Sanrio Co., Ltd. (8136)

Transcription

SR Research Report
2014/6/18
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
sr_inquiries@sharedresearch.jp or find us on Bloomberg.
SR Research Report
2014/6/18
Contents
Recent Updates .....................................................................................................4
Highlights ............................................................................................................4
Trends & Outlook .................................................................................................4
Business ............................................................................................................... 15
Business Description ........................................................................................... 15
Market and Value Chain ...................................................................................... 33
Strategy ............................................................................................................ 43
Historical Financial Statements................................................................................ 47
Income Statement.............................................................................................. 57
Balance Sheet .................................................................................................... 59
Statement of Cash Flows..................................................................................... 62
Other Information ................................................................................................. 63
History .............................................................................................................. 63
Major Shareholders ............................................................................................ 64
News & Topics ................................................................................................... 65
Top Management ............................................................................................... 66
Employees ......................................................................................................... 66
Investor Relations .............................................................................................. 66
By The Way ....................................................................................................... 67
Company Profile................................................................................................. 68
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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%
13.5%
12.2%
19.2%
16.9%
16.6%
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%
FY03/15
Est.
79,600
3.4%
22,000
4.7%
27.6%
22,200
10.0%
27.9%
14,400
12.5%
18.1%
163.35
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 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
with a focus on the licensing business, while also aiming to add strength to product sales.
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.
On May 26, 2014, Shared Research updated comments on the company’s full-year FY03/14 earnings
based on the company’s results briefing.
On May 15, 2014, the company announced full-year earnings results for FY03/14; see the results
section for details.
For corporate releases and developments more than three months old, please refer to the
News & Topics section.
Trends & Outlook
Quarterly Trends & Results
Quarterly Performance
(JPYmn)
Sales
YoY
GP
Q1
16,875
FY03/13
Q2
Q3
17,220
21,435
Q4
18,703
Q1
17,242
FY03/14
Q2
Q3
17,674
22,373
Q4
19,720
3.2%
-4.1%
-3.6%
1.6%
2.2%
2.6%
4.4%
5.4%
11,205
11,723
13,670
12,856
11,957
12,930
15,021
13,451
YoY
4.4%
-0.7%
-1.2%
9.5%
6.7%
10.3%
9.9%
4.6%
GPM
SG&A
66.4%
7,097
68.1%
7,335
63.8%
7,286
68.7%
7,537
69.3%
7,278
73.2%
7,851
67.1%
8,058
68.2%
9,153
YoY
4.9%
-1.8%
-7.2%
5.9%
2.6%
7.0%
10.6%
21.4%
42.1%
4,108
42.6%
4,388
34.0%
6,384
40.3%
5,318
42.2%
4,678
44.4%
5,079
36.0%
6,964
46.4%
4,298
YoY
3.5%
1.2%
6.8%
15.0%
13.9%
15.7%
9.1%
-19.2%
OPM
24.3%
4,296
25.5%
4,643
29.8%
5,749
28.4%
4,958
27.1%
4,133
28.7%
4,915
31.1%
6,593
21.8%
4,539
YoY
11.1%
14.1%
-6.1%
15.0%
-3.8%
5.9%
14.7%
-8.5%
RPM
25.5%
2,913
27.0%
2,678
26.8%
3,663
26.5%
3,282
24.0%
2,635
27.8%
3,214
29.5%
4,295
23.0%
2,658
YoY
1.7%
-0.7%
-36.6%
7.9%
-9.5%
20.0%
17.3%
-19.0%
NPM
17.3%
15.6%
17.1%
17.5%
15.3%
18.2%
19.2%
13.5%
SG&A / Sales
OP
RP
NI
FY03/14
% of FY
FY Est.
100.0%
77,000
95.1%
22,100
95.6%
21,100
94.8%
13,500
*Reversal of allowance for sales returns is subtracted from gross profit; figures may differ from company materials due to differences in rounding methods
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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 business 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
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,
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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
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
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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.
3.
Theme parks in the UK, South Korea, Malaysia, and Shanghai
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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:
Domestic Product Sales
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.
Design
Sanrio began to groom Hello Kitty as a global character around the year 2000. The company also began to
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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.
For details on previous quarterly and annual results, please refer to the Historical Financial
Statements section.
