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CFA Institute Research Challenge

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Tokyo Institute of Technology

[Tokyo Inst. of Technology] Student Research This report is published for educational purposes only by

students competing in the CFA Institute Research

Challenge.

Important disclosures appear at the back of this report

Ticker: TSE: 8136 (Japan) Recommendation: SELL

Price: ￥ 6,030 (as of 9/30/2013) Price Target: ￥ 4,998

Exchange: 98.87JPY/USD

Earnings/Share

(EPS)

Mar. Jun. Sept. Dec. Year P/E Ratio

2010A ￥13.00 ￥17.46 ￥42.83 ￥31.47 ￥104.76 23.5

2011A 32.09 30.79 65.29 34.39 162.56 19.9

2012A 32.96 30.38 41.55 37.22 142.09 29.5

2013E 29.90 30.56 59.15 41.51 161.12 37.4

Highlights

Sanrio is a company of character business which runs mainly product sales, licensing business and theme

park business. Sanrio is popular to own famous character, Hello Kitty and My Melody and so on

(Exhibit5).

・Overestimated price compared to fundamentals even adopting bullish estimate :

Target price based on DCF is 4,998 JPY, 17% downside from the current price. We adopt bullish EPS

estimate of 161.12 JPY in FY03/13 compared to the Sanrio’s guidance of 150.87 JPY, and predict

Sanrio’s operating profit will be 23.7 billion JPY in FY03/14, 30 billion JPY in FY03/16, and will reach to

40 billion JPY in FY03/21 as Sanrio increases revenue from character licensing.

However, we believe that current price, which is more than double of 2,754 JPY as of January 2013, has

already reflected above scenarios. Besides, the market has become overly optimistic, due to the

expectation of Sanrio’s theme park business becoming profitable for the first time and x-date interim

dividend was in the end of September, followed by the exciting news in September that Tokyo will host

Olympic games in 2020.

・Gradual expansion of sales and profit by licensing business:

Sanrio’s value driver is the character licensing ,especially in overseas segment . Revenues from licensing

will continue to increase with growth of the number of licensee although sales per license will remain

largely unchanged. For the next ten years, Sanrio will expand its licensing deals to 3,600 in FY2022 from

2,700 as of FY2012. Total sales of Sanrio will gradually increases 110 billion JPY FY2022 in 3.9% CAGR,

OP margin will be 44 billion JPY FY2022 in 6.6% CAGR.

・High profitability and cash pile: Sanrio has been improving its profitability by expanding licensing

business. The current ROE is 32.1%, which is about two times higher than its competitors. Sanrio will

accumulate cash as the licensing business grows, which will lead to deterioration of capital efficiency,

since licensing does not require much additional expenditures. Consequently, current ROE will not be

sustained unless allocating ample cash for appropriate investment opportunities such as acquisitions, or

distributing the excessive cash to shareholders.

Sanrio Co. Ltd.

Date September 30th, 2013

[Tokyo Inst. of Technology]

[Wholesale Industry]

52 Week Price Range (JPY) 2,301-6270

Average Daily Volume 556,900

Beta 0.753

Dividend Yield (Estimated) 1.00%

Shares Outstanding 89,065,301

Market Capitalization (million JPY) 537,063

Institutional Holdings 29%

Insider Holdings 4%

Book Value per Share ¥533.33

Debt to Total Capital 49.9%

Return on Equity 32.1%

Market Profile

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80Volume (Millions) Price (JPY)

サンリオ 8136 TOPIX (Indexed to 8136)

Sanrio (8136)

TOPIX

CFA Institute Research Challenge Date

2

Business Description

Sanrio is a character business company. Sanrio has designed more than 400 characters including the world

famous “Hello Kitty” (Exhibit5). Sanrio has expanded character business by owning character copyright.

The company was established by Mr. Shintaro Tsuji, the President and CEO of Sanrio, in 1960 with the

concept of “Small Gift Big Smile” which means that small gift makes people happy. Sanrio established the

subsidiary in US in 1974, and in Germany in 1980, and has expanded overseas business. In fact, overseas

sales constitutes around 45% of consolidated total sales.

Main businesses are character licensing (In Japan and overseas), product sales (In Japan and overseas),

theme park (In Japan) and others (rental robots, making movies and so on). Profitability has become higher

by having shifted business model, from product sales to licensing business mainly in Europe and in America.

This has been led by Mr. Rehito Hatoyama, ex-Mitsubishi Corp. since 2008, and he has responsibility for

strategy for overseas business. As a result in FY03/13, the consolidated operating profit reached 20.1 billion

JPY (+6.8% YoY). It was historical record.(Figure 1)

Licensing business (In Japan and Overseas): Character copyright licensing is the profit driver of Sanrio,

and its royalties constituted 42% (31 billion JPY, Figure2) of consolidated total sales in FY03/13. Sanrio

licenses its character copyright to 2699 companies which mainly are in apparels (Exhibit7). The operating

profit margin is very high because Sanrio doesn’t bear costs for redesigning, producing and selling. Licensee

pays these costs. And Sanrio allows licensee to redesign their character almost freely. For this reason,

Sanrio can license multiple companies in the same industrial category. Therefore Sanrio’s potential market size is unlimited in theory. In overseas, because the subsidiaries of Sanrio have master license, they can

license the copyright of Sanrio characters to local companies. This makes character’s design suitable for the

area rapidly. For this reason, sales is growing. The growth of royalties in overseas is remarkable. Especially

in North-America, Asia and South-America, total sales grows over 30% YoY. Although debt crisis in

Europe and not good economy in Japan, total sales remains high (Figure3) . Sanrio has contract with many

companies, for example with ZARA (INDITEX Group) and H&M (They are the top2 in apparels) in Europe,

with Walmart in America, with KT Company and KT Shanghai Company (they are one of Li&Fung Group

which is big trading company in Hong Kong).

Product sales (In Japan and Overseas): Product sales constitutes 64% of total sales in Japan (21.2 billion

JPY), and in Japan, there are 209 Sanrio shops, including a department store, and 929 wholesale shops. In

overseas, Sanrio discontinued to operate a directly managed store but spread shops through the local agency.

From now licensing is main business of Sanrio. In Japan and Asia, after closes down unprofitable stores and

cuts costs, shops will be selectively operated to increase awareness of their characters.

Theme park (In Japan): Sanrio operates the Sanrio Puroland (Suburb near Tokyo) and the Harmonyland

(Oita-prefecture). In FY03/13, total theme park sales was 5.3 billion JPY (-0.6% YoY) and operating loss

was 0.5 billion JPY (+13 million JPY YoY). Theme park business has been making losses, but operating

loss has become smaller by reducing costs while the number of visitors and per-visitor spending decreases.

Sanrio business model is shown in Figure4.

Figure 1

consolidated sales, OP, OPM

Figure 2

Sales breakdown by business

Source: the security report


Figure 3 Licensing sales in

each region (bn JPY)


Figure 4 Business model

Source: company documents


3

Industry Overview & Competitive Positioning

Industry Overview

・Environment of market will be severe.

Due to economic slump and decline of birthrate in Japan, the retail market size of character products is

scaling down from 2000s (Figure5). In overseas market, there have already been many popular local and

global characters (ex: Mickey Mouse, The Walt Disney Co.; NYSE: DIS). Additionally because existing

contents from Japan and others are going to entry overseas character market in earnest, the competition

among characters becomes more severe.

Difference between Sanrio and competitors is taking media-mix strategy which promote their characters

by TV animation, books, movies, Internet media and try to diversify and maxim of revenues. It is said that

media-mix strategy is essential to create new popular characters. However, Sanrio don’t have strength of these strategies.

SWOT Analysis (Figure 6)

Sanrio’s operating profit is mainly from licensing business. But, product sales and theme park business is

closely connected to licensing. By owning these business, Sanrio can provide pleasure of customers by

playing with characters, research trend by directly contact with customers and to induce customers to buy

licensing products. So we think these businesses are combined, therefore we don’t do SWOT and 5 Force

analysis of every business but “Sanrio” which includes all Sanrio businesses.

Strength

・“Hello Kitty”, stable income resource (Exhibit9): “Hello Kitty”is a character popular enough to take the top spot in the character ranking not only in Japan but also in overseas. Hello Kitty is very popular

especially among Japanese women irrespective of age. There are only few characters which are popular

among that age range. Therefore, “Hello Kitty” is stable income resource.

・Highly flexible redesign of Sanrio’s character : Most of character’s license contracts have strict

condition about design and usages. Licensee cannot redesign the portrayal of original based on their

promotion strategies, and licenser can contract only one licensee in one product category. Because most of

licensers don’t own copyrights of their characters (generally characters from animation). And even they own it, licensers necessarily prioritize protection of characters as long business image down of them directly

decreases revenues of licensing.

However, because Sanrio has copyright of its characters and many characters of flexible design. Sanrio

allows licensees to arrange based on their promotion images and contracts multi licenses in one product

categories. By this unique contract, they have the merit to redesign “Hello Kitty” to be suitable for their product and differentiate other products, and Sanrio can gain more revenues from licensing and has merit to

keep off staleness for “Hello Kitty” by spreading its various design. In fact, Sanrio can collaborate with

multiple companies in the same product category such as H&M and ZARA. Therefore, Sanrio’s potential market size is bigger than competitors, This unique licensing contract have been a basis of expansion of

oversea business.

・Localization of licensing: When Sanrio shifted to focus on licensing its characters rather than making

products in 2008, the company accelerated localization of licensing business in oversea segment and,

especially in China contracted a master license to a subsidiary. By this localization, Sanrio can make a

licensing contract with more local companies. And this enables licensing business not only to expand entire

licensing business rapidly (Figure7), but also to fit licensing business to local trend or cultures easily and

reduce the risk to break a local taboo.

・Diversified “Regional portfolio”: Sanrio is in Japan, and subsidiaries are in Europe, North-America,

Asia and South-America. Therefore, Sanrio runs licensing business and product sales around the world.

Thanks to this “Regional portfolio”, there is a possibility that when the total sales and operating profit decreases in an area, the profit in other area increases more than offsetting. Actually in FY03/13, because

economy was not good in Europe, the total sales and operating profit decreased there, but operating profit in

other areas covered its weakness. As a result, the consolidated operating profit reached 20.1 billion JPY in

FY03/13.

・Has enough cash for investment: Licensing doesn’t require large capital investment, and Sanrio closed

down unprofitable retail stores. For these reasons, the operating profit margin has expanded. As a result,

Sanrio has been able to run their business with net cash since FY03/13, therefore the company can afford to

invest.

Figure 5

Retail market size of

character products (bn JPY)

Source: CharaBiz DATA 2011

CharaBiz DATA 2013

Figure 6 SWOT analysis


4

Weakness

Currently “Hello Kitty” sales constitutes 60% of licensing sales in Japan, and 90% of licensing sales in

overseas. High dependence on one character “Hello Kitty” is working well so far. However, this could be a

weakness in the future, we think.

・Theme park is unprofitable: Sanrio theme park business has been making losses since it started. As

stated earlier, the purpose of theme park is not only for profit, but it has dragged down Sanrio’s profitability.

・Low profitability of retail stores in Japan still remain: Sanrio closed down 40 unprofitable stores in

Japan in FY03/12, but still the profitability of Japan’s product sales remains low in FY03/13.

Opportunity

・The 40th anniversary of “Hello Kitty”: It will be 40 years from birth of Hello Kitty in 2014 and this

will possibly increase product sales. Because when the 35th anniversary in 2009, the total sales of existing

stores increased +2.0% YoY due to the special anniversary products in spite of Lehman shock.

・growth of overseas licensing: Sales per licensee and the number of licensee in South-America and Asia

have been lower than these in Europe, Japan and North-America (Figure5,7) because Sanrio is developing in

South-America and Asia. Therefore, we expect more development of overseas business especially in these

areas, using licensing business model which succeeded in Europe and North-America.

・expansion of licensing business by character acquisition (Exhibit10): Sanrio can make new character

acquisition from other companies because of enough available cash (e.g. Mr.men and Little Miss,2011). In

the future, we expect that more character acquisition will make Sanrio character portfolio stronger, and

tailwind will blow for licensing expansion.

Threat

・Risk to damage brand image: There is possibility that a character redesigning of one licensee damages

the consumer image of that character, because licensee can redesign flexibly. If redesigns damaged a

character’s image, it diminishes sales of the character which have bad influences Sanrio performance. But

presently this is small threat because Sanrio has rigorous process to allow for redesigned character by

licensee. But there was opposition to one design of Hello Kitty in 2013 (Exhibit 11). And the more the

number of licensee increases, the more approval cost and risk Sanrio takes.

・Possibility that theme park become unprofitable again (Exhibit12): Sanrio renewed the Puroland

using 1.5 billion JPY in July, 2013. Sanrio expects theme park becomes profitable in first time since opening

because the number of visitor from overseas increases. But if the situation worsens, it will decrease and

theme park will become unprofitable again.

・Decline of sales by characters’ overexposure (Exhibit13): Hello Kitty becomes more popular in

overseas. But overexposure cause staleness for the character and there is possibility that the total sales

decreases greatly as a result. The total sales in 1999 in Japan during the boom of Hello Kitty reached 150

billion JPY, but the total sales in 2007 decreased to 96 billion JPY. Although the company control

characters’ exposure to avoid unsustainable excessive popularity. If the popularity of Hello Kitty becomes

too high, total sales may decrease after instant boom.

We decide not to do 5 forces analysis for licensing business. Because Sanrio has unique licensing business

model which allows licensee to redesign its character and contracts multiple licensee in the same product

category, there are no matching competitors. Additionally, there are no suppliers. We think 5 forces analysis

is not real applicable.

Investment Summary

The reason why our recommendation is SELL

Good sales and profit forecast

Price target based on DCF method is 4,998 JPY with 17% downside from the current price. Implication of

two multiple analysis compared to competitors or more profitable companies than Sanrio also shows that

4,998 JPY is reasonable. Expanding licensing business especially in overseas has been improving Sanrio’s performance in overseas segment. Walmart which is bulk retailer in US and Li&Fung Group which has

master license in China are main licensees for example.

We expect sales of licensing business will continue to increase because of superiority of Sanrio’s “highly flexible” licensing contract with increasing in the number of licensee. Because Sanrio is strategically expanding their business into one region after another and currently developing market of Asia and South

America regions.(Exhibit 14)

Figure 7

number of licensees each region


Figure 8

Performance of Sanrio’s price (JPY)

Source: Yahoo! Japan finance


5

For the next 10 years, Sanrio will increase total licensees to 3,600 in FY03/23 from 2,700 as of FY03/13. In

FY03/23, Sanrio’s total sales will reach 110 billion JPY with 3.9% CAGR, its operating profit will reach 44

billion JPY FY03/23 with 8.1% CAGR.

In fact, these good perspectives have already reflected into Sanrio’s stock price. Because it rose from 2,754 JPY as of January in 2013 and was around 5,000 JPY from May to August in

2013.

Overestimated price compared to fundamentals:

However, current price at the end of September is overestimated compared to fundamentals due to

following three exciting news. (1) Sanrio’s theme park is likely to become profitable for the first time since its opening. (2)Tokyo will host the Olympic Games in 2020. (3) X-date of interim dividend was September

30th, FY 03/14.(Exhibit 15)

As a result, Sanrio’s stock price jumped up by 20% from 5,070 JPY through September, FY03/14. We analyzed these positive news consequently caused price rising overly. Because profit contribution of Tokyo

Olympic and improvement of Theme park business is small compared with rich cash from licensing

business. Therefore we concluded market was overly optimistic in September and our recommendation is

“SELL”.

Financial Analysis

Capital efficiency will be diminishing

Since FY03/13, Sanrio has been running its business with net cash. Besides, licensing business does not

require much additional expenditures.

Therefore, the cash pile will increase significantly in the next 10 years to the amount that Sanrio can

conduct large character acquisitions or M&As without externally obtaining fund from the market.

