efforts to attract visitors, such as corporate tie-ups,
enhancement of student discounts, and complementary shareholder tickets.
By region, the higher operating profit in Asia (up 60% YoY) was not enough to offset reductions in Europe and North
America. Excluding the struggling South Korean subsidiary, all Asian subsidiaries recorded strong operating profit,
particularly China, where operating profit rose 69% YoY.
Revised full-year FY03/16 company forecasts
The company expects FY03/16 overall sales to fall 1.6% from FY03/15, and profits to fall in all segments. However, this is
conservative, as it does not include the expected improvement in extraordinary income or the reduced tax burden. Once
these are factored in, Shared Research expects net income to outperform company forecasts for FY03/16.
In the Overseas segment the company forecasts FY03/16 operating profit to be lower than FY03/15, but that higher
Domestic segment operating profit will partially offset the fall. In addition to the factors that contributed to higher 1H
earnings, the company believes an increase in domestic profit for the full-year due to deals with convenience stores, the
40th anniversary of My Melody and Little Twin Stars, contributions from new characters Gudetama, Kirimi-chan, and
Show by Rock, as well as the impact of the scrap and build of directly owned stores.
Operating profit for the Overseas segment will depend on whether or not Asian operations can cover reduced earnings in
Europe and North America. Operating profit for China in particular is forecast to rise 41% YoY.
Shareholder returns
The company’s target ROE is 20%, but the revised company forecast is for a 15.8% ROE. However, this seems
conservative as it does not factor in the expected extraordinary income or reduced tax burden. The company is also still
considering a share buy-back.
Previously, withholding tax was levied on distributions from the German subsidiary to the parent, but the tax treaty
between Japan and Germany has been amended. The company has been told informally that this withholding tax
obligation will be removed. The company believes that using local retained earnings will make it easier to conduct a share
buy-back.
Strategic challenges
The company is forming a medium-term plan. Before announcing the plan, it plans to turn around the European business
by Q4 FY03/15 by growing personnel by double digits. But given the state of the economy and fierce competition, the
company is now expecting European results to bottom out in FY03/16 or later. To accelerate earnings improvement, the
company is considering changing its Europe director, and employing local personnel from 2H FY03/16.
Since 2014, the company has transferred authority to the head of each department, and is determining capabilities and
suitability, with the goal of establishing a new management structure by 2016.
Overseas, President Shintaro Tsuji manages North and South America, plus Asia, and Director Yuko Tsuji acts as
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vice-manager. Director Jiro Kishimura manages Europe. Managing Director Rehito Hatoyama is concentrating on movie
related operations.
Presentation by President Shintaro Tsuji
Sanrio marked its 55th year in August 2015. Since the company was first established, it has aimed to be a unique and
exclusive company. The company’s purpose is to create and cultivate a loyal fan base by producing and selling products
based on cute characters. That has been the basis of Sanrio’s character business, which has grown to 150 designers and
planners who drive its innovation. The company aims to supply at least 100 products a month and 1000 a year, around
the world.
In terms of government organizations, Hello Kitty has been adopted as special ambassador at Expo Milano, while the
Minister of Agriculture, Forestry and Fisheries adopted Kirimi-chan as the ambassador of its “Let’s Eat Fish” project.
Meanwhile, stamps with Hello Kitty, Cinnamoroll, Little Twin Stars, and My Melody characters are sold at post offices, with
over 90mn stamps sold as of December 2015. Recently added to the stamp line-up is the Gudetama character, an instant
sell-out. Sanrio characters have begun to appear on marriage certificates, while Hello Kitty has been adopted as a
campaign character for the year-end “Dream Draw” lottery campaign.
Companies must go beyond simply making new products, to produce products that people want. According to Sanrio
research, customers are drawn to brand names, and Sanrio character brands can be equated to product brand. Sanrio
cultivates and values its fans who are young and old, men and women in countries around the world. The company
receives many licensing requests from various countries, but if the brand is not used properly it risks alienating fans. For
this reason, the company has restricted brand sales to some extent for the last three or four years. It believes characters
should be cultivated, and aims to spread character shops around the world. Character cafes have also become popular.
It was taking time for US results to recover. This was because in Europe and the Americas, an animated movie released by
another company in 2014 was a major hit, and related products continued to sell for a year and a half after release (most
hit movie products tend to fizzle out after a year). Shelf space for Sanrio products at the major US retailers was reduced for
products related to the hit movie. Many movie companies also began to produce character-related products. Currently
new plans and innovations are being formulated under the leadership of Director Yuko Tsuji, together with Sanrio
America CEO Murakami, who has 35 years' experience at Sanrio America, and COO Yamamoto, in an effort to win back
retail space. The company is also working to develop innovative new products. Gudetama products were an example of
such innovation, and its backpack and nametag products were popular at chain stores.
In the US, movie-related products have taken shelf space at volume retailers, and in Europe there was a litigation issue
with a licensee. As a result, CEO Murakami, COO Yamamoto, and Director Yuko Tsuji have taken charge of the Americas,
and Director Kishimura of Europe. Mr. Hatoyama has a big job ahead of him with the movie business, in order for Sanrio
movie character products to become more competitive. President Shintaro Tsuji is in the process of training successors, as
he plans to hand over the role of President to a new leader in June 2016
Q&A
The President's successor
President Shintaro Tsuji is intending to resign in June 2016, but given the unique global position of the company, this will
not be an easy role to fill. The company may bring in someone in from outside the company.
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Gudetama sales forecasts at the company’s 300 US stores
Gudetama is an innovation character with a design that makes it difficult to forecast sales. License applications are coming
thick and fast. Sanrio emphasizes building fan bases around characters. The outlook for this character is unclear
Impact of China economic issues
The market for marketing rights in China is estimated at around JPY550bn. Sanrio is working to expand in China with
license agent partners. Using experience gained in Europe and the Americas, the company intends to strengthen
characters other than Hello Kitty. Currently revenue is around JPY2.0 to 3.0bn, but the company is targeting JPY10.0bn by
the year 2020.
Q1 FY03/16 results (announced on July 31, 2015)
▶
▶
▶
▶
Sales:
JPY17.0bn (-5.2% YoY)
Operating profit:
JPY3.5bn (-19.6% YoY)
Recurring profit:
JPY3.6bn (-15.5% YoY)
Net income:
JPY2.8bn (unchanged YoY)
Versus 1H forecasts, sales achieved 47.9% and operating profit achieved 46.9%. According to the company, Q1 results
were generally in line with company plans.
For Q1 FY03/16, sales declined 5.2% YoY as robust product licensing in Asia was not enough to offset sluggishness in
Europe and the US. Operating profit fell 19.6% YoY, but recurring profit declined only 15.5% due in part to foreign
exchange gains. Net income attributable to owners of the parent was maintained at the year-earlier level on the booking
of JPY300mn in gains from selling investment securities and a more favorable overall tax rate due to more subsidiaries in
Asia, where effective tax rates are lower.
Domestic
The domestic segment yielded sales of JPY10.9bn (-5.4% YoY) and an operating loss of JPY300mn (operating loss of
JPY200mn in Q1 FY03/15). Progress toward 1H forecasts was 45.7%.
The Domestic Licensing business saw higher sales and profits. Although losses narrowed in the Theme Parks business,
special event sales at convenience stores in Other businesses were delayed until Q2, leading to lower sales and profits.
Sales in the domestic product sales sub-segment were JPY4.8bn (+3.2% YoY), and operating profit was JPY400mn (-5.6%
YoY). Progress toward 1H forecasts was 50.0% for sales and 56.6% for operating profit.
Sales were robust, particularly at stores in urban areas, thanks in part to the growing number of tourists visiting Japan. The
instax mini HELLO KITTY camera, a licensed product, and the Gudetama character were popular among a wide range of
ages. HELLO KITTY products and collaboration products using the “Very Hungry Caterpillar” character were popular gift
purchases, especially at department stores, and even contributed to steady sales recoveries at regional and suburban
stores that had struggled. Comparable store sales (at directly run stores and directly run outlets inside department stores)
increased 5.1% YoY.
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Sales were up but profits were down due to event-related expenses, expansion of duty free stores to respond to a
growing number of overseas tourists, and forward investment ahead of the 40 year anniversaries of “My Melody” and
“Little Twin Stars.”
The Domestic Licensing business saw sales of JPY2.3bn (+6.5% YoY) and operating profit of JPY1.6bn (+2.8% YoY).
Progress toward 1H forecasts was 47.9% for sales and 47.0% for operating profit.
Results were solid for products popular among foreign tourists such as the instax mini HELLO KITTY camera, as well as for
post office sales promotion materials, and cosmetics products. In addition to Gudetama, Sanrio captured other new
licensing agreements with broadcasts of its SHOW BY ROCK!! animated series starting from April. This along with
promotional licenses allowing for use of its characters at cafes and other spaces helped expand sales for the domestic
licensing business.
According to the company, royalty income from digital content such as free stickers for use in mobile messaging apps
increased by 16.3x from FY03/13 to FY03/15, maintaining a high rate of growth.
Theme park business
The Theme Parks business reported sales of JPY1.6bn (+22.7% YoY), and the operating loss was JPY100mn (JPY300mn loss
a year earlier). Progress toward 1H forecasts was 40.5% for sales.
Visitors to Harmonyland increased 16.7% YoY to 87,000 people. Weather conditions were unfavorable, but the
installation of roofs over the parade area eliminated the need to cancel parades on rainy days. That said, the operating loss
for this business increased slightly on higher costs such as beefed up advertising along with expansion into new regions
and increased depreciation on roofing structure / parade upgrades. Sanrio hopes to realize improvements on the profit /
loss front by targeting Miyazaki and Kita-Kyushu as new areas for attracting visitors to its theme parks.
Sanrio Puroland had 202,000 visitors (+31.3% YoY) as special events such as the “My Melody” 40-year anniversary
celebration proved successful. The operating loss also narrowed significantly as the company kept SG&A expense at
year-earlier levels.
In July 2015, Sanrio Puroland released an avatar creation app, “Chanrio Maker,” and it recorded over 10mn downloads
within two weeks of its release. By creating an avatar with the app, visitors to Sanrio Puroland can enjoy virtual attractions
where the avatar dances with Sanrio characters, along with various other bonuses.
Other business
Sales were JPY2.2bn (-35.3% YoY) and operating profit was JPY100mn (-66.0% YoY). Progress toward 1H forecasts was
40.0% for sales and 53.4% for operating profit.
Due to special event sales at convenience stores being delayed until Q2, both sales and profits were down year-on-year.
Overseas
▶
▶
Sales:
JPY9.5bn (-7.4% YoY)
Operating profit:
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Versus 1H forecasts, sales achieved 48.4% and operating profit achieved 48.8%.
Europe
EUR12mn (-17.1% YoY) and operating profit was EUR3mn (-38.6% YoY). Progress toward 1H forecasts was 52.4% for
sales and 56.6% for operating profit.
Better sales in the Near and Middle East regions were not enough to offset sluggishness in major Western European
countries, the key region for European operations. However, the rate of decline is slowing in sales and operating profit.
According to the company, it has started reorganizing its sales structure in FY03/15, which includes initiatives such as
reshuffling its licensees, strengthening its sales force, and assigning dedicated teams of employees to select major
licensees. The effects of the above are leading to gradual improvement. Sanrio has also begun working more closely with
licensees in areas such as marketing, promotion, and design in efforts to enhance its product lineup.
