Risk factors

While the risks that management recognizes as having a material impact on the Ricoh Groupʼs financial position, operating results, and cash flows are discussed on below pages, they are not all-inclusive. There are possibilities that the Ricoh Groupʼs 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 the Ricoh Groupʼs assessment as of March 31, 2024.

The Ricoh Group is working to reform its revenue structure in order to grow as a digital services company. However, there is a risk of stagnation in corporate value if improved profitability cannot be achieved, as the accelerated decline in printing volume may not fully offset by the growth of the Office Services business and other areas resulting in delays in achieving its mid-term financial targets, including operating profit/ROE.

Based on the analysis result that the low PBR is due to low profitability, the Ricoh Group has been working on the following themes under the Corporate Value Improvement Project to transform profit structure:

To achieve above, the Ricoh Group will optimize our human resources portfolio and strengthen development of M&A expertise to acquire new resources.

To accelerate the implementation of a digital strategy that leverages digital technology (e.g., AI) and data, it is crucial for headquarters and each business unit to work together and continue developing practical digital talent, promoting data utilization in business, and achieving operational excellence. Otherwise, there is a risk that the Ricoh Group’s performance and growth will be affected.

To build resilience amid intensifying global competition, accelerating the implementation of the digital strategy is essential. The Ricoh Group is working to strengthen following measures:

As a digital services company, there is a risk that could prevent us from achieving higher returns on investment in technology by not being able to shift to a market-in/open innovation-based R&D process. There are also risks of losing corporate credibility and missing business opportunities due to inability to respond to ELSI^*2 in AI applications.

The Ricoh Group will concentrate on R&D investments in focus areas, strengthen governance of investment allocation, and move toward market-in/open innovation-based R&D processes. Furthermore, under our program to promote technology ethics, the Ricoh Group will emphasize activities that foster ethical awareness in the value creation process.

To transform itself into a digital services company, the Ricoh Group is utilizing and providing a variety of digital services and digitalizing our internal operations. Based on this, the Ricoh Group has established and operates the system to ensure information security, but there are risks such as the following.

As countermeasures are being required at the national policy level in each country, it is essential for the Ricoh Group, with its global operational bases, to continuously monitor the ever-evolving information security regulatory environment and consider and promote appropriate countermeasures. This is one of the top priorities.

Achieving business transformation into a digital services company and continuing to grow in the medium to long-term critically depends on human resources. In particular, if the Ricoh Group does not continue to develop future management personnel, there is a risk that the Ricoh Group’s business performance and growth will be adversely affected.

Reviewing the definition of next-generation leader candidates from fiscal 2023, the Ricoh Group has improved to make it possible to visualize issues from the perspective of position, age, gender, and other factors. In addition, the Ricoh Group is comprehensively proceeding with the selection training, assessment, and development of young leaders to build a medium- to long-term leadership pipeline.
The Ricoh Group renewed training for managers in fiscal 2024, and provided training to managers of each Ricoh Group company in Japan^*4 to change their mindsets, which is necessary to create an environment that supports autonomy.

Responding to ESG/SDGs poses medium- to long-term risks to the Ricoh’s business activities. The Ricoh Group considers human rights, decarbonization, a compliance with environmental regulations and standards that are becoming increasingly stringent to be particularly significant risks. In addition, ESG information disclosure, which was previously optional, is now becoming mandatory globally and the statutory disclosure is progressing.
If the Ricoh Group does not take these measures to keep up with competitors, it may not only have a negative impact to business such as the loss of business opportunities but also cause a significant damage to the Company such as loss of social credibility and damage to brand value.

The Ricoh Group is strengthening following measures:

The Ricoh Group is strengthening prevention and response processes. To ensure smooth business activities, management will deliberate and take prompt and appropriate actions such as enhancing collection of information on local laws and regulations in each country, and selecting multiple suppliers for important components. In addition, the Ricoh Group is developing a response framework that includes a medium- to long-term perspective as well as a short-term perspective on the impact of the new U.S. administration’s policies and interconnected global risks.

The occurrence of unpredictable circumstances such as large-scale earthquakes, tsunamis, floods, suspension of supply, and geopolitical risk may lead to the following situations and there is risk of losing business opportunities:

The Ricoh Group strengthened the following prevention and response processes assuming risk occurrences:

In addition, the Ricoh Group regularly conducts not only desk training but also practical training. The introduction of tools has shortened the time previously required to monitor the status of suppliers. The Ricoh Group will continue to verify and improve the effectiveness of these measures.