Sanrio’s ROE which is superior to the competitors will decrease from 25% in FY03/14 to 14% in FY03/23 with our estimates.

Currently, ROE is more than double of competitors’ average, which is the strong advantage of Sanrio. However, Sanrio’s cash pile which increase faster than investment will cause gradual decline of ROE.

Therefore, Sanrio will necessarily face capital inefficiency.

Unclear capital discipline:

When we look at the corporate strategy of Sanrio and consider the difference about strategy between

management teams, we can’t have good expectations for efficient capital discipline.

The usage of investment such as M&A is vague even though Sanrio purposed to more development of

business and a worldwide character company.

Therefore, the strategy of allocating capital is the key to maintain good profitability.

Valuation

We valued Sanrio using a DCF method. The price target is 4998JPY.

We calculate the price target as follows. Further, we divide sales into each region in order to take into

account each circumstance:

1st we estimated sales by March 2023 region by region (Europe, North-America, South-America, Asia and

Japan) . We calculated ratios of licensing sales to total sales in each region and OPM from ratios.

2nd we estimated consolidated balance sheets, consolidated income statements & consolidated state of cash

flows.

3rd we calculated invested capital, NOPLAT, FCF, present value by divisor of WACC and price target.

The way we forecasted sales is follows:

Licensing sales = sales per licensee * the number of licensees

Product sales = calculated in each region

Further, in addition to main scenario, we also estimated BULL& BEAR scenario. However, we were

confident of Main scenario because Sanrio has strong business model and there are little risk to change our

estimates.

Europe (Exhibit16)

Sales per licensee: According to fiscal statements, European Debt Crisis touch the bottom and in fact, next

year it will be considered to be end. Therefore, this fiscal year is 85 thousand EUR, calculated from -25%


6

(YonY) which is compound annual growth rate of recent 3years. Since fiscal 2014, we assumed that sales

per licensee would not be less than 85thousand EUR in 2013. Because each contract has minimum

guarantee. In addition, because majority of licensees are still general apparel and retailer, we assumed that it

would grow with nominal GDP growth rate.(Figure )

The number of licensees: Because of room of increasing contracts with promotion category, we assumed

that it would continue to grow by 146 per year as same pace as recent 5years since shifted to licensing

business. However, Sanrio will control character exposure to avoid instant boom that it has experienced in

the past. The point to control exposure is that total sales would approach 1200million EUR referring to

1280million EUR in 2010 which was assumed to be over exposure. Therefore, the company will decrease

new contracts. Additionally, in terms of licensees, some of them will perceive the tiredness of character in

the market and some contracts with existing licensees will be broken, therefore net growth of the number of

licensees will be constantly 1269licensees.

Currency rate: Though the company estimated this year rate would be 120JPY/EUR, this rate is much

different from present rate. Therefore, we would use 131.02JPY/EUR, averaged for recent 3 months.

Product sales: Because Sanrio has finished closing unprofitable stores, it will constantly sales 2million EUR

every year.

North-America(Exhibit16)

Sales per licensee: sales per licensees grew rapidly in 2011, because of contracts with Walmart. According

to Sanrio, there are no companies more than Walmart and it focuses on creating character portfolio and

expand the product categories. Therefore, we assumed that the company wouldn’t license to bulk companies.

From that reason, sales per licensees would decline with following calculation method.

Sales per licensee = 0.29*252+0.24*(the number of licensees - 252)

Sales per licensee of 252 licensees in 2011 including Walmart and its suppliers is 0.29 million USD. Sales

per licensee after 2011 is 0.24million USD, which is standard before contracts with Walmart.

The number of licensees: Like Europe, it will continue to grow 49 per year as same pace as recent 5years

and SanrioH will control exposure in 2015.The point to control exposure is that total sales will approach

1600million USD converted 1200million EUR, because economic scale of North-America is similar to that

of Europe. Since 2015, the number of licensees will be constantly 512licensees every year.

Currency rate: Though Sanrio estimated this year rate would be 93JPY/USD, this rate is much different

from present rate. Therefore, we would use 98.87JPY/USD, averaged for recent 3 months.

Product sales: Because Sanrio have finished closing unprofitable stores, it will constantly sale 22million

USD every year.

Asian countries (Exhibit17)

Sales per licensee & the number of licensees: In Asian countries, because the markets was undeveloped by

Sanrio and expected to develop smoothly, income and product categories which Sanrio can contracts with

would increase. Therefore we assumed that sales per licensee & the number of licensees would increase.

We calculated growth of them for resent 4 years and we assumed that they would continue to grow with

these growth rate for 10 years. As for Korea, because the number of licensees was not disclosed, sales for

Korea would grow as same pace as growth rate of sales for Taiwan, whose per capital GDP is similar to that

of Korea.

Unlike Europe & North-America, sales for Asia largely included internal transaction and was not disclosed

without internal transaction in fiscal statements. Therefore we estimated rate of external transaction.

Rate of external transaction: we estimated rate of external transaction in Asia from2009 to 2012. Comparing

sales from fiscal statements and that from security reports, rates of external transaction from 2009 to 2012

was constantly around 90%. Therefore, since 2013 we assumed that the rate of external transaction would

be 90% every year.

Currency rate: rate estimated by company for 2013 is much different from present rate. Therefore, we

would use rate for recent 3 months.

Product sales: According to analyst meeting, Sanrio focuses on licensing business. Therefore, there are

restriction of strategy & talent and Sanrio will not increase product sales rapidly. We assumed that by 10

years, product sales would be constant value which Sanrio would estimate for product sales in 2013.

Figure 9

Product category of licensing

in Europe



7

South-America(Exhibit18)

Because Sanrio did not disclose the date of South-America for example the number of licensees and

currency rate, we forecast sales by following 2 approach;

Effect of market increasing: Because large part of sales for South-America is licensing sales, we assumed

that sales would depend on licensing market increase. However, it is considered that South-America would

develop rapidly for 10 years, licensing business has been keen competition in Brazil. Therefore, we assumed

that it would be difficult for Sanrio to expand share of the markets and sales for South-America would rely

on only markets growth.

Concentrate on Brazil

Large part of sales come from sales for Brazil in 2012.In addition, because of large population in Brazil,

major of markets of South-America was that of Brazil and we assumed that Sanrio would sales with focus

on Brazil. Therefore sales would depend on licensing sales for Brazil. According to JETRO Brazil contents

industry investment, licensing market of character would increase 8~9% per year by 1972, we assumed that

sales would continue to grow with this rate.

Therefore, we assumed that sales for South-America would come from licensing markets rate in Brazil. we

calculate the growth as 8.5% which come from middle of 8~9% rate of licensing sales in Brazil.

Japan

Licensing sales (Exhibit19) ; Sales = sales per licensee * the number of licensees

Sales per licensee: we assumed that sales per licensee would increase gradually because of collaboration of

end of deflation, 40th & 45th anniversary of Hello Kitty, existing characters growing by expansion of

exposure in Tokyo Olympic 2020 and new character growing.

The number of licensees: We assumed that the number of licensees hit the peak in 2012, because sales

decreased even though it increased by 60 licensees last year. Although Sanrio will start selling product of

Mr. Men, we fixed it on net-based. We took into account that 40th&45th anniversary of Hello Kitty and

Tokyo Olympic and it would increase by 15 licensees.

Product sales (Exhibit20)

We calculated the product sales as follow; product sales = sales per shop * the number of shops. We

assumed that sales per shop would not grow. The number of shops would grow by 5 shops per year for 5

years, and for other 5 years, it would grow by 2 shops. As a result, product sales would increase from 30

billion JPN in 2012 to 31 billion JPY.

Theme Park sales (Exhibit 21)

We calculated it as follow; Theme Park sales = off-site revenues + in-site revenues, in-site revenues = the

number of visitors* average visitors spending. In order to take into consideration about the location, we

forecast visitors of Sanrio Puroland in Tokyo by using date of foreigners and visitors of Harmony Land in

Ooita prefecture by using date of Chinese, Korean, Taiwanese foreigners, because it is close to these

countries. As for average visitors spending, because of renewal, it will increase in 2013. However, after that,

it will decrease gradually to level of 2012 in 2022. Off-site revenues was calculated by the past. As a result,

Theme Park sales would increase from 6.1 billion JPY in 2012to 8.2 billion JPY in 2022.

In addition, according to Sanrio, the company plans acquisition of characters by March 2015. Therefore, we

assumed that the company would purchase by 30 billion JPY and we made B/S based on it. However, we

assumed that effect of acquisitions would not appear for 10 years. Because Mr. Men, which was purchased

in 2011, will begin to sell in spring 2014. Therefore, we assumed that there would be a time lag to sell the

characters(Exhibit 22). Moreover, purpose of acquisitions is not only increasing sales but also diversifying

character portfolio to avoid dependence on Hello Kitty. Therefore we assumed that acquisitions would not

affect sales for theme park.

Regard of operating profit, we calculated OPM as follows;

OPM = ratio of licensing sales to consolidated sales – 15%,

Because sales breakdown was not disclosed and we assumed that the company considered product and

theme park sales as marketing. (Figure 10)

Figure 10

OPM the licensing ratio



8

Sales(million JPY) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23

Europe 10,186 11,094 13,253 15,586 16,281 16,982 17,737 18,261 18,801 19,357 19,930

North America 9,852 13,140 14,303 15,465 15,465 15,465 15,465 15,465 15,465 15,465 15,465

Sauth America 1,409 1,529 1,659 1,800 1,953 2,119 2,299 2,494 2,706 2,936 3,186

Asia 6,108 9,191 9,979 10,834 11,754 12,741 13,793 14,912 16,097 17,347 18,664

Japan 46,676 48,297 49,501 50,129 50,700 51,220 51,654 52,439 60,018 53,381 53,130

Total Sales 74,233 83,251 88,695 93,814 96,153 98,527 100,949 103,571 113,087 108,487 110,375

Licensing Sales 31,846 36,215 41,133 46,020 48,126 50,265 52,545 55,024 57,951 59,650 61,391

Licensing Sales/Total Sales 42.90% 43.50% 46.38% 49.05% 50.05% 51.02% 52.05% 53.13% 51.24% 54.98% 55.62%

OP margin 27.90% 28.50% 31.38% 34.05% 35.05% 36.02% 37.05% 38.13% 36.24% 39.98% 40.62%

Based on above-mentioned sales forecast (Exhibit23), we predicted and made financial statements

(Exhibit24,25,26), and calculated invested capital, NOPLAT and FCF (Exhibit27,28,29). And we calculated

price target by detecting interest-bearing debt from discounted FCF by WACC (Exhibit30,31) and the

present value of terminal value after 2033 (Exhibit32), and dividing it by total stock. Regard of terminal

value, we reduce its effect by making ROIC to converge to the level of WACC because terminal value may

have a big influence on stock price.

The main indexes are as follow. (Exhibit 33,34,35)

Sensitivity analysis of WACC and growth rate(Figure 12)

Performing sensitivity analysis, when growth rate rises 1%,

price target is blurred. But concerning the calculation of

the terminal value, treating growth rate is from 2033, 10

years later after sales forecast period. When we think

about this, it is hard to imagine that the rise in growth rate

occurs. Thus, investment recommendation SELL is

validity.

Multiple Analysis(Exhibit36): Price target is reasonable

In order to confirm consistency of price target, we perform multiple analysis and calculate reasonable range.

We use PBR, PER, PSR based on stock price, and EV/EBIT, EV/EBITDA based on firm value as

magnification index. We selected 4 companies in the similar business as comparison companies whose

business are developed in worldwide and are including character licensing business and product sales.

Mattel(U.S.A), Hasbro(U.S.A), Takara Tomy(Japan), Walt Disney(Global)

As a result of analysis, reasonable range is from 1,411JPY to 2,998JPY. Sanrio’s price target calculated by DCF method doesn’t fit in this range. We think the reason is the difference of profitability.

In order to estimate how much higher profitability of Sanrio will influence its price, we pay attention to

profitability index, ROE and EBIT margin. We carefully selected 13 companies which have ROE more than

20% and EBIT margin more than 25% in Tokyo Stock Exchange as companies which have high

profitability., Reasonable range calculated by these companies is from 5,436JPY to 9,202JPY. Price target

doesn’t fit in this range but current price fits. However these companies’ profitability is better than Sanrio. Thus, fair price should be lower than this range. Therefore price target is reasonable and current price is

overestimated.

ROE ROA EBIT margin PBR PER PSR EV/EBIT EV/EBITDA

sannrio 32.1% 13.8% 27.2% 11.0 42.8 7.2 26.1 24.4

competitors average 12.5% 5.7% 14.3% 4.1 19.2 1.7 13.2 8.5

high prof itability 35.8% 21.9% 40.2% 12.6 41.6 11.0 24.0 23.2

WACC β growth rate

1.38% 2.38% 3.38%

6.221% 0.953 3,803 4,259 5,037

5.732% 0.853 4,021 4,593 5,651

5.243% 0.753 4,263 4,998 6,523

4.754% 0.653 4,538 5,519 7,927

4.264% 0.553 4,859 6,238 10,738

Figure 11 sales in each region

Figure 12 sensitivity analysis

index number calculation method reference

risk free rate 1.581% yield of 20 year government bond in Sept 30, 2013

expected return rate 6.72% annual return rate of the first section of the Tokyo Stick Exchange from 1983 to 2012 Exhibit:33

market risk premium 5.14% expected return rate-risk free rate

β 0.753 historical bata by regression of monthly return rate from Jan, 2009 to Sept, 2013 Exhibit:34

equity cost 5.448% risk free rate+β×market risk premiumdebt cost 1.82% interest expense÷average of interest-bearing debt from 2008 to 2012

tax rate 38.00% from analyst meeting

interest-bearing debt(million JPY) 26,807 from security report in 2012

market capitalization(million JPY) 537,064 the number of shares outstanding in 2012×current price in Sept 30, 2012

WACC 5.243% calculated from the above

permanent growth rate 2.38% expected nominal GDP growth rate in the end of forecast Exhibit:35


9

Risk of deviating price target

Miscalculating WACC, miscalculating terminal value, misread growth rate

Financial Analysis

In performing financial analysis, we selected four companies which have similar business as competitors;

Mattel, Hasbro, Takara Tomy, Walt Disney.

Profitability analysis: Sanrio’s ROE(Figure13) had been less than the competitor’s average until 2009. But it reversed in 2010, and has been more than double of the competitor’s average. Performing DuPont analysis, ROE is mainly correlated with profit margin on sales(Figure14). In 2008, ROE and profit margin were both

negative by the reversal of deferred tax assets. Since 2009, sales has not changed, however, ROE and profit

margin have increased significantly with expansion of licensing business. The income before income tax is

the highest in 2012, however, ROE and profit margin decreased due to the following two reasons. One

reason is the substantial increase in income tax because loss carried forward decreased in tax effect

accounting with the substantial improvement of operating income. Another reason is the increase in

shareholder’s equity as a result of the increase in earnings. We expect that in the future, ROE will necessarily decrease, however, net income will increase with expansion of licensing business.

Asset turnover(Figure15) has been less than the competitor’s average with downward trend. We decomposed assets into the cash and non-cash assets, and compared turnovers(Exhibit36). The non-cash

assets turnover has been the upward trend for 5 years, but the cash turnover has decreased constantly. This

indicates that cash has increased more than sales growth. The financial leverage also has decreased year by

year. To keep high level ROE in the future, the usage of cash and shareholder’s equity will become a key point such as investment, shareholder return and repurchasing.

