Sanrio Co., Ltd. (8136)

Transcription

SR Research Report
2014/12/16
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.
SR Research Report
2014/12/16
Contents
Key financial data ....................................................................................................3
Recent updates .......................................................................................................4
Highlights ............................................................................................................4
Trends and outlook ...............................................................................................5
Business ............................................................................................................... 23
Business description ........................................................................................... 23
Market and value chain ....................................................................................... 43
Strategy ............................................................................................................ 52
Historical financial statements ................................................................................ 56
Income statement .............................................................................................. 69
Balance sheet .................................................................................................... 71
Statement of cash flows...................................................................................... 74
Other information .................................................................................................. 75
History .............................................................................................................. 75
Major shareholders ............................................................................................. 76
News and topics................................................................................................. 76
Top management ............................................................................................... 78
Employees ......................................................................................................... 78
Investor relations ............................................................................................... 78
By the way ........................................................................................................ 79
Company profile................................................................................................. 80
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Key financial data
Income Statement
(JPYmn)
Total Sales
YoY
Gross Profit
YoY
GPM
Operating Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
Net Margin
Per Share Data
Number of Shares
EPS
EPS (Fully Diluted)
Dividend Per Share
Book Value Per Share
Balance Sheet (JPYmn)
Cash and Equivalents
Total Current Assets
Tangible Fixed Assets, net
Other Fixed Assets
Intangible Assets
Total Assets
Accounts Payable
Short-Term Debt
Total Current Liabilities
Long-Term Debt
Total Fixed Liabilities
Total Liabilities
Net Assets
Interest-Bearing Debt
Cash Flow Statement (JPYmn)
Operating Cash Flow
Investment Cash Flow
Financing Cash Flow
Financial Ratios
ROA
ROE
Equity Ratio
FY03/10
Cons.
73,875
5.9%
40,734
8.2%
55.1%
14,863
126.1%
20.1%
13,823
132.2%
18.7%
9,947
-
FY03/11
Cons.
76,624
3.7%
46,168
13.3%
60.3%
14,996
0.9%
19.6%
13,387
-3.2%
17.5%
9,380
-5.7%
FY03/12
Cons.
74,954
-2.2%
48,116
4.2%
64.2%
18,906
26.1%
25.2%
18,368
37.2%
24.5%
14,378
53.3%
FY03/13
Cons.
74,233
-1.0%
49,454
2.8%
66.6%
20,198
6.8%
27.2%
19,646
7.0%
26.5%
12,536
-12.8%
FY03/14
Cons.
77,009
3.7%
53,359
7.9%
69.3%
21,019
4.1%
27.3%
20,180
2.7%
26.2%
12,802
2.1%
88,148
44.72
42.63
10
241.62
89,065
104.76
96.58
20
301.75
89,065
162.56
160.56
40
418.13
89,065
142.09
142.08
45
553.33
89,065
145.24
145.20
80
699.32
18,562
38,710
20,353
26,131
493
85,765
7,732
17,636
32,223
13,378
21,945
54,168
31,594
31,014
21,133
39,846
19,161
24,221
338
83,662
6,566
21,425
34,755
10,508
19,715
54,470
29,195
31,933
25,893
44,009
18,078
22,650
3,869
88,748
4,486
17,112
28,626
13,544
23,043
51,669
37,078
30,656
35,627
55,672
17,648
19,989
4,000
97,425
4,481
11,852
24,879
14,261
23,563
48,443
48,982
26,113
52,265
72,238
19,022
21,359
4,865
117,585
4,658
11,777
29,288
14,059
26,413
55,701
61,883
25,836
8,428
-1,559
-2,483
13,211
-2,120
-8,554
14,820
2,005
-10,313
17,085
-485
-9,651
17,448
-8,651
-5,417
12.1%
15.0%
36.8%
11.1%
30.9%
34.9%
16.7%
43.5%
41.8%
13.5%
29.2%
50.1%
11.9%
23.2%
52.4%
13.5%
12.2%
19.2%
16.9%
16.6%
FY03/15
Est.
75,800
-1.6%
19,300
-8.2%
25.5%
20,100
-0.4%
26.5%
13,200
3.1%
17.4%
151.46
80
*Reversal of allowance for sales returns is subtracted from gross profit
Figures may differ from company materials due to differences in rounding methods
Source: Company data, SR Inc.
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Recent updates
Highlights
On December 16, 2014, Sanrio Co., Ltd. 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.
On December 11, 2014, Shared Research updated the report after interviewing management.
On November 12, 2014, Shared Research updated comments on the company with a summary of the
company’s earnings briefing session for 1H FY03/15 earnings results; see the results section for details.
On October 31, 2014, the company announced earnings results for 1H FY03/15.
For corporate releases and developments more than three months old, please refer to the
News and topics section.
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Trends and outlook
Quarterly trends and results
Quarterly Performance
(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
NPM
Q1
17,242
2.2%
11,957
6.7%
69.3%
7,278
2.6%
42.2%
4,678
13.9%
27.1%
4,133
-3.8%
24.0%
2,635
-9.5%
15.3%
FY03/14
Q2
Q3
17,674
22,373
2.6%
4.4%
12,930
15,021
10.3%
9.9%
73.2%
67.1%
7,851
8,058
7.0%
10.6%
44.4%
36.0%
5,079
6,964
15.7%
9.1%
28.7%
31.1%
4,915
6,593
5.9%
14.7%
27.8%
29.5%
3,214
4,295
20.0%
17.3%
18.2%
19.2%
Q4
19,720
5.4%
13,451
4.6%
68.2%
9,153
21.4%
46.4%
4,298
-19.2%
21.8%
4,539
-8.5%
23.0%
2,658
-19.0%
13.5%
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%
FY03/15
Q2
17,530
-0.8%
12,641
-2.2%
72.1%
8,489
8.1%
48.4%
4,153
-18.2%
23.7%
4,733
-3.7%
27.0%
3,241
0.8%
18.5%
Q3
-
Q4
-
FY03/15
% of FY
FY Est.
46.9%
75,800
-1.6%
43.9%
19,300
-8.2%
44.9%
20,100
-0.4%
45.8%
13,200
3.1%
Source: Company data
Reversal of allowance for sales returns is subtracted from gross profit.
Figures may differ from company materials due to differences in rounding methods.
Performance by Segment
FY03/14
FY03/15
1H
1H
(JPYmn)
YoY
34,917
35,524
1.7%
Overseas
20,350
20,171
-0.9%
Domestic
Sales
22,615
23,658
4.6%
Licensing
4,362
4,785
9.7%
Product Sales
9,350
9,491
1.5%
Theme Parks
3,447
3,467
0.6%
Others
5,456
5,914
8.4%
9,757
8,469
-13.2%
Overseas
9,933
8,856
-10.8%
Domestic
-175
-386
120.6%
Operating Profit
Licensing
3,012
3,267
8.5%
Product Sales
651
664
2.0%
Theme Parks
-145
-281
-
305
320
4.9%
-3,999
-4,357
-
Others
Eliminations, company expenses
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Overseas Performance by Region
FY03/14
(JPYmn)
FY03/15
YoY
1H
1H
Overseas Sales
20,350
20,171
-0.9%
Europe
6,175
5,724
-7.3%
UK
North America
253
454
79.4%
7,242
5,931
-18.1%
Brazil
1,285
1,372
6.8%
Asia
5,422
6,679
23.2%
Hong Kong
2,694
3,276
21.6%
Taiwan
1,083
1,234
13.9%
South Korea
717
780
8.8%
China
894
1,398
56.4%
Others
Overseas Operating Profit
Europe
33
0
-100.0%
9,933
8,856
-10.8%
3,332
2,856
-14.3%
23
92
300.0%
3,903
2,652
-32.1%
UK
North America
Brazil
Asia
696
751
7.9%
1,960
2,555
30.4%
Hong Kong
717
874
21.9%
Taiwan
452
603
33.4%
South Korea
288
339
17.7%
China
541
739
36.6%
Others
-38
0
-100.0%
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.
1H FY03/15 results
Sales:
Operating profit:
Recurring profit:
Net income:
JPY35.5bn (+1.7% YoY)
JPY8.4bn (-13.2% YoY)
JPY9.0bn (-0.3% YoY)
JPY6.0bn (+3.4% YoY)
Although harsh conditions persist in Europe and the US, performance was strong in the licensing business
in South America and Asia, while special merchandise for convenience stores and corporate promotional
licensing demonstrated growth in the domestic market, yielding higher sales. Operating profit was down
year-on-year as the licensing business in Europe and the US showed signs of weakness and increased
retirement and advertising expenses in the domestic market. Recurring profit was down despite the
booking of JPY400mn in extraordinary profits from exchange rate gains. Net income increased thanks to
changes to the corporate tax rate and a higher proportion of sales generated by countries in Asia, which
typically have high margins.
By segment, the overseas segment yielded sales of JPY20.1bn (-0.9% YoY) and operating profit of
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JPY8.8bn (-10.8% YoY), while the Japanese segment posted sales of JPY23.6bn (+4.6% YoY) and an
operating loss of JPY300mn (operating loss of JPY100mn in Q1 FY03/14). (Note, these figures are before
eliminations, with master license fees paid to the parent returned to overseas subsidiaries.)
Domestic
Sales:
Operating loss:
JPY23.6bn (+4.6% YoY)
JPY300mn (operating loss of JPY100mn in 1H FY03/14)
Licensing sales and profits were up year-on-year, and overall domestic sales rose. But the operating loss
widened due to growing losses in the theme park business. An increase in retirement benefits also
pushed up company-wide expenses.
Domestic product sales
Sales:
Operating profit:
JPY600mn (+2.0% YoY)
Domestic product sales faced difficult conditions due to poor weather conditions, but a higher number of
foreign tourist customers and sales of products featuring new characters such as Kirimi-chan and
Gudetama contributed to higher sales and profits. Comparable store sales were down by 4.8% YoY.
Domestic licensing business
Sales:
Operating profit:
Kirimi-chan and Gudetama products sold well, as well as LINE stickers and stationery featuring the Show
by Rock characters. Products utilizing 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.
In addition to product licensing, the company also sells “spatial licenses” (for concentrated advertising in
a particular space). For example, the company offers financial institutions a comprehensive service that
covers decorations for ATM corners, in addition to advertising on cards and novelty products. Cafés
featuring characters such as Hello Kitty, My Melody, Little Twin Stars (Kiki & Lala), and Pom Pom Purin are
also performing well, contributing to licensing and product sales.
Theme park operations
Sales:
Operating loss:
JPY200mn (operating loss of JPY100mn in 1H FY03/14)
Visitors to Harmonyland fell by 2.3% YoY to 218,000 and sales dropped to JPY800mn (-4.3% YoY),
primarily due to an unfavorable schedule of national holidays and fewer visitors from South Korea
following the sinking of the MV Sewol in April 2014. However, improvements in the CoGS-to-sales ratio
and lower event-related costs meant operating profit from Harmonyland grew to JPY93mn (JPY66mn in
1H FY03/14).
Sanrio Puroland saw more full-price ticket visitors due to lower entrance fees in response to the April
consumption tax hike, and the average spend per customer grew to JPY4,696 (+6.6% YoY). But
restrained group and corporate discounts meant visitors dropped 4.4% YoY to 432,000, and sales fell
1.6% YoY to JPY2.4bn. The operating loss at Sanrio Puroland widened to JPY300mn (JPY100mn in 1H
FY03/14), owing to higher spending on advertising and other expenses.
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Others
Sales:
Operating profit:
In other businesses, raffle sales for character-themed products at convenience stores were strong.
Corporate promotional licensing was also solid.
Overseas
Sales:
JPY20.1bn (-0.9% YoY)
Operating profit:
JPY8.8bn (-10.8% YoY)
(Before eliminations and after master licenses fees paid to the parent were returned to the respective
subsidiaries).
Advances in Asia made up for reduced activity in North America.
Europe
Sales:
Operating profit:
JPY5.7bn (-7.3% YoY)
JPY2.8bn (-14.3% YoY)
Poor consumer sentiment led major licensees to favor private brand characters, leading to lower sales and
profits. Apparel and toys suffered the highest decreases. By region, the Middle East and Africa posted
year-on-year sales gains, but sales fell in Europe, the company’s main driver for growth.
North America
Sales:
Operating profit:
JPY5.9bn (-18.1% YoY)
JPY2.6bn (-32.1% YoY)
In the US, Sanrio lost shelf space at major retailers due to fierce competition for character product sales
as rivals launched tie-in products for hit movies. Together with cold weather, this resulted in lower sales
and profits.
South America
Sales:
Operating profit:
JPY700mn (-7.8% YoY)
Mexico and Brazil are key markets for the region. Although the Argentinian debt crisis and slowing growth
in Brazil weighed on results, sales in Mexico were up by 40% year-on-year, leading to higher sales and
profits for the region as a whole. By category, bags and apparel were strong performers. Sanrio also
worked to reduce SG&A expenses, further boosting profits.
Asia
Sales:
Operating profit:
JPY6.6bn (+23.2% YoY)
JPY2.5bn (+30.3% YoY)
Hong Kong
Sales:
Operating profit:
JPY3.2bn (+21.2% YoY)
JPY800mn (+21.8% YoY)
Exports were down to Europe and the US, but product sales and licensing revenue to Southeast Asian
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countries were up, leading to higher sales and profits. Corporate promotions for drug stores and
convenience stores in Hong Kong also performed strongly.
Taiwan
Sales:
Operating profit:
JPY1.2bn (+13.9% YoY)
JPY600mn (+33.2% YoY)
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,
license sales for electronics and beauty products contributed to higher sales and profits.
China
Sales:
Operating profit:
JPY1.3bn (+56.3% YoY)
JPY700mn (+36.6 YoY)
Sales to master licensee KTL (part of the Hong Kong-based Li & Fung group) were up by 50% in foods,
70% in household goods, and 100% in gold accessories. Entrance into new licensing areas, such as café
and karaoke venues that have direct oversight from Sanrio’s local subsidiary, also demonstrated progress,
and despite higher SG&A expenses to cover expansion activities, operations in China showed higher sales
and profits on a local currency basis.
South Korea
Sales:
Operating profit:
JPY300mn (+17.5% YoY)
Product licensing sales were subdued, owing to lower sales at major retailers, and decreased sales of
shoes, household goods, and toys, which lost ground to private brands. Hello Kitty Island, which opened
in January 2014, had significantly more visitors from China, posting strong results.
In other Asian territories, special orders from financial institutions in Thailand grew.
Revised FY03/15 full-year earnings forecast
Sanrio made revisions to its FY03/15 full-year earnings forecast, as shown below.
Sales:
JPY75.8bn (previous forecast: JPY79.6bn)
Operating profit:
JPY19.3bn
(JPY22.0bn)
Recurring profit:
JPY20.1bn
(JPY22.2bn)
Net income:
JPY13.2bn
(JPY14.4bn)
Sanrio revised its FY03/15 full-year earnings forecast due to the expectation of a prolonged depression in
customer sentiment in regional, family-oriented stores, and harsh competitive conditions in the US. The
company also forecasts that a recovery in the licensing business in the US will be of limited scope during
FY03/15.
