Sanrio / 8136 COVERAGE INITIATED ON: LAST UPDATE:

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1 COVERAGE INITIATED ON: Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an owner s manual to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg. Research Report by Shared Research Inc.

2 INDEX How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company s most recent earnings. First-time readers should start at the business section later in the report. Executive summary Key financial data Recent updates Highlights Trends and outlook Quarterly trends and results Full-year outlook Long-term outlook Business Business description Business by segment Profitability snapshot, financial ratios Strengths and weaknesses Market and value chain Historical financial statements Income statement Balance sheet Statement of cash flows Other information History Major shareholders News and topics Top management Employees Company profile /85

3 Executive summary Overview Japan s leading character business: Social communication underpins Sanrio s corporate philosophy. According to the company, it operates under the concept of small gift, big smile. Sanrio s businesses include the development of characters who convey the spirit of thoughtfulness, the planning and development of gift merchandise featuring the company s characters, and the operation of theme parks (including Sanrio Puroland and Harmonyland). Founded in 1960, the company has a long history, and is still under its first leader, CEO and president Shintaro Tsuji. The father of Japan s character business, he has successfully led the company to its present place. Starting with the globally popular Hello Kitty, Sanrio has created many characters including My Melody and Little Twin Stars. Over the past 20 years (FY03/97 FY03/17) the company posted continuous operating profit. Its operating profit margin is 11.0% (as of FY03/17; peak was 27.5% in FY03/14). Global company: The main source of revenue and earnings is character licensing, both in Japan and abroad. Roughly 40% of consolidated sales come from overseas. Shared Research estimates that the Hello Kitty character accounts for about 80% of sales. Over 50,000 different kinds of Hello Kitty merchandise are sold in more than 130 countries and territories. The company has developed more than 450 characters in-house, and it sells Sanrio branded products at Sanrio stores, department stores, and nationwide chain stores. Licenses generate revenue from granting permission to use Sanrio characters, and cover products (such as toys, plush toys, and T-shirts) and promotions (bank cards, drinks, and other advertising and sales promotions). Recently the company has also been focusing on licensing its characters as a design feature (in cafes, hospitals, hotels, and other interiors). Successor issue: The heir apparent to CEO Shintaro Tsuji (born in 1927), Kunihiko Tsuji (eldest son and executive vice president of Sanrio at the time) passed away suddenly in November The selection of a successor to the elderly Tsuji is a matter of urgency for the company. Sanrio has experienced two periods of substantial earnings growth in the past 20 years: the Hello Kitty boom driven by high school girls and female office workers (FY03/98 FY03/99) and the success of the licensing business (FY03/10 FY03/14). Currently the company is looking for an earnings floor amid declining licensing revenues in Europe and the US. Trends and outlook In FY03/17 consolidated sales were JPY62.6bn (-13.5% YoY), operating profit was JPY6.9bn (-45.5%), recurring profit was JPY7.2bn (-44.9% YoY), and net income attributable to parent company shareholders was JPY6.4bn (-32.6%). On February 14, 2018 the company announced revisions to its full-year forecasts for FY03/18. Revised company forecasts are sales of JPY59.3bn (-5.4% YoY), operating profit of JPY5.3bn (-23.2%), recurring profit of JPY5.9bn (-18.7%), and net income attributable to parent company shareholders of JPY5.8bn (-10.4%). Explaining the downward revision, the company said licensing revenues were down in both the US and Europe and this was delaying the expected improvement in earnings overseas. On a brighter note, the company said business at domestic theme parks was good and getting better, with the number of visitors at Sanrio Puroland this fiscal year already topping 1.0mn. Sanrio has not released a new medium-term plan, which had been scheduled to be announced at the FY03/14 results announcement. The company said that in order to resolve the present situation, it plans to announce a new medium-term plan when it releases FY03/18 results. Strengths and weaknesses Shared Research thinks the company s strengths are the brand power of Hello Kitty, strong financials, and its licensing business model with a successful track record. Its weaknesses are high dependence on a single character, business born of its founder s passion and idealism not value maximization, and issues regarding management direction and succession. (See Strengths and weaknesses section for details.) 03/85

4 Key financial data Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 93,916 69,767 73,875 76,624 74,954 74,233 77,009 74,562 72,476 62,695 59,300 YoY -2.8% -25.7% 5.9% 3.7% -2.2% -1.0% 3.7% -3.2% -2.8% -13.5% -5.4% Gross profit 39,292 37,663 40,734 46,168 48,116 49,454 53,359 50,562 47,306 40,470 38,400 YoY 1.6% -4.1% 8.2% 13.3% 4.2% 2.8% 7.9% -5.2% -6.4% -14.5% -5.1% GPM 41.8% 54.0% 55.1% 60.3% 64.2% 66.6% 69.3% 67.8% 65.3% 64.6% 64.8% Operating profit 6,614 6,575 9,289 14,996 18,906 20,198 21,019 17,468 12,675 6,904 5,300 YoY 6.3% -0.6% 41.3% 61.4% 26.1% 6.8% 4.1% -16.9% -27.4% -45.5% -23.2% OPM 7.0% 9.4% 12.6% 19.6% 25.2% 27.2% 27.3% 23.4% 17.5% 11.0% 8.9% Recurring profit 5,263 5,954 8,249 13,387 18,368 19,646 20,180 18,525 13,178 7,255 5,900 YoY -5.6% 13.1% 38.5% 62.3% 37.2% 7.0% 2.7% -8.2% -28.9% -44.9% -18.7% RPM 5.6% 8.5% 11.2% 17.5% 24.5% 26.5% 26.2% 24.8% 18.2% 11.6% 9.9% Net income 1,114-1,495 4,373 9,380 14,378 12,536 12,802 12,804 9,609 6,475 5,800 YoY -73.2% % 53.3% -12.8% 2.1% 0.0% -25.0% -32.6% -10.4% Net margin 1.2% - 5.9% 12.2% 19.2% 16.9% 16.6% 17.2% 13.3% 10.3% 9.8% Per share data (JPY) Shares issued (year end; '000) 88,148 88,148 88,148 89,065 89,065 89,065 89,065 89,065 89,065 89,065 EPS EPS (fully diluted) Dividend per share Book value per share Balance sheet (JPYmn) Cash and cash equivalents 12,968 13,891 18,562 21,133 25,893 35,627 52,265 54,816 41,080 41,172 Total current assets 35,338 30,984 38,710 39,846 44,009 55,672 72,238 74,311 57,757 56,295 Tangible fixed assets 22,718 20,063 20,353 19,161 18,078 17,648 19,022 18,891 18,744 18,539 Investments and other assets 30,418 27,536 26,131 24,221 22,650 19,989 21,359 23,569 24,060 21,711 Intangible fixed assets ,869 4,000 4,865 5,254 5,200 4,715 Total assets 88,971 79,087 85,765 83,662 88,748 97, , , , ,312 Accounts payable 8,478 6,453 7,732 6,566 4,486 4,481 4,658 4,821 5,019 3,911 Short-term debt 23,660 19,109 17,636 21,425 17,112 11,852 11,777 10,828 7,069 10,591 Total current liabilities 38,250 30,962 32,223 34,755 28,626 24,879 29,288 29,373 23,022 24,824 Long-term debt 9,116 12,734 13,378 10,508 13,544 14,261 14,059 14,261 12,741 10,255 Total fixed liabilities 17,724 21,278 21,945 19,715 23,043 23,563 26,413 26,481 28,070 23,429 Total liabilities 55,974 52,240 54,168 54,470 51,669 48,443 55,701 55,855 51,092 48,253 Net assets 32,996 26,844 31,594 29,195 37,078 48,982 61,883 66,269 54,733 53,058 Total interest-bearing debt 32,776 31,843 31,014 31,933 30,656 26,113 25,836 25,089 19,810 20,846 Cash flow statement (JPYmn) Cash flows from operating activities 3,810 6,898 8,428 13,211 14,820 17,085 17,448 14,438 10,011 7,037 Cash flows from investing activities -2,396-2,038-1,559-2,120 2, ,651-7,818-6,398 8,736 Cash flows from financing activities -3,858-2,559-2,483-8,554-10,313-9,651-5,417-11,921-19,582-6,111 Financial ratios ROA (RP-based) 5.7% 7.1% 10.0% 15.8% 21.3% 21.1% 18.8% 15.5% 11.6% 7.0% ROE 3.2% -5.0% 15.0% 30.9% 43.5% 29.2% 23.2% 20.1% 16.0% 12.1% Equity ratio 37.1% 33.9% 36.8% 34.9% 41.8% 50.1% 52.4% 54.0% 51.4% 52.2% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Reversal of allowance for sales returns is subtracted from gross profit. 04/85

5 Recent updates Highlights On February 14, 2018, Sanrio Co., Ltd. announced earnings results for Q3 FY03/18 and revised its forecast for the full fiscal year; see the results section for details. On December 20, 2017, the company announced the transfer of fixed assets at a consolidated subsidiary. On December 19, the company s consolidated subsidiary concluded the transfer of fixed assets, as announced on November 9, The company s consolidated subsidiary in the US, Sanrio, Inc., decided to transfer assets to Prologis USLV LLC (a logistics real estate company based in San Francisco, California), and lease back some of those assets (the portion it was using). This decision was made after analyzing the real estate market and business environment and reviewing its assets held in order to strengthen its financial position and use of management resources. Details of the assets transferred Location and name of the asset Details of the facilities Amount Headquarters 570 Eccles Avenue, South San Francisco, CA Sale price Headquarters, storage facility, and rental property Estimated at USD16.2mn (about JPY1.8mn) USD64.6mn (about JPY7.3bn) Details of the leaseback Area Period Provisions Roughly 9,500sqm (currently used by the company) Seven years (with the option to extend for an additional five years) After the first three years, can cancel the contract with at least six months notice The company plans to announce revisions to its earnings forecasts due to this transfer as soon as it can confirm the amount that will be impacted, after clarifying the impact on consolidated subsidiaries earnings due to US tax reforms and US accounting standards (such as for sale-and-leaseback) and considering other earnings trends. The company s consolidated accounting year is April March 31, 2018, but the fiscal year of overseas consolidated subsidiaries is January 1, 2017 December 31, As such, the impact on consolidated earnings will be reflected in Q4. On December 15, 2017, the company made an announcement regarding its receipt of a notice of a supplementary tax assessment order based on anti-tax haven regulations and the company s response. On December 15, 2017, the company received a supplementary tax assessment order from the Tokyo Regional Taxation Bureau regarding a period of four years, from FY03/13 to FY03/15. The company s consolidated taxable subsidiaries are also expected to receive a notice of a supplementary tax assessment order for the same period in the near future. The amount of supplementary income tax for the company and its consolidated taxable subsidiaries is estimated to be approximately JPY2.8bn and the additional tax payment, including local government tax and other taxes, is estimated to be approximately JPY1.1bn. 05/85

6 Main points of supplementary tax assessment order According to the notice of supplementary tax assessment order received by the company, the Tokyo Regional Taxation Bureau ordered the company to pay additional tax because it concluded that the company s Hong Kong subsidiaries did not satisfy the requirements for exemption from the anti-tax haven regulations and must be included in unitary taxation. However, the company believes that its subsidiaries in Hong Kong have proactive economic rationale, as they are operating a character business which localizes Sanrio characters to reflect local consumers tastes. In addition, these subsidiaries have independent businesses which customize, plan, propose, and provide support that reflects the needs of each individual local licensee. As a result, the company filed tax returns appropriately, based on its determination that the Hong Kong subsidiaries fulfilled the requirements for exemption from the anti-tax haven rules. The company regrets that the business status of its subsidiaries was not fully considered, resulting in its receipt of a supplementary tax assessment order. The company will pay the supplementary tax as it continues to assert its legitimacy to the Tokyo Regional Taxation Bureau. Impact on results The company and its consolidated taxable subsidiaries will record an additional tax of about JPY1.1bn as corporate taxes and other taxes in Q3 FY03/18. The impact on consolidated earnings forecasts will be disclosed following a comprehensive examination of factors such as the sale of fixed assets by consolidated subsidiaries disclosed on November 9, 2017, and current and future earnings trends. On November 30, 2017, Shared Research updated the report following interviews with the company. For corporate releases and developments more than three months old, please refer to the News and topics section. 06/85