Cash flow analysis: Investment CF is quite small compared to operating CF(Exhibit36) due to the

characteristic of licensing business which doesn’t require much additional expenditure. Operating CF will increase with expansion of licensing business, while investment CF will not increase significantly. There is a

dilemma that cash will balloon. Sanrio has to use cash efficiently because cash doesn’t generate cash flow. Sanrio can’t avoid increasing in surplus cash even with two M&As in the next 10 years and 30% dividend

payout ratio following Sanrio’s management policy which is stated in the annual report. Like profitability analysis, the usage of cash is a key for Sanrio’s growth in the future such as M&As and shareholder return.

Financial safety: Current ratio(Figure18) and quick ratio(Exhibit36) had been lower than competitors

average until 2011. However its ratios kept condition beyond one, and in 2012 they exceeded the

competitor’s average. Capital adequacy ratio(Figure17) exceeded the competitor’s average in the most recent 2 years by increasing in surplus. Additionally in 2012, Sanrio became debt-free company because

cash exceeded interest-bearing debt. Therefore there is no problem about financial safety.

Performance forecast: In 2022 Sanrio’s total sales will be 110.3 billion JPY(74.2 billion JPY in 2012),and

operating profit will be 44.8 billion JPY(20.1 billion JPY in 2012). We expect Sanrio can get stable profits

from mature market such as Europe and North America; Europe sales will be 19.9 billion JPY and North

America sales will be 15.5 billion JPY. We expect Sales will grow significantly in developing countries such

as Asia and South America; Asia sales will be 18.6 billion JPY and South America sales will be 3.2 billion

JPY. In Japan, sales growth rate is not high. However sales in Japan will be still 50.8 billion JPY which

accounts for half of total sales.

Other Headings

Development of Russia, India and Africa:

Sanrio has expanded overseas market in order, Europe, North America, Asia and South America. Currently,

market of Asia and South America are advancing and Sanrio will develop it. Besides, Russia, India and

Africa can be the next target regions after Asia and South America being developed. In our forecast, effects

on sales of these regions aren’t considered because it’s not at the stage to create subsidiaries presently. But if Sanrio determine and succeed to advance to these regions at a result of Sanrio’s survey in the earlier future than our expectation, it will possibly affect performance of Sanrio.

Economic effect of Olympic:

There is a possibility to increase sales of entire business(product sales, licensee, theme park) in Japan

because it is determined that Olympic is held in Tokyo in 2020, and Olympics possibly increase demand in

Japan and the number of overseas tourists. Of course we considered these effects in our scenario. But if

Figure 13 ROE

Figure 14 Profit margin on sales

Figure 15 asset turnover

Figure 16 financial leverage

Competitor

Sanrio


10

these effects will be much bigger and continue longer than our scenario, it will give positive impacts to

corporate results.

Possibility of M&As of new characters:

A new character, Mr. Men has been added to Sanrio’s character portfolio by the acquisition of Mr. Men in UK in December 2011. Mr. Men hasn’t contributed to sales yet, however, we think Mr. Men may be a Sanrio’s new popular character because it is a popular character originally, particularly in Europe. Sanrio

will try to enrich its character portfolio by creating new characters and M&A at the same time.

Therefore, it is possible to increase sales if Sanrio can acquire new characters and these characters can

fortunately gain much popularity.

Investment Risks

Breaking Image of Hello Kitty: As long as Sanrio depends on Hello Kitty in most of sales volume, There

is the risk of breaking image of Hello Kitty. If related person to Sanrio or Licensees cause scandals, this

will be bad influence to Hello Kitty’s image. However, Sanrio have already recognized this risk, avoid risky licensees and prepared response manual if happening. So, we analyzed this risk is not so big.

Down on Sales after instant boom occur. (Exhibit13): In later 1990s, Hello kitty boom happened in Japan.

After boom happened in Japan, Total sales was decreasing in long run, and operating income was 1/3 of it in

90s. Sanrio have already controlled exposure of popular characters. However, once the characters of Sanrio

boom, especially Hello kitty boom, happens in overseas, total sales will be decreasing after that.

Risk of changing popularity (Exhibit 38):

Popularity of characters are easily changeable. Therefore, if popularity of a character of Sanrio will

suddenly rise up, it will give positive impact to corporate performance. Currently, Sanrio have already

created Jewel Pet as new popular character in recent market of Japan.

But, we believe Sanrio face the difficulty to create new popular characters on its own. Since Environment

of both Japan and overseas market is heavier than past Because of increasing competitors, less media mix

strategy of Sanrio and continuity of recession in some regions.

Therefore, as long as this circumstance will continue, this upside risk is not big.

Exchange risk: Sanrio depends on most of operating profit from foreign business. If exchange rate to JPY

will be cheaper than the rate we predict, the operating profit of Sanrio will be higher and earnings forecast

will also.

Difference about strategy between management teams and shortage of management person.:

We found difference about strategy between management teams. Even after Sanrio was successful after

2008 by policy changing focusing on license business. Foreign business led by Mr. Hatoyama is clearly

pursuing profit and progressing license business. On the other hand, business focus in Japan is vague. Even

unprofitable store was closed, operating cost of retail sale is still not low and license business is less

profitable than foreign license business.

Additionally, lack of management person is another risk. Mr. Hatoyama ,one of executives of Sanrio, is

assigned in too many executive in overseas business. But, old others are not. So, we predict there are few

alternative people in Sanrio. This will be the disturbance of Sanrio to expand foreign business.

Competitor

Sanrio

Source: FACTSET Figure 17

Capital adequacy ratio

Figure 18 current ratio


11

Appendix Category 対応 Page

Financial Data Exhibit1: Past Consolidated Balance Sheet of Asset 12

Financial Data Exhibit2: Past Consolidated Balance Sheet of Liabilities and Net Assets 13

Financial Data Exhibit3: Past Consolidated Income Statements 14

Financial Data Exhibit4: Past Consolidated Cash Flow Statements 15

Company Description Exhibit5: The history of Sanrio 16

Company Description Exhibit6: Calculation of quarterly EPS forecast 17

Company Description Exhibit7: Licensees in various product category 17

Industry Overview & Competitive Positioning Exhibit8: Changing trend in character market 17

Industry Overview & Competitive Positioning Exhibit9: , 17

Industry Overview & Competitive Positioning Exhibit10: Purchasing new character brings the licensing more expansion. 18

Industry Overview & Competitive Positioning Exhibit11:Risk that Sanrio cannot control its brand image completely because of

licensing expansion18

Industry Overview & Competitive Positioning Exhibit12: There is possibility that theme park becomes unprofitable again. 18

Industry Overview & Competitive Positioning Exhibit13: After boom, total sales decreases 18

Evidence for Sales Forecast Exhibit14: Strategy of the company 18

Investment Summary Exhibit15:Investment summary why stock price was suddenly rising up in

September.18

Sales Forecast Exhibit16: Sales forecast for Europe & North-America 19

Sales Forecast Exhibit17: Sales forecast for Asia 21

Sales Forecast Exhibit18: Sales forecast for South America 24

Sales Forecast Exhibit19: Sales forecast for licensing in Japan 24

Sales Forecast Exhibit20: Sales forecast for product sales in Japan 25

Sales Forecast Exhibit21: Sales forecast for theme park business in Japan 26

Evidence for Sales Forecast Exhibit22: ’

sales in the future28

Performance Forecast Exhibit23: Sales forecast around the world 29

Valuation Exhibit24: Forecast balance sheet 30

Valuation Exhibit25: Forecast income statement 30

Valuation Exhibit26: Forecast cash flow statement 31

Valuation Exhibit27: Calculation of investment assets 31

Valuation Exhibit28: Calculation of NOPLAT 32

Valuation Exhibit29: Calculation of FCF 32

Valuation Exhibit30: Calculation of firm value 32

Valuation Exhibit31: Calculation of price target 32

Valuation Exhibit32: Derivation of terminal value 32

Valuation Exhibit33: Calculation of expected return rate of market portfolio 33

Valuation Exhibit34: Calculation of β 33

Valuation Exhibit35: Calculation of permanent growth rate 34

Valuation Exhibit36: Detail of multiple analysis 35

Analysis of Financial Statement Exhibit37: Financial analysis (other graph) 37

Risk Factor Exhibit38: Risk of changing popularity 37


12

Exhibit1 Past Consolidated Balance Sheet of Asset

FY03/09 FY03/10 FY03/11 FY03/12 FY03/13

Cons. Cons. Cons. Cons. Cons.

Asset

Current Asset

Cash and Deposite 13,891 18,562 21,132 25,893 35,627

Trade notes and accounts receivable 9,431 11,019 10,411 9,949 10,752

Merchandise and finished goods 4,703 4,453 3,415 2,771 2,950

Work in process 73 46 20 91 25

Raw materials and supplies 240 229 212 253 135

Other accounts receivable 703 643 687 802 1,030

Deferred tax assets 857 2,865 3,373 3,526 4,391

Other 1,153 1,020 1,046 829 851

Allowance for doubtful accounts -71 -130 -454 -107 -92

Total current assets 30,983 38,710 39,845 44,009 55,672

Fixed assets

Tangible f ixed assets

Buildings and structures 52,804 53,602 53,147 52,517 52,152

Accumulated depreciation and impairment loss -45,432 -45,831 -45,968 -46,002 -45,752

Buildings and structures, net 7,372 7,770 7,178 6,514 6,400

Machinery and vehicles 13,667 13,679 13,669 13,457 13,452


Machinery and vehicles, net 542 448 343 234 157

Land 11,290 11,307 10,815 10,571 10,035

Lease assets 573 757 898 973 1,169

Accumulated depreciation and impairment loss -217 -419 -527 -534 -518

Lease assets, net 355 338 370 439 650

Construction in process 17 24 0 4 13

Other 4,853 4,965 4,896 4,585 4,598


Other, net 486 463 452 315 391

Total tangible f ixed assets 20,063 20,353 19,161 18,078 17,648

Intangible f ixed assets 448 493 338 3,869 4,000

Investments and other assets

Investments in securities 5,841 6,250 6,404 6,523 8,165

Long-term loans 1,220 1,833 1,384 727 499

long-term loans to employees 3,261 3,086 2,768 1,957 1,387

Guarantees 3,886 3,379 2,816 2,745 2,224

Deferred tax assets 8,694 6,646 5,931 5,275 2,037

Other 5,516 6,141 6,139 6,387 6,657

Allowance for doubtful accounts -881 -1,204 -1,221 -966 -981

Total investments and other assets 27,539 26,133 24,224 22,650 19,989

Total f ixed assets 48,052 26,133 43,724 44,598 41,638

Total deferred assets 51 74 96 141 115

Total assets 79,087 85,765 83,666 88,748 97,425

Consolidated Balance Sheet


13

Exhibit2 Past Consolidated Balance Sheet of Liabilities and Net Assets

FY03/09 FY03/10 FY03/11 FY03/12 FY03/13


Liabilities

Current liabilities

Trade notes and accounts payable 6,453 7,732 6,566 4,486 4,481

Short-term borrowings 17,947 15,954 18,034 14,066 9,324

Current portion of corporate bonds to be redeemed 1,162 1,682 3,391 3,046 2,528

Lease obligations 196 227 177 169 217

Accrued income taxes 677 1,136 1,000 859 1,168

Allowance for bonuses 370 365 370 370 395

Reserve for adjustment of returned goods 105 118 62 68 49

Other 4,052 5,009 5,154 5,560 6,715

Total current liabilities 30,964 32,226 34,755 28,626 24,879

Long-term liabilities

Corporate bonds 5,607 6,225 5,184 6,393 4,765

Long-term borrowings 7,127 7,153 5,324 7,151 9,496

Lease obligations 304 263 290 328 477

Reserve for retirement benefits for employees 6,884 6,963 6,779 6,286 6,011

Reserve for retirement benefits for directors 457 411 429 448 520

Provision for loss on guarantees 0 0 199 79 58

Long-term deposits received 551 547 542 541 543

Long-term accounts payable 158 108 63 116 130

Other 187 272 901 1,697 1,559

Total long-term liabilities 21,278 21,945 19,715 23,043 23,563

Total liabilities 52,243 54,171 54,471 51,669 48,443

Net assets

’

Capital 14,999 14,999 10,000 10,000 10,000

Capital surplus 10,095 8,732 6,147 3,476 3,418

Retained earnings 9,189 13,478 20,953 32,624 41,186

Treasury stock -954 -954 -637 -1,034 -1,884

’ 33,330 36,255 36,463 45,066 52,719

Accumulated other comprehensive income

Net unrealized gain (loss) on other securities -1,893 -563 -973 -381 507

Deferred hedge gain (loss) -51 -45 -21 -1 15

Foreign currency translation adjustments -4,563 -4,083 -6,310 -7,688 -4,465

Total accumulated other comprehensive income -6,508 -4,692 -7,035 -8,070 -3,942

Stock acquisition rights 0 0 0 29 119

Minority interests 22 30 36 52 85

Total net assets 26,844 31,594 29,195 37,078 48,982

Total liabilities and net assets 79,087 85,765 83,666 88,748 97,425


14

Exhibit3 Past Consolidated Income Statements

FY03/09 FY03/10 FY03/11 FY03/12 FY03/13


Sales 69,767 73,875 76,625 74,954 74,233

Cost of sales 32,079 33,127 30,513 26,831 24,797

Gross prof it 37,688 40,747 46,112 48,122 49,435

Provision of reserve for adjustment of returned goods 25 13 0 6 0

Reversal from reserve for adjustment of returned goods 0 0 56 0 19

Net gross prof it on sales 37,663 40,734 46,168 48,116 49,454

Selling, general and administrative expenses 31,088 31,445 31,171 29,210 29,255

Operating prof it 6 ,575 9,289 14,996 18,906 20,198

Non-operating prof it

Interest income 375 270 296 339 275

Dividend income 105 77 88 113 148

Reversal of allowance for doubtful accounts 0 0 0 234 0

Other income 329 300 235 328 291

Total non-operating prof it 811 648 620 1,016 714

Non-operating expenses

Interest expense 696 619 576 515 413

Tax and public charges 400 549 766 756 0

Foreign exchange loss 20 269 531 0 624

Provision of allowance for doubtful accounts 43 47 0 0 0

Other expenses 271 202 355 282 228

Total non-operating expenses 1,431 1,688 2,229 1,554 1,266

Ordinary prof it 5 ,954 8,249 13,387 18,368 19,646

Extraordinary gains

Gain on sales of fixed assets 0 2 49 45 0

Gain on sales of investment securities 14 6 5 48 157

Reversal of allowance for doubtful accounts 0 0 396 0 0

Reversal of provision for loss on guarantees 2 0 0 24 0

Total extraordinary gains 16 8 451 119 157

Extraordinary losses

Loss on disposal of fixed assets 49 53 80 43 84

Impairment loss 2,409 36 433 70 690

Loss on sale of investment securities 0 0 0 55 0

Valuation loss on investment securities 897 959 94 279 137

Provision of allowance for doubtful accounts 4 212 333 2 0

Office transfer expenses 0 0 0 0 209

Reversal of provision for loss on guarantees 0 0 199 0 0

Loss on adjustment for changes of accounting standard for asset

retirement obligations0 0 426 0 0

Loss from inventory revaluation 79 0 0 0 0

Other 36 50 109 2 0

Total extraordinary losses 3,476 1,313 1,676 453 1,122

Net prof it before income taxes and other adjustments 2,494 6,945 12,163 18,034 18,681

– 1,342 2,540 2,674 3,187 3,951

– 2,636 18 92 449 2,168

Total income taxes 3,978 2,558 2,766 3,637 6,120

Income before minority interests -1,484 4 ,386 9,396 14,396 12,561

Minority interests in income of consolidated subsidiaries 11 13 16 17 24

Net prof it -1,495 4 ,373 9,380 14,378 12,536

Consolidated Income Statements


15

Exhibit4 Past Consolidated Cash Flow Statements

FY03/09 FY03/10 FY03/11 FY03/12 FY03/13


Cash f lows from operating activities

Net profit before income taxes and other adjustments 2,494 6,945 12,163 18,034 18,681