North America
Sales were JPY2.1bn (-35.9% YoY) and operating profit was JPY700mn (-51.1% YoY). On a local currency basis, sales were
USD14mn (-43.7% YoY) and operating profit was USD2mn (-65.3% YoY). Progress toward 1H forecasts was 45.8% for
sales and 41.3% for operating profit.
A record-setting cold snap hurt retail in general, as was the case during the same period last year, competition continued
to intensify, and product licensing revenue declined. In particular, a movie studio acquired a significant amount of shelf
space at major retailers for its characters, hindering the visibility of Sanrio products. At the same time profit decreased on
increased SG&A expense associated with cafes, live events, and other new marketing approaches.
As future countermeasures, Sanrio plans to increase brand awareness of its “Gudetama,” “My Melody,” and “Little Twin
Stars” characters, pushing forward with a multi-character strategy that does not rely solely on Hello Kitty.
In June 2015, the company established Sanrio Media & Pictures Entertainment, Inc., a wholly owned subsidiary, with the
aim of developing a movie animation and digital content business in the US. As its first project, Sanrio is planning a release
of a film based on the “Mr. Men” franchise with a scheduled release date in 2018. In 2019, the company has intentions to
release a Hollywood-produced movie featuring Hello Kitty to mark the 45th anniversary of the character’s creation.
South America
Sales were JPY500mn (-31.4% YoY) and operating profit was JPY200mn (-43.0%). Progress toward 1H forecasts was
46.0% for sales and 43.5% for operating profit.
Both sales and profits were lower due to the sluggish regional economy. Strategies for increasing sales include expanding
product licensing categories, holding events targeting general consumers to raise awareness of its characters, and
capturing more promotion licenses used for corporate promotions.
Asia
▶
Sales:
JPY4.2bn (+26.4% YoY)
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▶
Operating profit:
JPY1.7bn (+35.6% YoY)
Versus 1H forecasts, sales achieved 46.9% and operating profit achieved 48.5%.
Hong Kong
Product sales declined as the exporting of some products made in China were transferred to a subsidiary in Shanghai.
Revenue from product licensing also declined on a drop in the number of tourists from mainland China. Use in novelty
goods by a fast food chain and corporate promotion sales including cafes and events were robust.
Other Asian territories
Sales declined in Thailand after a surge in special orders from financial institutions during the year-earlier quarter, but
grew in Singapore and Malaysia on sales promotions for post offices.
Taiwan
Robust sales on popularity of character Gudetama and with Sanrio characters adopted in a campaign for a major drug
store chain.
China
Solid performance on a 30% increase in sub-licenses with master licensee KTL Company (part of the Hong Kong-based Li
& Fung Group), as well as product category growth.
South Korea
Sales increased despite worsening consumption, as was the case during the year-earlier period, including sluggish
over-the-counter sales at mass retailers.
Summary of 1H FY03/16 earnings briefing
The briefing was attended by President and CEO Shintaro Tsuji, Managing Directors Susumu Emori, Kazuyoshi Fukushima,
Rehito Hatoyama, Takahide Nakaya, and Directors Jiro Kishimura and Yuko Tsuji.
Earnings briefing by Managing Director Susumu Emori
1H FY03/16 results
Sales decreased 0.2% YoY. The fall in overseas sales (-9.8% YoY) was partially offset by higher sales in the domestic
segment (+3.9%). The Overseas segment struggled in all areas, and SG&A expenses increased year-on-year.
Nevertheless, net income for the quarter was 8% higher than initially estimated, due to improvements in extraordinary
income and a reduction in the tax burden.
Similarly, lower profit in the Overseas segment was partially offset by increased profit in the Domestic segment. Overseas
segment profit fell year-on-year as the Europe and North America businesses struggled, while profit increased YoY for all
domestic segments. The domestic licensing business experienced earnings growth due to deals for LINE stamps,
household goods, pharmaceuticals, and an alliance with Japan Post. Comparable store sales increased 8% YoY due to the
impact of more inbound tourists and a recovery from the increase in consumption tax in the preceding year. The theme
parks business successfully increased visitors with new attractions and efforts to attract visitors, such as corporate tie-ups,
enhancement of student discounts, and complementary shareholder tickets.
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By region, the higher operating profit in Asia (up 60% YoY) was not enough to offset reductions in Europe and North
America. Excluding the struggling South Korean subsidiary, all Asian subsidiaries recorded strong operating profit,
particularly China, where operating profit rose 69% YoY.
Revised full-year FY03/16 company forecasts
The company expects FY03/16 overall sales to fall 1.6% from FY03/15, and profits to fall in all segments. However, this is
conservative, as it does not include the expected improvement in extraordinary income or the reduced tax burden. Once
these are factored in, Shared Research expects net income to outperform company forecasts for FY03/16.
In the Overseas segment the company forecasts FY03/16 operating profit to be lower than FY03/15, but that higher
Domestic segment operating profit will partially offset the fall. In addition to the factors that contributed to higher 1H
earnings, the company believes an increase in domestic profit for the full-year due to deals with convenience stores, the
40th anniversary of My Melody and Little Twin Stars, contributions from new characters Gudetama, Kirimi-chan, and
Show by Rock, as well as the impact of the scrap and build of directly owned stores.
Operating profit for the Overseas segment will depend on whether or not Asian operations can cover reduced earnings in
Europe and North America. Operating profit for China in particular is forecast to rise 41% YoY.
Shareholder returns
The company’s target ROE is 20%, but the revised company forecast is for a 15.8% ROE. However, this seems
conservative as it does not factor in the expected extraordinary income or reduced tax burden. The company is also still
considering a share buy-back.
Previously, withholding tax was levied on distributions from the German subsidiary to the parent, but the tax treaty
between Japan and Germany has been amended. The company has been told informally that this withholding tax
obligation will be removed. The company believes that using local retained earnings will make it easier to conduct a share
buy-back.
Strategic challenges
The company is forming a medium-term plan. Before announcing the plan, it plans to turn around the European business
by Q4 FY03/15 by growing personnel by double digits. But given the state of the economy and fierce competition, the
company is now expecting European results to bottom out in FY03/16 or later. To accelerate earnings improvement, the
company is considering changing its Europe director, and employing local personnel from 2H FY03/16.
Since 2014, the company has transferred authority to the head of each department, and is determining capabilities and
suitability, with the goal of establishing a new management structure by 2016.
Overseas, President Shintaro Tsuji manages North and South America, plus Asia, and Director Yuko Tsuji acts as
vice-manager. Director Jiro Kishimura manages Europe. Managing Director Rehito Hatoyama is concentrating on movie
related operations.
Sanrio marked its 55th year in August 2015. Since the company was first established, it has aimed to be a unique and
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exclusive company. The company’s purpose is to create and cultivate a loyal fan base by producing and selling products
based on cute characters. That has been the basis of Sanrio’s character business, which has grown to 150 designers and
planners who drive its innovation. The company aims to supply at least 100 products a month and 1000 a year, around
the world.
In terms of government organizations, Hello Kitty has been adopted as special ambassador at Expo Milano, while the
Minister of Agriculture, Forestry and Fisheries adopted Kirimi-chan as the ambassador of its “Let’s Eat Fish” project.
Meanwhile, stamps with Hello Kitty, Cinnamoroll, Little Twin Stars, and My Melody characters are sold at post offices, with
over 90mn stamps sold as of December 2015. Recently added to the stamp line-up is the Gudetama character, an instant
sell-out. Sanrio characters have begun to appear on marriage certificates, while Hello Kitty has been adopted as a
campaign character for the year-end “Dream Draw” lottery campaign.
Companies must go beyond simply making new products, to produce products that people want. According to Sanrio
research, customers are drawn to brand names, and Sanrio character brands can be equated to product brand. Sanrio
cultivates and values its fans who are young and old, men and women in countries around the world. The company
receives many licensing requests from various countries, but if the brand is not used properly it risks alienating fans. For
this reason, the company has restricted brand sales to some extent for the last three or four years. It believes characters
should be cultivated, and aims to spread character shops around the world. Character cafes have also become popular.
It was taking time for US results to recover. This was because in Europe and the Americas, an animated movie released by
another company in 2014 was a major hit, and related products continued to sell for a year and a half after release (most
hit movie products tend to fizzle out after a year). Shelf space for Sanrio products at the major US retailers was reduced for
products related to the hit movie. Many movie companies also began to produce character-related products. Currently
new plans and innovations are being formulated under the leadership of Director Yuko Tsuji, together with Sanrio
America CEO Murakami, who has 35 years' experience at Sanrio America, and COO Yamamoto, in an effort to win back
retail space. The company is also working to develop innovative new products. Gudetama products were an example of
such innovation, and its backpack and nametag products were popular at chain stores.
In the US, movie-related products have taken shelf space at volume retailers, and in Europe there was a litigation issue
with a licensee. As a result, CEO Murakami, COO Yamamoto, and Director Yuko Tsuji have taken charge of the Americas,
and Director Kishimura of Europe. Mr. Hatoyama has a big job ahead of him with the movie business, in order for Sanrio
movie character products to become more competitive. President Shintaro Tsuji is in the process of training successors, as
he plans to hand over the role of President to a new leader in June 2016
Q&A
The President's successor
President Shintaro Tsuji is intending to resign in June 2016, but given the unique global position of the company, this will
not be an easy role to fill. The company may bring in someone in from outside the company.
Gudetama sales forecasts at the company’s 300 US stores
Gudetama is an innovation character with a design that makes it difficult to forecast sales. License applications are coming
thick and fast. Sanrio emphasizes building fan bases around characters. The outlook for this character is unclear
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Impact of China economic issues
The market for marketing rights in China is estimated at around JPY550bn. Sanrio is working to expand in China with
license agent partners. Using experience gained in Europe and the Americas, the company intends to strengthen
characters other than Hello Kitty. Currently revenue is around JPY2.0 to 3.0bn, but the company is targeting JPY10.0bn by
the year 2020.
FY03/15 results (announced on May 15, 2015)
▶
▶
▶
▶
Sales:
JPY74.5bn (-3.2% YoY)
Operating profit:
JPY17.4bn (-16.9% YoY)
Recurring profit:
JPY18.5bn (-8.2% YoY)
Net income:
JPY12.8bn (+0.0% YoY)
Sanrio is using a design with all of its main characters and a focus on Hello Kitty (ahead of her 40th anniversary), and
designs with characters like Gudetama, Kirimi-chan, and Show By Rock originating from SNS and other new markets, to
capture new customers in their 20s, in addition to Sanrio’s conventional fan base. However, sales declined 3.2% YoY as
robust product licensing in Asia was not enough to offset sluggishness Europe and the US.
Operating profit declined 16.9% YoY on sluggish product licensing in Europe and the US along with a higher CoGS to
sales ratio due to the weak yen and changes to the domestic sales mix. Recurring profit declined only 8.2% in part to a
JPY600mn foreign exchange gain resulting from the yen’s plunge since September 2014. Net income was roughly flat
with profits from Asia, where effective tax rates are lower, accounting for a higher portion of overall profits.
In Japan, sales were JPY49.1bn (+1.4% YoY), with an operating loss of JPY90mn (JPY470mn operating profit in FY03/14).
Overseas sales and operating profit were JPY42.0bn (-7.6% YoY) and JPY17.6bn (-14.5% YoY), respectively.
Japan
Segment sales were JPY49.0bn (1.4% YoY), and operating loss was JPY90mn (operating profit of JPY470mn in the previous
year).
