KONICA MINOLTA

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KONICA MINOLTA 3rd Quarter Financial Results 2004

Consolidated Financial Results
for the 3rd Quarter ended December 31, 2003

February 12, 2004
Company Name: Konica Minolta Holdings, Inc.
Stock Exchange Listings: Tokyo, Osaka, Nagoya (First Sections)
Local Securities Code Number: 4902
(URL: http://konicaminolta.jp)
Representative: Fumio Iwai, President and CEO
Inquiries: Yuki Kobayashi, General Manager, Corporate Communications & Advertising Division
Tel: (81) 3-6250-2100

1. Items Pertaining to the Compiling of the Overview of Quarterly Results

a)
Discrepancies between methods recognized in the most recent consolidated fiscal accounting year and the accounting procedures for the quarter under review : none
b)
Changes to the application of consolidated and equity methods : yes
Consolidated:  (new) 7 companies  (excluded) -
Equity:  (new) -   (excluded) -

2. Overview of Fiscal 2004 3rd Quarter Performance

a) Progress of business performance (consolidated)

(1)3rd quarter of fiscal 2004 (October 1, 2003 to December 31, 2003)

(Millions of yen)

  Net sales Operating income Recurring profit Net income Net income per share (yen)
3rd quarter of fiscal 2004 282,112 18,288 15,318 10,558 19.88
3rd quarter of fiscal 2003 - - - - -
Note:
 
1.
Units of less than ¥1 million have been dropped.
2.
As quarterly reporting was commenced by the Company during the current fiscal year, results for the previous year and comparisons to the such have not been made. Diluted net income per share for the quarter (the period under review) has also been omitted as there was no residual stock.
(2)Nine-month totals (April 1, 2003 to December 31, 2003)

(Millions of yen)

  Net sales Operating income Recurring profit Net income Net income per share (yen)
3rd quarter of fiscal 2004 560,541 42,617 34,410 18,938 41.73
3rd quarter of fiscal 2003 - - - - -

On August 5, 2003, the Company became Konica Minolta Holdings, Inc., a newly integrated holding company formed by an exchange of shares between Konica Corporation and Minolta Co., Ltd. However, because, under standardized accounting, the merger is being handled as occurring at the end of the interim term, separate interim term income statements have been drawn up for Konica and Minolta. Hence, Minolta's interim term results have not been included in the above nine month totals. To accurately present the current state of the Konica Minolta Group, nine-month totals including Minolta's interim term results are as follows:

Reference: Nine-month totals (April 1, 2003 to December 31, 2003) including Minolta's interim term results

(Millions of yen)

  Net sales Operating income Recurring profit Net income
Net income per share (yen) 823,712 58,300 43,762 25,733

[Qualitative Information Related to the Progress in Business Performance (Consolidated)]

On August 5, 2003, the Company became Konica Minolta Holdings, Inc., a newly merged holding company created by an exchange of shares between Konica Corporation and Minolta Co., Ltd. In October, both companies' operations were further reorganized and integrated under the new holding company and reworked into a new corporate group comprising six business companies and two common function companies. This third quarter marks the first post-merger real settlement of accounts for the Konica Minolta Group.

The world economy made a steady recovery during the third quarter led by semiconductors, electronic components and devices, and other sectors of the IT industry. Despite uncertainty regarding the situation in Iraq, the situation was encouraged by the resilience of the U.S. economy, where tax cuts and low interest rate policies have proven effective. In Japan, the engine of growth was the digital appliances market, in which capital investment and exports were on the rise; and, as shown by stock prices and certain other economic indicators, the Japanese economy is also gradually showing signs of recovery. However, prospects for an upturn in consumer spending continued to be hindered by a weak job market and stagnating household income levels, which, in addition to the trend toward a stronger yen and weaker U.S. dollar in the latter half of the quarter, has made the Japan's economic future unpredictable.

Against this backdrop and with the new merger at its doorstep, the Konica Minolta Group worked swiftly to solidify its business foundation. At the same time, faced with the daily intensification of corporate competition at the global level, the Company pursued the thorough implementation of business portfolio management to capitalize on the advantages of the merger as quickly as possible. In particular, we worked to expand sales and secure and improve earnings in our core Business Technologies Business and our strategic Optics Business. As a result, consolidated net sales for the quarter amounted to ¥282.1 billion. On the profitability side, although measures to reduce costs and expenses had some effect, certain costs related to the merger exerted greater-than-expected downward pressure on income, and, consequently, the Company recorded operating income of ¥18.2 billion, recurring profit of ¥15.3 billion, and net income of ¥10.5 billion for the quarter.

Currency exchange rates for the third quarter were ¥109 to the U.S. dollar and ¥129 to the euro.

