Last Update: January 4, 2024
| How far short of in-house expectations was your 9.3 billion yen in operating profit in the second quarter? What factors were behind that result? |
| For Q2, we expected an operating profit of 15 to 16 billion yen based on the assumed exchange rate at the beginning of the fiscal year. While operating profit was around 6 billion yen less than expected, the upside impact of the exchange rate was around 5 billion yen, so earnings were effectively about 11 billion yen less than forecast. About 80% of the effective downside was from the Office Printing business. Its A3 MFP unit sales were far lower than projected, detracting particularly from production side (RICOH Digital Products) earnings. The main other factors in the downside stemmed from market inventory adjustments and weak demand in the Thermal business. |
| What factors led to fiscal 2023 second-quarter Office Printing hardware sales being lower than expected? |
| In fiscal 2023, a recovery from the product supply constraints owing to the COVID-19 pandemic and materials shortages prompted us to plan a relatively large unit sales gain from a year earlier. That was because we anticipated replacement demand from customers whose purchases had been on hold amid product supply constraints or from customers under regular leasing agreements. Unit sales stayed basically unchanged from a year earlier, however, owing to dwindling business confidence in Europe and price competition with some rivals, primarily overseas. We will act as needed in assessing whether second-quarter conditions constituted a structural change. |
| RICOH Digital Services’ Office Services business continues to deliver a high growth rate. Could it attain a similar expansion even in the absence of such special demand factors as invoice system compliance? |
| Growth in the first half of the year was slightly stronger than conditions would have suggested because of ICT hardware product shortages in the previous corresponding period. Still, we progressed in line with internal plans factoring in high expectations. We accordingly expect growth to continue in the second half of fiscal 2023. In Japan, while demand surged to comply with the invoice system, the sales share of the Scrum series was limited. Also, we believe that still many small and medium-sized enterprise customers have yet to adopt the invoice system. On top of that, we will keep providing support for IT adoptions for back office operations while meeting the need for operational digitalization in view of a range of ongoing legal system changes. It is also worth noting that we plan to offer services taking advantage of Windows system replacement demand. In Europe, weaker economic conditions have affected some PC sales. We need to keep close tabs on this situation. services businesses are expanding steadily, with acquired companies leading the way. |
| Why did you lift your operating profit forecast for RICOH Graphic Communications for fiscal 2023 from the 1.5 billion yen you announced at the start of the term to 10.9 billion yen? Were some factors at play, such as changes in depreciation expenses for development assets? |
| Revised exchange rate assumptions had a significant impact. Of the 9.4 billion yen upward revision, 1.4 billion yen came from restructuring costs being lower than we originally projected. The balance was due basically to changing foreign exchange assumptions. In Commercial Printing business, we have launched three new products that were under development by November in fiscal 2023. With rollouts of new products largely on schedule, there were no changes in depreciation expenses of around 8 billion yen for development assets. |
| You announced a transfer of shares for RICOH Industrial Solutions Optical business. Might that affect your performance in the second half of this fiscal year? |
| We expect to complete the share transfer by the end of June 2024. We have not factored this into projections for the second half of this fiscal year. That said, we could incur some expenses as well as gains from the transfer. |
| In the Progress Report on Enterprise Value Improvement that you announced on November 8, 2023, you stated that by optimizing R&D expenses they would be 30 billion yen lower than in fiscal 2022. Which businesses will be targeted for reduction? Also, can we assume reductions by fiscal 2025? |
| We cannot tell you which specific businesses we are targeting. We aim to deliver reductions by fiscal 2025, the final year of our 21st Mid-Term Management Strategy. To date, we have engaged in a lot of seeds-oriented R&D that taps proprietary technologies and other capabilities. Down the track, however, we will review R&D expenses related to areas that have little compatibility with digital services. At the same time, we will carefully control our efforts, such as by lifting necessary R&D expenditure in the workplaces domain, which drives our digital services. |
| You indicated that optimal net assets after excluding foreign currency translation adjustments would be around 900 billion yen. Around how large are your net assets after excluding them now? Have you made any changes to your previous policy? |
| We previously indicated that net assets would ideally be around 1 trillion yen, although that included foreign currency translation adjustments beyond our control. We have now announced a target of about 900 billion yen, excluding foreign currency translation adjustments. Net assets after excluding foreign currency translation adjustments at the end of September 2023 were about 775 billion yen, seemingly allowing for an increase of about 120 billion yen over the next two years. The net assets target for the end of fiscal 2025 is around 900 billion yen, however, based on the assumption of the return on equity exceeding 9% in fiscal 2025, with a targeted operating profit of 130 billion yen for fiscal 2025, and necessary growth investment and cash outflow estimates. We previously explained our approach of using equity for growth businesses and debt for stable businesses. At this juncture, the Office Services business needs investments as a growth area, so for the time being we plan to harness capital for it. If the revenue base of the Office Services business stabilizes, however, such as through recurring revenue agreement accumulation, we could consider using debt. We will flexibly adjust our approach to optimal net assets as the business structure changes. |
| Didn’t you consider share repurchases this time? Might you undertake them? |
| We based our shareholder returns policy on a targeted total return ratio of 50%. We maintain a policy of delivering stable dividends, providing ongoing dividend increases, and undertaking measures to ensure flexible additional returns. Because we will review our portfolio as we explained this time, we will consider share buybacks as an additional shareholder returns measure at the right time and scale, taking insider trading and other factors into account. |