7 Trends and outlook Quarterly trends and results Cumulative (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est. Sales 15,010 31,451 47,153 62,695 13,437 28,299 44, % 59,300 YoY -11.9% -11.3% -14.4% -13.5% -10.5% -10.0% -6.4% -5.4% Gross profit 10,055 20,552 30,764 40,470 9,034 18,500 28, % 38,400 YoY -12.8% -15.0% -14.9% -14.5% -10.1% -10.0% -6.5% -5.1% GPM 67.0% 65.3% 65.2% 64.6% 67.2% 65.4% 65.2% 64.8% SG&A expenses 8,025 16,665 24,751 33,566 7,755 16,098 24, % 33,100 YoY -0.5% -1.9% -3.8% -3.1% -3.4% -3.4% -1.4% -1.4% SG&A ratio 53.5% 53.0% 52.5% 53.5% 57.7% 56.9% 55.3% 55.8% Operating profit 2,029 3,887 6,012 6,904 1,279 2,401 4, % 5,300 YoY -41.5% -45.8% -42.3% -45.5% -37.0% -38.2% -27.5% -23.2% OPM 13.5% 12.4% 12.7% 11.0% 9.5% 8.5% 9.9% 8.9% Recurring profit 1,781 3,729 6,338 7,255 1,320 2,664 4, % 5,900 YoY -50.8% -48.6% -40.6% -44.9% -25.9% -28.6% -25.7% -18.7% RPM 11.9% 11.9% 13.4% 11.6% 9.8% 9.4% 10.7% 9.9% Net income 1,243 3,804 5,778 6,475 1,014 1,935 2, % 5,800 YoY -55.7% -29.6% -26.9% -32.6% -18.4% -49.1% -57.0% -10.4% Net margin 8.3% 12.1% 12.3% 10.3% 7.5% 6.8% 5.6% 9.8% Quarterly FY03/17 FY03/17 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 15,010 16,441 15,702 15,542 13,437 14,862 15,836 YoY -11.9% -10.7% -20.0% -10.6% -10.5% -9.6% 0.9% Gross profit 10,055 10,497 10,212 9,706 9,034 9,476 10,249 YoY -12.8% -16.9% -14.8% -12.9% -10.1% -9.7% 0.4% GPM 67.0% 63.8% 65.0% 62.5% 67.2% 63.8% 64.7% SG&A expenses 8,025 8,640 8,086 8,815 7,755 8,343 8,301 YoY -0.5% -3.2% -7.5% -0.9% -3.4% -3.4% 2.7% SG&A ratio 53.5% 52.6% 51.5% 56.7% 57.7% 56.1% 52.4% Operating profit 2,029 1,858 2, ,279 1,122 1,958 YoY -41.5% -49.9% -34.5% -60.4% -37.0% -39.6% -7.9% OPM 13.5% 11.3% 13.5% 5.7% 9.5% 7.5% 12.4% Recurring profit 1,781 1,948 2, ,320 1,344 2,042 YoY -50.8% -46.5% -23.6% -63.3% -25.9% -31.0% -21.7% RPM 11.9% 11.8% 16.6% 5.9% 9.8% 9.0% 12.9% Net income 1,243 2,561 1, , YoY -55.7% -1.3% -20.9% -59.2% -18.4% -64.0% -72.1% Net margin 8.3% 15.6% 12.6% 4.5% 7.5% 6.2% 3.5% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Reversal of allowance for sales returns is subtracted from gross profit Note: Quarterly (3-month) performance figures calculated based on the difference from the preceding quarter. FY03/18 FY03/18 FY03/18 07/85

8 Quarterly earnings by segment Segments (cumulative) (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est. Consolidated sales 15,010 31,451 47,153 62,695 13,437 28,299 44, % 59,300 YoY -12.0% -11.3% -14.4% -13.5% -10.5% -10.0% -6.4% -5.4% Overseas 7,099 13,463 20,032 26,288 5,600 10,910 16, % 23,277 YoY -25.2% -26.0% -24.2% -24.1% -21.1% -19.0% -15.8% -11.5% Domestic 10,498 23,341 35,922 47,478 10,187 22,303 35, % 46,637 YoY -4.1% -5.0% -8.9% -7.5% -3.0% -4.5% -2.1% -1.8% Domestic Licensing 2,299 4,907 7,381 9,670 2,272 4,706 7, % 9,671 YoY -1.0% -4.3% -9.2% -8.2% -1.2% -4.1% 0.1% 0.0% Domestic Product Sales 4,663 9,565 15,082 20,450 4,219 8,712 14, % 19,210 YoY -3.3% -5.9% -8.4% -8.5% -9.5% -8.9% -6.5% -6.1% Theme Parks 1,587 4,203 6,205 8,139 1,840 4,548 6, % 8,650 YoY 0.4% 0.6% 3.3% 4.5% 15.9% 8.2% 10.1% 6.3% Others 1,949 4,666 7,254 9,219 1,856 4,337 6, % 9,106 YoY -12.2% -8.6% -17.8% -13.7% -4.8% -7.1% -5.7% -1.2% Eliminations -2,587-5,353-8,801-11,071-2,350-4,914-7, ,614 Consolidated operating profit 2,029 3,887 6,012 6,904 1,279 2,401 4, % 5,300 YoY -41.5% -45.8% -42.3% -45.5% -37.0% -38.2% -27.5% -23.2% Overseas 2,546 4,599 6,828 8,573 1,946 3,470 5, % 7,176 YoY -33.2% -35.0% -29.4% -30.0% -23.6% -24.5% -19.9% -16.3% Domestic , ,068-1, ,876 YoY Domestic Licensing 1,650 3,411 5,117 6,771 1,617 3,230 5, % 6,659 YoY 3.2% -2.8% -8.8% -7.6% -2.0% -5.3% -1.4% -1.7% Domestic Product Sales , % 966 YoY -7.7% -22.4% -32.5% -30.9% -24.1% -54.9% -29.8% -27.1% Theme Parks % 140 YoY % % 523.1% - Others % 220 YoY 44.0% -61.9% -62.3% -71.1% -68.3% -25.6% -12.6% 23.1% Eliminations -2,482-4,838-7,118-9,875-2,486-4,816-7, ,861 Segments (quarterly) FY03/17 FY03/17 FY03/18 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Consolidated sales 15,010 16,441 15,702 15,542 13,437 14,862 15,836 YoY -12.0% -10.7% -20.0% -10.6% -10.5% -9.6% 0.9% Overseas 7,099 6,364 6,569 6,256 5,600 5,310 5,958 YoY -25.2% -26.9% -20.1% -23.7% -21.1% -16.6% -9.3% Domestic 10,498 12,843 12,581 11,556 10,187 12,116 12,856 YoY -4.1% -5.8% -15.3% -3.1% -3.0% -5.7% 2.2% Domestic Licensing 2,299 2,608 2,474 2,289 2,272 2,434 2,679 YoY -1.0% -7.1% -17.6% -4.6% -1.2% -6.7% 8.3% Domestic Product Sales 4,663 4,902 5,517 5,368 4,219 4,493 5,391 YoY -3.3% -8.2% -12.6% -8.7% -9.5% -8.3% -2.3% Theme Parks 1,587 2,616 2,002 1,934 1,840 2,708 2,282 YoY 0.4% 0.8% 9.5% 8.5% 15.9% 3.5% 14.0% Others 1,949 2,717 2,588 1,965 1,856 2,481 2,504 YoY -12.2% -5.9% -30.3% 5.6% -4.8% -8.7% -3.2% Eliminations -2,587-2,766-3,448-2,270-2,350-2,564-2,978 Consolidated operating profit 2,029 1,858 2, ,279 1,122 1,958 YoY -41.5% -49.9% -34.5% -60.4% -37.0% -39.6% -7.9% Overseas 2,546 2,053 2,229 1,745 1,946 1,524 1,998 YoY -33.2% -37.1% -14.2% -32.0% -23.6% -25.8% -10.4% Domestic YoY Domestic Licensing 1,650 1,761 1,706 1,654 1,617 1,613 1,813 YoY 3.2% -7.8% -18.8% -3.7% -2.0% -8.4% 6.3% Domestic Product Sales YoY -7.7% -40.2% -44.6% -26.9% -24.1% % Theme Parks YoY % % 806.3% Others YoY 44.0% % % - 0.9% Eliminations -2,482-2,356-2,280-2,757-2,486-2,330-2,494 FY03/18 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Quarterly (3-month) performance figures show the difference between the cumulative quarters and the preceding cumulative quarters. 08/85

9 Overseas performance by region Overseas by region (cumulative) (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est. Overseas sales 7,099 13,463 20,032 26,288 5,600 10,910 16, % 23,277 YoY -25.2% -26.0% -24.2% -24.1% -21.1% -19.0% -15.8% -11.5% Europe 1,255 2,229 3,617 4, ,232 1, % 2,354 YoY -46.5% -49.9% -38.0% -39.3% -41.1% -44.7% -49.8% -42.8% UK , % 1,056 YoY -22.6% -13.1% -16.9% -21.4% -28.0% -30.0% -31.3% -17.4% North America 1,490 2,837 4,141 5, ,851 2, % 3,987 YoY -28.8% -31.3% -31.9% -32.5% -36.9% -34.8% -28.1% -26.5% Brazil , % 1,089 YoY -24.7% -27.8% -27.7% -25.8% -3.9% -11.5% -13.4% -15.3% Asia 3,672 7,038 10,298 14,137 3,345 6,762 10, % 14,778 YoY -11.6% -10.8% -13.9% -13.6% -8.9% -3.9% 2.5% 4.5% Hong Kong 1,120 2,270 3,382 4, ,090 3, % 4,867 Taiwan 664 1,305 1,925 2, ,095 1, % 2,395 South Korea ,034 1, % 1,278 China 1,490 2,776 3,957 5,636 1,451 2,958 4, % 6,238 Other % 14 Overseas operating profit 2,546 4,599 6,828 8,573 1,946 3,470 5, % 7,176 YoY -33.2% -35.0% -29.4% -30.0% -23.6% -24.5% -19.9% -16.3% Europe ,181 1, % 500 YoY -52.3% -58.7% -53.3% -55.1% -58.1% -63.9% -60.5% -58.4% UK % 166 YoY -64.1% -39.0% -37.1% -49.4% 3.6% -63.3% -63.5% -37.1% North America % -101 YoY -59.8% -71.0% -58.4% -68.0% -80.1% % - Brazil % 349 YoY -17.6% -21.9% -30.9% -22.9% -29.2% -38.0% -38.3% -39.0% Asia 1,590 3,038 4,544 6,227 1,541 3,092 4, % 6,550 YoY -8.1% -3.9% -5.9% -4.6% -3.1% 1.8% 6.6% 5.2% Hong Kong ,452 1, , % 2,123 Taiwan , % 1,073 South Korea % 511 China 639 1,188 1,757 2, ,393 2, % 2,843 Overseas by region (quarterly) Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Quarterly (3-month) performance figures show the difference between the cumulative quarters and the preceding cumulative quarters. Overseas subsidiaries pay master license fees (booked as CoGS) to the parent (the copyright holder) proportional to royalty income. The above figures include master license fees remitted to the parent. FY03/17 FY03/17 FY03/18 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Overseas sales 7,099 6,364 6,569 6,256 5,600 5,310 5,958 YoY -25.2% -26.9% -20.1% -23.7% -21.1% -16.6% -9.3% Europe 1, , YoY -46.5% -53.8% 0.8% -47.6% -41.1% -49.4% -57.9% UK YoY -22.6% -1.5% -24.1% -32.0% -28.0% -31.8% -34.1% North America 1,490 1,347 1,304 1, ,128 YoY -28.8% -33.8% -33.2% -34.5% -36.9% -32.4% -13.5% Brazil YoY -24.7% -31.1% -27.4% -18.6% -3.9% -20.1% -17.6% Asia 3,672 3,366 3,260 3,839 3,345 3,417 3,792 YoY -11.6% -9.9% -19.8% -13.0% -8.9% 1.5% 16.3% Hong Kong 1,120 1,150 1,112 1, ,093 1,288 Taiwan South Korea China 1,490 1,286 1,181 1,679 1,451 1,507 1,519 Other Overseas operating profit 2,546 2,053 2,229 1,745 1,946 1,524 1,998 YoY -33.2% -37.1% -14.2% -32.0% -23.6% -25.8% -10.4% Europe YoY -52.3% -65.3% -24.3% -85.7% -58.1% -72.1% -50.7% UK YoY -64.1% 12.0% -33.3% -74.1% 3.6% % North America YoY -59.8% -85.8% -15.1% % % Brazil YoY -17.6% -26.3% -49.0% 24.3% -29.2% -48.1% -39.3% Asia 1,590 1,448 1,506 1,683 1,541 1,551 1,752 YoY -8.1% 1.3% -9.7% -1.0% -3.1% 7.1% 16.3% Hong Kong Taiwan South Korea China FY03/18 09/85