Full-Year (FY03/15) Outlook
FY03/15 Forecast
(JPYmn)
Sales
YoY
1H
34,916
FY03/14
2H
Full-Year
42,093
77,009
2.4%
4.9%
3.7%
10,029
24887
13,625
28,472
23,654
53,359
8.5%
71.3%
7.3%
67.6%
7.9%
69.3%
SG&A
15129
17,211
32,340
SG&A / Sales
43.3%
40.9%
42.0%
Operating Profit
9,757
11,262
YoY
OPM
14.8%
27.9%
Recurring Profit
YoY
RPM
Net Income
CoGS
Gross Profit
YoY
GPM
YoY
FY03/15 Estimates
1H
2H
Full-Year
36,400
43,200
79,600
4.3%
2.6%
3.4%
21,019
9,100
12,900
22,000
-3.8%
26.8%
4.1%
27.3%
-6.7%
25.0%
14.5%
29.9%
4.7%
27.6%
9,048
11,132
20,180
9,200
13,000
22,200
1.2%
25.9%
4.0%
26.4%
2.7%
26.2%
1.7%
25.3%
16.8%
30.1%
10.0%
27.9%
5,849
6,953
12,802
5,900
8,500
14,400
4.6%
0.1%
2.1%
0.9%
22.2%
12.5%
Figures may differ from company materials due to differences in rounding methods.
Sales
Of the JPY79.6bn (+3.4% YoY) in sales forecast for FY03/15, JPY46.6bn (+2.5%) will be generated
overseas, and JPY50.4bn (+4.1%) will be generated domestically.
Operating profit (OPM)
The company forecasts JPY22.0bn (+4.7% YoY) in operating profit for FY03/15. Of this figure, overseas
will account for JPY21.3bn (+3.8%), and the domestic market represents JPY700mn (+40.7%).
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%).
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Concerning domestic product sales, the company plans to create new types of products and stores that
will serve to please existing customers while drawing in new customers from an adult audience. In
addition, Sanrio forecasts an increase in sales from overseas tourists, and a resulting increase in
comparable store sales of 3% during FY03/15.
In licensing, 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. 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.
In the theme park business, Sanrio adjusted its pricing in tandem with the consumption tax increase
which took place in April 2014. At Sanrio Puroland in Tama, Tokyo, the company aims to increase visitor
count through its revised ticket pricing system, which offers separate rates for weekdays and weekends.
Visitor forecasts for FY03/15 are 885,000 visitors (+11.6% YoY) and average spend per customer of
JPY5,350 (+13.9%). 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.
Overseas operating profit forecasts by region are as follows:
 Europe: JPY6.7bn (+1.2% YoY);
 United Kingdom (Mr. Men): JPY200mn (-2.6%);
 North America: JPY8.0bn (-8.1%);
 Central and South America: JPY1.3bn (-4.0%);
 Hong Kong: JPY2.0bn (+134.0%);
 Taiwan: JPY1.1bn (+10.0%);
 South Korea: JPY700mn (+19.7%);
 China: JPY1.5bn (+16.1%).
Note that the above figures include master licensing fees that are remitted to the parent, in order to
accurately depict revenue generated by each region.
In Europe, the company’s operating structure is being restructured by the managing director in charge of
overseas operations. Forecasts for licensing sales on a local currency basis call for a recovery from Q4
onward, broken down as follows:
 Q1 (January-March): -1% YoY;
 Q2 (April-June): -8%;
 Q3 (July-September): -4%;
 Q4 (October-December): +7%.
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.
In North America, sales were down during Q1 (January-March) due to cold weather, but sales from Q2
onward are forecast to be on par with the previous year. It appears that this forecast is conservative;
although it is based upon the previous year’s results, it also includes possible negative elements such as
poor weather. However, it should be noted that results may deviate either upward or downward
depending upon the retail market environment as a whole, and performance of promotional licenses.
The effects of exchange rate fluctuations on the company’s FY03/15 results are shown in the table below.
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Currency Fluctuation Impact on Operating Profit at Overseas Subsidiaries
EUR
GBP
USD
FY03/14 Exchange Rates (JPY)
129.34
152.49
97.11
FY03/15 Exchange Rate Assumptions (JPY)
135.00
165.00
100.00
Impact of JPY1 Swing (JPYmn)
22.1
0.4
37.7
RMB
15.81
16.00
42.1
KRW
0.089
0.090
4,444.4
TWD
3.28
3.30
100.0
HKD
12.52
13.20
69.1
Source: Company data; figures may differ from company materials due to differences in rounding methods
Net income
Sanrio forecasts full-year dividends of JPY80 per share (standard dividend of JPY60 and commemorative
dividend of JPY20).
If the effects of booking JPY700mn in allowance for doubtful accounts and foreign exchange effects of
between JPY200mn and JPY300mn, the company’s plans are largely unchanged YoY, and can be
considered conservative estimates. Performance in North America may have either a positive or a
negative impact, and strong performance in Europe or Asia may help Sanrio exceed its forecasts.
