Source: Annual Securities Report
(The 122th Business Term)
(Filing Date: June 27, 2022)
Ricoh is exposed to various risks which include the risks listed below. Although certain risks that may affect Ricoh's businesses are listed in this section, this list is not conclusive. Ricoh's business may in the future also be affected by other risks that are currently unknown or that are not currently considered significant or material.
In addition, this section contains forward-looking statements, which are based on our judgments at the end of the period.
Please see “3. ANALYSIS OF CONSOLIDATED FINANCIAL POSITION, OPERATING RESULTS AND CASH FLOWS (2) Business results” for details on the impact on Ricoh and Ricoh's response to COVID-19.
Regarding the impact of the COVID-19 pandemic on business performance, although there are signs of improvement such as the development and distribution of vaccines and oral drugs, the situation in each region is different, and it is still difficult to predict the overall impact accurately.
We run a global business, and so the change of economic situation in major markets such as Japan, the U.S. and Europe would have a significant impact on our business.
In addition to the impact of the aforementioned COVID-19 on each market, we consider the economic impact resulting from the rise in protectionism as our major risk, including the ongoing U.S.-China trade friction and Russia/Ukraine situation. We also recognize that there is a potential risk of rapid deterioration in economic conditions in major countries due to other unexpected events.
We will monitor very carefully the changing economic situation and take counteractions as necessary.
In particular, as it relates to the U.S.-China trade friction, we have reduced the risk of tariffs by manufacturing the products China and Thailand in parallel, based on our BCP action. In the Russia/Ukraine situation, a crisis management support team has been set up to ensure a safe and secure environment for employees and their families. We will continue to take appropriate measures according to the situation.
We pass on the increased cost of our products due to the influence of US-China tariffs and supply chains to the price of our products after obtaining consent from customers.
We may encounter a negative business impact as a result of increased competition in the market:
We plan to keep developing and launching new products and services that enhance our customers' value in each business domain.
We are affected by fluctuations in price of parts, materials and foreign currency exchange rates because most of our manufacturing and sales activities are conducted outside of Japan such as in the U.S., Europe and China etc.:
We conduct business with other entities through alliances, joint venture and strategic investment as needed in order to provide our products and services that meet the changing needs of our customers.
We think that these are effective ways to develop new products and services in a timely manner by utilizing the sources with each other.
For various reasons, there are possible risks as described below:
We believe that alliance with other companies and strategic investments will become more important in the future to respond flexibly and reliably to the diversifying needs of our customers. We have positioned this as a “managerial strategic risk” and will work to strengthen our business portfolio management process and decision-making process.
The Investment Committee has been established as an advisory team for GMC (Group Management Committee, which is our highest decision making executive team), in order to review each investment plan from a financial viewpoint with respect to capital cost and review it also from a business strategy viewpoint with respect to profitability and business risk.
In this committee the expert members check and discuss diversifying investment and loan plans, create better alignment between the investment plan and business management strategy, make the investments more effective, and improve the speed and accuracy of investment decisions.
The Investment Committee shares the result of its discussion, which supports GMC's final decision. In addition, the Investment Committee keeps reviewing and monitoring the progress of investments and loans after GMC's decision so that the entire process is improving continuously.
In addition, we have held the human resource development program for PMI term by term since FY2019, and have been continuously accumulating know-how and developing human resources.
Appropriate responses to the rapid technological evolution and innovation in recent years are the source of competitiveness of our products and services.
We may face some adverse impact on our business growth if we do not have enough actions against the following things:
As global competition has been getting tougher, it is now more important for us to enhance our technology that solves the problem of our customers and society quickly. We have positioned this as a “Managerial strategic risk” and will work to strengthen our decision-making process under the new business unit structure.
We have established R&D bases worldwide, and these bases conduct R&D by driving their local advantages as well as by connecting with each other globally.
In addition, we promote open innovation to accelerate our R&D activities by collaborating with universities, research institutes and companies rather than focusing only on our own R&D, in order to respond to the rapidly changing market environment.
Furthermore, we have appointed a Chief Technology Officer (CTO) and a Chief Digital Innovation Officer (CDIO). They (CTO, CDIO) are responsible for selecting priority areas for R&D and technology development throughout the Company, and promoting activities to strengthen technological capabilities by allocating resources appropriately in line with management strategies through Group-wide collaboration meetings hosted by them.
In addition, the group headquarters functions, the Advanced Technology Research Institute under the CTO and the Digital Strategy Department under the CDIO, will specialize in R&D areas necessary for a digital services company. We are also working on the allocation of human resources in consideration of overall optimization.
The Ricoh group's business transformation into a digital services company and continued growth over the medium to long term will depend largely on its human resources.
There are some risks that our performance and growth will be adversely affected if we do not continuously acquire and nurture the following:
We have positioned the securing and developing excellent personnel as a “Managerial strategic risk” and is the implementing the following measures.