10 Q3 FY03/18 results For the nine-month period through Q3, the company reported consolidated sales of JPY44.1bn (-6.4% YoY), operating profit of JPY4.3bn (-27.5%), recurring profit of JPY4.7bn (-25.7%), and, after booking JPY500mn in extraordinary gains from the sale of investment securities, a pre-tax profit of JPY5.2bn (-24.0%). Net income attributable to parent company shareholders came in at JPY2.4bn (-57.0%). The outsized drop in earnings at the net income level reflects 1) the dropout of a JPY1.1bn refund of corporate taxes received last year as a result of a restatement of earnings for previous years, and 2) the imposition of a supplementary tax assessment by the Tokyo Regional Taxation Bureau (TRTB) related to the amendment of income tax statements in past years, which prompted the company to book an additional JPY1.1bn for taxes on income earned in previous years to cover the supplementary tax assessment by the Tokyo Regional Taxation Bureau and also local taxes. According to the notice of supplementary tax assessment order received by the company, the Tokyo Regional Taxation Bureau ordered the company to pay additional tax, as it concluded that its subsidiaries in Hong Kong did not satisfy the requirements for exemption from the application of the Japanese Anti-Tax Haven Rules and should be included in unitary taxation. The company has paid the additional taxes imposed, but will continue to assert the legitimacy of its position to the tax authorities. Sanrio's position The company believes that Sanrio subsidiaries in Hong Kong have proactive economic rationale, as they are developing a localization business for Sanrio characters that reflects local consumer preferences. In addition, these subsidiaries have an independent, actual business involving customization, planning and proposals that reflects the needs of each local licensee. The company has therefore filed taxation returns appropriately, based on the belief that the subsidiaries fulfill the requirements for exemption from the perspective of the Anti-Tax Haven Rules. Notwithstanding, the company sincerely regrets that the actual business status of the subsidiaries was not fully considered by the tax authorities and that it received a notice of supplementary tax assessment order. Along with the release of Q3 results, the company once again revised its forecast for the full year. This was the second downward revision issued by the company this fiscal year, the first being in October The upward revision to its full-year forecast at the net income level, from JPY4.8bn to JPY5.8bn, reflects JPY4.5bn in extraordinary profits the company expects to book from the sale of certain fixed assets owned by its US subsidiary, Sanrio Inc. (see Recent Updates section for details). Looking at the company's progress versus its revised full-year forecast, we find sales during the nine-month period through Q3 equal to 74.4% of the company's full-term target (versus 75.2% at this time last year), operating profit equal to 82.2% (versus 87.1%), recurring profit equal to 79.8% (versus 87.4%), and net income equal to 42.9% (versus 89.2%). Note: Q1 FY03/18 consolidated results include the January March 2017 results of overseas consolidated subsidiaries, whose fiscal years run from January to December. The Domestic segment reported sales of JPY35.1bn (-2.1%YoY) and an operating loss of JPY1.1bn (versus year-earlier loss of JPY800mn). The Overseas segment reported sales of JPY16.8bn (-15.8%) and an operating profit of JPY5.4bn (-19.9%). Domestic Within the Domestic business, the Domestic Licensing segment reported sales of JPY7.3bn (+0.1% YoY) and an operating profit of JPY5.0bn (-1.4%). Domestic Product Sales reported sales of JPY14.1bn (-6.5%) and an operating profit of JPY600mn (-29.8%), and Theme Parks reported sales of JPY6.8bn (+10.1%) and an operating profit of JPY300mn (+523.1%). A negative spiral in the form of weakness at the licensing business continued owing to struggling product sales. The tendency to save due to an 10/85

11 extended economic slump has seen consumers shift from buying physical things to experiences. This worked against product sales but was positive for the theme parks. Domestic Licensing At the Domestic Licensing segment, sales were up 0.1% YoY and operating profit was down 1.4%, hurt by a slump in sales through mass retailers and a decline in licenses for stationary products and other goods commonly bought around the start of a new school year. One bright spot was agreements covering new apparel items from companies like G.U. Co., Ltd. and the extension of Sanrio characters into new product areas. The company also reported strong sales at its anime-related content business, including "I'm Doraemon" and " Fullmetal Alchemist." Contributions were also seen from licensing agreements with Kobayashi Pharmaceutical (covering its skin cream), Kao Corp. (for "Senior Liner"), with the Mister Donut chain (for its Halloween sales campaign), and with the Kentucky Fried Chicken chainfor its sales campaign on 15-year anniversary of Sanrio's popular Cinnamoroll character. Domestic Product Sales At the Domestic Product Sales segment, sales were down 6.5% YoY and operating profit down 29.8% as the slump in consumer spending in rural areas overwhelmed the sharp jump in sales to overseas tourists and expanded sales of anime-related goods. Sales at comparable stores (including directly managed standalone stores and directly managed in-store stores at department stores) were down 0.7%, though this represented a 5.9pp improvement over the same period the previous year. Popular items included character-themed cushion-blankets and snow globes. At the company's SHOW BY ROCK!! shops (open for limited time only), the company enjoyed success with various promotional measures aimed at increasing sales of anime character-related goods. One example was to start sales of new character goods on the 6th of every month, "Rock Day"; the positive reception has been such that lines form outside the stores. Theme Parks segment At the Theme Parks segment, sales were up 10.1% YoY and operating profit was up 523.1%. Harmonyland enjoyed a sharp turnaround as it held down costs while average customer spending rose. For the nine-month period through Q3, Harmonyland saw a total of 341,000 visitors, an increase of 11,000 or 3.6% over the same period the previous year. The increase in the visitor count reflects a 24,000 YoY increase in visitors during 1H, when the park benefited from the recovery in the region following the Kumamoto earthquake in 2016; on the minus side, much of the 1H visitor gains were offset by the impact of inclement weather during Q3, including typhoons that buffeted the park on two separate weekends in October and unseasonably cold winter weather in December. The impact on park attendance at these times was especially large because the stormy weather in October hit when the park was holding its popular Halloween-themed event and the cold weather in December hit when the park was holding its big Christmas-themed event. Sanrio Puroland also saw sales and earnings increase on the back of rising attendance. For the nine-month period through Q3, the park reported 1.0mn visitors, an increase of 101,000 or 11.1% over the same period the previous year. The gains reflected the popularity of Cinnamoroll s 15th anniversary event (Fuwamoko Town) featuring Shinagawa Monjiro (a character exclusive to the park), Sparkle!!! (started in July 2017, a light show that added illuminations to the Hello Kitty show), and extended operating hours by one hour during weekdays for the Halloween period all proved successful. Higher sales offset the additional costs stemming from the extension of opening hours, restaurant management contract fees, website renewal costs, social media advertising, and depreciation costs for parades, and led to a sharp increase in operating profit over the same period the previous year. Overseas Overseas sales of JPY16.8bn were down 15.8% YoY and operating profit of JPY5.4bn was down 19.9%. (Sales and earnings before eliminations and after master license fees paid to the parent were returned to the respective subsidiaries.) 11/85

12 Europe European sales of JPY1.8bn were down 49.8% YoY and operating profit of JPY400mn was down 60.5%. UK sales of JPY600mn were down 31.3% and operating profit of JPY80mn was down 63.5%. The company was able to avoid heavy discounting when making new licensing agreements for household goods and stationary products, but licensing revenues were down sharply in apparel and toys, two areas that normally account for the bulk of licensing revenues in Europe. In an effort to turn things around, the company plans to continue its marketing campaign using so-called influencers and also working with other companies that have high-priced brands. North America North American sales of JPY2.9bn were down 28.1% YoY and operating profit of JPY8mn was a fraction of the JPY600mn operating profit logged during the same period the previous year. The drop in sales reflects the growth in online sales at the expense of brick-and-mortar stores, which continue to close, and the increasing tendency consumers to buy well-known products. With shelf space at major retailers of Hello Kitty licensed products still on the decline, the company continued to struggle to make product licensing deals. While the company experience little difficult inking corporate advertising licensing deals in connection with cosmetics, and medical and pharmaceutical products, revenue from licensing in connect with apparel and toys (its biggest categories) and most other product categories was down. South America South American sales of JPY800mn were down 13.4% YoY and operating profit of JPY200mn was down 38.3%. The weak results reflected a slump in the large Mexican market. Licensing revenue from apparel, accessories, cosmetics, bags, and shoes was down, but licensing revenues from stationary, baby goods, home appliances held up well. As part of its strategy to increase brand awareness of Hello Kitty and other Sanrio character goods and increase licensing sales and earnings in South America, the company is working together with the creator of a popular local character, Monica, starting up a Latin America-oriented YouTube channel and holding events at shopping malls. Asia Asian sales of JPY10.5bn were up 2.5% YoY and operating profit of JPY4.8bn was up 6.6%. Hong Kong and Southeast Asia The Hong Kong and Macao retail markets remain difficult and sales in these markets remain depressed, but the drag from this corner was offset by strong sales in Thailand. Additions to sales came from licensing rights for corporate advertising (such as licensing its popular MIX character for use in a convenience store ad campaign), and licensing agreements with manufacturers of cosmetics and toiletries. Licensing agreements for a convenience store ad campaign and a promotional campaign by a major manufacturer of household goods made especially large additions to licensing revenues in Thailand. In Singapore, Sanrio made an innovative move to increase the public recognition of its characters by going into a new area and licensing characters for use in a taxi dispatch software application. In Hong Kong, the company is working to sustain growth by moving into new areas and during the period entered a noteworthy collaborate arrangement with a local skating rink, and by expanding its licensing of characters for use in store window displays, promotional campaigns, and household goods. Taiwan Sales and profits declined YoY in Taiwan due to the impact on spending at traditional retail stores from cross-border e-commerce and of competition from established retailers. In addition to the decline in tourists from the mainland, the traditional retail market has shrunk due to the booming of cross-border e-commerce in China, resulting in a harsh environment for product licensing. While conditions were generally weak in all areas, in foods the company did manage to ink a new licensing contract with a local 12/85

13 cake shop chain. Revenues from advertising licensing agreements finished short of the same period the previous year, but the company won a number of good corporate advertising licensing deals, including the use of its Gudetama character for an exhibition and Cosme sales promotion, and its MIX character for use in a convenience store sales promotion campaign. South Korea Existing stores struggled as rising geopolitical tension led to lower consumption spending as consumers grew wary and the number of foreign tourists dwindled. Against this background, Sanrio saw especially large declines in licensing revenues from video game software and apparel. On the plus side, the company's strategic push into advertising licensing paid off with higher revenues from licensing characters for use in corporate ad campaigns. The character Rilu Rilu Fairilu from the animated TV series was especially popular. Licensing revenues from both the toy and publications market logged solid gains. The company is currently looking at making additional licensing agreements in connection with the opening of a live theatrical production and the second season of the animated TV series, and is also working to make licensing agreements in new areas including apparel and medical and pharmaceutical products. China Sales in China rose 13.1% YoY and operating profit was up 10.7%. The top-line growth was driven in large part by product licensing revenue from KT Licensing, where product licensing agreements with a major general merchandise retailer and major manufacturer of sanitary products for women nearly tripled the company's product licensing revenues from cosmetics and toiletries. Product licensing revenues were also up sharply from apparel following a new licensing agreement with China's largest sporting goods company for a line of children's clothing. Product licensing revenues were also up from agreements covering household goods and food products. The company also saw an increase in proportion of licensing revenues from the use of characters other than the ever-popular Hello Kitty. With major licensing agreements being reached for use of the characters My Melody and Bad Badtz-Maru, the proportion of licensing revenues from China for the use of characters other than Hello Kitty roughly double and now stands at 6%. For details on previous results, please refer to the Historical Financial Statements section. 13/85