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.
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
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
FY03/13 Initial Plan
17,800
1,200
7,100
2,300
-200
300
8,200
19,100
Figures may differ from company materials due to differences in rounding methods
Source: Company data
“Project2020” 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.);
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 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 was emphasizing the important role that Sanrio’s
retail stores will need to play in order to strengthen the branding power of its characters, which is an
essential factor for growth in the licensing business. Shared Research thinks that as the founder, President
Tsuji believes that Sanrio’s success in Japan, in addition to growth in licensing in North America and
Europe, is 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 growth in the past.
Growth Potential
The company expects to generate roughly JPY30.0bn in operating profit from its overseas business over
the medium term. SR Inc. 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, SR Inc. 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
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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
Operating Profit
(Million Yen)
FY03/12
9,900
Operating Profit
(USD Million)
USD1=JPY80
124
Retail Sales
(USD Million)
OP/Retail Sales
(Million Times)
Potential OP
(Million Yen)
57
Benchmark
Figure
Europe
57
2,155,230
503,650
373,490
515,400
283,150
53,980
425,560
5,100
64
2,614,940
2,614,940
24
57
12,012
700
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
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
SR Inc. notes that Sanrio is a very unique company not only because of its unique business (as in selling
a cute feline character). SR Inc. 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.
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Business Model
Character Incubation and Earnings Source
Diversification through Business Synergies
Product
Sales
Licensing
Overseas
Cha ra cter
Character
i ncubation
Incubation
Others
Theme Parks
Character
Incubation
"Small Gift, Big Smile"
Live Entertainment
Synergistic
Customer
Attraction
In essence, Sanrio’s business model is simple. The main source of revenues and earnings is character
licensing, both in Japan and worldwide. SR Inc. estimates the bulk of business comes from Hello 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.
When Sanrio licenses a character, it grants the licensee permission to use the character for merchandise,
services, advertising, and sales promotions. Character images may appear on a wide variety of
merchandise, including toys, food, and apparel, but merchandise can also be a representation of the
character itself in some form, which are called character goods (e.g., stuffed toys, figurines; see picture
below). In return, the company collects a license fee, in a conventional merchandising contract—a fixed
percentage of the merchandise’s retail price (or wholesale price) as a royalty payment. While Sanrio does
not disclose the exact details of its license royalty schemes, SR Inc. understands that typical levels
employed in the character merchandising business are 5%-7% of the retail price and 10%-14% of the
wholesale price.
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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. 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.
Businesses & Segments
Sales Breakdown (FY03/14)
Others
11.8%
Theme Parks
6.8%
Domestic
Product
Sales
22.9%
Overseas
48.4%
Domestic
Licensing
10.1%
Source: Company data processed by SR Inc.
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Domestic Licensing
Segment sales drastically declined in FY03/09 due to a change in the sales method (i.e., integrating into
character goods originated by other companies from “transaction” to “royalty income”).
Domestic Licensing (JPYmn)
FY03/08
Sales
28,379
Operating Profit
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 processed by SR Inc. 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.)
Domestic licensees totaled more than 700 companies as of FY03/14, representing various industries, from
fashion accessories 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, licensees have been lately increasing in the area of
leading-edge products, such as smartphone accessories.
Character
Industries
Hello Kitty
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
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
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.
SHOWA NOTE Co., Ltd./Bandai Co.,Ltd./KOIZUMI FURNITECH CORP./Moonstar Company/Shogakukan Inc./Marumiya
Corporation
SHOWA NOTE Co., Ltd./NAIGAI Co., Ltd./Tokyo Tomin Bank, Ltd./McDonald's Holdings Co. (Japan), Ltd./Bandai Co.,
Ltd./Daiwa Resort Co., Ltd./MSD K.K.Co. (Japan), Ltd./Asahi Mutual Life Insurance Co.
Finance, AV &
Home
Appliance,
Healthcare &
Cosmetic,
Apparel, Toys
&
Jewelpet
Miscellaneous
Goods,
Cinnamoroll
Confectionery,
Foods,
Automobiles, Samantha Thavasa Japan Limited/anteprima Ltd./SHO-BI Corporation/crocs. Japan/World Co., Ltd./Agatsuma Co.,
My Melody (& Kuromi)
Ltd./Asahi Corporation Co., Ltd./Imagineer Co., Ltd./Fukusuke Co., Ltd./NAMCO BANDAI Games Inc./Sun-Star
etc.
