Matters concerning the business and financial status of the Konica Minolta Group (the Group) that are likely to have a material impact on the decision of investors are set forth below. Matters relating to the future referenced below are Group determinations based on the current business environment.
(1) Economic, Market, and Competitive Environment
The Group offers multi-functional peripherals (MFPs), digital printing systems, healthcare equipment, products and components in the area of optical systems for industrial use, display materials, related services, and other such items to customers worldwide. Revenues and profits in these businesses are strongly affected by economic developments in individual national markets.
In the global economy, the contagion risk of anti-globalization ideology in Europe has receded. However, there is continuing concern that geopolitical factors centered on the Middle East, sluggish economic growth in China and the emerging countries, revisions of financial policy in regional economic spheres and major countries, and other such phenomena represent risk factors. Economic slumps are affecting markets in various countries, resulting in curtailment of investment, reduction of expenditures, and sluggish consumption by customers. As a result, the Company could experience higher inventories than forecast as well as falling sales prices due to intensifying competition, while lower sales volume could be accompanied by a reduction in new installations and so on. There is a possibility that these and other such factors will have a negative impact on the Group’s business performance and financial position extending into the future.
Demand is rising for high value-added products that incorporate network support and multifunction capabilities in the office equipment industry including MFPs, printers, and digital printing systems as well as in the healthcare equipment segment, and demand for solutions and services is also rising. The office equipment industry in particular is experiencing advancing acquisitions and collaborations due to the reorganization of sales channels and expansion of the range of business activities. When the competition in an industry that involves manufacturers like these as well as their distribution intensifies beyond projected levels, there is a possibility that it will have a negative impact on the Group’s business performance.
In the digital consumer electronics market including LCD televisions, DVDs, and digital cameras for which the Industrial Business provides components and materials, as well as equipment, the trend for manufacturers to lower market prices in the midst of fierce competition is ongoing, and the effects extend to component and material manufacturers including the Company. As product lifecycles become shorter, there is also a growing tendency for companies to quickly market products manufactured in large quantities, and as a result of market competition, rapid and extreme fluctuations in supply and demand in conjunction with production adjustments could have a negative impact on the Group’s business performance.
In the Group's major business fields, as well as in the new business fields that the Group should develop in the future, technological innovation that is in advance of other companies is an important source of competitive advantage. The Group is constantly engaged in the challenges of innovative technological development, and it actively invests in R&D and makes capital investment for this purpose. It is possible, however, that competing companies will introduce similar or alternative technologies ahead of the Group. Furthermore, the areas in which data is utilized are expanding in conjunction with the kinds of technological innovation typified by IoT and AI, and this is expected to bring transformative changes in various industrial fields as well as business models. An inability to respond adequately to these changes could result in a negative impact on the Group’s business performance, such as loss of market position well into the future. It has recently become more crucial that the Group secure human resources with the competence to support its growth under these circumstances. The competition among businesses over capable human resources has intensified, and if the Group is unable to recruit and retain such highly skilled personnel, there could be a negative impact on the Group’s implementation of its growth strategies.
(2) Fluctuations in Exchange Rates
As indicated by the high percentage of overseas revenue (80%), the Group engages in business globally and is susceptible to substantial impacts from changes in exchange rates.
To reduce these effects, the Group engages in hedging with a focus on forward contracts for major currencies such as the US dollar and the euro. The effects in connection with the US dollar are being mitigated by using procurement in dollars to offset revenue in regions where sales are in dollars. With respect to the euro, however, changes in exchange rates have a direct impact on profits. An increase in the value of the yen against the US dollar and the euro has a negative impact on the Group’s business performance and a decrease in the value of the yen has a positive impact.
(3) Regulations in Individual Countries and Regions
A substantial portion of the Group’s business operations are conducted in countries outside of Japan, such as in North America, Europe, and Asia. Those operations are affected by the legal and regulatory frameworks in those countries and regions, as well as by approval procedures. The Group consistently pays close attention to relevant developments, but if new regulatory constraints such as tax systems, export-import regulation, currency restrictions, personal information protection regulations, or other such rules are adopted or changed by national governments or as part of international frameworks in the future, dealing with those regulatory changes may entail costs and a possibility of interference with Group business activity. If the Group is unable to deal with this kind of unanticipated circumstance, there is also a possibility of negative impact on business performance.
The pricing of international transactions among Group companies is based on Group tax policy and is compliant with the applicable transfer pricing taxation systems in Japan and other countries involved. There is a possibility, however, that the tax authorities may find transfer pricing to be improper, or if discussions do not go smoothly, there is a possibility that transactions will be subject to dual taxation or additional assessments.
The Group’s Healthcare Business is affected by the diverse health care systems and licensing procedures in the countries where it conducts business. Reform of health care systems and other factors may lead to large-scale unforeseeable changes in health care administrative policies, and if the Group is unable to respond promptly to those changes in the business environment, this could have a negative impact on the Group’s business performance.