14 Full-year outlook FY03/17 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. FY03/18 Est. (JPYmn) 1H 2H FY 1H Act. 2H Est. FY Est. Sales 31,451 31,244 62,695 28,299 31,001 59,300 YoY -11.3% -15.6% -13.5% -10.0% -0.8% -5.4% Gross profit 20,552 19,918 40,470 18,510 19,890 38,400 YoY -15.0% -13.9% -14.4% -9.9% -0.1% -5.1% GPM 65.3% 63.7% 64.6% 65.4% 64.2% 64.8% SG&A expenses 16,665 16,901 33,566 16,098 17,002 33,100 SG&A ratio 53.0% 54.1% 53.5% 56.9% 54.8% 55.8% Operating profit 3,887 3,017 6,904 2,401 2,899 5,300 YoY -45.8% -45.1% -45.5% -38.2% -3.9% -23.2% OPM 12.4% 9.7% 11.0% 8.5% 9.4% 8.9% Recurring profit 3,729 3,526 7,255 2,664 3,236 5,900 YoY -48.7% -40.4% -44.9% -28.6% -8.2% -18.7% RPM 11.9% 11.3% 11.6% 9.4% 10.4% 9.9% Net income 3,804 2,671 6,475 1,935 3,865 5,800 YoY -29.6% -36.5% -32.6% -49.1% 44.7% -10.4% FY03/18 company forecasts Overview On February 14, 2018 the company announced revisions to its full-year forecasts for FY03/18. Following the revision, the company is forecasting FY03/18 sales of JPY59.3bn (-5.4% YoY), operating profit of JPY5.3bn (-23.2%), recurring profit of JPY5.9bn (-18.7%), and net income attributable to parent company shareholders of JPY5.8bn (-10.4%). Revised company forecast for full-year FY03/18 results Sales: JPY59.3bn (versus previous forecast of JPY60.3bn) Operating profit: JPY5.3bn (versus JPY6.3bn) Recurring profit: JPY5.9bn (versus JPY6.6bn) Net income* JPY5.8bn (versus JPY4.8bn) EPS: JPY68.36 (versus JPY56.57) Annual dividend: JPY55.00 (versus JPY55.00) *Net income attributable to parent company shareholders Sales: The company lowered its forecast for full-year sales by JPY1.0bn versus its previous forecast. The downward revision reflects a JPY76mn (0.2%) reduction in its forecast for domestic sales, a JPY781mn (3.2%) reduction in its forecast for overseas sales, and a JPY143mn increase in its forecast for inter-group sales (eliminated when group sales are consolidated). Operating profit: The JPY1.0bn reduction in the company's full-year forecast for operating profit reflects a JPY277mn reduction in its forecast for domestic operating profit (meaning larger losses) and a JPY723mn (9.2%)reduction in its forecast for overseas operating profit. *Within its domestic operations, the company raised its sales and earnings forecast for the Theme Parks segment, raising its sales estimate by JPY111mn and operating profit estimate by JPY72mn. In addition to strong attendance figures at Sanrio Puroland, where the number of park visitors this fiscal year has already topped 1.0mn, sales are also being pushed up by the rising number of foreign tourists. Overseas, a slump in licensing revenues from both the US and Europe has delayed the expected improvement in earnings overseas, but the company did raise its forecast for North America, raising its sales forecast by JPY180mn and operating profit forecast by JPY109mn. 14/85

15 Extraordinary gains from sales of fixed assets: In Q4 FY03/18, the company expects to book an extraordinary profit of JPY4.5bn from the sale of certain property owned by its US subsidiary (Sanrio Inc.). By segment (JPYmn) 1H 2H FY 1H Act. 2H Est. FY Est. 1H Act. 2H Est. FY Est. Consolidated sales 31,451 31,244 62,695 28,299 31,001 59, % -0.8% -5.4% Overseas 13,463 12,825 26,288 10,910 12,367 23, % -3.6% -11.5% Domestic 23,341 24,137 47,478 22,303 24,334 46, % 0.8% -1.8% Domestic Licensing 4,907 4,763 9,670 4,706 4,965 9, % 4.2% 0.0% Domestic Product Sales 9,565 10,885 20,450 8,712 10,498 19, % -3.6% -6.1% Theme Parks 4,203 3,936 8,139 4,548 4,102 8, % 4.2% 6.3% Others 4,666 4,553 9,219 4,337 4,769 9, % 4.7% -1.2% Consolidated operating profit 3,887 3,017 6,904 2,401 2,899 5, % -3.9% -23.2% Overseas 4,599 3,974 8,573 3,470 3,706 7, % -6.7% -16.3% Domestic ,668-1, , Domestic Licensing 3,411 3,360 6,771 3,230 3,429 6, % 2.1% -1.7% Domestic Product Sales , % -6.2% -27.1% Theme Parks Others % 106.0% 23.1% Eliminations, company-wide expenses -4,838-5,037-9,875-4,816-5,045-9, By region FY03/17 FY03/17 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. FY03/18 Est. FY03/18 Est. (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Est. FY Est. 1H Act. 2H Est. FY Est. Overseas sales 13,463 12,825 26,288 10,910 12,367 23, % -3.6% -11.5% Europe 2,229 1,885 4,114 1,232 1,122 2, % -40.5% -42.8% UK , , % -4.5% -17.4% North America 2,837 2,588 5,425 1,851 2,136 3, % -17.5% -26.5% Brazil , , % -19.5% -15.3% Asia 7,038 7,099 14,137 6,762 8,016 14, % 12.9% 4.5% Hong Kong 2,270 2,285 4,555 2,090 2,777 4, % 21.5% 6.8% Taiwan 1,305 1,212 2,517 1,095 1,300 2, % 7.3% -4.8% South Korea , , % -11.2% -10.6% China 2,776 2,860 5,636 2,958 3,280 6, % 14.7% 10.7% Other % Overseas operating profit 4,599 3,974 8,573 3,470 3,706 7, % -6.7% -16.3% Europe , % -43.5% -58.4% UK % -8.0% -37.1% North America Brazil % -40.4% -39.0% Asia 3,038 3,189 6,227 3,092 3,458 6, % 8.4% 5.2% Hong Kong , ,184 2, % 21.4% 8.7% Taiwan , , % -1.5% -9.5% South Korea % -14.3% -8.9% China 1,188 1,339 2,527 1,393 1,450 2, % 8.3% 12.5% Other YoY YoY In the previous tables and the comments that follow, master license fees paid to the parent in Japan are included in the results of overseas subsidiaries, in order to accurately reflect revenues generated by those subsidiaries. However, in the tables using the local currencies of overseas subsidiaries, master license fees paid to the parent are included in the results of the parent. (The comments below reflect the company's thinking prior to this latest downward revision and will be updated following our upcoming interview with management.) 15/85

16 Expectations of inbound demand recovery after slump Weakness of the Domestic business (JPY1.6bn segment loss) was marked in FY03/17, although business in Europe and North America was also lackluster. One reason for the poor performance of the Domestic business was the downturn of inbound demand from Chinese tourists stemming from the Chinese government raising the tariff rate* in April The tariff rate on products purchased overseas by Chinese residents was raised (e.g., from 30% to 60% on luxury watches). Sanrio completed disposal of excess inventory arising from the slump in inbound demand in FY03/17. In FY03/18, the company plans to revive the Domestic licensing business by holding anniversary events of existing characters and debuting new characters, improving profit margins, and opening new stores that fulfill diverse consumer needs. In 1H FY03/18, the number of overseas visitors to Sanrio stores and their purchase value increased YoY. Inbound demand is showing a recovery trend overall, although the recovery is mainly in the Kansai area and per-customer spending (unit price) is yet to turn up again. Brisk performance continues in Asia In the Overseas business, Sanrio expects brisk performance in Asia to continue through FY03/18. The master license in China (excluding Hong Kong and Macao) of product licenses between Sanrio and KT Licensing Ltd (KTL), and between Sanrio and KT Licensing (Shanghai) Ltd. (KTL Shanghai) concluded in January 2012 for characters owned by the company was renewed for five years. Renewing the license had been a management priority for Sanrio. Sanrio Shanghai will continue to receive from KTL and KTL Shanghai a sum calculated as a percentage of earnings from the manufacture and sales of products covered by the agreement and a fixed percentage in royalties. The company will receive approximately 1.7x the previous minimum guarantee (USD146mn versus USD85mn) for 17 characters including Hello Kitty. In addition, Gudetama, which the company has been focusing on, has a separate contract with a minimum guarantee separate from the overall minimum guarantee and a one-year contract. The company aims to strengthen space licenses and revitalize existing characters in Southeast Asia in addition to maintaining stable growth in China. Examples of strengthening space licenses is the Hello Kitty Jet (renewal of four designs) for Eva Air (Taiwan) and 48 space licenses granted to the restaurant business such as the Hello Kitty Café that opened in the Philippines in June Examples of revitalizing existing characters include Our Sanrio Times, an exhibition featuring Sanrio characters held in Macau from July 28 to September 3, Sanrio held the Gudetama exhibition in Joy City (Shanghai) from June to August 2017 and the event received a favorable reception (150,000 visitors). Going forward, the company is considering holding this exhibition in Beijing. In 2H, the company is expecting improved earnings. Challenge for overseas business is halting earnings decline in Europe and North America A remaining priority in the Overseas business is halting the earnings decline in Europe and North America. Sanrio s top priorities in Europe are marketing multiple characters such as Mr. Men and Little Miss, strengthening advertising and space licenses, and improving its sales structure to expand business in the Middle East market, which has considerable growth potential. The company appointed a new British COO who has 25 years experience in the licensing business as part of its efforts to strengthen its sales structure. The new COO, who reports to Sanrio headquarters and director in charge of the European business, has been in charge since May 15, He attended the Licensing Expo held in Las Vegas in May to attract orders that will determine sales in Sanrio commented that one of his strengths is sports-related businesses. Sanrio s main priority in North America is increasing its presence in mass-market channels like Wal-Mart Stores, Inc., Target Corporation, and Toys R Us, which account for 40% of the market. The company collaborated with brands like OPI and ColourPop as a rebranding exercise for Hello Kitty, but thinks that rebranding will take some time. Meanwhile, Sanrio is nurturing new characters like Gudetama and Aggretsuko and taking steps to adapt to the new direct-to-retail (DTR) format for specialty stores. Traditionally, the company earned royalties by granting licenses to suppliers of shoes and apparel, which delivered licensed merchandise to retailers. In the DTR format, Sanrio concludes a licensing agreement with retailers and contracts out production of products sold at their own stores to OEM manufacturers. Sanrio aims to use DTR as a way to increase its control over distribution of licensed merchandise and take the lead from licensees in selling to retailers. 16/85

17 Test marketing of Gudetama in Target stores started in September Sanrio hopes that expansion of Gudetama sales will spark earnings recovery in the North American market. The company must also embrace the shift from physical stores to e-commerce and will concentrate on inspiring posts on SNS as well as working with media. Company forecasts by business segment are as follows. Domestic For the Domestic business, the company forecasts sales of JPY46.7bn (-1.6% YoY), and an operating loss of JPY1.5bn (operating loss of JPY1.6bn in FY03/17). This is because while the company is expecting to post operating profits at each business, including the Domestic Licensing, the Domestic Products Sales, and the Theme Parks businesses, it anticipates an operating loss of JPY9.8bn due to costs at headquarters and other factors. Initial forecasts were sales of JPY49.4bn (+4.2% YoY), and an operating profit of JPY300mn (operating loss of JPY1.6bn in FY03/17). Domestic Licensing Revenue forecast: Operating profit forecast: JPY9.6bn (-0.7% YoY) JPY6.8bn (+0.6% YoY) In addition to Cinnamoroll, which celebrated its 15th anniversary, the company expects an increase in new character licenses such as I m Doraemon and Pom Pom Purin (voted the top character in the Sanrio Character Awards for the second year in a row), as well as for Gudetama, Show by Rock, Rilu Rilu Fairilu, and Aggressive Retsuko. As a new market for the character business, the company plans to expand into the primary sector (agricultural products) and corporate benefits programs (company dining halls, offices), and grow sales and profits by winning customers outside of its current customer base. Initial forecasts were sales of JPY10.2bn (+5.6% YoY), and an operating profit of JPY7.4bn (+10.4% YoY). Senior Managing Director Tomokuni Tsuji became head of the Character Creation Office, part of the Media Department in June The Media Department is a cross-divisional organization that formulates strategies for incubating characters and making them profitable in Japan and overseas. The company revised the 2H FY03/18 company targets. Sanrio s character strategy holds the key to the success of its medium-term plan. Domestic Product Sales Sales forecast: Operating profit forecast: JPY19.0bn (-6.9% YoY) JPY900mn (-28.8% YoY) The company started distributing smartphone app Sanrio Passport, from which users can receive special promotions that encourage them to visit stores. Sanrio is proceeding with its consumer-centered store-opening strategy in line with diverse consumer needs. It plans to develop its food and beverage business model through menus featuring its characters, such as at character food truck cafes and at hybrid Hello Kitty Japan stores (which include dining areas) similar to the store in the DiverCity Tokyo Plaza, which was expanded and opened in October It also aims to roll out stores targeting the senior demographic. Initial forecasts were sales of JPY20.7bn (+1.5% YoY), and an operating profit of JPY1.9bn (+44.8% YoY). Theme Parks Sales forecast: Operating profit forecast: JPY8.5bn (+4.9% YoY) JPY60mn (operating loss of JPY60mn in FY03/17) Initial forecasts were revised up from sales of JPY8.3bn (+3.1% YoY), and an operating profit of JPY10mn (operating loss of JPY60mn in FY03/17). 17/85

