Ricoh Execs to Take Pay Cuts; Ricoh to End Support for Ricoh India (Updated)
Last week, Ricoh Company of Tokyo, Japan revised its financial forecast and announced that it would cease providing financial support to its troubled Ricoh India subsidiary. It also announced that it anticipates further losses and has revised its forecast for its full fiscal year that will end on March 31, 2018.
Top Ricoh Company officials will also take voluntary pay cuts and several will resign:
- Yoshinori Yamashita, president and CEO will take a 15 percent pay cut for three months.
- Yohzoh Matsuura, director, corporate executive vice president will take a 15 percent pay cut for three months.
- Kunihiko Satoh, director, corporate executive vice president will take a 15 percent pay cut for three months.
- Akira Oyama, director, corporate executive vice president will take a 15 percent pay cut for three months.
- Zenji Miura, former president and CEO (currently executive advisor) will voluntarily reduce compensation of 30 percent for three months, and resign.
- Shiro Kondo will retire at the end of his current term of office, as Ricoh states that “all outstanding issues which arose under his leadership have been, or are in the process of being satisfactorily resolved.”
An anonymous Ricoh source also told us that Ricoh has ceased making contributions to employees’ 401K account until business improves.
Ricoh India Subsidiary
Ricoh states that, until now, it’s offered various forms of support to rebuild Ricoh India. However, as Ricoh India is in continued deficit, and its relationship with its major vendor deteriorated, parent company Ricoh Company has reevaluated its restructuring plan and financial support for Ricoh India.
According to the Nikkei Asia Review, Ricoh India was formed in 1993 with a 73.6 percent investment from Ricoh, and had over 900 employees as of the end of June.
In November 2015, auditors began uncovering signs of over-inflated sales at Ricoh India. Since then, Ricoh India has remained in the red, recording a pretax loss for Ricoh’s fiscal year that ended in March.
Ricoh began recapitalizing the Indian subsidiary, guaranteeing a maximum of 28.8 billion yen as of the end of March, and displaced several executives, replacing them with executives from Japan.
When asked whether the Indian unit will be liquidated, Ricoh President and CEO Yoshinori Yamashita replied, “I expect so to a certain degree.”
Ricoh estimates 6.5 billion yen in losses related to Indian operations for the July-September quarter, but an additional 30 billion yen could be piled on if the subsidiary is liquidated or other actions taken.
Ricoh revised its financial forecast sharply downward, as shown below. Although it expects higher sales for the year, it’s now forecasting a loss for the year:
Revision to the forecast of Ricoh’s consolidated operating results for the full year ending March 31, 2018. (From April 1, 2017 to March 31, 2018)
(Millions of yen)
(Millions of yen)
|Profit before income taxes
(Millions of yen)
|Profit attributable to owners of the parent
(Millions of yen)
|Earnings per share attributable to owners of the parent-basic
|Forecast announced in April 2017 (A)||2,000,000||18,000||13,000||3,000||4.14|
|New forecast (B)||2,040,000||10,000||4,000||-7,000||-9.66|
|(Reference) Results for the full year ended March 31, 2017||2,028,899||33,880||29,955||3,489||4.81|
Ricoh notes that Ricoh India’s losses before income tax for fiscal-year 2016 was 3.3 billion rupee (5.8 billion yen), and in the first quarter of the Fiscal Year 2017, losses before income taxes was 0.7 billion rupee (1.2 billion yen), and therefore Ricoh India is continuing in a state of deficit.
It also notes that Ricoh India’s business relationship with its major IT vendor, Fourth Dimension Solutions, has deteriorated. Ricoh India continued negotiations to review its business relationship in order to improve the profitability of several joint projects with Fourth Dimension Solutions. However due to the frequent default of contracts, part of the contract with Fourth Dimension Solutions was cancelled in May, 2017, and negotiations for the return of advanced payments continued.