The licensing business saw higher earnings, but the product sales business had lower sales and profits, and the theme
park business saw a slightly expanded operating loss. Retirement benefit costs increased, meaning that domestic
operations saw an overall operating loss despite higher sales.
▶
▶
Sales:
JPY21.0bn (-1.9% YoY)
Operating profit:
JPY1.8bn (-14.6% YoY)
Domestic product sales faced difficult conditions due to the consumption tax hike and poor weather conditions, but
urban stores performed well as foreign tourists increased. Sales of products featuring new characters such as Kirimi-chan
and Gudetama also contributed to higher sales and profits. Still,
comparable store sales were down 6.8% YoY as visitors to regional stores fell.
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▶
▶
Sales:
JPY10.1bn (+7.3% YoY)
Operating profit:
Gudetama, a new character, contributed to revenues with a free sticker campaign on a mobile messaging service, as well
as apparel, small items, and character-themed cafes. A design commemorating Hello Kitty’s 40th anniversary in November
2014, and My Melody apparel and small items produced in collaboration with an apparel brand, were very popular. The
adoption of Mr. Men by a major SPA also contributed to earnings.
Character cafes featuring characters such as My Melody, Little Twin Stars, Mr. Men and Little Miss, and Pom Pom Purin
(which are nearing their 40th anniversary in 2015), led to the acquisition of new licensees and higher product sales.
Theme park operations
▶
▶
Sales:
Operating loss:
JPY600mn (operating loss of JPY500mn in FY03/14)
Harmonyland had 392,000 visitors (-5.3% YoY, or 21,000 fewer than the previous year), mainly because of unstable
weather conditions, facility renovation construction, and the cancelation of parades associated with the construction
work.
Sanrio Puroland had 841,000 visitors (+6.1% YoY) after the company lowered entrance fees in April 2015, staged various
events, and began offering duty-free sales to attract foreign tourists. Operating loss at Sanrio Puroland widened on
increased advertising to attract customers during the summer, along with higher personnel costs.
Others
Sales and profits fell because of sluggish sales of products featuring other companies’ characters, the weak performance of
the robot rental operations and restaurant operations, and advertising expenses for promoting the movie Nutcracker
Fantasy released in November 2014.
Overseas
▶
▶
Sales:
JPY41.9bn (-7.6% YoY)
Operating profit:
JPY17.5bn (-14.5% YoY)
Europe
▶
▶
Sales:
JPY10.8bn (-16.8% YoY)
Operating profit:
JPY5.2bn (-21.2% YoY)
On a local currency basis, sales were EUR55mn (-2.2% YoY) and operating profit was EUR16mn (-30.3%).
An increase in sales in the Middle East failed to compensate for a decline in the UK and other western European nations.
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North America
▶
▶
Sales:
JPY12.3bn (-26.1% YoY)
Operating profit:
JPY5.0bn (-42.4% YoY)
On a local currency basis, sales were USD85mn (-30.9% YoY) and operating profit was USD17mn (-58.2%).
In the US, Sanrio lost shelf space at major retailers as movie distribution companies locked in shelf space for character
products tied in to hit movies. Together with cold weather, this resulted in lower sales and profits.
South America
▶
▶
Sales:
Operating profit:
JPY1.2bn (-6.2%)
Sales increased overall. Although sales declined in Argentina, where restrictions placed on sending money overseas as
part of the government’s debt default measures led to cancellations of licensing agreements, this was offset by strong
sales in Mexico, and improvements for shoes, apparel, and license income from department store distributors and others.
Operating profit declined as the closing of unprofitable cafes and reworking expenses could not offset higher SG&A
expense tied to promoting Hello Kitty’s 40th anniversary.
Asia
▶
▶
Sales:
JPY15.0bn (+22.3% YoY)
Operating profit:
JPY5.5bn (+55.6% YoY)
Hong Kong
Contributions came from corporate promotions, Sanrio characters used in credit cards issued by banks in Thailand, Hong
Kong, and Malaysia, as well as decorations for Christmas illumination and other events, and licensing of merchandising
rights for character cafes.
South Korea
Product licensing sales were subdued, owing to lower sales at major retailers and decreased sales of shoes, foods,
stationary, and home appliances, which lost ground to private brands. Business activities in South Korea were lackluster in
the wake of a major ferry accident. As a result, the company earned lower licensing revenue from Hello Kitty rooms at
major hotels and from cafe restaurants. Even so, sales rose and profits declined only slightly thanks in part to the yen’s
weakness.
Taiwan
A campaign to promote the 40th anniversary of Hello Kitty’s birth was a success, and sales of novelties at convenience
stores were strong, alongside solid performance from campaigns at drug stores. By category, sales of apparel were
sluggish. However, licensing revenue from household goods and stationary increased, raising overall sales and profits.
Taiwan saw an increase in the number of foreign visitors, as was the case for Japan, benefitting the island’s tourism,
leisure, and restaurant industries. As a result, Sanrio earned more licensing fees from products sold at cafes and airports. In
addition, seven companies, including a convenience store operator, adopted a new character, Gudetama, further
contributing to Sanrio’s licensing revenue.
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China
Revenue from master licensee KTL (part of the Hong Kong-based Li & Fung group) increased in all categories, including
accessories, food and household items and with a three-fold increase in licensing fees from shoes. Sales transferred from
the Hong Kong subsidiary and to character cafes also rose, leading to an increase in overall sales and profits, even as
SG&A expenses were higher.
Summary presentation of FY03/15 results
Attendees: President Shintaro Tsuji, Managing Director Susumu Emori, Managing Director Kazuyoshi Fukushima,
Managing Director Rehito Hatoyama, Managing Director Takahide Nakaya, Managing Director Saburo Miyauchi,
Executive Officer Yuko Tsuji (scheduled to assume office as a board member at the Shareholders' Meeting on June 25th.)
Earnings results briefed by Managing Director Susumu Emori
Results for FY03/15
Sales decreased by 3.2% YoY, which included a decline of 7.6% overseas and a domestic increase of 1.4%. Operating
profit dropped by 16.9% YoY due to a struggle in overseas markets. However, net income increased slightly YoY due to
the impact of the improvement in foreign exchange for non-operating income and extraordinary items, as well as a
reduction of the tax burden.
By location, the company struggled in Europe and the US. Domestic product sales were affected by the increase in the
consumption tax. Headquarter costs also increased, which resulted in an overall decline in profits. However, the domestic
licensing business experienced strong earnings growth due to deals for LINE stamps, convenience stores, the
pharmaceutical industry, and the financial industry.
Overseas earnings decreased in Europe, North America, and South America. However, this decline was partially offset by
earnings growth in Asia. Local subsidiaries in four Asian regions (Hong Kong, Taiwan, South Korea, China) experienced
double-digit earnings growth.
Forecasts for FY03/16
Sales are projected to increase 1.1% YoY, with a decrease of 2.7% in operating income and a YoY decrease of 10.2% in
net income. Estimating from the current exchange rate, net income is expected to increase due to the effect of
non-operating income and extraordinary items.
By business, profits are forecast to decline overseas while domestic earnings increase across all categories. The
contributing factors behind the increase in domestic profits are the impact of inbound tourists, the popularity of new
characters (“Gudetama,” “Kirimi-chan”), and the 40th anniversary of “My Melody” and “Little Twin Stars.” The earnings
decline is forecast to continue in Europe, North America, and South America, but earnings in Asia are expected to cover
the gap. Among the four Asian regions with local subsidiaries, China is showing remarkable growth.
Strategic issues
The company will announce a new medium-term business plan as soon as prospects improve for the bottoming out
European and US results, the current focus. Collaborations with characters owned by other companies will be addressed
by project. In fall 2014, the company transferred authority to the head of each business department, and is determining
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their capabilities and suitability to establish a new management structure.
Overseas, Yuko Tsuji is scheduled to assume the position of director at the next Shareholders' Meeting and will manage
the Americas and Asia as the vice-manager, in addition to the existing officers. In particular, the company is considering
combining the four local Asian subsidiaries. In addition, Director Jiro Kishimura will be added in the role of supporting and
controlling overseas locations from the head office, since overseas planning is involved.
Presentation on domestic business by Managing Director Kazuyoshi Fukushima
Directly managed stores in the product sales business
FY03/15 was a difficult year due to the consumption tax. However, sales were up 130% YoY at the 19 leading shops
during the two month period from April to May 2015. Since 2014, the company has been repeatedly closing and opening
shops to create enjoyable shopping spaces in favorable locations. One large-scale retailer was able to post robust
numbers with its ability to attract customers. Humorous and unconventional characters, which were not part of the main
characters such as “Gudetama” and “Kirimi-chan” also contributed. Sales to inbound tourists also contributed.
New characters
There were requests to develop unconventional Sanrio characters such as “Gudetama,” SHOW BY ROCK!! characters
(broadcast starting in April 2015), and “Kirimi-chan.” These initiatives started in 2014 and contributed to results from
February to March 2015. The influence of SHOW BY ROCK!! will be reflected in the results for FY03/16. Regional numbers
are not strong, and the company will examine the situation to consider the opening and closing of more shops.
Domestic major mass market retailers
Domestic large-scale retail shops are trending positively YoY. Due to renovations, spots in front of escalators and elevators
proved to be good sales locations. While there is some concern that regional mass market retailers are not making
inbound contributions, from December 2015 they are starting sales promotions and campaigns to attract customers not
via the sales floor. Retailers are boosting their numbers by using the characters in character shows, bathrooms, nursing
rooms, self-service registers and other locations.
Distribution
Sales and profits at convenience stores have doubled over the past five years. The stores have been using sales
promotions featuring characters designed by Sanrio. Previous distribution was limited to the commercialization of
novelties, but currently other companies' contents comprise 35% of sales to convenience stores.
Licensing
New characters made the greatest contribution to commercialization. Three years ago the company purchased the UK's
“Mr. Men” characters. These characters are contributing to overseas results and are sold in specialty shops in Japan.
“Gudetama” and “Kirimi-chan” also contributed to commercialization.
Digital licenses have made the most significant contribution to earnings. “Gudetama” was the top selling Line stamp for
two consecutive months, November to December 2015. There are no other companies in the industry that manage over
fifty characters as Sanrio does. Even older characters such as “Osaru no Monkichi” still have a following.
In promotional licensing, Hello Kitty was adopted as the “TAX-FREE” character for use in character-based advertising from
last year until this year. In addition, “My Melody” was adopted as the character for a campaign providing Wi-Fi to
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foreigners. One department store used “Hello Kitty” for a discount sales promotion in a well-received campaign, which
gave a “Hello Kitty” bag as a present for purchases of JPY30,000 or more.
Character cafes, which were popular last year, expanded by eleven locations. Character cafes are present in many mass
market retailers. The cafes expanded through collaboration with financial institutions and bank cafes.
The space licensing business worked on a women's bath design with “Hello Kitty.” This design was adopted by hot
springs as well as hotels. Dentists are also using “My Melody” and “Hello Kitty” to differentiate themselves in a highly
competitive market.
The characters have been adopted for use in service promotions at financial institutions as well as services and cards at
various shops. A total of twenty-six life insurance, banks, securities, and credit card companies use the characters.
Regional newspaper companies have also adopted the use of “Hello Kitty.”
The characters have yielded results in the cleaning industry. Character designs have also been applied to drab coin
laundries to make them more enjoyable. Numbers are increasing due to cost effectiveness.