Revision to dividend forecast
Although sales, operating profit, and recurring profits fell short of initial forecasts, net income finished
above expectations due to a higher proportion of sales and profits generated by operations in Asia. As a
result, Sanrio will increase its dividend by JPY10 per share, to JPY40 per share.
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Summary of the 1H FY03/15 briefing session
Earnings results briefed by Managing Director Susumu Emori
1H FY03/15
Sales rose 1.7% YoY, with operating profit falling 13.2% due to the deteriorating performance overseas.
Net income rose 3.4% YoY because of an increase in forex gains and a reduction in tax payments.
Overseas operations, theme parks, and expenses incurred at headquarters were behind the decline in
overall operating profit even as domestic licensing and product sales businesses posted a profit increase.
A decline in operating profit in Europe and North America has been partly offset by an increase in Asia,
where the company’s four subsidiaries posted a double-digit profit increase.
Forecast for full-year FY03/15
Sanrio expects sales and operating profit to decline 1.6% and 8.2%, respectively, from a year earlier. Net
income may increase 3.1% due to currency gains and a reduction in tax payments.
Overseas operations, theme parks, and expenses incurred at the headquarters may lead to a decline in
overall operating profit even as the domestic licensing and product sales businesses are expected to post
a profit increase. Domestic businesses may contribute to overall earnings due to events commemorating
the 40th anniversary of Hello Kitty, new store openings, and more tourists from overseas. The licensing
business is benefitting from the use of Sanrio characters by pharmaceutical, cosmetic, and apparel
companies, as well as by café operators. In addition, a new character, Gudetama, is popular among users
of social networking sites.
Sanrio forecasts a profit decline in Europe and North America. However, the company’s four subsidiaries
in Asia may post a double-digit profit increase.
The company paid an annual dividend of JPY80 a share for FY03/14. This payout included a
commemorative dividend of JPY20. For FY03/15, the company plans to pay an ordinary annual dividend
of JPY80.
Strategy
 Sanrio is compiling a medium-term management plan, which will be released as soon as the company
confirms that the operations in Europe and North America are bottoming out. The company expects
that the European and North American operations will hit bottom during FY03/16.
 Sanrio is considering various proactive strategic options, such as acquisitions and collaborations with
companies that own rights to popular characters.
 Sanrio will create a new management structure within the next two years. The company will delegate
various responsibilities to officers in each region and department to assess their capabilities and
suitability.
 President Shintaro Tsuji and Managing Director Rehito Hatoyama are stationed at the US subsidiary.
Tsuji and Hatoyama also oversee Asia and Europe, respectively.
Presentation by Managing Director Rehito Hatoyama
Sanrio held a four-day Hello Kitty convention in October 2014 at the Museum of Contemporary Art in Los
Angeles. The event, which occupied a 100,000sqft space, was an occasion for vast gatherings of fans
featuring product exhibits and autograph-signings by designers. The company sold 25,700 tickets,
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generating JPY70mn in sales. Twenty-eight licensees took part in the event and earned more than
JPY100mn.
Hello Kitty fans in the US range from children to those in their forties, and comprise a variety of people
regardless of ethnic background.
Presentation by President Shintaro Tsuji
1H FY03/15
In Japan, companies catering to consumers (retailers, wholesalers, and other distributors) generally
struggled as consumption remained stymied, even though some of them performed well. Sanrio products
are mainly bought as gifts and souvenirs, so stores that served foreign tourists saw sales increase.
However, the company’s overall performance was little changed from a year earlier.
The deterioration of European operations seemed to be coming to an end. However, in the US, a
competitor’s animated film became a hit in March 2014. Products related to the movie became popular,
taking away 20% of Sanrio’s sales space at department stores and other retail outlets. Weak performance
in Europe and North America was mostly offset by strong performance in Asia, although not enough to
reverse the overall decline in earnings.
Nutcracker Fantasy
Sanrio has recreated the popular animated film Nutcracker Fantasy in 3D to compete with rivals. The goal
is to produce products related to the movie and sell them in the US to compensate for recent weak
performance. The movie will be released in Japan on November 29, 2014 in 100 theaters. Sanrio, rather
than seeking to profit from the film itself, wants to generate sales from products related to the movie. The
company plans to launch 160 products in the US.
Sanrio began to produce movies 50 years ago. So far the company has produced 20 feature and 40 short
films. If Nutcracker Fantasy turns out to be a success, the company will make another animated movie.
Depending on the latter’s success, it will consider another film based on a story about mice. The company
will seek outside investors to finance these movies. For Sanrio, the purpose of creating movies is to earn
licensing fees.
Theme Park Operations
The company renovated its Sanrio Puroland in July 2014 to appeal to grownup visitors. The park, which
had more customers than expected in October, remained popular in November. If such conditions
continue, Sanrio Puroland could post a profit in FY03/15.
Sanrio is building similar theme parks in Malaysia, China, South Korea, and Indonesia. The park in
Malaysia has already been completed. The one in China is scheduled to open in January 2015.
Entrance into new markets
Sanrio will create café-restaurants in Tokyo, Osaka, Kobe, Hong Kong, Taiwan, South Korea, Thailand,
Macao, Kuwait, Turkey, Australia, and LA, through a business arrangement called “spatial licensing.”
Spatial licensing: Concentrated advertising centered on narrow geographical areas.
In Japan, Create Restaurants Holdings, which operates more than 200 restaurants, runs cafés featuring
Hello Kitty, My Melody, Little Twin Stars (Kiki & Lala), and Pom Pom Purin.
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Licensing operations
Spatial licensing operations offer 20 characters, including Hello Kitty. Two life insurers, eleven banks, as
well as brokerages, use the service. The company is expected to have more licensees in the near future.
This is part of Sanrio’s character merchandising strategy that began 55 years ago, under which the
company develops its own characters to earn licensing income in a strategy that the company calls “social
communications business.”
Sanrio will expand this business, with each department adopting various ideas proposed by younger
employees. The company expects to come up with more characters and increase revenue from the
character merchandising business (in which the company licenses the use of its characters). The company
does not plan to discontinue this business.
Successor
President Tsuji plans to handpick his successor. Currently, managers of each department act almost as
presidents of their respective operations. They incorporate employees’ opinions as they move operations
forward.
Q&A session
Profitability of films, measures to reduce risks
Nutcracker Fantasy is a remake of an old film. Therefore, the company spent only several hundred million
yen. It is important to sell characters after movies become a success. If Nutcracker Fantasy turns out to
be a success, the company will create another movie for several hundred million yen. Then, the company
may make yet another movie for JPY1.5bn-2.0bn. It is important to note, as mentioned earlier, that the
company will seek outside investors when making movies. The purpose of creating movies is to earn
licensing fees from characters. The company will only make a third film if the second one is successful. As
for Nutcracker Fantasy, Sanrio is already receiving inquiries about licensing payments for the lead
character.
Action Program for Europe for FY03/16
Sanrio has three areas of emphasis for its European operations: stronger corporate governance, changes
in licensees, and workforce expansion and training.
Stronger corporate governance
Sanrio had been aware of concerns about deteriorating earnings in Europe. These concerns emerged in
early 2012. However, it took two years for the company to come up with measures to deal with the
situation. The company regrets that it did not take swifter action. Sanrio failed to properly hand over
responsibilities to local management in a timely manner, so it took too long for the company to change its
regional strategy. In managing subsidiaries, the company must put in place a mechanism that allows it to
monitor local management and quickly take action. The company’s first priority is to strengthen its
corporate governance that allows it to maintain steady earnings in the regional market.
Changes in licensees
Sanrio generated about a third of its European sales in Italy in 2011. The ratio fell to less than 10% in
FY03/15. The list of primary licensees must change with the primary market. During FY03/15, some
products were unavailable in certain nations due to changes in primary licensees. The company is making
an effort to change its list of licensees. However, it usually takes about one or two years for the company
to earn licensing fees after the introduction of a new product. The company expects to benefit from
changes in the list of licensees during FY03/16.
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Workforce expansion and training
Sanrio needs a variety of employees since it operates many different businesses (licensing, product sales,
space licensing). The company will strengthen its regional operations by bolstering its workforce, training
employees, and working closely with units in other parts of the world.
Impact of competition in North America
Competition is escalating in North America, especially at large-scale retailers. The company’s reliance on
mass-retailers is rising, meaning that businesses could be influenced by the popularity of movies. So far,
the company has been immune to changes in box-office sales due to its loyal fans. However, it is still
important for the company to expand sales in such a market. As for the mass-retailer market, products
can be sold as long there is shelf space. However, some buyers are unfamiliar with Sanrio products, so the
company must approach mass-retailers and raise product recognition. The situation may remain difficult
in the short run due to competition.
Medium- and long-term outlook for the digital business
Licensing in the digital industry is global by nature. The market is huge in Japan and the US. The company
already has a strong presence in Japan with Hello Kitty and Gudetama. Sanrio plans to expand its
licensing to movies.
Business growth in Asia
The company’s businesses in Asia are robust. Products made in Japan are becoming more popular as the
yen becomes weaker. In Southeast Asia, best-selling characters include Hello Kitty and Tabo. Sales may
continue to expand in Asia. Café operations are particularly promising.
In China, the company changed its business model four years ago from product sales to licensing. As a
result, the size of licensing operations grew 10 times in three years. The Chinese market may expand
several-fold in the future, leading to continued growth for the company. Sanrio will establish a business
structure that allows continued expansion.
Factors influencing US operations
In the past, Sanrio’s operations in the US have mostly been merchandise licensing. The company must
now hire more employees because it lacks workers able to handle space licensing and product sales
operations. In a mature market, the company must set aside sufficient marketing expenses and hire
employees. President Tsuji is briefed on the company’s US operations on a monthly basis.
Q1 FY03/15 Results (announced on July 31, 2014)
Sales:
Operating profit:
Recurring profit:
Net income:
JPY17.9bn (+4.4% YoY)
JPY4.3bn (-7.7%)
JPY4.2bn (+3.8%)
JPY2.8bn (+6.5%)
The company maintained its midterm and full-year forecasts.
Sales were up thanks to strong performance from the licensing businesses in Asian countries, and special
orders and promotions from convenience stores in Japan.
Operating profit was down due to factors such as retirement expenses for domestic personnel, increased
advertising expenses for theme parks, and cold weather weighing on profits at the company’s US
subsidiary.
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Recurring profit was up YoY due to a lessened impact from foreign exchange rates, which had an effect of
JPY600mn on the company during Q1 FY03/14.
By segment, the overseas segment yielded sales of JPY10.2bn (+3.1% YoY) and operating profit of
JPY4.5bn (-5.3%), while the Japanese segment posted sales of JPY11.5bn (+5.2%) and an operating loss
of JPY200mn (operating loss of JPY90mn in Q1 FY03/14).
Japan
In the domestic business, the licensing business posted sales of JPY2.1bn (+1.7% YoY), and operating
profit of JPY1.5bn (+2.9%). Product sales were JPY4.6bn (+3.1%) and operating profit was JPY400mn
(+14.9%). The theme park business saw sales of JPY1.2bn (+3.1%) and an operating loss of JPY300mn
(operating loss of JPY200mn during Q1 FY03/14). Other domestic businesses achieved sales of JPY3.4bn
(+11.4%) and operating profit of JPY300mn (+24.3%). Expenses of JPY2.2bn (JPY1.9bn in Q1 FY03/14)
were incurred at the corporate cost center.
Factors contributing to higher sales were robust performance of the licensing business and successful
raffle ticket sales at convenience stores. Conversely, master licensing revenue from overseas subsidiaries
decreased, raw materials costs were higher due to a weaker yen, and SG&A expenses were higher,
weighing on profits.
In domestic product licensing, the company thinks that sales bottomed out in Q3 FY03/14, and sales were
up slightly YoY for Q1 FY03/15. Successful initiatives included food products, a collaborative design
featuring the Liz Lisa brand and the company’s My Melody character, free stickers for popular chat apps on
smartphones, and robust sales of Bonbon Ribbon products. These served to cover weakness in sales at
major apparel specialty stores. Corporate promotional licensing, a new type of licensing structure,
demonstrated solid growth.
A fallback in demand after the April consumption tax hike caused comparable store sales to be down
4.4% YoY, but new store openings contributed to higher overall sales. An increasing number of foreign
tourists in metropolitan areas also provided a broader customer base. Sales of character bags featuring
existing characters and small gifts geared toward adult consumers were robust. Continuing the trend set
in FY03/14, Bonbon Ribbon continued to be popular among young girls.
In the theme park business, visitors to Harmonyland fell by 9,000 YoY to 74,000, primarily due to shorter
operating hours and fewer events that were a result of an unfavorable schedule of national holidays.
Although CoGS was lower since the company did not make large equipment purchases as it did during the
previous year, operating loss was on par with FY03/14. Sanrio Puroland saw more full price ticket visitors
due to lower entrance fees in response to the April consumption tax hike, but restrained group and
corporate discounts led to 4,000 fewer visitors YoY, to 153,000. However, fewer discount ticket visitors
meant that average revenue per visitor was up. The margin of operating loss widened primarily due to
operating, depreciation, and SG&A expenses.
In other businesses, raffle sales for character-themed products at convenience stores were strong.
Corporate promotional licensing with characters such as Bonbon Ribbon, Kirimi-chan, and Gudetama
were also solid.
Cost at headquarters were up 11.5% YoY. Contributors included lower advertising expenses and overseas
consulting fees, alongside an accounting change which reduced the depreciation period for retirement
expenses.
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Overseas
Overseas sales were JPY10.2bn (+3.1% YoY), and operating profit was JPY4.5bn (-5.3%), after
eliminations and master licenses fees paid to the parent were returned to the respective subsidiaries.
Advances in Asia were able to make up for reduced activity in North America.
Europe
Sales were JPY2.8bn (-0.1% YoY) and operating profit was JPY1.4bn (-1.3%). On a local currency basis,
sales were down by 14.5% and operating profit was down by 12.1%. Partially owing to the lingering
effects of the debt crisis, licensing sales were down for the tenth straight quarter on a local currency basis.
By region, the Middle East and Africa posted YoY sales gains, but sales fell in Europe, the company’s main
driver for growth.
Results in Europe were according to company estimates. Beginning in the latter half of 2013, the
company has been seeking contracts with promising local companies, and sales of licensed products from
these partnerships are planned to begin having a beneficial effect on the company’s books beginning in
2H FY03/15. Sanrio also overhauled its operational structure to focus more on sales to major licensees,
and is aiming for YoY growth to resume in the latter half of FY03/15.
North America
Sales were JPY3.2bn (-7.8% YoY) and operating profit was JPY1.4bn (-25.3%). On a local currency basis,
sales were down by 11.8%, and operating profit was down by 32.0%. Due to the cold weather which
began in late December 2013, major retailers across the US saw significantly lower sales, and sales of the
company’s licensed products suffered as well. A fierce competitive environment in character products,
and less shelf space for the company’s characters at major retailers, were also factors leading to a double
digit decline in profitability. By category, although performance of apparel and accessories was weak,
sales were up in sports, a new category.