3rd quarter of fiscal 2004 (October 1, 2003 to December 31, 2003)

Overview by Segment

(Millions of yen)

  Business Tech-nologies Business Optics Business Photo Imaging and Camera Business Medical and Graphic Imaging Business Industrial Instruments Business Other Consoli-dated
Net sales to outside customers 166,471 25,358 59,053 28,358 1,115 1,753 282,112
Inter-segment sales 5,672 5,164 4,140 5,801 544 (21,324) -
Sales 172,144 30,523 63,194 34,159 1,660 (19,570) 282,112
Operating expense 156,659 25,656 64,923 33,674 1,335 (18,426) 263,823
Operating income 15,485 4,866 (1,729) 484 325 (1,144) 18,288
Nine-month totals (April 1, 2003 to December 31, 2003)

(Millions of yen)

  Business Tech-nologies Business Optics Business Photo Imaging and Camera Business Medical and Graphic Imaging Business Industrial Instruments Business Other Consoli-dated
Net sales to outside customers 270,116 55,450 142,689 87,109 1,115 4,059 560,541
Inter-segment sales 17,019 14,133 11,690 18,289 544 (61,678) -
Sales 287,136 69,583 154,380 105,399 1,660 (57,618) 560,541
Operating expense 258,550 57,320 153,081 100,240 1,335 (52,604) 517,923
Operating income 28,585 12,263 1,298 5,158 325 (5,013) 42,617
Reference: Nine-month totals including Monolta's interim term results. (April 1, 2003, to March 31, 2004)

(Millions of yen)

  Business Tech-nologies Business Optics Business Photo Imaging and Camera Business Medical and Graphic Imaging Business Industrial Instruments Business Other Consoli-dated
Net sales to outside customers 464,751 64,564 196,420 87,109 6,488 4,376 823,712
Inter-segment sales 17,105 14,355 11,916 18,289 659 (62,326) -
Sales 481,857 78,919 208,337 105,399 7,148 (57,949) 823,712
Operating expense 436,823 67,543 208,310 100,240 5,850 (53,356) 765,411
Operating income 45,033 11,376 26 5,158 1,298 (4,592) 58,300
1. Business Technologies Business (MFPs, Printers, Etc.)

Sales to customers external to the Company were ¥166.4 billion, and operating income was ¥15.4 billion.

In multi-function peripherals (MFP) operations, the Company continued to work to increase sales of high-value-added medium- and high-speed copiers and color copiers while also taking measures to maintain and expand its market share in all regions. We also further sped up the augmentation of our polymerized toner compatible copiers, from monochrome models to full-color copiers. In October 2003, we also commenced shipments to Hewlett-Packard in the United States of two models of monochrome MFP high-speed copiers, which print out copies at the high rate of 55 and 65 pages per minute.

In printer operations, the Company continued to target the U.S. and European markets for increased sales of color copiers in the low-speed segment. We also began to concentrate in earnest on this segment of the Japanese market and introduced new products under our own brand.

2. Optics Business (Optical Devices, Electronic Materials, Etc.)

Sales to external customers were ¥25.3 billion, and operating income was ¥4.8 billion.

During the third quarter, optical pickup lenses, which is the main focus of the Optics Business and hold a dominant market position, maintained the strong performance achieved in the first half of the fiscal year. In addition, increases in sales on the strength of substantial end-product market growth were attained in the strategic segments of digital camera lens units and microlenses for camera-equipped mobile phones, which utilize the Company's advanced optical technologies.

We also worked to expand sales of high-value-added products in TAC film and other liquid crystal materials segments by capitalizing on the flourishing growth of digital appliances, including digital cameras, mobile phones, and liquid crystal display television sets.

3. Photo Imaging and Camera Business (Photo-sensitive Materials, Digital Cameras, Ink-jet Media, Etc.)

Sales to external customers were ¥59.0 billion, and operating loss was ¥1.7 billion.

Although sales and profit from color film operations stagnated due to the growing popularity of digital cameras and the resulting dramatic decline in demand in North America, Europe, and other major markets, healthy sales were achieved in photographic paper, with which the Company is targeting the shift toward digital prints, and also ink-jet media, which the Company is incubating as a new business.

Although substantial year-on-year growth in sales of digital cameras was attained in terms of both volume and value as the overall market continued to grow, earnings nevertheless eased off due to greater-than-expected price competition during the all-important year-end shopping season as well as the continuation of the sharp decline in the film camera market.

4. Medical and Graphic Imaging Business (Medical and Graphic Products, Etc.)

Sales to external customers were ¥28.3 billion, and operating income was ¥0.4 billion.

In the medical imaging segment, the Company continued to work to achieve stable growth regardless of fluctuation in the economy, and favorable sales were recorded in film, imaging agents, and equipment. Steady progress was also achieved in the shift to digitally compatible dry film.

At the same time, in the graphic imaging segment, which has become increasingly filmless especially in industrialized nations, the Company compensated for declines in the Japanese market with concentrated sales expansion in graphic printing film in Asia and other overseas markets. We also worked dynamically to expand sales of digital color proof systems and other equipment both in Japan and overseas.