18 At Sanrio Puroland, the company plans on an increase in visitors, especially young girls. It opened Cinnamoroll Fuwamoko Town to celebrate the 15th anniversary of Cinnamoroll in February It also plans to leverage the benefits of an indoor complex when creating spaces each season. It aims to increase visitors from overseas by revamping its smartphone site. At Harmonyland, it aims to focus on changing the area s image as one affected by natural disasters, boosting the number of visitors from outside the prefecture, and attracting groups that had cancelled. To increase the number of visitors from overseas, it plans to boost advertisement at key airports and train stations throughout Kyushu. Overseas Sales forecast: Operating profit forecast: JPY24.0bn (-8.5% YoY) JPY7.8bn (-7.9% YoY) In Asia, the company expects sales and operating profit to increase YoY, but in other regions, it expects lower sales and operating profit YoY. Initial forecasts were sales of JPY27.8bn (+5.8% YoY), and an operating profit of JPY10.4bn (+22.0% YoY). Europe For Europe, the company forecasts full-year sales of JPY2.9bn (-28.4% YoY) and operating profit of JPY700mn (-40.6% YoY). Initial forecasts were sales of JPY4.0bn (-2.1% YoY) and operating profit of JPY1.4bn (+19.0% YoY). For the UK, it forecasts full-year sales of JPY1.0bn (-14.9% YoY) and operating profit of JPY200mn (-18.6% YoY). Initial forecasts were revised up from sales of JPY1.0bn (-20.2% YoY) and operating profit of JPY100mn (-28.4% YoY). In Europe, it hired a local COO in charge of license sales, a position that had been vacant. It plans to strengthen sales to core licensees using a base of partnerships with agencies and licensees built at agency strategy meetings (license conferences) it held in core cities starting in FY03/17. It also plans to strengthen its media strategy including animation and social networking to cultivate recognition of its characters in Europe, where it does not have directly managed stores or franchise stores. Hello Kitty accounted for 80% of sales in Europe in FY03/16, declining slightly to 76% in FY03/17. With a goal of lowering this percentage to 60% in FY03/19, the company will continue to market multiple characters in FY03/18, mainly Mister Men and Little Miss. Sanrio is focusing on both product and space licenses, and expanding its scope to advertising licenses to increase exposure to form a positive spiral of greater exposure and license business expansion. The company assumes 4.4% YoY yen appreciation against the euro and 2.9% yen depreciation against the pound. North America Sales are expected to be JPY3.8bn (-29.8% YoY) with an operating loss of JPY4mn (operating profit of JPY600mn in 1H FY03/17). In North America, the company expects closures of major mass market retail stores to increase due to the spread of e-commerce. As a result, it expects the decline in stores selling Hello Kitty products to accelerate. As such, it plans to rebrand Hello Kitty with new brand collaborations, while actively selling Gudetama (as a character to follow Hello Kitty in popularity) and hello sanrio (featuring all Sanrio characters) to specialty stores. Similar to Europe, it plans to expand character exposure from licensing to cafes and companies sales promotion activities, which are strong in Asia. It looks to strengthen its media strategy using animation and social networking sites, explore direct-to-retail (DTR), increase sales at specialty stores, and continue with its multi-character strategy (Hello Kitty accounted for 98% of sales in FY03/17). The company assumes that the yen will depreciate 1.9% YoY against the dollar. Initial forecasts were sales of JPY5.9bn (+10.5% YoY) with an operating profit of JPY1.4bn (+133.6% YoY). South America Sanrio aims to raise the profile of its characters to expand sales by exposure on YouTube character channels, participating in comic conventions, and holding licensing conferences with agents. Asia Sanrio expects sales of JPY14.9bn (+6.0% YoY) and an operating profit of JPY6.8bn (+10.2% YoY). In Asia, it plans to fully roll out Gudetama in ASEAN countries as well as mainland China as it did in Taiwan and Hong Kong. It aims to grow sales and profits by expanding markets in its specialty areas, such as through character cafes and collaborations with other companies characters. 18/85

19 Initial forecasts were revised down slightly from sales of JPY15.7bn (+11.2% YoY) and an operating profit of JPY7.1bn (+14.1% YoY). Forex The effect of currency exchange fluctuations in the overseas subsidiaries during FY03/17 is as follows. Effect of forex changes on overseas business EUR GBP USD CNY KRW TWD HKD FY03/17 exchange rate (JPY; Act.) FY03/18 exchange rate (JPY; Est.) YoY 4.4% -3.1% 1.9% 0.5% 5.1% 8.2% 1.5% Sales (local currency; mn) , Forex impact (JPYmn) Operating profit (local currency; mn) , Forex impact (JPYmn) Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. 19/85

20 Long-term outlook Regarding the new medium-term plan, which was supposed to be announced at the FY03/14 results briefing, as of May 2017 the company is planning to announce the new plan as soon as prospects improve for the bottoming out European and US results. The company strongly recognizes the necessity of the medium-term plan. Shared Research estimates that the European and US results have a significant impact on medium-term forecasts. The current direction of the management structure is as follows. We believe a test of the company s medium-term growth will be whether it can adapt and replicate the Japan and Asia success model (the variety of characters, for example) in Europe and the US, and further, whether it can rebuild the Hello Kitty character brand in Europe and the US. While it is quite difficult to sell physical things in Japan these days, the Sanrio Puroland theme park has been performing solidly as consumers have been receptive to the enjoyment of shared experiences. Also, the company renewed the master license of product licenses for its characters in China (excluding Hong Kong and Macau) with KT Licensing Ltd. on January 31, Stable growth is forecasted to continue in Asia for a period of 59 months (roughly 5 years) from February More specifically, the minimum guarantee for 17 characters, including Hello Kitty, is about 1.7x the amount in the previous contract (previous minimum guarantee was for USD85mn, new one is for USD146mn). In addition, Gudetama, which the company has been focusing on, has a separate contract with a minimum guarantee separate from the overall minimum guarantee and a 1-year contract. European business After focusing on the European licensing business in FY03/08, the region has shown growth until to FY03/11. FY03/11 sales increased to JPY20.8bn (FY03/08 was JPY9.1bn) with an operating income of JPY11.1bn (JPY3.6bn for FY03/08). In addition, the operating income composition ratio was 75% (55% for FY03/08). However, the European business has experienced a continuing decline in sales and profits since FY03/12 with FY03/16 showing JPY11.9bn in sales (-29.6% YoY; including sales from the UK before adjustments) and JPY3.2bn in operating profit. In addition to the struggling economy under the European debt crisis, the company attributes the decline to the European subsidiary not functioning adequately. From FY03/15, the company has been reorganizing its sales structure, replacing licensees. In addition to increasing sales staff, the sales organization is being restructured to have a dedicated team manage major licensees. Its European leadership changed to Director Jiro Kishimura, and since then Sanrio has been working on developing new characters such as the Mr. Men and Little Miss characters to become the new Hello Kitty, while also developing product and promotional licensing initiatives. Further, the company plans to build a solid foundation in core cities such as Hamburg, Milan and London. As discussed previously, Sanrio hired a new COO of its European licensing business to strengthen its marketing structure. In FY03/18, Sanrio plans to improve the brand by holding agency strategy meetings for license agents in key regions and working with agencies and licensees. It will increase the licensing sales force and revise the licensing sales structure. It also plans to promote the e-commerce business in Europe where the company does not have any directly managed stores or franchise stores. The company plans to develop multiple characters, although Hello Kitty products accounted for more than 90% of sales in Europe as of May It plans to focus on Mr. Men and Little Miss (created in the UK in 1971 and acquired by the company in 2011) as the main characters to follow Hello Kitty in popularity. It aims for Mr. Men and Little Miss products to account for 40% of sales in Europe in Sanrio will pursue a media strategy that uses animation and social networks to popularize and grow the characters. The company looks to expand beyond bookstores to product licensing for apparel and promotional licenses with airports, subways, and other locations. 20/85

21 North American business In North America, the product sales specialty shops were restructured starting from FY03/08 and the focus was shifted to the licensing business. As a result, FY03/14 sales increased to JPY16.7bn (FY03/08 was JPY7.7bn) with an operating income of JPY8.7bn (JPY2.1bn for FY03/08). However, in addition to the effect of chilly weather in FY03/15, competition intensified in the character product market due to the release of character products related to hit movies from competing firms. Due to a reduction in the share of retail shelf space held by major licensees, results for the region dropped to sales of JPY12.3bn (declined 26.1% from FY03/14) with an operating income of JPY5.0bn (declined 42.4% from FY03/14). In FY03/16, sales were JPY8.0bn (-34.9% YoY) and operating profit was JPY2.0bn (-60.1% YoY). From FY03/18 onward, Sanrio is set to drive a new design campaign by having its head office designers pitch global versions of the Hello Kitty design a practice that started in FY03/17. Specifically, under the existing practice, Sanrio changes the main design of Hello Kitty every year in Japan to keep it fresh and new, while leaving the character design up to the local staff in North America, which effectively left the basic design of Hello Kitty unchanged over the past 30 years. The company now thinks that this practice should be revised and has decided to have its head office designers provide global versions of the Hello Kitty design to the North American market. Also, it plans to strengthen promotional licensing in addition to product licensing, as was done in Europe. The company also plans to open flagship stores in major cities on a franchise basis as a way of supporting the company s licensing business. The company intends to work on a multi-character strategy, promoting awareness of Gudetama, My Melody, and Little Twin Stars. As well, it will aggressively promote hello sanrio featuring all Sanrio characters. Specifically, Sanrio is aiming for stable growth by moving from a Hello Kitty-dependent system to one driven by multiple characters (Hello Kitty products accounted for more than 90% of sales in North America as of May 2017). The company aims to mass market these characters the same way it marketed Hello Kitty: placing them in more specialty stores and granting more promotional licenses to increase exposure, and selling character products in specialty stores. In its effort to promote awareness of Gudetama, the company has been launching promotional campaigns and participating in conventions. It began placing Gudetama products at US specialty chain store Hot Topic (700 stores) in May 2016 and also started placing them at Forever 21. Further, the company plans to start selling Gudetama products at Target stores on a trial basis from September 2017, with the aim to expand sales of Gudetama in the US mass market. In June 2015, Sanrio set up Sanrio Media & Pictures Entertainment, Inc. as a wholly owned subsidiary of its US entity. In January 2015, it entered a contract with Twentieth Century Fox Film Corporation to make Mr. Men and Little Miss into a movie. Direction of the management structure President Shintaro Tsuji will be responsible for overseeing the Americas and Asia, with Director Yuko Tsuji acting as vice-manager. Director Jiro Kishimura is responsible for Europe. For movie-related operations, Managing Director Kazuyoshi Fukushima and Director Yuko Tsuji are in charge of production in the Americas and Asia. Director Jiro Kishimura is in charge of the Mr. Men movies. The company has transferred authority to the head of each region and business department and is determining their capabilities and suitability to establish a new management structure. Source of dividends Within the range of net income attributable to parent company shareholders, in order to pay the current annual dividend level of JPY80 per share, the company needs to maintain annual net income of about JPY6.8bn*. The company s net income forecast for FY03/17 is JPY8.0bn, but that amount includes a tax refund of JPY1.1bn due to a tax reassessment for corrections made to prior periods income in FY03/17. That is to say, the total amount of corporate taxes is less than in a normal year due to the inclusion of temporary factors. If, going forward, profits were to fall below the FY03/17 level (for which the company forecasts recurring profit of JPY9.4bn), it would become difficult to continue paying an annual dividend of JPY80 per share from the limits of net income attributable to parent company shareholders**. 21/85

