Matters concerning the status of business and performance that may have a material effect on the decisions of shareholders and investors are as follows.
While the risks that management recognizes as having a material impact on Ricoh's financial position, operating results, and cash flows are as below, they are not all-inclusive. Ricoh's business may be affected in the future by other risks that are currently unknown or not considered significant. Business and other risks are based on Ricoh's assessment as of March 31, 2023.
As Ricoh aims to transform it into a digital services company from an OA manufacturer, there is a risk of business performance being impacted by a decline in printing volume due to a lack of progress in the transformation of the business structure. There is also a risk of missing M&A investment opportunities for business growth and losing growth opportunities.
Along with portfolio management decisions aimed at the transition of profit structure as a digital services company, Ricoh will:
Ricoh will also strengthen the visibility and development of M&A human resources.
To accelerate the implementation of digital strategy, the headquarters functions and business units are working together for various initiatives, such as developing and strengthening digital human resources, strengthening and promoting the utilization of data content and enhancing technological infrastructure, deepening existing businesses and strengthening and implementing mechanisms for creating value through the use of digital technology, and continuing to improve business processes through the use of all types of digital technology. However, there are still such risks that Ricoh's performance and growth may be affected by the following:
Ricoh believes that accelerating the implementation of digital strategy is important to enhance resilience amid intensifying global competition, and is working to further enhancing the following:
Ricoh has adopted the business unit structure, which promotes understanding of customers and the market.
Such structure, however, also carries risks of the decline in the efficiency of technological investment and decline in the company's technological response capability to respond to the medium- to long-term market due to the decentralization of technological development.
In addition, there are risks of loss of corporate credibility and business opportunities due to the lack of ELSI*1 response capability in adopting AI and other advanced technologies.
Ricoh will continue R&D investment portfolio management to promote forming of a consensus of development action plans based on the technology strategies with action plans.
Ricoh has strengthened technology ethics promotion systems, and trial-launched some of the ethics assurance functions. In addition, it will disclose rules on its approach to technology ethics to advance the practice of raising awareness of such ethics in order to further enhance the ethics.
In its bid to transform into a digital services company, Ricoh is committed to utilizing and providing various digital services, and digitalizing its own operations. It also focuses itself and is working on systems to ensure information security and their operations. However, Ricoh is affected by the following:
As demand for taking countermeasures at the national level in each country increases, Ricoh considers it one of the priorities to keep abreast of the changing situation of information security and to consider and promote appropriate measures for Ricoh, which has operating bases around the world.
Ricoh's business transformation into a digital services company and continued growth over the medium- to long-term depends largely on its human resources. There is a risk of adverse effects on Ricoh's performance and growth due to the continuous failure to acquire advanced expertise and reallocate human resources in line with business strategies.
Ricoh implements the following:
Responding to ESG and SDGs is an emerging risk that may affect Ricoh's business activities over the medium- to long-term, and it is working on the following items it considers as particularly important and to be prioritized:
Failure to keep up with the competition in addressing these issues may not only cause a negative impact on business, such as loss of business opportunities, but also a risk of tremendous damage to Ricoh, such as loss of social credibility and damage to brand value.
Ricoh has been enhancing its measures against ESG/SDGs risks such as:
As we conduct business activities on a global scale, heightened political, military, and social tensions in countries and areas may significantly affect Ricoh's business.
There is a risk of losing business opportunities due to geopolitical risks such as stricter laws and regulations in each country and checks and balances between countries.
Ricoh is strengthening prevention and response processes. Its management will deliberate and take prompt and appropriate actions to ensure smooth business activities in the future through such means as enhancing collection of information on laws and regulations in each country, and selecting multiple suppliers for each critical component.
There is a risk of losing business opportunities due to unpredictable circumstances such as major earthquakes, tsunamis, floods, pandemics, suspension of supply, and geopolitical risk resulting in:
Ricoh has strengthened prevention and response processes in light of the rapid global spread of COVID-19 and its prolongation, and is conducting the following:
Ricoh will also continue to improve response measures and confirm their effectiveness through regular practice as well as classroom training.
Ricoh assumes risks of significant impact on business due to large-scale natural disasters, incidents, or accidents in Japan or overseas, such as human or property damage.
In response to these risks, Ricoh has taken measures as follows:
The COVID-19 pandemic, the Russia-Ukraine situation, supply chain disruptions, unstoppable price hikes, and the historic depreciation of the yen are just a few of the events that had been unexpected or beyond-expectation but have actually occurred over the past three years.