South America
Sales were JPY600mn (-9.1% YoY) and operating profit was JPY300mn (-1.5%). On a local currency basis,
sales were down 3.5%, and operating profit was up by 20.7%. Mexico and Brazil are key markets for the
region. The Argentinian debt crisis was a factor in reduced sales. Growing popularity of Hello Kitty in
Mexico led to more floor space for the company’s products at department stores, and results were robust
for shoe licensing in Brazil, which was underperforming until the first half of FY03/14 due to inventory
adjustments. However, in other countries, issues such as the fact that licensee sales for mobile phone
related products are now scheduled to be booked in 2H led to lower sales for the region as a whole.
Categories that demonstrated strength include shoes in both Mexico and Brazil. Profits were higher as
fewer write downs on inventory led to lower CoGS, which stemmed from a shift to the licensing business
during FY03/14.
Asia
Across Asia as a whole, sales were JPY3.2bn (+23.9% YoY) and operating profit was JPY1.2bn (+26.2%).
Sales and profits were higher in China, Taiwan, and South Korea.
In Hong Kong, sales were JPY1.5bn (+20.8% YoY) and operating profit was JPY400mn (+14.5%). On a
local currency basis, sales were up by 7.6%, and operating profit was up by 5.4%. Sales were down (up
on a local currency basis) due to lower exports to key sales agents, but corporate and promotional sales
were strong and profits were up. Promotions for drug stores in Hong Kong were successful as well.
In Taiwan, sales were JPY500mn (+14.2% YoY) and operating profit was JPY200mn (+33.8%). On a local
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currency basis, sales were up by 11.8%, and operating profit was up by 48.6%. A campaign to promote
the 40th anniversary of Hello Kitty’s birth was a success, and orders for commemorative products to mark
the occasion were strong from the country’s top licensees. By category, although apparel was subdued,
bags and toys performed well.
In China, sales were JPY600mn (+59.5% YoY) and operating profit was JPY300mn (+54.2%). On a local
currency basis, sales were up by 37.0%, and operating profit was up by 33.3%. Sales to master licensee
KTL (part of the Hong Kong-based Li & Fung group) were a significant contributor to results. This was due
to a large increase in the number of licensees, and a wider array of categories. Specifically, licensees for
gold accessories, last year’s top product category, grew at a rapid pace. Food, household goods,
stationery, and health and beauty products also saw high demand. Entrance into new licensing areas,
such as café and karaoke venues that have direct oversight from Sanrio’s local subsidiary, also
demonstrated progress.
In South Korea, sales were JPY400mn (+12.2% YoY) and operating profit was JPY200mn (+1.7%). On a
local currency basis, sales were up by 1.6%, and operating profit was down by 7.9%. Consumer
consumption remains at low levels due to worsening employment conditions. Product sales at the three
major retail stores was also subdued, but the company was successful in generating higher sales.
Overhead was higher due to hiring of sales personnel, which was required after the termination of a local
business partnership in FY03/13. However, Sanrio’s operations in South Korea secured higher profits. By
category, bath products, stationery, and apparel performed strongly.
In other Asian territories, special orders from financial institutions in Thailand grew at a pace several
times higher than the previous year.
Mid-term management plan
The company’s medium term management plan is currently under internal review, and it is in the process
of gathering data to create concrete plans.
Transfer of power to a new president
At the shareholder meeting held in June 2014, the company’s current president stated that he will work to
prepare a corporate structure that will enable a smooth transition to a new president within the next two
years.
For details on previous quarterly and annual results, please refer to the Historical Financial
Statements section.
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Full-year (FY03/15) outlook
1H Act.
34,916
FY03/14
2H Act.
42,093
FY Act.
77,009
10,029
24,887
13,625
28,472
23,654
53,359
SG&A
15,129
17,211
32,340
Operating Profit
9,757
11,262
21,019
9,048
11,132
20,180
5,849
6,953
12,802
FY03/15 Forecast
(JPYmn)
Sales
YoY
CoGS
Gross Profit
YoY
GPM
2.4%
7.3%
67.6%
8.5%
71.3%
SG&A / Sales
14.8%
27.9%
YoY
RPM
1.2%
25.9%
YoY
4.6%
Recurring Profit
Net Income
FY03/15
2H Est.
40,276
FY Est.
75,800
8,469
10,831
19,300
9,021
11,079
20,100
6,046
7,154
13,200
1.7%
-4.3%
-1.6%
7.9%
69.3%
42.0%
40.9%
43.3%
YoY
OPM
3.7%
4.9%
1H Act.
35,524
-3.8%
26.8%
4.0%
26.4%
0.1%
4.1%
27.3%
-13.2%
23.8%
2.7%
26.2%
-0.3%
25.4%
2.1%
3.4%
-3.8%
26.9%
-0.5%
27.5%
2.9%
-8.2%
25.5%
-0.4%
26.5%
3.1%
Forecasts by Segment
(JPYmn)
FY03/14
FY03/15
YoY
1H Act.
2H Act.
FY Act.
1H Act.
2H Est.
FY Est.
1H Act.
2H Est.
34,917
42,092
77,009
35,524
40,276
75,800
1.7%
-4.3%
-1.6%
Overseas
20,350
25,069
45,419
20,171
23,461
43,632
-0.9%
-6.4%
-3.9%
Domestic
22,615
25,807
48,422
23,658
26,215
49,873
4.6%
1.6%
3.0%
4,362
5,143
9,505
4,785
5,155
9,940
9.7%
0.2%
4.6%
Sales
Licensing
FY Est.
Product Sales
9,350
12,111
21,461
9,491
12,377
21,868
1.5%
2.2%
1.9%
Theme Parks
3,447
2,902
6,349
3,467
3,144
6,611
0.6%
8.3%
4.1%
Others
5,456
5,651
11,107
5,914
5,540
11,454
8.4%
-2.0%
3.1%
Operating Profit
9,757
11,262
21,019
8,469
10,831
19,300
-13.2%
-3.8%
-8.2%
Overseas
9,933
10,614
20,547
8,856
10,218
19,074
-10.8%
-3.7%
-7.2%
Domestic
-175
647
472
-386
612
226
120.6%
-5.4%
-52.1%
3,012
3,518
6,530
3,267
3,727
6,994
8.5%
5.9%
7.1%
Product Sales
Licensing
651
1,475
2,126
664
1,590
2,254
2.0%
7.8%
6.0%
Theme Parks
-145
-374
-519
-281
-365
-646
-
-
-
305
301
606
320
46
366
4.9%
-84.7%
-39.6%
-3,999
-4,272
-8,271
-4,357
-4,385
-8,742
-
-
-
Others
Eliminations, company expenses
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Forecasts by Region
(JPYmn)
Overseas Sales
Europe
UK
North America
FY03/14
FY03/15
YoY
1H Act.
2H Act.
FY Act.
1H Act.
2H Est.
FY Est.
1H Act.
20,350
25,069
45,419
20,171
23,461
2H Est.
43,632
-0.9%
-6.4%
6,175
6,872
13,049
5,724
5,983
FY Est.
-3.9%
11,707
-7.3%
-12.9%
-10.3%
253
488
742
454
514
968
79.4%
5.3%
30.5%
7,242
9,488
16,731
5,931
7,634
13,565
-18.1%
-19.5%
-18.9%
Brazil
1,285
1,297
2,582
1,372
1,331
2,703
6.8%
2.6%
4.7%
Asia
5,422
6,908
12,293
6,679
8,007
14,686
23.2%
15.9%
19.5%
Hong Kong
2,694
3,761
6,455
3,276
3,762
7,029
21.6%
0.0%
8.9%
Taiwan
1,083
1,140
2,221
1,234
1,231
2,465
13.9%
8.0%
11.0%
South Korea
717
772
1,489
780
891
1,671
8.8%
15.4%
12.2%
China
894
1,235
2,128
1,398
2,123
3,521
56.4%
71.9%
65.5%
9,933
10,614
20,547
8,856
10,218
19,074
-10.8%
-3.7%
-7.2%
3,332
3,338
6,672
2,856
2,969
5,825
-14.3%
-11.1%
-12.7%
Overseas Operating Profit
Europe
UK
North America
Brazil
23
166
190
92
120
212
300.0%
-27.7%
11.6%
3,903
4,809
8,712
2,652
3,652
6,304
-32.1%
-24.1%
-27.6%
696
649
1,346
751
576
1,327
7.9%
-11.2%
-1.4%
1,960
1,687
3,730
2,555
3,042
5,597
30.4%
80.3%
50.1%
Hong Kong
717
127
843
874
1,071
1,945
21.9%
743.3%
130.7%
Taiwan
452
521
1,019
603
600
1,203
33.4%
15.2%
18.1%
South Korea
288
304
593
339
437
776
17.7%
43.8%
30.9%
China
541
735
1,275
739
934
1,673
36.6%
27.1%
31.2%
Asia
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.
Sales
Of the JPY75.8bn (-1.6% YoY) in sales forecast for FY03/15, JPY43.6bn (+3.9% YoY) will be generated
overseas, and JPY49.8bn (+3.0%) will be generated domestically.
Operating profit (OPM)
The company forecasts JPY19.3bn (-8.2% YoY) in operating profit for FY03/15. Of this figure, overseas
will account for JPY19.0bn (-7.2% YoY), and the domestic market represents JPY200mn (-52.1% YoY).
Domestic
The domestic breakdown for operating profit consists of:
 Domestic licensing: JPY6.8bn (+4.8% YoY);
 Domestic product sales: JPY2.3bn (+9.5%);
 Theme park: operating loss of JPY200 (operating loss of JPY500mn during FY03/14);
 Other: JPY400mn (-35.8%).
Domestic product sales
Sales forecast:
Operating profit forecast:
JPY21.8bn (+1.9% YoY)
The company plans to create new types of products and stores that will serve to please existing
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customers while drawing in new customers from an adult audience. In addition, Sanrio forecasts an
increase in sales from overseas tourists.
Domestic licensing
Sales forecast:
The company will use its characters for overseas promotional activities that are scheduled to be
undertaken by large-scale domestic companies in the apparel, electronics, and food sectors. Sanrio will
also move to expand its advertising business centered on narrow geographical areas through not only
licensing and joint efforts, but with promotions for the service and corporate sectors. The company also
plans to bolster its “spatial licensing” business by developing more cafés featuring popular characters.
In addition to Hello Kitty, the company will also begin licensing for My Melody, Little Twin Stars,
Kirimi-chan, Gudetama, and Show by Rock, characters that will celebrate their 40th anniversary during
FY03/15.
Theme parks
Sales forecast:
JPY600mn (operating loss of JPY500mn in FY03/14)
Sanrio responded to the consumption tax increase of April 2014 by changing its ticket system and
effectively reducing prices, in a bid to attract more visitors. As a result, the average spend per customer
grew to JPY4,696 (+6.6% YoY) at Sanrio Puroland in Tama, Tokyo. But restrained group and corporate
discounts meant visitors dropped 4.4% YoY to 432,000, and sales fell 1.6% YoY to JPY2.4bn. The
operating loss at Sanrio Puroland widened to JPY300mn (JPY100mn in 1H FY03/14). In 2H, the company
plans to increase the number of visitors by distributing corporate discount tickets. For the full year, it
expects 903,000 visitors (+13.9% YoY), an average spend of JPY4,947 (+5.3% YoY), sales of JPY4.7bn
(+4.7% YoY), and an operating loss of JPY700mn (operating loss of JPY500mn in FY03/14).
Overseas, Sanrio is also planning for three new theme park openings during FY03/15: United Kingdom,
May 2014; Anji County, China, October 2014; Indonesia, December 2014. Royalty and product sales at
these new parks will likely be contributors to overall sales and profits.
Movies
Sanrio has recreated the popular animated film Nutcracker Fantasy in 3D to compete with rivals. The
movie was released in Japan on November 29, 2014 in 100 theaters. The company aims to generate sales
from movie tie-in products, rather than the film itself. For future movies, the company similarly intends to
focus on selling licenses, leaving the movie production to committees composed of stakeholders.
Overseas
Europe
Sales forecast:
JPY11.7bn (-10.3% YoY)
JPY500mn (-12.7% YoY)
In Europe, Sanrio’s managing director in charge of overseas operations is restructuring the company’s
operations, including changing licensees. The company initially expected revenues to pick up in Q4
FY03/15, but as of November 2014, it anticipates that growing royalty revenues from products will require
more time, despite making progress toward changing licensees. It thus expects revenues to bottom out
later than FY03/15, as initially expected. But according to the company, there is now a clear direction to
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its restructuring efforts in Europe, and it projects that sales will find support in 1H FY03/16.
A downward trend during the last two years has pushed operating profits down approximately 40% from
their peak values. Shared Research thinks that the effectiveness of aggressive changes that are underway
to improve core operations in Europe will play a key role in the performance of the company as a whole.
North America
Sales forecast:
JPY13.5bn (-18.9% YoY)
JPY6.3bn (-27.6% YoY)
In 1H FY03/15, Sanrio lost shelf space at major retailers due to fierce competition for character product
sales as rivals launched tie-in products for hit movies. Together with cold weather, this resulted in lower
sales and profits.
The company also forecasts sales and profits to fall in 2H FY03/15 due to fierce competition. But following
on from the success of the Hello Kitty convention in October 2014, the company plans to hold events and
promotions to counter its lack of brand presence in the US.
Asia
Sales forecast:
JPY14.6bn (+19.5% YoY)
JPY5.5bn (+50.1% YoY)
Sanrio anticipates higher sales and profits in Hong Kong, Taiwan, South Korea, and mainland China,
following operating profit growth of 10-40% in these markets in 1H FY03/15. The company expects
earnings in Asia to continue growing, with a particularly promising outlook for themed cafés.
Exchange rates
The effects of exchange rate fluctuations on the company’s FY03/15 results are shown in the table below.
Effect of forex movements on overseas OP
FY03/14 rate (JPY)
FY03/15 rate (JPY)
Change
Sales (local currency; mn)
Forex impact (JPYmn)
Operating profit (local currency; mn)
Forex impact (JPYmn)
EUR
129.34
138.67
7.2%
60.3
562
18.7
174
GBP
152.49
173.64
13.9%
4.9
103
1.1
23
USD
97.11
103.83
6.9%
112.1
753
29.9
200
CNY
15.81
17.01
7.6%
146.5
175
51.4
61
KRW
0.089
0.101
12.8%
11,669.1
133
4,196.5
47
TWD
3.28
3.47
5.8%
424.5
80
132.6
25
HKD
12.52
13.52
8.0%
418.7
418
71.1
71
Net income
Sanrio forecasts net income of JPY13.2bn (+3.1% YoY), and a full-year dividend of JPY80 per share
(standard dividend of JPY60 and commemorative dividend of JPY20).
For FY03/15, the company has set a return on equity of 20% or more (22.2%) as its goal. Through
focusing on selective investment and shareholder returns, the company aims to raise ROE and achieve at
least a 30% (49%) dividend payout ratio in FY03/15.
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Longer-term outlook
In May 2011, the company announced an operating profit target of JPY21.0bn in FY03/15, of which
JPY20.4bn are from overseas business and JPY600.0mn are from domestic business. On the other hand,
given that Sanrio had consolidated OP of JPY21.0bn in FY03/14, it has met its medium-term targets one
year ahead of schedule.