Specialty clothing stores are evaluating gift campaigns which present customers with a “Hello Kitty” dish when
purchasing a suit. In the golfing industry, there are forty-three “Hello Kitty” golf carts in use.
Sanrio has focused on the sales floor and products as the core of its business. They also provide delightful sales
promotions and spatial elements such as character shops. No other companies can operate in such a comprehensive
manner. They wish to expand these successful examples overseas as well.
Presentation on the overseas business by Executive Officer Shintaro Tsuji
For its overseas business strategy, the company is aiming for business expansion and stability as well as the achievement
of its principles through the following five policies.
◤
Marketing activities: raise awareness of characters by appropriately exposing them to markets and developing a
friendly image.
◤
Product sales business: overseas markets do not have the same economic or business environments. There are stages
in the degrees of penetration in the character business, and the product sales business is Sanrio's strength during
the early stages in a country where character awareness is low.
◤
Merchandising rights business: penetrate distribution to a detailed level in various categories to increase earnings
and solidify awareness.
◤
Expansion of the advertising rights business and the space licensing business: the business of licensing spaces to use
the characters possesses great potential in countries which are aware of the characters.
◤
Social contribution activities: from the beginning, Sanrio's business expansion has been based on the corporate
philosophy of “everyone in the world peacefully helping each other.”
Specific examples of each of the policies are presented below.
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Marketing activities
“HELLO KITTY CON2014,” an event in the US to attract customers in 2014, gathered thirty thousand fans and helped to
expand the fan base in North America. Various events are also being held in other countries to attract customers. An
annual summer event in Hong Kong was attended by fifty thousand people last year. The “Hello Kitty 40th Anniversary
Exhibition” was held in two locations in Taiwan and succeeded in attracting three hundred thousand visitors. A “Hello
Kitty marathon” was also held in Taiwan.
Magazine and picnic events have also been held for characters other than “Hello Kitty,” such as “My Melody” and “Little
Twin Stars.” Staging participatory events helps bring the characters close to customers. Hello Kitty is being used in
collaboration with the Italian AC Milan soccer team and a singer with worldwide popularity, as well as being appointed as
the special ambassador to the Japan pavilion at the Expo Milano, which started in May.
In addition, live shows featuring Sanrio characters are planned for thirty-five cities across the US and Canada. A live show
in London featuring all of the characters is planned to start in October 2015. Through these marketing activities the
company is committed to increasing the awareness of the characters.
Product sales business
In the product sales business, the company is systematically opening shops with locally capitalized franchising, in
cooperation with local agents in each country. The product sales business is being developed to communicate Sanrio's
message. Last year, the company opened shops in famous commercial establishments such as mass market retailers in
Cambodia and South Korea. A “Hello Kitty” corner was expanded at a UK mass market retailer.
Merchandising rights business
This segment is currently the pillar of Sanrio's business. The company is promoting development while paying close
attention to quality and over-exposure. Co-branding with manufacturers who provide world-class value is an important
measure. There are many examples of co-branding with manufacturers of headphones, street fashion, shoes, etc.
Advertising rights business
The leading example of this business is the Hello Kitty jet from EVA Air. The Hello Kitty jet is already flying eight routes
with a new Houston flight scheduled to start in June 2015. The jet's primary design features “My Melody” and “Little
Twin Stars” which celebrated their 40th anniversary this year.
Cafe, restaurant business, advertising rights and licensing business
This business is widely supported in many markets and has expanded to many shops. In addition to enabling customers to
experience character spaces, they also increase license earnings. This type of advertising rights and license business is also
expanding to infrastructure businesses such as batting centers and ropeways. The many categories of business expansion
include an illuminated advertisement using an entire building face in Hong Kong and a karaoke room in China. The
originality of the company's advertising rights and licensing business proposals continue to expand in the hotel, spa, and
theme park businesses around the world.
The novelty advertising field is also the center of the advertising rights licensing business. For example, there is the
“Gudetama” campaign at a drug store in Taiwan. Other examples include a South Korean ice cream, a Malaysian oil
company, and a “Tabo” campaign by a consumer electronics store in Hong Kong.
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The trust of each country and partner is indispensable to achieve success in a wide range of businesses. The company
holds large-scale licensing information sessions at the subsidiaries in each region to communicate with partner
companies.
Activities to disseminate the corporate philosophy
Sanrio promotes the corporate philosophy: No man is an island; small gift, big smile; everyone in the world peacefully
helping each other. In order to achieve the realization of such a world, the company contributes to society through
entertainment activities and participation in charity events in each country, and hopes the characters will promote
friendship all over the world.
Presentation on new developments by Managing Director Rehito Hatoyama
European business
European businesses are projected to bottom out in the fourth quarter of FY03/16. The first quarter is projected to trend
positively, but then to decline YoY. Results are still spotty with some regions recovering while others remain severe, and
key countries are still in a difficult situation. On the one hand, “Mr. Men” and other new business initiatives are trending
favorably in Israel, Eastern Europe, and some regions of Africa. The scale of these markets is small, but by Q4 the impact of
the measures from FY03/15 are expected to be reflected in the numbers.
New Sanrio developments
The competitive environment in Europe and the US is intensifying. In particular, large-scale contents such as movies and
animation are rising in prominence. This has become a medium to long-term phenomenon. Companies such as Warner
Brothers and Walt Disney published movie release dates from 2018 to 2020. Major studios are also announcing around
twenty-five productions annually. About half of those are animation or content products with associated licenses. This is
not a short-term phenomenon, but an environmental change that is expected to continue. In this environment, the
demand for large-scale works is greater than that for small-scale ones. The European and American competition may
spend JPY300bn on production and JPY300bn on marketing costs to fight in the difficult market.
In contrast, the impact of Chinese operations is small. While Japan and Asia is a difficult environment for Hollywood-style
contents to penetrate, because the global competition is intensifying in some regions, the company is considering
entering the movie and animation business.
The global movie and animation business will be centered in the US. The company is preparing to establish a corporation
in June 2015 with the tentative name of Sanrio Pictures Entertainment. The new company will aggregate “Hello Kitty,”
“Mr. Men,” and other Sanrio characters to produce and distribute movie adaptations of Sanrio contents. In addition, the
company is also aiming for IP and games derived from related merchandising and digital contents. At the same time, they
are also considering promoting appearances by the popular “Hello Kitty” as an on-screen talent. At first, they will utilize
the IP of Sanrio characters such as “Mr. Men,” but depending on the situation they are also considering adapting the IP of
other companies.
The company is thinking of structuring this as an internal venture with the organizer holding equity and driving the
business. Movies will be created on a small scale, but the company is considering second-stage capital, fundraising, and
utilizing investment funds to develop a large-scale business in phases. As a first step, they have already announced the
test start of “Mr. Men” with 21st Century Fox. President Tsuji is working to start this business with the full backing of the
company.
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Presentation from President Shintaro Tsuji
Sanrio will mark its 55 year in August of 2015. Starting with the slogan of families and friends befriending people around
the world, the company worked to create the kind of society where people make and send each other small gifts to
promote friendship. The phrase “small gift, big smile” is the basis of Sanrio's gift business. Because cute items make good
gifts, the company created the characters “Hello Kitty,” “My Melody,” “Little Twin Stars,” and “Cinnamoroll,” and
established locations not only in Japan but in 130 countries. In addition, they decided to attach phrases to those
characters and create a business to send greeting cards with messages such as “thank you.”
These days the Sanrio characters are used not only on gifts but also on trains, buses, airplanes, postage stamps, telegrams,
and credit cards. They are used in soccer, hotels, cafes, theme parks, education, administrations, and have been
appointed as a special ambassador to the Expo Milano.
Various companies around the world are developing their businesses, but in the past 55 years no one has appeared in the
social communication gift business with as broad a range of characters.
Sanrio is a company that aims to have everyone around the world get along and help each other. The goal of most
companies is to increase revenue and expand market share. Sanrio believes that it is unlike any other company, as it is
based on the philosophy that helping each other is more important than increasing earnings, and has practiced this
philosophy over the past 55 years. While some think that a company should expand revenue, raise dividends, and
repurchase treasury stock, Sanrio is devoted to making everyone happier, and maintain that there are companies in Japan
that are doing more than increasing revenue.
Question and answer session
Cash usage and ROE
The ROE will probably land at less than 17% with the current income base for this fiscal year. As of the beginning of
FY03/16 sales at existing shops were up 104% in the domestic product goods business, and licensing is off to a strong
start despite concerns about last year's rebound. The number of theme park visitors in April was up 7pp compared to
projections and up 31pp YoY. The company believes that the domestic numbers were better than expected.
In overseas markets, Europe is up about JPY100mn compared to projections for the first quarter. First, the company wants
to raise current revenues and increase ROE. That may be insufficient, so the company wants to give proper consideration
to share repurchasing.
China strategy and the master license with Li & Fung Group
The Chinese economy is forecasted to be a little weak in 2015 and 2016, but globally it is expected to hit a comparatively
high level. The agreement with business partner Li & Fung Group is up for renewal in 2016, but the company is still in
discussions with them.
Internal business cannibalization due to new characters
Among the domestic characters, the ratio of “Hello Kitty” has slightly decreased and in contrast other new characters such
as “Gudetama” and “Kirimi-chan” are increasing share. The company thinks that the current balance is good. “Hello Kitty”
can be viewed in various ways depending on the generation. “Hello Kitty” is popular with families, but middle school
students, who often develop an interest in fashion, tend to temporarily drift away from the character, only to return after
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becoming parents.
As the company wants to expand its customer base to middle schoolers, who tend to like cute things and be interested in
odd characters, three years ago the company proposed food characters. Number one was “Kirimi-chan” and the number
two was “Gudetama.”
American movie business
The company cannot really comment on this topic, because it is still in the planning stages. Basically, they want to think
globally about creating Hollywood style movies. The average production cost for an American movie is over JPY10bn, and
the advertising costs are also over JPY10bn for a total scale of JPY20bn. It is not possible for the company to self-finance
100% of the costs. Because it is easy to raise money, the company is considering the formation of a fund rather than
borrowing. A Hollywood studio with global distribution would likely be a logical partner.
Risks with the rise of large-scale contents
Spearheaded by President Shintaro Tsuji, the company is pursuing the strengthening and differentiation of product sales.
They are also considering measures to bring back the traditional Sanrio. Taking domestic products overseas to strengthen
the presence of Sanrio products in Europe and the US is the core strategy. Regarding additional new developments, in
the short term the company is planning web contents and animation focused on distribution, and over the medium- to
long-term it is preparing to do battle in the distinctive arena of large-scale contents. The company will not wait three to
five years, but will implement measures as a team from FY03/16.
Direction of the management system and the role of overseas officers
Overseas managing officers in the Americas will continue to be supervised by President Shintaro Tsuji. Managing Director
Rehito Hatoyama was in charge of local management until now, but as he will focus on shoring up and reorganizing
Europe, Yuko Tsuji, who is scheduled to assume the position of director, will join to strengthen this position. Asia has
been managed by President Shintaro Tsuji, but the four local subsidiaries will be combined. Because the market is
growing, Yuko Tsuji will act as vice-manager. Support for overseas planning is provided from Tokyo to all regions.
Director Jiro Kishimura will manage this to enhance the level of support.