Stationery Co., Ltd./Hiya Pharmaceutical Co., Ltd./Mitsubishi UFJ NICOS Co., Ltd./Rosette Co., Ltd.
Sugarbunnies
TOMY COMPANY, LTD. (master Licensee)/McDonald's Holdings Co. (Japan), Ltd./
Little Twin Stars
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.
Sinkansen
As of March 2014, the total number of stores is 220 stores. Sanrio stores have several formats: mainstay
“Gift Gate” (99 stores as of March 2014) targeting families; “Vivitix” (10 stores) targeting teenagers;
“Hello Kitty Store” (two stores) exclusively selling Hello Kitty goods; “QUESTINA” (one store) targeting
adult women; “Hello Kitty Japan” (three stores) exclusively selling souvenirs at famous tourist spots which
are operated nationwide either as directly managed or franchise; two outlet stores; four other stores; and
99 consignment buying stores.
Sanrio also sells its character merchandise to department stores and general merchandise stores. Busier
stores often have a “Sanrio Corner,” which houses all of the retail outlet’s Sanrio merchandise rather than
spreading it throughout the store.
Store count has been declining due to closing of unprofitable stores. The company has, however, opened
new stores in locations with high customer counts, particularly overseas tourist counts according to the
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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
FY03/08
Retail
271
Gift Gate (Directly
147
Managed Stores)
Stores (Consignment
Purchases) in
124
Department Stores
Wholesale
1,145
Stores (Outright
Purchases) in
56
Department Stores
Mass Retailers
1,004
Specialty Stores
85
Total
1,416
FY03/09
271
FY03/10
261
FY03/11
232
FY03/12
216
FY03/13
209
FY03/14
212
140
139
124
109
111
120
131
122
108
107
98
92
1,140
1,133
1,122
985
938
882
56
56
62
63
63
51
1,005
79
1,411
998
79
1,394
997
63
1,354
861
61
1,201
810
65
1,147
791
40
1,094
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.
Domestic Product Sales (JPYmn)
FY03/08
Sales
26,197
Operating Profit
1,157
OPM
4.4%
FY03/09
25,881
1,482
5.7%
FY03/10
25,405
1,531
6.0%
FY03/11
24,237
1,453
6.0%
FY03/12
21,749
1,736
8.0%
FY03/13
21,231
2,087
9.8%
FY03/14
21,461
2,126
9.9%
FY03/15 Est.
22,626
2,327
10.3%
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Overseas Licensing
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
Operating Profit Margin by Region
70%
60%
Europe
50%
Americas
40%
Hong Kong
Taiwan
30%
S. Korea
20%
China
10%
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
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;
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 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).
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
OP
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
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 and the US
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
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
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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.
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. In FY03/11, the company’s 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 the Hello Kitty’s high brand recognition. In FY03/12, the company increased
market penetration to 80%. To raise this rate further, 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
Historically, the expansion into the Asian market has been a process in which 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. 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. SR Inc. estimates the agreement includes a guaranteed minimum payment (to
Sanrio) of 80 to 90 million dollars (US) 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
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.
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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 SR Inc. 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.
Store Counts Overseas
FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12
Europe/ MiddleEast
FY03/13
FY03/14
Directly Managed Stores
7
7
7
7
13
13
3
3
2
Stores Managed by Agents
Contract Stores Managed by Agents
US
Franchise Stores Managed by Agents
Wholesalers Managed by Agents
Latin America
Franchise Stores Managed by Agenct
Russia
Wholesalers Managed by Agents
South Korea
Taiwan
China
Hong Kong
Other Asia
Total
Wholesalers (inc. Franchise Stores) Managed by Agents
23
26
26
37
47
52
70
42
70
39
57
26
17
18
5
31
4
28
4
32
2
48
47
32
61
26
50
4
55
85
n/a
2,500
2,600
2,700
2,000
2,300
n/a
1
9
56
n/a
n/a
1
73
1
65
1
16
1
2
1
1
38
13
55
58
39
12
47
75
38
9
31
98
23
48
4
276
260
n/a
22
49
3
255
251
n/a
22
49
2
203
254
n/a
63
3
60
3
20
3
10
3
10
4
10
48
3
2
10
20
8
5
5
28
29
25
24
25
1
23
26
26
26
29
34
40
71
49
47
47
44
26
28
50
28
61
29
25
153
12
195
11
171
11
182
51
25
38
15
242
n/a
2,588
2,737
2,806
2,085
61
25
35
13
249
155
2,396
14
S ource: C ompany data processed by S R Inc.