Medium-Term Plan (JPYmn)
Overseas
Domestic
Domestic Licensing
Domestic Product Sales
Theme Parks
Other
Head Office Administrative Costs
Operating Profit
FY03/14 Actual
20,500
500
6,500
2,100
-500
600
8,300
21,000
FY03/15 Plan
20,400
600
21,000
Figures may differ from company materials due to differences in rounding methods
“Project 2020” is the company’s new medium-term plan. Although specifics were scheduled to be
unveiled at its FY03/14 earnings presentation, President Tsuji has decided to personally oversee its
viability and make appropriate modifications before it is finalized and presented to the public. As of May
2014, there is no time frame for when the new plan will be implemented, but Sanrio has made its
finalization a top priority.
In order to strengthen corporate governance, the company now includes four outside directors on its
board of directors, effective from June 2014:
 Norio Kitamura (former Chairman and CEO, Japan Post Service Co., Ltd.);
 Mitsuaki Shimaguchi (Graduate school professor, Kaetsu University);
 Yoshiharu Hayakawa (Representative, Kasumi Empowerment Research Institute);
 Haruki Satomi (Director, Sega Sammy Holdings Inc.).
Confusion in the markets was created due to the sudden passing in November 2013 of Vice President Tsuji,
who had long been in charge of the licensing business. Many believed that this would cause Sanrio to
return to its roots in retailing, and the company is working to assuage any concerns. Regarding this point,
the company disclosed the following items:
 Sanrio will continue to focus on its licensing business in pursuit of further growth. In his remarks,
President Tsuji emphasized the important role that Sanrio’s retail stores will need to play in order to
strengthen the branding power of its characters, which is essential for sustainable growth in the
licensing business. Shared Research thinks that as the founder, President Tsuji believed that Sanrio’s
success in Japan, in addition to growth in licensing in North America and Europe, was founded in its
retailing business. Retailing raised brand awareness of the company and its characters, and aided in
spreading the company’s corporate message since operations began 30 years ago.
 As a result, the company is not seeking to make significant capital investment to open new stores, but
is instead looking to make investments in local licensing partners in Asia and other emerging markets.
Taking the above into account, President Tsuji’s remarks can be interpreted as a renewed effort to add
strength to Sanrio’s licensing business, in the same vein as past growth.
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Growth potential
The company expects to generate roughly JPY30.0bn in operating profit from its Overseas segment over
the medium term. Shared Research sees this figure highly achievable based on the following simulation.
In this simulation, a benchmark figure (57) is first obtained by dividing the company’s operating profit in
Europe by total retail sales in six major European nations (multiplied by one million for convenience, see
Note 1 below). Using this benchmark figure and retail sales in other regions, potential operating profit
was calculated (see Note 2 below). The simulation showed the potential operating profit in North America
of over JPY10.0bn, and less than JPY10.0bn in Asia. Operating profit in the European operations declined
in FY03/14. However, Shared Research believes that operating profit will recovery to the FY03/12 level in
the medium term. The company commented that it may be able to achieve operating profit of JPY10.0bn
in the medium to long term, considering the middle class population in Asia.
Notes:
1.
JPY9.9bn (Sanrio’s OP in Europe) ÷ JPY80 (= USD1) ÷ USD2.2tn (total retail sales in six major
European nations) x 1,000,000 = 57.4 (benchmark figure)
2.
Retail sales in each region x 57 x JPY80 (= USD1) x 1,000,000 = Potential OP in each region
Europe (6 Major Nations)
Germany
Italy
France
Spain
Portugal
UK
N. America
US
Latin America
Mexico
Brazil
Chile
Argentina
Peru
Columbia
Asia & Oceania
Taiwan
Hong Kong
S. Korea
Indonesia
Thailand
Singapore
Philippines
Malaysia
Vietnam
India
China
Australia
New Zealand
Potential OP
(Million Yen)
57
Benchmark
Figure
Europe
57
2,614,940
2,614,940
24
57
12,012
9
493,400
138,990
188,720
27,470
72,620
65,600
18
57
2,266
2,000
25
14
57
7,983
700
9
1,750,630
71,750
31,090
111,880
77,300
56,240
16,110
53,380
24,900
21,040
202,310
924,750
136,780
23,100
234,830
0
57
1,079
Operating Profit
(Million Yen)
FY03/12
9,900
Operating Profit
(USD Million)
USD1=JPY80
124
Retail Sales
(USD Million)
OP/Retail Sales
(Million Times)
2,155,230
503,650
373,490
515,400
283,150
53,980
425,560
5,100
64
700
Russia
Overseas Total
9,900
33,240
Source: Company data, World Retail Data and Statistics 2010/Euromonitor International
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Business
Business description
Business Overview
Sanrio owns, manages, and licenses the globally popular Hello Kitty character. The company has also
created more than 400 other characters, such as My Melody and Little Twin Stars. Founded on the
concept of “small gift, big smile,” Sanrio celebrated its 50th anniversary in 2010. As of May 2013, over
50,000 different kinds of Hello Kitty merchandise were sold in more than 100 countries throughout the
world, and overseas sales accounted for more than half of the company’s total sales in FY03/14. 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.
Past, Present, and Future
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
Others
Cha ra cter
Character
i ncubation
Incubation
Theme Parks
Character
Incubation
"Small Gift, Big Smile"
Live Entertainment
Synergistic
Customer
Attraction
Character licensing a pillar for revenue
In essence, Sanrio’s business model is simple. The main source of revenues and earnings is character
licensing, both in Japan and worldwide. Shared Research estimates the bulk of business comes from Hello
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Kitty character (about 80%-90% of sales) but there is a host of other characters as explained in this
report. Historically, all Sanrio characters were developed internally but in 2011 the company purchased Mr.
Men and Little Miss Sunshine, and indicated that it was keen to continue acquiring established character
franchises worldwide.
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 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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Businesses and segments
Segment Sales and Profits
(JPYmn）
Sales
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
Act.
Act.
Act.
Act.
Act.
Act.
69,768
73,875
76,625
74,954
74,233
77,009
FY03/14
（YoY）
-25.7%
5.9%
3.7%
-2.2%
-1.0%
3.7%
Domestic
54,455
53,184
50,735
49,035
48,311
48,422
（YoY）
（Composition）
Domestic Licensing
（YoY）
（Composition）
-29.2%
-2.3%
-4.6%
-3.4%
-1.5%
0.2%
68.4%
62.1%
56.3%
55.2%
54.8%
51.6%
9,590
9,505
9,172
8,463
9,796
-67.7%
-7.7%
15.8%
9.4%
-10.5%
-0.9%
11.5%
9.9%
10.9%
12.1%
10.9%
10.1%
25,881
25,405
24,237
10,714
21,749
21,231
21,461
（YoY）
-1.2%
-1.8%
-4.6%
-10.3%
-2.4%
1.1%
（Composition）
32.5%
29.7%
26.9%
24.5%
24.1%
22.9%
6,194
6,133
6,349
Theme Parks
（YoY）
（Composition）
Others
6,218
6,206
6,118
-18.9%
-0.2%
-1.4%
1.2%
-1.0%
7.8%
7.3%
6.8%
7.0%
7.0%
13,184
（YoY）
（Composition）
Overseas
10,584
10,378
11,357
6.8%
11,107
-10.3%
-0.6%
-19.3%
-1.9%
9.4%
-2.2%
16.6%
15.3%
11.7%
11.7%
12.9%
11.8%
25,119
（YoY）
13,110
3.5%
32,406
39,425
39,725
39,892
45,419
-11.8%
29.0%
21.7%
0.8%
0.4%
31.6%
37.9%
43.7%
44.8%
45.2%
48.4%
6,575
14,863
14,996
18,906
20,198
21,019
（YoY）
-0.6%
126.1%
0.9%
26.1%
6.8%
4.1%
Domestic
6,443
5,653
7,074
8,789
8,914
8,743
（YoY）
-3.9%
-12.3%
25.1%
24.2%
1.4%
-1.9%
（Composition）
41.6%
31.2%
30.0%
32.6%
32.1%
29.8%
Domestic Licensing
7,150
6,754
6,530
（Composition）
Operating Profit
13.9%
6,835
5,901
6,561
（YoY）
-8.2%
-13.7%
11.2%
9.0%
-5.5%
-3.3%
（Composition）
44.1%
32.5%
27.9%
26.5%
24.3%
22.3%
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%
9.6%
8.4%
6.2%
6.4%
7.5%
7.3%
-924
-568
-523
-497
-519
-1,348
1.9%
（YoY）
20.8%
-31.5%
-38.5%
-7.9%
-5.0%
4.4%
（Composition）
-8.7%
-5.1%
-2.4%
-1.9%
-1.8%
-1.8%
Others
（YoY）
（Composition）
Overseas
-526
-855
-372
426
570
606
-32.8%
62.5%
-56.5%
-214.5%
33.8%
6.3%
-3.4%
9,042
（YoY）
（Composition）
Overhead Expenses
-4.7%
12,478
-1.6%
16,481
1.6%
18,182
2.1%
18,886
2.1%
20,547
3.8%
38.0%
32.1%
10.3%
3.9%
8.8%
58.4%
68.8%
70.0%
67.4%
67.9%
70.2%
8,910
8,842
8,558
8,065
7,602
8,271
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.
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Domestic Licensing (FY03/14: 10.1% of sales, 22.3% 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 rate is around
5-7% for retail, or 10-14% of wholesale prices.
Domestic Licensing (JPYmn)
Sales
Operating Profit
FY03/08
28,379
7,443
FY03/09
9,172
6,835
FY03/10
8,463
5,901
FY03/11
9,796
6,561
FY03/12
10,714
7,150
FY03/13
9,590
6,754
FY03/14
9,505
6,530
FY03/15 Est.
9,642
6,845
Source: Company data. Figures may differ from company materials due to differences in rounding methods.
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)
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.,
Sugarbunnies
Little Twin Stars
Shinkansen
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.
As of March 2014, the total number of stores was 220. 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.
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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).
Source: Tobu Railway Co., Ltd.
Number of Stores in Japan
Retail
Gift Gate (Directly
Managed Stores)
Stores (Consignment
Purchases) in
Department Stores
Wholesale
Total
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
271
271
261
232
216
209
212
147
140
139
124
109
111
120
124
131
122
108
107
98
92
1,145
1,140
1,133
1,122
985
938
882
Stores (Outright
Purchases) in
Department Stores
Mass Retailers
56
56
56
62
63
63
51
1,004
1,005
998
997
861
810
791
Specialty Stores
85
79
79
63
61
65
40
1,416
1,411
1,394
1,354
1,201
1,147
1,094
Source: Company data; figures may differ from company materials due to differences in rounding methods
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
double-digit operating profit margins in FY03/15.
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Domestic Product Sales (JPYmn)
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
FY03/15 Est.
26,197
25,881
25,405
24,237
21,749
21,231
21,461
22,626
Operating Profit
1,157
1,482
1,531
1,453
1,736
2,087
2,126
2,327
OPM
4.4%
5.7%
6.0%
6.0%
8.0%
9.8%
9.9%
10.3%
Sales
Source: Company data; figures may differ from company materials due to differences in rounding methods
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 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.
Licensing Sales Ratio by Region
100%
90%
80%
Europe
70%
Americas
60%
Hong Kong
50%
Taiwan
40%
S. Korea
30%
China
20%
10%
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
Source: Company data processed by SR Inc.
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Operating Profit Margin by Region
70%
60%
Europe
50%
Americas
40%
Hong Kong
Taiwan
30%
S. Korea
20%
10%
China
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
Overseas Business Performance (JPYmn)
Sales
FY03/10
Europe
16,464
U.K. (Mr.Men)
N. America
6,733
Latin America
1,426
Asia
7,890
Hong Kong
5,386
Taiwan
1,340
S. Korea
404
China
726
Total
32,413
Operating Profit
Europe
U.K. (Mr.Men)
N. America
Latin America
Asia
Hong Kong
Taiwan
S. Korea
China
FY03/11
20,841
FY03/12
18,348
8,205
1,796
8,919
5,688
1,433
645
1,073
39,425
10,857
1,611
8,906
5,325
1,558
592
1,404
39,725
FY03/10
8,203
FY03/11
11,165
FY03/12
9,914
2,326
763
1,265
610
221
160
253
12,484
2,698
704
2,294
992
404
380
519
16,482
5,184
748
2,746
1,146
525
370
705
18,182
FY03/13
13,301
699
14,220
2,108
9,624
5,410
1,636
939
1,546
39,892
FY03/14
13,048
741
16,731
2,581
12,293
6,455
2,221
1,488
2,128
45,419
FY03/15 Est.
13,235
804
16,127
2,623
13,696
7,100
2,308
1,634
2,653
46,558
FY03/13
7,016
231
7,579
1,098
2,993
1,388
593
319
830
18,886
FY03/14
6,671
189
8,711
1,345
3,730
843
1,018
592
1,275
20,547
FY03/15 Est.
6,749
185
8,010
1,292
5,284
1,973
1,121
710
1,480
21,336
Source: Company data processed by SR Inc. Figures may differ from company materials due to differences in rounding methods.
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
As of February 2014, Sanrio’s European operations were managed by Rehito “Ray” Hatoyama, a relatively
recent addition to the management team who was involved with the company in his days at Mitsubishi
Corporation (TSE1: 8058). Mr. Hatoyama joined Sanrio in 2008.
Since Sanrio began licensing its characters in Europe in FY03/08, profits grew significantly, making the
region the main earner for the company. 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
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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 FY03/15.
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.
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. Shared Research. estimates
the agreement includes a guaranteed minimum payment (to Sanrio) of USD80mn to 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 planned
to engage in direct licensing in South Korea from FY03/13, and expects steady growth. Consequently, the
company has revised its FY03/15 operating profit forecast in South Korea to JPY710mn in FY03/15 from
JPY350mn in FY03/13.
In Taiwan, a subsidiary showed growth in licensing. Licensing to the service sector in areas such as
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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 directly managed stores and wholesale customers 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 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 in 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 13 directly managed stores in overseas
markets as of the end of FY03/11, but only two stores as of the end of FY03/14.
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Store Counts Overseas
FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11
Europe/ MiddleEast
FY03/12
FY03/13
Directly Managed Stores
7
7
7
7
13
13
3
3
2
Stores Managed by Agents
23
26
26
37
47
52
70
70
57
42
39
26
17
5
4
4
2
18
31
28
32
48
32
26
4
61
50
55
n/a
n/a
n/a
Contract Stores Managed by Agents
US
47
Franchise Stores Managed by Agents
85
Wholesalers Managed by Agents
n/a
Latin America
2,500
2,600
2,700
2,000
2,300
FY03/14
1
9
1
1
56
73
65
Franchise Stores Managed by Agenct
63
60
48
20
10
10
3
3
3
3
3
4
Russia
2
Wholesalers Managed by Agents
South Korea
20
10
10
8
5
5
28
29
25
24
25
26
26
26
29
34
Taiwan
1
23
China
40
71
Hong Kong
Other Asia
Total
26
28
1
1
2
1
14
0
0
38
39
38
13
12
9
55
47
31
58
75
98
49
47
47
44
50
61
51
61
28
29
25
25
23
22
22
38
35
48
49
49
1
16
25
12
11
11
15
13
4
3
2
153
195
171
182
242
249
276
255
203
155
260
251
254
n/a
2,588
2,737
2,806
2,085
2,396
n/a
n/a
n/a
Wholesalers (inc. Franchise Stores) Managed by Agents
S ource: C ompany data
* F rom F Y03/12, the category "w holesalers managed by agents" w ere renamed "contract stores managed by agents," and contract stores other than those permanently
standing w ere excluded from calculation.