22 * (89,065,301 shares issued 4,218,122 treasury shares) x JPY80 per share JPY6.8bn (number of shares is as of end-q3 FY03/17) ** The amount of surplus available for distribution to shareholders is clearly stipulated in the Companies Act (article 461). It is calculated as the total of 1) the amount of surplus at the fiscal period-end, and 2) the increase/decrease in the surplus between the fiscal period-end and the time of distribution, from which 3) the book value of treasury stock, 4) in the case of treasury shares being disposed of after the fiscal period, the amount of consideration received for the treasury shares, and 5) the amount set by other laws (such as adjusted amounts for goodwill which is the total of one-half the amount of goodwill and deferred assets), are subtracted. 22/85

23 Business Business description Business overview Founded in 1960 on the concept of small gift, big smile, with the goal of creating the kind of society where people make and send each other small gifts to promote friendship. Beginning with the globally popular Hello Kitty character, the company has created many other characters such as My Melody and Little Twin Stars. Sanrio celebrated its 55th anniversary in Over 50,000 different kinds of Hello Kitty merchandise are sold in more than 130 countries and territories, and overseas sales comprise about 40% of consolidated net sales. Within Japan, Sanrio sells its branded products at Sanrio stores, department stores, and nationwide chain stores. The company also operates two theme parks: Sanrio Puroland (located in Tama, Tokyo) and Harmonyland (located in Oita Prefecture). Additionally, the company is involved in movie production, publishing, and restaurant operations via Kentucky Fried Chicken franchise stores in Saitama and other areas. Shared Research notes that Sanrio is a unique company not only because of its unique business (as in selling a cute feline character). Shared Research also notes that Sanrio is currently preparing for the next stage of growth as of May Its business faced a transition period several years ago, and as a result of changes made during this phase, its profitability in overseas markets drastically changed. Business model Character Incubation and Earnings Source Diversification through Business Synergies Product Sales Licensing Overseas Others Theme Parks Character incubation Incubation Character Incubation "Small Gift, Big Smile" Live Entertainment Synergistic Customer Attraction Source: Shared Research based on company data Character licensing a pillar for revenue Sanrio s business model is extremely simple. The main source of revenues and earnings is character licensing, both in Japan and worldwide. In addition, Shared Research estimates the bulk of business comes from the Hello Kitty character (about 80% of sales). The company has a host of characters other than Hello Kitty, developed internally. In 2011 the company purchased the shares of the UK Mr. Men character company, and indicated that it was keen to continue acquiring established character franchises worldwide to diversify its portfolio. License characters to receive licensing revenue When Sanrio licenses a character, it grants the licensee permission to use the character for merchandise, services, advertising, and sales promotions. The licenses include product licenses (products such as toys, plush toys, T-shirts), promotional licenses (bank cards, drinks and other ad and sales promotions), and space design licenses (cafes, hospitals, hotels and other interior designs). 23/85

24 Collaborative Product with Calpis Co., Ltd. Source: Shared Research based on company data The licenses are generally non-exclusive but the nature of licensing agreements differs depending on the region. As a matter of policy, Sanrio refuses licenses for merchandise of a sexual or violent nature. Revenues booked as advance payments in Japan, actual sales in North America The company ordinarily records royalty revenue upon shipment in Japan and upon receipt of payment in Europe and the US. In Japan, Sanrio affixes certificate stamps to documents and products (to certify quality, quantity, and that payment has been made) at the time of manufacture (the number of stamps issued is the same as the number of products produced). As the certificate stamp system is useful not only for managing product quantities (on a stamp basis) but also for preventing imitations, the system is widely adopted in Asia. In contrast, in Europe and the US, the company receives quarterly fees from its licensees that are based on the licensees actual sales of applicable products. Main characters Features of major Sanrio characters Sanrio characters are very different from other characters existing throughout the world. Simply put, Sanrio characters are not characters, rather they are product designs. Founder Shintaro Tsuji thought of ways to sell his products similar to competitors, questioning how he can differentiate his products from others. He came up with the concept of fusing characters and products and, to this end, creating characters with simple designs. Shared Research analyzes that simple designs are the advantage of Sanrio characters and enabled the rapid growth of the company s licensing business. In general, characters of other parties were originally created for illustrated books, animations, games, etc. Due to such origins, designs of these characters are not usually modified from their originals as modification could mean twists in the worlds where these characters exist. Therefore, characters with such origins are subject to strict restrictions when used on products. Hello Kitty According to the official character legend, Hello Kitty was born in 1974 in the suburbs of London (her real name is Kitty White). She did not initially have a surname. Her blood type is A, she is good at baking cookies, and she has a twin sister, Mimmy. Until the end of the 1970s, the character always faced front, but from around 1980 some versions had her head tilted to one side. In the 1990s, she began wearing a variety of costumes. In 1993, she exchanged the ribbon on her head for hibiscus. Later on, Sanrio introduced a greater variety of Hello Kitty goods, including the Hello Kitty Nurse Series (with the character appearing as a nurse) and the Hello Kitty Quilt Series (various goods using shiny quilting cloth) targeting the age group. These items are designed to appeal to adults as well as children. One of the speculated reasons for Hello Kitty s longstanding popularity is a peculiar feature that differentiates it from most characters ever to hit the market. The character has no mouth. According to the company, in the absence of a mouth, the palette of attributed/projected feelings broadens the viewer may see the cat as sad or happy depending on her own mood. (Those readers familiar with the Dilbert character may also see limits to this argument, or is it something about wearing nerdy glasses?) 24/85

25 Hello Kitty character merchandise is available in more than 100 countries. After receiving the UNICEF Special Friend of Children title, in 2008 Japan s Ministry of Land, Infrastructure, Transport and Tourism (MLIT) named her the ambassador of Japanese tourism in both China and Hong Kong. Cinnamoroll Cinnamoroll is a white-puppy character having a tail resembling a cinnamon roll. The character was created in Before Cinnamoroll, the company was reluctant to advertise its characters. However, the company adopted an aggressive advertising strategy for this particular character (using TV commercials and magazines), allowing it to gain significant popularity shortly after debut. In 2004, Cinnamoroll goods accounted for about 25% of Sanrio store sales, only trailing Hello Kitty goods. Cinnamoroll s main target customers range from infants to high school students. Mr. Men As part of its strategy to strengthen its character portfolio, in December 2011 Sanrio acquired all the shares of Mr. Men Company (U.K.-based character company) from parent company Chorion Limited. The Mr. Men characters were created in 1971 by English artist Roger Hargreaves within the Mr. Men illustrated book series. The lineup of characters was later expanded with the Little Miss series. 86 Mr. Men and Little Miss characters have appeared in the illustrated books, which have been translated into 15 languages and achieved sales in excess of 100 million copies in more than 30 countries. According to the Mr. Men official website, the characters have a 98% recognition rate in the U.K. In Japan, the company began to provide licensing for Mr. Men since July Starting in the spring of 2014, the company began development of a wide variety of products featuring this character, such as clothing, accessories, stationery, and food, and provide licensing to advertisers, as well as those engaged in sales promotion and education. Mr. Happy (Mr. Men) Source: Shared Research based on company data 25/85

26 Sanrio s major characters Early 1970s Year of Creation Late 1980's Year of Creation Bunny & Matty 1974 Hangyodon 1985 Spunky Barrow 1974 GIMMEFIVE 1985 Hello Kitty 1974 Marron Cream 1985 Just For Fun 1985 Little Wonder Story 1985 Patty & Jimmy Dachonosuke 1985 Roberta 1985 Late 1970's CULTURE SHOCK 1985 Patty & Jimmy 1975 Noranekoland 1986 The Strawberry King 1975 Dynamities 1986 Little Twin Stars 1975 Brownie's Story 1986 Tiny Poem 1975 Tweedle Dee Dee 1986 Hello Kitty Little World 1975 Pokopon's Diary 1986 My Melody 1975 PAJAMAS CLUB 1986 Robby Rabbit 1975 Minnie Le Mieux 1986 Small People 1976 B.HILLS KID 1986 Boy & Girl 1976 Umeya Zakkaten 1987 Lullaby Lovables 1977 Duck a Doo 1987 Kisha 1977 Heart Fushion Folio 1987 Peek-a-boo 1977 Gatorgags 1987 Little Twin Stars Ginga Konchu Chibikko Gang 1977 PAU PIPO 1987 Peter Davis 1977 Stillsmall Tales 1987 Howdy 1977 Mimic Mike 1987 Button Nose 1978 Ri-ru-chi-run 1987 Dopey Demons 1978 Kerokerokeroppi 1988 Captain Willy 1978 KAPPA RUMBA 1988 Tuxedo Sam 1979 TABITHADEAN 1988 My Melody Wee Marylou 1979 Petit Prier 1988 Kerokerokeroppi Qui-Quaks 1979 Vanilla Bean 1988 Mokuba 1979 Flight of Funcy 1989 Seven Silly Dwarfs 1979 Ikkuchan 1989 Rubit Journey 1979 Pochacco 1989 Trip to Wonderland 1979 Winkypinky 1989 Early 1980's PON PON HIETA 1989 Tuxedo Sam Puppy Love 1980 Toffeeroo 1989 Twee Dee Drops 1980 Rururugakuen 1989 Mellotune 1981 Donjarahoi 1989 Goropikadon 1982 WARAU ONNA 1989 Cheery Chums 1982 ROSY POSY 1989 The Vaideville Duo 1983 Ahiru no Pekkle 1989 Zashikibuta 1983 Nya Ni Nyu Ne Nyon 1983 Fun Come Alive 1983 Mr. Bear's Dream 1983 The Runabouts 1984 Nezumikozou 1984 Minna no Tabo 1984 Boo Gey Woo 1984 Mores Brothers /85

27 Bad Badtz-Maru Pompompurin Shinkansen Source: Shared Research based on company data Early 1990's Year of Creation Early 2000's Year of Creation Sugarcream Puffs 1990 Nemukko Nyago 2000 PUKAPUKA PARADISE 1990 Puchimerikko 2000 Tetsunagikuma 1990 Heysuke 2000 Little Cottonwood Cottage 1990 Hannarikomachi 2000 Pinly Bee Chan Wafflekids 1990 Chocopanda 2000 U*SA*HA*NA Carousel Design Series 1991 Sweet Coron 2001 Hooty Hoots 1991 U*SA*HA*NA 2001 Kimi-Kame-Rin 1991 Chewppies 2001 Ribonnets 1991 Cinnamoroll 2001 Coara Design Series 1991 Deery-Lou 2002 Monkichi 1992 Pururun Kyupi 2002 Cinnamoroll Patapatapeppy 1992 Hoshinowaguma 2002 We Are Dinosaurs 1992 Puchipuchi Wanko 2002 Paradise Lives 1992 Formulixz 2002 Chu Chu Taako 1992 DokidokiYummy chums 2003 Honeyfield 1992 Pannapitta 2003 My Friend Pero 1992 Chibimaru 2003 Charmmy Kitty Friendly Kokkochan 1993 Chihuahua & Friends 2003 Kobutanopippo 1993 Charmmy Kitty 2004 Benjamin Bear 1993 Sugarbunnies 2004 Pups 1993 Late 2000's Polar Picnic 1993 Kuromi 2005 Sugarbunnies Bad Badtz-Maru 1993 Cinnamonangels 2005 Kappanopappy 1994 Tenorikuma 2005 Holly's Bear 1994 Mashumaronyanko 2006 Pocketzoo 1994 Best friends' story 2006 Chippy Mouse 1994 Lloromannic 2007 Picke Bicke 1994 Pankunchi 2007 Kuromi Late 1990's Cherinacherine 2008 Accyangaichiban 1995 Sugarminuet 2008 Teruteruporpn 1995 Jewelpet 2008 Kamokamokamonosuke 1995 NYOKKI & PENNE 2009 PUWAWA 1995 Wish me mell 2010 Jewelpet Chococat 1996 BABYMILO 2010 Pompompurin 1996 Miss Bear's Dream 2010 Rore-More 1996 Framboiloulou 2010 Corocorokuririn 1998 BEETROID 2011 Daisy and Coro 1998 Go Chan 2011 Wish me mell Pink No Korisu Pinkuruchan 1998 Ichigoman 2011 Okigaru Friends 1998 Bonbonribbon 2012 Shinkansen 1999 Darkgrapeman 2012 Landry 1999 Honeymomo 2012 Dear Daniel 1999 Dreamtale Kubear 2012 Tonarino Kappasanchi 1999 Show by Rock 2012 Ichigoman Kirimi-chan 2013 HikidashiAita 2013 Roppappu the Thief 2013 Gudetama Shirirapper 2013 Sengoku Prison 2013 Shinkaizoku 2014 Hummingmint Aggressive Retsuko 2015 Hagurumanstyle 2015 Little forest fellow 2015 Rilu Rilu Fairilu 2013 Gudetama 2014 Kirimi-chan 2015 Aggressive Retsuko 27/85

