Key Questions and Answers at 122nd Ordinary General Meeting of Shareholders

Questions received prior to the meeting

Question 1:

I believe Ricoh's technology makes it possible to develop a smartphone that can rival offerings from Samsung. Smartphone feature requirements are changing with the times. I want Ricoh to take up the challenge of giving the world smartphones with new capabilities.

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

The COVID-19 pandemic has transformed lifestyles and work styles over the past two years. I sense that people's smartphone needs are also diversifying. Our business domain is about contributing to work practice reforms, including helping people use smartphones efficiently; we do not consider producing smartphones as one of our business areas, as we would be very much a latecomer.

Question 2:

In a Q&A session at a previous shareholder meeting, you explained that you would generate marginal gains from a depreciating yen. If the prevailing foreign exchange rates of 135 yen to the dollar and 140 yen to the euro continue, would Ricoh's earnings rise in fiscal 2022? If so, I wonder what risks Ricoh faces other than forex, as your share price has weakened recently amid a plunging yen. How will you address those risks?

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

Our forecasts for fiscal 2022 assume exchange rates of 125 yen per U.S. dollar and 135 yen per euro. A 1 yen change in the yen to dollar exchange rate would cause an annual operating profit change of about 300 million yen, and similarly, 1 billion yen for the euro. If the yen continues to drop below our assumed rates, forex gains will contribute to operating profit growth, as you surmised in your question. That said, the business environment remains challenging because of the impact on product supplies due to the lockdown in China and other factors, as well as surging ocean freight costs. Although we have factored in a certain degree of risk in our forecast, the situation remains volatile. As you know, share prices are subject to a range of factors, but we believe the capital market also takes into account, to some extent, the risks I have just mentioned.

Question 3:

I don't quite really understand why you would buy a scanner company while touting a digital services transformation. I guess the purchase was strategically necessary, but why didn't you instead secure a 20% stake or undertake a business alliance?

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

PFU Limited offers scanners, which are vital edge devices, as well as digital professionals and IT management services that are essential for us to become a digital services company. We decided to acquire PFU because we concluded that making it part of the Group would be the best way to satisfy our customers' fast-growing digitalization needs and quickly expand our business. Fujitsu will retain a 20% stake in PFU to help support growth.

Question 4:

The proportion of women in managerial positions is too low, as is your target for redressing that situation. And Ricoh has few full-time female employees. Is that because they find the company unattractive? What strategies have you adopted to increase the number of women employees and managers?

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

We have positioned diversity as part of our management strategies because having diverse people collaborate by fully harnessing their talents is vital to our transformation. Women account for 16% of parent company employees. The proportion for the Ricoh Group is around 29%. The numbers are low, as you indicated. Ricoh itself has a lot of technical and functional units, and the low ratio of women pursuing science and engineering fields in Japan may be a factor in our situation.

On the positive side, the average years of service among women at Ricoh exceed the level for men. This is an outcome of ongoing efforts to support better work-life balance, as well as raising awareness, changing manager mindsets, and encouraging men to participate in childcare. The proportion of women in managerial positions has increased in recent years with very positive results.

Chief Human Resources Officer Mayuko Seto is spearheading efforts to attract diverse and talented employees by creating an environment that fosters employee growth. Efforts have included providing work environments conducive to work-life management and deploying a Ricoh-style job-based personnel system. We will continue to progress with women's advancement initiatives, drawing on advice from outside director Mutsuko Hatano and the rest of the Board of Directors.

Question 1:

You overviewed your digital services and information technology efforts, but I would like you to also explain your involvement in AI.

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

We're devoting a lot of effort to developing and using AI. A good example is a product called AI at Work, which we released in the summer of 2021. This offering uses AI to analyze corporate customers' data to provide them with value. Chief Technology Officer Seiji Sakata will provide details.

Respondent:

Seiji Sakata, Director and CTO

Answer:

We've been focusing on AI for quite some time. In 2017, we set up an AI research center with more than 100 employees. As Mr. Yamashita mentioned earlier, we offer AI at Work. Ricoh Leasing is using AI to make customer credit decisions. We are also using AI to improve efficiency and quality in the toner manufacturing processes. We will continue to step up our AI endeavors.

Question 2:

Hasn't your share price remained low relative to those of other companies around the world despite you implementing a string of plans and measures? You also haven't reached your performance targets. Might one reason be that the backgrounds and skills of the management, especially the president, don't match what is required for an information equipment manufacturer?

Respondent:

Nobuo Inaba, Chairman of the Board of Directors

Answer:

The Nominating Committee evaluates the CEO's performance and deliberates annually on whether to reappoint that person. We use primary and secondary assessments to measure the CEO's performance. We decided to reappoint Mr. Yamashita because we believe he has steadily implemented reforms under mid-term management plans and has sufficient experience in various respects to continue serving as CEO. If we find that we should not reappoint the CEO in the course of the performance evaluation processes, we will assess the most suitable successor candidate. One after another, plans and measures are being implemented, but the stock price is relatively low compared to other companies in the world. Also, the company has not been able to achieve its performance targets. One of the reasons for this may be that the personnel needed for an information equipment manufacturer do not match the background and abilities of the management, especially the president.