* C ontract stores managed by agents conduct w holesale to chain stores.
* The table abov e includes stores that are recognized by the company and its agents.
* S tores managed by agents refer to S anrio shops, etc., operation of w hich are outsourced to partners.
Theme Parks
Sanrio Entertainment Co., Ltd. (the company’s wholly-owned subsidiary) manages the Sanrio Puroland
and Harmonyland theme parks. Visitor numbers at Sanrio Puroland have been declining, while those at
Harmonyland have been recovering. Average spend per visitor have been trending downward at both
theme parks, but the company has managed to reduce segment losses through negotiations with
suppliers and cost cutting.
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Theme Parks
FY03/08
7,663
5,590
1,610
FY03/09
6,218
4,770
1,380
FY03/10
6,206
4,630
1,450
FY03/11
6,118
4,603
1,473
FY03/12
6,194
4,424
1,597
FY03/13
6,133
4,454
1,618
Number of Visitors (1,000 People)
Sanrio Portland
835
Harmonyland
319
743
273
723
301
758
329
756
383
769
389
793
414
885
414
Average Spend per Visitor (JPY)
Sanrio Puroland
4,959
Harmonyland
4,356
4,783
4,304
4,657
4,188
4,435
3,897
4,455
3,668
4,274
3,622
4,697
3,525
5,350
3,630
-1,348
-590
-180
-924
-670
-210
-568
-461
-107
-523
-504
-17
-497
-550
53
-519
-537
27
-211
-241
45
Sales (JPYmn)
Sanrio Portland
Harmony land
Direct Operating Profit
Sanrio Puroland
Harmonyland
-1,116
-720
-190
FY03/14 FY03/15 Est.
6,349
7,343
4,530
5,422
1,674
1,704
Direct operating profit excludes theme park assistance expenses and others.
Source: Company data. Figures may differ from company materials due to differences in rounding methods.
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.
Day passes cost JPY4,400 for adults (age 18 and over), JPY4,000 for youth (age 12 to 17), and JPY3,300
for children (age 4 to 11). Children 3 years and under are free. In FY03/14, the average spend per visitor
was JPY4,697, of which JPY2,017 was for admission fees, JPY1,847 for purchasing goods, and JPY833 for
food and drinks. In many cases, complimentary tickets and discount coupons reduce the cost of entry for
visitors.
From April 1, 2014, Sanrio introduced a new ticket pricing structure:
Old
Age
New
Every day
Adult (18 years
JPY4,400
and over)
Young adult
JPY4,000
(12-17 years)
Child (4-11 years)
JPY3,300
Under 3 years
Free
*All prices include sales tax.
Adult (18 years
and over)
Child (3-17 years)
JPY3,300
Weekends and
Holidays
JPY3,800
JPY2,500
JPY2,700
Under 2 years
Free
Free
Age
Weekdays
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.
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.
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A hall with Lady Kitty's white piano (Sanrio Town)
Source: Company data, SR Inc. Research
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 day pass costs JPY2,800 for visitors age
four and over. The average spend per customer in FY03/14 was JPY3,525, of which JPY1,494 was for
admission fees, JPY1,375 for purchasing goods, and JPY656 for food and drinks. As with Sanrio Puroland,
in many cases complimentary tickets and discount coupons reduce the cost of entry for visitors.
Parade "NOAH"
Overseas Theme Parks
Sanrio plans to grow its theme park business overseas but do so via licensing agreements rather than
direct investment. As part of this strategy, the company opened a 2,000-sq.m. Sanrio theme park in
Malaysia through a license agreement with a local company in October 2012.
In May 2011 Sanrio signed a license agreement with Zhejiang Yinrun Leisure Development to construct
the 95,000-square-meter Hello Kitty Park (provisional name). The park will be one of the central
attractions at the Zhejiang Province Anji Angel Park (which will cover 600,000 square meters and feature
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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.
Hello Kitty Park (Provisional Name)
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
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
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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?)
As of May 2013, Hello Kitty character merchandise was 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 countries.. According to the
Mister Men official website, the characters have a 98% recognition rate in the U.K.
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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
Bunny & Matty
Spunky Barrow
Hello Kitty
Year of Creation
1974
1974
1974
Patty & Jimmy
Late 1970's
Patty & Jimmy
The Strawberry King
Little Twin Stars
Tiny Poem
Hello Kitty
Little World
My Melody
Robby Rabbit
Small People
Boy & Girl
Lullaby Lovables
Kisha
Peek-a-boo
Little Twin Stars Ginga Konchu Chibikko Gang
Peter Davis
Howdy
Button Nose
Dopey Demons
Captain Willy
Tuxedo Sam
My Melody
Wee Marylou
Qui-Quaks
Mokuba
Seven Silly Dwarfs
Rubit Journey
Trip to Wonderland
Early 1980's
Tuxedo Sam
Puppy Love
Twee Dee Drops
Mellotune
Goropikadon
Cheery Chums
The Vaideville Duo
Zashikibuta
Nya Ni Nyu Ne Nyon
Fun Come Alive
Mr. Bear's Dream
The Runabouts
Nezumikozou
Minna no Tabo
Boo Gey Woo
Mores Brothers
1975
1975
1975
1975
1975
1975
1975
1976
1976
1977
1977
1977
1977
1977
1977
1978
1978
1978
1979
1979
1979
1979
1979
1979
1979
1980
1980
1981
1982
1982
1983
1983
1983
1983
1983
1984
1984
1984
1984
1984
Late 1980's
Hangyodon
GIMMEFIVE
Marron Cream
Just For Fun
Little Wonder Story
Dachonosuke
Roberta
CULTURE SHOCK
Noranekoland
Dynamities
Brownie's Story
Tweedle Dee Dee
Pokopon's Diary
PAJAMAS CLUB
Minnie Le Mieux
B.HILLS KID
Umeya Zakkaten
Duck a Doo
Heart Fushion Folio
Gatorgags
PAU PIPO
Stillsmall Tales
Mimic Mike
Ri-ru-chi-run
Kerokerokeroppi
KAPPA RUMBA
TABITHADEAN
Petit Prier
Vanilla Bean
Flight of Funcy
Ikkuchan
Pochacco
Winkypinky
PON PON HIETA
Toffeeroo
Rururugakuen
Donjarahoi
WARAU ONNA
ROSY POSY
Year of Creation
1985
1985
1985
1985
1985
1985
1985
1985
1986
1986
1986
1986
1986
1986
1986
1986
1987
1987
1987
1987
1987
1987
1987
1987
1988
1988
1988
1988 Kerokerokeroppi
1988
1989
1989
1989
1989
1989
1989
1989
1989
1989
1989
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Sanrio's Major Characters
Early 1990's
Sugarcream Puffs
PUKAPUKA PARADISE
Tetsunagikuma
Little Cottonwood Cottage
Pinly Bee Chan
Wafflekids
Carousel Design Series
Hooty Hoots
Kimi-Kame-Rin
Ribonnets
Coara Design Series
Monkichi
Patapatapeppy
We Are Dinosaurs
Paradise Lives
Chu Chu Taako
Honeyfield
My Friend Pero
Friendly Kokkochan
Kobutanopippo
Benjamin Bear
Pups
Polar Picnic
Bad Badtz-Maru
Kappanopappy
Holly's Bear
Bad Badtz-Maru
Pocketzoo
Chippy Mouse
Picke Bicke
Late 1990's
Accyangaichiban
Teruteruporpn
Kamokamokamonosuke
PUWAWA
Chococat
Pompompurin
Pompompurin
Rore-More
Corocorokuririn
Daisy and Coro
Pink No Korisu Pinkuruchan
Okigaru Friends
Shinkansen
Shinkansen
Landry
Dear Daniel
Tonarino Kappasanchi
Source: Company data, SR Inc. Research
Year of Creation
1990
1990
1990
1990
1990
1990
1991
1991
1991
1991
1991
1992
1992
1992
1992
1992
1992
1992
1993
1993
1993
1993
1993
1993
1994
1994
1994
1994
1994
1995
1995
1995
1995
1996
1996
1996
1998
1998
1998
1998
1999
1999
1999
1999
Early 2000's
Nemukko Nyago
Puchimerikko
Heysuke
Hannarikomachi
Robow@n
Chocopanda
Sweet Coron
U*SA*HA*NA
Chewppies
Cinnamoroll
Deery-Lou
Pururun Kyupi
Hoshinowaguma
Puchipuchi Wanko
Formulixz
DokidokiYummy chums
Pannapitta
Chibimaru
Chihuahua & Friends
Charmmy Kitty
Sugarbunnies
Late 2000's
Kuromi
Cinnamonangels
Tenorikuma
Mashumaronyanko
Best friends' story
Lloromannic
Pankunchi
Cherinacherine
Sugarminuet
Jewelpet
NYOKKI & PENNE
Wish me mell
BABYMILO
Miss Bear's Dream
Framboiloulou
BEETROID
Go Chan
Ichigoman
Bonbonribbon
Darkgrapeman
Honeymomo
Dreamtale Kubear
Show by Rock
Kirimi-chan
HikidashiAita
Roppappu the Thief
Gudetama
Shirirapper
Sengoku Prison
Year of Creation
2000
2000
2000
2000
2000
2000
2001 U*SA*HA*NA
2001
2001
2001
2002
2002
2002 Cinnamoroll
2002
2002
2003
2003
2003
2003 Charmmy Kitty
2004
2004
2005
2005
2005
2006
2006
2007
2007
2008
2008
2008
2009
2010
2010
2010
2010
2011
2011
2011
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2013
Sugarbunnies
Kuromi
Jewelpet
Wish me mell
Ichigoman
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Profitability snapshot, financial ratios
Profit Margins
(JPYmn)
Gross Profit
Gross Profit Margin
Operating Profit
OP Margin
EBITDA
EBITDA Margin
Net Profit Margin
Financial Ratios
ROA
ROE
Total Asset Turnover
Inventory Turnover
Days of Inventory
Working Capital Requirement
Current Ratio
Quick Ratio
OCF / Current Liabilities
Net Debt / Equity
OCF / Total Liabilities
Cash Cycle (days)
Changes in Working Capital
FY03/10
Cons.
40,747
55.2%
14,863
20.1%
16,247
22.0%
13.5%
FY03/11
Cons.
46,111
60.2%
14,996
19.6%
16,317
21.3%
12.2%
FY03/12
Cons.
48,122
64.2%
18,906
25.2%
20,122
26.8%
19.2%
FY03/13
Cons.
49,435
66.6%
20,198
27.2%
21,505
29.0%
16.9%
FY03/14
Cons.
53,355
69.3%
21,019
27.3%
22,505
29.2%
16.6%
12.1%
15.0%
0.90
6.8
53.7
8,016
120.1%
91.4%
0.27
39.4%
0.2
26.1
20
11.1%
30.9%
0.90
7.3
50.1
7,495
114.6%
89.5%
0.39
37.0%
0.2
15.6
-521
16.7%
43.5%
0.87
7.9
46.0
8,579
153.7%
124.8%
0.47
12.8%
0.3
20.4
1,084
13.5%
29.2%
0.80
8.0
45.8
9,381
223.8%
186.0%
0.64
-19.4%
0.4
30.7
802
11.9%
23.2%
0.72
7.1
51.3
11,656
246.6%
221.8%
0.64
-42.7%
0.3
36.6
2,275
Cost structure
In FY03/14, the largest component of the consolidated SG&A expenses was personnel cost (JPY11.2bn,
or 36.6%). Operating profit margin was 27.6% in FY03/14, 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
(JPYmn)
Advertising
Provision for Bad Debt
Director Bonuses and Salaries
Miscellaneous Wages
Employee Bonuses
Provision for Employee Bonuses
Provision for Director Retirement
Shipping and Handling
Rent
Depreciation
Other
Total
FY03/10
Cons.
3,578
311
7,368
3,194
854
363
18
1,207
3,130
944
10,473
31,445
FY03/11
Cons.
3,671
514
7,214
3,121
901
365
19
1,094
2,971
873
10,428
31,171
FY03/12
Cons.
3,402
32
7,047
2,920
939
365
19
949
2,753
785
9,994
29,210
FY03/13
Cons.
3,580
10
7,068
2,794
960
389
76
915
2,563
882
10,018
29,255
FY03/14
Cons.
3,591
854
7,422
2,945
1,019
447
16
862
2,642
899
11,643
32,340
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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. SR Inc. 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 increased, and the company has become
effectively debt free in recent years. 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 FY03/13. 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 FY03/14.
Also, who will be the next successor to take control of the company appears to be the next key issue.
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Market and value chain
Market overview
Licensing Business
License! Global Magazine published its list of “Top 125 Global Licensors” based on global licensing sales.
According to this survey, 2013 licensing sales of the 150 licensors (based on retail sales) were
USD251.8bn (+9.5% YoY). Licensing sales of the top 10 licensors in the list (USD126.9bn) accounted for
50% of total global licensing sales. According to the survey, Sanrio had a 3.2% market share with
licensing sales of USD8.0bn (making the company No. 6 on the list).
Global Licensing Sales (2013 Retail Store Basis: USDbn)
Disney Consumer
Products, 40.9
Phillips-Van
Heusen, 18
Others, 124.81
Meredith, 16.6
Mattel, 9
Collegiate
Licensing
Source: License! Global Magazine Company, 4.59
Iconix Brand
Group, 13
Sanrio, 8
Nickleoden
Consumer
Products, 5.4
Warner Bros.
Consumer
Products, 6
Major League
Baseball, 5.5
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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Licensing involving characters (entertainment, TV, movies) and fashion accounts for a significant portion
of the license product retail market.
In the domestic character product market, character use in the apparel industry has been rising.
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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
In 2013, 75.2mn people visited theme parks (+5.0% YoY) in Japan, according to the Ministry of Economy,
Trade and Industry. 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
(1,000 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
Source: METI data processed by SR Inc.
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.
According to the Japan National Tourism Organization (JNTO), when Japan relaxed its restrictions on
issuing visas for Chinese nationals in July 2010, Chinese visitor numbers for the month jumped 140% YoY
and were up 40% for the full year in 2010. It is highly likely that the Japanese government will gradually
relax restrictions. The March 2011 earthquake led to lower visitor numbers in the first half of 2011, but
further relaxed visa restrictions helped visitor numbers recover from September onward; in November
they increased 30% YoY. During 2013, effects of a weaker yen helped to bring 10.4mn tourists into Japan,
a 24.0% YoY rise and the first time the figure went above 10.0mn.