Cash outflow used for businesses and shareholder returns
In general, the company is thinking of using external fundraising for movies. The company is not considering using cash
from the balance sheet, and even if it did, it would not be a large sum. The company is not thinking about funding
requirements, because the operating capital required to open stores is factored into the plans. There are no current
announcements regarding the dividend policy and share repurchasing, but it will consider such measures in a corporate
framework.
Sales were in line with company forecasts, but operating profit was 4.9% lower than planned.
For the period, the Overseas segment had sales of JPY45.4bn (+13.9% YoY) and operating profit of JPY20.5bn (+8.8%).
The Domestic business posted sales of JPY48.4bn (+0.2%) and operating profit of JPY500mn (-64.0%).
The Domestic Licensing business saw sales of JPY9.5bn (-0.9% YoY) and operating profit of JPY6.5bn (-3.3%). Sales in the
Domestic Product Sales sub-segment were JPY21.5bn (+1.1%), and operating profit was JPY2.1bn (+1.9%). Theme Parks
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business sales were JPY6.3bn (+3.5%), and operating loss was JPY500mn (JPY500mn loss a year earlier).
In the Domestic business, Domestic Licensing performance was weak, owing to inventory adjustments made by major
apparel and gift item licensees. However, commercial licenses for restaurant and convenience store campaigns performed
strongly. It appears that the company concentrated on commercial licenses for large domestic companies that are looking
to gain a foothold overseas. During the January-March quarter, sales were up 17% YoY, due partly to exceptionally lower
sales seen during the previous year.
In Domestic Product Sales, apparel and bags utilizing existing characters such as Hello Kitty, My Melody, and Little Twin
Stars displayed growth alongside petit gifts geared toward adult consumers. Visits to stores—primarily those in urban
areas—by foreign tourists also increased, and rush demand prior to the sales tax hike contributed to sales. The new
character Bonbon Ribbon was popular among young women. Comparable store sales (at directly run stores and directly
run outlets inside department stores) increased 1.3% YoY. Comparable store sales on a per-month basis during Q4 were:
January, up 3%; February, down 3%; March, up 8%.
At Sanrio Puroland, sales within the park were up due to the effects of the new Sanrio Town attraction, which was
introduced as part of the largest renovation in the park’s history. However, sales for revenues outside of the park are now
recorded as part of the parent’s sales, and thus overall sales remained relatively flat YoY, at JPY4.5bn (+1.7%).
Transitioning outside park revenues to the parent also reduced CoGS, but SG&A expenses were up due to Sanrio Town,
expenses associated with new parades, and expenses for advertising such as television commercials, ultimately resulting
in an operating loss of JPY540mn (operating loss of JPY550mn a year earlier). Average spend per customer was JPY2,017 in
admission fees (JPY1,748 a year earlier) and JPY1,847 in product sales (JPY1,702), for a total of JPY4,697 (JPY4,274).
General and administrative expenses associated with the Domestic business were JPY8.3bn (JPY7.6bn a year earlier).
For overseas figures, master license fees paid to the parent are returned to respective overseas subsidiaries. Although
countries in southern Europe remained unstable due to debt crises in the region, there were signs that a turnaround was
underway as some growth figures entered positive territory. Inventory adjustments continued for some major licensees,
and there remained little activity for new licensed products. As a result, licensing sales on a local currency basis were
down 20.2%, but the effects of the weaker yen ultimately yielded sales of JPY13.8bn (-1.5% YoY) and operating profit of
JPY6.9bn (-5.3%).
In North America, licensing for major general merchandise store (GMS) chains was on par with the previous year, and
Canadian expansion of large drugs stores and medium-sized chain stores had positive effects on sales. By category, sales
for bikes targeted toward chain sporting goods stores were favorable, and growth was seen in toys, sporting goods, and
foods. As a result, licensing sales on a local currency basis were up 2.6%. The weaker yen also contributed to sales of
JPY16.7bn (+17.7% YoY) and operating profit of JPY8.7bn (+14.9%).
Sales were down in Brazil due to financial instability and increased competition from other characters. However, licensing
showed significant growth in other Latin American countries such as Mexico, Argentina, and Chile. Licensing sales for the
company’s Latin American subsidiary were up 11.3% on a local currency basis. The weaker yen also contributed to sales
of JPY2.6bn (+22.4% YoY) and operating profit of JPY1.3bn (+22.6%).
In Asia, licensing in China grew significantly, centered on gold accessories. The main categories of accessories, foods, and
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household goods now account for approximately 40% of sales and are solid contributors to profits. New master licensing
contracts also increased steadily, adding 60 new licensees. In South Korea, positive effects were seen from moving some
licensees from master license contracts to direct transaction contracts, and licenses for household goods, stationery, and
apparel increased. Taiwan exhibited strong growth for licenses to convenience stores, and new licensees were also
acquired for the fashion and toy categories. Promotions for restaurant chains and mobile phones were robust in Hong
Kong, and made up for the demand peak seen in the previous year caused by the grand opening of a theme park in
Malaysia. Additionally, business conditions worsened for a product sales agent in North America, causing Sanrio to have
doubts about collectability of debts and record a provision for allowance for doubtful accounts in the amount of
JPY700mn. As a result, sales in Asia were JPY12.3bn (+27.7% YoY) and operating profit was JPY3.7bn (+24.6%).
The average exchange rates were JPY97.11 against the dollar (JPY79.93 yen a year earlier) and JPY129.34 against the euro
(JPY103.25 a year earlier).
*The following is a summary of an earnings briefing session held on May 21
FY03/14 results briefed by Managing Director Susumu Emori
Sanrio has achieved its medium-term operating profit target one year early and posted a record operating profit for three
years in a row. Gross profit increased 7.9% from a year earlier due to an increase in high-margin licensing revenue.
S&G expenses increased 10.5% following an increase in accounts receivable allowance, legal and consulting fees, and
overseas labor costs. Even so, operating profit rose 4.1%. Net income rose only 2.1%, however, because of an increase in
tax payments. (Sanrio posted smaller extraordinary losses, set aside more taxable allowances, and increased sales in Japan
and the US, where taxes were high. The company also had less carried forward losses eligible for a tax break.)
The Domestic Licensing business posted a 3.9% increase in operating profit from a year earlier due to strong earnings
associated with confectionaries, foods, miscellaneous items, and stationary. The operating profit, which hit bottom a year
earlier, began to bounce back.
In the Domestic Product Sales, sales rose 1% from a year earlier, registering the first YoY increase in four years since
FY03/10.
As for overseas, operating profit increased as weak performance in Europe and Hong Kong was offset by strong results in
North America and other Asian regions. The company struggled with its licensing operations in key European markets,
even though the performance improved in the Middle East and Eastern Europe. In North America, the company increased
transactions with large retailers, earning licensing fees from stationary, bedding and food products. In Hong Kong, the
company posted a profit decline due to an increase in allowances for doubtful client accounts. However, licensing
transactions had a double-digit increase.
FY03/15 Target
Sanrio may continue to post an increase in sales and profits. The earnings target assumption is based on the exchange rate
of JPY100 against the dollar (a decline in the yen’s value by 3% YoY) and JPY135 against the euro (a decline in the yen’s
value by 4% YoY). SG&A expenses may increase 3.6% from a year earlier due to advertising and sales promotion efforts
commemorating the 40th anniversary of Hello Kitty. The company also expects a 3.6% increase in expenses related to
strategic plans, legal fees, retirement benefits following changes in the pension system, and the renovation of Sanrio
Puroland.
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Domestic licensing and product sales operations may have more sales thanks to the 40th anniversary of Hello Kitty. In
Product Sales, the company expects comparable store sales to increase 3%. New store openings may also help increase
sales. As for the theme park operations, the number of visitors may increase 11% thanks to the renovation of Sanrio
Puroland and advertising efforts. The average spending per customer may increase 13% as the company expands its
merchandise offering and services at the theme parks. The amount of deficit at the parks may decline in half.
As for overseas, the company may post a profit increase. While earnings may decline in North America, the company is
likely to post a double-digit profit increase in Asia. Earnings may also improve in Europe, where the company expects a
1.2% increase in operating profit. Even though the number of licensing transactions may fall in Europe, the rate of decline
is slowing. The yen’s weakness may also benefit the company. In North America, transactions with major distributors may
slow down, while expenses related to the 40th anniversary may rise. In Hong Kong, Sanrio is likely to have a huge profit
increase in the absence of allowances for doubtful accounts. The company may post a 41.7% profit increase in Asia.
Sanrio plans to pay ordinary dividend of JPY80 a share for FY03/15, with a dividend payout ratio of 49%. (For FY03/14, the
company paid ordinary dividend of JPY60 a share and commemorative dividend of JPY20 a share for the 40th anniversary
of Hello Kitty.)
Executive Officer Hideo Yamaguchi briefs on the FY03/15 target
Sanrio has been expanding rapidly by focusing on licensing operations. There are concerns, however, that creating
superior designs may not be adequate for the company to maintain licensing-focused growth. It is essential that the
company create a branding strategy. The company must strengthen its product sales because product branding begins at
individual stores.
1. Store expansion
▶
▶
▶
Refrain from opening stores just for the sake of increasing their number
Expand franchise operations, renovate domestic stores
Create synergy between licensing and product sales
2. Licensing expansion
▶
Target the service industry in Europe and the US (bank cards, public institutions, hotels; the current focus is
merchandise licensing)
▶
▶
Target sales promotion activities (in Europe and the US)
Target Japanese companies seeking to establish brand recognition overseas (License the use of trademarks. Sanrio
began to explore such opportunities during FY03/15.
3. Theme parks in the UK, South Korea, Malaysia, and Shanghai
4. Growth strategy with a right mix of revenue sources
▶
▶
Development of new characters, investments (from various perspectives)
Growth through M&As or alliances (medium- to long-term horizon)
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5. Other plans
▶
▶
▶
▶
Establishment of shops with funding by local interests (aggressive expansion in Asia)
Active use of characters: development of new characters through award events
Social contribution: campaigns against cervical cancer through Nal, an affiliated company
Komaki, CEO of Nal, will speak at the UN headquarters about the empowerment of the youth through
government-private partnership initiatives.)
▶
▶
▶
Product sales: promotional items that bear the client’s name, products or services
Greeting cards: cooperate with 2,000 nationwide post offices to sell character products
Theme park operations: diversify portfolio (create more characters, such as Kirimi-chan, Gudetama, and Show by
Rock)
▶
Nutcracker: promote the feeling of mutual trust and the importance of caring for others and reciprocity. The 3D
movie will be released in the fall of 2014.
▶
▶
▶
Expansion of character operations through M&As: collaborate with a major brand, Mr. Men
Dividend: payout of 20%, or JPY80 a share; reward shareholders further.
Management structure: build a strong structure with four new outside directors
Sanrio has received many inquiries concerning the appointment of a new president. But the company does not have any
such plan at this time, according to Tsuji.
The following presentations were given by the heads of each business segment:
Sanrio directly operates 210 shops, which posted an increase in sales and profits last year. The company sold more
products to foreign tourists than expected. Sales to foreign tourists increased fivefold at one of the stores. In response,
Sanrio is now strengthening merchandising for tourists. At the same time, Sanrio is also creating products and services
aimed at people of all ages as the country’s population continues to age. The company seeks to create a new store
design.
Advertising licensing
Sanrio does not just sell products. It licenses the use of its characters for advertising and sales promotion campaigns. This
business, which began about four years ago, generates sales of about JPY5bn in Japan alone. The company now wants to
expand the business outside Japan. The products sold at convenience stores were developed in collaboration with the
stores. Sales at convenience stores are about JPY3.5bn annually. The company will develop more products by working
closely with retailers.