5. Industrial Instruments Business (Color Measurement and 3-D Measurement Devices, Etc.)

Sales to external customers were ¥1.1 billion, and operating income was ¥0.3 billion.

The Measuring Equipment Business achieved strong sales in the primary segment of color measurement equipment, benefiting from the high-growth potential of wide-screen television sets and eager capital investment in the IT industry, which has become a driver of economic recovery. The Company also continued to organize its sales force and develop new products in 3-D measuring equipment, which the Company has positioned as a future core segment.

b) Quantitative Information Regarding the Changes in Financial Position (Consolidated)

(Millions of yen)

  Total assets Shareholders' equity Shareholders' equity ratio (%) Shareholders' equity per share (Yen)
3rd quarter of fiscal 2004 1,009,244 341,091 33.8 642  21
Reference: Interim Financial Results for FY2004 994,460 337,093 33.9 634  62
Consolidated Cash Flows

(Millions of yen)

  Operating activities Investing activities Financing activities Cash and cash equivalents at the end of the 3rd quarter
3rd quarter of fiscal 2004
(Current Quarter)
12,388 (5,541) (8,867) 87,652
3rd quarter of fiscal 2004
(9-month total)
20,553 (14,347) (9,612) 87,652

[Quantitative Information Regarding Changes in Financial Position (Consolidated)]

Total assets were up ¥14.7 billion from the end of the first half, exceeding the ¥1 trillion mark and amounting to ¥1,009 billion. Accounts receivable climbed ¥11.3 billion, to ¥235.6 billion, and inventories rose ¥2.3 billion, to ¥186.5 billion. At the same time, interest-bearing debt declined 9.7 billion, to ¥294.8 billion. Shareholders' equity also grew ¥3.9 billion from the end of the first half, to ¥341.0 billion, yielding an equity ratio of 33.8%.

With regard to cash flows, due to the Company's recording of income before income taxes and minority interests amounting to ¥14.5 billion and other factors, cash provided by operating activities totaled ¥12.3 billion. Cash used in investing activities amounted to ¥5.5 billion, comprising mostly expenditures for the acquisition of tangible and intangible fixed assets, and thus free cash flow worked out to ¥6.8 billion.

On the other hand, cash used in financing activities amounted to ¥8.8 billion as a result of progress made in the repayment of bank loans and other borrowings. Hence, despite the ¥0.2 billion increase in cash and cash equivalents from new consolidation, cash and cash equivalents at the end of the third quarter declined ¥1.8 billion from the end of the first half, to ¥87.6 billion.

3.Consolidated Results Forecast for Fiscal 2004 (April 1, 2003, to March 31, 2004)

(Millions of yen)

  Forecast net sales Forecast recurring profit Forecast net income
Full-year 870,000 35,000 17,000

Note:

Net income per share forecast for the full fiscal year is ¥32.00.

Due to the reasons stated above, Minolta's interim results have not been included in the above forecast for the full fiscal year. To accurately present the current state of the Konica Minolta Group, the full year forecast, including Minolta's interim term results, is as follows:

Reference: Consolidated Results Forecast for Fiscal 2004, including Monolta's interim term results. (April 1, 2003, to March 31, 2004)
  Forecast net sales Forecast recurring profit Forecast net income
Full-year 1,133,200 44,400 23,800

[Quantitative Information Regarding the Company's Results Forecast]

Although continuing stagnation in consumer spending in the Japanese market is expected due to the persistent unpredictable nature of the economy, global markets, particularly the United States and China, remain on a steady recovery trajectory and the current boom in IT and digital appliances is expected to continue.

With regard to its own standing, the Konica Minolta Group anticipates persistent severity in the business environment surrounding photo-sensitive materials as the shift toward digitization continues and more intense price competition in the digital camera market is expected. However, recovery in corporate earnings has improved companies' willingness to invest capital, and firm demand is expected for such office equipment as office productivity-enhancing intelligent copiers and color printers. The Company also predicts continued strong demand for such optical devices and components as large LCD FPDs, camera-equipped mobile phones, and other segments of the digital appliances market continue to expand.

In currency exchange rates, although the continuing trend toward a strong yen and weak U.S. dollar is a cause of concern, the yen has depreciated against the euro to greater degree than anticipated and hence the U.S. dollar and the euro are expected to balance out any potential effect on income due to exchange rate fluctuation.

In consideration of this business and exchange rate environment, the Company makes no revision to its full fiscal year forecast announced on November 13, 2003, and will accelerate efforts to achieve its targets, implement all measures necessary to complete the Konica Minolta merger, and steadily capitalize on the merger's benefits.

*
The above performance forecasts are expectations based on predications, outlooks, and plans related to the future at the time of this announcement and, as such, are subject to risks and uncertainties. Various significant factors may cause actual results to differ materially from these forecasts.

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