* 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 fully 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
FY03/14
6,349
4,530
1,674
FY03/15 Est.
7,343
5,422
1,704
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
Direct operating profit excludes theme park assistance expenses and others.
Sanrio Puroland
Opened in Tama City, Tokyo, in December 1990, Sanrio Puroland offers shows produced by famous
creators, as well as a range of other attractions in a fantasy-world setting. By putting the complex indoors,
the company had virtually assured that achieving profitability would be hard if not impossible—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.
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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
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 a theme park on Jeju Island, South Korea in January 2014, and another theme
park in the United Kingdom in May 2014.
Main Products
Features of Major Sanrio Characters
Sanrio characters are very different from other characters existing throughout the world. Simply put,
Sanrio characters are not characters, rather they are product designs. Founder Shintaro Tsuji thought of
ways to sell his products similar to competitors’, questioning how he can differentiate his products from
others’. He came up with the concept of fusing characters and products and, to this end, creating
characters with simple designs. SR Inc. 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).
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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.
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
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
Source: Company data, SR Inc. Research
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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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SW Analysis (Strengths & 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: SR Inc., 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: SR Inc. 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
Iconix Brand
Group, 13
Sanrio, 8
Collegiate
Licensing
Source: License! Global Magazine Company, 4.59
Nickleoden
Consumer
Products, 5.4
Major League
Baseball, 5.5
Warner Bros.
Consumer
Products, 6
The US has the largest licensing market worldwide, responsible for 60%+ (retail store basis) and 70%
(royalty basis) of the global licensing market.
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Licensing Market Scale
Ratail Store Basis (USD Million)
Europe, 800
Others ,
1,000
Royalty Basis (USD Million)
Europe, 40
Others, 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).
Licensing involving characters (entertainment, TV, movies) and fashion accounts for a significant portion
of the license product retail market.
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In the domestic character product market, character use in the apparel industry has been rising.
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 SR Inc. to think
the Japanese and US markets have room for additional growth.
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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.
Visitors to Japan by Country (Number of visitors)
2005
2006
2007
2008
South Korea
1,747,171 2,117,325 2,600,694 2,382,397
Taiwan
1,274,612 1,309,121 1,385,225 1,390,228
China
652,820
811,675
942,439 1,000,416
Hong Kong
298,810
352,265
432,042
550,192
Thailand
120,238
125,704
89,532
82,177
Singapore
94,161
115,870
167,481
191,881
Malaysia
78,173
85,627
151,860
167,894
Indonesia
58,974
59,911
64,178
66,593
India
58,572
62,505
67,583
67,323
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%
Source: Japan National Tourist Organization (JNTO) data processed by SR Inc.
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
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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
(1,000 people)
Visitors to Japan
75
1,214
454
189
2,456
2,211
746
Source: JNTO and World Bank data processed by SR Inc.
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
2012 Population
5,885
5,875
6,127
22,329
vs. Population
26.4%
26.3%
26.7%
Source: JNTO, Australian Bureau of Statistics, and World Bank data processed by SR Inc.
Visotors to Japan (1,000 people)
vs. Population
2010
8,611
6.8%
2011
6,218
4.9%
2012
8,368
6.5%
2013
10,364
8.1%
Population
127,298
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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
YoY
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%
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
Disney
Over 500
Disney
n/a
Disney
47
Source: Company and Oriental Land data processed by SR Inc.
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.
Number of Visitors
(1,000 People)
Average Spend
per Visitor (Yen)
Tokyo Disney Resort
313,000
Tokyo Disney Land (Chiba)
Tokyo Disney Sea
Sanrio
Sanrio Puroland (Tokyo)
793
Harmonyland (Oita)
414
Source: Company and Oriental Land data processed by SR Inc.
11,076
FY03/14
4,697
3,525
Average
1-Day Passport for Product Sales Food, Beverage
Admission Fee
an Adult (Yen)
(Yen)
(Yen)
(Yen)
4,598
2,017
1,494
6,400
4,400
2,800
4,185
1,847
1,375
Space
Opened
510,000 m
2
490,000 m
2
1983
2001
2
1990
1991
2,292
833
656
45,900 m
235,000 m2
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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, SR Inc. 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 to 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 SR Inc. 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.
It appears to SR Inc. that simplistically, Sanrio has two camps inside it: 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 SR Inc. that while Mr. Hatoyama pushed forward various
reforms and probably deserves a lot of credit for the dramatic turnaround in the company’s profitability,
his popularity among investors might be substantially higher than among the Sanrio’s senior staff.