Licensing
Sanrio is reviewing its 500 licensees to strengthen its relationships with promising global companies in the medium term.
The company is considering using more social networking services, such as graphics provided on a network called LINE.
In the long run, the company will reassign many employees and reorganize its business structure. Instead of considering
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licensees as clients, the company will cooperate with them to seek further business opportunities. The company wants to
improve its brand value in the medium to long term.
Design
Sanrio began to groom Hello Kitty as a global character around the year 2000. The company also began to promote My
Melody and Little Twin Stars around the same time. Sanrio is now planning to market My Melody and Little Twin Stars
globally.
Greeting card
The size of the market is JPY12bn, of which Sanrio has 35%. Major rivals have about 10% of the market each. Sanrio has
recently begun to sell products through nationwide post offices. The company will seek to further expand its market
share. Popular items include those that have embedded IC chips, pop-up cards, laser-cut cards, and
honeycomb-structured cards. These are unique to Japan and likely to attract attention overseas. Sanrio will rely on its
technology and craftsmanship in developing greeting cards, which are main products for the company’s social
communications business.
E-commerce
This segment has been steadily growing, with sales exceeding JPY1bn in FY03/14. The company is expanding operations
through direct sales (which brought in JPY500mn) and through cooperation with Rakuten and Amazon.
Accounting
Sanrio is seeking to further strengthen is finances. The company will try to maintain its ROE at around 20% and raise its
capital and management efficiencies.
Overseas
In Europe, Sanrio has been posting a double-digit sales decline for eight straight quarters. The company wants to halt the
sales decline during Q4 FY03/15.
US
Sales declined from a year earlier because of the December cold waves. The company generates sales from distribution,
distribution licensing, and licensing operations. Sanrio began operations inside 7,000 stores run by CVS Pharmacy, the
second-biggest chain of drugstores in the US. The company also formed a credit card partnership with UMB, a
Kansas-based bank. As for licensing, the company will cooperate with 30 MLB teams.
China
Sales are rising steadily. However, the performance does not match the size of the economy. The company’s relationship
with the local licensee, Linh Pham, is amicable. Sanrio is also holding talks with theme parks that will open in the near
future in various parts of the country. This could be a great opportunity for the company to ride on the crest of China’s
leisure boom. The company expects to benefit from a baby boom as China relaxes its one-child policy. Sanrio is seeking
well-balanced growth of entertainment, product sales, and licensing. There are now 130 stores. The goal is to increase
the number to 150 by the end of FY03/15.
Hong Kong, Singapore, Thailand
Sanrio cooperates with a ramen noodle shop operator in Hong Kong. The company’s primary mission in Hong Kong is to
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popularize characters other than Hello Kitty. In April, Sanrio started a campaign to promote Tabo at Yoshinoya beef bowl
restaurants. The campaign was a success. Now, the company plans another project. In emerging nations, the company
has been focusing on licensing operations until now. However, the company plans to hold promotional events using its
characters because they are becoming more popular. (For example, the company will promote the use of its characters
for various campaigns held by the local post office or shopping centers.)
Taiwan
Sanrio will expand its alliance with Seven Eleven, which operates 4,500 convenience stores in Taiwan. The company will
also partner with other convenience store operators. The company, which also has strong relationships with local
government agencies of the island’s tourist destinations, will continue to pursue alliances with public organizations. (An
example would be a plan to sponsor a marathon event to promote Hello Kitty.)
South Korea
There are 160-170 licensees. Sanrio will put more emphasis on the quality of the licensees. Sanrio opened a theme park
on Cheju Island, attracting many tourists from China. The company is now preparing for the summer peak season. In
addition, there are Hello Kitty cafes in many parts of the country.
Sales were 74.2 billion yen (-1.0% YoY), operating profit was 20.2 billion yen (+6.8% YoY), recurring profit was 19.6
billion yen (+7.0% YoY), and net income was 12.5 billion yen (-12.8% YoY). Sales and operating profit exceeded
company forecasts by 1.8% and 5.7%, respectively. Recurring profit was basically in line with forecasts due to foreign
currency losses totaling 600 million yen. By segment, overseas sales were 39.8 billion yen (+0.4% YoY) and operating
profit was 18.8 billion yen (+3.9% YoY). Domestic sales were 48.3 billion yen (-1.5% YoY) and operating profit was 1.3
billion yen (+81.2% YoY).
Domestic Licensing sales were 9.5 billion yen (-10.5% YoY) and operating profit was 6.7 billion yen (-5.5% YoY). Sales in
the Domestic Products sub-segment were 21.2 billion yen (-2.4% YoY), and operating profit was 2.0 billion yen (+20.2%
YoY). Theme Park sales were 6.1 billion yen (-1.0% YoY), and operating loss was 400 million yen (500 million yen loss a
year earlier).
The double-digit operating profit growth in the Domestic Products segment was due to lower purchase costs on back of
Sanrio increasing direct sourcing from overseas suppliers. Comparable store sales (at directly operated stores and shops
inside department stores) fell 2.4% YoY. Domestic licensing performance appeared weak due to stagnant apparel sales.
The company intends to strengthen its marketing efforts to grow its domestic licensing business from FY03/14. Even so,
the company increased its collaborative efforts on Hello Kitty, My Melody, and Little Twin Stars. General and
administrative expenses associated with the Domestic business were 7.6 billion yen (8.0 billion yen a year earlier).
In the overseas sales segment, master license fees paid to the parent were returned to respective overseas subsidiaries.
Favorable sales in North America made up for sluggish sales in Europe. Sales in Europe were 13.3 billion yen (-27.5%
YoY), and operating profit was 7.0 billion yen (-29.2% YoY) negatively affected by currency fluctuations and the
economic slowdown in Europe caused by debt crises. Results in Italy and Spain were weaker over the previous year. On
the other hand, Mr. Men, which Sanrio acquired in December 2011 had sales of 600 million yen and operating profit of
200 million yen. The company’s performance in Eastern Europe, the Middle East, and Russia was strong as it strengthened
its local sales functions.
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In North America, the company significantly expanded operations targeting major general merchandise store (GMS)
chains (i.e., wider regions, broader merchandise mix), resulting in regional sales of 14.2 billion yen (+31.0% YoY) and
operating profit of 7.5 billion yen (+46.2% YoY), attributable to brisk sales of girls’ apparel, accessories, toys, and electric
appliances. In Q4 FY03/13 (October to December), royalties (i.e., licensing revenue) increased 42.0% YoY on a
local-currency basis, supported by favorable Christmas sales. Cost controls resulted in a 46.2% increase in segment
operating profit over the previous year.
In Latin America, the company’s business grew particularly in Argentina, Chile, and Columbia, where it held live Hello
Kitty shows for better brand recognition, and the transfer of earnings from Mexico (previously included in N. American
performance) to the Latin America segment led to regional sales of 2.1 billion yen (+30.9% YoY) and operating profit of
1.0 billion yen (+46.8% YoY).
Sales in Asia were 9.6 billion yen (+8.1% YoY), and operating profit was 2.9 billion yen (+3.8% YoY). Hong Kong showed
steady growth of licensee numbers, and the February 2012 signing of a master license contract with the KTL Company
(part of the Hong Kong-based Li & Fung Group) in China contributed to strong results in Asia.
The average exchange rates were 79.93 yen against the dollar (79.62 yen a year earlier) and 103.25 yen against the euro
(110.95 yen a year earlier). The impact of the yen’s decline, which began in the middle of November 2012, was limited.
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Income statement
Income Statement
(JPYmn)
Total Sales
YoY
CoGS
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
96,670
93,916
69,767
73,875
76,624
74,954
74,233
77,009
74,562
FY03/15
-2.3%
-2.8%
-25.7%
5.9%
3.7%
-2.2%
-1.0%
3.7%
-3.2%
57,961
54,662
32,079
33,127
30,513
26,831
24,797
23,654
24,003
50,558
38,709
39,254
37,688
40,747
46,111
48,122
49,435
53,355
YoY
-4.0%
1.4%
-4.0%
8.1%
13.2%
4.4%
2.7%
7.9%
-5.2%
GPM
40.0%
41.8%
54.0%
55.2%
60.2%
64.2%
66.6%
69.3%
67.8%
25
13
Gross Profit
Provision for Merchandise Return
36
Adjusted Gross Profit
6
19
4
4
38,673
39,292
37,663
40,734
46,168
48,116
49,454
53,359
50,562
33,094
Reversal of Merchandise Return Allowance
56
37
32,451
32,677
31,088
31,445
31,171
29,210
29,255
32,340
SG&A / Sales
33.6%
34.8%
44.6%
42.6%
40.7%
39.0%
39.4%
42.0%
44.4%
Operating Profit
6,222
6,614
6,575
14,863
14,996
18,906
20,198
21,019
17,468
-14.9%
6.3%
-0.6%
126.1%
0.9%
26.1%
6.8%
4.1%
-16.9%
6.4%
7.0%
9.4%
20.1%
19.6%
25.2%
27.2%
27.3%
23.4%
771
706
811
648
620
1,016
714
890
1,587
1,418
2,057
1,431
1,688
2,229
1,554
1,266
1,729
530
5,575
5,263
5,954
13,823
13,387
18,368
19,646
20,180
18,525
YoY
-13.5%
-5.6%
13.1%
132.2%
-3.2%
37.2%
7.0%
2.7%
-8.2%
RPM
5.8%
5.6%
8.5%
18.7%
17.5%
24.5%
26.5%
26.2%
24.8%
1,235
SG&A
YoY
OPM
Non-Operating Income
Non-Operating Expenses
Recurring Profit
1,005
437
16
8
451
119
157
387
620
1,532
3,476
1,313
1,676
453
1,122
58
359
1,816
3,069
3,978
2,558
2,766
3,637
6,120
7,673
6,558
Implied Tax Rate
30.5%
73.6%
159.5%
20.4%
22.7%
20.2%
32.8%
37.4%
33.8%
Minority Interests
-6
-15
11
13
16
17
24
31
38
4,150
1,114
-1,495
9,947
9,380
14,378
12,536
12,802
12,804
YoY
-45.5%
-73.2%
-
-
-5.7%
53.3%
-12.8%
2.1%
0.0%
NPM
4.3%
1.2%
-2.1%
13.5%
12.2%
19.2%
16.9%
16.6%
17.2%
Extraordinary Gains
Extraordinary Losses
Tax Charges
Net Income
Historical Results
Since FY03/91, the company incurred significant losses due to equity investments it conducted during the period of
Japan’s economic bubble in the late 1980s. The problems continued into the 2000s until the company sold all
investments in FY03/03 posting an extraordinary loss of 15.2 billion yen. Then in FY03/05, Sanrio posted the impairment
loss of about 20.9 billion yen related to the theme parks business, the last of large legacy losses. While the core domestic
business remained profitable in the 1990s and early 2000s, weakening performance of the main channels, department
stores and mass merchandisers, meant stagnation. Only in the late 2000s, the company focused on strengthening its
licensing business, developed licensing relationships with major European companies, and finally started truly making
money.