(4) Environmental Regulations
The Group is subject to various environmental laws and regulations concerning air pollution, water contamination, elimination of hazardous substances, disposal of waste, product recycling, soil and ground water contamination and so on. The Group devotes the required managerial resources to regulatory compliance, but there is a risk that environmental responsibility for current or past production activities will result in expenses or liability for payment of compensation. In addition, if environmental regulations become even more stringent in the future, there is a risk that the Group will need to perform additional work and incur expenses to ensure compliance, and this may have a negative impact on the Group’s business performance.
(5) Alliances and Cooperative Relationships with Other Companies
The Group engages in collaboration with other companies including technology alliances, business alliances, and joint ventures from the perspectives of enhancing business competitiveness and raising efficiency.
Forming alliances with other companies to achieve mutual complementation of technologies and know-how is an extremely effective means of providing new products and services that meet customer needs in a timely manner. If, however, the Group is unable to maintain collaborative relationships because of business or financial factors or if the expected results are not achieved, there may be a negative impact on the Group’s growth strategies.
(6) Procurement, Production, etc.
The Group procures specific products, components and materials, and energy from external suppliers. Appropriate back-up systems are in place for these items, but if unforeseeable circumstances occur in relation to those suppliers, there could be a negative impact on the Group’s production and supply capabilities.
There is also a possibility of negative impact on business performance due to prices for steel, aluminum, and other such raw materials used in the production of metal products by the Group, the prices for crude oil used as a raw material in petrochemical products, or prices of rare earths and other scarce natural resources, as well as sharp rises in energy prices. The Group makes every effort to deal with increases in the prices of raw materials like these by reducing costs and by passing them on in product prices, but there is no guarantee that everything can be covered in this way, and there is also the risk that increases in selling prices may lead to decreases in sales volume.
In the Business Technologies Business and Industrial Business, which are the Group’s mainstay business segments, priority is placed on upgrading production activities outside Japan in order to enhance cost competitiveness and supply products to markets promptly. The main sites involved are in China, and as its economy develops, legal reforms, infrastructure improvement, and other such efforts are also underway. There is a possibility, however, that unforeseeable circumstances may arise, such as legislative changes, difficulties over labor policy, rising personnel costs, revaluation of the Chinese Yuan, export-import regulation, changes to the tax system, and so on. As much of the production in the Group’s mainstay business segments is carried on in China, an inability to deal with such risks could have a negative impact on the Group’s business performance and growth strategies.
(7) Information Security
Through its diverse business activities, the Group may acquire personal and confidential information relating to its customers and business partners. With regard to measures being taken for the management of this information, appropriate technical countermeasures are in place, internal management systems have been improved, employee training has been conducted, and other such measures taken against cyber-attacks or other attempts to gain unauthorized access or to falsify data, and to prevent the destruction, loss, or leakage of data, and so on. There is a possibility, however, that unforeseen circumstances could result in external data leaks. If an information leak occurs, persons harmed by the leak may demand compensatory damages, and there is a possibility of a negative impact on the Group’s reputation and image.
In addition, if confidential information relating to the Group’s technologies, contracts, or personnel is leaked to third parties or is misused, there could be a negative impact on the Group’s business performance.
(8) Intellectual Property Rights, etc.
To maintain its superiority in business competitiveness, the Group is accumulating extensive differentiation technologies and know-how from its product development activities and takes measures to protect its intellectual property rights. If, however, the Group is unable to protect its intellectual property assets because of legal restrictions in some regions, the Group may be unable to prevent third parties from using its intellectual property assets to manufacture and sell similar products.
In addition, although the Group conducts product development in a manner to avoid infringement of the rights of other companies, there is a possibility that the Group will be accused of infringing on the intellectual property rights of other companies as a result of differences of opinion or other factors and consequently will not be able to use technologies that are important to its business or that it will be liable to pay substantial compensatory damages.
(9) Product and Quality Liability
The Group has established rigorous quality control systems within domestic and overseas Group Companies as well as our contract manufacturers and supplies high-quality, high-reliability products and services to its customers. If a defect in a Group product or service were to occur, the Group may be liable to pay compensation for the damage caused by the defect. Also, substantial expenditures may be required to remedy the defect. Furthermore, reports of the defect in the media may have a negative impact on the Group’s business and reputation.
(10) Natural Disaster, War, Terrorism, Accident, etc.
The Group engages in global business operations through R&D, procurement, production, and sales sites in many countries around the world. In the event of occurrence of an earthquake, fire, hurricane, flood, or other natural disaster, a pandemic such as a novel strain of influenza, war, terrorism, cyber-attack, and so on, the Group’s facilities, etc. may be damaged, and it may be necessary to temporarily suspend operations, resulting in delays of production and shipments. Also, a suspension or restriction on the use of infrastructure such as electricity, gas, or water, a shortage of components or raw materials caused by damage to suppliers from a disaster, logistics congestion, or disorder in markets may occur. Such circumstances may lead to sales falling below planned levels, and substantial expenditures may be incurred to restore damaged facilities, which could have a negative impact on the Group’s business performance.