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Visitors to Japan by Country (Number of visitors)
2007
2008
2005
2006
1,747,171 2,117,325 2,600,694 2,382,397
South Korea
Taiwan
1,274,612 1,309,121 1,385,225 1,390,228
652,820
811,675
942,439 1,000,416
China
432,042
550,192
298,810
352,265
Hong Kong
89,532
82,177
125,704
Thailand
120,238
191,881
167,481
Singapore
94,161
115,870
78,173
85,627
151,860
167,894
Malaysia
59,911
64,178
66,593
Indonesia
58,974
67,323
67,583
58,572
62,505
India
Source: Japan National Tourist Organization (JNTO) data processed by SR Inc.
2009
1,586,772
1,024,292
1,006,085
449,568
177,541
145,224
89,509
63,617
58,918
2010
2,439,816
1,268,278
1,412,875
508,691
214,881
180,960
114,519
80,632
66,819
2011
1,658,073
993,974
1,043,246
364,865
144,969
111,354
81,516
61,911
59,354
2012
2,044,249
1,466,688
1,429,855
481,704
260,859
142,255
130,288
101,498
69,097
2013
2,456,165
2,210,821
1,314,437
745,881
453,642
189,280
176,521
136,797
75,095
CAGR
2.3%
2.0%
11.9%
7.1%
11.7%
6.1%
7.6%
8.1%
2.4%
The proportion of Chinese tourists in Japan is quite low compared to other Asian nations. If, for example,
Chinese tourists visited Japan in the same proportions as the Thai population, Japan would have over
three times as many, or 3.5mn additional, Chinese tourists. If China’s tourist proportions reached
Taiwanese or South Korean levels, 50 times as many Chinese tourists would visit Japan (i.e., the market
would expand by about 60mn to 70mn people).
India
China
Thailand
Singapore
South Korea
Taiwan
Hong Kong
% of Population
0.01%
0.09%
0.68%
3.56%
4.91%
9.48%
10.43%
Population
1,236,686
1,350,695
66,785
5,312
50,001
23,320
7,155
Source: JNTO and World Bank data processed by SR Inc.
(1,000 people)
Visitors to Japan
75
1,214
454
189
2,456
2,211
746
Population in 2011, Visitors in 2012
To increase overseas visitors to Japan, in June 2011 the Japan Tourism Agency announced plans to
increase the number of foreign visitors to 30mn per year under its “30 Million Foreign Visitors Program”,
with intermediate targets of 15mn visitors a year by 2013 and 20mn visitors per year by 2020. In 2012,
foreign visitors to Japan totaled 8.37mn visitors, compared to 8.61mn visitors in 2010, a year before the
Tohoku earthquake. The agency stated that the average visitor’s stay was 6.4 days (2008 data).
Also of note is that the ratio of visitors to Japan vs. Japan’s population is small. Compared with its fellow
island nation of Australia that sees the number of inbound visitors equal to about one-fourth of its
population, Japan’s number of visitors is only around 8% of Japan’s population.
Japan-Australia Comparison (Inbound Visitors)
Visitors to Australia (1,000 people)
2010
2011 Population Visitors to Japan (1,000 people)
5,885
5,875
22,329
vs. Population
26.4% 26.3%
vs. Population
Source: JNTO, Australian Bureau of Statistics, and World Bank data processed by SR Inc.
2010
8,611
6.8%
2011 2012 2013 Population
6,218 8,368 10,364
127,298
4.9% 6.5% 8.1%
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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 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.
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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, and other right-holders) 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
Source: Various companies data processed by SR Inc.
Long-Lived
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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The Walt Disney Company Overview
Results (FY09/13)
（1,000 Dollar）
Media Networks
Park and Resort
Studio Entertainment
Consumer Products
Interactive Media
Total
Main Characters
Sales
20,356
14,087
5,979
3,555
1,064
45,041
OP
6,818
2,220
661
1,112
-87
10,724
OPM
33.5%
15.8%
11.1%
31.3%
-8.2%
23.8%
YoY
Sales
5%
9%
3%
9%
26%
7%
OP
3%
17%
-8%
19%
60%
8%
Mickey Mouse, Minnie Mouse, Donald Duck, Goofy, Winnie-the-Pooh
Stitch
Main Theme Parks
Opened
1955
1971
2011
Disney Land Resort （California）
Walt Disney World Resort (Florida)
Aulani Disney Resort & SPA (Hawaii)
Overseas
Tokyo Disney Resort
Disney Land Paris
Hong Kong Disney Land Resort
1983
1992
2005
Planned
Shanghai Disney Resort
2015
Source: The Walt Disney Company data processed by SR Inc.
Comparison with The Walt Disney Company
Number of characters
Sanrio
Over 400
Number of countries introduced
Sanrio
109
Directly managed stores (domestic)
Sanrio
119
Source: Company and Oriental Land data processed by SR Inc.
Disney
Over 500
Disney
n/a
Disney
47
Number of countries introduced: As fo 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.
FY03/14
Tokyo Disney Resort
Tokyo Disney Land (Chiba)
Tokyo Disney Sea
Number of Visitors
(1,000 People)
Average Spend
per Visitor (Yen)
313,000
11,076
Sanrio
Sanrio Puroland (Tokyo)
793
Harmonyland (Oita)
414
Source: Company and Oriental Land data processed by SR Inc.
Average
1-Day Passport for Product Sales Food, Beverage
Admission Fee
an Adult (Yen)
(Yen)
(Yen)
(Yen)
4,598
6,400
4,185
2,292
Space
Opened
510,000 m2
1983
2001
2
490,000 m
4,697
3,525
2,017
1,494
4,400
2,800
1,847
1,375
833
656
2
45,900 m
235,000 m2
1990
1991
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According to 2012 data by Character Data Bank, Ltd., 50 Best Characters included 10 Disney characters
and three Sanrio characters.
50 Best Characters 2012
1. Anpanman
26. Inazuma Eleven
2. Mickey Mouse
27. Stitch
3. Pokemon
28. Tomica
4. Hello Kitty
29. Neon Genesis Evangelion
5. ONE PIECE
30. Ultraman Series
6. Pretty Cure Series
31. Licca-chan
7. Rilakkuma
32. Inai Inai Baa!
8. Winnie the Pooh
33. My Melody
9. Super Mario Brothers
34. Toy Story
10. Snoopy
35. Dragon Ball Series
11. Mobile Suit Gundam Series
36. Kobito Dukan
12. Minnie Mouse
37. My Neighbor Totoro
13. Kamen Rider Fourze
38. Donald Duck
14. Thomas & Friends
39. Puella Magi Madoka Magica
15. Miffy
40. the bear's school
16. Kamen Rider Wizard
41. Naruto
17. Duffy
42. Kaizoku Sentai Gokaiger
18. Tamagotchi
43. ShellieMay
19. Doraemon
44. Mushroom Garden
20. Tokumei Sentai Go-Busters
45. Disney Princess
21. Jewelpet
46. Dragon Warrior Series
22. Kamen Rider Series
47. Little Battlers eXperience
23. Cars
48. Plarail
24. Shimajiro
49. Moomin
25. Hatsune Miku
50. 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.
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The 20 Best Cats in Pop Culture
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 ribbon on Kitty’s head is a
“connection,” or a “tie,” an expression of friendship. The original color of the ribbon, red, expresses
“cuteness.” As Hello Kitty was not created for movies or comics, it does not have a specific personality.
This allows the character to be designed in a great variety of ways without violating the character style
guidelines. This in turn makes it possible to keep Hello Kitty current and allows producing multiple
variations to suit different products, target markets, and even 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. Mr. Rehito “Ray” Hatoyama, a
managing director, has been the primary force behind this reform during his tenures as the chief of the
integrated management strategy head office, the head of international operations, and the head of the
group-wide reforms office (as of May 2013).
It appears to Shared Research that Sanrio has two camps : traditionalists and reformists. The reformists
are led by Mr. Hatoyama, a Harvard-trained company outsider. The traditionalists are mostly old-time
employees, many of who came to Sanrio attracted by its “we do everything ourselves” and “smiles not
money” culture. It appears to Shared Research that while Mr. Hatoyama pushed forward various reforms
and probably deserves much credit for the dramatic turnaround in the company’s profitability, his
popularity among investors might be substantially higher than among Sanrio’s senior staff.
In 2012, Mr. Hatoyama’s strategic approach stirred up (positively) the traditional Sanrio culture
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championed by its founder Shintaro Tsuji. Essentially, Mr. Hatoyama was allowed to prove himself and
generate a track record in the markets where the company had the most problems and least legacy (such
as Europe and the US). In April 2013, Mr. Hatoyama was promoted to managing director as his credibility
increased within the company.
Shared Research believes that whether Mr. Hatoyama remains with the company in the future is likely to
substantially impact the fortunes of Sanrio and its investors, and that Mr. Hatoyama will strive to
transform the company from the reforms of the past, to creating synergies from reformist and
traditionalists points of view.
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 under Hatoyama’s lead during FY03/15.
At the same time, the company is seeing significant growth potential in the Middle East, Eastern Europe,
Russia (expecting growth of 150%-300% over several years from FY03/14) 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 aims to localize its business by hiring people
who understand local conditions and have experience in licensing business.
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. Shared Research understands that the North American market is at the core of the mid-term
plan effective through FY03/15. In this vast region, the company is seeing the channel strategy as the key
to success. 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).
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Sanrio's Channel Strategy in N. America
Age
Apparel
Expand
Categories
in Each
Channel
30
20
Apparel
10
Foods
Toys
New Categories
Foods
5
GMS A
GMS B
Source: SR Inc. based on interview with company
GMS: General Merchandise Store
GMS C
For instance, assume that the company was selling apparel in Walmart stores targeting early teens. To
increase store penetration, the company may expand the customer base to include late teens and young
adults. Or, the company may work to sell food items that originally targeted late teens to younger
consumers. Another approach is going into altogether new product groups (e.g., accessories). In the end,
a teenager who came to buy a T-shirt may also buy a food item and possibly something for her younger
sibling.
At the same time, Sanrio is trying to be careful about not overexposing its characters to avoid
oversaturation and resulting brand devaluation. To accurately identify the signals of oversaturation, the
company closely monitors 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. As of the end of FY03/14, sales at all retailers were showing continued growth, boosting the
company’s confidence that it has yet to reach the point for overexposure.
Accidentally, the market for infants and young children will remain the core market for the company, even
as it is expanding into other markets. The reason for this is simple—kids grow fast and it would be
impossible to find a customer category with a similar purchasing frequency. According to the company, its
customer base is expanding.
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
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master license agreement covering China (excluding Hong Kong and Macao) with KT Company and KT
Shanghai Company (the agreement took effect in February 2012). Shared Research believes the company
will accelerate licensee development in mainland China. 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. Although, Shared Research admits there is potential
in Asia, it wonders if the company would grow in Asia at the pace seen in Europe and the US, as the
company has yet to clearly divide its wholesale and licensing businesses.
Shared Research understands that in Asia (ex-China) the company has maintained traditional trading
practices over about 40 years. This fact makes Shared Research think the region is under the control of
the head office, and the company appears not to pursue the Hatoyama way of business development.
The issue of piracy and copyright infringement is still acute in China. Therefore, Shared Research expects
Sanrio to tread more carefully in Asia compared with other overseas markets. This means that despite its
vast long-term potential, Asia is unlikely to be a factor for the company through FY03/15.
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. Operating profit for the domestic license
business segment reached JPY6.5bn (operating profit margin of 68.7%) in FY03/14, 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 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 FY03/14 was 42.0%. 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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Historical financial statements
FY03/14 Results (announced on May 15, 2014)
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 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
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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 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
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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.
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.
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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)
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 (Aya
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
Presentation by President Shintaro Tsuji
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 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.
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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 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.)
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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.
Q3 FY03/14 Results (announced on February 10, 2014)
In Q3 FY03/14 (October-December 2013), sales were JPY22.4bn (+4.4% YoY), operating profit was
JPY7.0bn (+9.1%), recurring profit was JPY6.6bn (+14.7%), and net income was JPY4.3bn (+17.3%).
In cumulative Q3, consolidated sales were JPY57.3bn (+3.2% YoY), operating profit was JPY16.7bn
(+12.4%), recurring profit was JPY15.6bn (+6.5%), and net income was JPY10.1bn (+9.6%).
For the cumulative period, the Overseas business had sales of JPY32.9bn (+15.0% YoY) and operating
profit of JPY16.0bn (+18.3%). The Domestic business posted sales of JPY37.1bn (-0.8% YoY) and
operating profit of JPY700mn (-46.9%).
During cumulative Q3, the Domestic Licensing business saw sales of JPY7.0bn (-5.9% YoY) and operating
profit of JPY4.8bn (-7.7%). Sales in the Domestic Product Sales sub-segment were JPY15.6bn (-1.0%),
and operating profit was JPY1.4bn (+0.1%). Theme Park sales were JPY4.9bn (+3.2%), and operating
loss was JPY200mn (JPY200mn loss a year earlier).
Concerning Domestic Licensing, the company stated that reduced sales year-on-year were attributable to
fallback following a large-scale collaborative project implemented in the previous year, and unfavorable
weather conditions held back growth in sales of outerwear and toys. Overreliance on licensees that have
longstanding relationships with the company was also a factor. Sanrio hopes to expand its consumer
audience and secure growth through reassessment of licensees and forging new relationships with large
companies via differing distribution channels and product categories.
While domestic product sales faced a harsh competitive environment, products based on established
characters and geared toward adults, such as Hello Kitty, My Melody and Little Twin Stars, recorded
growth. In addition, the new character Bonbon Ribbon contributed to results, and an increase in overseas
tourists visiting stores (particularly in major urban centers) contributed to a year-on-year sales increase of
0.1% at comparable stores (directly operated stores and directly operated shops within department
stores). In late December, at Aeon Mall Makuhari Shintoshin, the company opened two new stores, the
Sanrio Gift Gate Makuhari Shintoshin Store and the Sanrio Vivitix Makuhari Shintoshin Store, both
targeting families with children. In domestic product sales, Sanrio had worked until FY03/13 to improve
profitability via measures such as closing unprofitable stores. In FY03/14, however, the company focused
on the aforementioned overseas tourists, and opened new stores while strengthening product
development. Future challenges for the company include reevaluating market segmentation, and focusing
on product lines that can target a specific audience. Sanrio is also looking to open larger stores in order to
deal with customer attraction, which it sees as an issue requiring attention.
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In the theme park segment, on July 20, 2013, the company opened Sanrio Town within Sanrio Puroland,
which recorded a 6.6% YoY increase in visitors, to 636,000. However, in Q3 alone (October–December
2013), growth in visitor numbers slowed compared with Q2 (+12.7% YoY). In April 2014, the company
plans to introduce a new ticket pricing structure for Sanrio Puroland. While aiming for a boost in visitor
numbers by reducing prices, the company is also changing admission rules so that children are subject to
admission fees from the age of three years instead of the current four years. Mr. Inoue, who became the
new COO of Puroland last year, has embarked on a wide array of initiatives. These include modifications
to pricing, gift products, and restaurant menus. Changes are also underway for new attractions and
events to increase customer attraction and efficiency, which provides hope for improved results in
FY03/15.