Initial CE vs. Results
(JPYmn)
Sales (Initial CE)
FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY3/15
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
100,400
98,826
72,122
69,977
71,203
73,826
74,700
79,700
79,600
Sales (Results)
96,670
93,916
69,767
73,875
76,624
74,954
74,233
77,009
74,562
-3.7%
-5.0%
-3.3%
5.6%
7.6%
1.5%
-0.6%
-3.4%
-6.3%
Operating Profit (Initial CE)
8,800
6,922
7,685
6,585
9,000
15,157
19,100
21,500
22,000
Operating Profit (Results)
6,222
6,614
6,575
14,863
14,996
18,906
20,198
21,019
17,468
-29.3%
-4.4%
-14.4%
125.7%
66.6%
24.7%
5.7%
Recurring Profit (Initial CE)
7,900
6,063
6,918
5,783
7,970
14,079
18,200
21,400
22,200
Recurring Profit (Results)
5,575
5,263
5,954
13,823
13,387
18,368
19,646
20,180
18,525
-29.4%
-13.2%
-13.9%
139.0%
68.0%
30.5%
7.9%
Net Profit (Initial CE)
4,900
3,486
3,755
4,798
4,726
10,730
12,200
13,300
14,400
Net Profit (Results)
4,150
1,114
-1,495
9,947
9,380
14,378
12,536
12,802
12,804
-15.3%
-68.0% -139.8%
107.3%
98.5%
34.0%
2.8%
-2.2% -20.6%
-5.7% -16.6%
-3.7% -11.1%
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Historical Results vs. Estimates
In FY03/09, the results fell below the initial forecast due to the aftermath of the financial crisis. Since then the
management has focused more on profitability and shifted emphasis towards product licensing. As a result, Sanrio has
been beating forecasts ever since FY03/10. Given that cost reductions are usually larger than the company’s expectations,
this change impacts profits much more than on sales. For example, in FY03/11, sales were 5.4 billion yen more, while
operating profit was 6.0 billion yen more than company’s forecasts; in FY03/12, sales were 1.1 billion yen more, while
operating profit was 3.7 billion yen more than company’s forecasts; and in FY03/13, sales fell short, but operating profit
was better than the company’s forecasts. During FY03/14, Sanrio booked JPY700mn in operating costs to cover an
allowance for doubtful accounts in relation to an export partner in North America, leading to figures slightly below
estimates. During FY03/15, the competitive environment in the US intensified, and sales and profits fell below initial
expectations due to a delay in the recovery of the licensing business in Europe and the US.
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Balance sheet
Balance Sheet
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cash and Equivalents
16,797
12,968
13,891
18,562
21,133
25,893
35,627
52,265
54,816
Accounts Receivable
12,832
13,121
9,431
11,019
10,412
9,949
10,752
12,770
11,567
(JPYmn)
ASSETS
Allowance for Doubtful
Inventories
-242
-268
-72
-131
-455
-107
-92
-82
-133
5,692
5,303
5,018
4,729
3,649
3,116
3,110
3,544
3,916
Other Current Assets
486
374
2,716
4,531
5,107
5,158
6,275
3,741
4,145
Total Current Assets
39,540
35,338
30,984
38,710
39,846
44,009
55,672
72,238
74,311
10,330
9,559
7,372
7,771
7,178
6,515
6,400
7,289
7,137
855
945
542
449
343
234
157
217
194
11,599
11,397
11,290
11,308
10,816
10,571
10,035
10,290
10,009
1,565
Buildings
Equipment, Plant
Land
Lease Asset
-
-
356
339
370
439
650
1,284
69
168
17
24
1
4
13
14
12
570
648
486
463
452
315
391
528
657
Total Tangible Fixed Assets
23,423
22,718
20,063
20,353
19,161
18,078
17,648
19,022
18,891
Total Other Fixed Assets
32,970
30,418
27,536
26,131
24,221
22,650
19,989
21,359
23,569
Construction in Progress
Other Fixed Assets
Total Intangible Assets
Total Fixed Assets
Bond Issuance Expense
Total Deferred Assets
Total Assets
259
456
448
493
338
3,869
4,000
4,865
5,254
56,652
53,592
48,052
46,977
43,720
44,598
41,638
45,248
47,714
55
39
51
74
96
141
115
98
97
55
96,253
39
88,971
51
79,087
74
85,765
96
83,662
141
88,748
115
97,425
98
117,585
97
122,124
LIABILITIES
Accounts Payable
11,614
8,478
6,453
7,732
6,566
4,486
4,481
4,658
4,821
Short-Term Debt
21,127
23,660
19,109
17,636
21,425
17,112
11,852
11,777
10,218
Lease Obligation
-
-
196
227
177
169
217
223
265
Income Taxes Payables
430
805
677
1,136
1,000
859
1,168
740
2,715
Provision for Bonuses
374
422
370
365
370
370
395
456
483
Provision for Merchandise Return
117
80
105
118
62
68
49
45
41
4,666
4,805
4,052
5,009
5,155
5,562
6,715
11,387
10,218
Other Current Liabilities
Total Current Liabilities
38,328
38,250
30,962
32,223
34,755
28,626
24,879
29,288
29,373
Long-Term Debt
14,151
9,116
12,734
13,378
10,508
13,544
14,261
14,059
14,261
Lease Obligation
-
-
304
263
290
328
477
493
681
Reserve for Retirement Benefits
6,509
6,816
6,884
6,963
6,779
6,286
6,011
0
0
Other Fixed Liabilities
1,079
1,792
1,356
1,341
2,138
2,885
2,814
11,861
11,539
Total Long-Term Liabilities
21,739
17,724
21,278
21,945
19,715
23,043
23,563
26,413
26,481
Total Liabilities
60,067
55,974
52,240
54,168
54,470
51,669
48,443
55,701
55,855
Issued Capital
14,999
14,999
14,999
14,999
10,000
10,000
10,000
10,000
10,000
Reserves
10,095
10,095
10,095
8,732
6,147
3,476
3,418
3,423
3,423
Retained Earnings
12,657
12,034
9,189
13,478
20,953
32,624
41,186
49,140
53,087
Shareholder Equity
Treasury Stock
-960
-954
-954
-954
-637
-1,034
-1,884
-1,882
-4,800
Difference in Securities Valuation
459
-839
-1,893
-563
-973
-381
507
787
1,145
Deferred Hedge Gains/Losses
-56
-92
-51
-45
-21
-1
15
6
13
-1,042
-2,260
-4,563
-4,083
-6,310
-7,688
-4,465
2,922
5,643
Foregin Currency Translation Adjustment
Minority Interest
Total Shareholder Equity (Net Assets)
Working Capital
30
13
22
30
36
52
85
67
121
36,182
32,996
26,844
31,594
29,195
37,078
48,982
61,883
66,269
6,910
9,946
7,996
8,016
7,495
8,579
9,381
11,656
10,662
Interest-Bearing Debt
35,279
32,776
31,843
31,014
31,933
30,656
26,113
25,836
24,479
Net Debt
18,482
19,808
17,952
12,452
10,800
4,763
-9,514
-26,429
-30,337
Equity Capital
As discussed in the income statement section, Sanrio incurred substantial losses due to equity investments made during
the period of economic bubble in the late 1980s. As a result of this and deteriorating business performance amid weak
Japanese economy, the company found itself in financial trouble after the collapse of the bubble economy in the 1990s,
accumulating the interest-bearing debt of nearly JPY200bn. In FY03/03, it posted investment security liquidation losses
(JPY15.2bn) following in FY03/04 with impairment losses related to the theme parks business (JPY17.4bn for Sanrio
Puroland and JPY3.5bn for Harmonyland). Following these losses, Sanrio needed to bolster its finances and in March 2005
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issued 19.5 billion yen of preferred shares and JPY500mn of common stock. However, the company has its redeemed all
of its preferred shares (as discussed below).
Stabilized performance in the mid-2000s and the strengthening of the licensing business led to significantly better
performance from FY03/10 onward. In FY03/15, the company significantly improved its financial position by reducing its
interest-bearing debt to JPY24.5bn, and boosted its net cash position, which is the difference between the
interest-bearing debt and cash or cash equivalents, to JPY30.3bn supported by an increase in cash.
Equity Ratio
60%
50%
40%
30%
20%
FY03/15
FY03/14
FY03/13
FY03/12
FY03/11
FY03/10
FY03/09
FY03/08
FY03/07
FY03/06
FY03/05
FY03/04
FY03/03
FY03/02
FY03/01
FY03/00
FY03/99
FY03/98
0%
FY03/97
10%
Despite the fact that the company's equity ratio has become more generous, it still maintains a high ROE of 20.1% in
FY03/15.
ROE
60%
40%
20%
0%
-20%
-40%
-60%
-80%
FY03/05
FY03/06
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15
Preferred Shares
In March 2005, Sanrio issued 9.5 billion yen (950,000 shares) of Class-A preferred shares, 10.0 billion yen (one million
shares) of Class-B preferred shares, and 500 million yen (50,000 shares) of common shares. The Class-A shares were
underwritten by Mitsubishi UFJ Securities, the Class-B shares were underwritten by Tokyo-Mitsubishi UFJ Bank (900,000
shares) and Mizuho Corporate Bank (100,000 shares). The common shares (50,000 shares) were underwritten by
Mitsubishi Corp. Mitsubishi Corp. later sold a portion of these shares in the market.
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In September 2010, the company converted 60,000 Class-B preferred shares into 916,870 ordinary shares.
In October 2010 (announced in July the same year), the company redeemed 400,000 of its 940,000 Class-B
preferred shares using approximately 4.3 billion yen, which included premiums, from funds at hand.
▶
In May 2011 (announced in February the same year), Sanrio redeemed 300,000 of the remaining 540,000 Class-B
preferred shares. The company used 3.3 billion yen of its cash balance for the redemption.
▶
In October 2011 (announced in July the same year), Sanrio redeemed the remaining 240,000 Class-B preferred
shares for 2.7 billion yen in cash.
In April 2007, the company sold all Class-A preferred shares to Sega Sammy Holdings (TSE1: 6460) in line with forming a
strategic business tie-up.
Inventory Control
Inventory has been decreasing. It totaled JPY5.7bn at the end of FY03/07 but declined to JPY3.9bn at the end of FY03/15.
There are two primary reasons behind this improvement.
First, the licensing business by nature does not entail holding inventory, and inventory levels have fallen as the company’s
licensing activities have grown.
Second, Sanrio has reduced its use of the consignment purchase method, a buying method common in Japanese
department stores. Under the method, Sanrio records revenue only when a retailer actually sells a Sanrio product.
Products held for sale are recorded in Sanrio’s inventory rather than in the retailer’s inventory. The number of stores using
consignment purchase declined from 131 in FY03/09 to 89 in FY03/15. Shared Research expects that inventory levels will
continue decreasing from FY03/15 onward as the company has shifted to a policy of avoiding inventory risk.
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Statement of cash flows
The company does not have major capital investment needs. Its business is highly cash flow generative. This is further
helped by declining inventory levels as discussed in the Inventory Control sub-section.
Cash Flow Statement
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Operating Cash Flow (1)
5,658
3,810
6,898
8,428
Investment Cash Flow (2)
Free Cash Flow (1+2)
Financial Cash Flow
Depreciation & Amortization (A)
Capital Expenditures (B)
Working Capital Changes (C)
Simple FCF (NI + A + B - C)
13,211
14,820
FY03/15
Cons.
