FAQ for FY2023Q4 Financial Announcement | Global

On page 9 of the Enterprise Value Improvement Project progress report that you presented on May 7 this year you stated that fixed cost reductions would yield savings exceeding 60 billion yen through fiscal 2025. On page 8, however, you estimated that the cumulative impacts of cost-reduction measures would be more than 51 billion yen. You additionally explained that 30 billion yen in savings from measures to optimize R&D would be on a cash outflow basis and not go to the bottom line. How exactly will you lower fixed costs by more than 60 billion yen over the next two years?

When announcing our full-year financial results, we estimated that bottom line gains from optimizing R&D would be north or south of 5 billion yen through fiscal 2024. Over two years through fiscal 2025, we expect around half of the 30 billion yen in cash outflow reductions from R&D to go to the bottom line. Given those assumptions, fixed cost reductions over those two years from R&D optimization and other measures we presented on page 8 would total about 40 billion yen. That would leave us about 20 billion yen short of our anticipated savings of more than 60 billion yen during that time. We are exploring additional measures beyond R&D optimization, including the impacts of those requiring formal decision-making, to reach the 60 billion yen target.

What total expenses do you forecast under the Corporate Value Improvement Project? I would also like to confirm when you will book these charges.

We have yet to formally decide on some measures, which we are scrutinizing. Previous experience with structural reforms suggests that costs would be around half of the estimated savings of more than 60 billion yen. We are considering measures that could incur significant expenses during this fiscal year.

Please detail the 21 billion in expenses that you presented in your fiscal 2024 outlook operating profit comparisons (on page 19 of Consolidated Results for the Year Ended March 31, 2024).

Enterprise Value Improvement Project-related impacts should be around 10 billion yen, so after including that the expenses would be about 30 billion yen. We assume that the costs of salary hikes, inflation, and other factors would be just under 20 billion yen, while the amortization of R&D assets at Ricoh Graphic Communications would be around 2.5 billion yen, with expenses increasing with sales growth by about 10 billion yen.

The project costs of 10 billion yen in your fiscal 2024 outlook operating profit comparisons (on page 19 of Consolidated Results for the Year Ended March 31, 2024) are post-merger integration expenditure at ETRIA and expenses associated with structural reforms overseas. To what segments are you allocating these costs?

RICOH Digital Products will book post-merger integration costs for ETRIA. RICOH Digital Services will mainly cover costs associated with structural reforms overseas.

Why is the eliminations and corporate operating loss ballooning from the previous term to 18 billion yen in fiscal 2024?

We assume a normal loss of 6 to 8 billion yen. The fiscal 2024 projection factors in investments in internal infrastructure and higher costs stemming from inflation and risks in some businesses. That said, the fiscal 2023 red ink was lower than normal, owing largely to due to a reversal of unrealized gains.

What operating profit levels do you envisage in the first and second halves of fiscal 2024?

We plan to book a range of expenses largely in the first half of the year, so first-half operating profit should be basically unchanged year-on-year. Operating profit should be larger in the second half than last year.

You explained that ETRIA, which you plan to establish in July this year, would add around 50 billion to sales in fiscal 2024, boosting operating profit by about 5% of that amount. Can we assume similar levels in fiscal 2025 and beyond?

Please note that the figures represent contributions for this fiscal year based on nine months of operations from July, when we establish ETRIA. After its creation, we will seek to swiftly realize synergies and boost profitability through common parts procurement and common MFP engines development, thus lowering manufacturing and development costs and bolstering product competitiveness.

Why didn’t you mention progress toward your 21st Mid-Term Management Strategy goals in your fiscal 2023 results briefing on May 7? After excluding one-time factors, your operating profit for the term would have been 64 billion yen. Your objective under that strategy of posting 130 billion yen in operating profit would be in reach if transforming your earnings structure through the Enterprise Value Improvement Project cuts fixed costs by more than 60 billion yen and if you boost profit through business expansion by fiscal 2025.

We are maintaining our mid-term targets of 130 billion yen in operating profit and a return on equity of more than 9%. We are pushing ahead with various initiatives, with a particular focus on enhancing return on equity. While we have yet to formally decide on some measures, we are carefully assessing the situation from multiple angles, including the benefits and costs of the Enterprise Value Improvement Project and changes in the market climate. We have accordingly refrained from presenting specifics regarding the achievement of mid-term strategy targets. We will strive to share updates as soon as possible.