FAQ for FY2024Q2 Financial Announcement | Global

In the Corporate Value Improvement Project progress report that you presented during your results briefing for the second quarter of fiscal 2025, you stated that project costs through fiscal 2025 would total 33 billion yen. Yet, you initially estimated those expenses at 10 billion yen. What measures have you undertaken that would push up expenditures by 23 billion yen?

The initial estimate of 10 billion yen comprised 8 billion yen in expenses to review the sales and services structure to accelerate Office Services growth overseas and 2 billion yen in post-merger integration spending for the ETRIA development and production joint venture. When we presented our second-quarter results briefing, we increased expenses by a total of 23 billion yen. One component was an additional 3 billion yen in expenses for structural reforms at Group companies, for a total of 11 billion yen. Others were an additional 4 billion yen in business selection and concentration acceleration costs and 16 billion yen in added expenses associated with the implementation of the domestic Second Career Support Program announced on September 12.

To what segments are you assigning 33 billion in Corporate Value Improvement Project expenses?

RICOH Digital Services is booking 11 billion yen in expenses for structural reforms at Group companies to accelerate Office Services growth. RICOH Digital Products is taking on 2 billion yen in costs for post-merger integration and other spending for the ETRIA development and production joint venture. Several segments are covering 4 billion yen in costs to accelerate business selection and concentration. Of that amount, we earmarked 1.7 billion yen when announcing second-quarter results for RICOH Industrial Solutions spending associated with transferring the optical business. We are posting 16 billion yen in costs for the domestic Second Career Support Program as a corporate expense (allocating it to corporate or eliminations).

In the results briefing for the second quarter of fiscal 2024, you presented your latest projected effects of 52 billion yen from the Corporate Value Improvement Project. What was the breakdown by segment?

Savings of 23 billion yen from structural reforms at Group companies to accelerate Office Services growth accrue to RICOH Digital Services. A 4 billion yen saving from the ETRIA production and development joint venture, including after factoring in post-merger integration costs, is included in numbers for RICOH Digital Products. Savings from other initiatives cover multiple segments.

In the results briefing for the second quarter of fiscal 2024, you projected 52 billion yen in savings from the Corporate Value Improvement Project, so you need to save another 8 billion yen to reach your targeted 60 billion yen. What steps will you take to get there, and what additional expenses do you expect to incur?

Our efforts will focus on the measures that we have already presented for the Corporate Value Improvement Project while factoring in additional steps as we push forward. We will share details on specific measures, projected savings, and any additional costs at the right time.

What factors prompted you to lower your full-year operating profit forecast for RICOH Digital Services from an initial 44 billion yen to 38 billion yen?

Project costs in the first half were 9.6 billion yen. After factoring them out, first-half operating profit was 12.6 billion yen, or around 6 billion yen lower than projected. Our downward revision for the full year reflects that shortfall.
Three key factors contributed to that shortfall. The first was that in the first quarter, ocean transport issues created an MFP inventory shortage for Office Printing hardware, delaying deliveries to customers. Second, Office Printing non-hardware sales were weaker than we anticipated. Third, in the Office Services businesses, PC replacement demand associated with the end of Windows 10 support was lower than we initially expected, causing sales to be lower than projected, while weaker economic conditions in some European countries resulted in IT infrastructure upgrade demand being less than expected.

While one can assume a second-half operating profit forecast of 35 billion yen for RICOH Digital Services, how will it be able to recover from its underperformance in the first half?

RICOH Digital Services has resolved the hardware inventory shortage that was a factor in the first-half shortfall and will strive to eliminate backorders while expanding hardware sales. Also, in Office Services, PC replacement demand associated with the end of Windows 10 support should pick up toward the end of this fiscal year. RICOH Digital Services will capitalize on this demand improvement by extensively marketing IT and application services. On top of that, it will mitigate the impact of weak Office Printing non-hardware sales by reaping the fruits of such Corporate Value Improvement Project efforts as structural reforms at Group companies to reach its target.

How might an expected increase in U.S. tariffs on goods from China affect Ricoh’s operations? Are you exploring any countermeasures?

Key offerings that we manufacture at our Chinese plants include A3 and A4 MFPs, peripherals, and toner. Products shipped to the U.S. market are A4 MFPs and some peripherals. In response to possible additional tariffs, our short-term measures will include expediting shipments of the relevant products to the United States to amass inventories and minimize the financial impact. While China will remain an important production base in the medium to long term, we will strive to build an optimal production system that takes geopolitical risks into account, including utilizing factories outside of China that ETRIA integrated with Toshiba Tec for shipments of the relevant products to the United States.