28 Customers The company s main customers are infants to teenage girls, although the average customer age is gradually rising and there are many adults who are fans of the company s characters. Although the company itself does not have data on the number of adults who are Sanrio fans, it claims to have 50 million Hello Kitty fans in Japan. Based on Japan s female population (about 65 million as October 2012) and assumptions that many Hello Kitty fans are female, the company s claim implies that the majority of Japanese females are Hello Kitty fans. Source: Character Data Bank and company data Changes in Strategy Early strategy The company s business model was to participate in every stage of the supply chain, from product manufacture and transport through sales. Due to this model, the company has had a strong we do everything ourselves culture. In terms of sales channel, the company emphasized the importance of directly managed Sanrio Shops inside department stores and mass retailers. The company s market analysis capability (nurtured through the product sales business) was responsible for the company succeeding in creating many popular characters. Character strategy The Hello Kitty character is loaded with messages and symbols. The mouth is absent to enable the character to share the mood and feelings of a person looking at it. The original color of the ribbon, red, expresses cuteness. As previously stated, Hello Kitty is not a character that originated from movies or comics so she does not have a specific personality. This makes Hello Kitty accessible to everyone and allows the character to be adapted to any type of design. This in turn makes it possible to keep Hello Kitty current and allows producing multiple variations to suit different products, target markets, and sales seasons. Smiles Not Money The company put emphasis on seemingly philanthropic activities, such as expanding the circle of friendships and happiness through Hello Kitty, stimulating communication among people through greeting cards, and helping people approach a better, peaceful world. According to the book The Story of Sanrio, during the Oil Shocks of the 1970s, the manufacturers were forced to raise prices across the board. Sanrio, with its policy of good price, resisted hiking prices of its merchandise. That helped gather substantial 28/85

29 publicity and the initiative ended up helping, not hurting, company profits. This anecdote serves as a notable example of this strategy that Shared Research would attempt to summarize as smiles not money. Strategy from FY03/08 to FY03/14 From FY03/08 to FY03/14, Sanrio s primary strategic shift was in its business model in the European and North American markets from direct product sales to licensing. In FY03/08 the company began to allocate more management resources to the licensing business. The executive vice president at the time, Kunihiko Tsuji (who passed away suddenly in November 2013), and Rehito Hatoyama (recruited from Mitsubishi by Kunihiko Tsuji) spearheaded the licensing business. (Hatoyama was COO of Sanrio, Inc. (US) from May 2008, general manager of the business strategy department from June 2010, and managing director from April 2013 to June 2016.) Their first move was to concentrate resources in the licensing business in Europe, where Sanrio had few directly operated shops and business was easy to rollout, driving a rapid recovery of results. In FY03/11, operating profit in Europe grew to JPY11.2bn. The licensing business also succeeded in the US, and in FY03/14 operating profit in the Americas grew to JPY10.0bn. Whereas product sales require the company to bear the burden of product planning and inventory costs, there is no such need in the licensing business, which succeeded in functioning as a high-margin business model. The appeal of the character and flexible contracts, which enabled a variety of uses for the character, saw many companies in Europe and North America adopt the Hello Kitty character. Long-term performance: sales, operating profit, and OPM 160, : Hello Kitty was born 150, % 140, : Sanrio Puroland opened 35.0% 120,000 Late 1990s: 30.0% Collection of Hello 27.3% Kitty goods for 100,000 decoration of room 25.0% became a fashion among female high 80,000 77,009 school students 72, % 69, % 62,695 Nov. 19, , % 12.8% (local time): Sudden death 11.0% 40,000 of VP Kunihiko 10.0% Tsuji 18,861 21,019 20, % 12,675 6, % 0 0.0% FY03/94 FY03/95 FY03/96 FY03/97 FY03/98 FY03/99 FY03/00 FY03/01 FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Expansion in licensing business -20, % (JPYmn) Sales Operating profit OPM (right scale) Source: Shared Research based on company data Overseas operating profit by region (JPYbn) FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Est. Europe Americas Asia Japan Source: Shared Research based on company data For example, in the area of fast fashion, the company supplied licenses to H&M (Sweden), Zara (Spain) and Forever 21 (US). This led to globally famous celebrities such as Lady Gaga wearing Hello Kitty accessories and clothing. However, in FY03/14 operating profit in Europe and the Americas peaked largely due to external economic factors (such as the European debt crisis), and a decline in opportunities for Sanrio to grasp consumer needs firsthand. 29/85

30 Strategy since FY03/15 (final year of medium-term business plan Project 2015) The strategy since FY03/15 has focused on and turning around performance in Europe and the US. The intention is to return to the company s basic philosophy of social communication and small gift, big smile. Following the sudden death (on November 19, 2013, US time) of then executive vice president Kunihiko Tsuji, the company revamped its management structure (refer to summary of FY03/15 results later in this report). The aim is to rebuild management in Europe and the US. Rehito Hatoyama was in charge of Europe (which had been in a downtrend since FY03/12) from June 2014, but resigned in June Business by segment Segment sales and profits FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 69,768 73,875 76,625 74,954 74,233 77,009 74,562 72,476 62,695 YoY -25.7% 5.9% 3.7% -2.2% -1.0% 3.7% -3.2% -2.8% -13.5% Domestic 54,455 53,184 50,735 49,035 48,311 48,422 49,090 51,354 47,478 YoY -29.2% -2.3% -4.6% -3.4% -1.5% 0.2% 1.4% 4.6% -7.5% % of total sales 68.4% 62.1% 56.3% 55.2% 54.8% 51.6% 53.9% 59.7% 64.4% Domestic Licensing 9,172 8,463 9,796 10,714 9,590 9,505 10,198 10,532 9,670 YoY -67.7% -7.7% 15.8% 9.4% -10.5% -0.9% 7.3% 3.3% -8.2% % of total sales 11.5% 9.9% 10.9% 12.1% 10.9% 10.1% 11.2% 12.3% 13.1% Domestic Product Sales 25,881 25,405 24,237 21,749 21,231 21,461 21,051 22,352 20,450 YoY -1.2% -1.8% -4.6% -10.3% -2.4% 1.1% -1.9% 6.2% -8.5% % of total sales 32.5% 29.7% 26.9% 24.5% 24.1% 22.9% 23.1% 26.0% 27.7% Theme Parks 6,218 6,206 6,118 6,194 6,133 6,349 6,606 7,788 8,139 YoY -18.9% -0.2% -1.4% 1.2% -1.0% 3.5% 4.0% 17.9% 4.5% % of total sales 7.8% 7.3% 6.8% 7.0% 7.0% 6.8% 7.3% 9.1% 11.0% Others 13,184 13,110 10,584 10,378 11,357 11,107 11,235 10,682 9,219 YoY -10.3% -0.6% -19.3% -1.9% 9.4% -2.2% 1.2% -4.9% -13.7% % of total sales 16.6% 15.3% 11.7% 11.7% 12.9% 11.8% 12.3% 12.4% 12.5% Overseas 25,119 32,413 39,425 39,725 39,892 45,419 41,986 34,619 26,288 YoY -11.8% 29.0% 21.6% 0.8% 0.4% 13.9% -7.6% -17.5% -24.1% % of total sales 31.6% 37.9% 43.7% 44.8% 45.2% 48.4% 46.1% 40.3% 35.6% Operating profit 6,575 9,289 14,996 18,906 20,198 21,019 17,468 12,675 6,904 YoY -0.6% 41.3% 61.4% 26.1% 6.8% 4.1% -16.9% -27.4% -45.5% Domestic 6,443 5,653 7,074 8,789 8,914 8,743 8,661 9,670-1,668 YoY -3.9% -12.3% 25.1% 24.2% 1.4% -1.9% -0.9% 11.6% % % of OP 41.6% 31.2% 30.0% 32.6% 32.1% 29.9% 33.0% 44.1% -24.2% Domestic Licensing 6,835 5,901 6,561 7,150 6,754 6,530 6,936 7,327 6,771 YoY -8.2% -13.7% 11.2% 9.0% -5.5% -3.3% 6.2% 5.6% -7.6% % of OP 44.1% 32.5% 27.9% 26.5% 24.3% 22.3% 26.5% 33.4% 98.1% Domestic Product Sales 1,482 1,531 1,453 1,736 2,087 2,126 1,816 1,917 1,325 YoY 28.1% 3.3% -5.1% 19.5% 20.2% 1.9% -14.6% 5.6% -30.9% % of OP 9.6% 8.4% 6.2% 6.4% 7.5% 7.3% 6.9% 8.7% 19.2% Theme Parks -1, YoY % of OP Others YoY % 6.3% -14.2% 19.0% -71.2% % of OP % 2.1% 2.1% 2.0% 2.8% 2.6% Overseas 9,042 12,478 16,482 18,182 18,886 20,546 17,560 12,243 8,573 YoY 3.8% 38.0% 32.1% 10.3% 3.9% 8.8% -14.5% -30.3% -30.0% % of OP 58.4% 68.8% 70.0% 67.4% 67.9% 70.1% 67.0% 55.9% 124.2% Company-wide expenses -8,910-8,842-8,558-8,065-7,602-8,271-8,753-9,238-9,875 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Domestic operating profit is the simple sum of each business before deducting head office expenses. Note: Segmental Sales/OP breakdown (%) is calculated based on the simple sum of figures at each business; it does not reflect consolidated eliminations. In the Overseas segment, subsidiaries pay royalty income (master license fees) as cost of sales to the parent company in Japan, who is the copyright holder. Note that the above figures include master licensing fees that are remitted to the parent. 30/85

31 Domestic business (FY03/17: 64.4% of sales, -24.2% of operating profit) The Domestic business is made up of four businesses: Domestic Licensing, Domestic Product Sales, Theme Parks, and Others. In FY03/17, the Domestic Licensing business accounted for only 13.1% of total sales in the Domestic business but 98.1% of total operating profit. Domestic Product Sales accounted for 27.7% of total sales but only 19.2% of total operating profit. The Theme Parks business accounted for 11.0% of total sales and booked operating losses. Domestic Licensing (FY03/17: 13.1% of sales, 98.1% of operating profit) Allows licensees to use characters, collects licensing fees This segment grants permission for licensees to use the characters, collecting licensing fees for their use. Characters are used for merchandise, advertisements, and sales promotion. Merchandise includes various products such as toys, food, and apparel that feature the characters, character-shaped products (character figurines), and character goods. Merchandise agreements generally require the remittance of royalties at a fixed rate, based on the retail or wholesale prices of those goods. The company does not disclose its licensing rates, but Shared Research believes that the rate is around 5-7% for retail, or 10-14% of wholesale prices. Performance in Domestic Licensing business Domestic Licensing FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 9,172 8,463 9,796 10,714 9,590 9,505 10,198 10,532 9,670 YoY -67.7% -7.7% 15.8% 9.4% -10.5% -0.9% 7.3% 3.3% -8.2% Operating profit 6,835 5,901 6,561 7,150 6,754 6,530 6,936 7,327 6,771 YoY -8.2% -13.7% 11.2% 9.0% -5.5% -3.3% 6.2% 5.6% -7.6% OPM 74.5% 69.7% 67.0% 66.7% 70.4% 68.7% 68.0% 69.6% 70.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Sales methodology changed from FY03/09 (Sanrio character merchandise developed by third parties accompanies royalties without exception.) Over 800 domestic licensees Domestic licensees with trading track records totaled more than 800 companies as of FY03/14, representing various industries, from general merchandise to banking. The domestic market has seen increasingly diversified licensing schemes, including traditional merchandising licensing, licensing to services industries, and promotional licensing (for corporate sales promotion activities) as well as collaborative licensing in recent years (to generate synergies with other parties brands). 31/85

