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Risk factors

Business in Japan

The SATO Group runs its business by providing customers with optimal barcode, 2D code, RFID, and other auto-ID solutions that integrally combine hardware products, consumables, and software applications. Since our main consumables business spans a broad range of industries including not only distribution and retail, but also manufacturing, transportation, health care, and food processing, SATO is generally resilient to the effects of economic trends. However as we need to build up know-how and develop sales tools that can add value to our solutions business, a large portion of our operating revenues is dedicated to sales, general and administrative expenses. As such, a sudden drop in net sales due to broad-reaching and severe downturn in the economy could significantly affect our financial results at the group level.

Business outside Japan

We possess multiple production and sales subsidiaries in various regions including the Americas, Europe, Asia and Oceania. The following could pose risks to our business in these markets and significantly affect our financial results at the group level.

  • Unexpected changes in laws and regulations
  • Unexpected political or economic developments
  • Changes to the tax system or tax rate which have adverse effect
  • Social unrest caused by terrorist attacks, wars, natural disasters, epidemics, or other reasons

Currency fluctuations

SATO carries out manufacturing and sales on a global scale and conducts internal transactions among our overseas subsidiaries in multiple foreign currencies. A considerable currency fluctuation could significantly affect product competitiveness, profitability and other aspects of our financial results at the group level.

Intellectual property rights

We engage in investigations and negotiations to avoid intellectual property disputes, and proactively pursue the acquisition of intellectual property rights. While there are no cases of SATO infringing the intellectual property rights of any third party at present, we are subject to possible risks of intellectual property lawsuits in the future. A situation whereby we are disadvantaged by such legal suits could significantly affect our financial results at the group level.

Procurement of raw materials, etc.

SATO procures raw materials and parts from numerous external sources. If we are unable to obtain these at the planned quantity or price due to any reason and fail to adequately cut cost or pass on cost increases to finished product cost, it could significantly affect our financial results at the group level.

Disposal or loss on valuation of inventories

SATO pays due attention to quality, environmental standards and inventory management for our products and product parts. However, we may need to revise the values of work-in-process or finished goods and record disposal or loss on valuation of these inventories if there are sudden changes in market trends, technologies, or product lifecycles. This could significantly affect our financial results at the group level.

*Information is based on the company's current understanding and assessment of future risks that may affect investor decisions (March 31, 2019).

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