Ricoh provides financing to some of its customers in connection with its equipment sales and leases.
We recognize that there are possible risks as described below:
With the aim of transforming our group into a digital service company, we will utilize and provide a variety of digital services and implement digitization of our own operations.
In addition, we are focusing on systems and operations to ensure information security. If the following events occur, we may face some adverse impact on our business performance, such as damage to our corporate brand value due to loss of credibility or loss of business opportunities.
Ricoh Group considers it one of the most important management issues to keep abreast of the ever-changing information security situation and to consider and promote appropriate measures for the Ricoh Group, which has operating bases around the world, in order to meet the increasing demand for countermeasures at the national level in each country.
Ricoh may be held responsible for any defects that occur with respect to its products and services.
Depending on the defect described below, Ricoh may be liable for significant damages which may adversely affect its financial results and condition.
In addition, negative publicity concerning these defects could make it more difficult for Ricoh to attract and maintain customers to purchase Ricoh products and services. As a result, Ricoh's financial results and condition may be adversely affected.
Ricoh Group has strengthened its prevention and response processes to the product liability.
Due to unforeseen circumstances such as large-scale earthquakes/tsunamis, political changes/disturbances, floods, spread of infectious diseases, and suspension of supplier supply, which may cause the following risks.
These risks could result in lost business opportunities.
Ricoh Group has positioned “long-term supply delays/suspension in supply of products” as a “Focus managerial operational risk” and has strengthened its prevention and response processes, secured BCP inventories, and selected multiple suppliers for each important component. In addition, we make sure that our suppliers do not stop providing products to our customers due to factory operation suspension until supply resumes after the disaster.
We have assumed that the risk range is local and the recovery period is short, but based on the experience of the rapid global spread of the COVID-19 and geopolitics, in addition to the activities so far, the risk range will be expanded from the local area to wide area, and the recovery period will be extended. We will improve the environment in preparation for emergencies from short-term to long-term. In addition, we implement action plans and desktop drills based on assumed risks and perform certain practices in a stately manner, and continue to check and improve the effectiveness of our countermeasures.
Ricoh Group regards intellectual property rights as an important management resource and acquires 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. But there are possible risks that competitors will develop equivalent technologies and their uniqueness will decline, or that the patent offices of each country will not be able to obtain the rights they intended and will not be able to obtain sufficient protection.
In addition, there are risks that the Group may receive a warning from a third party requesting an injunction against sales or payment of compensation for damages, or a proceeding may be filed for infringing the intellectual property rights of a third party.
Furthermore, with the launch of new businesses of the Group, collaborations with other companies, joint research and joint development have been activated, and the number of contracts related to intellectual property rights has increased, the risk of adversely affecting the Company's business increases.
Ricoh Group conducts thorough prior art searches before applying for patents, etc., and strives to improve the accuracy of obtaining intellectual property rights by understanding the laws, examination standards and processes related to intellectual property in each country. In addition, before offering our products and services to the market, we thoroughly investigate the intellectual property rights of third parties and examine the comparison between our products and services and the intellectual property rights of third parties. If there is a risk of infringement of a third party's intellectual property rights, we reduce the risk of disputes with the third party by appraising the product by an outside lawyer or patent attorney, making design changes if necessary, and negotiating and obtaining licenses.
Ricoh Group attaches great importance to “protection of intellectual property rights” as a risk that affects business performance, and has developed an assessment method by formalizing cases of contract troubles related to intellectual property rights that have occurred in the past, and take measures against the extracted risks.
If a violation of import/export related laws occurs, there is a risk of significant damage to Ricoh as described below:
If a violation of antitrust and competition laws, there is a risk of significant damage to Ricoh as described below:
In order to ensure compliance with antitrust laws and competition laws in each country, the legal departments in each region take the initiative to strengthen educational activities and respond to emergencies.
When various personnel-related and compliance violations (harassment, employment-related, human rights, etc.) occur in business activities of the Ricoh Group, there is a risk that social credit will be damaged and the business will be adversely affected.
Ricoh Group has positioned “Government regulations (HR)” as a “Focus managerial operational risk” and in order to practice the “Ricoh Way” and fulfill our social responsibility, each of our executives and employees of the Group must understand and comply with relevant laws and regulations in worldwide, international rules, and act with high ethical standards. Ricoh has established the “Ricoh Group Corporate Code of Conduct” and is working to ensure thorough awareness.
With regard to the establishment and revision of various personnel-related laws and regulations, Ricoh responds promptly.
Ricoh is working to prevent problems by establishing new internal rules, reviewing them, and conducting employee education. Ricoh is also establishing a system for dealing with any occurrence of a compliance violation and creating rules to address them.
In addition, we joined the Responsible Business Alliance (RBA), a corporate alliance promoting corporate social responsibility in the supply chain, in October 2019.