Depreciation 1,603 1,384 1,321 1,216 1,307

Amortization of long-term prepaid expenses 101 87 68 63 54

Increase (decrease) in allowance for doubtful accounts -178 373 261 -372 -68

Increase (decrease) in reserve for bonuses -50 -4 4 0 24

Increase (decrease) in reserve for retirement benefits for employees 70 78 -184 -493 -274

Increase (decrease) in reserve for adjustment of returned goods 25 13 -56 6 -19

Increase (decrease) in reserve for retirement benefits for directors 6 -46 18 19 71

Interest and dividend income -481 -347 -385 -453 -423

Interest expense 696 619 576 515 413

Loss (gain) on disposal of fixed assets 49 51 30 -2 84

Impairment loss 2,409 36 433 70 690

Loss (gain) on sale of investment securities -3 -6 -5 7 -157

Valuation loss (gain) on investment securities 897 959 94 279 137

Decrease (increase) in accounts receivable 2,882 -2,621 -320 404 -435

Decrease (increase) in inventories 169 304 982 511 46

Decrease (increase) in other assets -177 456 -52 -183 52

Increase (decrease) in accounts payable -1,660 1,539 -528 -1,989 -374

Increase (decrease) in consumption tax payable 96 104 33 43 4

Increase (decrease) in other liabilities -826 686 1,002 441 1,125

Other 250 302 782 259 95

Interests and dividends received 487 340 379 469 413

Interests paid -680 -599 -606 -522 -404

Income taxes paid -1,281 -2,229 -2,801 -3,503 -3,962

Cash f lows from operating activities 6,898 8,428 13,211 14,820 17,085

Cash f lows from investing activities

Payments for time deposits -301 -436 -2,391 -1,914 -1,456

Withdrawal of time deposits 406 266 933 2,923 926

Payments for purchase of tangible fixed assets -1,131 -1,711 -843 -310 -720

Payments for purchase of investment securities -506 -100 -761 -4 -703

Proceeds from sale of investment securities 201 96 65 135 341

Payments for loans receivable -319 -68 -50 -1 0

Collection of loans receivable 136 339 498 1,615 816

Payments for guarantees - - -69 -429 -62

Collection of guarantees 479 407 633 387 858

Other payments -1,010 -456 -314 -1,359 -730

Other proceeds 7 103 179 963 244

Cash f lows from investing activities -2,038 -1,559 -2,120 2 ,005 -485

Cash f lows from f inancing activities

Increase in short-term borrowings 1,025 43 0 0 200

Decrease in short-term borrowings -1,486 -956 -2,455 -281 -4,887

Increase in long-term borrowings 6,780 2,200 5,318 5,030 5,400

Decrease in long-term borrowings -6,173 -3,256 -2,612 -9,874 -3,109

Proceeds from issuance of corporate bonds 1,185 2,456 2,450 4,614 983

Payment for redemption of corporate bonds -2,277 -1,362 -1,832 -3,836 -3,146

Payment for purchase of treasury stock 0 0 -7,605 -3,284 -995

Proceeds from sale of treasury stock 0 0 337 217 87

Dividends paid -1,351 -1,367 -1,901 -2,701 -3,968

Other payments -262 -239 -254 -196 -215

Cash f lows from f inancing activities -2,559 -2,483 -8,554 -10,313 -9,651

Effect of exchange rate changes on cash and cash equivalents -1,147 88 -1,338 -676 2,066

Increase (decrease) in cash and cash equivalents 1,153 4,474 1,197 5,835 9,013

Cash and cash equivalents at beginning of period 12,445 13,599 18,073 19,271 25,107

Cash and cash equivalents at end of period 13,599 18,073 19,271 25,107 34,120

Consolidated Cash Flow Statements


16

Exhibit5 The history of Sanrio

Year Month Content

1960 Aug.As the first step towards building the Social Communication Business, Shintaro Tsuji establishes Yamanashi Silk

Center Co., Ltd. with 1 million yen in capital.

1967 Dec. Sanrio published small picture book series, Gift Book. Then started planning and selling publications.

1969 Dec. Sanrio Greetings Co., Ltd. is established.

1972 Oct. Sanrio merge with Sanrio electric equipment industry Co., Ltd. to unify the business of affiliates.

1973 Apr.The company is officially established under its new name, Sanrio Company Co., Ltd.Head office is moved to

Gotanda, in Tokyo's Shinagawa Ward.

1973 Oct. Sanrio Greetings Co., Ltd. is merged with Sanrio Co., Ltd. Film production activities commence.

1974 Feb. Sanrio started selling social communication gifts using original characters made by Sanrio.

1974 Dec.Sanrio Film Corporation of America (the existing Sanrio, Inc.) is established in Hollywood, California. U.S. film

production and distribution activities commence.

1976 Apr. Character merchandise licensing activities begin.

1976 May. Sanrio, Inc. is established in San Jose, California.

1982 Apr. Sanrio is listed on the second section of the Tokyo stock Exchange.

1983 Apr.Sanrio GmbH (the existing consolidated subsidiary) is established in Hamburg, Western India, and starts importing

and selling social communication gifts of Sanrio.

1984 Jan. Sanrio's listing is moved to the first section of the Tokyo Stock Exchange.

1984 Feb. Kokoro Company Ltd. (the existing consolidated subsidiary) is established.

1987 Jan.Head office moves from Gotanda to Osaki, also in Shinagawa Ward. Established Sanrio Communication World Co.,

Ltd. (the existing Sanrio Entertainment Co., Ltd.) as operating company for Sanrio Puroland.

1987 Feb.Sanrio Do Brasil Comersio e Representacoes Ltda. (the existing consolidated subsidiary) was established in Sao

Paulo, Brazil, and started business to control copylight around Brazil.

1987 Nov.

Established Sanrio Communication World Co., Ltd. (Its name was changed to Sanrio Puroland Co., Ltd. in August,

1999 and it was liquidated in March, 2010.) which operates Sanrio Puroland (Tama, Tokyo) , compound culture

facilities.

1988 Oct.Sanrio participates in the establishment of Harmonyland Co., Ltd. (the existing Sanrio Entertainment Co., Ltd.), in

Hijimachi, Oita Prefecture.

1989 Oct.It was decided to change fiscal year which is from April 1st to March 31st at the 29th annual shareholders'

meeting.

1990 Apr. Sanrio Far East Co.,Ltd. is established.

1990 Dec. Sanrio Puroland theme park opens in Tama City, Metropolitan Tokyo.

1991 Apr. Harmonyland theme park opens in Hijimachi, Oita Prefecture.

1992 May.Sanrio Taiwan Limited Co. was established in Taipei and was reorganized to Sanrio Taiwan Co., Ltd. (the existing

consolidated subsidiary) in February 1st, 2001.

1994 Apr. Sanrio (Hong Kong) Co., Ltd. (the existing consolidated subsidiary) was established in Hong Kong.

1998 July. Sanrio Korea Co., Ltd. (the existing consolidated subsidiary) was established in Korea.

2000 Aug. The number of Sanrio shares in one round lot is reduced from 1,000 to 100.

2001 Jan. Sanrio Wave Hong Kong Co., Ltd. (the existing consolidated subsidiary) was established in Hong Kong.

2003 Jan.

Sanrio Shanghai International Trading Co., Ltd. (the existing consolidated subsidiary) was established in Shanghai

to strongthen producing products, to enhance supplying Sanrio goods to domestic and overseas and to establish

the sales system.

2005 Apr.Sanrio Asia Merchandise Co., Ltd. (the existing consolidated subsidiary) was established in Hong Kong to put

supplying goods into one place around Asia.

2006 Nov. San-Byte Taiwan Co., Ltd. (transfered its shares in July, 2011) was established in Taiwan.

2007 Apr. Sanrio Entertainment Inc. (liquidated in June, 2010) was established in America.

2009 Jan. Sanrio License GmbH (Sanrio GmbH absorbed this company in January, 2011) was established in Germany.

2009 July.The theme park business of Sanrio Co., Ltd., Sanrio Puroland Co., Ltd. and Harmonyland Co., Ltd. are splitted off

from those companies, and Sanrio Entertainment Co., Ltd. (the existing consolidated subsidiary) was established.

2010 Mar. Sanrio Puroland Co., Ltd. and Harmonyland Co., Ltd. are liquidated.

2011 Dec.

subsidiary) were established in U.K.. Sanrio acquired all issued stocks of the English character business company,

,

2012 Mar. Sanrio Global Asia Ltd. was established in Hong Kong.

2012 May.Head office of Sanrio was moved to "Gate City Ohsaki" in Osaki, Shinagawa Ward, Tokyo without changing its

location of the head office.

2012 Nov. Sanrio Chile SpA. was established in Chile.


17

Exhibit6 Calculation of quarterly EPS forecast

We calculate quarterly EPS in FY03/14 by this process as in the following.

We calculate the ratios of every quarterly EPS to yearly EPS. And calculate the average ratios of every quarterly EPS to yearly EPS by arithmetic mean in every quarter.

EPS

Jun. Sept. Dec. Mar. Year

2010 12.41% 16.67% 40.88% 30.04% 104.76 2462 23.5 ＝％

2011 19.74% 18.94% 40.16% 21.16% 162.56 3230 19.9 ＝％

2012 23.20% 21.38% 29.24% 26.19% 142.09 4192 29.5 ＝％

2013 161.12 6030 ＝％

Arithmetic mean 18.45% 19.00% 36.76% 25.80%

Quarterly EPS/Yearly EPSStock price P/E Ratio

We estimate every quarterly EPS forecast in FY03/14 by multiplying yearly EPS in FY03/14 by every quarterly

coefficient. But, because it was said in the Sanrio security report that EPS in 1st quarter in FY03/14 is 29.9, there is gap between the theoretical value (EPS=29.725) and the applied value (EPS=29.9). We distribute this gap, -0.175, to other quarters by using the ratio between other quarterly coefficients. Result is shown as follows.

Jun. Sept. Dec. Mar. Year

2010 13 17.46 42.83 31.47 104.76 2462 23.5

2011 32.09 30.79 65.29 34.39 162.56 3235 19.9

2012 32.96 30.38 41.55 37.22 142.09 4192 29.5

2013 29.9 30.56 59.15 41.51 161.12 6030 37.4

EPSStock Price P/E Ratio

Exhibit7 Licensees in various product category

As main licensees in domestic companies

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. and so on.

There are licensees not only in apparels and toys but also in other product categories, and some of them are large companies. And

licensees in overseas companies

Wal-Mart Stores, Inc./H&M (Hennes & Mauritz Ltd.)/FOREVER 21, Inc./D. Swarovski & Co./ZARA (Inditex; Industrias de Diseño

Textil, S.A.)/Samantha Thavasa/Spain Inditex/Nestle/The Swatch Group and so on

As written, Sanrio contracts with many large companies mainly in apparels. (Source : Sanrio HP)

Exhibit8 Changing trend in character market

In 2011 the Ministry of Economy published the report, “Investigation for the competitive environment and overseas market trend in

character licensing”, and it says about the troubles and barriers which Japanese companies have when they are going to entry overseas

market. The most of them is “replicas, pirated copies and parallel imports” (32.5%), and next is “copyright and related rigths” (22.5%).

Because of character diversity, a competitive environment becomes harder. For example in investigation for contents in Brazil by JETRO,

almost animations shown in Brazil are made in America, and Disney characters are popular. Additionally, The Licensing Letter in 2012

published by EPMcommunications says that character licensing market shrinked by -4.4% YoY in 2010 and by -19% YoY in 2009.

Therefore the market is decreasing.

Exhibit9 “Hello Kitty”, stable income resource

In the analyst meeting of Sanrio, sales of Hello Kitty goods constitutes of 60% out of domestic licensing sales and 90% out o f overseas

licensing sales. Additionally in the “Investigation of the popularity in licensing characters to customers in 2013” published by VOICE

INTELLIGENCE Co., Ltd, Hello Kitty is 6th position, and in the “Character ranking 100” published by CHARACTER DATABANK, Ltd.,

Hello Kitty is 6th position, too.


18

Exhibit10 Purchasing new character brings the licensing more expansion.

“Mr. Men & Little Miss” is the series character which is in a picture book written by United Kingdom writer of children's books, Roger

Hargreaves. It is popular in Europe and Australia and its picture books are sold more than 100 million books in 30 countries. (The Nihon

Keizai Shimbun, 2011) In the end of 2011, Sanrio did M&A and they plan to expand their goods widely in some product category from

the spring in 2014.

Susumu Emori who is a managing director and a general project manager said that he planned to purchase new character using no t

more than 30 billion JPY until March, 2015 in interview held by Bloomberg L.P. in 2011. We expect that Sanrio continue to purchase

new characters through M&As and others.

Exhibit11 Risk that Sanrio cannot control its brand image completely because of licensing expansion

For Sanrio licensing contract, the company selects licensees not to damage its brand image and pay attention to licensee’s character

designs and licensee’s scandal. If licensee damages Sanrio brand image greatly, the company stops the licensing contract or take other

counterplan. However, because it is said there are over 2000 goods using Sanrio characters around the world, Sanrio needs huge cost to

pay attention to all designs and all licensees. Therefore, there is possibility for Sanrio not to control its brand image completely.

In June 27th, 2013, Sankei Shimbun said that ASUNAROSYA (Kanagawa Pref., Yamato) which produces and sells “Regional Hello

Kitties around Japan” sold new Hello Kitty which wears Sumo wrestler's loincloth-belt, and its motif is “Hakata Gion Yamakasa”. But

mainly in Internet, customers say critical comment on that new Hello Kitty, for example “It is not cute.”. Sanrio allowed this design, but a

certain problem, which damage its brand image, may come about in a place that the company cannot predict.

Exhibit12 There is possibility that theme park becomes unprofitable again.

Nikkei Shimbun said that the number of visitor from overseas to Sanrio Puroland increased +50% YoY from April to September in this

year because of a low rate of exchange for the JPY, and the number of total visitor to Sanrio Puroland increased +11.6% YoY. For these

reason, Sanrio has the perspective that Sanrio Puroland, which was renewed in July, becomes profitable from April to September in this

year for the first time since opening. However, because the main reason of this is the increasing number of visitor from overseas, there is

possibility that the number of visitor from overseas will decrease because of changing circomstances, for example changing exchange rate.

So this remains risk, we think.

Exhibit13 After boom, total sales decreases

In Japan, the operating profit decreased two-thirds from 18.8 billion JPY in 1999 when the golden age of Hello Kitty boom to 6.2 billion

JPY in 2007 when after the end of its boom. In only cases we can find, there were boom in Singapore in 2000 and in Taiwan in 2005.

Especially in Taiwan, the scale of boom was very large as a security unit of Taiwan was dispatched. In the future, because there is

possibility that the boom occurs in Japan or in overseas, we decide this as one of risks.

Exhibit14 Strategy of the company

According to Sanrio, the number of employee are not a lot of people. Therefore, the company have to develop oversee markets one by

one. The company focused on Europe from 2008, North-America from 2011, and Asia →South-America→Russia, India, Africa.

In addition, the company afraid decrease on sales due to tiredness of character, and after the markets developed enough, the company will

not force to increase sales and focus on next regions.

Exhibit15 Investment summary why stock price was suddenly rising up in September.

In 2013, the share price of Sanrio started rising from January as of 2,754 yen, and was around 5,000 yen which is near price target 4,998

yen, from May until September. But stock price was sharply rising from beginning of September and consequently reached to 6,030 yen

as of 9/30 from 5,070 yen as of 8/30 near price target. It was first time from 1999 that stock price was over 6,000 yen.

We careful analyzed if there is any event which affects fundamentals of Sanrio, we found mainly three incidents.

・the expectation of Sanrio’s theme park business becoming profitable for the first time

・interim dividend which have the expectation of dividend increase was vesting in the end of September.

・the exciting news in September that Tokyo will host Olympic games in 2020 were coming to market of Japan.