Although measures have always been taken in advance by detecting signs of events and taking recovery measures when they occur, it is inevitable that new, and unexpected events will affect Ricoh's performance in the future.
The Company monitors monthly performance at the management meeting and business operation meeting of each business unit to understand the causes of the forecast/result gaps and consider measures to recover from them.
The Company has also established the contingency plan*7 process and makes decisions on measures in accordance with the process. In fiscal 2022, the Company determined and executed the sale of the headquarters assets.
The Company will continue the current process in fiscal 2023 onwards, and establish a resilient production and supply system.
Ricoh may face a risk of losing social credibility due to various compliance violations related to human resources.
Ricoh carries out the following:
In an era of rapid changes in the internal and external environment, the Company believes that it is extremely important to strengthen group governance in order to maintain healthy growth. If governance at the headquarters is not functioning properly, the following risks may arise:
To reduce group governance-related risks, the Company is in the process of redesigning the governance structure of headquarters functions, business units, and group companies. It is working on the redesigning by taking into account the optimal balance between centralization and decentralization, while also by comprehensively taking into account the need for expedited decision-making, integrated management, and effective Ricoh Group company management. Furthermore, the Company examines the governance of Ricoh Group companies by the Supervising Organizations to ensure that more appropriate guidance and management supervision to Ricoh Group companies are provided in accordance with the characteristics of individual businesses and the maturity of risk management. The Company is preparing to propose effective actions based on technology-based compliance violation trend analysis to each organization from fiscal 2023 onwards, by analyzing trends at the risk management department of headquarters, from compliance violations, misconduct, and whistle-blowing that have occurred throughout the Ricoh Group.
There is a risk of adverse impact on performance of a decline in print output in the market for MFPs and printers for office use due to an increase in remote work and the shift to a paperless office environment.
Ricoh has strengthened its services and products that support remote work and the shift to a paperless office environment in the office services domain to increase recurring revenue business earnings in the domain so as to hedge risks in the office printing domain.
Ricoh strives to secure profits by adjusting related personnel in response to changes in print output volume, etc.
Ricoh hedges risks by improving profit margin through initiatives to reduce development and production costs by forming partnerships with other companies and other measures.
Strategic acquisitions in the office services domain, which is the main area in the transformation of our business structure transformation into digital services business, are one of the requirements for achieving the financial targets of the Mid-Term Management Strategy.
Meanwhile, there are risks of not achieving the anticipated return on investment from target companies due to changes in market conditions or poor performance, not being able to identify and acquire suitable companies to acquire in the future, which may affect the execution of the business strategy.
A system was established to constantly monitor the performance and return on investment of acquired companies at the Investment Committee, an advisory committee to the GMC, and implement appropriate countermeasures against unexpected situations.
The M&A department was established within the Corporate Planning Division of the headquarters to identify deals by utilizing outside consultants, and improve the probability of executing strategic acquisitions in target areas by strengthening search activities at regional headquarters around the world.
There is a risk of a downturn in the performance of the enterprise printing business in the commercial printing business domain due to the consolidation and integration of print output volume with print service providers who accept orders for low-cost printing services using high-speed printing equipment and the accelerated digitization of documents.
In order to mitigate risks of a downturn in the performance of the enterprise printing business, Ricoh is promoting the development of untapped distributors in Europe, North America, and emerging countries, while implementing business portfolio management to strengthen resource allocation to commercial printing and industrial printing businesses, where market growth is expected, as well as promoting business restructuring.
Although the thermal market is growing steadily, thermal products are increasingly commoditized. The Company differentiates its products by their quality based on superior color sensitivity, print definition and image storage capabilities. However, if demand for low and medium grade products increases, the Company may face price-cutting competition, resulting in lower market share and profitability, which may adversely affect our performance.
The Company has reduced product costs and reviewed product portfolio to solve social issues in regions where demand for low and medium grade products is increasing.
In addition, the Company is implementing business transformation to provide customers in the fields (logistics, distribution, manufacturing, etc.) with digital services for which the Company can leverage its strengths in thermal formulation technology and production technology.
Ricoh has on its balance sheet goodwill arising from corporate acquisitions as well as property, plant and equipment and intangible assets for businesses.
For these assets, there is a risk of adverse impact on Ricoh's business results and financial position if expected cashflows are not generated due to divergence from target business results and changes in markets.
When acquiring assets, Ricoh implements the prescribed procedures according to the amount and content of the investment, and review the return on investment, etc. before deciding on whether to execute the acquisition.
