General Outline

Financial Results (Kessan Report) for 2nd Quarter of FY2011

In the first six months ended September 30, 2011, Japan's production activities were returning to normal because of a rapid recovery of the supply network. In this way and others, economic activities in Japan have followed a trend of gradual recovery. Nevertheless, the outlook for the economy is clouded by uncertainty, with one of the concerns being the strong yen, which sharply appreciated in the second half of the period.

Under this business environment, the SATO Group worked to improve productivity, reduce manufacturing costs and find savings in various business expenses. Aiming to expand sales in our overseas business, we are also fortifying efforts to achieve business expansion such as by providing stronger support from Japan to accelerate the globalization of our operation.

As a result of these activities, during the first six months, the SATO Group recorded an increase in net sales, up 1.7% from the same period of the previous fiscal year to ¥39,279 million and an increase in operating income, up 2.5% to ¥1,864 million. Ordinary income decreased by 20.1% to ¥1,290 million and foreign exchange losses were ¥572 million. Net income increased by 0.5% to ¥697 million.

Through our industry-centered business unit structure, we continued to proactively offer proposals that accurately met consumer needs. During the first six months, the impact from the earthquake remained but we were able to maintain sales of supply products at a level equivalent to that of the same period of the previous year. Looking ahead, we expect to make a full recovery as corporate production activities return to normal. Sales of mechatronic products were positive with electronic printers showing notable recovery particularly in the manufacturing industry owing to business expansion in growth markets and energetic proposals of new applications for our products. In addition, we received an increase in inquiries concerning new technology proposals for auto-identification. Through such proposals for new applications, we expect to achieve new market development for the future. As a result of these efforts, net sales rose 2.1% to ¥29,985 million while operating income rose 6.6% to ¥1,697 million, compared to the same period of the previous fiscal year.

b) Americas

Inquiries from OEMs are steadily expanding. In addition, inquiries for markdown control systems for large retailers as well as consumables expiry date management systems for food products are also in progress. Based on this, we expect sales to expand in the future. Also, in addition to bolstering sales activities to boost the sales of our apparel tag printing service bureau, we continued our business expansion in Central and South America. While last year our focus was on Argentina, this year we worked to expand our business locations in Brazil such as through the acquisition of EUROPEN DO BRASIL LTDA. as a subsidiary. As a result of these efforts, net sales fell 5.3% to ¥3,000 million (a rise of 5.6%, however, excluding foreign currency effects) and operating income fell 8.3% to ¥66 million, compared to the same period of the previous fiscal year.

c) Europe

A new label factory in Poland is now in full operation, and we have established a system that enables supply products to be produced and supplied at a low cost to Germany and the Benelux region. Following this, the manufacturing subsidiary in Germany went into liquidation and this, together with other measures, marked the end of the structural reform measures that we have undertaken in order to strengthen our earnings base. We began to see a clear path towards profitability from the third quarter onwards for overall European operations. As for activities affecting sales, while there was brisk activity with respect to inquiries for markdown systems, we prepared to cultivate new sales channels by enhancing our distributor network and promoting business cooperation with system dealers. As a result of these efforts, net sales fell 0.8% to ¥3,043 million (a rise of 0.5%, however, excluding foreign currency effects), and there was an operating loss of ¥121 million, compared with an operating loss of ¥104 million in the same period of the previous fiscal year.

d) Asia and Oceania

In the Asia region, despite the earthquake's impact causing a temporary lull in orders from Japanese-owned companies in Asia and a weakening of growth in the first half of the current period, this lull in orders recovered in the second half of the period, and earnings were lifted by increased demand from sectors such as the manufacturing industry, major transport companies and government projects. In China we capitalized on demands in the growing market such as seizing the demand for rationalization arising from soaring personnel expenses and starting operations of product assembly plants in China to satisfy the demand for "made in China" products. We will continue to further strengthen support from Japan.
In the Oceania region, in addition to strong sales to the dairy produce and meat processing sectors, inquiries concerning multiple large contracts for products to be used in the healthcare sector are progressing. As a result of these efforts, net sales rose 8.0% to ¥3,250 million (a rise of 9.1%, however, excluding foreign currency effects), and operating income rose 7.1% to ¥224 million, compared to the same period of the previous fiscal year.

By product, the SATO Group reported the following:
a) Net sales of mechatronic products increased by 3.9% to ¥15,013 million compared to the same period of the previous fiscal year.
b) Net sales of supply products increased by 0.4% to ¥24,266 million compared to the same period of the previous fiscal year.