Those factor was giving overly optimistic expectation about Sanrio's fundamental(Nikkei Quick News 2013/9/18,Asahi Newes Paper

2013/9/25).

Because profit contribution of Tokyo Olympic is too distant after 7 years will have passed, profit contribution of theme park is also small

only 7.1% of total sales, and earnings increase have already combined to stock price in of 5,070 yen as of 8/30.


19

Exhibit16 Sales forecast for Europe & North-America

We calculated the sales for Europe & North-America as follows:

Sales = (licensing sales + product sales) * currency rate

Furthermore, licensing sales = the number of licensees * sales per licensee

We considered these regions as mature markets because of enough popularity, awareness and little opportunity loss. Indeed, American

subsidiary found in 1976, and European one found in 1983. Many celebrities such as Lady GaGa use its products. As for opportunity loss,

the company licensed bulk companies such as, H&M and ZARA (inditex) in Europe, and Walmart in North-America . Therefore, Sanrio

plans strategy of growing in these regions, which are (1) diverse product categories (in particular, room of expanding the number of

licensees in promotion companies) and (2) create character portfolio. In addition, we found out three main factors of sales changes; (3)

the markets have lost interest in Hello Kitty because of overexposure, (4) majority of licensees are still general retailers or apparels and

depended on markets (reference to graph below) (5) influence of currency rate. In order to take into account these five facto rs, we

adapted the number of licensees to (1), (3), the sales per licensee to (2),(4), currency rate to (5).

[sales for Europe]

Sales per licensee

We found it to divide sales by the number of licensees. Referred to the security report, we calculated sales to use external sales (JPY) for

Europe in the past and average currency rate each year. Furthermore, we considered Mr.Men as one of Sanrio’s characters, and include

into sales for Europe. Regard of future, effect of European debt crisis and end of Hello Kitty boom caused sales in 2011 and 2012.

However, according to fiscal statement in March 2013, market hit the bottom. Actually, media viewed debt crisis would end in main 5

sales drivers, the U.K, Italy, Spain, France and Germany. In addition, every contracts contain minimum guarantee. Therefore, these

factors will support the sales per licensee and we assumed that it would not decrease from 8.5 EUR (1.1 million JPY) . Furthermore,

Sanrio had already contracted with bulk apparels companies, H&M, ZARA. We assumed that the company would not license such large

companies and sales per licensee would not grow rapidly. As for growth, because majority of sales was still general apparels, we assumed

that sales per licensee would depend on nominal GDP growth rate and used the rate.

(reference nominal GDP source: web site IMF DATA and statistics)

The number of licensees

Quoted from the security report, Sanrio can license multiple companies in same product category in order to approve flexible design.

Actually, according to the company, almost all contracts have been renewal. Therefore, we assumed that the number of licensees would

continue to grow same pace in the past by 146 licensees, which is average growth rate for recent 5 years. However, the company would

control the character exposure to avoid the instant boom that they have experienced in the past. Sales for Europe in 2010 marked 128

million EUR, but after that, because of rebound of boom, the sales decreased to 99 million EUR in 2012. We created the border of

overexposure, which is sales approaching 120 million EUR referred from 128 million EUR in 2013. We assumed that Sanrio would

control character exposure to decrease new contracts, and as for existing licensees, it is more likely to cancel the licensing contracts

because of their noting the tiredness of characters. Therefore, after reaching sales to 120 million EUR, new contracts will decrease and

existing contracts will be cancelled. The number of licensees will be constant on the net basis. We forecast the border will be in 2015, and

due to the aforementioned reasons, the number of licensees will be constantly 1269 companies.

Product category of licensing in USA 2010 Product category of licensing in Europe 2010


20

Currency rate

The company hedged part of sales to stabilize. However, recent years, currency rate have changed dynamically and largely affect the sales.

Guidance of the company is 120 JPY/EUR in 2013. However, monetary relaxation policy depreciated the JPY and there are difference

between guidance and current rate. Therefore, we calculated the average rate for recent 3 months and adapted 131.02 JPY/EUR.

Product sales

In the same way of licensing sales, we calculated product sales on the local currency basis, quoted from security report. The company has

shifted from product business to licensing business from 2008, and withdrawn unprofitable its stores. In Europe, there are on ly 3

company stores, 70 agency shops and 39 franchise stores. According to Sanrio, they have already finished withdrawing shops , and we

assumed that stores would constantly sale 2 million EUR which is quoted from fiscal statement in 1Q 2014.

Scenarios

GOOD scenario

Gaining the popularity of Mr. Men, contracts with bulk company and improving the economy will cause sales per licensee rising. After

that, in 2015, it will become same level to before the debt crisis. However, the company will take strategy of controlling character

exposure and after 2014, the number of licensees will be 1123 companies.

BAD scenario

Because of losing popularity, and recession, sales per licensee will become the lowest level, which is 85 thousand EUR in 2013. Because

of overexposure, the number of licensees would be 1415 companies after 2016.

Year FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Number of licensees 443 500 697 831 977 1123 1269 1269 1269 1269 1269 1269 1269 1269

Sales per licensee (million EUR) 0.145 0.205 0.150 0.113 0.085 0.088 0.092 0.096 0.101 0.105 0.108 0.111 0.115 0.118

Licensing sales (million EUR) 64.25 102.36 104.81 93.68 82.60 99.08 116.89 122.19 127.54 133.31 137.30 141.42 145.67 150.04

29.37 26.34 13.92 4.98 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07

External sales (million EUR) 93.63 128.71 118.73 98.65 84.67 101.16 118.96 124.26 129.61 135.38 139.38 143.50 147.74 152.11

Y／ 130.36 116.39 110.95 103.25 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02

External sales (million JPY) 12205 14980 13173 10186 11094 13253 15586 16281 16982 17737 18261 18801 19357 19930

Sales forecast for Europe: Main scenario





29.37 26.34 13.92 4.98 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07


Y／ 130.36 116.39 110.95 103.25 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02


Sales forecast for Europe: Good scenario





29.37 26.34 13.92 4.98 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07 2.07


Y／ 130.36 116.39 110.95 103.25 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02 131.02


Sales forecast for Europe: Bad scenario

[sales for North-America]

Sales per licensee

sales per licensees grew rapidly in 2011 ,because of contracts with Walmart. According to Sanrio, there are no companies more than

Walmart and they focus on creating character portfolio and expand the product categories. Therefore, we assumed that the company

wouldn’t license to bulk companies. For that reason, sales per licensees would decline with following calculation method. Sales per licensee = 0.29*252+0.24*(the number of licensees - 252)

Sales per licensee of 252licensees in 2011 including Walmart and its suppliers is 0.29million USD. Sales per licensee after 2011 is

0.24million USD, which is standard before contracts with Walmart.


Like Europe, it will continue to grow 49 per year as same pace as recent 5years and the company will control exposure in 2015 .The point

to control exposure is that total sales will approach 1600million USD converted 1200million EUR, because economic scale of North-

America is similar to that of Europe. Since 2015, the number of licensees will be constantly 512licensees every year.

Currency rate

Though the company estimated this year rate would be 93JPY/USD, this rate is much different from present rate. Therefore, we would

use 98.87JPY/EUR , averaged for recent 3 months.

Product sales

Because Sanrio have finished closing unprofitable stores, it will constantly sale 22million USD every year.

Scenarios

GOOD scenario


21

Gaining the popularity of other characters, and improving the economy will cause sales per licensee rising. After that, in 2015, it will

become same level to before the debt crisis. However, the company will take strategy of controlling character exposure and after 2014,

the number of licensees will be 463 companies.

BAD scenario

Because of losing popularity, and recession, sales per licensee will become the lowest level, which is 230 thousand USD in 2013. Because

of overexposure, the number of licensees would be 561 companies after 2016.



Sales per licensee (million USD) 0.24 0.24 0.29 0.28 0.27 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26

Licensing sales (million USD) 35.60 43.09 72.03 100.84 110.90 122.66 134.42 134.42 134.42 134.42 134.42 134.42 134.42 134.42

16.66 20.72 21.31 22.42 22 22 22 22 22 22 22 22 22 22

External sales (million USD) 52.26 63.81 93.34 123.26 132.90 144.66 156.42 156.42 156.42 156.42 156.42 156.42 156.42 156.42

Y／ 93.51 87.65 79.62 79.93 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87


Sales forecast for North-America: Main scenario





16.66 20.72 21.31 22.42 22 22 22 22 22 22 22 22 22 22


Y／ 93.51 87.65 79.62 79.93 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87


Sales forecast for North-America: Good scenario





16.66 20.72 21.31 22.42 22 22 22 22 22 22 22 22 22 22


Y／ 93.51 87.65 79.62 79.93 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87 98.87


Sales forecast for North-America: Bad scenario

Exhibit17 Sales forecast for Asia

We predict sales forecast in Asia to divide following four regions. Because Sanrio will adopt different strategies licensing business and retail business. ・Hong Kong(including South-East Asia)

・China

・Taiwan

・South Korea Sales of each regions are predicted based on local currency. Sales based on summary of financial results = sales on local currency × currency rate. We use sales and currency rate of each regions from Sanrio’s summary of financial results.

But, sales based on summary of financial results includes double deals. That’s why we estimate the amount of double deal in Asia regions by past sell from annual securities report. we estimated the amount of double deals by comparing to sales data

from both financial summary and annual securities report from 2009 to 2012.

・Sales of licensing business in Hong Kong, China and Taiwan We predicted sales of licensing business in Hong Kong, China and Taiwan by decomposing following formula. Sales of licensing business = average of licensing loyalty × number of contracting companies We quote number of contracting companies in each regions from annual securities report and sales of licensing business from financial summary.

In these regions, we can expect stable and high economic growth and expansion of licensing market. Market of Hong Kong, China and Taiwan can be expected to be high economic growth in terms of potential GDP growth rate which experienced in 2000s(Nissei Research, 2011). Furthermore, because Sanrio didn’t enhance these regions compared with USA or EU, there are more room for Sanrio to increase their sales higher than economic growth. Currently, Sanrio have already contracted licensing agreement in various industries, and most of contracted are renewed. So, from 2009 number of licensing companies stably increase.


22

That’s why we can expect current growth for next ten years. We predict formula of sales of licensing business in each regions by estimating average of increasing number of licensing companies and amount of loyalty.

Formula is as follows. ・Hong Kong 224 companies ＋ 14 per year × 0.46 million HKD + 0.06 per year

・China 163 companies ＋ 22 per year × 0.54 million CNY + 0.06 per year

・Taiwan 169 companies ＋ 7 per year × 1.57 million TWD + 0.07 per year ・Licensing business in South Korea. We predict sales growth rate of South Korea for next ten years is same as Taiwan. Because Sanrio don’t disclose the information of licensing companies in South Korean market. And, in East Asia, Taiwan and South Korean is similar country in terms of income level or other perspectives. But, we use exception in sales of 2014 and use sales forecast in financial summary by Sanrio. Because growth of licensing business is too high to use estimation. ・Retail business in all regions. We assume the sales forecast in 2014 by Sanrio will be kept for next ten years. Because we predicted that Sanrio will keep the scale of retail business to newly focus on licensing business. Information of Analyst meeting also suggest it.

Exchanging rate From financial summary in 2013, exchanging rate is as follows. ・1HKD = 12.75JPY

・1CNY = 16.03JPY

・1TWD = 3.3JPY

・1KRW = 0.089JPY And, for next ten years we assume exchanging rate is same. Removing double deals by estimating We estimate the amount of double deals from 2009 to 2012. From 2010, the rate(double deals/total sales) is about 90%.That’s why we assume the rate(double deals/total sales) will be kept for next ten years.

Estimates of external deals Year FY03/10 FY03/11 FY03/12 FY03/13

5746 6181 6249 6737

, Y 4426 5200 5600 6100

Rate of external sales 77% 84% 90% 91% Main scenario ・Hong Kong/South East Asia Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Sales per licensee (million HKD) 0.26 0.29 0.32 0.37 0.47 0.53 0.59 0.65 0.71 0.77 0.83 0.89 0.95 1.01 1.07

Number of licensees 155 185 205 223 226 240 254 268 282 296 310 324 338 352 366

Licensing sales (million HKD) 41.0 53.0 66.0 83.0 105.1 126.0 148.6 172.9 198.8 226.5 255.8 286.8 319.4 353.8 389.8

163 321 353 341 317.70 396 396 396 396 396 396 396 396 396 396

Y／ 13.14 12.06 11.29 10.23 10.30 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75

Y 2681 4510 4731 4338 4355 6656 6944 7253 7584 7936 8310 8705 9122 9560 10019 ・China Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Sales per licensee (million CNY) 0.49 0.36 0.47 0.70 0.54 0.60 0.66 0.72 0.78 0.84 0.90 0.96 1.02 1.08 1.14


Licensing sales (million CNY) 29.0 27.0 44.0 71.0 76.1 97.8 122.0 149.0 178.6 210.8 245.6 283.1 323.3 366.0 411.4

Product sales (million CNY) 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0

Y Y 14.91 13.66 12.94 12.32 12.70 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03

Y 432 369 582 875 966 1567 1956 2387 2861 3378 3936 4537 5180 5866 6593 ・Taiwan Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Sales per licensee (million TWD) 0.29 1.34 1.54 1.17 1.69 1.80 1.91 2.02 2.13 2.24 2.35 2.46 2.57 2.68 2.79


Licensing sales (million TWD) 35.0 200.0 230.0 239.0 284.9 316.1 348.8 383.0 418.8 456.1 495.0 535.4 577.3 620.8 665.8

Product sales (million TWD) 46 49 22 43 24.55 13 13 13 13 13 13 13 13 13 13

Y W 3.26 2.83 2.79 2.71 2.70 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31

Y 264 705 703 764 836 1090 1198 1312 1430 1554 1682 1816 1955 2099 2248


23

・South Korea Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

W 1578 1772 1666 2628 280.73 105 105 105 105 105 105 105 105 105 105

W 628 425 522 1151 7868 8729 9632 10577 11566 12596 13669 14785 15944 17144 18388

Y／ W 9.72 7.37 7.56 7.20 7.12 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92

Y 214 162 165 272 580 788 868 953 1041 1133 1228 1328 1431 1538 1649 ・Total sales in Asia Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Y 2445 4141 4186 3794 3359 5102 5102 5102 5102 5102 5102 5102 5102 5102 5102

Y 1146 1605 1996 2454 3378 4999 5865 6804 7815 8899 10056 11285 12587 13962 15409

Y 3591 5746 6181 6249 6737 10100 10966 11905 12917 14001 15157 16387 17689 19063 20510

Rate of external sales 77% 84% 90% 91% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

Total sales (million JPY, external sales) 4426 5200 5600 6100 9090 9870 10715 11625 12601 13642 14748 15920 17157 18459 Good Scenario In addition to stable economic growth, If popularity of characters would increase or property rights problem would be

improved, we assumed average of licensing loyalty and number of contracting companies would be 1.5 times higher than main scenario. ・Hong Kong/South East Asia Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E




163 321 353 341 317.7 396 396 396 396 396 396 396 396 396 396

Y／ 13.14 12.06 11.29 10.23 10.30 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75






Y Y 14.91 13.66 12.94 12.32 12.70 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03






Y W 3.26 2.83 2.79 2.71 2.70 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31

Y 264 705 703 764 836 1143 1311 1490 1681 1882 2095 2320 2555 2802 3060 ・South Korea Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

W 1578 1772 1666 2628 280.73 105 105 105 105 105 105 105 105 105 105

W 628 425 522 1151 7868 9174 10574 12068 13655 15337 17112 18982 20945 23002 25153

Y／ W 9.72 7.37 7.56 7.20 7.12 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92