In 2012, Mr. Hatoyama’s strategic approach stirred up (in a positive way) the traditional Sanrio culture
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 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.
SR Inc. believes that whether Mr. Hatoyama remains with the company in the future is likely to
substantially impact the fortunes of Sanrio and its investors. SR Inc. believes that Mr. Hatoyama will strive
to transform the company from the reforms of the past, to creating synergies from reformist and
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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. SR Inc. 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).
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
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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, SR Inc. thinks
that success in Mexico is likely.
Asia
Like in other regions, in Asia Sanrio is increasingly focusing on licensing. In January 2012, it has signed a
master license agreement covering China (excluding Hong Kong and Macao) with KT Company and KT
Shanghai Company (the agreement took effect in February 2012). SR Inc. 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, SR Inc. 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.
SR Inc. understands that in Asia (ex-China) the company has maintained traditional trading practices over
about 40 years. This fact makes SR Inc. 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, SR Inc. 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 SR Inc. 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
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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
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.
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.
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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%).
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
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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.
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
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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.)
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
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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.
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
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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
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. SR Inc. believes that a new management structure is gradually taking shape.
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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
(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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Q3 FY03/13 Results
In cumulative Q3, consolidated sales were 55.5 billion yen (-1.8% YoY), operating profit was 14.9 billion
yen (+4.2% YoY), recurring profit was 14.7 billion yen (+4.5% YoY), and net income was 9.3 billion yen
(-18.4% YoY). The company maintained its full-year forecasts. The cumulative Q3 sales and operating
profit were 76.2% and 77.9% of full-year estimates, respectively.
For the period, the Overseas business had sales of 28.6 billion yen (-2.7% YoY) and operating profit of
13.5 billion yen (+1.5% YoY). The Domestic business posted sales of 37.4 billion yen (-0.9% YoY) and
operating profit of 1.3 billion yen (+41.9% YoY).
The Domestic Licensing business saw sales of 7.4 billion yen (-9.3% YoY) and OP of 5.2 billion yen (-5.4%
YoY). Sales in the Domestic Product Sales sub-segment were 15.8 billion yen (-1.9% YoY), and OP was
1.4 billion yen (+15.2% YoY). Theme Parks business sales were 4.7 billion yen (-0.6% YoY), and
operating loss was 200 million yen (200 million yen loss a year earlier). The double-digit OP growth in
Domestic Product Sales was due to lower purchase costs on the back of Sanrio increasing direct sourcing
from overseas suppliers. Domestic Licensing performance appeared weak, and the company commented
that it was due to stagnant apparel sales on the back of weak consumer spending and the absence of
major collaborative products. General and administrative expenses associated with the Domestic business
were 5.6 billion yen (6.0 billion yen a year earlier).
subsidiaries. Sales in Europe were 9.9 billion yen (-27.9% YoY), and OP was 5.3 billion yen (-28.0% YoY)
due to the strong yen and economic slowdown caused by debt crises in European countries. Results in
Italy, Spain, and France (where Sanrio’s focus is in Europe) were weaker YoY. On the other hand, results
in the U.K. were better YoY with the company posting sales of about 300 million yen in connection with Mr.
Men and Little Miss Sunshine, the characters that it purchased in 2011, though it broke even on an OP
level. For these characters, Sanrio began considering changing sales agents, which slowed down related
business development. SR Inc. estimates, however, that business activities related to the characters
should accelerate from FY03/14 and beyond. The company performance in Eastern Europe, the Middle
East, and Russia was strong as it strengthened local sales functions.
store (GMS) chains (i.e., wider regions, broader merchandise portfolio), resulting in regional sales of 9.7
billion yen (+28.3% YoY) and OP of 5.2 billion yen (+48.3% YoY). On a local-currency basis, royalties
increased 40% YoY in the January-September 2012 period. In this region, girls’ apparel, accessories, and
toys, as well as electric appliances, expanded sales. In Latin America, the company’s performance was
growing particularly in Argentina, Chile, and Columbia, where the company held live Hello Kitty shows for
better brand recognition, and the transfer of results in Mexico (previously included in N. American
performance) to those in Latin America led to regional sales of 1.4 billion yen (+26.2% YoY) and OP of
700 million yen (+53.3% YoY).
Sale in Asia were 7.1 billion yen (+4.8% YoY), and OP was 2.2 billion yen (+14.8% YoY). Hong Kong
showed steady growth of licensee numbers, and in China the February 2012 signing of a master license
contract with the KTL Company (part of the Hong Kong-based Li & Fung Group) contributed to strong
results in Asia. With an eye to developing business in Indonesia, Sanrio was strengthening local sales
functions.