For overseas figures, master license fees paid to the parent are returned to respective overseas
subsidiaries. In cumulative Q3, sales in Europe were JPY9.8bn (-1.3% YoY), and operating profit was
JPY5.2bn (-1.8%). Although the macroeconomic climate showed signs of bottoming out, the consumer
spending environment continues to be harsh. Licensees were averse to inventory investment, and despite
the weaker yen, the company posted lower sales and operating profit. Results in Italy, France, Germany,
and Spain (where Sanrio’s focus is in Europe) were weaker year-on-year due to poor performance from
some licensees, which had been pillars for the company’s rapid growth. Inability of these licensees to
actively invest in inventory contributed to negative results for the region overall. Conversely, performance
in the Middle East and Russia was strong. Due to a slump in key regions, in Q3 (July–September 2013),
license revenue was down 19% YoY (cumulative Q3: -19% YoY) on a local-currency basis.
In North America, operations targeting major general merchandise (GMS) chains shifted from the
significant regional expansion strategy seen in FY03/13 to a solidifying strategy involving a broader
merchandise portfolio. Cumulative Q3 regional sales were JPY11.9bn (+22.4%) and operating profit was
JPY6.5bn (+24.1%). In Q3 alone (July–September 2013), on a local-currency basis, license revenue was
up 12% YoY (cumulative Q3: +7% YoY). In the Americas, royalties occur when a supplier delivers goods
to the retailer. Deliveries for season products can be spread across two distinct quarters, and the company
gave this as a reason that royalty revenue can be uneven across quarters. As a result, it appears that
figures for Q2 have significantly improved over those for Q1. Sanrio stated that on a full-year basis, such
revenues are growing at a steady 5–10% YoY.
Clothing (undergarments), toys, sleepwear, party goods, and sports products saw performance gains
from a category expansion strategy. In addition to increased sales through GMS chains, sales through
drug stores also contributed to sales.
In Latin America, cumulative Q3 regional sales were JPY2.0bn (+38.4% YoY) and operating profit was
JPY1.0bn (+32.0%). In addition to substantial growth in Mexico, Argentina, Chile and other Latin
American countries, sales appeared to have bottomed out in Brazil. In Q3 alone (July–September 2013),
license revenue was up 64% YoY (cumulative Q3: +40% YoY) on a local-currency basis. Major categories
that saw growth were apparel, bags, health products, household electronics, and toys, both for existing
and new licensees. The market for shoes and apparel also appears to be recovering in Brazil.
Cumulative Q3 sales in Asia were JPY8.6bn (+21.8% YoY), and operating profit was JPY3.0bn (+36.6%).
Sales and operating profit by market in Asia
Hong Kong, JPY4.5bn (+7.8% YoY) and JPY1.1bn (+9.7%).
Taiwan, JPY1.6bn (+37.6%) and JPY600mn (+37.2%).
South Korea, JPY1.0bn (+70.3%) and JPY300mn (+137.4%).
China, JPY1.4bn (+30.5%) and JPY800mn (+56.4%).
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In China, cumulative Q3 license revenue was up 5% YoY on a local-currency basis. This slightly low rate of
growth is attributable to royalties being booked as sales after deductions of fees paid to KTL Company.
Licenses were transferred from a Sanrio subsidiary to KTL due to a master license contract. Reduced
operating costs at Chinese subsidiaries resulted in a significant increase in operating income.
The average exchange rate during the period (April-December) was JPY95.62 against the US dollar
(JPY79.08 in April-December FY03/13) and JPY126.16 against the euro (JPY101.77 in April-December
FY03/13).
To commemorate the 40th anniversary of the birth of Hello Kitty, the company will pay a JPY10
commemorative dividend, and has revised its year-end dividend from JPY40 to JPY50, and its annual
dividend to JPY80.
The company maintained its full-year forecasts. Based on the full-year forecasts, Q4 forecasts alone
(January–March 2014) factor in a 5% YoY sales increase and a 1% YoY operating profit rise. SR believes
there is a high probability that the company will reach its profit targets. Sanrio appears to be currently
preparing a new mid-term management plan, and will likely announce plans covering the Tokyo Olympics
year of FY03/21 as well as FY03/17 at its full-year FY03/14 results meeting. However, the sudden death of
the vice president, who had been preparing to fulfill the role of president, may have an impact on the
content and timing of future plans.
The very sad, sudden death of the vice-president and the president’s son in November 2013 raised
uncertainty over the new corporate structure. The company said that President Tsuji and Rehito
Hatoyama are working closely together on overseas businesses, a main pillar for growth. Hatoyama will
maintain focus on reorganizing the European arm. Hatoyama, Yuko Tsuji and local managers are
responsible for Africa and other regions that the company has yet to enter (previously the vice-president’s
responsibility).
1H FY03/14 Results (announced on October 31, 2013)
Consolidated 1H sales were 34.9 billion yen (+2.4% YoY), operating profit 9.8 billion yen (+14.8% YoY),
recurring profit 9.0 billion yen (+1.2% YoY), and net income 5.8 billion yen (+4.6% YoY). Revenue from
overseas licensing operations rose, increasing the ratio of high-margin royalty income to 44.7% (41.5% a
year earlier). As a result, gross profit margin increased to 71.3% (67.2% a year earlier). By segment,
overseas operations had sales of 20.3 billion yen (+14.3% YoY) and operating profit of 9.9 billion yen
(+19.8% YoY). Domestic operations had sales of 22.6 billion yen (-1.1% YoY), and an operating loss of
100 million yen (operating profit of 100 million yen a year earlier).
Breakdown of domestic operations is as follows: licensing segment sales were 4.3 billion yen (-7.5% YoY)
and operating profit was 3.0 billion yen (-10.5% YoY); domestic product sales were 9.3 billion yen (-1.4%
YoY), and operating profit was 600 million yen (+6.2% YoY); theme park segment sales were 3.4 billion
yen (+3.9% YoY) with a segment operating loss of 100 million yen (the same amount of operating loss
recorded a year earlier). Domestic operations also had 4.0 billion yen in headquarters cost expenses (3.8
billion yen a year earlier).
Sales for the Domestic Licensing segment declined over the previous year due to the absence large-scale
collaboration projects and special orders seen last year, could not be covered despite growth in sales
promotions and campaigns from the food services and financial industries. Domestic product sales
segment benefitted from the popularity of Hello Kitty, My Melody, and Little Twin Stars products such as
growth of small gifts, room wear and melamine tableware geared toward adults mainly at urban shops.
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Sales at existing stores (directly-operated shops and directly-operated shop space at department stores)
were basically at the same level as the previous year. The company opened seven new stores, while
closing two stores, for a total store count of 1,152 stores at the end of 1H. It also opened “sanrio vivitix
HARAJUKU” in Takeshita Street, the information center of Japan’s teenage generation.
The theme parks segment benefitted from the opening of “Sanrio Town” at Sanrio Puroland on July 20,
2013, as the number of visitors to the theme park increased 50,000 people to 452,000 visitors. However,
segment sales declined, affected by the closure of restaurants and a number of attractions at Sanrio
Puroland due to renovations. In addition, the drop in sales together with added expenses caused segment
operating profit to decline over the previous year. The number of park visitors increased 7% YoY in July,
14% YoY in August, and 36% YoY in September. Noticeably, visitors from overseas increased, which
accounted for around 8% of total park visitors (around 5% a year earlier).
In the overseas sales segment, (master license fees paid to the parent were returned to respective
overseas subsidiaries), sales in North America were favorable, while Europe remained sluggish.
Sales in Europe were 6.1 billion yen (-3.0% YoY) and operating profit was 3.3 billion yen (-2.1% YoY), as
consumer spending (i.e., consumption) remained sluggish. Revenue from licensing operations fell 19.2%
YoY in local currency terms. By country, operations in major EU countries such as Italy, France, Germany
and Spain continued to be sluggish due to reduced inventory levels at its EU licensees. On the other hand,
the favorable performance in the Middle East, Oceania, Eastern Europe and Russia recorded favorable
growth. Sales in emerging markets appeared to have grown and accounted for roughly 30% of overall
sales in Europe. By category, sale of mainstay apparel and toys declined, while shoes and publications
recorded increased demand.
In North America, sales were 7.2 billion yen (+18.7% YoY) and operating profit was 3.9 billion yen
(+22.5% YoY), supported by brisk consumer spending. Sales at major chain stores achieved favorable
growth, but orders from some suppliers for “back-to-school” products were delayed due to a number of
retailers reducing their in-store inventories. Consequently, royalties, which are usually recorded in June,
were recorded one month later in July. As a result, despite a 4.0% YoY growth in revenue from licensing
operations in local currency terms during the six-month period, it is possible that sales are likely to
increase by double-digit in Q3 (July to September), due to the delays seen in previous quarter. By
category, sales of toys and fashion accessories recorded favorable growth, while new categories, such as
publications and foodstuffs, significantly expanded. In South America, sales were 1.2 billion yen (+40.1%
YoY) and operating profit was 600 million yen (+40.5% YoY). Sales in Brazil declined due to severe
economic conditions, while Mexico, Argentina, Chile, and other Latin American countries achieved
significant growth, which contributed to licensing revenue expanding 26.1% YoY on a local currency basis.
By category, sales of apparel, bags, home appliances, and toys recorded strong demand.
All major Asian regions such as Hong Kong, Korea, China and Taiwan achieved sales and profit growth.
Sales were 5.4 billion yen (+26.5% YoY) and operating profit was 1.9 billion yen (+47.0% YoY). Regional
breakdown is as follows: Hong Kong, sales 2.6 billion yen (+15.1% YoY) and operating profit 700 million
yen (+18.7% YoY); Taiwan, sales 1.0 billion (+36.9% YoY) and operating profit 400 million yen (+76.7%
YoY); Korea, sales 700 million yen (+86.4% YoY) and operating profit 200 million yen (+127.6% YoY);
and China, sales 800 million yen (+20.4% YoY) and operating profit 500 million yen (+45.1% YoY).
Product sales and licensing revenues grew significantly in Southeast Asian nations such as Thailand,
Singapore, and Malaysia, while its Hong Kong subsidiary achieved growth in sales and profits. In China,
KTL Company, which belongs to the Hong Kong-based Li & Fung (HK: 00494) group, achieved favorable
growth and accounted for 80% of revenues in China. Despite a 5% decline in license revenues in China on
a local currency basis, such revenues increased over 20% prior to the change in accounting for royalties
(Starting in FY03/14, the company books China revenues as “sales” after deducting royalties to KTL
Company.)
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The average foreign exchange rate during the period (January-June) was 94.57 yen against the U.S.
dollar and 124.21 yen against the euro.
The company achieved stronger than its initial targeted operating profit for the first half. Furthermore, the
company revised its initial forecast for the second half (July to December period for overseas subsidiaries
and October to March for domestic companies) as it expects better-than-expected sales attributable to
major events in the latter half of the year such as the important Christmas season, coupled with various
promotional events in Japan and overseas related to the 40th anniversary of Hello Kitty, as well as license
of commemorative designs and original products. Furthermore, in commemorating it 40th anniversary of
Hello Kitty, the company will increase its year-end dividend distribution 10 yen per share to 70 per share,
a 25 yen per share increase over the previous year.
Revised earnings for the full-year FY03/14:
FY03/14 earnings forecast
Sales: 77.0 billion yen (initial 79.7 billion yen)
Operating Profit: 22.1 billion yen (21.5 billion yen)
Recurring Profit: 21.2 billion yen (21.4 billion yen)
Net Income: 13.5 billion yen (13.3 billion yen)
Q1 FY03/14 Results (announced on July 31, 2013)
Consolidated sales for Q1 FY03/14 were 17.2 billion yen (+2.2% YoY), operating profit was 4.7 billion yen
(+13.9% YoY), recurring profit was 4.1 billion yen (-3.8% YoY), and net income was 2.6 billion yen
(-9.5% YoY). Revenue from overseas licensing operations rose, increasing the ratio of high-margin royalty
income to 45.3% (40.3% a year earlier). As a result, gross profit margin increased to 69.3% (66.4% a
year earlier). Operating profit was a quarterly record for the fourth consecutive quarter. By segment,
overseas operations had sales of 9.9 billion yen (+14.5% YoY) and operating profit of 4.7 billion yen
(+17.1% YoY). Domestic operations had sales of 11 billion yen (-2.6% YoY), and an operating loss of 92
million yen (operating profit of 36 million yen in the previous year).
Breakdown of domestic operations is as follows: licensing segment sales were 2.1 billion yen (-6.8% YoY)
and operating profit was 1.5 billion yen (-10.1% YoY); domestic product sales were 4.5 billion yen (-3.1%
YoY), and operating profit was 300 million yen (-2.4% YoY); theme park segment sales were 2.1 billion
yen (-4.2% YoY) with a segment operating loss of 200 million yen (the same amount of operating loss
recorded a year earlier). Domestic operations also had 1.9 billion yen in headquarters cost expenses (2
billion yen a year earlier).
The domestic licensing operations recorded a decline in sales mainly attributable to mainstay apparel,
accessories and other goods, as well as game-related products, failed to reach the level of a year before,
when the company won a large lot order.
The domestic product sales segment benefitted from an increase in overseas tourists, and the popularity
of Hello Kitty and My Melody products geared toward adults mainly at urban shops. Furthermore, despite
the addition of a new character, Bonbon Ribbon, contributed to a 1.7% rise in comparable store sales over
the previous year. Even though overall sales declined attributable to the closure of unprofitable stores, the
rate of profit decline slowed after the company reduced procurement costs by purchasing directly from
foreign suppliers and taking various other steps to cut expenses.
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The theme parks segment benefitted from an increase in the number of visitors to Sanrio Puroland, which
totaled 159,000 (+5.2% YoY), thanks to various events and promotional activities, in addition to a rise in
visitors from overseas spurred by the weaker yen. However, segment sales declined, affected by the
closure of a number of attractions at Sanrio Puroland due to renovations (completed July 20, 2013). In
addition, the drop in sales together with added expenses caused segment operating profit to decline over
the previous year.
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 2.8 billion yen (-12.7% YoY) and operating profit was 1.4 billion yen (-17.6% YoY). Revenue
from licensing operations rose 15.5% YoY in local currency terms (the company forecast a 10.0% decline
YoY). By country, operations in major EU countries such as Italy, France, Germany and Spain continued to
be sluggish due to reduced inventory levels at its EU licensees. On the other hand, the favorable
performance in the Middle East, Oceania, and South Africa, where the company is initiating an expansion
strategy in the region, made up for sluggish operations in the U.K. and other major countries. Sales in
these companies came close to sales in major European nations, and with contributions from Mr. Men,
sales in the European operations as a whole could register a YoY increase in the latter half of the year.
In North America, the company continued to enhance its operations by targeting major chain stores, and
expanding regionally, as well as through product categories. Consequently, sales were 3.5 billion yen
(+21.7% YoY) and operating profit was 1.9 billion yen (+27.1% YoY). Revenue from licensing operations
rose 9.0% YoY in local currency terms (the company forecast a 1.3% decline YoY), exceeding the
company’s own target. By category, sales of toys, home appliances, party goods, as well as new
categories, such as publications and foodstuffs, also expanded. In South America, sales were 700 million
yen (+75.6% YoY) and operating profit was 300 million yen (+75.5% YoY). Sales were strong in Mexico,
where the company hired a full-scale network of sales agents, as well as in Chile, Peru, and Colombia.