The Ricoh Group anticipates the risk of large-scale natural disasters, incidents, and accidents which may occur in Japan and overseas, resulting in human and property damage that could severely impact business.

In response to these risks, the Ricoh Group is implementing the following measures:

Japan

Outside Japan

There is a risk that a compliance problem (violation of laws and regulations, harassment, or behavior that violates internal rules or the Ricoh Group Code of Conduct) may escalate into a social problem if it occurs and is not handled appropriately.

Japan / Outside Japan

Japan

In an era of rapid changes in the internal and external environment, the Company believes that strengthening group governance is extremely important to maintain healthy growth. If the governance of the headquarter is not functioning properly, the following risks may arise:

There is a risk of adverse impact on performance due to a decline in print volumes, for the increase in remote work and the trend toward paperless operations in the market for MFPs and printers for office use.

The Ricoh Group aims to improve profitability further by maintaining and expanding the existing customer base of the Office Printing business, as well as through thorough improvement of SCM efficiency and operational excellence in internal processes. Additionally, in the office services field, the Ricoh Group has been steadily achieving growth centered on Process Automation and Workplace Experience and is hedging risks in the office printing domain by accelerating efforts to ensure recurring profit.
Furthermore, regarding the supply system for edge devices, including MFPs, the Ricoh Group is collaborating with other companies to establish optimal production and development systems. This will enable us to offer competitive products and hedge risks by improving profit margins.

Securing digital talent capable of consulting and integration is the essential driver of growth in digital services. The trend toward business transformation using IoT and AI is intensifying against the backdrop of chronic labor shortages. Competition to secure digital talent is increasing. Therefore, there is a risk that we may not be able to secure enough digital talent.

To prevent the loss of and attract outstanding digital talent, the Ricoh Group is advancing reforms in our human resource systems, such as establishing a professional HR system. Additionally, the Ricoh Group is formulating a human capital strategy aimed at enhancing the skills of all Group employees. Through the development and implementation of Digital Academy and reskilling programs, the Ricoh Group is working to nurture personnel capable of executing Process DX and digital experts.

There is a risk of downturn in the performance of the enterprise printing business in the commercial printing business domain due to a decrease in demand for large-scale printing within companies, the consolidation and integration of print output volumes by the expansion of remote work and paperless operations.

To reduce the risk of downturn in the performance in the enterprise printing business, the Ricoh Group is advancing the development of untapped distributors in Europe, North America, and emerging countries.
Additionally, by implementing business portfolio management, the Ricoh Group is transforming our business structure by strengthening our resource allocation to high-value-added areas of the commercial printing business, which are expected to continue growing, and to inkjet technology and products.

Although the thermal market is growing steadily due to the increase in consumer goods driven by global population growth, commoditization is progressing. There is a risk of deteriorating profitability, excess inventory, and lower equipment utilization rates, as the business expands globally, and delayed economic recovery in various regions may slow growth.

The Ricoh Group is strengthening our market trend monitoring system, refining demand forecasts, and enhancing daily management systems. In response to demand fluctuations from regional economic trends, the Ricoh Group leverages our global sales network and production infrastructure to optimize production and supply operations in appropriate regions, aiming to minimize performance fluctuation risks.
Additionally, by expanding the smart packaging business that prints directly on packaging materials, the Ricoh Group aims to contribute to solve social issues, and stabilize revenue.

The Ricoh Group has recorded goodwill arising from corporate acquisitions, as well as various property, plant and equipment and intangible assets for business use. There is a risk for adverse effects on the Ricoh Group’s operating results and financial condition, if these assets fail to generate the expected cash flows due to discrepancies with future performance plans or market changes.

When acquiring assets, the Ricoh Group follows prescribed procedures based on the investment amount and content, considering various factors such as investment effectiveness to determine the feasibility of execution. Additionally, for external investment projects, the Investment Committee, an advisory body to the GMC, deliberates on the appropriateness of investments from financial, strategic, and risk perspectives, and submits its views to the GMC. For approved investment projects, the committee has established a system to regularly monitor progress, thus implementing measures against risks.