In September, 2017, Fourth Dimension Solutions filed a petition with the National Company Law Tribunal in India to initiate Ricoh India’s insolvency, under the Insolvency and Bankruptcy Code of India. Although the petition was rejected, the dispute with Fourth Dimension Solutions had surfaced again, as Fourth Dimension Solutions filed another insolvency petition last week.
Given these circumstances, in April, 2017, under Ricoh’s newly-appointed president and CEO, Yoshinori Yamashita, and based on the “RICOH Resurgent” policy, which aims to implement global structural reform across each Ricoh business unit, Ricoh reevaluated its support for Ricoh India. As a result, it’s decided not to provide any additional financial support.
New Auditing Controls
Ricoh says it will undertake the following six measures to prevent accounting irregularities that occurred at Ricoh India by strengthening cooperation between Ricoh’s Japan headquarters and regional headquarters and overseas subsidiaries throughout the world:
- Although its regional headquarters have been the main managing bodies of overseas sales subsidiaries until now, cooperation with the Japan headquarters will be further strengthened. Specifically, regional headquarters and the supervisory department and the accounting department of Japan headquarters will work together to periodically review the financial statements of overseas subsidiaries.
- Ricoh will strengthen business management of overseas subsidiaries, globally standardize purchasing processes, and manage purchasing regardless of business customs in each region.
- Ricoh will strengthen cooperation between the accounting auditors of overseas subsidiaries and the Japan headquarters’ auditing firm, or overseas subsidiaries of the auditing firm. It will also evaluate the effectiveness of audits by the auditing firms from an objective viewpoint.
- As part of improving the effectiveness of internal audits, Ricoh will strengthen research processes such as checking transaction details. It will also revise auditing activities that have been closed for each region up until now, and the global audit team will conduct internal audits in the Americas, Europe, and Asia-Pacific regions.
- Ricoh will manage subsidiaries that are subject to emerging country business risks, differing business structures based on business customs, and risks of new and growing businesses. In emerging countries, for any projects that fall outside of our current business practices, we will confirm and evaluate contract contents, profitability and suppliers for orders placed over a certain amount.
- Ricoh will educate senior officers in its overseas subsidiaries with particular emphasis on compliance and internal control, and clarify their roles and responsibilities with regards to fraud prevention. A nomination and remuneration committee that has already been introduced in Europe and the Americas, will be set up at the Asia-Pacific region, to strengthen the evaluation and supervision of senior management.
- September 2017: Indian IT Firm Files Insolvency Claim Against Ricoh India for Alleged Non-Payment (Updated)
- November 2016: Ricoh Fires Two Executives in Wake of Ricoh India Accounting-Fraud Scandal
- August 2016: Ricoh India Employee Says She was Threatened into Naming Ricoh India Managment Involved in Accounting Irregularities
- July 2016: Ricoh India Chairman and Director Takano Resigns in Wake of Accounting Scandal
- July 2016: Ricoh India’s Full-Year Loss Estimated to Be 17.1 Billion Yen in Wake of Accounting Scandal
- June 2016: Ricoh India Suspends Top Officers in Wake of Financial Irregularities
- May 2016: Ricoh: Ricoh India’s Failure to File Financial Results ‘Unprecedented’; Alleged ‘Massive Financial Irregularities’
- July 2017: Brighter First Quarter for Ricoh, but Office Printing Sales Down
- June 2017: Ricoh Said to be Selling Subsidiaries, Laying-Off Workers in North America
- May 2017: Ricoh Transfers Nearly 900 Small and Mid-Size Direct Accounts to Local Dealer
- May 2017: Bleak Fiscal Year for Ricoh, with Profits, Sales Sliding
- April 2017: Ricoh Reports Impairment Loss, Lowers Profits Forecast for Fiscal Year
- April 2017: Big Changes Afoot at Ricoh, Calls for Shifting Direct-Sale Customers to Dealers
- February 2017: Ricoh Revamps Leadership at Ricoh USA, Eliminates Ricoh Americas CEO Position