32 Main characters and licensees Characters Industries Major Licensees Hello Kitty Jewelpet Cinnamoroll My Melody (and Kuromi) Sugarbunnies Little Twin Stars Finance; Audio-video and home appliances; Healthcare and cosmetics; Apparel; Toys and miscellaneous goods; Confectionery; Foods; Automobiles; etc. Samantha Thavasa Japan Limited/Avex Marketing Inc./First Retailing Co., Ltd./Citizen Holdings Co., Ltd./Bridgestone Sports Co., Ltd./crocs. Japan/K.K. kitson Japan/SHO-BI Corporation/FUJIFILM Holdings Corporation/adidas.Japan/Softbank Mobile Corp./Swarovski Japan Ltd./LIBERTY JAPAN LIMITED/Sun-Star Stationery Co., Ltd./NAIGAI Co., Ltd./anteprima Ltd./World Co., Ltd./McDonald's Holdings Co. (Japan), Ltd./Don Quijote Co., Ltd./K.K. Waterdirect/Tokyo Medical University/Pfizer Japan Inc./Shionogi & Co., Ltd./Missha Japan Inc./NIHON L'OREAL/Fukusuke Co., Ltd./Eitaro Sohonpo Co., Ltd./Morozoff Ltd./Bourbon Corp./Izumiya Tokyo-Ten Co., Ltd./Credit Saison Co., Ltd./Yamamoto Noriten Co., Ltd./Morinaga & Co., Ltd./Cedyna Financial Corp./Mizuho Bank, Ltd./Fukoku Mutual Life Insurance Co./MITSUBISHI MOTORS CORPORATION/IKEDA MOHANDO Co.,Ltd./Maxim's de Paris Ltd./Itoham Foods Inc./Nippon Flour Mills Co., Ltd./S.T.CORPORATION/The Fukushima minyu/nippon Travel Agency Co., Ltd./Hisamitsu Pharmaceutical Co., Inc./Kobe Fugetsudo Co., Ltd./Calpis Co., Ltd./Ezaki Glico Co., Ltd./Kibun Foods, Inc./Paris Miki Holdings Inc./Daiwa House Industry Co., Ltd./Hankyu Hanshin Hotels Co., Ltd./Daiwa Resort Co., Ltd./SAIBU GAS Co.,Ltd./Max Hill Co., Ltd./Japan Racing Association/Rosette Co., Ltd. SHOWA NOTE Co., Ltd./Bandai Co.,Ltd./KOIZUMI FURNITECH CORP./Moonstar Company/Shogakukan Inc./Marumiya Corporation SHOWA NOTE Co., Ltd./NAIGAI Co., Ltd./Tokyo Tomin Bank, Ltd./McDonald's Holdings Co. (Japan), Ltd./Bandai Co., Ltd./Daiwa Resort Co., Ltd./MSD K.K.Co. (Japan), Ltd./Asahi Mutual Life Insurance Co. Samantha Thavasa Japan Limited/anteprima Ltd./SHO-BI Corporation/crocs. Japan/World Co., Ltd./Agatsuma Co., Ltd./Asahi Corporation Co., Ltd./Imagineer Co., Ltd./Fukusuke Co., Ltd./NAMCO BANDAI Games Inc./Sun-Star Stationery Co., Ltd./Hiya Pharmaceutical Co., Ltd./Mitsubishi UFJ NICOS Co., Ltd./Rosette Co., Ltd. TOMY COMPANY, LTD. (master Licensee)/McDonald's Holdings Co. (Japan), Ltd./ Lion Corporation/Sun-Star Stationery Co., Ltd./Marimo Craft Co., Ltd./World Co., Ltd. Shinkansen Source: Shared Research based on company data Asahi Corporation Co., Ltd./NAIGAI Co., Ltd./crocs.Japan/Hisamitsu Pharmaceutical Co., Inc./Sakura Color Products Corp. Performance in Domestic Licensing business Store count in Japan FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Total 1,411 1,394 1,354 1,201 1,147 1,094 1,062 1,015 YoY -0.4% -1.2% -2.9% -11.3% -4.5% -4.6% -2.9% -4.4% Retail YoY 0.0% -3.7% -11.1% -6.9% -3.2% 1.4% -0.9% 2.9% Gift Gate (directly managed stores) YoY -4.8% -0.7% -10.8% -12.1% 1.8% 8.1% 0.8% 1.7% Department stores (consignment purchasing) YoY 5.6% -6.9% -11.5% -0.9% -8.4% -6.1% -3.3% 4.5% Wholesale 1,140 1,133 1, YoY -0.4% -0.6% -1.0% -12.2% -4.8% -6.0% -3.4% -6.2% Department stores (outright purchasing) YoY 0.0% 0.0% 10.7% 1.6% 0.0% -19.0% -7.8% -10.6% Volume sales stores 1, YoY 0.1% -0.7% -0.1% -13.6% -5.9% -2.3% -7.1% -7.5% Specialized stores YoY -7.1% 0.0% -20.3% -3.2% 6.6% -38.5% 75.0% 10.0% Source: Shared Research based on company data Note: Consignment purchasing is a purchasing method used by Japanese department stores (purchasing is booked only when the product sells). Domestic Product Sales (FY03/17: 27.7% of sales, 19.2% of operating profit) In the product sales segment, the company outsources its in-house developed character goods to specialist manufacturers. These character goods are sold at directly managed Sanrio stores and sales spaces at department stores and major retailers nationwide. As of March 31, 2017, the total number of directly managed stores was 200. In addition to those stores, Sanrio also sells its character merchandise to department stores and general merchandise stores. Busier stores often have a Sanrio Corner, which houses all of the retail outlet s Sanrio merchandise rather than spreading it throughout the store. Store count has been declining due to closing of unprofitable stores. The company has, however, opened new stores in locations with high customer counts, particularly overseas tourist counts according to the company, including in the Haneda Airport International Terminal (2010), in the Tokyo Skytree Town Solamachi commercial complex (2012), and in the DiverCity Tokyo Plaza commercial complex (2012). The product sales segment aims to improve earnings by closing unprofitable stores. 32/85

33 Performance in Domestic Product Sales business (JPYmn) Domestic Product Sales (JPYmn) FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 25,881 25,405 24,237 21,749 21,231 21,461 21,051 22,352 20,450 YoY -1.2% -1.8% -4.6% -10.3% -2.4% 1.1% -1.9% 6.2% -8.5% Operating profit 1,482 1,531 1,453 1,736 2,087 2,126 1,816 1,917 1,325 YoY 28.1% 3.3% -5.1% 19.5% 20.2% 1.9% -14.6% 5.6% -30.9% OPM 5.7% 6.0% 6.0% 8.0% 9.8% 9.9% 8.6% 8.6% 6.5% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Theme Parks (FY03/17: 11.0% of sales) Sanrio Entertainment Co., Ltd. (the company s wholly owned subsidiary) manages the Sanrio Puroland and Harmonyland theme parks. Performance for Theme Park business Theme Parks FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Number of visitors ('000) 1,016 1,024 1,087 1,139 1,158 1,207 1,234 1,518 1,626 YoY -12.0% 0.8% 6.2% 4.8% 1.7% 4.2% 2.2% 23.0% 7.1% Sanrio Puroland ,053 1,205 YoY -11.0% -2.7% 4.8% -0.3% 1.7% 3.1% 6.1% 25.2% 14.4% Harmonyland YoY -14.4% 10.3% 9.3% 16.4% 1.6% 6.4% -5.1% 18.3% -9.5% Average spend per visitor (JPY) Sanrio Puroland 4,783 4,657 4,435 4,455 4,274 4,697 4,708 4,609 4,588 YoY -3.5% -2.6% -4.8% 0.5% -4.1% 9.9% 0.2% -2.1% -0.5% Harmonyland 4,304 4,188 3,897 3,668 3,622 3,525 3,463 3,580 3,412 YoY -1.2% -2.7% -6.9% -5.9% -1.3% -2.7% -1.8% 3.4% -4.7% Sales 6,218 6,206 6,118 6,194 6,133 6,349 6,606 7,788 8,139 YoY -18.9% -0.2% -1.4% 1.2% -1.0% 3.5% 4.0% 17.9% 4.5% Sanrio Puroland 4,770 4,630 4,603 4,424 4,454 4,530 4,790 5,697 6,311 YoY -14.7% -2.9% -0.6% -3.9% 0.7% 1.7% 5.7% 18.9% 10.8% Harmonyland 1,380 1,450 1,473 1,597 1,618 1,674 1,558 1,824 1,642 YoY -14.3% 5.1% 1.6% 8.4% 1.3% 3.5% -6.9% 17.1% -10.0% Operating profit -1, YoY Sanrio Puroland YoY Harmonyland YoY % Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Operating profit excludes theme park assistance expenses and others. Sanrio Puroland Opened in Tama City, Tokyo, in December 1990, Sanrio Puroland is a minute car ride from central Tokyo. It offers shows produced by famous creators, as well as a range of other attractions in a fantasy-world setting. However, by putting the complex indoors to avoid weather complications, the company made it difficult to achieve profitability the building size (45,900sqm) dictates the limit on the peak traffic during weekends and the running cost, especially electricity charges, are much higher than they would have been if an open air concept was utilized. 33/85

34 From April 1, 2014, Sanrio Puroland introduced a new ticket pricing structure: Old New Age Every day Age Weekdays Weekends and Holidays Adult (18 years and over) JPY4,400 Adult (18 years and over) JPY3,300 JPY3,800 Young adult (12-17 years) JPY4,000 Child (3-17 years) JPY2,500 JPY2,700 Child (4-11 years) JPY3,300 Under 2 years Free Free Under 3 years Free Source: Shared Research based on company data Note: All prices include sales tax. By charging admittance for children three years of age, Sanrio Puroland aims to increase its sales per visitor, and by reducing prices for other age brackets, it can aid in increasing attendance both on weekdays and weekends. In many cases, complimentary tickets for shareholders and discount coupons reduce the cost of entry for visitors. Live entertainment at Puroland Photos by Shared Research Hello Kitty show at Puroland A hall with Lady Kitty s piano (Sanrio Town) Photo by Shared Research Source: Shared Research based on company data Harmonyland Surrounded by nature, this open-air theme park opened in Hiji (Hayami-gun, Oita Prefecture) in April Visitors can enjoy 12 attractions, as well as live performances, including live shows and parades featuring Hello Kitty, Cinnamoroll, and many other characters. A one-day ticket costs JPY2,900 for all visitors who are four and older. As with Sanrio Puroland, in many cases complimentary tickets for shareholders and discount coupons reduce the cost of entry for visitors. 34/85

35 Parade NOAH Source: Shared Research based on company data Overseas theme parks Sanrio plans to grow its theme park business overseas but do so via licensing agreements rather than direct investment. However, it plans to do so via licensing agreements rather than direct investment in order to avoid risk. As part of this strategy, the company opened a 2,000sqm Sanrio theme park in Malaysia through a licensing agreement with a local company in October In January 2015, based on a licensing agreement with Zhejiang Yinrun Leisure Development, Sanrio opened the 95,000sqm Hello Kitty Theme Park in China. The park is one of the central attractions at the Zhejiang Province Anji Angel Park (which covers 600,000sqm and feature hotels, restaurants, and other amusement parks, aiming to provide rich content and various programs). The project is a part of the new international leisure development in the Yangtze River Delta, an important part of Zhejiang Province s 12th five-year-plan to develop tourism within the region. The company also opened theme parks and other attractions based on Sanrio characters in Turkey (May 2013); Jeju Island, South Korea (January 2014); the UK (May 2014), and Thailand (August 2014). In December 2014, the company opened a 3D theater in Indonesia. It has a plan in place to open a second theme park in Chuncheon, South Korea in January 2018, with the provisional name of Hello Kitty Island, No 2. Overseas expansion of the Theme Parks business Opening Location Description October 2012 Malaysia Hello Kitty Town (amusement park) May 2013 Istanbul, Turkey Hello Kitty World (shopping mall) January 2014 Jeju Island, South Korea Hello Kitty Island (museum) May 2014 Alfriston, UK Hello Kitty Secret Garden (park in park) August 2014 Bangkok, Thailand Spa and café December 2014 Indonesia 3D theater January 2015 Anji, China Hello Kitty Park (open-air theme park) Source: Shared Research based on company data 35/85