The Ricoh Group applies tax effect accounting. Deferred tax assets are recognized against future timing differences and loss carryforwards. The recoverability of deferred tax assets is assessed based on future taxable income anticipated from business plans. There is a risk of adverse effects on the operating results and financial condition, that if the estimate of future taxable income declines compared to current estimates, the recoverable amount of deferred tax assets decreases, leading to a reduction in deferred tax assets.

In evaluating deferred tax assets, the Ricoh Group considers the planned realization period of deferred tax liabilities, estimated future taxable income, and tax strategies. Regarding the estimation of future taxable income, each business unit monitors performance progress based on business plans and establishes a system that can autonomously and quickly respond to any factors that may hinder the achievement of these plans.

The Ricoh Group considers intellectual property rights as important management assets and acquires patents, design rights, trademarks, and other intellectual property rights to protect, differentiate, and expand its current and future business and supporting technologies. However, risk exists that competitors may develop equivalent technologies, reducing our uniqueness, or that the Ricoh Group may not obtain the desired rights after examination by various countries’ patent offices, leading to insufficient protection.
Additionally, there risks arise that third parties may allege infringements on their intellectual property rights, make demands for sales injunctions or damages, or even initiate litigation. Furthermore, as new businesses are launched and collaborations, joint research, and joint development with other companies become more active, the number of contracts related to intellectual property rights increases, heightening the risk of adverse impacts on our business should any issues arise from these contracts.

The Ricoh Group conducts thorough prior-art searches before patent applications and strives to improve the accuracy of intellectual property rights acquisition by understanding the laws, examination standards, and processes related to intellectual property in various countries. In addition, before offering our products and services to the market, the Ricoh Group thoroughly investigates third-party intellectual property rights and for possible conflict with our products and services. If there is a risk of infringing on third-party intellectual property rights, the Ricoh Group seeks assessments from external lawyers or patent attorneys and, if necessary, makes design changes, negotiates licenses, or obtains licenses to reduce the risk of disputes with third parties.
The Ricoh Group emphasizes “protection of intellectual property rights” as an objective affecting our performance. To prevent disputes and reduce risks, the Ricoh Group has converted past cases of contractual disputes related to intellectual property rights into a developed knowledge base.

The products manufactured and sold by the Ricoh Group may face the following risks that can lead to a loss of customers’ trust and social credibility, damage to the corporate and product brands, and potentially make business continuity difficult.

The Ricoh Group is strengthening prevention and response processes for “product quality and product liability.”

In the course of conducting business activities, there are risks of significant damage to the Company due to factors such as:

During business activities, there is a risk of a significant damage to the Company, in case of violation of antitrust and competition laws during business activities. Potential consequences include administrative sanctions such as surcharge payment orders, criminal penalties, suspension of transactions with government agencies, and adverse impacts on business due to loss of social credibility.

To ensure thorough compliance with antitrust and competition laws in various countries, legal departments in each region take the lead in strengthening adherence to these laws, conducting educational activities, and enhancing response measures in case of violations.

During business activities, violations of environment-related laws can lead to significant damage to the Company. Potential consequences include impacts on production due to administrative sanctions, burden of surcharges, criminal penalties, and adverse effects on business due to loss of social credibility and damage to brand value.

The Ricoh Group has established an Environmental Management System to ensure comprehensive compliance with environment-related laws through regular assessments and timely recognition and response to regulatory changes. The Ricoh Group also implements environmental due diligence during M&A activities to prevent risks.
Additionally, the Ricoh Group actively discloses collected environmental performance data and ensure transparency and reliability by subjecting key data to third-party verification.

A considerable portion of our production and sales activities is conducted outside of Japan, in regions such as the U.S., and Europe. The Ricoh Group's business activities are affected by exchange rate fluctuations in the following ways:

For plan assets held in defined benefit and retirement benefit plans, the Ricoh Group records these benefit costs based on applicable accounting policies and contributes funds in compliance with government regulations.
Although a large amount of funds is not immediately required at this time, there is a risk that if the profitability of plan assets declines due to unexpected and unforeseen movements in the equity and debt markets, additional fund contributions and cost burdens may become necessary.

The Ricoh Group regularly reviews and implements revised plans as appropriate, in view of government regulations, personnel strategy and personnel systems.

For definitions of urgency, impact and risk management level, see Process of determining managerial risks in Risk Management Process.