Because Sanrio used the average forex rates over the January-September 2012 period (e.g.,
USD=JPY79.08; EUR=JPY101.77), the impact of yen weakness from mid-November 2012 on the
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cumulative Q3 results was limited. The company said that based on its FY03/12 results it would expect a
one yen swing in forex rates to cause about a 100 million yen change in OP for full-year FY03/13. SR Inc.
accordingly estimates that yen weakness (USD=JPY95+ as of March 2013) could begin really benefiting
Sanrio from FY03/14. Sanrio raised its year-end dividend projection to 25 yen per share (previous
projection: 20 yen) for an annual dividend of 45 yen per share (previously 40 yen).
Q2 (1H) FY03/13 Results
Consolidated 1H sales were 34.1 billion yen (-0.6% YoY), operating profit was 8.5 billion yen (+2.3%
YoY), recurring profit was 8.9 billion yen (+12.7% YoY), and net income was 5.6 billion yen (+0.5% YoY).
Sales fell slightly short of company estimate (34.6 billion yen). However, lower-than-expected SG&A
expenses meant operating profit coming in 3.6% higher than estimate (8.2 billion yen); RP 16.1% above
estimate (7.7 billion yen); and net income 5.5% above estimate (5.3 billion yen).
Revised FY03/13 Forecasts
(Million Yen)
Revised forecast
Previous forecast
Revised / previous
Year earlier period
Revised / year earlier
Sales
Operating Profit
Recurring Profit
Net Income
EPS
72,900
74,700
-2.4%
74,954
-2.7%
19,100
19,100
0.0%
18,906
1.0%
19,600
18,200
7.7%
18,368
6.7%
12,400
12,200
1.6%
14,378
-13.8%
140.66
137.88
2.0%
162.56
-13.5%
Revised full-year FY03/13 forecasts call for sales of 72.9 billion yen (-2.4% vs. previous forecast),
operating profit of 19.1 billion yen (unchanged), RP of 19.6 billion yen (+7.7% vs. previous forecast), and
net income of 12.4 billion yen (+1.6% vs. previous forecast). By segment, in 1H FY03/13, sales in the
Overseas business were 17.7 billion yen (-2.2% YoY), and operating profit was 8.3 billion yen (+0.8%
YoY). Sales in the Domestic business were 22.8 billion yen (-0.6% YoY), and operating profit was 100
million yen (2.8x YoY). The Domestic Licensing business saw sales of 4.7 billion yen (-6.2% YoY), and
operating profit of 3.3 billion yen (-1.8% YoY). Sales in the Domestic Product Sales sub-segment were 9.4
billion yen (-2.9% YoY), and operating profit was 600 million yen (+23.3% YoY). Theme Parks business
sales were 3.3 billion yen (-2.9% YoY), and operating loss was 100 million yen (unchanged YoY). General
and administrative expenses associated with the Domestic business were 3.8 billion yen (3.8 billion yen in
1H FY03/12).
subsidiaries. Sales in Europe were 6.3 billion yen (-28.4% YoY), and operating profit was 3.4 billion yen
(-28.7% YoY; 4.5 billion yen estimate) due to the strong yen and economic slowdown caused by debt
crises in European countries. Results in Italy and Spain (where Sanrio’s focus is in Europe) were weaker
YoY. In contrast, in the UK, performance was better YoY, and the company posted sales of about 100
million yen in connection with Mr. Men and Little Miss Sunshine, the characters that it purchased in 2011,
though it broke even on an operating profit level. In North America, the company expanded operations
targeting major general merchandise store (GMS) chains (i.e., wider regions, broader merchandise
portfolio), resulting in regional sales of 6.1 billion yen (+38.6% YoY) and operating profit of 3.1 billion yen
(+62.8% YoY; 2.0 billion yen estimate). In Latin America, the company’s performance was growing
particularly in Argentina, Chile, and Columbia, and the transfer of results in Mexico (previously included in
N. American performance) to those in Latin America led to regional sales of 900 million yen (+21.8% YoY)
and operating profit of 400 million yen (+51.1% YoY; in line with estimate). Sale in Asia were 4.2 billion
yen (+2.9% YoY), and operating profit was 1.3 billion yen (+7.6% YoY; in line with estimate). Hong Kong
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showed steady growth of licensee numbers, and in China the February 2012 signing of a master license
contract with the KTL Company (part of the Hong Kong-based Li & Fung Group) contributed to strong
results in Asia. To sum up overseas results, strong performance in N. America made up for weakness in
Europe.