Sales were also favorable in Argentina. In Mexico, the company benefitted from sales at major chain
stores. By category, sales of apparel, home appliances, and mobile phones grew especially strong, while
accessories and bags also rose.
All major Asian regions achieved sales and profit growth. Sales were 2.6 billion yen (+33.0% YoY) and
operating profit was 1 billion yen (+75.3% YoY). By region, Hong Kong had sales of 1.3 billion yen
(+19.0% YoY) and operating profit of 300 million yen (+25.2% YoY); Taiwan had sales of 500 million yen
(+33.4% YoY) and operating profit of 200 million (+38.1% YoY); South Korea had sales of 300 million
yen (133.3% YoY) and operating profit of 200 million (+127.4% YoY); and China had sales of 400 million
(+28.3 YoY) and operating profit of 200 million (+41.6% YoY).
Product sales and licensing sales grew significantly in Southeast Asian nations such as Thailand,
Singapore, and Malaysia, while overall operations at its Hong Kong subsidiary increased sales and profit.
In China, revenues from KTL Company (part of the Hong Kong-based Li & Fung Group), with which Sanrio
has a master license agreement, grew, in addition to a significant rise in the number of licensees.
The average foreign exchange rate, during the period (January-March) was 91.07 yen against the U.S.
dollar and 120.20 yen against the euro. The yen’s decline that began from mid-November 2012 had a
limited impact in Q1 FY03/14, with the full impact of the yen’s weakness to be reflected in the company’s
earnings from Q2 and beyond. (The yen traded at the 99 level against the U.S. dollar as of early August
2013.) On the other hand, the company has foreign-exchange forward contracts, which resulted in a
currency loss of about 600 million yen, and consequently recurring profit declined slightly in Q1 FY03/14.
The company has left its first-half and annual earnings forecasts unchanged. However, operating profit
has already reached a high level, 51.4% of the company’s forecast for 1H. Q1 FY03/13 operating profit
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was 48.4% of the company’s 1H results.
Regarding recent developments, the company began domestic licensing of Mr. Men Little Miss in July 2013.
Starting from the spring of 2014, the company plans to develop a wide variety of products, including
clothing, accessories, stationery, and food products, and provide licensing to advertisers and those
engaged in sales promotion or education businesses. As for the theme-park operations, visitors to
Puroland may have risen about 10% YoY after it was renovated. Puroland may start contributing to the
company’s earnings during Q2. Concerning corporate governance, there were changes in the board of
directors as of April 1, 2013 as the company seeks to hand over management to a younger generation of
executives. Shared Research believes that a new management structure is gradually taking shape.
FY03/13 Results (announced on May 15, 2013)
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.
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
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(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
Gross Profit
YoY
GPM
Provision for Merchandise Return
Reversal of Merchandise Return Allowance
Adjusted Gross Profit
SG&A
SG&A / Sales
Operating Profit
YoY
OPM
Non-Operating Income
Non-Operating Expenses
Recurring Profit
YoY
RPM
Extraordinary Gains
Extraordinary Losses
Tax Charges
Implied Tax Rate
Minority Interests
Net Income
YoY
NPM
FY03/10
Cons.
73,875
5.9%
33,127
40,747
8.1%
55.2%
13
40,734
31,445
42.6%
14,863
126.1%
20.1%
648
1,688
13,823
132.2%
18.7%
8
1,313
2,558
20.4%
13
9,947
13.5%
FY03/11
Cons.
76,624
3.7%
30,513
46,111
13.2%
60.2%
56
46,168
31,171
40.7%
14,996
0.9%
19.6%
620
2,229
13,387
-3.2%
17.5%
451
1,676
2,766
22.7%
16
9,380
-5.7%
12.2%
FY03/12
Cons.
74,954
-2.2%
26,831
48,122
4.4%
64.2%
6
48,116
29,210
39.0%
18,906
26.1%
25.2%
1,016
1,554
18,368
37.2%
24.5%
119
453
3,637
20.2%
17
14,378
53.3%
19.2%
FY03/13
Cons.
74,233
-1.0%
24,797
49,435
2.7%
66.6%
FY03/14
Cons.
74,234
99.0%
24,797
49,435
2.7%
66.6%
19
49,454
29,255
39.4%
20,198
6.8%
27.2%
714
1,266
19,646
7.0%
26.5%
157
1,122
6,120
32.8%
24
12,536
-12.8%
16.9%
19
49,454
29,255
139.4%
20,199
6.8%
27.2%
714
1,266
19,646
7.0%
26.5%
157
1,122
6,120
132.8%
24
12,536
-12.8%
16.9%
FY03/15
Est.
75,800
-1.6%
19,300
-8.2%
25.5%
20,100
-0.4%
26.5%
13,200
3.1%
17.4%
Source: Company data, SR Inc.
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.
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Initial CE vs. Results
(JPYmn)
Sales (Initial CE)
Sales (Results)
Operating Profit (Initial CE)
Operating Profit (Results)
Recurring Profit (Initial CE)
Recurring Profit (Results)
Net Profit (Initial CE)
Net Profit (Results)
FY03/10
Cons.
69,977
73,875
5.6%
6,585
14,863
125.7%
5,783
13,823
139.0%
4,798
9,947
107.3%
FY03/11
Cons.
71,203
76,624
7.6%
9,000
14,996
66.6%
7,970
13,387
68.0%
4,726
9,380
98.5%
FY03/12
Cons.
73,826
74,954
1.5%
15,157
18,906
24.7%
14,079
18,368
30.5%
10,730
14,378
34.0%
FY03/13
Cons.
74,700
74,233
-0.6%
19,100
20,198
5.7%
18,200
19,646
7.9%
12,200
12,536
2.8%
FY03/14
Cons.
79,700
77,009
-3.4%
21,500
21,019
-2.2%
21,400
20,180
-5.7%
13,300
12,802
-3.7%
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.
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Balance sheet
Balance Sheet
(JPYmn)
ASSETS
Cash and Equivalents
Accounts Receivable
Allowance for Doubtful
Inventories
Other Current Assets
Total Current Assets
Buildings
Equipment, Plant
Land
Lease Asset
Construction in Progress
Other Fixed Assets
Total Tangible Fixed Assets
Total Other Fixed Assets
FY03/10
Cons.
FY03/11
Cons.
FY03/12
Cons.
FY03/13
Cons.
FY03/14
Cons.
18,562
11,019
-131
4,729
4,531
38,710
7,771
449
11,308
339
24
463
20,353
26,131
21,133
10,412
-455
3,649
5,107
39,846
7,178
343
10,816
370
1
452
19,161
24,221
25,893
9,949
-107
3,116
5,158
44,009
6,515
234
10,571
439
4
315
18,078
22,650
35,627
10,752
-92
3,110
6,275
55,672
6,400
157
10,035
650
13
391
17,648
19,989
52,265
12,770
-82
3,544
3,741
72,238
7,289
217
10,290
1,284
14
528
19,022
21,359
Total Intangible Assets
Total Fixed Assets
493
46,977
338
43,720
3,869
44,598
4,000
41,638
4,865
45,248
Bond Issuance Expense
Total Deferred Assets
Total Assets
74
74
85,765
96
96
83,662
141
141
88,748
115
115
97,425
98
98
117,585
7,732
17,636
227
1,136
365
118
5,009
32,223
13,378
263
6,963
1,341
21,945
31,014
54,168
6,566
21,425
177
1,000
370
62
5,155
34,755
10,508
290
6,779
2,138
19,715
31,933
54,470
4,486
17,112
169
859
370
68
5,562
28,626
13,544
328
6,286
2,885
23,043
30,656
51,669
4,481
11,852
217
1,168
395
49
6,715
24,879
14,261
477
6,011
2,814
23,563
26,113
48,443
4,658
11,777
223
740
456
45
11,387
29,288
14,059
493
0
11,861
26,413
25,836
55,701
14,999
8,732
13,478
-954
-563
-45
-4,083
30
31,594
8,016
31,014
12,452
10,000
6,147
20,953
-637
-973
-21
-6,310
36
29,195
7,495
31,933
10,800
10,000
3,476
32,624
-1,034
-381
-1
-7,688
52
37,078
8,579
30,656
4,763
10,000
3,418
41,186
-1,884
507
15
-4,465
85
48,982
9,381
26,113
-9,514
10,000
3,423
49,140
-1,882
787
6
2,922
67
61,883
11,656
25,836
-26,429
LIABILITIES
Accounts Payable
Short-Term Debt
Lease Obligation
Income Taxes Payables
Provision for Bonuses
Provision for Merchandise Return
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Lease Obligation
Reserve for Retirement Benefits
Other Fixed Liabilities
Total Long-Term Liabilities
Total Interest-Bearing Debt
Total Liabilities
Shareholder Equity
Issued Capital
Reserves
Retained Earnings
Treasury Stock
Difference in Securities Valuation
Deferred Hedge Gains/Losses
Foregin Currency Translation Adjustment
Minority Interest
Total Shareholder Equity (Net Assets)
Working Capital
Interest-Bearing Debt
Net Debt
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
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deteriorating business performance amid weak Japanese economy, the company found itself in financial
dire straits in the 1990s, accumulating the interest-bearing debt of nearly 200 billion yen. In FY03/03, it
posted investment security liquidation losses (15.2 billion yen) following in FY03/04 with impairment
losses related to the theme parks business (17.4 billion yen for Sanrio Puroland and 3.5 billion yen for
Harmonyland). Following these losses, Sanrio needed to bolster its finances and in March 2005 issued
19.5 billion yen of preferred shares and 500 million yen 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 FY03/14, the company significantly improved
its financial position by reducing its interest-bearing debt to JPY25.8bn, and boosted it net cash position
to JPY26.4bn supported by an increase in cash.
Equity Ratio
60%
50.1%
50%
37.6%
40%
35.5%
27.2%
30%
20%
10%
27.0%
20.3%
13.7%
7.5%
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
3.7%
FY03/97
0%
41.7%
34.9%
33.9%
24.4%
21.8%
11.1%
37.1%
36.8%
52.4%
However, the company’s return-on-equity is high, at 23.2% (FY03/14), as well as its equity ratio.
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ROE
60%
40%
43.5%
25.5%
20%
11.8%
15.0%
30.9%
29.2%
23.2%
3.2%
0%
-5.0%
-20%
-40%
-60%
-80%
-67.1%
FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14
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.
 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.
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Inventory Control
Inventory has been decreasing. It totaled JPY5.7bn at the end of FY03/07 but declined to JPY3.5bn at the
end of FY03/14. 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 92 in
FY03/14.
Inventory levels are expected to continue decreasing from FY03/15 onward as the company has shifted to
a policy of avoiding inventory risk.
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
(JPYmn)
Operating Cash Flow (1)
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)
FY03/10
Cons.
8,428
-1,559
6,869
-2,483
1,384
-1,711
20
9,600
FY03/11
Cons.
13,211
-2,120
11,091
-8,554
1,321
-843
-521
10,379
FY03/12
Cons.
14,820
2,005
16,825
-10,313
1,216
-310
1,084
14,200
FY03/13
Cons.
17,085
-485
16,600
-9,651
1,307
-720
802
12,321
FY03/14
Cons.
17,448
-8,651
8,797
-5,417
1,486
-1,391
2,275
10,622
FY03/13
Cons.
7.2
50.9
8.0
45.8
5.5
66.0
30.72
FY03/14
Cons.
6.5
55.7
7.1
51.3
5.2
70.5
36.57
Cash Conversion Cycle
Accounts Receivable Turnover
Days in Accounts Receivable
Inventory Turnover
Days in Inventory
Payables Turnover
Days in Payables
Cash Conversion Cycle (days)
FY03/10
Cons.
7.2
50.5
6.8
53.7
4.7
78.1
26.07
FY03/11
Cons.
7.2
51.0
7.3
50.1
4.3
85.5
15.64
FY03/12
Cons.
7.4
49.6
7.9
46.0
4.9
75.2
20.42
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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 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.
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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
As of March 31, 2014
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)
The Master Trust Bank of Japan, Ltd. (Trust Account)
Mizuho Corporate Bank, Ltd.
Shintaro Tsuji
Kunihiko Tsuji
Nippon Life Insurance Company
Amount
Held
10.6%
7.7%
7.5%
4.3%
4.3%
3.6%
2.8%
2.1%
2.0%
1.9%
1.6%
Dividends and Shareholder Benefits
Sanrio intends to pay a dividend of JPY80 per share in FY03/15 (a payout ratio of 49.0%).
Shareholder Breakdown (As of end-FY03/14)
Treasury stock,
1.02%
Other
corporate
entities,
30.92%
Foreign
corporate
entities and
others, 16.78%
Individuals,
19.65%
Financial
institutions,
29.78%
Securities
firms, 1.85%
For FY03/14, Sanrio’s shareholders benefits included complimentary tickets for Sanrio Puroland, Hello
Kitty original bags, and a folding umbrella.
News and topics
June 2014
On June 18, 2014, Shared Research updated the report based on interviews with management. In
addition, Shared Research confirmed with management that the company would continue to seek growth
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with a focus on the licensing business, while also aiming to add strength to product sales.
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.
November 2013
On November 25, 2013, the company announced the selling price for its secondary offering of shares.
The price was determined at its board meeting on November 15, 2013.
Selling price: 4,559 yen per share (3.00% discount from 4,700 yen - the closing price on November 25,
2013)
Application period for bond offering: from November 26 to November 27, 2013.
On November 15, 2013, the company announced a secondary offering of its shares.
Details of secondary offering:
 Class and number of shares to be sold:
5,740,000 shares of the company’s common stock (6.4% of outstanding shares)

Seller:
Sega Sammy Holdings Inc., 2,870,000 shares
Kohnan Shoji, 2,770,000 shares
Kiyohara Shoji, 100,000 shares
 Selling price:
The selling price shall be determined, based on the provisional range calculated by multiplying the
closing price of the common stock of the company in the period from November 25 to November 27,
2013, by 0.90-1.00.

Purpose of the secondary offering:
The company’s core business targets individual consumers, and a major portion of that business
concerns gifts and greeting cards as a form of social communication. This aspect of the business is
expressed through the concept of “small gift, big smile.” The company aims to spread this philosophy
to as many people as possible, and hence recognizes individual investors as an important part of its
shareholder base. This secondary offering seeks to address the significant decline in individual
shareholders seen in recent years, as well as increase the liquidity of the company’s stock.
October 2013
On October 31, 2013, the company announced results for 1H FY03/14 and a revision to full-year
earnings forecast.
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October 2012
On October 30, 2012, the company revised its 1H and full-year FY03/13 forecasts.
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 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 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.
Employees
As of March 2014, the Sanrio Group had 3,966 employees, of whom 1,294 were full-time employees, and
2,672 were temporary employees.
Investor relations
The company holds analyst meetings twice a year (in May and October).
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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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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
Established
April 23, 1949
Website
http://www.sanrio.co.jp/english/corporate/index.html
IR Contact
Tokyo Stock Exchange 1st Section
Exchange Listing
April 23, 1982
Fiscal Year-End
March
IR Web
http://www.sanrio.co.jp/english/corporate/ir/index.html
IR Phone
IR Mail
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companies. We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other
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Sanrio Co., Ltd. (8136)

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