17,085
17,448
14,438
-7,818
-349
-2,396
-2,038
-1,559
-2,120
2,005
-485
-8,651
5,309
1,414
4,860
6,869
11,091
16,825
16,600
8,797
6,620
-4,795
-3,858
-2,559
-2,483
-8,554
-10,313
-9,651
-5,417
-11,921
1,562
1,366
1,546
1,603
1,384
1,321
1,216
1,307
1,486
-1,085
-1,495
-1,131
-1,711
-843
-310
-720
-1,391
-645
1,418
3,036
-1,950
20
-521
1,084
802
2,275
-11,656
3,013
-1,871
927
9,600
10,379
14,200
12,321
10,622
25,377
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Sanrio ＞ Other information
Other information
History
August 1960
As the first step towards building the Social Communication Business, Shintaro Tsuji establishes
Yamanashi Silk Center Co., Ltd.
1962
Sanrio’s first original character design, Strawberry, is produced.
August 1966
Poetry collection entitled “Ai suru Uta (Loving Songs)” is published marking the start of the
publishing business.
December 1969
Sanrio Greetings Co., Ltd. is established to plan and sell greeting cards.
December 1971
The first “Gift Gate” shop is opened in Shinjuku Ward, Tokyo.
April 1973
The company is officially established under its new name, Sanrio Company Co., Ltd. Head office is
moved to Gotanda, in Tokyo’s Shinagawa Ward.
June 1973
The first Sanrio Salon restaurant is opened in Gotanda TOC building, Tokyo.
October 1973
Sanrio Greetings Co., Ltd. merges with Sanrio Co., Ltd. Film production activities commence.
1974
The characters Hello Kitty, Patty & Jimmy are created.
December 1974
Sanrio Film Corporation of America (currently Sanrio, Inc.) is established in Hollywood, California.
U.S. film production and distribution activities commence.
March 1975
Sale of first Hello Kitty product (small purse) started.
April 1975
The monthly print publication Strawberry News is launched.
August 1975
Sanrio’s first step into the commercial film industry comes with the release of the animated feature
film Little Jumbo. The characters Little Twin Stars, and My Melody are created.
April 1976
Character merchandise licensing activities begin.
April 1978
The movie Who Are the DeBolts? (And Where Did They Get 19 Kids?) wins an American academy
award under the documentary feature category. Shintaro Tsuji is an executive producer of the
documentary.
July 1978
Another feature length film produced by Tsuji, Kitakitsune Monogatari (the Glacier Fox), opens in
domestic movie theaters.
May 1980
A branch office (currently, Sanrio G.m.b.H.) is opened in Hamburg, West Germany to coordinate
development in the European market.
April 1982
Sanrio lists shares on the Second Section of the Tokyo stock Exchange.
January 1984
Sanrio moves to the First Section of the Tokyo Stock Exchange.
October 1985
Sanrio’s first for-TV animated cartoon, Button Nose, is aired.
January 1987
Head office moves from Gotanda to Osaki, also in Shinagawa Ward. Sanrio Communication World
Co., Ltd. (currently Sanrio Entertainment Co., Ltd.) is established as operating company for Sanrio
Puroland.
October 1988
Sanrio participates in the establishment of Harmonyland Co., Ltd. (currently Sanrio Entertainment
Co., Ltd.), in Hijimachi, Oita Prefecture.
April 1990
Sanrio Far East Co., Ltd. is established.
December 1990
Sanrio Puroland theme park opens in Tama City, Metropolitan Tokyo.
April 1991
Harmonyland theme park opens in Hijimachi, Oita Prefecture.
May 1994
Hello Kitty is appointed child goodwill envoy of UNICEF in Japan.
September 2001
The character Cinnamoroll is created.
May 2008
Hello Kitty is appointed as the “tourism ambassador for Visit Japan Campaign in China and Hong
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Kong” by Ministry of Land, Infrastructure, Transport and Tourism. Joint development of Jewelpet
character is launched.
July 2009
Sanrio Entertainment Co., Ltd. is established for the integrated operation of theme parks.
May 2011
Sanrio signs a license agreement with Zhejiang Yinrun Leisure Development to construct China
Hello Kitty Park (provisional name).
December 2011
Sanrio expands its character portfolio with the purchase in Europe of Mr. Men series of characters.
January 2012
Sanrio signs a master license agreement with KT Company (Hong Kong) and KT Shanghai.
July 2013
Sanrio Puroland reopens after renovation
Major shareholders
Top Shareholders
Sega Sammy Holdings
Kohnan Shoji
Kiyokawa Shoji
Bank of Tokyo-Mitsubishi UFJ
Sumitomo Mitsui Banking Corporation
Japan Trustee Services Bank, Ltd. (Trust account)
Mizuho Bank, Ltd.
Shintaro Tsuji
Yuko Tsuji
The Master Trust Bank of Japan, Ltd. (Trust account)
Fukoku Mutual Life Insurance Company
Amount
Held
10.6%
7.7%
7.5%
4.3%
4.3%
2.6%
2.1%
2.1%
1.9%
1.4%
1.4%
As of March 31, 2015
Dividends and shareholder benefits
Sanrio intends to pay a dividend of JPY80 per share in FY03/16 (a payout ratio of 68.6%).
News and topics
July 2015
On July 2, 2015, the company announced the establishment of a subsidiary in the US.
In order to enter the movie and digital animation business, the company has decided to establish a subsidiary in the US.
The company does not expect any material impact on earnings for FY03/16.
Overview of the new subsidiary
▶
▶
▶
▶
Name:
Sanrio Media & Pictures Entertainment, Inc.
Company representative: Rehito Hatoyoama, CEO
Date of establishment:
June 2015
Business:
Movie and animation creation, character image and commercial contract, and digital
media businesses
▶
▶
Capital:
USD200,000
Founding sponsor:
Sanrio Inc. (wholly owned subsidiary in the US)
Business description
The new subsidiary will create Sanrio character animated movies. The company plans to position the new subsidiary as an
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internal venture, grant stock options, and drive independent operations.
June 2015
On June 11, 2015, the company announced the acquisition of treasury stock.
The company received notification that its second largest shareholder, Kohnan Shoji Co., Ltd. intended to sell some of its
stake (total stake of 7.72% of shares outstanding as of March 31, 2015). In view of the impact on the liquidity and market
price of the company’s shares, and the company’s financial standing, the company decided to acquire the shares as
treasury stock. Note, Shintaro Tsuji, president of Sanrio, serves as the representative director of Kohnan Shoji, which
manages the founding family’s assets.
The company plans to use its own capital to acquire these shares. As of March 31, 2015, the company holds liquid assets
(cash and deposits) of over JPY50bn, meaning it will still hold ample liquid assets after the buyback.
Overview of the acquisition of treasury stock
▶
▶
▶
▶
Type of shares: Ordinary shares
Number of shares:
Up to 2,500,100
Acquisition amount:
Up to JPY7.8bn
Acquisition period:
June 12–July 10, 2015 (21 working days).
December 2014
On December 16, 2014, the company announced that it had been named as a defendant in a lawsuit.
Motions were filed against the company on December 8, 2014, along with subsidiary Sanrio GmbH (Sanrio Germany) on
November 28, 2014, at the Milan District Court. The plaintiff, Camomilla Srl, is seeking approximately EUR140mn
(JPY20.6bn) in damages.
The company maintains that the lawsuit is frivolous and plans to defend itself in court.
May 2014
On May 30, 2014, the company announced a share buyback.
Details of the buyback
▶
▶
▶
▶
Type of shares to be acquired: common shares of Sanrio Co., Ltd.
Number of shares to be acquired: 1mn shares (1.1% of outstanding shares, excluding treasury stock)
Value of acquisition: JPY3.0bn
Acquisition period: June 2-June 30, 2014.
Top management
Founder and company president Shintaro Tsuji is the father of Japan’s character business. Born in 1927, Tsuji began
working for the Yamanashi prefectural government in 1949. He left in 1958 to found the Yamanashi Silk Center Co., Ltd.,
which became Sanrio Co., Ltd. in 1973. Though his current role is to integrate company operations and implement
strategic initiatives, Tsuji also has direct involvement in much of the company’s creative work, including preparing
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original manuscripts and screenplays for Sanrio productions. He is a member of the Japan Writers Association and the
Japan P.E.N. Club.
Managing director Susumu Emori, born in 1949, assumes leadership of the corporate planning office. Before joining
Sanrio in June 2000, he worked for Mitsubishi Bank (current The Bank of Tokyo-Mitsubishi UFJ, Ltd.; TSE1: 8315). Since
joining Sanrio, he led the corporate planning office and was appointed a managing director in 2002.
Managing director Kazuyoshi Fukushima, born in 1952, is in charge of the contents business. He joined Sanrio in 1977,
and was appointed director in 2000. After leading the licensing business, he became chief director of planning sales in
2010 and then managing director in 2013.
One of the key members of the management team is Rehito “Ray” Hatoyama who is responsible for execution in the
overseas markets, particularly Europe and the US, and formulating Sanrio’s strategy. Born in 1974, he joined Mitsubishi
Corporation in 1997. In 2008, he graduated with an MBA from Harvard Business School and joined Sanrio. In April 2013,
Mr. Hatoyama became managing director responsible for the overall supervisory office, the new management planning
office, the integrated management strategy head office, international operations and the group-wide reforms office.
Managing Director Takahide Nakaya, born in 1953, is responsible for accounting and administration. He joined Sanrio in
1978, and was appointed director and accounting manager in 2004. In 2011 he became deputy chief manager of
business strategy, then managing director of accounting in 2014 to which was added the role of managing director of
administration in 2015.
Managing Director Saburo Miyauchi, born in 1950, is responsible for the product sales business. He joined Sanrio in 1974,
and was appointed director and manager of product sales in 2006, becoming managing director in 2014.
Employees
As of March 2015, the Sanrio Group had 3,005 employees, of whom 1,298 were full-time employees, and 2,707 were
temporary employees.
By the way
The official version of the company’s name, Sanrio, is that it was derived from “San Rio” in Spanish. “San” means “saint” in
English, as in the San in San Francisco or San Diego, while “rio” means “river,” as in Rio de Janeiro or Rio Grande. A literal
translation of Sanrio is “saint river.” Just as the cradles of civilization emerged near to large rivers, the name expresses the
company’s desire to be a river that cradles and revives culture. To borrow the words of company president Shintaro Tsuji,
“Our wish is to create communities where people are considerate to each other and live in harmony, and in our
management, we aim to be like a river that flows to every corner of the globe, expanding our circle of friends and the
circle of friendship.”
A different version, unearthed by Shared Research and one that seems to be a more logical explanation given the
company’s origin, is that Sanrio is a combination of “Sanri,” a non-standard pronunciation version of Yamanashi
prefecture, and “-o,” a postfix added to arrive at a melodic name. This origin was highlighted in an interview with CEO
Tsuji in the magazine Hoseki (July 1980 edition) where Tsuji appears to have explained that the name was chosen when
he was looking to change the original “Yamanashi Silk Center.”
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Sanrio | 8136 |
Company profile
Company Name
Sanrio Company, Ltd.
Head Office
1-11-1 Osaki Shinagawa-ku
Tokyo, Japan 141-8603
Phone
Listed On
+81-3-3779-8111
Tokyo Stock Exchange 1st Section
Established
Exchange Listing
April 23, 1949
April 23, 1982
Website
Fiscal Year-End
http://www.sanrio.co.jp/english/corporate/index.html
March
IR Contact
IR Web
http://www.sanrio.co.jp/english/corporate/ir/index.html
IR Mail
IR Phone
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R
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