In addition, the Investment Committee, an advisory body to the GMC, deliberates external investment projects from financial, strategic, and risk perspectives and submits its views to the GMC. A system is in place for taking countermeasures against risks through periodic monitoring by the Investment Committee of the progress of approved projects.
Ricoh has adopted tax effect accounting and recognizes deferred tax assets for deductible temporary differences and net operating loss carryforwards. Deferred tax assets are reviewed for recoverability against future taxable income based on business plans. If estimated future taxable income are lower than current estimated taxable income, the recoverable amount of deferred tax assets will decrease, resulting in a reduction of deferred tax assets, which may adversely affect Ricoh's business results and financial position.
In making the assessment of deferred tax assets, Ricoh considers the scheduled realization of deferred tax liabilities, projected future taxable income and tax planning strategies. Each business units monitor progress of their performance based on business plans in relation to estimated future taxable income, and a system is in place for responding quickly and autonomously when factors that hinder the achievement of the plans occur.
Ricoh regards intellectual property rights as important management resources and obtains patents, design rights, trademarks, and other intellectual property rights to protect, differentiate, and expand its current and future businesses and the technologies that support them. There is a risk, however, of the decline in their uniqueness if competitors develop equivalent technologies, and of failing to obtain expected rights to protect Ricoh's intellectual property rights as a result of examinations of patent offices of each country.
There is also a risk of receiving a warning of injunction of sale or payment of damages, or of filing of a lawsuit against Ricoh by a third party, due to alleged infringement of intellectual property rights of a third party.
Furthermore, as the number of contracts involving intellectual property rights increases along with launches of Ricoh's new businesses and increasingly active collaboration with other companies, as well as joint researches and developments, there is an increased risk of adverse impact on Ricoh's business if troubles and other issues arise from these contracts.
Ricoh strives to improve the accuracy of probability of obtaining intellectual property rights thorough priorart search when applying for intellectual property rights, and through understanding of laws, examination processes and criteria related to intellectual property in each country.
In addition, before launching its products and services in the market, Ricoh thoroughly conducts an investigation into the intellectual property rights of third parties and a comparative examination of its products and services with the intellectual property rights of third parties. If there is a risk of infringement of a third party's intellectual property rights, Ricoh reduces risks of litigation with the third party by conducting appraisals by outside lawyers or patent attorneys, making design changes if necessary, and negotiating and obtaining licenses.
Ricoh places importance on the protection of intellectual property rights as a risk that could affect its performance, and prevents problems and reduces risks using explicit knowledge of past contractual issues.
For products and goods that Ricoh manufactures and sells:
may cause a risk of loss of customers' confidence and social credibility in the company, resulting in damage to the corporate brand and product brand, as well as a risk of the continuity of business becoming difficult.
Ricoh has strengthened its prevention and response processes as follows to deal with product liability:
In the course of business activities of Ricoh, factors such as:
may cause a risk of significant damage to Ricoh.
If violation of antitrust/competition laws occurs in the course of business activities of Ricoh, there is a risk of being imposed of fines (administrative dispositions) and criminal penalties, suspension of transactions with public offices, and loss of public trust causing significant damage to Ricoh.
Ricoh strives to strengthen education activities and response to incidents led by local legal departments in order to ensure thorough compliance with antitrust laws and competition laws in each country.
If violation of environment-related and occupational health & safety laws in the course of business activities of Ricoh, there are risks of being subjected to administrative dispositions impacting production, fines, criminal penalties, loss of social credibility and damage to brand value causing significant adverse impacts on Ricoh.
Ricoh has constructed Environmental Management Systems, and conducts regular assessments to ensure thorough compliance with environmental laws, and grasps and responds promptly to changes in regulation.
In addition, Ricoh conducts appropriate environmental due diligence in M&A transactions to prevent risks.
In response to public requests for disclosure of environmental information, Ricoh discloses environmental performance data in a transparent manner and actively discloses reliable environmental information, including third-party verification of key data.
A substantial portion of Ricoh's production and sales activities are conducted outside Japan, such as in the U.S., Europe and China, and these activities are affected by foreign currency fluctuations.
There are risks of:
Ricoh conducts the following:
Ricoh bears costs for defined benefit plan obligations and retirement benefit plans according to certain accounting policies and contributes funds in accordance with government regulations.
Currently, there is no immediate and significant funding requirement. However, there are risks of need for additional funding and incurring costs if revenue from plan assets declines due to unexpected and unforeseen movements in the equity and debt markets.
Ricoh reviews and revises plans as appropriate, in view of government regulations, personnel strategy and personnel systems.