Q1 FY03/13 Results
Consolidated sales were 16.9 billion yen (+3.2% YoY), operating profit was 4.1 billion yen (+3.5% YoY),
recurring profit was 4.3 billion yen (+11.1% YoY), and net income was 2.9 billion yen (+1.7% YoY). The
company maintained its 1H and full-year FY03/13 forecasts. Q1 sales were 48.7% of 1H forecast (47.7%
in Q1 FY03/12), and Q1 operating profit was 49.9% of 1H forecast (47.8% in Q1 FY03/12). By segment,
sales in the Overseas business were 8.6 billion yen (-0.6% YoY), operating profit was 4.0 billion yen
(+2.7% YoY). Sales in the Domestic business were 11.3 billion yen (+3.4% YoY), and operating profit
was 36 million yen (7.2 times higher YoY).
The Domestic Licensing business saw sales of 8.6 billion yen (-0.6% YoY), and operating profit of 1.6
billion yen (+4.6% YoY). Sales in the Domestic Product Sales sub-segment were 4.6 billion yen (-2.2%
YoY), and operating profit was 300 million yen (+8.3% YoY). Theme Parks business sales were 1.3 billion
yen (+4.7% YoY), and operating loss was 200 million yen (unchanged YoY). General and administrative
expenses associated with the Domestic business were 2.0 billion yen (1.8 billion yen in Q1 FY03/12).
subsidiaries. Sales in Europe were 3.2 billion yen (-25.3% YoY), and operating profit was 1.7 billion yen
(-25.1% YoY) due to the strong yen and economic slowdown caused by debt crises in European countries.
store (GMS) chains (i.e., wider regions, broader merchandise portfolio), resulting in regional sales of 2.9
billion yen (+50.1% YoY) and operating profit of 1.5 billion yen (+74.5% YoY). In Latin America, the
company’s performance was growing particularly in Chile and Argentina, leading to regional sales of 400
million yen (+5.6% YoY) and operating profit of 200 million yen (+65.2% YoY). Sale in Asia were 1.9
billion yen (-5.5% YoY), and operating profit was 600 million yen (-2.4% YoY). Hong Kong showed steady
growth of licensee numbers, and lower export costs and expanded licensing resulted in operating profit in
Hong Kong of 200 million yen (+17.2% YoY). Operating profit in Taiwan was 100 million yen (+26.5%
YoY) thanks to continued promotional events targeting convenience stores and a sharp increase in
stationery-related licensing. Sales in China were 300 million yen (-3.9% YoY). The February 2012 signing
of a master license contract with the KTL Company (part of the Hong Kong-based Li & Fung Group) led to
the deduction of fixed commissions from royalty income (including existing licensees). However,
operating profit in China remained flat YoY, at 100 million yen (+0.7%).
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Income Statement
Income Statement
(million yen)
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
FY03/09
Cons.
69,767
-25.7%
32,079
37,688
-4.0%
54.0%
25
FY03/10
Cons.
73,875
5.9%
33,127
40,747
8.1%
55.2%
13
37,663
31,088
44.6%
6,575
-0.6%
9.4%
811
1,431
5,954
13.1%
8.5%
16
3,476
3,978
159.5%
11
-1,495
-2.1%
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%
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%
FY03/14
Est.
77,000
3.7%
22,100
9.4%
28.7%
21,100
7.4%
27.4%
13,500
7.7%
17.5%
Source: Company data, SR Inc.; figures may differ from company materials due to differences in rounding methods
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
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Equity Capital
As discussed in the income statement section, Sanrio incurred substantial losses due to equity
investments made during the period of economic bubble in the late 1980s. As a result of this and
deteriorating business performance amid weak Japanese economy, the company found itself in financial
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%
52.4%
41.7%
37.1%
36.8%
35.5%
27.2%
30%
34.9%
33.9%
24.4%
27.0%
20%
10%
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%
20.3%
21.8%
11.1%
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%
15.0%
11.8%
30.9%
29.2%
23.2%
3.2%
0%
-5.0%
-20%
-40%
-60%
-67.1%
-80%
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, 2013
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
Amount
Held
13.90%
10.80%
7.60%
4.40%
4.30%
3.40%
3.20%
2.10%
2.00%
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.
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News & Topics
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.
October 2012
On October 30, 2012, the company revised its 1H and full-year FY03/13 forecasts.
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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 2013, the Sanrio Group had 3,884 employees, of whom 1,284 were full-time employees, and
2,600 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 SR Inc. 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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Sanrio Co., Ltd. (8136)

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