Y 2445 4141 4186 3794 3359 5102 5102 5102 5102 5102 5102 5102 5102 5102 5102

Y 1146 1605 1996 2454 3378 5422 6803 8346 10053 11922 13955 16150 18509 21031 23715

Y 3591 5746 6181 6249 6737 10524 11904 13448 15154 17024 19056 21252 23611 26132 28817

Rate of external sales 77% 84% 90% 91% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%Total sales (million JPY, external sales) 4426 5200 5600 6100 9471 10714 12103 13639 15321 17151 19127 21249 23519 25935 Bad scenario If economy would not be good or property rights problem would be worse, we assumed average of licensing loyalty and

number of contracting companies would be 1.5 times lower than main scenario. ・Hong Kong/South East Asia


24

Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E




163 321 353 341 317.7 396 396 396 396 396 396 396 396 396 396

Y／ 13.14 12.06 11.29 10.23 10.30 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75 12.75






Y Y 14.91 13.66 12.94 12.32 12.70 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03






Y W 3.26 2.83 2.79 2.71 2.70 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31

Y 264 705 703 764 836 1038 1090 1143 1198 1253 1310 1368 1428 1488 1550 ・South Korea Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

W 1578 1772 1666 2628 281 105 105 105 105 105 105 105 105 105 105

W 628 425 522 1151 7868 8293 8727 9172 9627 10091 10565 11050 11544 12048 12562

Y／ W 9.72 7.37 7.56 7.20 7.12 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92 8.92


Y 2445 4141 4186 3794 3359 5102 5102 5102 5102 5102 5102 5102 5102 5102 5102

Y 1146 1605 1996 2454 3378 4593 4998 5422 5864 6323 6801 7297 7810 8342 8892

Y 3591 5746 6181 6249 6737 9694 10100 10523 10965 11425 11903 12398 12912 13444 13993

Rate of external sales 77% 84% 90% 91% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%Total sales (million JPY, external sales) 4426 5200 5600 6100 8725 9090 9471 9869 10282 10712 11158 11621 12099 12594 Exhibit18 Sales forecast of South America Points of views about Sanrio’s business in South America

In South America region, Sanrio didn’t reveal information about average of sales in different business segments and number of contracting companies. But, most of business are licensing business in South America regions. We analyze growth of sales for next ten years is based on expansion of market. For next ten years, South America can be expected to be stable economic growth. On the other hand, especially in Brazil in which is center of South American economy, There is severe competition among 60 licensing agents, 900 licensees. So, we analyze it is difficult for Sanrio to expand market share. Formula of sales forecast in South America Key driver is growth of market in Brazil. Brazil is center of market in South America, and Sanrio will also develop mainly in Brazil. Therefore we assume growth of market in Brazil is nearly equivalent to market growth in South America. Growth of character licensing market in Brazil is estimated 8.5% per year from 1972 and same growth will be kept in

current decade. That’s why we predict formula of sales in South America is as follows. Sales of current year = Sales of former year × 1.085

Main scenario Year FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Total sales (million JPY) 1065 1125 1060 1409 1529 1659 1800 1953 2119 2299 2494 2706 2936 3186

Growth rate of total sales 5.63% -5.78% 32.92% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%

Good scenario Year FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E



Bad scenario


25




Exhibit19 Sales forecast for licensing in Japan

Licensing business

Like North-America and Europe, we calculated licensing sales as follows;

Licensing sales = sales per licensee * the number of licensees

Quoted from fiscal statement, sales in 2013 decreased by 9,005 million JPY. However, we used security report, and it is impossible to use

the numbers because fiscal statement included dual trading. Therefore, we calculated the rate between security report and fiscal

statements as follows;

Sales forecast in 2013 = sales forecast of fiscal statement in 2013 (9005million JPY) * rate in 2012 (91.07%)

Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13

Sales quoted from the security report (million JPY) 7285 8172 9090 8734

Sales quoted from the fiscal statement (million JPY) 9172 8463 9796 10714 9590

Rate 86.1% 83.4% 84.8% 91.1%

Sales per licensee

we calculated growth of sales per licensee = nominal GDP growth rate + character popularity.

The way to calculate popularity is following

Character popularity = popularity of Hello Kitty * 0.6 + popularity of others * 0.4 + environmental factors.

Character popularity

According to Sanrio, sales ratio for Japan of Hello Kitty to others is 6:4. Therefore we calculated weighted average and took into

account special situations, which are 40th anniversary of Hello Kitty and Tokyo Olympic in 2020.

In coming year, because of 40th anniversary of Hello Kitty, we assumed that exposure would increase and popularity of Hello Kitty

would rise. In addition, product of Mr. Men will start to sell in 2014, and the company would keep focusing on development of new

characters. Therefore, popularity of other character will jump up in 2014 and grow slightly after 2014.

In Tokyo Olympic 2020, we assumed that the collaboration merchandises would increase and popularity of all characters would rise.

Environmental factors

We create this term to take into account about rebound of overexposure and markets. According to guidance of the company, sales

would decrease by 6%. In Tokyo Olympic 2020, enlargement of Japan’s economy and increase of foreigners will cause environmental

factors increasing. However, after that, because of rebound of boom, it will decrease.

GDP growth rate

Quoted from IMF website, we calculated the rate of year on year nominal GDP for next 6 years. For other 4 years, we adopted rate by

2.38% CAGR, which come from compounded average growth rate from 2013 to 2018.


We considered Japan’s markets as mature. In Japan, Main contracts are spot contracts whose period are 1 year and, considering past, the

number of licensees have risen almost every year. However, total sales decreased, while the number of licensees increased in 2012,

although the company licensed multiple companies in the same product category to approve flexibly design. Therefore, we assumed that

over character exposure caused tiredness of markets. In addition, the more licensees the company has, the more cost they need to manage

character designs. Under these circumstances, we could not assume that the company would force to increase the number of licensees.

Therefore, we fixed it on the net basis. However, 40th and 45th anniversary of Hello Kitty and Tokyo Olympic 2020 caused it increasing by

15 licensees. Actually, although during the Lehman crash in 2008, 35 th anniversary kept almost same the number of licensees.

Sales forecast for licensing in Japan Year FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Licensing Sales (million JPY) 7285 8172 9090 8734 8351 9028 9424 9762 10048 10340 10981 11971 11633 11235

Growth rate of licensing sales 12.18% 11.23% -3.92% -4.39% 8.11% 4.38% 3.58% 2.93% 2.90% 6.20% 9.02% -2.82% -3.42%


Growth number of licensees -4 26 60 49 0 15 0 0 0 0 15 15 0 0

Sales per licensee (million JPY) 13.22 14.16 14.27 12.73 12.17 12.88 13.44 13.93 14.33 14.75 15.34 16.38 15.91 15.37

Growth rate of sales per licensee 4.86% -1.11% -11.67% -4.39% 5.80% 4.38% 3.58% 2.93% 2.90% 3.98% 6.78% -2.82% -3.42%

Growth rate of norminal GDP -6.00% 2.39% -2.45% 1.07% 1.61% 3.40% 2.38% 2.18% 2.53% 2.50% 2.38% 2.38% 2.38% 2.38%

Character popularity 2.5% 1.3% -12.7% -6.0% 2.4% 2.0% 1.4% 0.4% 0.4% 1.6% 4.4% -5.2% -5.8%

Popularity of Hello Kitty 0% 2% 2% 1% 0% 0% 2% 2% 1% 0%

Popolarity of other characters 0% 3% 2% 2% 1% 1% 1% 0.5% 0.5% 0.5%

Environment factors -6% 3% -6% -6%

Exhibit20 Sales forecast for product sales in Japan

Product sales

We calculated product sales as follows;

Product sales = sales per shop * the number of shops

Quoted from the security report, product sales are total sales for Japan minus licensing sale, theme park sales and other sales.


26

Product sales and shops have decreased because of strategic withdrawing unprofitable shops. However, according to Sanrio, they have

finished withdrawal of unprofitable shops last year, and will open new shops in profitable area, such as commercial facility. Furthermore,

existing shops could not sale more due to end of withdrawal. Above all, we assumed that we fixed existing shops sales as same as in 2012.

However, new shops will be likely to earn more profit, and we estimate new shops sales will be sales in 2003, which is the most sales for

10 years.

Year FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13

Product sales (million JPY) 45,910 44,717 42,034 37,285 35,868 35,760 36,476 33,909 30,760 30,232

Number of retail stores 1,470 1,478 1,483 1,465 1,417 1,411 1,394 1,354 1,201 1,138

Sales per retail stores (million JPY) 31.23 30.26 28.34 25.45 25.31 25.34 26.17 25.04 25.61 26.57

Sales forecast for sales per stores

Year FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Sales per existing retail stores (million JPY) 26.57 26.57 26.57 26.57 26.57 26.57 26.57 31.57 26.57 26.57

Sales per new retail stores (million JPY) 31.23 31.23 31.23 31.23 31.23 31.23 31.23 36.23 31.23 31.23

The number of retail stores

In terms of place and cost, it is difficult to establish many new shops. In fact, during year of increasing shops 2004, 2005, it increased

only by 5 or 8 shops. Therefore, if the company plans strategy of increasing shops, growth of the number of shops would be limited. We

assumed that it would increase by 5 shops for recent 5 years and after that, there would be less area to earn profitably. Therefore, it would

increase by 2 shops.

Sales forecast for product sales in Japan

Year FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Product sales (million JPY) 30,393 30,549 30,705 30,861 31,017 31,080 31,142 37,050 31,267 31,330

Number of retail stores 1,143 1,148 1,153 1,158 1,163 1,165 1,167 1,169 1,171 1,173

Sales per existing retail stores (million JPY) 26.57 26.57 26.57 26.57 26.57 26.57 26.57 31.57 26.57 26.57

Sales per new retail stores (million JPY) 31.23 31.23 31.23 31.23 31.23 31.23 31.23 36.23 31.23 31.23

Exhibit21 Sales forecast for theme park business in Japan

Annual sales calculation formula

Puroland(Harmony Land) annual sales = Off-site revenue + In-site revenue

In-site revenue = Attendance × Fee per customer

Fee per customer = Entrance fee + Product fee + Food, beverage

Attendance forecast Analyses historical treads

Decrease in attendance in 2007 2008 was due to bad weather and price hike of petrol. Basically attendance has been slight increasing

every year except 2007, 2008. We predict attendance will be increasing slightly in the future.

Source: Results briefing materials

The number of attendance in theme park Year FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13

Attendance in Puroland (thousand people) 842 892 919 940 835 743 723 758 756 769

Attendance in Hermonyland (thousand people) 361 340 351 351 319 273 301 329 383 389

Effect of overseas tourists

It is said that from 7% to 10% of attendance are overseas tourists. Therefore we think effect of overseas tourists in the prediction. Year FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 … FY03/26E

Foreign tourists visiting Japan (million people) 42.1 61.4 67.3 73.3 83.5 83.5 67.9 86.1 62.2 83.6 … 213.0

Total from Korea, Taiwan and China (million people) 27.0 32.9 36.7 42.4 49.3 47.7 36.2 51.2 36.9 49.4 … 146.2

From Korea (million people) 14.6 15.9 17.5 21.2 26.0 23.8 15.9 24.4 16.6 20.4 … 56.0

From Taiwan (million people) 7.9 10.8 12.7 13.1 13.9 13.9 10.2 12.7 9.9 14.3 … 29.8

From China (million people) 4.5 6.2 6.5 8.1 9.4 10.0 10.1 14.1 10.4 14.7 … 60.4 Source: http://www.milt.go.jp/kankocho/siryou/toukei/in_out.html

http://www2.ttcn.ne.jp/honkawa/7200.html

http://www.milt.go.jp/kankocho/siryou/toukei/in_out.html


27

Because Puroland is in Tokyo, we use whole overseas tourist data. On the other hand, because Harmony land is in Ooita, it is thought that

most overseas tourists are tourists from Korea, Taiwan and China. Therefore we use Korea, Taiwan and China tourist data in the

prediction.

Assuming the number of overseas tourists will grow toward prediction of overseas tourists visiting Japan forecast in 2025, growth rate of

overseas tourists is 8%, growth rate of Korea, Taiwan and China tourists is 9%.

Therefore 10% of attendance in Puroland(Harmony land) will increase by growth rate 8%(9%). Incidentally remaining 90% will increase

by growth rate 1%(1.5%) which is average growth rate in past 5 years.

Future attendance

We use Sanrio’s forecast in 2013. Sanrio predicts expected the number of attendance will be more than 1 million in 2013 because

Puroland was renewed in July, 2013. The number of attendance is increasing after renewal. So we predict the number will increase

steadily based on 1 million.

The number of attendance in Puroland(Harmony land) = the number of attendance in the previous year × 0.9 × 1.01(1.015) + the

number of attendance in the previous year × 0.1 × 1.08(1.09)

Expected the number of attendance in theme park Year FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Attendance in Puroland (thousand people) 1000 1017 1034 1052 1070 1088 1106 1227 1144 1164

Attendance in Hermonyland (thousand people) 392 401 410 419 428 438 448 499 468 479 Sales per customer forecast Analyses historical trends

Sales per customer is decreasing year by year. All items are decreasing, but especially Entrance fee affects on the decrease in Sales per

customer. This is a phenomenon that can occur by many visitors such as families with small children because entrance fee of children les s

than 3 years is free. Additionally the increase in the number of purchasers of annual passport is thought to affect on this.

Sales per customer in Puroland

Puroland FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13

Sales per customer (JPY) 5,262 5,145 5,230 5,171 4,959 4,783 4,657 4,435 4,455 4,274

Y 2,350 2,263 2,300 2,285 2,188 2,152 2,035 1,886 1,856 1,748

Product sales (JPY) 1,917 1,908 1,934 1,915 1,859 1,733 1,737 1,707 1,712 1,702

Meal allowance (JPY) 995 974 995 971 912 898 885 842 887 824 Sales per customer in Harmony land

Hermonyland FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13


Y 2,069 2,110 2,114 2,012 2,034 1,962 1,816 1,639 1,531 1,554


Meal allowance (JPY) 786 779 820 816 763 787 755 710 671 674 Future transition

We use Sanrio’s forecast in 2013.

Entrance fee: Entrance fee in Puroland is thought to increase rapidly like Sanrio’s forecast because attendance of young people is

expected to increase by the effect of renewal. But after that, fee is thought to decrease gradually by purchasing annual passport for

repeaters. We assume fee level in 2022 will decrease in the level in 2012, and we use average growth rate (-1.21%). Harmony land is

same as Puroland. We assume fee level will decrease in the level in 2012, and we use average growth rate (-0.6%).

Product fee: With respect to Puroland, fee remains in the past 5 years. It is thought that product fee will increase with the increase in

attendance of young people by renewal. But we defer Sanrio’s forecast. With respect to Harmony land, we use average growth rate of past

10 years (-2%).

Food, beverage: We defer the number in 2012 in both theme parks because there is no factor that fee increases (decreases) rapidly.

Expected sales per customer in Puroland

Puroland FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E


Y 1,951 1,930 1,908 1,887 1,867 1,846 1,826 1,806 1,786 1,766


Meal allowance (JPY) 870 870 870 870 870 870 870 870 870 870 Expected sales per customer in Harmonyland

Hermonyland FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E


Y 1,651 1,641 1,631 1,621 1,612 1,602 1,592 1,583 1,573 1,564


Meal allowance (JPY) 702 702 702 702 702 702 702 702 702 702 Calculation of In-site revenue

In-site revenue = Attendance × Sales per customer

Expected In-site revenue in Puroland


28


In-site revenue (million JPY) 4,633 4,690 4,748 4,806 4,866 4,926 4,988 5,506 5,113 5,177

Number of attendance (thousa 1,000 1,017 1,034 1,052 1,070 1,088 1,106 1,227 1,144 1,164

Sales per customer (JPY) 4,633 4,612 4,590 4,569 4,549 4,528 4,508 4,488 4,468 4,448 Expected In-site revenue in Harmony land



Number of attendance (thousa 392 401 410 419 428 438 448 499 468 479

Sales per customer (JPY) 3,759 3,721 3,684 3,647 3,611 3,575 3,540 3,505 3,472 3,438 Off-site revenue forecast Analyses historical trends

Off-site revenue is revenue by events in such as UFJ. There is a variation in Off-site revenue in Puroland from year to year. This is

attributed that events are not held regularly. We defer 1,212 million JPY which is average in the past 10 years. Off-site revenue in

Harmony land remains around 200 million JPY in the past 5 years. So we defer 200 million JPY. We use Sanrio’s forecast in 2013.