In light of widespread human rights issues in the international community, we reviewed the content of conventional human rights policies and established the “Ricoh Group's Human Rights Policy” in April 2021. In order to implement business activities based on this policy, in addition to thorough in-house education, we ask companies in our supply chain to comply with the Ricoh Group Supplier Code of Conduct including the elimination of child labor and forced labor.in accordance with the RBA Code of Conduct.
The status of compliance is monitored through regular CSR self-assessments to encourage necessary improvements.
Ricoh has also issued a statement under the UK Modern Slavery Act 2015.
In the event of violations of various environment-related and occupational health & safety laws, there is a risk of serious damage to the company, including the impact on production due to administrative penalties, the burden of surcharges, criminal penalties, and the adverse impact on business due to the loss of social credibility and the damage to brand value.
We have established an environmental management system to ensure compliance with environment-related laws through regular assessments, as well as to monitor and respond to regulatory changes in a timely manner.
In addition, as described in the risk “Government regulations (HR)”, we joined the RBA corporate alliance, which promotes corporate social responsibility in the global supply chain. The Ricoh Group is working to further raise the level of risk management by standardizing internal standards to meet RBA standards and developing human resources using RBA tools.
Furthermore, we are promoting improvement activities to identify ESG risks through third-party audits based on the RBA standard and minimize the risks.
Ricoh recognizes goodwill in relation to acquisitions and various tangible assets or intangible assets for business operation. There might be harmful effects on business results or financial positions of Ricoh when expected cashflows fail to meet targets.
As mentioned in risk “Alliances with other entities, strategic investment”, we deliberate on the appropriateness of the acquisition amount at the Investment Committee. We monitor progress after investment and have established a system to execute and manage business.
With respect to its employee benefit obligations and plan assets, Ricoh accrues the cost of such benefits based on applicable accounting policies and funds such benefits in accordance with governmental regulations.
Currently, there is no immediate and significant funding requirement. However, if returns from investment assets continue to decrease and/or turn negative due to market conditions, such as with fluctuations in the stock or bond markets, additional funding and accruals may be required. Such additional funding and accruals may adversely affect Ricoh's financial position and results of operations.
Ricoh has reviewed and implemented systems as appropriate based on government regulations, human resource strategies and personnel systems.
Recognizing that climate change is an important issue for our group operating globally, we are conducting and implementing countermeasures in accordance with the TCFD*4 framework. The main risks are “the risk of a late response to the transition to a Zero-carbon society&dquo; and “the physical risk of climate change”.
(Risk of a Late Response to the Transition to a Zero-carbon Society)
We recognize that there are possible risks as described below:
(Physical Risks Due to Rapid Climate Change)
We recognize that there are possible risks as described below:
Business impacts related to climate change are managed as one of the key management strategy risks within the framework of company-wide risk management.
(Risk of a Late Response to the Transition to a Zero-carbon society)
(Physical Risks Due to Rapid Climate Change)
As described in the risk items “Fluctuation in price of parts, materials and/or foreign currency exchange rates,” “Long-term delay/suspension in supply of products” and “Effects of disasters and other unpredictable events,” for details, we are strengthening risk management throughout the supply chain, including duplication of procurement lines and accumulation of materials and parts inventories. In addition, we held the meeting with our suppliers about ESG in FY2021 in order to improve our supplier's business continuity capacity. We will continue to strengthen our suppliers' response to ESG, including climate change risk, and build strong supply chain through communication with our suppliers.
Ricoh Group has established countermeasures based on the assumption that the following a large-scale natural disaster, incidents, and accidents could cause human (including family members) and physical damage to Group companies.
Ricoh Group positions “Effects of disasters and other unpredictable events” as “Managerial operational risk”, and Ricoh Group Standards specify the initial response to an emergency, reporting methods, and the establishment and role of each task force, and we have established a system to ensure an appropriate response in the event of a disaster.
In order to prevent the occurrence of disasters and to minimize damage in the event that a disaster does occur, we conduct regular facility inspections and disaster drills at each business site by the domestic group companies.
We have prepared business continuity plans (BCPs) for each region and business so that we can continue our operations even in the event of a disaster and restore it as soon as possible.
Especially in recent years, the risk of flood damage in Japan has been increasing due to climate change.
In fiscal 2020, we conducted a detailed survey on flood risk at 19 major bases in Japan, and reported damage estimates and countermeasures based on the results of the survey to the management meeting.
As a result, we have decided to prioritize the measures at the three bases, which are expected to be particularly high risky, and have started the necessary construction work in fiscal 2021 and implement measures in cooperation with related local governments.
In addition, we have formulated a recovery action plan, and are conducting on-site training based on the plans in the case of a large-scale floods and earthquakes.
For definitions of impact, urgency and risk management level, see Process of determining managerial risks in Risk Management Process.