Regarding the performance evaluation of the CEO, the Nominating Committee discusses once a year whether the CEO should be reappointed. After the primary and secondary evaluations, the committee will examine whether the CEO is functioning appropriately. In reappointing CEO Yamashita, the committee believes that he has implemented reforms steadily in the mid-term management plan and has sufficient experience to continue to perform the duties of CEO in various respects. If the performance evaluation process determines that he cannot be reappointed in the future, a suitable candidate will be discussed among the candidates for the next CEO. Since stock prices fluctuate greatly depending on the business environment at the time, we do not believe this should be used as the sole factor in determining the appropriateness of the CEO.

Question 3:

If you don't mind me asking, I'd like to know what sorts of things the Nominating Committee and the Compensation Committee consider and discuss.

Respondent:

Nobuo Inaba, Chairman of the Board of Directors

Answer:

The Nominating Committee, under the excellent leadership of Chair Masami Iijima, has been holding robust discussions on whether to reappoint the CEO, candidate selection, and whether the CEO's reappointment is appropriate under the current environment, as well as areas for improvement if there are shortcomings in the reappointment process. The committee chooses successor candidates by commissioning external expert assessments and deliberating to ensure that candidates can make up for any deficiencies.

Respondent:

Mutsuko Hatano, Director

Answer:

The Compensation Committee comprises a majority of outside directors and is chaired by an outside director to ensure objectivity and transparency. The committee discusses individual compensations and other matters. The committee met six times last fiscal year. It referred to shareholder views and a range of data in vigorous deliberations, discussing the implementation of long-term corporate value enhancement measures and the compensation system.

Question 4:

If an employee who is also a shareholder makes a statement, do you treat it the same as one from a regular shareholder?

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

We respond as if that person were a regular shareholder.

Question 5:

How do you position employees in your approach to managing Ricoh?

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

We place the highest priority on investing in human capital, which we consider a core business resource. We need employees to generate results proactively, so we need to respect their autonomy and switch to systems that ensure objective evaluations. In that respect, we are emphasizing diversity and analyzing engagement scores and are reflecting them in our initiatives. Ms. Seto will comment on this.

Respondent:

Mayuko Seto, Chief Human Resources Officer

Answer:

We consider engagement surveys important to the company. Every year, employee participation rates in these polls are rising worldwide. Last year, more than 85% of employees responded and shared comments. We draw on survey findings to analyze issues and focus on how to share employee feedback with management. That said, we consider it essential for employees to be aware of the importance of improving their workplaces and companies, so we are involving them in our improvement efforts. We've deployed diversity measures and a Ricoh-style job-based personnel system. We will put the true value of these initiatives to the test. At the same time, we've put in place a structure that allows employees' voices to be reflected and dialogue to be held. We believe the management team has sufficient underpinnings to leverage that feedback and exercise leadership.

Question 6:

Please share some more specifics about your SDG efforts.

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

Based on the Spirit of Three Loves, our founding principles, we are working to materialize a society in which “no one is left behind.” Former President Masamitsu Sakurai proposed the concept of environmental management in 1998, and we've since continued to act on it. Mikako Suzuki, who oversees ESG at Ricoh, will explain our efforts in that area, particularly regarding the environment.

Respondent:

Mikako Suzuki, Corporate Officer

Answer:

Ricoh's SDG efforts are characterized by the fact that management strategy and the SDGs (ESG) are co-linked, although environmental management is also a part of the story. We established 17 companywide ESG targets, with each business unit rigorously implementing PDCA cycles. We benefit from Mr. Yamashita's robust leadership and employees' hard work in bottom-up initiatives. To illustrate our approach to resolving social issues through business, Ricoh Japan has 510 key SDG people at 47 branches nationwide. They make proposals and educate colleagues about how to help customers resolve social issues. We will keep pushing forward with such approaches.

Question 7:

You said that you are targeting ROEs of 10% for fiscal 2025 and 7% for fiscal 2022 and disclosed your results for fiscal 2021. Why have you targeted a ROIC of 8% for fiscal 2025 but have not disclosed a result to date?

Respondent:

Hidetaka Matsuishi, Director and Executive Corporate Officers

Answer:

Although not stated in the Notice of Convocation of the General Meeting of Shareholders, the ROIC is disclosed as 2.8% in the FY2021 full-year financial results materials. We also internally use ROICs by business unit, and we look to disclose these figures once we make them sufficiently accurate.

Question 8:

On the portfolio management front, I'd like to know the situation with the camera business, which you've positioned for turning around.

Respondent:

Yoshinori Yamashita, President and CEO

Answer:

We aim to retain the camera business and brand. Mass production and consumption used to shape the competitive climate, but Pentax and GR customers are visible, and there are passionate fan clubs of devotees. We will continue to build a business model that distances itself from mass production by connecting directly with customers digitally and offers cameras that meet their needs. We are changing the relationship between manufacturing and customers to preserve Pentax and GR brands for the future. Despite the pandemic, the performance of our camera business is steadily improving and revitalizing.

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