Off-site revenue of theme park

Off-site revenue FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13

Puroland (million JPY) 780 920 1,110 1,510 1,420 1,220 1,260 1,241 1,061 1,166

Hermonyland (million JPY) 170 150 250 230 220 210 190 192 192 210 Expected Off-site revenue of theme park

Off-site revenue FY03/14E FY03/15E FY03/16E FY03/17E FY03/18E FY03/19E FY03/20E FY03/21E FY03/22E FY03/23E

Puroland (million JPY) 915 1,212 1,212 1,212 1,212 1,212 1,212 1,212 1,212 1,212

Hermonyland (million JPY) 202 200 200 200 200 200 200 200 200 200 Calculation of annual sales

Sales = Off-site revenue + In-site revenue

Expected sales in Puroland


Theme park sales (million JPY) 5,548 5,902 5,960 6,018 6,078 6,138 6,200 6,718 6,325 6,389

Off-site revenue (million JPY) 915 1,212 1,212 1,212 1,212 1,212 1,212 1,212 1,212 1,212

In-site revenue (million JPY) 4,633 4,690 4,748 4,806 4,866 4,926 4,988 5,506 5,113 5,177 Expected sales in Harmony land


Theme park sales (million JPY) 1,676 1,691 1,710 1,728 1,747 1,766 1,786 1,949 1,826 1,847

Off-site revenue (million JPY) 202 200 200 200 200 200 200 200 200 200


Exhibit22 The reason that character acquisitions don’t have so much impact on sales in the future

We think Sanrio’s future M&As don’t have so much impact on sales except Mr. Men Sanrio already had bought. In analyst meeting,

Sanrio tries to start full-fledged global expansion of Mr. Men from 2014. But it takes more than 3 years to expand globally from

acquisition. Additionally we predict it will take more time to affect on sales. Therefore we predict it will take long time to affect on sales

from acquisitions about new characters Sanrio will buy in the future. From the above we predict even if Sanrio buy new characters in

2014, 2019, the effect of these characters on sales will not be so big in sales forecast period.

The factor that it takes long time to affect on sales from character acquisition is thought that the characters Sanrio can buy are not so

popular in current situation. The popular characters are expensive. So the characters Sanrio can buy are that have name recognition, but

that are not so popular such as Mr. Men. Therefore it will take long time that the characters Sanrio will buy in the future become popular

such as characters which have big impact on sales.


29

Exhibit23 Sales forecast around the world

\

10.2M

2012 Europe 2022 Europe

2012 Asia 2022 Asia

2012 Japan 2022 Japan

2012 North-America 2022 North-America

2012 South-America

2022 South-America


30

Exhibit24 Forecast balance sheet

FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23

cons. cons. cons. cons. cons. cons. cons. cons. cons. cons.

Assets

Current Asset 64,405 44,860 56,855 69,934 84,115 98,146 83,049 99,197 116,823 133,313

Cash and Deposite 44,225 24,509 35,620 48,113 61,753 75,480 59,385 74,848 91,844 107,955

Trade notes and accounts receivable 11,555 12,358 13,161 13,964 14,767 15,570 16,373 17,176 17,979 18,782

Inventory assets 2,504 2,197 1,929 1,697 1,495 1,320 1,168 1,035 921 821

Other 6,272 6,272 6,272 6,272 6,272 6,272 6,272 6,272 6,272 6,272

Allowance for doubtful accounts -151 -475 -128 -113 -172 -496 -149 -134 -193 -517

Fixed assets 42,357 73,077 73,797 74,517 75,237 75,957 106,677 107,397 108,117 108,837

Tangible fixed assets 18,368 19,088 19,808 20,528 21,248 21,968 22,688 23,408 24,128 24,848

Intangible fixed assets 4,000 34,000 34,000 34,000 34,000 34,000 64,000 64,000 64,000 64,000

Investments and other assets 20,970 20,970 20,970 20,970 20,970 20,970 20,970 20,970 20,970 20,970

Allowance for doubtful accounts -981 -981 -981 -981 -981 -981 -981 -981 -981 -981

Deferred assets 115 115 115 115 115 115 115 115 115 115

Total assets 106,877 118,052 130,767 144,566 159,467 174,218 189,841 206,709 225,055 242,265

Liabilities

Current liabilities 25,677 26,153 26,953 27,753 28,553 29,353 30,153 30,953 31,753 32,553

Trade notes and accounts payable 5,281 6,081 6,881 7,681 8,481 9,281 10,081 10,881 11,681 12,481

Short-term borrowings 12,069 11,745 11,745 11,745 11,745 11,745 11,745 11,745 11,745 11,745

Short-term allowance 444 444 444 444 444 444 444 444 444 444

Other 7,883 7,883 7,883 7,883 7,883 7,883 7,883 7,883 7,883 7,883

Long-term liabilities 24,063 24,063 24,063 24,063 24,063 24,063 24,063 24,063 24,063 24,063

Corporate bonds 4,765 4,765 4,765 4,765 4,765 4,765 4,765 4,765 4,765 4,765

Long-term borrowings 10,477 10,477 10,477 10,477 10,477 10,477 10,477 10,477 10,477 10,477

Reserve for retirement benefits for employees 6,011 6,011 6,011 6,011 6,011 6,011 6,011 6,011 6,011 6,011

Long-term allowance 578 578 578 578 578 578 578 578 578 578

Other 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232

Total liabilities 49,740 50,216 51,016 51,816 52,616 53,416 54,216 55,016 55,816 56,616

Net assets

Capital 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000

Capital surplus 3,418 3,418 3,418 3,418 3,418 3,418 3,000 2,900 2,800 2,000

Retained earnings 50,192 61,741 74,505 88,354 103,306 118,106 134,198 151,215 169,711 187,772

Treasury stock -2,734 -3,584 -4,434 -5,284 -6,134 -6,984 -7,834 -8,684 -9,534 -10,384

Accumulated other comprehensive income -3,943 -3,943 -3,943 -3,943 -3,943 -3,943 -3,943 -3,943 -3,943 -3,943

Net unrealized gain (loss) on other securities 507 507 507 507 507 507 507 507 507 507

Deferred hedge gain (loss) 15 15 15 15 15 15 15 15 15 15

Foreign currency translation adjustments -4,465 -4,465 -4,465 -4,465 -4,465 -4,465 -4,465 -4,465 -4,465 -4,465

Stock acquisition rights 119 119 119 119 119 119 119 119 119 119

Minority interests 85 85 85 85 85 85 85 85 85 85

Total net assets 57,137 67,836 79,750 92,749 106,851 120,801 135,625 151,692 169,238 185,649

Total liabilities and net assets 106,877 118,052 130,766 144,565 159,467 174,217 189,841 206,708 225,054 242,265

Consolidated Balance Sheet(million JPY)

Exhibit25 Forecast income statement FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23


Sales 83,251 88,695 93,814 96,153 98,527 100,949 103,571 113,087 108,487 110,375

Cost of sales -25,377 -26,097 -26,632 -26,889 -27,150 -27,416 -27,702 -30,357 -28,243 -28,457

Provision of reserve for adjustment of returned goods 0 0 0 0 0 0 0 0 0 0

Reversal from reserve for adjustment of returned goods 0 0 0 0 0 0 0 0 0 0

Selling, general and administrative expenses -32,846 -33,469 -33,934 -34,261 -34,591 -34,830 -35,080 -40,442 -35,567 -35,784

Depreciation -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300

Operating prof it 23,728 27,829 31,948 33,703 35,486 37,403 39,489 40,988 43,377 44,834

Interest income 275 275 275 275 275 275 275 275 275 275

Dividend income 148 148 148 148 148 148 148 148 148 148

Interest expense -421 -416 -416 -416 -416 -416 -416 -416 -416 -416

Other non-operating profit -554 -554 -554 -554 -554 -554 -554 -554 -554 -554

Ordinary prof it 23,176 27,282 31,401 33,156 34,939 36,856 38,942 40,441 42,830 44,288

Extraordinary gains and losses 10 10 10 10 10 10 10 10 10 10

Net prof it before income taxes and other adjustments 23,186 27,292 31,411 33,166 34,949 36,866 38,952 40,451 42,840 44,298

Income taxes -8,811 -10,371 -11,936 -12,603 -13,281 -14,009 -14,802 -15,371 -16,279 -16,833

Minority interests in income of consolidated subsidiaries -25 -28 -31 -34 -37 -40 -43 -46 -49 -52

Net prof it 14,350 16,893 19,444 20,529 21,631 22,817 24,107 25,034 26,512 27,412

Consolidated Income Statements(million JPY)


31

Exhibit26 Forecast cash flow statement FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23


Cash f lows from operating activities

Net profit before income taxes and other adjustments 23,186 27,292 31,411 33,166 34,949 36,866 38,952 40,451 42,840 44,298

Depreciation 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300

Amortization of long-term prepaid expenses 0 0 0 0 0 0 0 0 0 0

Increase (decrease) in allowance for doubtful accounts -59 -324 347 15 -59 -324 347 15 -59 -324

Increase (decrease) in reserve for bonuses 0 0 0 0 0 0 0 0 0 0

Increase (decrease) in reserve for retirement benefits for employees 0 0 0 0 0 0 0 0 0 0

Increase (decrease) in reserve for adjustment of returned goods 0 0 0 0 0 0 0 0 0 0

Increase (decrease) in reserve for retirement benefits for directors 0 0 0 0 0 0 0 0 0 0

Interest and dividend income -423 -423 -423 -423 -423 -423 -423 -423 -423 -423

Interest expense 421 416 416 416 416 416 416 416 416 416

Loss (gain) on disposal of fixed assets 10 10 10 10 10 10 10 10 10 10

Impairment loss 0 0 0 0 0 0 0 0 0 0

Loss (gain) on sale of investment securities -157 -157 -157 -157 -157 -157 -157 -157 -157 -157

Valuation loss (gain) on investment securities 137 137 137 137 137 137 137 137 137 137

Decrease (increase) in accounts receivable -803 -803 -803 -803 -803 -803 -803 -803 -803 -803

Decrease (increase) in inventories 606 308 267 232 202 175 152 132 115 100

Decrease (increase) in other assets 0 0 0 0 0 0 0 0 0 0

Increase (decrease) in accounts payable 800 800 800 800 800 800 800 800 800 800

Increase (decrease) in consumption tax payable 0 0 0 0 0 0 0 0 0 0

Increase (decrease) in other liabilities 0 0 0 0 0 0 0 0 0 0

Other 0 0 0 0 0 0 0 0 0 0

Total 25,017 28,556 33,305 34,693 36,372 37,997 40,731 41,878 44,176 45,353

Interests and dividends received 413 413 413 413 413 413 413 413 413 413

Interests paid -404 -404 -404 -404 -404 -404 -404 -404 -404 -404

Income taxes paid -8,811 -10,371 -11,936 -12,603 -13,281 -14,009 -14,802 -15,371 -16,279 -16,833

Cash f lows from operating activities 16,216 18,194 21,378 22,099 23,100 23,997 25,938 26,516 27,905 28,529

Cash f lows from investing activities -206 -31,177 -2,521 -1,861 -1,716 -1,189 -32,952 -1,972 -1,828 -2,001

Cash f lows from f inancing activities -5,905 -6,733 -7,745 -7,745 -7,745 -9,081 -9,081 -9,081 -9,081 -10,417

Effect of exchange rate changes on cash and cash equivalents 0 0 0 0 0 0 0 0 0 0

Increase (decrease) in cash and cash equivalents 10,105 -19,716 11,112 12,493 13,639 13,727 -16,095 15,463 16,997 16,111

Cash and cash equivalents at beginning of period 34,120 44,225 24,509 35,620 48,113 61,753 75,480 59,385 74,848 91,844

Cash and cash equivalents at end of period 44,225 24,509 35,620 48,113 61,753 75,480 59,385 74,848 91,844 107,955

Consolidated Cash Flow Statements(million JPY)

Exhibit27 Calculation of investment assets(million JPY) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23

Operating current assets 16,364 16,674 16,451 17,556 18,391 19,206 19,785 20,460 21,455 22,424 23,126

Operating current liabilities -12,810 -13,608 -14,408 -15,208 -16,008 -16,808 -17,608 -18,408 -19,208 -20,008 -20,808

Operating working capitals 3,554 3,066 2,043 2,348 2,383 2,398 2,177 2,052 2,247 2,416 2,318

Tangible fixed assets 17,646 18,368 19,088 19,808 20,528 21,248 21,968 22,688 23,408 24,128 24,848

Net other operating assets 4,000 4,000 34,000 34,000 34,000 34,000 34,000 64,000 64,000 64,000 64,000

Operating Investment Assets 25,200 25,434 55,131 56,156 56,911 57,646 58,145 88,740 89,655 90,544 91,166

Surplus cash and deposits 34,914 43,340 24,018 34,908 47,151 60,518 73,970 58,197 73,351 90,007 105,796

Surplus investment securities 7,658 8,020 8,382 8,744 9,106 9,468 9,830 10,192 10,554 10,916 11,278

Other fixed assets and deferred assets 9,902 9,540 9,178 8,816 8,454 8,092 7,730 7,368 7,006 6,644 6,282

Other long-term liabilities 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232 2,232

Total Investment Assets 75,442 84,102 94,477 106,392 119,391 133,492 147,443 162,266 178,334 195,880 212,290

Total common stock and preference stock 48,982 57,137 67,836 79,750 92,749 106,851 120,801 135,625 151,692 169,238 185,649

Deferred tax assets and liabilities -6,428 -6,428 -6,428 -6,428 -6,428 -6,428 -6,428 -6,428 -6,428 -6,428 -6,428

Securities valuation difference -507 -507 -507 -507 -507 -507 -507 -507 -507 -507 -507

Continued provision 578 578 578 578 578 578 578 578 578 578 578

Adjusted capitals 42,625 50,780 61,479 73,393 86,392 100,494 114,444 129,268 145,335 162,881 179,292

Debt 26,807 27,311 26,987 26,987 26,987 26,987 26,987 26,987 26,987 26,987 26,987

Retirement benefit obligations 6,011 6,011 6,011 6,011 6,011 6,011 6,011 6,011 6,011 6,011 6,011

Total investment Assets 75,443 84,102 94,477 106,391 119,390 133,492 147,442 162,266 178,333 195,879 212,290


32

Exhibit28 Calculation of NOPLAT(million JPY) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23

Sales 74,233 83,251 88,695 93,814 96,153 98,527 100,949 103,571 113,087 108,487 110,375

Cost of sales -24,372 -25,377 -26,097 -26,632 -26,889 -27,150 -27,416 -27,702 -30,357 -28,243 -28,457

Selling, general and administrative expenses -28,373 -32,846 -33,469 -33,934 -34,261 -34,591 -34,830 -35,080 -40,442 -35,567 -35,784

Depreciation -1,307 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300 -1,300

Provision of reserve for adjustment of returned goods 0 0 0 0 0 0 0 0 0 0 0

Reversal from reserve for adjustment of returned goods 19 0 0 0 0 0 0 0 0 0 0

EBITA on Income Statements 20,200 23,728 27,829 31,948 33,703 35,486 37,403 39,489 40,988 43,377 44,834

Adjustment for past service benefit obligations 236 0 0 0 0 0 0 0 0 0 0

Increase in continued provision 51 0 0 0 0 0 0 0 0 0 0

Adjusted EBITA 20,487 23,728 27,829 31,948 33,703 35,486 37,403 39,489 40,988 43,377 44,834

Tax on EBITA -6,696 -9,017 -10,575 -12,140 -12,807 -13,485 -14,213 -15,006 -15,575 -16,483 -17,037

Directors'bonuses 0 0 0 0 0 0 0 0 0 0 0

Increase(decrease) in deferred taxes -2,168 0 0 0 0 0 0 0 0 0 0

NOPLAT 11,623 14,711 17,254 19,808 20,896 22,001 23,190 24,484 25,412 26,894 27,796

Tax on EBITA

Income taxes 6,120 8,811 10,371 11,936 12,603 13,281 14,009 14,802 15,371 16,279 16,833

Tax saving amount by interest expense 157 160 158 158 158 158 158 158 158 158 158

Tax saving amount by past service liability interest 0 0 0 0 0 0 0 0 0 0 0

Tax on interest income -105 -105 -105 -105 -105 -105 -105 -105 -105 -105 -105

Tax on dividend income -56 -56 -56 -56 -56 -56 -56 -56 -56 -56 -56

Tax on other non-operating profit and loss 213 211 211 211 211 211 211 211 211 211 211

Tax on extraordinary gain and loss 367 -4 -4 -4 -4 -4 -4 -4 -4 -4 -4

Tax on EBITA 6,696 9,017 10,575 12,140 12,807 13,485 14,213 15,006 15,575 16,483 17,037

Exhibit29 Calculation of FCF(million JPY) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23

NOPLAT 11,623 14,711 17,254 19,808 20,896 22,001 23,190 24,484 25,412 26,894 27,796

Depreciation 1,307 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300

Gross Cash Flow 12,930 16,011 18,554 21,108 22,196 23,301 24,490 25,784 26,712 28,194 29,096

increase in working capital 207 488 1,023 -305 -36 -15 222 124 -195 -169 99

Capital investment -876 -2,022 -2,020 -2,020 -2,020 -2,020 -2,020 -2,020 -2,020 -2,020 -2,020

increase in other assets -131 0 -30,000 0 0 0 0 -30,000 0 0 0

Total Investment -800 -1,534 -30,997 -2,325 -2,056 -2,035 -1,798 -31,896 -2,215 -2,189 -1,921

FCF before addition of goodwill 12,130 14,477 -12,443 18,783 20,140 21,266 22,692 -6,112 24,497 26,005 27,175

investment to goodwill 0 0 0 0 0 0 0 0 0 0 0

FCF 12,130 14,477 -12,443 18,783 20,140 21,266 22,692 -6,112 24,497 26,005 27,175

Exhibit30 Calculation of firm value FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 FY03/23

14,477 -12,443 18,783 20,140 21,266 22,692 -6,112 24,497 26,005 27,175

559,721

0.9748 0.9262 0.8801 0.8362 0.7946 0.7550 0.7174 0.6816 0.6477 0.6154

14,111 -11,525 16,530 16,842 16,897 17,132 -4,385 16,698 16,843 361,180

471,993Firm value(million JPY)

FCF(million JPY)

Terminal value(million JPY)

Discount factor

Present value(million JPY)

Exhibit31 Calculation of price target Firm value(million JPY) 471,993

Net interest-bearing debt(million JPY) 26,807

Shareholder value(million JPY) 445,186

Number of shares outstanding 89,065,301

Price target(JPY) 4,998

Exhibit32 Derivation of terminal value

When we calculate price target by DCF method, the effect of terminal value on price target is very big. There is risk that 10 years sales

forecast become meaningless depending on terminal value. Therefore we assume ROIC will converge to WACC(5.243%) in 10 years

after sales forecast period but not FCF grows simply after sales forecast period. After that, FCF grows by permanent growth rate 2.38%. 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E ～

FCF(million JPY) 27,175 26,759 26,189 25,488 24,678 23,781 22,817 21,804 20,760 19,700 18,636 666,406

Investment capital(million JPY) 212,290 228,557 244,574 260,251 275,507 290,279 304,514 318,172 331,223 343,650 355,442

Investment capital growth rate 8.38% 7.66% 7.01% 6.41% 5.86% 5.36% 4.90% 4.49% 4.10% 3.75% 3.43%

ROIC 12.80% 11.71% 10.71% 9.79% 8.96% 8.19% 7.49% 6.85% 6.27% 5.73% 5.24%

Terminal value in 2022 559,721 We decrease investment capital growth rate with ROIC growth rate (-8.5%), and calculate investment capital. We calculate FCF by

multiplying ROIC to investment capital.


33

Exhibit33 Calculation of expected return rate of market portfolio

1983 23.00% 1998 -10.20%

1984 29.40% 1999 23.10%

1985 27.00% 2000 19.50%

1986 40.10% 2001 -15.10%

1987 46.20% 2002 -14.30%

1988 14.60% 2003 -2.50%

1989 22.40% 2004 27.40%

1990 -15.90% 2005 17.10%

1991 -11.30% 2006 30.50%

1992 -24.80% 2007 4.50%

1993 13.70% 2008 -26.20%

1994 7.30% 2009 -20.80%

1995 -13.10% 2010 4.40%

1996 17.70% 2011 -2.40%

1997 -9.40% 2012 -0.40%

6.72%

First section of

TSE return rate

First section of

TSE return rateYear Year

1983-2012 average of return rate Source: Japan Securities Research Institute

Exhibit34 Calculation of β

We performed regression from Jan, 2009 to Sept, 2013 using monthly return rate of Sanrio as dependent variable and monthly return rate

of TOPIX as explanatory variable. We calculated 0.753 as β of Sanrio. The reason we used date from 2009 is that Sanrio’s main

business became licensing from 2009.


34

Sanrio TOPIX Sanrio TOPIX

Sep-13 6,030 18.93% 1,194 7.96% Dec-10 1,903 -6.44% 899 4.40%

Aug-13 5,070 6.07% 1,106 -2.27% Nov-10 2,034 18.53% 861 6.17%

Jul-13 4,780 3.58% 1,132 -0.19% Oct-10 1,716 7.59% 811 -2.24%

Jun-13 4,615 -5.53% 1,134 -0.17% Sep-10 1,595 12.96% 830 3.09%

May-13 4,885 0.00% 1,136 -2.52% Aug-10 1,412 10.83% 805 -5.28%

Apr-13 4,885 16.45% 1,165 12.60% Jul-10 1,274 26.26% 850 0.96%

Mar-13 4,195 14.46% 1,035 6.05% Jun-10 1,009 9.44% 841 -4.43%

Feb-13 3,665 0.27% 976 3.77% May-10 922 -5.34% 880 -10.80%

Jan-13 3,655 33.25% 940 9.36% Apr-10 974 9.56% 987 0.84%

Dec-12 2,743 -6.99% 860 10.02% Mar-10 889 18.06% 979 9.47%

Nov-12 2,949 12.17% 781 5.27% Feb-10 753 7.26% 894 -0.78%

Oct-12 2,629 -6.01% 742 0.67% Jan-10 702 -0.71% 901 -0.71%

Sep-12 2,797 3.78% 737 0.79% Dec-09 707 0.57% 908 8.05%

Aug-12 2,695 -0.52% 732 -0.63% Nov-09 703 -5.89% 840 -6.12%

Jul-12 2,709 -6.55% 736 -4.39% Oct-09 747 -1.45% 895 -1.67%

Jun-12 2,899 14.40% 770 7.03% Sep-09 758 -7.79% 910 -5.79%

May-12 2,534 -27.91% 719 -10.54% Aug-09 822 2.37% 966 1.63%

Apr-12 3,515 8.82% 804 -5.86% Jul-09 803 -4.06% 950 2.20%

Mar-12 3,230 -2.86% 854 2.20% Jun-09 837 8.70% 930 3.55%

Feb-12 3,325 -2.64% 836 10.68% May-09 770 5.48% 898 7.18%

Jan-12 3,415 -13.65% 755 3.66% Apr-09 730 -4.07% 838 8.29%

Dec-11 3,955 -0.63% 729 0.02% Mar-09 761 -18.35% 774 2.24%

Nov-11 3,980 1.79% 728 -4.66% Feb-09 932 4.37% 757 -4.70%

Oct-11 3,910 7.12% 764 0.38% Jan-09 893 4.81% 794 -7.59%

Sep-11 3,650 12.31% 761 -1.22%

Aug-11 3,250 -2.40% 771 -8.41%

Jul-11 3,330 6.39% 841 -0.92%

Jun-11 3,130 0.64% 849 1.28%

May-11 3,110 16.04% 838 -1.57%

Apr-11 2,680 8.85% 852 -2.02%

Mar-11 2,462 -8.75% 869 -8.61%

Feb-11 2,698 20.72% 951 4.53%

Jan-11 2,235 17.45% 910 1.26%

closing

price(JPY)return rate

closing


closing


closing


Source: Yahoo Japan Finance

Exhibit35 Calculation of permanent growth rate

Because predicted value of domestic GDP is shown from 2013 to 2018, we predict that 2.38% which is geometry mean in this period will

continue in the future.

FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19

nominal GDP(million JPY) 501,209 471,139 482,384 470,560 475,573 483,250 499,674 511,589 522,758 535,975 549,399

growth rate -6.00% 2.39% -2.45% 1.07% 1.61% 3.40% 2.38% 2.18% 2.53% 2.50%

geometric average 2.38% Source: Global Insight and Nomura database


35

Exhibit36 Detail of multiple analysis

We calculate maximum and minimum by simple average of each companies because there are no outliers about PBR, PER, PSR,

EV/EBIT and EV/EBITDA.

Each companies index PBR PER PSR EV/EBIT EV/EBITDA

Sanrio 11.0 42.8 7.2 26.1 24.4

Hasbro 4.4 18.4 1.5 11.4 8.6

Mattel 7.0 19.0 2.3 13.3 11.5

Takara Tomy 1.5 0.2 16.0 3.6

Walt disney 3.6 20.3 2.7 12.2 10.3

Competitors average 4.1 19.2 1.7 13.2 8.5 Source: FACTSET(Stock price in 30th Sept as index)

Sanrio’s performance index

Net assets Net prof it SalesOperating

prof itEBITDA

Interest-

bearing debt

Sanrio's performance

index(million JPY)48,982 12,536 74,233 20,198 21,586 -268

Source: Securities report

Expected market capitalization and expected stock price from competitors average

PBR PER PSR EV/EBIT EV/EBITDA

Expected stock price(JPY) 2,259 2,703 1,411 2,998 2,056

Expected market

capitalization(million JPY)201,215 240,768 125,703 266,996 183,122

Max Min Median

Expected price(JPY) 2,998 1,411 2,259

Price target doesn’t fit in reasonable range. But looking at ROE, ROA and EBIT margin as profitability index, we can understand Sanrio’s

index are higher than competitors average.


36

Each companies profitability index

ROE ROA EBIT margin

Sanrio 32.1 13.8 27.2

Hasbro 23.0 7.9 25.8

Mattel 27.1 12.6 18.4

Takara Tomy -14.8 -5.6 1.5

Walt Disney 14.7 7.7 21.4 Source: FACTSET

From the above we assume high profitability causes high magnification stock price.

Then we select high profitability companies regardless of industry from the first section of TSE. We pay attention to ROE and EBIT

margin. We compare companies which have more than 20% ROE and more than 25% EBIT margin as high profitability companies.

Selected companies are 13 companies as following.

Japan M&A center, Linical, Cook Pad, Kakaku.Com, M3, DeNA, GREE, Yahoo, Oracle, Dr.Ci:Labo, Livesense, FPG, Accretive

Each companies magnification index and profitability index

Sanrio 508,600 32.1% 13.8% 27.2% 11.0 42.8 7.2 26.1 24.4

Hasbro 617,742 23.0% 7.9% 15.8% 4.4 18.4 1.5 11.4 8.6

Mattel 1,472,977 27.1% 12.6% 18.4% 7.0 19.0 2.3 13.3 11.5

Takara Tomy 43,620 -14.8% -5.6% 1.5% 1.5 0.2 16.0 3.6

Walt disney 11,520,764 14.7% 7.7% 21.4% 3.6 20.3 2.7 12.2 10.3

Competitors 12.5% 5.7% 14.3% 4.1 19.2 1.7 13.2 8.5

Japan M&A center 100,239 29.4% 23.1% 47.2% 12.0 48.3 13.9 27.0 26.7

Linical 16,885 52.1% 29.3% 27.9% 10.7 27.4 4.7 15.5 15.2

Cook Pad 120,974 29.8% 25.2% 53.1% 19.4 74.8 24.3 43.6 43.2

Kakaku.com 519,057 42.9% 29.3% 49.9% 27.2 73.2 22.3 43.1 41.1

M3 431,992 31.3% 23.0% 35.6% 18.4 77.2 16.6 45.3 42.5

DeNA 301,318 45.8% 28.3% 37.9% 2.4 6.6 1.5 3.0 2.8

GREE 180,418 24.8% 13.9% 31.9% 1.8 8.0 1.2 2.7 2.4

Yahoo 3,203,775 24.8% 18.9% 54.3% 5.8 27.9 9.3 15.0 13.9

Oracle 465,181 38.4% 21.3% 27.9% 6.0 17.6 3.0 10.1 9.9

Dr.Ci:Labo 74,197 25.7% 20.7% 22.3% 3.7 15.5 2.2 8.0 7.6

Livesense 71,404 44.1% 33.8% 49.9% 43.0 119.4 31.5 61.7 59.9

FPG 29,269 35.2% 12.7% 51.3% 11.5 36.9 10.4 18.3 18.0

Accretive 7,112 41.4% 4.6% 33.1% 2.5 8.3 2.5 18.4 17.8

high prof itability 35.8% 21.9% 40.2% 12.6 41.6 11.0 24.0 23.2

PSR EV/EBIT EV/EBITDAMarket

Capatalization(million JPY)ROE ROA EBIT margin PBR PER

Source: FACTSET (Stock price in 30th Sept as index)

We can understand high profitability company’s magnification index is similar to Sanrio’s index.

Expected market capitalization and expected stock price from high profitability average

PBR PER PSR EV/EBIT EV/EBITDA

Expected market

capitalization(million JPY)619,492 521,731 819,558 484,136 499,750

Expected stock price(JPY) 6,955 5,858 9,202 5,436 5,611 Max Min Median

Expected price(JPY) 9,202 5,436 5,858

Price target doesn’t fit in reasonable range by high profitability companies. But price target is similar to stock price by PER, EV/EBIT

and EV/EBITDA. We predict this separation is due to too high profitability. Therefore price target may fit in range if we select companies

which have more similar profitability. But this result shows that the difference in profitability affects on magnification index.

From the above price target is more expensive because of incorporating good profitability, this price is never unreasonable.

Exhibit37 Financial analysis(other graph)

Profitability analysis


37

Cash flow analysis

Balance sheet and funding

Source: FACTSET

Within 4 competitors, Hasbro and Mattel are Dec, 31st fiscal year-end, and Walt Disney is Sept, 30th fiscal year-end. But Sanrio is Mar,

31st fiscal year-end. So we match these companies to Mar, 31st fiscal year-end.

Dec, 31st fiscal year-end in 2012 → Mar, 31st fiscal year-end in 2013

Sept, 30th fiscal year-end in 2012 → Mar, 31st fiscal year-end in 2013

Exhibit38 Risk of market environment changing popularity

While size of character licensing markets kept constantly about 1.6 trillion JPY from 2000, the number of characters increase d from 718

in 2006 to 1081 in 2009. Therefore, character licensing markets increase competition. In addition, continuing the recession, many

companies tended to use standard characters, and it is hard for new characters to become popular.(quoted from CharaBiz 2011)

Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report.The conflict of interest is tha might bias the content or publication of this report Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA society of JAPANCFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

CFA Institute Research Challenge

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